SEC Form 10-Q filed by electroCore Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
FOR THE QUARTERLY PERIOD ENDED
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
Commission File Number
(Exact name of Registrant as specified in its charter)
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(Address of principal executive offices, including zip code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of August 1, 2024, the registrant had
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REFERENCES TO ELECTROCORE
In this Quarterly Report on Form 10-Q (this "Quarterly Report"), unless otherwise stated or the context otherwise requires, references to the “Company,” “electroCore,” “we,” “us” and “our” refer to electroCore, Inc. a Delaware corporation and its subsidiaries.
This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this Quarterly Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to them. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to risks and uncertainties included in our Form 10-Qs, our annual report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”), in our other filings with the U.S. Securities and Exchange Commission (the “SEC”) or in materials incorporated by reference therein, including the information in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in such filings. Furthermore, any such forward-looking statements in this Quarterly Report speak only as of the date of this Quarterly Report. Except as required by law, we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of such statements.
The electroCore logo, gammaCore, Truvaga, TAC-STIM, and other trademarks of electroCore, Inc. appearing in this Quarterly Report are the property of electroCore, Inc. All other trademarks, service marks and trade names in this Quarterly Report are the property of their respective owners. We have omitted the ® and ™ designations, as applicable, for the trademarks used in this Quarterly Report.
ELECTROCORE, INC. AND SUBSIDIARIES
(unaudited)
(in thousands, except share data)
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June 30, |
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December 31, |
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2024 |
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2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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Restricted cash |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Inventories, noncurrent |
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Property and equipment, net |
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Operating lease right of use assets, net |
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Other assets, net |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Noncurrent liabilities: |
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Operating lease liabilities, noncurrent |
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Total liabilities |
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Contingencies (see Note 14) |
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Stockholders' equity: |
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Common Stock, par value $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive income (loss) |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
ELECTROCORE, INC. AND SUBSIDIARIES
(unaudited)
(in thousands, except per share data)
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Three months ended June 30, | Six months ended June 30, | ||||||||||||||
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2024 |
2023 |
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Net sales |
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Cost of goods sold |
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Gross profit |
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Operating expenses |
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Research and development |
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Selling, general and administrative |
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Total operating expenses |
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Loss from operations |
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Other (income) expense |
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Interest and other income |
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Other expense |
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Total other (income) expense |
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Net loss per share of common stock - Basic and Diluted |
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Weighted average common shares outstanding - Basic and Diluted (see Note 11) |
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See accompanying notes to unaudited condensed consolidated financial statements.
ELECTROCORE, INC. AND SUBSIDIARIES
(unaudited)
(in thousands)
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Three months ended June 30, | Six months ended June 30, | ||||||||||||||
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2024 | 2023 | 2024 | 2023 | ||||||||||||
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Net loss |
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Other comprehensive loss: |
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Foreign currency translation adjustment |
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Other comprehensive loss |
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Comprehensive loss |
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See accompanying notes to unaudited condensed consolidated financial statements.
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ELECTROCORE, INC. AND SUBSIDIARIES
(unaudited)
(in thousands)
| Mezzanine Equity |
Stockholders' Equity | |||||||||||||||||||||||||||||||
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Additional |
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Accumulated other |
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Total | |||||||||||||||||||||
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Preferred Stock |
Stock |
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paid-in |
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Accumulated |
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comprehensive |
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stockholders' |
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Shares |
Amount |
Shares |
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Amount |
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capital |
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deficit |
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income (loss) |
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equity |
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| Balances as of January 1, 2024 | $ | $ | $ | $ | ( |
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Net loss |
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Other comprehensive income |
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Issuance of stock related to employee compensation plans, net of forfeitures |
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Share based compensation |
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| Balances as of March 31, 2024 | ( |
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| Net loss | — | — | — | — | — | ( |
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| Other comprehensive income | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Sale of common stock and warrants | — | — | — | — | — | |||||||||||||||||||||||||||
| Financing Fees | — | — | — | — | ( |
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| Issuance of stock related to employee compensation plan, net of forfeitures | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| Share based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Balances as of June 30, 2024 | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||||
| Balances as of January 1, 2023 | $ | $ | $ | $ | ( |
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| Net loss | — | — | — | — | — | ( |
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| Other comprehensive income | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Issuance of stock related to employee compensation plan, net of forfeitures | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| Preferred stock redemption | ( |
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| Share based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Balances as of March 31, 2023 | ( |
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| Net loss | — | — | — | — | — | ( |
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| Other comprehensive income | — | — | — | — | — | — | ( |
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| Issuance of stock related to employee compensation plan, net of forfeitures | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| Share based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Balances as of June 30, 2023 | $ | $ | $ | $ | ( |
) | $ | ( |
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See accompanying notes to unaudited condensed consolidated financial statements.
| 7 |
ELECTROCORE, INC. AND SUBSIDIARIES
(unaudited)
(in thousands)
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Six months ended June 30, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation |
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Depreciation and amortization |
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Amortization of right of use assets |
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Inventory reserve charge |
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Increase in provision for bad debts |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other assets |
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Accounts payable |
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Accrued expenses and other current liabilities |
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Operating lease liabilities |
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Net cash used in operating activities |
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| Cash flows from investing activities: | ||||||||
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Purchase of marketable securities |
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| Net cash used in investing activities | ( |
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| Cash flows from financing activities: | ||||||||
| Sale of common stock and warrants | ||||||||
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Effect of changes in exchange rates on cash and cash equivalents |
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Net decrease in cash and cash equivalents and restricted cash |
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Cash and cash equivalents and restricted cash – beginning of period |
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Cash and cash equivalents and restricted cash – end of period |
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$ |
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$ |
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Supplemental cash flows disclosures: |
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| Proceeds from sale of state net operating losses | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
| Supplemental schedule of noncash activity: | ||||||||
| Accounts payable paid through issuance of common stock and warrants | $ | $ | ||||||
| Right-of-use asset and liability | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
ELECTROCORE, INC. AND SUBSIDIARIES
(unaudited)
Note 1. The Company
electroCore, Inc. and its subsidiaries (“electroCore” or the “Company”) is a commercial stage bioelectronic medicine and wellness company dedicated to improving health through its non-invasive vagus nerve stimulation (“nVNS”) technology platform. The Company’s focus is the commercialization of medical devices for the management and treatment of certain medical conditions and consumer product offerings utilizing nVNS to promote general wellness and human performance in the United States and select overseas markets.
electroCore, headquartered in Rockaway, NJ, has
Note 2. Summary of Significant Accounting Policies
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(a) |
Basis of Presentation |
The accompanying condensed consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair presentation of the Company’s condensed consolidated financial position and results of operations for the interim periods presented. Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2024. The results for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for a full year, any other interim periods or any future year or period.
