ECOR US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Annual Report, including those set forth under Item 1A. “Risk Factors” and under “Forward-Looking Statements” in this Annual Report.

Overview

We are a commercial stage medical device company with a proprietary non-invasive vagus nerve stimulation, or nVNS, therapy, called gammaCore. nVNS is a platform bioelectronic medical therapy that modulates neurotransmitters and immune function through its effects on both the peripheral and central nervous systems. We are initially focused on utilizing gammaCore in the management and treatment of primary headache conditions.

Our gammaCore nVNS therapy is the first non-invasive, hand-held medical therapy applied at the neck as an adjunctive therapy to treat migraine and cluster headache through the utilization of a mild electrical stimulation to the vagus nerve that passes through the skin. Designed as a portable, easy-to-use technology, gammaCore can be self-administered by patients, prophylactically or as needed, without the potential side effects associated with commonly prescribed drugs. When placed on a patient ’s neck over the vagus nerve, gammaCore stimulates the nerve’s afferent fibers, which may lead to a reduction of pain in patients. gammaCore (nVNS) is FDA cleared in the United States for adjunctive use for the preventive treatment of cluster headache in adult patients, the acute treatment of pain associated with episodic cluster headache in adult patients, the acute and preventive treatment of migraine in adults and adolescent (ages 12 and older) patients, and paroxysmal hemicrania and hemicrania continua in adult patients. gammaCore is CE-marked in the United Kingdom and European Union for the acute and/or prophylactic treatment of primary headache (Migraine, Cluster Headache, Trigeminal Autonomic Cephalalgias and Hemicrania Continua) and Medication Overuse Headache in adults.

Since May 2019, we have primarily focused our sales efforts in two channels, the U.S. Department of Veterans Affairs and U.S. Department of Defense, and the United Kingdom.

More recently, we began making targeted investments to increase the adoption of our gammaCore therapy in both the United States and abroad. We continue to evaluate strategies to expand commercial adoption of gammaCore, including traditional reimbursement models as well as the potential use of e-commerce and cash pay models through direct-to-physician and direct-to-consumer approaches. We expect to make continued targeted investments in the evaluation and possible execution of these strategies in future quarters. We are unable to predict the impact these strategies will have on our financial condition, results of operations and cash flows due to numerous uncertainties.

In addition, we have announced agreements with new distributors to make gammaCore Sapphire available in several countries beyond the U.S. and United Kingdom.

Capital Activities

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, up to an aggregate amount of $75 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 security will be determined from time to time by us in connection with the issuance by us of the securities registered under the 2022 Shelf Registration Statement. Until such time as the aggregate market value of our securities held by non-affiliates equals or exceeds $75 million, the aggregate maximum offering price of all securities issued by the us in any given 12-calendar month period pursuant to this and any of our other registration statements may not exceed one-third of the aggregate market value of our securities held by non-affiliates.

On July 2, 2021, we completed a public offering of 20,700,000 shares of our common stock at a purchase price of $1.00 per share. The net proceeds of the offering to us were approximately $18.8 million, after deducting the underwriting discounts and commissions and other estimated offering expenses. We intend to use the net proceeds of the offering for sales and marketing, working capital, and general corporate purposes. In addition, we believe that opportunities may exist from time to time to expand our current business through acquisitions or in-licenses of, or investments in, complementary companies, medicines, intellectual property, or technologies. While we have no current agreements or commitments for any specific acquisitions, in-licenses or investments at this time, we may use a portion of the net proceeds for these purposes.

On August 30, 2021, we entered into a Securities Purchase Agreement with our legal counsel pursuant to which we issued 952,380 shares of common stock, at a purchase price of $1.05 per share. Upon issuance of the shares, certain of our outstanding financial obligations to our legal counsel were deemed paid and satisfied in full.

On October 4, 2021, we issued 200,000 shares of our common stock in connection with the lease termination related to our former headquarters located in Basking Ridge, NJ.

On March 27, 2020, we and Lincoln Park Capital Fund, LLC ("Lincoln Park") entered into an equity facility purchase agreement ("Purchase Agreement") pursuant to which we had the right to sell to Lincoln Park shares of our common stock, subject to certain limitations and conditions set forth in the Purchase Agreement. In January 2021, we sold 2,750,000 shares of our common stock under the Purchase Agreement, resulting in aggregate proceeds of approximately $6.9 million. On March 11, 2021, we terminated the Purchase Agreement and, accordingly, we will not sell any further shares of our common stock to Lincoln Park under the Purchase Agreement.

Research and Development

Regulatory Clearances

In February 2021, gammaCore received clearance by the FDA for the acute and preventive treatment of migraine in adolescents between 12 and 17 years of age.

In September 2021, we announced the company received Section 510(k) clearance from the United States Food and Drug Administration (FDA) of the company’s submission to expand the label of gammaCore nVNS to include the treatment of Paroxysmal Hemicrania (PH) and Hemicrania Continua (HC) in adults.

Outside the US

In August 2011, we received a CE Certificate of Conformity for gammaCore for the treatment of primary headache from the British Standards Institution, a European Union notified body. This CE Certificate of Conformity allowed us to affix the CE Mark on gammaCore and to commercialize it in the European Economic Area and other countries that recognize the European CE Mark. In addition to the CE Certificate of Conformity for primary headache, between September 2011 and October 2013 we received CE Certificates of Conformity on gammaCore covering four other indications for use, including reactive airway disease and gastric motility disorders. In 2019, the National Institute for Health and Care Excellence, or NICE published a Medical Technology Guidance document recommending the use of gammaCore for Cluster Headache or CH within the National Health Service, or NHS, of England and Wales. On January 2021, NHS Scotland adopted the NICE recommendation and recommended gammaCore for use in the treatment of CH in Scotland.

NHS England awarded gammaCore a place on the Innovation Technology Payment, or ITP, program for treatment of patients with reflectory cluster headache, a reimbursement pathway that opened in April 2019. In October 2020, we announced that the ITP program was extended through March 2021. Effective April 1, 2021, gammaCore Sapphire was included in a new long-term, reimbursement policy, titled the MedTech Funding Mandate Policy 2021/22, or MTFM.

In August 2021, we announced the release of an article entitled “gammaCore for Cluster Headaches: A NICE Medical Technologies Guidance” in the journal PharmacoEconomics highlighting the cost impact of gammaCore’s non-invasive vagus nerve stimulation therapy platform for patients with cluster headaches. The paper is part of a series that provides insight into the development of NICE medical technologies guidance for new or innovative medical devices or diagnostics. The aim of the guidance is to support the adoption of clinically effective and cost-saving technologies in the UK National Health Service. The paper validated that gammaCore both reduces the frequency and severity of cluster headaches when used with standard of care and provides a £450 per patient savings in the first year of therapy versus standard of care alone.

In October 2021, we announced the publication of a peer-reviewed paper entitled “Non-invasive vagus nerve stimulation for treatment of cluster headache: a retrospective review of prescribing in England,” in the British Journal of Healthcare Management. The paper reviews the prescribing trends of gammaCore in England from April 2019 through the end of 2020 and is one of the largest clinical audits of patients with cluster headache. The paper highlights that of the 655 patients who started on gammaCore, 46.3% of patients were prescribed at least one refill and 30.9% were prescribed two or more refills. These real-world results suggest a durable benefit for patients utilizing gammaCore’s non-invasive vagus nerve stimulation (nVNS) for cluster headache in England.

In April 2021, we announced that Health Canada has granted regulatory approval for the promotion and sale of the gammaCore Sapphire family of products in Canada for prevention and therapeutic treatment of migraine and cluster headache, as outlined in the registration application with Health Canada. Later in the year, the company received an amended Medical Device License from Health Canada to expand the label of gammaCore nVNS to include the acute and preventive treatment of migraine in adolescents between 12 and 17 years of age. gammaCore is now cleared for most forms of primary headache including the acute and preventive treatment of migraine in adolescents and adults, as well as the acute and preventive treatment of cluster headache in adults.

In December 2021, we announced the launch of an e-commerce shop for patients residing in the United Kingdom. The site, which can be found at www.gammacore.co.uk, requires patients to complete a healthcare questionnaire in order to purchase a gammaCore SapphireTM, non-invasive vagus nerve stimulator (nVNS) device online. The first product launched on the platform is designed to treat menstrual migraine, supporting the 60% of women who report migraine symptoms associated with their menstrual cycle. This platform will allow patients to experience a fully virtual experience by completing an online clinical assessment, having product delivered to their door, and being trained via video calls with a member of the UK customer service team.

Throughout 2021 we continued executing on the plan to expand international distribution by onboarding exclusive distribution partners outside the United States and United Kingdom (Table 1).

