electroCore(ECOR) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Q3 2021 unaudited financials show significant cash and equity growth from financing, with sales up and net loss narrowed Condensed Consolidated Balance Sheets As of September 30, 2021, total assets and equity significantly increased due to cash growth, while liabilities decreased Condensed Consolidated Balance Sheet Data (in thousands) | Balance Sheet Item | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $37,995 | $4,242 | | Total current assets | $41,885 | $25,064 | | Total assets | $47,571 | $31,518 | | Liabilities & Equity | | | | Total current liabilities | $5,739 | $5,890 | | Total liabilities | $6,454 | $7,874 | | Total equity | $41,116 | $23,645 | Condensed Consolidated Statements of Operations Q3 and nine-month 2021 statements show strong net sales growth and significantly narrowed net losses year-over-year Statement of Operations Highlights (in thousands) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,487 | $1,081 | $3,960 | $2,568 | | Gross profit | $1,132 | $733 | $2,867 | $1,649 | | Loss from operations | $(3,985) | $(4,489) | $(14,571) | $(18,425) | | Net loss | $(3,994) | $(4,486) | $(12,271) | $(17,187) | | Net loss per share | $(0.06) | $(0.10) | $(0.22) | $(0.47) | Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss improved in Q3 and nine-month 2021 periods, driven by a smaller net loss and positive FX adjustments Comprehensive Loss Summary (in thousands) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(3,994) | $(4,486) | $(12,271) | $(17,187) | | Other comprehensive (loss) income | $(22) | $(84) | $127 | $(149) | | Comprehensive loss | $(4,016) | $(4,570) | $(12,145) | $(17,336) | Condensed Consolidated Statements of Equity Total equity substantially increased to $41.1 million, primarily from common stock issuance, offsetting the net loss - Total equity grew from $23.6M on Jan 1, 2021, to $41.1M on Sep 30, 2021, mainly due to capital raised from issuing new stock, which counteracted the period's net loss[24] Condensed Consolidated Statements of Cash Flows Improved operating cash flow and significant financing from stock issuances led to a substantial increase in cash reserves Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,274) | $(16,470) | | Net cash provided by (used in) investing activities | $17,217 | $(11,666) | | Net cash provided by financing activities | $25,685 | $18,550 | | Net increase (decrease) in cash | $33,753 | $(9,731) | | Cash and cash equivalents – end of period | $37,995 | $3,832 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, liquidity risks, revenue concentration, PPP loan forgiveness, stock offerings, and ongoing litigation Note 3. Significant Risks and Uncertainties Going concern doubt is mitigated by recent financing, providing 12-month capital, despite high revenue concentration with key clients - The company acknowledges substantial doubt about its ability to continue as a going concern due to historical net losses, but believes this is alleviated by recent capital raises, providing a cash runway for at least the next 12 months[41][42][43] Revenue Concentration by Channel | Revenue Channel | Q3 2021 | Nine Months 2021 | | :--- | :--- | :--- | | Dept. of Veterans Affairs & DoD | 63.6% | 60.7% | | National Health Service (UK) | 24.1% | 25.6% | Note 4. Revenue Recognition Revenue from gammaCore sales is recognized upon delivery, with the US and UK as primary growing markets Net Sales by Geographic Area (in thousands) | Geographic Market | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | United States | $1,104 | $801 | $2,810 | $1,759 | | United Kingdom | $367 | $278 | $1,038 | $801 | | Other | $17 | $2 | $112 | $7 | | Total Net Sales | $1,487 | $1,081 | $3,960 | $2,568 | Note 10. Notes Payable & Note 11. Stockholders' Equity PPP loan was forgiven, and significant capital was raised from a public offering and prior equity agreement termination - The company's $1.4 million Paycheck Protection Program (PPP) loan was fully forgiven by the SBA in May 2021[71][72] - A public offering in July 2021 raised net proceeds of approximately $18.8 million from the sale of 20.7 million shares of common stock[72] - The equity facility with Lincoln Park was terminated in March 2021 after the company sold an additional 2.75 million shares for $6.9 million in January 2021[76] Note 15. Commitments and Contingencies Company faces multiple stockholder lawsuits related to its IPO and disclosures, with potential losses currently unestimable - The company is involved in multiple stockholder lawsuits, including class actions and derivative actions, stemming from its IPO and post-IPO disclosures[92][94][97] - Due to the