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(b) |
Principles of Consolidation |
The accompanying condensed consolidated financial statements include the accounts of electroCore and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
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(c) |
Use of Estimates |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include trade credits, rebates, co-payment assistance and sales returns, valuation of inventory, estimated useful life of licensed products, income taxes, stock compensation, and contingencies.
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(d) |
Cash, Cash Equivalents and Restricted Cash |
The following table provides a reconciliation of cash, cash equivalents and restricted cash to the balance reflected on the Condensed Consolidated Statement of Cash Flows at June 30, 2024 and 2023:
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June 30, 2024 |
June 30, 2023 | ||||||
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Cash and cash equivalents |
$ |
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$ | |||||
| Restricted cash |
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Total cash, cash equivalents and restricted cash |
$ | $ |
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As of June 30, 2024, cash equivalents represented funds held in an interest bearing demand deposit account, U.S. treasury bills, and a money market account.
The Company's restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its corporate credit card arrangement with Citibank, N.A. established in April 2022.
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(e) |
Marketable Securities |
Marketable securities are
carried at fair value, with unrealized gains and losses reported as accumulated
other comprehensive income, except for losses from impairments which are
determined to be other-than-temporary. Realized gains and losses and declines
in value judged to be other-than-temporary are included in the determination of
net loss and are included in interest and other income net. Fair values are
based on quoted market prices at the reporting date. Interest and dividends on
available-for-sale securities are included in Interest and other income. As of June 30, 2024, marketable securities amounted to $
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(f) |
Licensed Products |
The Company licenses a portion of its devices through its cash pay channels. The cost of these licensed devices is capitalized and included in Other Assets in the accompanying Condensed Consolidated Balance Sheets at June 30, 2024 and December 31, 2023, and is being recognized as cost of goods sold on the straight-line method over the estimated
| (g) | Recently Adopted Accounting Standards |
In November 2023, the FASB issued Accounting Standards Update (ASU) No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures which will require companies to disclose significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"). The pronouncement is effective for annual filings for the year ended December 31, 2024. The Company is still assessing the impact of the adoption of this standard but does not expect it to have a material impact on its results of operations, financial position or cash flows.
In December 2023, the FASB issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures which will require companies to make additional income tax disclosures. The pronouncement is effective for annual filings for the year ended December 31, 2025. The Company is still assessing the impact of the adoption of this standard but does not expect it to have a material impact on its results of operations, financial position or cash flows.
Note 3. Liquidity, Significant Risks and Uncertainties
Liquidity
The Company has experienced significant net losses, and it expects to continue to incur net losses for the near future as it works to increase market acceptance of its gammaCore therapy and general wellness and human performance products. The Company has never been profitable and has incurred net losses and negative cash used in operations in each year since its inception. The Company incurred net losses of $
The Company has historically funded its operations from the sale of its securities. During the six months ended June 30, 2024, the Company received net proceeds of approximately $
Based on its current assessment, the Company believes its Cash Position will enable it to fund its operating expenses and capital expenditure requirements, as currently planned, for at least the next 12 months from the date the accompanying financial statements are issued. There remain significant risks and uncertainties regarding the Company's business, financial condition and results of operations. The Company’s future capital requirements are difficult to forecast and will depend on many factors that are out of its control. If the Company is unable to achieve its planned operating results or maintain sufficient financial resources, its business, financial condition and results of operations may be materially and adversely affected.
| 10 |
Concentration of Revenue Risks
The Company earns a significant amount of its revenue in the United States from the VA/DoD pursuant to its qualifying contract under the FSS and open market sales to individual VA facilities. For the three months ended June 30, 2024 and 2023, the VA/DoD accounted for
For the six months ended June 30, 2024, Lovell accounted for more than
Note 4. Revenue
The following tables present product net sales disaggregated by Channel and Geographic Market (in thousands):
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Three months ended June 30, |
Six months ended June 30, | ||||||||||||||
| Channel: | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Rx gammaCore - VA/DoD | $ | $ | $ | $ | ||||||||||||
| Rx gammaCore - U.S. Commercial | ||||||||||||||||
| Outside the United States | ||||||||||||||||
| Truvaga | ||||||||||||||||
| TAC-STIM | ||||||||||||||||
| Total Net Sales | $ | $ | $ | $ | ||||||||||||
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Geographic Market: |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
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Product revenue |
2024 | 2023 | 2024 | 2023 | ||||||||||||
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United States |
$ | $ | $ | $ | ||||||||||||
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| Other | ||||||||||||||||
| License revenue | ||||||||||||||||
| Japan | ||||||||||||||||
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Total Net Sales |
$ | $ | $ | $ | ||||||||||||
The Company generally invoices the customer and recognizes revenue once its performance obligations are satisfied, at which point payment is unconditional. Agreed upon payment terms with customers are within
| 11 |
Note 5. Cash, Cash Equivalents, Restricted Cash and Marketable Securities
The following tables summarize the Company’s cash, cash equivalents and marketable securities as of June 30, 2024 and December 31, 2023.