Table 1: International Distributor List

Territory Distributor Country

North America RSK Medical Canada

Australia Medistar2 PTY Ltd Australia

Impact of COVID-19

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it will impact business partners, customers and the global supply chain. In particular, the pandemic has resulted in a significant reduction in non-essential contact between patients and healthcare providers, shifting of focus by healthcare providers to the acute treatment of COVID-19 related illness regardless of specialty. We believe these restrictions have limited our sales force’s ability to generate additional interest in the Company’s products. While we began to experience disruptions from the COVID-19 pandemic during the three months ended March 31, 2020, we are unable to predict the impact that the COVID-19 pandemic may have on our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the development, rollout and availability of effective treatments and vaccines, the imposition of various protective public safety measures including vaccine mandates, as well as the transmissibility and effects of new coronavirus variants such as those experienced with respect to the Omicron variant beginning in early December 2021, and the direct and indirect economic effects of the pandemic and containment measures, among others. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries have reacted by instituting quarantines, mandating business and school closures and restricting travel. Certain states and cities, including those where our principal place of business is located and sales force seeks to operate, have also reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, and restrictions on types of business that may continue to operate. We cannot predict if additional states and cities will implement similar restrictions or when restrictions currently in place will expire. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which we operate. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown of effective treatments and vaccines.

Because the COVID-19 pandemic affected, among other things, our access to prescribing physicians and their access to headache patients, on March 23, 2020 we suspended our earlier full-year revenue guidance until we could better understand the trajectory of our business, as well as announced a reduction in our activities, and adjusted our cash runway expectations in response to the potential adverse impact caused by the COVID-19 pandemic. Compared to our earlier expectations, we believe that our results for the year ended December 31, 2021 reflect a negative impact from, among other things, the global pandemic. Moreover, our expectations for at least the beginning of 2022 have also been adversely affected by both the uncertainty and potential negative impact of the global pandemic. Depending upon the duration and severity of the pandemic, the continuing effect on our results and outlook over the long term remains uncertain.

In July 2020, the Company received an EUA for use of its gammaCore Sapphire CV nVNS therapy for the acute treatment of asthma exacerbations in known or suspected COVID-19 patients. This EUA is expected to remain in effect for the duration of the COVID-19 pandemic justifying emergency use of these devices unless terminated or revoked by the FDA (after which products may no longer be used). We did not recognize material revenue from the sales of gammaCore Sapphire CV during the year ended December 31, 2021, and we do not expect to recognize material revenue from the sales of gammaCore Sapphire CV in general.

Critical Accounting Policies and Estimates

The significant accounting policies and basis of presentation of our consolidated financial statements are described in Note2“Summary of Significant Accounting Policies” of the consolidated financial statements included with the annual report on Form 10-K.

The preparation of our financial statements is in accordance with U.S. Generally Accepted Accounting Principles, or GAAP, and we are required 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 believe the judgements estimates and assumptions associated with the following critical accounting policies have the greatest potential impact on the consolidated financial statements:

Revenue Recognition

Our principal source of revenue is product sales. Our contracts with customers generally contain a single performance obligation and we recognize revenue from product sales when we have satisfied our performance obligation by transferring control of the product to our customers. Control of the product generally transfers to the customer upon delivery. Revenue is recognized at the amount to which we expect to be entitled in exchange for the sale of our products. Variability in the transaction price for our products pursuant to our contract with customers primarily arises from discounts and rebates. We offer discounts and rebates to certain distributors and customers under our arrangements. In many cases, these amounts are fixed at the time of sale and the transaction price is reduced accordingly.

We have a standardized approach to estimate the amount of consideration that we expect to be entitled to, including the impact of discounts and rebates. Our historical collection is an integral part of the estimation process related to revenues and receivables. Further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.

Revenue from the Veterans Administration and the Department of Defense

Revenue from sales of our products is recognized under terms of the Federal Supply Schedule, or FSS, and purchase orders from individual VA sites and a distributor who purchases our products on behalf of the DoD. Revenue from the VA includes sales of therapy for up to 36 months.

Sales to the VA and DoD are at a fixed price and are usually paid at the time of delivery.

A cash refund is allowed under specific circumstances for undamaged and non-defective products. Damaged or defective products are replaced at no charge.

United Kingdom Revenue

In the United Kingdom, an award from the Innovation Technology Payment program of the NHS and evidence-based recommendations published in December 2021 by NICE offer the potential for us to generate revenue from the treatment of CH. This is the primary commercial channel from which our United Kingdom revenue is derived. The first 93 days of therapy is free under this program. The cost to produce the free therapy in the 93-day period is recorded as promotional expense within selling, general and administrative expenses.

Effective April 1, 2021, gammaCore Sapphire will be included in the new MTFM long-term reimbursement policy which supports commissioners and providers in the use of selected NICE approved, clinically effective and cost-saving medical devices, diagnostics and digital technologies that will improve patient outcomes.

Sales in the United Kingdom are primarily in increments of 93-day therapy at a fixed price and are paid within 30 days.

Recently, product offering in the United Kingdom has expanded to 10-day therapy at a fixed price for menstrual migraine patients purchasing product through our UK e-commerce store. All revenue associated with the menstrual migraine product are paid prior to product being shipped.

United States Commercial Revenue Outside of Federal Supply Schedule Channel

Revenue from our e-commerce and cash pay models through direct-to-physician and direct-to-consumer channel are usually recognized at the time of product shipment or delivery dependent on specific contractual terms, less any discounts or rebates.

Managed care rebates represent our estimated obligations to pharmacy benefit managers. Rebate accruals are recognized in the same period the related revenue is recognized. Co-payment assistance represents financial assistance to qualified patients, to assist them with co-payments for gammaCore therapy. The calculation of the accrual is based on an estimate of claims and the cost per claim that we expect to incur associated with inventory that exists in the distribution channel at period end. The amount of monthly co-payment assistance is up to a maximum of $100 per prescription.

We expense the cost, as incurred, of product damaged as a result of shipping. This expense, historically, has been immaterial. We expect to receive payment on all of our customer receivables within one year and therefore classify all receivables as current assets. In accordance with our policy, damaged or defective products are replaced at no charge under our standard warranty. A cash refund is allowed in our discretion under specific circumstances for undamaged and non-defective returned product.

Accounts receivable are net of an allowance for doubtful accounts, which are accounts from which payment is not expected to be received although product was provided, and revenue was earned. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received.

Inventories

We value inventory at the lower of cost or net realizable value. Cost is determined on a first in first out basis. This policy requires us to make estimates regarding the net realizable value of our inventory, including an assessment of excess or obsolete inventory. We evaluate inventory for excess quantities and obsolescence based on an estimate of the future demand for our product within a specified timeframe and record an allowance to reduce the carrying value of inventory as determined necessary. The estimates we use for demand are also used for near-term capacity planning and inventory purchasing and are consistent with our revenue forecasts. We evaluate inventory with respect to our operating cycle and classify inventory as either current or long-term on our balance sheet. We further consider inventory shelf life in our estimates regarding the net realizable value of our inventory. If our actual demand is less than our forecast demand, we may be required to take additional excess inventory charges, which would decrease gross margin and adversely impact net operating results in the future.

Income taxes

We routinely assess whether a valuation allowance should be established against our deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard. The assessment of the realizability of deferred tax assets requires management to make numerous estimates and assumptions. Factors that are considered in this assessment include the nature, frequency, and severity of recent losses; a forecast of future profitability; the duration of statutory carryback and carryforward periods; our experience with tax attributes expiring unused; and tax planning alternatives.

Stock-based compensation

We recognize compensation expense associated with the issuance of equity instruments to employees and non-employees for their services. Compensation expense is determined based on the grant date fair value and is expensed over the vesting period. The grant date fair value of stock options is measured using the Black-Scholes option valuation model. The input assumptions used in determining the fair value of options are expected life, expected volatility, risk-free interest rate and expected dividend yield. These input assumptions are based on management’s estimates, and these estimates are evaluated periodically for reasonability. The expected life of the option represents the period the stock-based awards are expected to be outstanding. We use the simplified method for estimating the expected life of the options since we have limited historical experience to estimate expected term behavior. Since our common stock was not publicly traded until June 2018 there has been insufficient volatility data available. Accordingly, we calculate expected volatility using comparable peer companies with publicly traded shares over a term similar to the expected term of the options issued. Since we currently do not intend to pay dividends on our common stock, we estimate the dividend yield percentage to be zero. We base the risk-free interest rate on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of the stock options being valued.

Loss contingencies

We are subject to claims and lawsuits in the ordinary course of business, including claims by employees or former employees, with respect to our products and involving commercial disputes, or shareholder actions. We accrue for loss contingencies when it is deemed probable that a loss has been incurred and the loss is estimable. The amounts accrued are based on the full amount of the estimated loss considering insurance proceeds, if applicable, and do not include legal fees expected to be incurred in connection with the loss contingency. The process of analyzing, assessing, and establishing reserve estimates relative to legal proceedings involves a high degree of judgment. Our consolidated financial statements do not reflect any material amounts related to unfavorable outcomes of claims and lawsuits to which we are currently a party because we currently believe that such claims and lawsuits are not expected to result in a material adverse effect on our financial condition. Management estimates that its current insurance coverage is sufficient to meet the potential liabilities of pending legal proceedings. Changes in facts and circumstances related to such proceedings could lead to significant adjustments to reserve estimates for such matters and could have a material impact on our results of operations, cash flows and financial condition in the period that reserve estimates are adjusted or paid.

Emerging Growth Company Status

In April 2012, the JOBS Act was enacted by the federal government. Section107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.

In addition, as an emerging growth company, we are not required to provide an auditor’s attestation report on our internal control over financial reporting in future annual reports on Form 10-K.

We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO (December 31, 2023), (b) in which we have total annual gross revenue of at least $1.07billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700million as of the prior June 30, and (2) the date on which we have issued more than $1.0billion in non-convertible debt during the priorthree-year period.