preliminary stage of the litigation, the company cannot determine the reasonable probability of loss or a range of potential loss and has not established an accrual[98] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A highlights strong revenue growth, narrowed net loss, and sufficient liquidity for 12 months despite going concern doubts Overview electroCore focuses on its FDA-cleared gammaCore nVNS therapy, targeting US VA/DoD and UK markets, and expanding globally - The company's core business is its proprietary nVNS therapy, gammaCore, which is FDA-cleared for multiple headache indications[103] - The primary commercial focus is on two channels: the U.S. Department of Veterans Affairs/DoD and the United Kingdom's National Health Service[106] - The company is expanding its global presence through agreements with new international distributors[108] Results of Operations Q3 and nine-month 2021 results show significant sales growth, improved gross margin, and narrowed net losses, aided by PPP loan forgiveness Q3 2021 vs. Q3 2020 Results (in thousands) | Metric | Q3 2021 | Q3 2020 | Change | | :--- | :--- | :--- | :--- | | Net sales | $1,487.1 | $1,080.9 | $406.2 | | Gross profit | $1,132.1 | $733.4 | $398.7 | | Loss from operations | $(3,985.0) | $(4,488.6) | $503.6 | | Net loss | $(3,993.7) | $(4,486.4) | $492.7 | Nine Months 2021 vs. 2020 Results (in thousands) | Metric | Nine Months 2021 | Nine Months 2020 | Change | | :--- | :--- | :--- | :--- | | Net sales | $3,960.4 | $2,567.6 | $1,392.8 | | Gross profit | $2,867.1 | $1,649.0 | $1,218.1 | | Loss from operations | $(14,571.3) | $(18,425.3) | $3,854.0 | | Net loss | $(12,271.3) | $(17,187.3) | $4,916.0 | - The nine-month net loss improvement was supported by a $1.4 million gain on the extinguishment of the PPP loan[128] Liquidity and Capital Resources Company holds $39.0 million in cash, asserting sufficient liquidity for 12 months despite recurring losses and going concern doubts - The company had $39.0 million in cash, cash equivalents, and marketable securities as of September 30, 2021[134] - Net cash used in operating activities for the first nine months of 2021 was $9.3 million, a significant improvement from $16.5 million in the same period of 2020[130] - Management believes that despite a history of losses, cash on hand is sufficient to fund operating expenses and capital requirements for at least the next 12 months[138] Quantitative and Qualitative Disclosures About Market Risk Primary market risks are foreign currency and interest rate fluctuations, with no current hedging instruments - The company's main market risks include foreign currency fluctuations, particularly from sales in British Pound Sterling, and interest rate changes affecting its cash and marketable securities[140] Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2021, with no material changes to internal controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[142] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[143] PART II. OTHER INFORMATION Item 1. Legal Proceedings Company faces multiple stockholder lawsuits related to its IPO, with potential losses currently unestimable - The company is defending against multiple stockholder lawsuits (class action and derivative) in both state and federal courts concerning its IPO and subsequent disclosures[145][146][150] - A state court dismissal was reversed on appeal, and a federal case was dismissed with leave to re-plead. The company cannot determine the probability or range of potential loss at this stage[145][147][153] Item 1A. Risk Factors Updated risk factors focus on COVID-19 impacts, including operational disruptions, revenue loss, and vaccine mandate challenges - The COVID-19 pandemic continues to pose significant risks to the business, including potential impacts on manufacturing, sales efforts, and overall financial condition[156][157] - A federal vaccine mandate for contractors could lead to the loss of the company's Federal Supply Schedule contract, and the company's internal mandatory vaccination policy may adversely affect employee recruitment and retention[157] - The broad availability of COVID-19 vaccines may reduce demand for gammaCore Sapphire CV, which is authorized for use under an Emergency Use Authorization (EUA)[163] Other Items (Items 2, 3, 4, 5, 6) Other disclosures include no unregistered equity sales, no senior security defaults, and a list of filed exhibits - The company reported no unregistered sales of equity securities or defaults upon senior securities during the reporting period[165][166] - The report includes standard exhibits, such as officer certifications required by the Sarbanes-Oxley Act and interactive data files (XBRL)[172]