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As of June 30, 2024 |
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Amortized Cost |
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Unrealized Gain |
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Unrealized (Loss) |
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Fair Value |
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Cash, cash equivalents and restricted cash |
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$ |
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$ |
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$ |
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$ |
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| Marketable Securities: | ||||||||||||||||
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U.S. Treasury Bills |
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Total marketable securities |
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|
Total cash, cash equivalents, restricted cash and marketable securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2023 |
| |||||||||||||||
|
|
|
Amortized Cost |
|
|
Unrealized Gain |
|
|
Unrealized (Loss) |
|
|
Fair Value |
| ||||
|
Cash, cash equivalents and restricted cash |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
| |
|
|
• |
Level 1—Quoted prices in active markets for identical assets or liabilities. |
|
|
• |
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
|
|
• |
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
A summary of the assets and liabilities carried at fair value in accordance with the hierarchy defined above is as follows:
|
|
|
|
|
|
Fair Value Hierarchy |
| ||||||||||
|
June 30, 2024 |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
| ||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Marketable Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury bills |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, restricted cash and marketable securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy |
| |||||||||
|
December 31, 2023 |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
| ||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and restricted cash |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
| 12 |
Note 7. Inventories
As of June 30, 2024 and December 31, 2023, inventories consisted of the following:
|
(in thousands) |
|
June 30, 2024 |
|
|
December 31, 2023 |
| ||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
|
Work in process |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
Total inventories |
|
|
|
|
|
|
|
|
|
Less: noncurrent inventories |
|
|
|
|
|
|
||
|
Current inventories |
|
$ |
|
|
|
$ |
|
|
The reserve for obsolete inventory was $
Note 8. Leases
For the three and six months ended June 30, 2024, the Company recognized lease expenses of $
On February 6, 2024, the Company entered into The First Amendment to Lease Agreement (the “Agreement”) to extend its Rockaway, New Jersey lease for an additional
Supplemental Balance Sheet Information for Operating Leases:
|
(in thousands) |
June 30, 2024 |
|
|
December 31, 2023 |
| |||
|
Operating leases: |
|
|
|
|
|
|
|
|
|
Operating lease right of use assets |
$ |
|
|
|
$ |
|
| |
|
Operating lease liabilities: |
|
|
|
|
|
|
| |
|
Current portion of operating lease liabilities |
|
|
|
|
|
|
| |
|
Noncurrent operating lease liabilities |
|
|
|
|
|
|
| |
|
Total operating lease liabilities |
$ |
|
|
|
$ |
|
| |
|
Weighted average remaining lease term (in years) |
|
|
|
|
|
|
| |
|
Weighted average discount rate |
|
|
% |
|
|
|
% | |
Future lease payments as of June 30, 2024:
| (in thousands) | ||||
|
Remainder of 2024 |
|
$ |
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
2028 |
|
|
|
|
| 2029 and thereafter | ||||
|
Total future lease payments |
|
|
|
|
| Less: Amounts representing interest | ( |
) | ||
| Total | $ |
| 13 |
Note 9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities as of June 30, 2024 and December 31, 2023 consisted of the following:
|
(in thousands) |
|
June 30, 2024 |
|
|
December 31, 2023 |
| ||
|
Accrued professional fees |
|
$ |
|
|
$ |
|
| |
|
Accrued bonuses and incentive compensation |
|
|
|
|
|
|
| |
| Accrued litigation legal fees expense | ||||||||
| Accrued insurance expense |
|
|||||||
| Accrued research and development expenses | ||||||||
| Accrued vacation and other employee related expenses | ||||||||
| Accrued inventory purchases | ||||||||
| Accrued tax expenses | ||||||||
| Deferred revenue | ||||||||
|
Other |
|
|
|
|
|
|
| |
|
|
$ |
|
|
|
$ |
|
| |
Securities Purchase Agreements
On June 3, 2024, Company entered into a securities purchase agreement (the “Registered Direct Purchase Agreement”) with an institutional accredited investor (the “Purchaser”) for the sale (the “Registered Direct Offering”) by the Company of pre-funded warrants (the “RD Pre-funded Warrants”) to purchase up to
In a separate private placement, on May 31, 2024, the Company entered into securities purchase agreements with certain institutional and accredited investors and directors of the Company (the “Private Agreements”), which collectively provided for the sale by the Company of (i)
The Private Shares were sold at a purchase price of $
The net proceeds to the Company resulting the sale of securities described above was approximately $
The Company accounts for common stock warrants in accordance with applicable accounting guidance provided in ASC Topic 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, or ASC Topic 815-40, as either derivative liabilities or equity instruments depending on the specific terms of the warrant. The Company determined that the warrants associated this financing qualified for equity classification.
| 14 |
Stock Purchase Warrants
|
|
Number of Warrants (in thousands) |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Term (Years) |
|
|
Aggregate Intrinsic Value (in thousands) | |||
|
Outstanding, January 1, 2024 |
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
Stock purchase warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Outstanding, June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
Exercisable, June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
A total of
Note 11. Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding adjusted to give effect to potentially dilutive securities. Due to their nominal exercise price of $
The potential common stock equivalents that have been excluded from the computation of diluted loss per share consist of the following:
|
|
Six months ended June 30, |
|||||
|
(in thousands) |
|
2024 |
|
|
2023 |
|
|
Stock options |
|
|
|
|
|
|
| Stock units |
|
|
||||
| Stock purchase warrants |
|
|
|
|
||
Note 12. Income Taxes
The
Company may be eligible, from time to time, to receive cash from the sale of
its net operating losses under New Jersey's Department of the Treasury -
Division of Taxation NOL Transfer Program. For the six months ended June 30, 2024
and 2023 the Company received net cash
payments of $
Note 13. Stock Based Compensation
The following table presents a summary of activity related to stock options during the six months ended June 30, 2024:
|
|
Number of Options (in thousands) |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Term (Years) |
|
Aggregate Intrinsic Value (in thousands) |
||||||
|
Outstanding, January 1, 2024 |
|
|
|
|
$ |
|
|
|
|
|
|
$ | |||
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Cancelled |
|
( |
) |
|
|
|
|
|
|
|
|
||||
|
Outstanding, June 30, 2024 |
|
|
$ |
|
|
|
$ | ||||||||
|
Exercisable, June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
|
$ | |||
The intrinsic value is calculated as the difference between the fair market value at June 30, 2024 and the exercise price per share of the stock option. The options granted to employees generally vest over a period.
| 15 |
The following table presents a summary of activity related to restricted and deferred stock units (“Stock Units”) granted during the six months ended June 30, 2024:
|
|
|
Number of Shares (in thousands) |
|
|
Weighted Average Grant Date Fair Value |
| ||
|
Outstanding, January 1, 2024 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
Vested and delivered |
|
|
( |
) |
|
|
|
|
|
Cancelled |
|
|
( |
) |
|
|
|
|
|
Outstanding, June 30, 2024 |
|
|
|
|
|
$ |
|
|
In general, Stock Units granted to employees vest over to periods.