Results of Operations

Comparison of the years ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020 with the changes in those items in dollars.

Years ended December 31,

(in thousands)

Operating expenses:

Restructuring and other severance related charges — 464.6 (464.6 )

Other (income) expense:

Gain on extinguishment of debt (1,422.2 ) — (1,422.2 )

Gain on termination of joint venture (549.3 ) — (549.3 )

Interest and other income (10.7 ) (84.3 ) 73.6

Net Sales

Net sales for the year ended December 31, 2021 increased 56% as compared to the year ended December 31, 2020. The increase of $2.0 million is due to increased sales from the U.S. Department of Veteran Affairs, as well as increased sales from outside the United States, and our U.S. commercial channel. We expect that the majority of our 2022 fiscal year revenue will continue to come from the U.S. Department of Veterans Affairs and United Kingdom, however, we expect to increase revenue from our commercial channel through cash pay models via direct-to-consumer approaches through our online stores in the United States and United Kingdom. Further, we expanded our cash pay proposition to include direct to physician models within our traditional neurology headache specialists, as well as the wide range of medical providers who manage patients' headache conditions including primary care physicians, women's health, pain management, functional and integrative medicine professionals, as well as chiropractors, and PharmDs (Doctors of Pharmacy).

Gross Profit

Gross profit increased $2.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. This increase was due to the increase in net sales, as well as an inventory charge of $0.4 million in 2020 for which there was a corresponding charge of $70,000 in 2021. Gross margin was 75% and 50% for the years ended December 31, 2021 and 2020, respectively. Excluding the 2021 and 2020 inventory charges, gross margin for the years ended December 31, 2021 and December 31, 2020 was 76% and 63%, respectively. The increase in gross margin, excluding the 2020 inventory charge, was largely due to the more favorable absorption of labor and overhead costs, and product mix. The selling of our products with longer periods of therapy, have had a favorable impact on our gross profit and gross margin. Gross profit and gross margin in 2022 will be largely dependent on revenue levels, product mix, and the pricing levels of our therapy.

Research and Development

Research and development expense of $2.5 million for the year ended December 31, 2021 decreased by $1.7 million, or 40%, as compared to 2020.

This reduction was primarily due to significant reductions in company sponsored clinical trial costs offset by targeted investments to support certain investigator-initiated trials, scientific publications and product development. We expect research and development expenses to increase in 2022 largely due to planned expenditures in connection with the next generation of our therapy delivery platform.

Selling, General and Administrative

Selling, general and administrative expense of $21.6 million for the year ended December 31, 2021 was consistent with the prior year. Excluding the $0.6 million write-off of an operating lease right of use asset in 2020, selling general and administrative expense was $21.2 million for the year ended December 31, 2020. We expect an increase in our 2022 selling, general, and administrative expense as we may make targeted investments to support our commercial efforts.

Restructuring and Other Severance Related Expenses

There were no restructuring and other severance related costs recorded during the year ended December 31, 2021. Restructuring and other severance related charges for the year ended December 31, 2020 of $464,606 consisted of severance related expenses in connection with personnel changes.

Other (Income) Expense

Other (income) expense for the year ended December 31, 2021 of 1.9 million primarily represents the gain of $1.4 million recorded in association with the forgiveness of the PPP Loan and the gain of $0.5 million recorded related to the termination of the joint venture in Australia. Interest and other income of $10,678 and $84,327 for the years ended December 31, 2021 and 2020, respectively, primarily consisted of interest earned on cash, cash equivalents and marketable securities.

Liquidity and Capital Resources

At December31, 2021 our cash, cash equivalents, and marketable securities was $34.7 million compared to $22.6 million at December 31, 2020.

December 31,

(in millions)

Net cash (used in) provided by

Operating activities $ (13.6 ) $ (20.1 )

Investing activities $ 18.2 $ (8.0 )

Financing activities $ 25.7 $ 18.9

Operating Activities

Net cash used in operating activities was $13.6 million and $20.1 million for the years ended December 31, 2021 and 2020, respectively. The reduction in 2021 is primarily due to a decrease in our net loss from operations, and less cash being used for working capital components such as inventory and accounts payable.

Investing Activities

Net cash provided by investing activities was $18.2 million for the year ended December 31, 2021. For the year ended December 31, 2020, net cash used in investing activities was $8.0 million. This increase reflects the increase in funds received from the maturity of marketable securities partially offset by a decrease in our purchases of marketable securities during the current period.

Financing Activities

Net cash provided by financing activities was $25.7 million for the year ended December 31, 2021, representing net proceeds from the sale of common stock. For the year ended December 31, 2020, net cash provided by financing activities was $18.9 representing net cash proceeds of $17.5 million from the issuance of common stock and $1.4 million from our loan under the PPP.

Liquidity Outlook

As of December 31, 2021, our cash, cash equivalents and marketable securities totaled $34.7 million.

We have experienced recurring losses since our inception. We incurred net cash used in operating activities of $13.6 million and $20.1 million for the years ended December 31, 2021 and 2020, respectively. We expect to continue to incur substantial negative cash flows from operations for at least the next several years as we work to increase market acceptance of our gammaCore therapy for the acute treatment of primary headache and its other indications.

Our expected cash requirements for the next 12 months and beyond are largely based on the commercial success of our products and the level of targeted investment in our commercial strategies. There are significant risks and uncertainties as to our ability to achieve these operating results, including as a result of the adverse impact on its headache business from the ongoing COVID-19 pandemic. These conditions raise substantial doubt about our ability to continue as a going concern.

We have historically funded our operations from the sale of our common stock. During the year ended December 31, 2021, we received net proceeds of approximately $25.7 million from such sales and as of December 31, 2021, our cash, cash equivalents and marketable securities totaled $34.7 million.

We believe that the substantial doubt of our ability to continue as going concern is alleviated based on proceeds received from recent offerings of our common stock. We believe our cash and marketable securities will enable us to fund our operating expenses and capital expenditure requirements, as currently planned, for at least the next 12 months from the date the financial statements included in this Annual Report are made available.

Beyond the next 12 months, we believe that our growth will depend, in part, on our ability to fund our commercial efforts for our gammaCore therapy, and to opportunistically pursue research and development activities for additional indications for our gammaCore therapy. Our existing resources are unlikely to allow us to conduct all the activities that we believe could be beneficial for our future growth. As a result, we will need to seek additional funds in the future or curtail or forgo some or all such activities. If we seek to and are unable to raise funds on favorable terms, or at all, we may not be able to support our commercialization efforts or increase our research and development activities and the growth of our business may be negatively impacted. As a result, we may be unable to compete effectively. Changes, including those relating to the payer and competitive landscape, our commercialization strategy, our development activities and regulatory matters, may occur beyond our control that would cause us to consume our available capital more quickly.

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 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 security will be determined from time to time by us in connection with the issuance by us of the securities registered under the 2022 Shelf Registration Statement. Until such time as the aggregate market value of our securities held by non-affiliates equals or exceeds $75 million, the aggregate maximum offering price of all securities issued by the us in any given 12-calendar month period pursuant to this and any of our other registration statements may not exceed one-third of the aggregate market value of our securities held by non-affiliates.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not have any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Impact of Recently Issued Accounting Standards

In the normal course of business, we evaluate all new accounting pronouncements issued by the FASB, SEC, or other authoritative accounting bodies to determine the potential impact they may have on our Consolidated Financial Statements. See Note 2 “Basis of Presentation” of the notes to our consolidated financial statements in this Annual Report for additional information about these recently issued accounting standards and their potential impact on our financial condition or results of operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We develop our products in the United States and sell those products into several countries. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Most of our sales in Europe are denominated in British Pound Sterling. As our sales in currencies other than the U.S. dollar increase, our exposure to foreign currency fluctuations may increase. In addition, changes in exchange rates also may affect the end-user prices of our products compared to those of our foreign competitors, who may be selling their products based on local currency pricing. These factors may make our products less competitive in some countries.

If the U.S. dollar uniformly increased or decreased in strength by 10% relative to the currencies in which our sales were denominated, our net income would have correspondingly increased or decreased by an immaterial amount for the year ended December 31, 2021

Our exposure to market interest rate risk is confined to our cash and cash equivalents and marketable securities. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we may maintain a portfolio of cash equivalents and investments in a variety of securities of high credit quality. The securities in our investment portfolio, if any, are not leveraged, are classified as available for sale and are, due to their very short-term nature, subject to minimal interest rate risk. We currently do not hedge interest rate exposure. Because of the short-term maturities of our cash equivalents, we do not believe that an increase in market rates would have any material negative impact on interest income recognized in our statement of operations. We have no investments denominated in foreign currencies and therefore our investments are not subject to foreign currency exchange risk. We contract with CROs, investigational sites, suppliers and other vendors in Europe and internationally. We are subject to fluctuations in foreign currency rates in connection with these agreements. We do not hedge our foreign currency exchange rate risk.

All of the potential changes noted above are based on sensitivity analyses performed on our financial position as ofDecember 31, 2021.

Item 8. Financial Statements and Supplementary Data.

The financial statements required to be filed pursuant to this Item8 are appended to this Annual Report. An index of those financial statements is found in Item15.

