electroCore(ECOR) - 2023 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION Financial Statements For the quarter ended March 31, 2023, the company reported an increased net loss of $5.9 million, with total assets decreasing to $18.3 million primarily due to reduced cash and cash equivalents, and net cash used in operating activities rising to $5.9 million Financial Metric (in thousands) | Financial Metric | March 31, 2023 (in thousands) | March 31, 2022 (in thousands) | | :--- | :--- | :--- | | Net Sales | $2,780 | $1,899 | | Gross Profit | $2,322 | $1,539 | | Loss from Operations | $(6,197) | $(5,581) | | Net Loss | $(5,867) | $(5,582) | | Net Loss Per Share | $(1.24) | $(1.20) | Balance Sheet Item (in thousands) | Balance Sheet Item | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $11,908 | $17,712 | | Total Current Assets | $15,374 | $21,173 | | Total Assets | $18,300 | $24,756 | | Total Liabilities | $6,453 | $7,670 | | Total Equity | $11,847 | $17,086 | Cash Flow Activity (in thousands) | Cash Flow Activity | Three months ended March 31, 2023 (in thousands) | Three months ended March 31, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(5,860) | $(4,780) | | Net cash provided by investing activities | $0 | $0 | | Net cash provided by financing activities | $0 | $0 | | Net decrease in cash | $(5,804) | $(4,807) | | Cash at end of period | $12,158 | $29,882 | - In February 2023, the company executed a 1-for-15 reverse stock split to regain compliance with Nasdaq's minimum bid price requirement, with all share and per-share data retroactively adjusted[31][53] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a 46% increase in net sales for Q1 2023 driven by growth across all major channels, particularly the U.S. Department of Veterans Affairs, though the net loss widened due to increased R&D and SG&A expenses, raising substantial doubt about the company's ability to continue as a going concern without additional funding due to its history of losses and dependence on the VA/DoD channel Business Overview electroCore is a commercial-stage bioelectronic medicine company focused on its non-invasive vagus nerve stimulation technology, marketing products like gammaCore, Truvaga, and TAC-STIM through key sales channels including the U.S. VA/DoD and the UK's NHS - The company's business is centered on its proprietary nVNS technology platform, with products targeting medical treatment, general wellness, and human performance[83][84] - Primary revenue is derived from the sale of gammaCore, with significant concentration in the U.S. VA/DoD channel, which accounted for 64.5% of revenue in Q1 2023[90][91] - The company is expanding into cash-pay, physician-dispense, and direct-to-consumer models with its Truvaga and TAC-STIM products to diversify beyond its traditional channels[93] Results of Operations For Q1 2023, net sales increased by 46% to $2.8 million, and gross margin improved to 84%, but operating expenses rose by $1.4 million due to increased R&D and SG&A, resulting in an increased operating loss of $6.2 million Financial Performance (in thousands) | (in thousands) | Q1 2023 | Q1 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Net sales | $2,780 | $1,899 | $881 | 46% | | Gross profit | $2,322 | $1,539 | $783 | 51% | | Research and development | $1,809 | $934 | $875 | 94% | | Selling, general and administrative | $6,710 | $6,186 | $524 | 8% | | Loss from operations | $(6,197) | $(5,581) | $(616) | 11% | | Net loss | $(5,867) | $(5,582) | $(285) | 5% | - The 46% increase in net sales was driven by growth across all major channels, including U.S. commercial, VA/DoD, and international sales[101] - R&D expenses nearly doubled due to targeted investments in future therapy delivery platforms, including smartphone-integrated technologies[103] - SG&A expenses increased primarily due to $332,000 in severance charges and continued investments in sales and marketing, partially offset by lower insurance and stock compensation costs[104] Liquidity and Capital Resources The company's cash and cash equivalents decreased to $11.9 million, with net cash used in operations at $5.9 million, leading management to expect continued negative cash flows and express substantial doubt about the company's ability to continue as a going concern beyond one year without additional funding, especially with the key FSS contract expiring in January 2024 - The company has a history of significant net losses and cash used in operations, which is expected to continue, raising substantial doubt about its ability to continue as a going concern[37][96][115] - The company's Federal Supply Schedule (FSS) contract, a major source of revenue from the VA/DoD, is scheduled to expire on January 15, 2024, with no assurance of renewal[38][91][114] - The company may need to seek additional funds or curtail activities, having filed a Form S-3 shelf registration for up to $75.0 million in January 2022, though the ability to raise capital may be limited[113][116] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates and interest rate fluctuations, but management believes the impact of a 10% change in currency rates would be immaterial, and interest rate risk is minimal due to the short-term nature of its cash equivalents - The company's primary foreign currency exposures are to the British Pound Sterling and Japanese Yen[119] - A sensitivity analysis showed that a uniform 10% change in foreign currency exchange rates would have an immaterial impact on net income for the quarter[120] - Interest rate risk is confined to cash and cash equivalents and is considered minimal due to their short-term maturities[121] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period, March 31, 2023[124] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[125] Part II. OTHER INFORMATION Legal Proceedings The company is involved in several ongoing putative class action and stockholder derivative lawsuits alleging violations of the Securities Act and Exchange Act related to its IPO and subsequent disclosures, which it is vigorously defending but cannot currently determine the probability or range of potential loss - The company is defending against multiple stockholder lawsuits (Kuehl, Turnofsky, Maltz, Yuson) stemming from its IPO and post-IPO disclosures[68][71][74] - Allegations include violations of Sections 11, 12(a)(2), and 15 of the Securities Act, and Sections 10(b) and 20(a) of the Exchange Act[69][71] - Due to the preliminary stage of the litigation, the company has not established an accrual for potential losses and cannot guarantee the outcome will not adversely affect its financial condition[76] Risk Factors The company highlights a specific risk related to adverse developments in the financial services industry, noting that market-wide liquidity problems or the failure of financial counterparties, as seen with recent bank failures, could significantly impair its access to funding and adversely impact its business operations and financial condition - A key risk is the potential for adverse developments in the financial services industry, such as liquidity constraints or defaults by financial institutions[130][132] - Recent failures of Silicon Valley Bank, Signature Bank, and First Republic Bank are cited as examples of events that could lead to market-wide liquidity problems[131] - Such events could impair the company's ability to access funding, obtain financing on acceptable terms, or meet operating expenses, potentially having a material adverse impact on liquidity and operations[133]