Immediately following the Company’s annual meeting of stockholders, the Company generally grants each non-employee director an equity award that vests over a
The Company recognized stock compensation expense for its equity awards as follows:
|
|
Three months ended June 30, |
Six months ended June 30, | |||||||||||||
|
(in thousands) |
2024 |
2023 |
2024 |
2023 |
|||||||||||
|
Selling, general and administrative |
$ | $ | $ | $ | |||||||||||
|
Research and development |
|||||||||||||||
|
Cost of goods sold |
|||||||||||||||
| Total expense | $ | $ | $ | $ | |||||||||||
Total unrecognized compensation cost related to unvested awards as of June 30, 2024 was $
Valuation Information for Stock-Based Compensation
The Company uses the Black-Scholes model to estimate the grant date fair value of each stock option awarded. Effective July 1, 2023, expected volatility was based
The weighted average assumptions used in the Black-Scholes option pricing model in valuing stock options granted during the six months ended June 30, 2023 are summarized in the table below. options were granted during the six months ended June 30, 2024.
| Six months ended June 30, | ||||
| 2023 | ||||
|
Fair value at grant date |
$ | |||
|
Expected volatility |
|
% | ||
|
Risk-free interest rate |
% | |||
|
Expected holding period, in years |
||||
|
Dividend yield |
% |
The fair value of each Stock Unit is the market close price of the Company’s common stock on the trading day immediately preceding the date of grant.
| 16 |
Note 14. Contingencies
Stockholders Litigation
On September 26, 2019, and October 31, 2019, purported stockholders of the Company served putative class action lawsuits in the United States District Court for the District of New Jersey captioned Allyn Turnofsky vs. electroCore, Inc., et al., Case 3:19-cv-18400, and Priewe vs. electroCore, Inc., et al., Case 1:19-cv-19653, respectively. In addition to the Company, the defendants include present and past directors and officers, and Evercore Group L.L.C., Cantor Fitzgerald & Co., JMP Securities LLC and BTIG, LLC, the underwriters for the initial public offering (IPO). The plaintiffs each seek to represent a class of stockholders who (i) purchased the Company’s common stock in the IPO or whose purchases are traceable to the IPO, or (ii) who purchased common stock between the IPO and September 25, 2019. The complaints each alleged that the defendants violated Sections 11 and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act, with respect to (i) the registration statement and related prospectus for the IPO, and (ii) certain post-IPO disclosures filed with the SEC. The complaints sought unspecified compensatory damages, interest, costs and attorneys’ fees. The Priewe case was voluntarily dismissed on February 19, 2020.
In the Turnofsky case, on November 25, 2019, several plaintiffs and their counsel moved to be selected as lead plaintiff and lead plaintiff’s counsel. On April 24, 2020, the Court granted the motion of Carole Tibbs and the firm Bragar, Eagel & Squire, P.C. On July 17, 2020, the plaintiffs filed an amended complaint in Turnofsky. In addition to the prior claims, the amended complaint added an additional director defendant and
On September 15, 2020, the Company and the other defendants filed a motion to dismiss the amended complaint for failure to state a claim. On November 6, 2020, the plaintiffs filed their opposition to the motion to dismiss. The Company and the other defendants filed reply papers in support of the motion on December 7, 2020. Argument of the motion to dismiss occurred on June 18, 2021. On August 13, 2021, the Court dismissed the amended complaint with leave to re-plead. On October 4, 2021, the plaintiffs filed a second amended complaint in the Turnofsky case. The defendants moved to dismiss, and briefing on the motion was complete on January 7, 2022. On July 13, 2023, the court dismissed the second amended complaint with leave to re-plead. The plaintiffs did not file a third amended complaint. On August 23, 2023, the plaintiffs provided the court with an order of dismissal, and the court entered the order on August 24, 2023. On September 8, 2023, plaintiff Carole Tibbs filed a notice of appeal to the United States Court of Appeals for the Third Circuit. The appeal has been docketed as number 23-2655. The principal brief of appellant and appendix were filed on January 5, 2024. The appellees’ brief was filed on February 15, 2024, and the appellant’s reply brief was filed on March 15, 2024. Argument of the motion has not yet been scheduled.
The Company intends to continue to vigorously defend itself in these matters. However, in light of, among other things, the preliminary stage of these litigation matters, the Company is unable to determine the reasonable probability of loss or a range of potential loss. Accordingly, the Company has not established an accrual for potential losses, if any, that could result from any unfavorable outcome, and there can be no assurance that these litigation matters will not result in substantial defense costs and/or judgments or settlements that could adversely affect the Company’s financial condition.
The Company is subject to various claims, complaints and legal actions in the normal course of business from time to time. The Company is not aware of any further currently pending litigation for which it believes the outcome could have a material adverse effect on its operations or financial position. The Company expenses associated legal fees including those relating to the stockholder litigation described in this Note 14 in the period they are incurred.
Note 15. Subsequent events
Finance and Security Agreement
On July 2, 2024, the Company entered into a Commercial Insurance Premium Finance and Security Agreement (the "2024 Agreement"). The 2024 Agreement provides for a single borrowing by the Company of approximately $
Related Party Transaction
On July 11, 2024, the Company and a member of its board of directors entered into a consulting agreement pursuant to which the board member is expected to begin providing consulting and advisory services to the Company’s Chief Executive Officer for a term as of the completion of his service on the Board, effective as of immediately prior to the Company’s 2025 Annual Meeting of Stockholders.
| 17 |
You should read this section in conjunction with our unaudited interim condensed consolidated financial statements and related notes included in this Quarterly Report and our audited consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2023 included in our Annual Report. As discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those under the caption "Risk Factors" in the aforementioned Annual Report and this Quarterly Report.