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9 A. Controls and Procedures

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 decisions 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 December 31, 2021 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 December 31, 2021, were effective for the purposes stated above.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed under the supervision and with the participation of our management including our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets: (ii) provide reasonable assurance (a) transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting policies (b) our receipts and expenditures are being made only in accordance with authorizations of our management and directors: and (c) regarding the prevention or timely detection of the unauthorized acquisition use or disposition of assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

As of December 31, 2021, our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Based on this evaluation, our management concluded that, as of December 31, 2021 our internal control over financial reporting was effective.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2021 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

PART III

Item 10.Directors, Executive Officers and Corporate Governance

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders or an amendment to this Annual Report, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders or an amendment to this Annual Report, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 404 of Regulation S-K. The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders or an amendment to this Annual Report, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

Item 13.Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders or an amendment to this Annual Report, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

Item 14.Principal Accountant Fees and Services

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders or an amendment to this Annual Report, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

PARTIV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this report:

(1) Financial Statements:

​

Report of Independent Registered Public Accounting Firm PCAOB ID # 688 F-2

Consolidated Balance Sheets F-4

Consolidated Statements of Operations F-5

Consolidated Statements of Comprehensive Loss F-6

Consolidated Statements of Equity F-7

Consolidated Statements of Cash Flows F-8

Notes to Consolidated Financial Statements F-9

(2) Financial Statement Schedules:

All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.

(3) Exhibits. The exhibits filed as part of this Annual Report on Form 10-K are set forth on the Exhibit Index immediately following Item 16. The Exhibit Index is incorporated herein by reference.

Item 16. Form 10-K Summary

None.

Exhibit Number Description

3.1*** Certificate of Incorporation of electroCore, Inc.

3.2***** Amended and Restated Bylaws of electroCore, Inc.

4.2* Description of Capital Stock

10.2†** electroCore, Inc. 2018 Omnibus Equity Incentive Plan

10.13†** Form of electroCore, Inc. Management Severance Plan

10.14†* electroCore, Inc. Non-Employee Director Compensation Policy

10.17** Form of Common Unit Warrant

10.18** Form of Series A Warrant

10.19** Form of Bridge Warrant

21.1* List of subsidiaries of electroCore, Inc.

23.1* Consent of Marcum LLP

101.INS Inline XBRL Instance 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

* Filed herewith.

† Indicates management agreement

SIGNATURES

Pursuant to the requirements of Section13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

electroCore, Inc.

Date: March 10, 2022 By: /s/ DANIEL S. GOLDBERGER

Daniel S. Goldberger

Chief Executive Officer and Director (Principal Executive Officer)

Date: March 10, 2022 By: /s/ BRIAN M. POSNER

Brian M. Posner

Chief Financial Officer (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Name Title Date

/s/ Peter Cuneo Chairman of the Board March 10, 2022

Peter Cuneo

/s/ Michael G. Atieh Director March 10, 2022

Michael G. Atieh

/s/ Daniel S. Goldberger Director March 10, 2022

Daniel S. Goldberger

/s/ John Gandolfo Director March 10, 2022

John Gandolfo

/s/ Joseph P. Errico Director March 10, 2022

Joseph P. Errico

/s/ Thomas Patton Director March 10, 2022

Thomas Patton

/s/ Thomas J. Errico, M.D. Director March 10, 2022

Thomas J. Errico, M.D.

/s/ Trevor J. Moody Director March 10, 2022

Trevor J. Moody

​​

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

​

​

Report of Independent Registered Public Accounting Firm PCAOB ID # 688 F-2

Consolidated Balance Sheets as of December 31, 2021 and 2020 F-3

Notes to Consolidated Financial Statements F-8

.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

electroCore, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets ofelectroCore, Inc. and Subsidiaries (the “Company”) as ofDecember 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Marcum LLP

Marcum LLP

We have served as the Company’s auditor since 2020.

New York, NY

March 10, 2022

ELECTROCORE, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31,

Assets

Current assets:

Liabilities and Equity

Current liabilities:

Note payable, current — 311,354

Current portion of operating lease liabilities 61,403 534,547

Note payable, noncurrent — 1,097,946

Commitments and contingencies (Note 17) — —

Stockholders' equity:

Accumulated other comprehensive income (loss) 12,748 (251,467 )

Noncontrolling interest — 635,610

See accompanying notes to the consolidated financial statements.

ELECTROCORE, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended December 31,

Operating expenses:

Restructuring and other severance related charges — 464,606

Other (income) expense:

Gain on extinguishment of debt (1,422,214 ) —

Gain on termination of joint venture (549,254 ) —

See accompanying notes to the consolidated financial statements.

ELECTROCORE, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Loss

Years ended December 31,

Other comprehensive income (loss):

Foreign currency translation adjustment - deconsolidation 86,356 —

See accompanying notes to consolidated financial statements.

ELECTROCORE, INC. AND SUBSIDIARIES

Consolidated Statements of Equity

For the Years Ended December 31, 2021 and 2020

Additional Accumulated other Total electroCore, Inc.,

Shares Amount capital deficit income (loss) equity interest equity

Equity financing commitment fee* 692,514 693 (693 ) — — — — —

Termination of joint venture — — — — — — (635,610 ) (635,610 )

*Reflects commitment shares issued in accordance with the Company's equity facility purchase agreement with Lincoln Park Capital. For additional information see Note 12. Stockholders' Equity, Lincoln Park Purchase Agreement.

See accompanying notes to the consolidated financial statements.

ELECTROCORE, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Year ended December 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of marketable securities premium 142,244 31,096

Gain on extinguishment of debt (1,422,214 ) —

Gain on termination of joint venture (549,254 ) —

Gain on lease settlement (57,371 ) —

Increase in allowance for doubtful accounts 49,489 —

(Gain) loss on legal fee obligation settled with stock (9,525 ) 156,434

Write-off of right of use operating lease asset — 557,543

Changes in operating assets and liabilities:

Accrued expense and other current liabilities 425,219 (1,632,617 )

Right of use operating lease assets (151,137 ) —

Cash flows from investing activities:

Cash flows from financing activities:

Proceeds from note issued — 1,410,524

Net increase (decrease) in cash and cash equivalents 30,446,943 (9,321,854 )

Supplemental cash flows disclosures:

Proceeds from sale of state net operating losses $ 876,690 $ 1,170,890

Supplemental schedule of noncash activity:

See accompanying notes to consolidated financial statements.

ELECTROCORE,INC. ANd SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1. The Company

electroCore is commercial stage medical device company with a proprietary non-invasive vagus nerve stimulation, or nVNS, therapy, called gammaCore. nVNS is a platform bioelectronic medical therapy that modulates neurotransmitters and immune function through its effects on both the peripheral and central nervous systems. The Company is initially focused on utilizing gammaCore in the management and treatment of primary headache conditions.

electroCore, headquartered in Rockaway, New Jersey, has two wholly owned subsidiaries: electroCore Germany GmbH, and electroCore UK Ltd. The Company has ceased its operations in Germany, although sales to Germany are still supported by electroCore UK Ltd. On November 2, 2021, the Company formally terminated its agreement with electroCore (Aust) Pty Limited (“electroCoreAustralia”). Prior to this termination, electroCoreAustralia was subject to electroCore’s control on a basis other than voting interests and was a variable interest entity (“VIE”), for which electroCore was the primary beneficiary. As of May 2017, the VIE had ceased operations. (see Note 14)

Note 2. Summary of Significant Accounting Policies

(a) Basis of Presentation

The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and the rules and regulations of the Securities and Exchange Commission ("SEC").

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

(b) Principles of Consolidation

The accompanying consolidated financial statements include the accounts of electroCore and its wholly owned subsidiaries. electroCoreAustralia was consolidated with the non-controlled equity presented as non-controlling interest in the Company's consolidated financial statements for the year ended December 31, 2020. As described in Note 1, the Company terminated its affiliation withelectroCore Australia on November 2, 2021 and, as such, this dormant entity was not included in the Company's consolidated financial statements for the year ended December 31, 2021. All intercompany balances and transactions have been eliminated in consolidation.

(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 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 allowances for doubtful accounts, trade credits, rebates, co-payment assistance and sales returns, valuation of inventory, stock compensation, incremental borrowing rate and contingencies.

(d) Revenue Recognition

The Company accounts for its revenue transactions under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606,Revenue from Contracts with Customers(“ASC Topic 606”). In accordance with ASC Topic 606, the Company recognizes revenueswhen its customers obtain control of its product for an amount that reflects the consideration it expects to receive from its customers in exchange for that product. To determine revenue recognition for contracts that are determined to be in scope of ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.Once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct.The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when such performance obligation is satisfied.

The transaction price is based on the consideration that the Company expects to receive in exchange for its products and includes the fixed per-unit price of the product and variable consideration in the form of trade credits, vouchers, rebates, and co-payment assistance. The per-unit price is based on the Company’s established wholesale acquisition cost less a contractually agreed upon distributor discount with the customer.

Trade credits are discounts that are contingent upon a timely remittance of payment and are estimated based on historical experience. Damaged or defective products are replaced at no charge under the Company’s standard warranty. A cash refund is allowed under specific circumstances for undamaged and non-defective returned products.