We are a commercial stage bioelectronic medicine and wellness company dedicated to improving health and quality of life through our propriety non-invasive vagus nerve stimulation (“nVNS”) technology platform.
nVNS modulates neurotransmitters through its effects on both the peripheral and central nervous systems. Our nVNS treatment is delivered through a proprietary high-frequency burst waveform that safely and comfortably passes through the skin and stimulates therapeutically relevant fibers in the vagus nerve. Various scientific publications suggest that nVNS works through a variety of mechanistic pathways including the modulation of neurotransmitters.
Historically, vagus nerve stimulation or VNS, required an invasive surgical procedure to implant a costly medical device. This has generally limited VNS from being used by anyone other than the most severe patients. Our non-invasive medical devices and general wellness products are self-administered and intended for regular or intermittent use over many years.
Our capabilities include product development, regulatory affairs and compliance, sales and marketing, product testing, assembly, fulfillment, and customer support. We derive revenues from the sale of products in the United States and select overseas markets. We have two principal product categories:
| • |
Handheld, personal use medical devices for the management and treatment of certain medical conditions such as primary headache; and |
| • |
Handheld, personal use consumer product offerings utilizing nVNS technology to promote general wellness and human performance. |
We believe our nVNS treatment may be used in the future to effectively treat additional medical conditions.
Our goal is to be a leader in non-invasive neuromodulation by using our proprietary nVNS platform technology to deliver better health. To achieve this, we offer multiple propositions:
| • |
Prescription gammaCore medical devices for the treatment of certain medical conditions such as primary headache; |
| • |
Truvaga products for the support of general health and wellbeing; and |
| • |
TAC-STIM for human performance. |
Our flagship gammaCore Sapphire is a prescription medical device that is FDA cleared for a variety of primary headache conditions. gammaCore is available by prescription only and Sapphire is a portable, reusable, rechargeable and reloadable personal use option for patients to use at home or on the go. Prescriptions are written by a health care provider and dispensed from a specialty pharmacy, through the patient’s healthcare system, or shipped directly to certain patients in the United States directly from our facility in Rockaway, NJ. After the initial prescription is filled, access to additional therapy can be refilled for certain of our gammaCore products through the input of a prescription-only authorization.
We offer two versions of our Truvaga products for the support of general health and wellbeing. Truvaga 350 is a personal use consumer electronics general wellness product and Truvaga Plus, which was launched in April 2024, is our next generation, app-enabled general wellness product. Neither product require a prescription, and both are available direct-to-consumer from electroCore at www.truvaga.com.
TAC-STIM is a form of nVNS for human performance and has been developed in collaboration with the United States Department of Defense Biotech Optimized for Operational Solutions and Tactics, or BOOST program. TAC-STIM products are available as a Commercial Off the Shelf (COtS) solution to professional organizations and are the subject of ongoing research and evaluation within the United States Air Force Special Operations Command, the United States Army Special Operations Command and at the United States Air Force Research Laboratory.
Truvaga and TAC-STIM products are intended for general wellness in compliance with the FDA guidance document entitled “General Wellness: Policy for Low-Risk Devices; Guidance for Industry and FDA Staff, issued on September 27, 2019.” Truvaga and TAC-STIM products are not intended to diagnose, treat, cure, or prevent any disease or medical condition.
We are exploring strategies to make our TAC-STIM product available to other branches of the active-duty military and certain human performance professionals in the United States and abroad. Our TAC-STIM product is not a medical device and is not intended to diagnose, cure, mitigate, prevent, or treat a disease or condition.
Our two largest customers by revenue are the United States Department of Veterans Affairs and United States Department of Defense, or VA/DoD, and the United Kingdom National Health Service, or NHS, utilizing our FDA cleared and CE marked product, gammaCore.
The VA/DoD comprised 72.9% of our revenue during the six months ended June 30, 2024. The majority of our 2024 sales were made through open market sales to individual facilities within the VA Hospital system and a smaller amount pursuant to our qualifying contract under the Federal Supply Schedule, or FSS, which was secured by us in December 2018 and through Lovell Government Services, or Lovell. The initial term of our FSS contract was scheduled to expire on January 15, 2024. We obtained modifications to the initial contract, temporarily extending the term from January 15, 2024 to September 14, 2024, while the VA/DoD Federal Supply Schedule Service reviews our follow-on offer application for a replacement FSS contract. Although we continue to work with the appropriate government personnel to replace our existing FSS contract, there can be no assurance that the VA/DoD will accept our application which may limit or eliminate our ability to sell certain gammaCore products into the government channel pursuant to our qualifying FSS contract or individual facilities that utilize our FSS contract number for open market purchases.
In August 2023, we signed a non-exclusive distribution agreement with Lovell providing Lovell the right to list and distribute certain gammaCore products into the federal market. Lovell is a Service-Disabled Veteran-Owned Small Business (SDVOSB) offering medical and pharmaceutical goods and services to federal healthcare providers. Listing products with Lovell is intended to streamline the sales process to a variety of government procurement channels through Lovell’s compliance with contracting regulations and its provision of logistical solutions connected directly into government contracting portals, all of which are intended to help government agencies meet their SDVOSB procurement goals. Customers for these vehicles are federal healthcare systems such as the Veterans Health Administration (VHA, which includes the VA/DoD), the Military Health System (MHS), and Indian Health Services (IHS), which we believe serve up to approximately 21 million patients combined. Between November 2023 and January 2024, certain gammaCore products were added to the FSS, the VA/DoD’s Distribution and Pricing Agreement or DAPA, GSA Advantage, and Defense Logistics Agency’s ECAT system procurement portals through the Lovell contract vehicles, enabling the purchase of gammaCore products within the government channel and throughout the federal markets, including, but not limited to, the VA/DoD. The gammaCore products offered through Lovell provide government customers with similar product configuration options to those currently sold through our existing FSS contract and open market sales made directly to individual VA/DoD facilities. We expect a significant portion of our 2024 sales to continue in the government channel broadly, and to our largest customer the VA/DoD, specifically, pursuant to our FSS contract if replaced and / or through our relationship with Lovell and its qualifying FSS, GSA, DAPA, and ECAT contracts for which gammaCore has been added.