(e) Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with a maturity of three months or less when purchased. The Company’s accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per financial institution in the United States, and up to £85,000 by the Financial Services Compensation Scheme (“FSCS”) per financial institution in the United Kingdom.

(f) Marketable Securities

Marketable securities, all of which are available-for-sale, consist of corporate debt securities, U.S. bonds and U.S. sponsored agencies. 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.

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

(g) Concentration of Credit Risk

Cash, cash equivalents and marketable securities are financial instruments that potentially subject the Company to concentration of credit risk. As of December 31, 2021, the Company's cash equivalents and marketable securities were largely comprised of money market funds. The Company has established guidelines relative to diversification and maturities that are designed to help ensure safety and liquidity. These guidelines are periodically reviewed to take advantage of trends in yields and interest rates. As of December 31, 2021, approximately 99.2% of the Company’s cash, cash equivalents and marketable securities was denominated in U.S. Dollars, the balance is subject to foreign exchange risk.

(h) Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. Management considers an account receivable to be past due when it is not settled under its stated terms. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and customers financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. During the years ended December 31, 2021 and 2020, the Company's allowance for doubtful accounts was immaterial. The Company does not have any off balance sheet credit exposure related to its customers.

(i) Inventories

Inventory, which consists of raw materials, work-in-process and finished product, is stated at the lower of cost or net realizable value. Inventory is valued on a first-in first-out basis. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

The Company evaluates inventory with respect to its operating cycle and classifies inventory as current or long-term on its balance sheet. Based upon estimated production needs and current inventory levels, the Company determined the amount of inventory necessary for the next twelve months. Any amounts over this projection are reclassified as Inventories, noncurrent.

In addition, the Company’s product is subject to strict quality control and monitoring which the Company performs throughout the manufacturing process. If certain units of product no longer meet quality specification or become obsolete, the Company records a charge to cost of sales sold to write down such unmarketable inventory to zero.

(j) Property and Equipment

Property and equipment are stated at historical cost.Depreciation is computed by the straight-line method based on the estimated useful lives of the respective assets, as discussed below. Amounts expended for maintenance and repairs are charged to expense as incurred.

Depreciation and leasehold improvement amortization is computed using the following estimated useful lives:

Machinery and equipment 3–15 years

Furniture and fixtures 5–10 years

Computer equipment 5 years

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

(k) Leases

The Company determines if an arrangement is a lease at inception. For each lease, the lease term is determined at the commencement date and includes renewal options and termination options when it is reasonably certain that the Company will exercise that option. Operating leases with the lease terms greater than one year are included in operating lease right-of-use (“ROU”) assets and current and long-term operating lease liabilities in the Company’s consolidated balance sheets.

Operating lease ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term using an estimated rate of interest the Company would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date. The operating lease ROU assets are based on the liability adjusted for any prepaid or deferred rent and lease incentives. The incremental borrowing rate was utilized to discount lease payments over the expected term given that the Company’s operating leases do not provide an implicit rate. The Company estimates the incremental borrowing rate to reflect the profile of secured borrowing over the expected term of the leases based on the information available at the later of the date of adoption or the lease commencement date. Rent expense for the operating lease is recognized on a straight-line basis over the lease term.

(l)Cloud Computing Arrangement

Implementation costs for the Company’s cloud computing arrangement (“CCA”) are capitalized and amortized using the straight-line method over the life of the arrangement. The Company has capitalized implementation costs incurred in implementing its cloud computing arrangements, which is a hosting arrangement that is a service contract per FASB Accounting Standards Update (“ASU”) 2018-15. These costs include payroll costs of employees devoting time to the project and external direct costs for materials and services are capitalized.Software maintenance and training costs are expensed in the period in which they are incurred. The capitalized costs are included as a component of other assets.

(m) Impairment of Long-Lived Assets

Long lived assets, such as property, plant, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.

(n) Stock-based Compensation

The Company accounts for stock-based compensation in accordance with the ASC Topic 718, Compensation – Stock Compensation. The Company estimates the fair value of stock option awards using the Black-Scholes option pricing model on the date of the grant. Restricted stock unit awards and restricted stock awards without a market condition are valued based on the closing price of the Company’s common stock on the date of the grant. Compensation expense reflects actual forfeitures and is primarily recognized on a straight-line basis over the requisite service period of the individual grants, which typically equals the vesting period.

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

(o) Income Taxes

The Company follows the asset and liability method of accounting for income taxes under ASC 740, "Income Taxes." Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax provisions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company is currently not aware of any issues under review that could result in significant payments, accruals or deviation from its position during the next twelve months.

(p) Research and Development

Research and development costs are expensed as incurred. These costs include, but are not limited to, costs related to clinical trials, and compensation and related overhead for employees and consultants involved in research and development activities.

(q) Foreign Currency Translation and Transactions

The functional currency of the Company’s international operations has been determined to be the respective local currency. The Company translates functional currency assets and liabilities to their U.S. dollar equivalents at exchange rates in effect at the balance sheet date and translates functional currency income and expense amounts to their U.S. dollar equivalents at average exchange rates for the period. The U.S. dollar affects that arise from changing translation rates are recorded in other comprehensive loss. Foreign currency transaction gains and losses related to assets and liabilities that are denominated in a currency other than the functional currency are reported in the Consolidated Statements of Operations in the period they occur.

(r) Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business as one operating segment.

(s) Revision of Statement of Cash Flows Activity

In preparation of its financial statements for the quarter ended March 31, 2021, the Company realized that proceeds from its July 1, 2020 Commercial Insurance Premium Finance and Security Agreement should have been treated as a noncash activity instead of grossed up on the accompanying consolidated statement of cash flows. Even though the amount was not considered material, the financial statements have been revised. As a result, net cash used in operating and provided by financing activities for the year ended December 31, 2020, decreased by approximately $52,000.

(t) Prior year presentation

Prior year presentation has been conformed to current year presentation.

(u) Recently Adopted Accounting Standards

In August 2018, the FASB issued guidance which modified the disclosure requirements for fair value measurements. The guidance is effective for the year ended December 31, 2020. The Company adopted this guidance, and it was properly reflected in the consolidated financial statements. The impact on the consolidated financial statements was immaterial.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments, ASU 2016-13 changes the impairment model for most financial assets, including trade and other receivables, from an incurred loss method to a new forward looking approach based on expected losses. The new approach includes the consideration of historical experience, current conditions, and reasonable and supportable forecasts. The Company adopted this guidance and determined the impact on the consolidated financial statements was immaterial.

In December 2019, the FASB issued an update to simplify the accounting for income taxes and improve consistent application by clarifying or amending existing guidance. This guidance is effective for the year ended December 31, 2021. The Company adopted this guidance and determined the impact on the consolidated financial statements was immaterial.

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

Note 3. Significant Risks and Uncertainties

Liquidity

The Company has experienced significant net losses and cash used in operations, and it expects to continue to incur net losses and cash used in operations for the near future as it works to increase market acceptance of its gammaCore. The Company has never been profitable and has incurred net losses and cash used in operations in each year since its inception. The Company incurred net losses of $17.2 million and $23.5 million for the years ended December 31, 2021 and 2020, respectively. Cash used in operating activities was $13.6 million and $20.1 million for the years ended December 31, 2021 and 2020, respectively.

The Company’s expected cash requirements for the next 12 months and beyond are largely based on the commercial success of its products. There are significant risks and uncertainties as to its ability to achieve these operating results, including as a result of the adverse impact on its headache business from the ongoing COVID-19 pandemic. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company has historically funded its operations from the sale of its common stock. During the year ended December 31, 2021, the Company received net proceeds of approximately $25.7 million from such sales and as of December 31, 2021, the Company’s cash, cash equivalents and marketable securities totaled $34.7 million. The Company believes that the substantial doubt of its ability to continue as a going concern is alleviated based on proceeds received from its common stock offerings. The Company believes its cash and marketable securities 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.

Concentration of Revenue Risks

The Company earns a significant amount of its revenue (i) in the United States from the Department of Veterans Affairs and Department of Defense ("VA/DoD") pursuant to its qualifying contract under the Federal Supply Schedule and open market sales to individual Department of Veterans Affairs facilities and (ii) in the United Kingdom from the National Health Service. Each of these two channels accounted for 10% or more of the Company's net sales in the years ended December 31, 2021 and 2020. The following table reflects the respective concentration as a percentage of the Company's total net sales:

Years ended December 31,

Revenue channel:

National Health Service 24.1 % 29.0 %

The following table reflects the Company's net sales concentration within the VA/DoD:

Years ended December 31,

Number of VA/DoD facilities 4 4

VA/DoD net sales concentration 51.4 % 45.3 %

Number of VA/DoD facilities accounting for more than 10% of VA/DoD net sales 2 2

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

During these periods, no other customer accounted for 10% or more of the Company's net sales.

Foreign Currency Exchange Risks

The Company has foreign currency exchange risk related to revenue and operating expenses in currencies other than the local currencies in which it operates. The Company is exposed to currency risk from the potential changes in functional currency values of its assets, liabilities, and cash flows denominated in foreign currencies.

COVID-19 Risks and Uncertainties

The Company continues to monitor the impact of the coronavirus pandemic on all aspects of its business and geographies, including how it will impact business partners, customers and the global supply chain. While the Company experienced disruptions during the years ended December 31, 2021 and 2020 from the coronavirus pandemic, it is unable to predict the full impact that the coronavirus pandemic may have on its financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. The coronaviruspandemic has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. Depending upon the duration and severity of the pandemic, the continuing effect on the Company's results and outlook over the long term remains uncertain.

Note 4. Revenue Recognition

Geographical Net Sales

The following table presents net sales disaggregated by geographic area:

Years ended December 31,

Geographic Market

Performance Obligations

Revenue, net of discounts, vouchers, rebates, returns, and co-payment assistance is solely generated from the sales of the gammaCore products. Revenue is recognized when delivery of the product is completed. The Company deems control to have transferred upon the completion of delivery because that is the point in which (1) it has a present right to payment for the product, (2) it has transferred the physical possession of the product, (3) the customer has legal title to the product, (4) the customer has risks and rewards of ownership and (5) the customer has accepted the product. After the products have been delivered and control has transferred, the Company has no remaining unsatisfied performance obligations.

Revenue is measured based on the consideration that the Company expects to receive in exchange for gammaCore, which represents the transaction price. The transaction price includes the fixed per-unit price of the product and variable consideration in the form of trade credits, rebates, and co-payment assistance. The per-unit price is based on the Company’s established wholesale acquisition cost less a contractually agreed upon distributor discount with the customer.

Trade credits are discounts that are contingent upon a timely remittance of payment and are estimated based on historical experience. For the years ended December 31, 2021 and 2020, trade credits and discounts were immaterial.

Contract Balances

TheCompany generally invoices the customer and recognizes revenue once its performance obligations are satisfied, at which point payment is unconditional. Accordingly, under ASC606, the Company’s contracts with customers did not give rise to contract assets or liabilities during the year endedDecember 31, 2021and2020.

Agreed upon payment terms with customers are within30days of shipment. Accordingly, contracts with customers do not include a significant financing component.

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

Note 5. Cash, Cash Equivalents and Marketable Securities

The following tables summarizes the Company’s cash, cash equivalents and marketable securities as of December 31, 2021 and 2020.

Amortized Cost Unrealized Gain Unrealized (Loss) Fair Value

U.S. Treasury Bonds 421 — (421 ) —

Total marketable securities $ 421 $ — $ (421 ) $ —

Amortized Cost Unrealized Gain Unrealized (Loss) Fair Value

The Company’s U.S. treasury bonds mature within one year.

Note 6. Fair Value Measurements

Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three levels of the fair value hierarchy:

• Level 1—Quoted prices in active markets for identical assets or liabilities.

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

As of December 31, 2020, the Company's Marketable securities (U.S. treasury bonds) in the amount of $18,386,160 were carried at fair value in accordance with Level 1 as described above. The Company had no financial assets or liabilities as of December 31, 2021 that required valuation in accordance with the Levels described above. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the years ended December 31, 2021 and 2020. The carrying amount of the Company’s receivables and payables approximate their fair value due to their maturity.

Note 7.Inventory

As of December 31, 2021 and 2020, inventories consisted of the following:

December 31,

As of December 31, 2021 and 2020, the Company reserved $821,012 and $721,462 respectively,for obsolete inventory. The Company records charges for obsolete inventory in cost of goods sold. As of December 31, 2021 and 2020, noncurrent inventory was comprised of approximately $0.9 million and $0.7million of raw materials, respectively, and $3.0 million and $4.2million of work in process, respectively. Inventory classified under the category Work in process consists of prefabricated assembled product.

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

Note 8.Leases

The Company accounts for leases in accordance with FASB ASU 2016-02, Leases (Topic 842), and its operating leases consist of office space, manufacturing/warehouse space, and office equipment.The Company elected not to recognize right of use assets and lease liabilities for short term leases, i.e., leases with a noncancelable period of 12 months or less. The Company recognized the option to renew its manufacturing/warehouse space ("Rockaway space") as part of the right of use asset and the lease liability as the Company deemed that the renewal option was reasonably certain to be exercised.

In connection with its cost reduction strategies, the Company vacated its New Jersey corporate headquarters ("Basking Ridge office space") and relocated its corporate headquarters to the Rockaway space effective December 31, 2020. Although the Basking Ridge lease agreement provided for sublease, the Company did not elect this option in light of the economic downturn in commercial real estate due to the pandemic and other factors.In December 2020, the Company informed the Basking Ridge landlord of its intention to vacate the Basking Ridge office space on December 31, 2020.

On December 31, 2020, the Company wrote off the net book value of the operating lease right of use asset associated with the Basking Ridge office space in the amount of $534,493 along with the related asset balances totaling $23,050. This charge is reflected in the Company’s Consolidated Statement of Operations for the year ended December 31, 2020, under selling, general and administrative expense.

On September 27, 2021, the Company entered into the Termination and Settlement Agreement ("Agreement") with the lessor of the Basking Ridge office space. The Agreement provided for the immediate termination of the Basking Ridge lease in its entirety. In consideration for the lease termination, the Company agreed to pay the lessor a total of $500,000 in cash and issue to the lessor 200,000 shares of its common stock. As of December 31, 2021, such payments were satisfied by the Company. The Company recorded a gain of $57,371 in connection with the termination of the Agreement which is included in the accompanying Consolidated Statements of Operations for the year ended December 31, 2021 under the caption Operating expenses - Selling, general and administrative.

For the years ended December 31, 2021 and 2020, the Company recognized lease expense of $146,236 and $573,046, respectively. This expense does not include non-lease components associated with the lease agreements as the Company elected not to include such charges as part of the lease expense.

Supplemental Balance Sheet Information for Operating Leases:

December 31,

Operating leases:

Operating lease liabilities:

Current portion of operating lease liabilities 61,403 534,547

Weighted average remaining lease term (in years) 6.9 5.7

Weighted average discount rate 13.8 % 13.8 %

Future minimum lease payments under non-cancellable operating leases as of December 31, 2021:

Financial year

Total future minimum lease payments 1,196,872

Less: Amounts representing interest (436,006 )

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

Note 9. Cloud Computing Arrangement

In 2018, the Company entered into a contract to obtain a cloud computing arrangement (“CCA”). In accordance with ASU 2018-15, the implementation costs incurred in the CCA were deferred and recognized as other assets and are being amortized to expense over the noncancelable term of the arrangement. The implementation of this CCA was completed on June 30, 2019. Beginning July 1, 2019, the Company went live with the cloud computing Enterprise Resource Planning system and all future related costs are expensed as incurred. In July 2019, the Company began amortizing the related deferred costs over the remaining period of the noncancelable arrangement. Amortization costs for the years ended December 31, 2021 and 2020 were $282,074 and $282,074, respectively. As of December 31, 2021, the remaining term of the lease is approximately two years. The CCA is included in the accompanying Consolidated Balance Sheet for the years ended December 31, 2021 and 2020 under the caption Other assets, net, and is summarized below:

December 31,

Note 10. Accrued Expenses and Other Current Liabilities

Accrued expenses as of December 31, 2021 and 2020 consisted of the following:

December 31,

Finance and Security Agreements

On July 2, 2021, the Company entered into a Commercial Insurance Premium Finance and Security Agreement (“the 2021 Agreement”). The 2021 Agreement provides for a single borrowing by the Company of $1.2million, with a ten-month term and an annual interest rate of1.55%. The proceeds from this transaction were used to partially fund the premiums due under some of the Company’s insurance policies. The amounts payable are secured by the Company’s rights under such policies. The Company began to pay monthly installments of approximately $124,800beginning in July 2021. As ofDecember 31, 2021, the remaining balance underthe Agreement was $499,195and during the year ended December 31, 2021, the Company recognized $5,292in interest expense.

On July 1, 2020, the Company entered into a Commercial Insurance Premium Finance and Security Agreement (“the 2020 Agreement”). The 2020 Agreement provides for a single borrowing by the Company of $1.2million, with aseven-month term and an annual interest rate of2.18%. The proceeds from this transaction were used to partially fund the premiums due under some of the Company’s insurance policies. All borrowings related to the 2020 Agreement were fully repaid as of December 31, 2021.

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

Note 11.Note Payable

Paycheck Protection Program

On May 4, 2020, the Company received proceeds of $1.4 million in connection with a promissory note (the “Note”) entered into with Citibank, N.A. (the “Lender”) evidencing an unsecured loan (the “Loan”) under the Paycheck Protection Program ("PPP"). The PPP is a program of the SBA established under the CARES Act. Under the PPP, the proceeds of the Loan may be used for payroll and certain covered interest payments, lease payments and utility payments (“Qualifying Expenses”). The Company used the entire Loan amount for Qualifying Expenses under the PPP.

On May 18, 2021, the Company received notification from the Lender of SBA's approval of the Company's application for loan forgiveness. Accordingly, the Company was not required to repay the loan. The Company has recorded the loan forgiveness as a gain in the accompanying Consolidated Statements of Operations for the year ended December 31, 2021 under the caption Gain on extinguishment of debt.

Note 12. Stockholders’ Equity

Public Offering of Common Stock

On July 2, 2021, the Company completed a public offering of 20,700,000 shares of its common stock at a purchase price of $1.00 per share. The net proceeds of the offering to the Company were approximately $18.8 million, after deducting the underwriting discounts, commissions, and other offering expenses.