Sales under the Med Tech Funding Mandate, or MTFM, program for cluster headache in the UK comprised 5.5% and 5.6% of our revenue during the three and six months ended June 30, 2024, respectively. In October 2023, we were notified by NHS Supply Chain that it intends to continue to include the gammaCore device within their framework agreement, commencing March 2024 through March 2026 with our option to extend for a further two years. In 2024, we expect NICE to review the guidance document and any changes in recommendation or pricing may adversely impact our ability to work with NHS England on the MTFM program.
We believe there may be significant opportunities beyond these two areas. Specifically, we believe there may be a large commercial opportunity for our gammaCore medical device with additional insurance covered lives, cash pay, physician dispense, and direct-to consumer approaches, along with general wellness and human performance propositions through our Truvaga and TAC-STIM products. Therefore, we will continue our investments to expand our efforts in these channels and markets in 2024 and beyond.
We face a variety of challenges and risks that we will need to address and manage as we pursue our strategies, including our ability to develop and retain an effective sales force, achieve market acceptance of our gammaCore medical device among clinicians, patients, and third-party payers, expand the use of our gammaCore medical device to additional therapeutic indications, and to develop our nascent wellness and human performance business including the recent launch of Truvaga Plus, our next generation app-enabled device under the Truvaga brand.
Because of the numerous risks and uncertainties associated with our commercialization efforts, as well as research and product development activities, we are unable to predict the timing or amount of increased expenses, or when, if ever, we will be able to achieve or maintain profitability. Even if we are able to increase sales of our products, we may not become profitable. If we fail to become profitable or are unable to sustain profitability, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
Our expected cash requirements for the next 12 months and beyond are based on the commercial success of our products and our ability to control operating expenses. We believe our cash, cash equivalents, marketable securities, and anticipated revenue will enable us to fund our operating expenses, working capital and capital expenditures as currently planned through 12 months from the date of the financial statements in this Quarterly Report, however, there can be no assurance that we will have sufficient cash flow and liquidity to fund our planned activities, which could force us to significantly reduce or curtail our activities and, ultimately potentially cease operations. See “Liquidity Outlook.”
Critical Accounting Estimates
The preparation of our financial statements is in accordance with accounting principles generally accepted in the United States of America, or GAAP, which require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and other related disclosures. While we believe our estimates, assumptions and judgments are reasonable, they are based on information presently available. Actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of unforeseen events or otherwise, which could have a material impact on our financial position and results of operations.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. The critical accounting estimates, that we believe have the greatest potential impact on the condensed consolidated financial statements are disclosed in the section titled Critical Accounting Policies and Estimates in Part II of our Annual Report.
Results of Operations
Comparison of the three months ended June 30, 2024 to the three months ended June 30, 2023
The following table sets forth amounts from our condensed consolidated statements of operations for the three months ended June 30, 2024 and 2023:
|
|
|
For the three months ended June 30, |
|
|
|
|
| |||||
|
|
|
2024 |
|
|
2023 |
|
|
Change |
| |||
|
(in thousands) |
|
|
| |||||||||
|
Consolidated statements of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
6,139 |
|
|
$ |
3,551 |
|
|
$ |
2,588 |
|
|
Cost of goods sold |
|
|
838 |
|
|
|
585 |
|
|
|
253 |
|
|
Gross profit |
|
|
5,301 |
|
|
|
2,966 |
|
|
|
2,335 |
|
| Gross margin | 86% | 84% | ||||||||||
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
635 |
|
|
|
1,155 |
|
|
|
(520 |
) |
|
Selling, general and administrative |
|
|
7,257 |
|
|
|
6,799 |
|
|
|
458 |
|
|
Total operating expenses |
|
|
7,892 |
|
|
7,954 |
|
|
|
(62 |
) | |
|
Loss from operations |
|
|
(2,591 |
) |
|
|
(4,988 |
) |
|
|
2,397 |
|
|
Other (income) expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
(55 |
) |
|
|
(85 |
) |
|
|
30 |
|
| Other expense | 119 | — | 119 | |||||||||
|
Total other (income) expense |
|
|
64 |
|
|
(85 |
) |
|
|
149 |
||
| Loss before income taxes | (2,655 | ) | (4,903 | ) | 2,248 | |||||||
| Benefit from income taxes | — | — | — | |||||||||
|
Net loss |
|
$ |
(2,655 |
) |
|
$ |
(4,903 |
) |
|
$ |
2,248 |
|
Net Sales
Net sales for the three months ended June 30, 2024 increased 73% as compared to the three months ended June 30, 2023. The increase of $2.6 million is due to an increase in net sales across major channels including our prescription gammaCore medical devices sold in the United States and abroad; and revenue from the sales of our nonprescription general wellness Truvaga products. We expect that the majority of our remaining 2024 fiscal year revenue will continue to come from the VA/DoD. In addition, the amount of revenue we recognize from the sale of our TAC-STIM product, however, may fluctuate significantly from quarter to quarter. See the above Overview for discussion regarding our FSS contract with the VA/DoD.
|
(in thousands) |
Three months ended June 30, |
|||||||
| Product | 2024 | 2023 | ||||||
| Rx gammaCore - Department of Veteran Affairs and Department of Defense | $ | 4,572 | $ | 2,081 | ||||
| Rx gammaCore - U.S. Commercial | 476 | 445 | ||||||
| Outside the United States | 464 | 424 | ||||||
| Truvaga | 572 | 290 | ||||||
| TAC-STIM | 55 | 311 | ||||||
| $ | 6,139 | $ | 3,551 | |||||
Gross Profit
Gross profit increased by $2.3 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Gross margin was 86% and 84% for the three months ended June 30, 2024 and 2023, respectively. Gross profit and gross margin for the remainder of 2024 will be largely dependent on revenue levels, product mix, and any changes in the estimated useful lives of licensed devices.
| 21 |
Research and Development
Research and development expense in the second quarter of 2024 was $0.6 million, as compared to $1.2 million in the second quarter of 2023. This decrease was primarily due to a significant reduction in investments associated with the development of our next generation of smartphone-integrated and smartphone-connected non-invasive therapies. For the remainder of 2024, we expect our research and development expense to continue to be lower than 2023.