Other 2021 Securities Purchase Agreements

On August 30, 2021, the Company entered into a Securities Purchase Agreement with its legal counsel pursuant to which the Company issued 952,380 shares of common stock, at a purchase price of $1.05 per share. Upon issuance of the shares, certain of the Company's outstanding financial obligations to its legal counsel were deemed paid and satisfied in full.

Settlement of Lease Liability

During 2021, the Company agreed to issue 200,000 shares of its common stock in connection with the lease termination related to its former headquarters located in Basking Ridge, NJ.

Settlement of Accrued Bonus

In January 2021, the Company issued 165,413 shares of its common stock as payment for certain executive incentive bonuses accrued in 2020.

Lincoln Park Purchase Agreement

On March 27, 2020, the Company and Lincoln Park entered into an equity facility purchase agreement ("Purchase Agreement") pursuant to which the Company has the right to sell to Lincoln Park shares of common stock having an aggregate value of up to $25,000,000, subject to certain limitations and conditions set forth in the purchase agreement.

Upon entering into the Purchase Agreement with Lincoln Park, the Company issued an aggregate of 461,676 shares of common stock to Lincoln Park as a commitment fee. The fair value of these shares on the date of issuance was approximately $186,300. During 2020, the Company issued an additional 230,838 shares of common stock to Lincoln Park as a further commitment fee based on the first $5,000,000 of shares of common stock issued to Lincoln Park under the Purchase Agreement as Purchase Shares (as such term is defined in the Purchase Agreement). The Company did not receive any cash proceeds from the issuance of any of the foregoing commitment shares. No further commitment fee shares remain issuable under the Purchase Agreement. The net proceeds under the Purchase Agreement to the Company will depend on the frequency and prices at which shares of common stock are sold to Lincoln Park. Actual sales of shares of common stock to Lincoln Park under the Purchase Agreement and the amount of such net proceeds will depend on a variety of factors, including market conditions, the trading price of the common stock and determinations by the Company as to other available and appropriate sources of funding for the Company. The Company has and expects to continue to use the proceeds from this agreement for general corporate purposes and working capital.

During 2020, the Company sold 10,179,676 shares of common stock under the Purchase Agreement, resulting in aggregate proceeds of approximately $15.5 million to the Company. In January 2021, the Company sold an additional 2,750,000 shares of its common stock under the Purchase Agreement, resulting in aggregate proceeds of approximately $6.9 million to the Company. On March 11, 2021, the Company terminated the Purchase Agreement and, accordingly, the Company will not sell any further shares of its common stock to Lincoln Park under the Purchase Agreement.

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

Other 2020 Securities Purchase Agreements

On April 14, 2020, the Company entered into a Securities Purchase Agreement (“First SPA”) with certain accredited investors pursuant to which the Company agreed to sell an aggregate of 2,058,822 shares of common stock at a purchase price of $0.85 per share for aggregate proceeds to the Company of approximately $1.75 million. Each of the purchasers was an affiliate and/or existing shareholder of the Company, including some members of the Company’s board of directors. In addition, the purchasers were granted customary registration rights as further described in the First SPA.

On May 14, 2020, the Company entered into a Securities Purchase Agreement (“Second SPA”) with its legal counsel pursuant to which the Company agreed to issue 1,564,345 shares of common stock, at a purchase price of $0.99 per share. Upon issuance of the shares, certain outstanding financial obligations of the Company owed to its legal counsel were deemed paid and satisfied in full. In addition, the Company’s legal counsel was granted customary registration rights as further described in the Second SPA. During 2020, the Company recorded a non-cash charge of $156,434 in connection with this transaction.

On May 18, 2020, the Company entered into a third Securities Purchase Agreement (“Third SPA”) with certain accredited investors pursuant to which the Company agreed to sell an aggregate of 505,205 shares of common stock at a purchase price of $0.9178 per share, for aggregate proceeds to the Company of approximately $0.45 million. In addition, the purchasers were granted customary registration rights as further described in the Third SPA.

Stock Purchase Warrants

The following table presents a summary of stock purchase warrants outstanding as of December 31, 2021:

Granted — — $ —

Exercised — — $ —

Exercisable, December 31, 2021 — $ — — $ —

Note 13.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. Restricted stock and unit awards, and stock options have not been included in the diluted loss per share calculation as their inclusion would have had an anti-dilutive effect.

The potential common stock equivalents that have been excluded from the computation of diluted loss per share consist of the following:

December 31,

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

Note 14.Variable Interest Entity

As discussed in Note 1, electroCore was the primary beneficiary of electroCore (Aust) Pty Limited ("electroCoreAustralia"). electroCore has contributed certain intellectual property rights, all rights to distribute, market and sell specified products in Australia and New Zealand, and other rights outlined in the shareholders’ deed of electroCore (Aust) Pty Limited in return for 50% of the shares of such entity. In addition, electroCore had the right to appoint two of the four directors and exercise significant influence. This along with the fact that electroCore was electroCoreAustralia’s only supplier caused electroCore, for accounting purposes, to be the primary beneficiary of electroCoreAustralia. The activities related to electroCoreAustralia were not material to the Company's consolidated financial statements. Effective May 2017, the VIE had ceased operations. On November 2, 2021, the Company terminated its interest in electroCoreAustralia and recorded the related a gain of $549,254 in the accompanying Consolidated Statement of Operations for the year ended December 31, 2021 under the caption Gain on termination of joint venture.

Note 15. Income Taxes

The benefit for income taxes for the years ended December 31, 2021 and 2020 consisted of foreign taxes, state minimum tax and a benefit from the sale of state net operating losses.

Domestic and foreign components of the loss before provision for income taxes is as follows:

The income tax provision from continuing operations contains the following components:

Federal $ — $ —

Total deferred — —

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

The Company has evaluated the available evidence supporting the realization of its deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that its net deferred tax assets will not be realized in the United States and certain foreign jurisdictions. Due to uncertainties surrounding the realization of the deferred tax assets, the Company maintains a full valuation allowance against all of its net deferred tax assets. When the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets would have the effect of increasing net income in the period such determination is made. The net change in the valuation allowance was an increase of $3.9 million.

The significant components of the Company’s deferred income tax assets and liabilities after applying enacted corporate tax rates are as follows:

Year ended December 31,

Deferred tax assets

Allowance for bad debt 3,139 —

Deferred FICA Tax 6,942 —

Deferred tax assets, net $ — $ —

A reconciliation of the income tax provision computed at statutory rates to the reported income tax provision for the years ended December 31, 2021 and 2020 is as follows:

Year ended December 31,

Statutory rate (21.0) % (21.0) %

State tax expected (recovery), net of federal benefit 5.7 % (4.2) %

Stock compensation (5.7) % (6.8) %

State tax NOL sale (3.8) % (3.7) %

Nondeductible expenses 2.1 % (0.5) %

PPP loan forgiveness (1.7) % — %

Unrealized gain from termination of joint venture (1.8) % — %

Other — % (0.1) %

Change in valuation allowance for deferred tax assets 21.5 % 31.6 %

Income tax benefit (4.7) % (4.7) %

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

As of December 31, 2021 and 2020, the Company had accumulated net operating losses totaling $103.9 million and $87.2 million, respectively, in the U.S. (federal and state), which may be available to carry forward and offset future years' taxable income. U.S. federal losses can be carried forward indefinitely, and state losses expire in various amounts beginning in 2026. The Company also had accumulated losses totaling $3.6 million and $3.9 million in Germany which can be carried forward indefinitely.

However, the NOL carryforwards may be, or become subject to, an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. This could limit the amount of NOLs that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to an ownership change. Subsequent ownership changes may further affect the limitation in future years. If and when the Company utilizes the NOL carryforwards in a future period, it will perform an analysis to determine the effect, if any, of these loss limitation rules on the NOL carryforward balances.

During the year ended December 31, 2021 in accordance with the State of New Jersey's Technology Business Tax Certificate Program, which allowed certain high technology and biotechnology companies to sell unused NOL carry forwards to other New Jersey based corporate taxpayers, the Company sold New Jersey NOL carry forwards, resulting in the recognition of $876,690 of income tax benefit, net of transaction costs. The Company recognized $1,170,890 of income tax benefit from the sale of New Jersey carry forwards in 2020. There can be no assurance as to the continuation or magnitude of this program in the future.

As of December 31, 2021, the Company had Federal and NJ research and development credits of $282,801 and $191,863 respectively. The Federal R&D credits can be carried forward 20 years and will begin to expire in 2038. The New Jersey R&D credits can be carried forward seven years and will begin to expire in 2025.

Uncertain Tax Positions

The Company has adopted certain provisions of ASC 740, “Income Taxes”, which prescribes a recognition threshold and measurement attribute for the recognition and measurement of tax positions taken or expected to be taken in income tax returns. The provisions also provide guidance on the de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions.

The Company files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. The Company’s tax returns are subject to tax examinations by U.S. federal and state tax authorities, or examinations by foreign tax authorities until the expiration of the respective statutes of limitation. The Company currently has no tax years under examination.

As of December 31, 2021, the Company does not have an accrual relating to uncertain tax positions. Interest and penalties, if any, as they relate to income taxes assessed, are included in the income tax provision. It is not anticipated that unrecognized tax benefits would significantly increase or decrease within 12 months of the reporting date.