Selling, General and Administrative
Selling, general and administrative expense of $7.3 million for the three months ended June 30, 2024 increased by $0.5 million, or 7%, as compared to $6.8 million for the previous year period. This increase was primarily due to our greater variable selling and marketing costs consistent with our increase in sales. During the remainder of 2024, we plan on continuing to make targeted investments in sales and marketing to support our commercial efforts, particularly around sales and marketing efforts across all major U.S. channels.
Other (Income) Expense
Interest and other expense increased by $149,000 primarily due to a one time expense associated with termination of an agreement.
Comparison of the six months ended June 30, 2024 to the six months ended June 30, 2023
The following table sets forth amounts from our condensed consolidated statements of operations for the six months ended June 30, 2024 and 2023:
|
|
|
For the six months ended June 30, |
|
|
|
|
| |||||
|
|
|
2024 |
|
|
2023 |
|
|
Change |
| |||
|
|
|
(in thousands) |
| |||||||||
|
Consolidated statements of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
11,582 |
|
|
$ |
6,331 |
|
|
$ |
5,251 |
|
|
Cost of goods sold |
|
|
1,726 |
|
|
|
1,043 |
|
|
|
683 |
|
|
Gross profit |
|
|
9,856 |
|
|
|
5,288 |
|
|
|
4,568 |
|
| Gross margin | 85% | 84% | ||||||||||
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
1,034 |
|
|
|
2,964 |
|
|
|
(1,930 |
) |
|
Selling, general and administrative |
|
|
15,262 |
|
|
|
13,509 |
|
|
|
1,753 |
|
|
Total operating expenses |
|
|
16,296 |
|
|
16,473 |
|
|
|
(177 |
) | |
|
Loss from operations |
|
|
(6,440 |
) |
|
|
(11,185 |
) |
|
|
4,745 |
|
|
Other (income) expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
(280 |
) |
|
|
(204 |
) |
|
|
(76 |
) |
|
Other expense |
|
|
123 |
|
|
— |
|
|
|
123 |
||
|
Total other (income) expense |
|
|
(157 |
) |
|
|
(204 |
) |
|
|
47 |
|
| Loss before income taxes | (6,283 | ) | (10,981 | ) | 4,698 | |||||||
| Benefit for income taxes | 122 | 211 | (89 | ) | ||||||||
|
Net loss |
|
$ |
(6,161 |
) |
|
$ |
(10,770 |
) |
|
$ |
4,609 |
|
Net Sales
Net sales increased 83% for the six months ended June 30, 2024 compared to the prior year period. The increase of $5.3 million is due to an increase in net sales across all major channels including the sale of our prescription gammaCore medical devices in our U.S. Department of Veteran Affairs and U.S. commercial channel, and revenue from the sales of our nonprescription Truvaga products. We expect that the majority of remaining 2024 fiscal year revenue will continue to come from our U.S. channels. The amount of revenue we recognize from the sale of our TAC-STIM product, however, may fluctuate significantly from quarter to quarter.
The following table sets forth our channel net sales:
|
(in thousands) |
Six months ended June 30, |
|||||||
| Product | 2024 | 2023 | ||||||
| Rx gammaCore - Department of Veteran Affairs and Department of Defense | $ | 8,447 | $ | 3,786 | ||||
| Rx gammaCore - U.S. Commercial | 909 | 875 | ||||||
| Outside the United States | 913 | 834 | ||||||
| Truvaga | 957 | 437 | ||||||
| TAC-STIM | 356 | 399 | ||||||
| $ | 11,582 | $ | 6,331 | |||||
Gross Profit
Gross profit increased $4.6 million for the six months ended June 30, 2024 compared to the prior year. Gross margin increased to 85% for the six months ended June 30, 2024 compared to 84% for the six months ended June 30, 2023. In recent quarters, we have sold an increasing number of longer duration therapy, resulting in a higher average selling price. Gross profit and gross margin in the remainder of 2024 will be largely dependent on revenue levels, product mix, and any changes in the estimated useful lives of licensed devices.
Research and Development
Research and development expense decreased by $1.9 million or 65% for the six months ended June 30, 2024 compared to the prior year period. This decrease was primarily due to a significant reduction in investments associated with the development of our next generation of smartphone-integrated and smartphone-connected non-invasive therapies. For the remainder of 2024, we expect our research and development expense to continue to be lower than 2023.
Selling, General and Administrative
Selling, general and administrative expense of $15.3 million for the six months ended June 30, 2024 increased by $1.8 million compared to $13.5 million for the previous year period. This increase was primarily due to our greater variable selling and marketing costs consistent with our increase in sales. During the remainder of 2024, we plan on continuing to make targeted investments in sales and marketing to support our commercial efforts, particularly around sales and marketing efforts across all major U.S. channels. Selling, general and administrative expense for the six months ended June 30, 2023 included severance charges of $332,000.
Other (Income) Expense
The decrease in Other Income of $47,000 is primarily due to a one time expense associated with termination of an agreement.
Benefit from Income Taxes
We may be eligible, from time to time, to receive cash from the sale of our net operating losses under New Jersey's Department of the Treasury - Division of Taxation NOL Transfer Program. On March 6, 2024, the Company received a net cash payment of $122,000 from the sale of its New Jersey state net operating losses, respectively.
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods noted below:
|
|
|
For the six months ended June 30, |
| |||||
|
|
|
2024 |
|
|
2023 |
| ||
|
(in thousands) |
|
|
| |||||
|
Net cash (used in) provided by |
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(4,330 |
) |
|
$ |
(9,172 |
) |
|
Investing activities |
|
$ |
(3,928 |
) |
|
$ |
(91 |
) |
|
Financing activities |
|
$ |
8,120 |
|
|
$ |
— |
|
Operating Activities
Net cash used in operating activities was $4.3 million and $9.2 million for the six months ended June 30, 2024 and 2023, respectively. This decrease is primarily due to the decrease in our net loss adjusted for non-cash expense items.
Investing Activities
During the six months ended June 30, 2024, $3.9 million was provided by investing activities. During the six months ended June 30, 2023, cash used in investing activities was related to equipment purchases.
Financing Activities
During the six months ended June 30, 2024, net cash provided by financing activities was $8.1 million which was attributable to the entering into a registered direct offering and concurrent private placements, which closed on June 5, 2024. In addition, we received $1 million from the issuance of securities to our legal counsel. Upon issuance of these shares, certain of our financial obligations to our legal counsel were deemed paid and satisfied in full. During the six months ended June 30, 2023, no cash was provided by financing activities.
Liquidity Outlook
We have experienced significant net losses, and we expect to continue to incur net losses for the near future as we work to increase market acceptance of our gammaCore therapy and general wellness and human performance products. We have never been profitable and we have incurred net losses and negative cash used in operations in each year since our inception. We incurred net losses of $6.2 million and $10.8 million and used cash in our operations of $4.3 million and $9.2 million for the six months ended June 30, 2024 and 2023, respectively.
We have historically funded our operations from the sale of our securities. During the six months ended June 30, 2024, we received net proceeds of approximately $9.0 million from such sales and as of June 30, 2024, our cash, cash equivalents and marketable securities totaled $14.2 million.
Based on our current assessment, we believe we will be able to fund our operating expenses and capital expenditure requirements, as currently planned, for at least the next 12 months from the date the accompanying financial statements are issued. We therefore believe that the previously disclosed substantial doubt about our ability to continue as a going concern is alleviated. There remain significant risks and uncertainties regarding our business, financial condition and results of operations. Our future capital requirements are difficult to forecast and will depend on many factors that are out of our control. If we are unable to achieve our planned operating results or maintain sufficient financial resources, our business, financial condition and results of operations may be materially and adversely affected.
On January 18, 2022, we filed a Form S-3 registration statement, or the 2022 Shelf Registration Statement, with the SEC, for the issuance of common stock, preferred stock, warrants, rights, debt securities and units, which we refer to collectively as the Shelf Securities, up to an aggregate amount of $75.0 million. The 2022 Shelf Registration Statement was declared effective on January 25, 2022. The proposed maximum offering price per unit and the proposed maximum aggregate offering price per class of Shelf Security will be determined from time to time by us in connection with the issuance by us of the Shelf Securities. Until such time as the aggregate market value of our securities held by non-affiliates equals or exceeds $75.0 million, the aggregate maximum offering price of all Shelf Securities issued by us in any given 12-calendar month period pursuant to the 2022 Shelf Registration Statement (or any successor registration statement on Form S-3) may not exceed one-third of the aggregate market value of our securities held by non-affiliates. As of June 30, 2024, we had approximately $4.8 million available of unused capacity under the 2022 Shelf Registration Statement, subject to the one-third limit. If our public float increases, we will have additional availability under such limit, and if our public float increases to $75.0 million or more, such one-third limit will terminate. There can be no assurance that our public float will increase. that we will no longer be subject to such limitation, that such limitation may not reapply after termination under applicable SEC rules, or that the 2022 Shelf Registration Statement will allow us to raise additional capital in a timely manner, on acceptable terms, or at all.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decision making regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.
As required by Rule 13a-15(b) of the Exchange Act, an evaluation as of June 30, 2024 was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of June 30, 2024 were not effective due to the material weakness described below.
Management's Report in Internal Control Over Financial Reporting
During October 2023, a vendor notified us that it had not received a payment we made via wire transfer based on instructions the Company believed were sent by the vendor. Our internal controls over vendor management, as designed, would not have timely prevented an unauthorized payment based on incorrect vendor information from occurring. As such, the Company has concluded that a material weakness exists in its internal controls over financial reporting. This material weakness did not result in any identified misstatement, and there were no changes to previously reported financial results.
Remediation Plan for the Material Weakness
Management is committed to the remediation of the material weakness described above. In 2024, management has implemented and will continue to implement measures designed to ensure that the control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively.
Remediation efforts include but are not limited to (a) enhance processes and procedures around payment security, (b) verifying changes to vendor information on a timely basis, and (c) using alternate channels to verify changes to vendor payment information.
Management will test and evaluate the implementation of internal controls and revised processes to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material error in our financial statements.
The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that controls are operating effectively.
Changes in Internal Control over Financial Reporting
Except as described above, there was no change in our internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during the three months ended June 30, 2024 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
You should carefully consider the risk factors included in Item 1A. of our Annual Report and the other information in this Quarterly Report, including the section of this Quarterly Report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. If any of the events described in our Annual Report, and the following risk factor and the risks described elsewhere in this Quarterly Report occur, our business, operating results and financial condition could be seriously harmed. This Quarterly Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described in our Annual Report and elsewhere in this Quarterly Report.
(b) Not applicable.
(c) Trading Plans.
During the quarter ended June 30, 2024, no director or Section 16 officer or any Rule 10b5-1 trading arrangements or (in each case, as defined in Item 408(a) of Regulation S-K promulgated by the SEC).
| 27 |
|
Exhibit Number |
|
Description |
|
31.1* |
|
|
|
|
|
|
|
31.2* |
|
|
|
|
|
|
|
32.1* |
|
|
|
|
|
|
|
32.2* |
|
|
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
|
|
| * | Filed herewith. |
| 28 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
Company Name | |
|
|
|
|
|
|
Date: August 7, 2024 |
|
By: |
/s/ DANIEL S. GOLDBERGER |
|
|
|
|
Daniel S. Goldberger |
|
|
|
|
Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
|
Date: August 7, 2024 |
|
By: |
/s/ BRIAN M. POSNER |
|
|
|
|
Brian M. Posner |
|
|
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
| 29 |