Coronavirus Aid, Relief, and Economic Security Act

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, the "CARES Act", was enacted and signed into law, and GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date. The CARES Act, among other things, includes changes to the tax provisions that benefits business entities and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act, including, permitting net operating losses, or NOLs, carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The CARES Act provides other reliefs and stimulus measures. The Company has evaluated the impact of the CARES Act, and determined that the provisions of the CARES Act did not have an impact on its financial statements or internal controls over financial reporting.

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

Note 16.Stock Based Compensation

On June 21, 2018, the Company adopted the2018Omnibus Equity Incentive Plan (“Plan”). This plan reserved6.2million shares with an increase to be added annually beginning in2019through2028up to4% of the total number of shares of common stock issued and outstanding on a fully diluted basis as of the end of the immediately preceding fiscal year, providing that the aggregate number of additional shares shall not exceed a total of45million shares, and a maximum of40 million shares pursuant to the exercise of stock options. Effective January 1, 2022, the number of shares reserved under the Plan was increased by 2.0 million to approximately 10.9 million. The Company’s policy is to issue new shares of its common stock upon the exercise of stock options, new grants of restricted stock awards, and settlement of restricted stock units. Stock options issued under the plan have a contractual life of10years and are generally forfeited upon separation from the Company.

The following table presents stock compensation expense recognized by the Company for the years ended December 31, 2021 and 2020. Total unrecognized compensation cost related to equity awards as ofDecember 31, 2021 was $4.3million and is expected to be recognized over the next2.0years.

Year ended December 31,

The following table presents a summary of stock option award activity during the year ended December 31, 2021:

Exercised — — $ —

The intrinsic value is calculated as the difference between the fair market value at December 31, 2021 and the exercise price per share of the stock options. Options awards granted to employees generally vest over a four-year period.

The following table provides additional information about stock options that are outstanding and exercisable at December 31, 2021:

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

The following table presents a summary of restricted stock award ("RSA" or "RSAs") activity during the year ended December 31, 2021:

Number of Shares Weighted Average Grant Date Fair Value

In general, RSAs granted to employees vest over a four-year period.

The following table presents a summary of restricted and deferred stock unit (“Unit” or "Units") activity during the year ended December 31, 2021:

Number of Shares Weighted Average Grant Date Fair Value

In general, Units granted to employees vest over two to four years.

Immediately following the Company’s annual meeting of stockholders, the Company generally grants each non-employee director an equity award that vests over a 12-month period. Upon a non-employee director’s initial appointment or election to the board of directors, the Company grants such non-employee director an equity award subject to vesting as determined by the board of directors.

Valuation Information for Stock-Based Compensation

The fair value of each stock option award granted was estimated on the date of grant using the Black-Scholes model. Expected volatility was based on historical common stock volatility of the Company’s peers. The risk-free interest rate was based on the average U.S. Treasury rate that most closely resembles the expected life of the related award. The expected term of the award was calculated using the simplified method. No dividend was assumed as the Company does not pay regular dividends on its common stock and does not anticipate paying any dividends in the foreseeable future.

The weighted average assumptions used in the Black-Scholes option pricing model in valuing stock options granted in the periods presented were:

Fair value at grant date $ 1.32 $ 0.98

Risk-free interest rate 0.7% 0.7%

Expected holding period, in years 6.0 6.1

Dividend yield — —

The fair value of RSAs and Units is the market close price of the Company’s common stock on the trading day immediately preceding the date of grant.

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

Note 17.Commitments and Contingencies

Stockholders Litigation

On July 8, 2019 and August 1, 2019, purported stockholders of the Company served putative class action lawsuits in the Superior Court of New Jersey for Somerset County, captioned Paul Kuehl vs. electroCore, Inc., et al., Docket No. SOM-L 000876-19 and Shirley Stone vs. electroCore, Inc., et al., Docket No. SOM-L 001007-19, respectively. In addition to the Company, the defendants included present and past directors and officers, Evercore Group L.L.C., Cantor Fitzgerald & Co., JMP Securities LLC and BTIG, LLC, the underwriters for its IPO; and two of the Company’s stockholders. On August 15, 2019, the Superior Court entered an order consolidating the Kuehl and Stone actions, which proceeded under Docket No. SOM-L 000876-19. Each plaintiff was appointed a co-lead plaintiff. The plaintiffs filed a consolidated amended complaint, which sought certification of a class of stockholders who purchased common stock in the IPO or whose purchases are traceable to that offering. The consolidated amended complaint alleged that the defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act with respect to the registration statement and related prospectus for the IPO. The complaint sought unspecified compensatory damages, interest, costs and attorneys’ fees. On October 31, 2019, the Company and the other defendants filed a motion to dismiss the complaint or in the alternative to stay the action in favor of the pending federal action (discussed below).

On February 21, 2020 the court granted the defendants’ motion to dismiss the consolidated amended complaint with prejudice. On March 2, 2020 the court entered an amended order dismissing the consolidated amended complaint with prejudice. On March 27, 2020, the plaintiffs filed a notice of appeal with the N.J. Superior Court – Appellate Division. The appeal was argued on September 27, 2021. On October 8, 2021, the Appellate Division issued an order reversing the decision of the Superior Court. The case was remanded to the Superior Court for oral argument on the motion to dismiss. On November 11, 2021 the defendants filed a supplemental motion to dismiss based on the certificate of incorporation’s forum selection clause.On December 10, 2021, the Superior Court heard argument of the original motion to dismiss and the supplemental motion to dismiss based on the federal forum selection clause.On December 14, 2021, the Superior Court granted both motions in their entirety and dismissed the action without leave to re-plead. On January 27, 2022, the plaintiffs filed a notice of appeal to the Appellate Division. A briefing schedule has been set by the Appellate Division for the appeal but an argument date has not been set.

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 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.

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 two investors as defendants and adds a claim against the Company and the underwriters for violating Section 12(a)(2) of the Securities Act. 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. On November 17, 2021, the defendants moved to dismiss the new complaint.Briefing on the motion is now complete. Argument of the motion has not yet been scheduled.

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

The Priewe case was voluntarily dismissed on February 19, 2020.

On March 4, 2021, purported stockholder Richard Martz brought a purported stockholder derivative action in the United States District Court for the District of New Jersey. The action is captioned Richard Maltz, derivatively on behalf of electroCore, Inc., vs. Francis R. Amato, et al., Case 3:21-cv-04135. The defendants include present and past directors and officers of the Company.The plaintiff purports to pursue derivative claims on behalf of the Company in connection with the IPO and actions occurring between the IPO and September 25, 2019.The complaint alleges that demand on the board of directors is excused.The complaint purports to allege claims against the defendants for violating Section 14(a) of the Exchange Act, breaching fiduciary duties, unjust enrichment and waste of corporate assets.The complaint also purports to allege claims for contribution in connection with the Turnofsky case described above, pursuant to Section 11(f) of the Securities Act and Sections 10(b) and 21D of the Exchange Act. The complaint seeks unspecified compensatory damages, interest, costs and attorneys’ fees; declaratory relief; and an order requiring changes to corporate governance and internal procedures and a vote on proposed amendments to the Bylaws and Certificate of Incorporation.

On March 8, 2021, purported stockholder Ewrin Yuson brought a purported stockholder derivative action in the United States District Court for the District of New Jersey. The action is captioned Erwin Yuson, derivatively on behalf of electroCore, Inc., vs. Francis R. Amato, et al., Case 3:21-cv-04481. The defendants include present and past directors and officers of the Company.The plaintiff purports to pursue derivative claims on behalf of the Company in connection with a 2019 proxy statement and actions occurring from the IPO through September 25, 2019.The complaint alleges that demand on the board of directors is excused.The complaint purports to allege claims against the defendants for violating Section 14(a) of the Exchange Act and breaching fiduciary duties. The complaint seeks unspecified compensatory damages, interest, costs and attorneys’ fees; declaratory relief; and an order requiring changes to corporate governance and internal procedures and a vote on proposed amendments to the Bylaws and Certificate of Incorporation.

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 expenses associated legal fees in the period they are incurred.

Purchase Commitments

The Company enters into contracts in the normal course of business with contract research organizations for its clinical trials, contract manufacturing organizations for the manufacture and supply of its clinical and commercial product needs and other vendors for other research and development and commercial activities, as well as services and products for operating purposes. The Company’s agreements generally provide for termination with notice. Such agreements that are cancelable contracts are not included as purchase commitments. The Company has included as purchase obligations its commitments under agreements to the extent they are quantifiable and are not cancelable. The Company has purchase obligations of approximately $1.3million as of December 31, 2021.

ELECTROCORE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — Continued

Note 18.Restructuring Charges and Other Related Charges

The following table provides a summary of the Company’s restructuring and other related charges for the year end December 31, 2020:

Employee separation costs $ 271,164

Payment in lieu of severance 175,000

Other restructuring costs 18,442

In January 2020, the Company entered into a separation agreement with a former officer which agreement required an aggregate severance payment of $190,000over asix-month period. In January 2020, the Company also entered into an agreement with a new employee that required the unconditional payment of $175,000, in lieu of future severance to be paid in equal monthly installments over afourteen-month period.As of December 31, 2021, the Company has no payable in connection with the above described charges.