electroCore, Inc. 10-K

Item 9A. 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, 2020 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, 2020 , 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, 2020, 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, 2020 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, 2020 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting. Item 9 B. Other Information Effective March 11, 2021, the Company terminated the Purchase Agreement with Lincoln Park. No material termination penalties were incurred. The foregoing information is included in this Annual Report on Form 10-K in lieu of a Current Report on Form 8-K. 90 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 2021 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 2021 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 2021 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 2021 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 Accounting 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 2021 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. 91 PART IV Item 15. Exhibits, Financial Statement Schedules (a) The following documents are filed as part of this report: (1) Financial Statements: ​ Reports of Independent Registered Public Accounting Firms 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. 92 Exhibit Number Description 3.1*** Certificate of Incorporation of electroCore, Inc . 3.2*** Bylaws of electroCore, Inc . 4.1***** Registration Rights Agreement, dated March 27, 2020, between electroCore, Inc. and Lincoln Park Capital Fund, LLC 4 .2* Description of Capital Stock 10.2†** electroCore, Inc. 2018 Omnibus Equity Incentive Plan 10.3†** Form of Employee Incentive Stock Option Agreement for electroCore, Inc. 2018 Omnibus Equity Incentive Plan 10.4†** Form of Non-qualified Stock Option Agreement for electroCore, Inc. 2018 Omnibus Equity Incentive Plan 10.5†** Form of Employee Restricted Stock Award Agreement for electroCore, Inc. 2018 Omnibus Equity Incentive Plan 10.6†** Form of Non-Employee Director Inaugural Deferred Stock Unit Award Agreement for electroCore, Inc. 2018 Omnibus Equity Incentive Plan 10.7†** Form of Non-Employee Director Inaugural Non-qualified Stock Option Agreement for electroCore, Inc. 2018 Omnibus Equity Incentive Plan 10.8†** Form of Non-Employee Director Inaugural Restricted Stock Unit Agreement for electroCore, Inc. 2018 Omnibus Equity Incentive Plan 10.9†** Form of Non-Employee Director Annual Deferred Stock Unit Award Agreement for electroCore, Inc. 2018 Omnibus Equity Incentive Plan 10.10†** Form of Non-Employee Director Annual Non-qualified Stock Option Agreement for electroCore, Inc. 2018 Omnibus Equity Incentive Plan 10.11†** Form of Non-Employee Director Annual Restricted Stock Unit Agreement for electroCore, Inc. 2018 Omnibus Equity Incentive Plan 10.12†** Form of Indemnification Agreement between the Registrant and each of its executive officers and directors 10.13†** Form of electroCore, Inc. Management Severance Plan 10.14†* electroCore, Inc. Non-Employee Director Compensation Policy 10.15**** Rockaway, NJ Office Lease between Anson Logistics Assets LLC and electroCore, Inc. 10.16** Basking Ridge, NJ Office Lease between 150 Allen Road, LLC and Electrocore, LLC 10.17** Form of Common Unit Warrant 10.18** Form of Series A Warrant 10.19** Form of Bridge Warrant 93 10.20† Employment Offer Letter, dated as of September 26, 2019, between electroCore, Inc. and Daniel Goldberger, incorporated by reference to the Company's Current Report on Form 8-K, as filed with the Commission on October 2, 2019 . 10.21† Brian Posner Employment Agreement, dated as of January 30, 2019, incorporated by reference to the Company's Current Report on Form 8-K, as filed with the Commission on March 12, 2019 . 10.22† Amendment to Brian Posner Employment Agreement, dated as of August 8, 2019, incorporated by reference to the Company's Quarterly Report on Form 10-Q, as filed with the Commission on August 14, 2019 . 21.1* List of subsidiaries of electroCore, Inc . 23.1* Consent of Marcum LLP 23.2* Consent of KPMG LLP 31.1* Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 . 31.2* Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 . 32.2* Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 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. ** Incorporated by reference to the Company’s Registration Statement on Form S ‑ 1, Registration No. 333 ‑ 228863. *** Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019 as filed with the Commission on August 14, 2019. **** Incorporated by reference to the Company’s Annual Report on Form 10-K for the period ended December 31, 2018 as filed with the Commission on March 28, 2019. ***** Incorporated by reference to the Company’s Current Report on Form 8-K as filed with Commission on March 27, 2020. † Indicates management agreement 94 SIGNATURES Pursuant to the requirements of Section 13 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 11, 2021 By: /s/ DANIEL S. GOLDBERGER Daniel S. Goldberger Chief Executive Officer and Director (Principal Executive Officer) Date: March 11, 2021 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/ Michael G. Atieh Chairman of the Board March 11, 2021 Michael G. Atieh /s/ Daniel S. Goldberger Director March 11, 2021 Daniel S. Goldberger /s/ John Gandolfo Director March 11, 2021 John Gandolfo /s/ Joseph P. Errico Director March 11, 2021 Joseph P. Errico /s/ Thomas Patton Director March 11, 2021 Thomas Patton /s/ Thomas J. Errico, M.D. Director March 11, 2021 Thomas J. Errico, M.D. /s/ Trevor J. Moody Director March 11, 2021 Trevor J. Moody /s/ Stephen L. Ondra, M.D. Director March 11, 2021 Stephen L. Ondra, M.D. /s/ Peter Cuneo Director March 11, 2021 Peter Cuneo 95 ​​ INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ Reports of Independent Registered Public Accounting Firms F-2 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-4 Consolidated Statements of Operations for the Years ended December 31, 2020 and 2019 F-5 Consolidated Statements of Comprehensive Loss for the Years ended December 31, 2020 and 2019 F-6 Consolidated Statements of Equity for the Years ended December 31, 2020 and 2019 F-7 Consolidated Statements of Cash Flows for the Years ended December 31, 2020 and 2019 F-8 Notes to Consolidated Financial Statements F-9 F-1 . Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors electroCore, Inc.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of electroCore, Inc., Subsidiaries and Affiliate (the “Company”) as of December 31, 2020, the related consolidated statements of operations, comprehensive loss, equity and cash flows for the year ended December 31, 2020, 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, 2020 and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 3, the Company has incurred recurring losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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 audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit 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 audit 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 audit 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 audit 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 audit provides 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 11, 2021 F-2 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors electroCore, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of electroCore, Inc., Subsidiaries and Affiliate (the Company) as of December 31, 2019, the related consolidated statements of operations, comprehensive loss, equity, and cash flows for the year ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ KPMG LLP We served as the Company’s auditor from 2015 to 2020. Short Hills, New Jersey March 30, 2020 F-3 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Consolidated Balance Sheets December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 4,241,937 $ 13,563,791 Marketable securities 18,386,160 10,495,350 Accounts receivable, net 270,546 496,140 Inventories, net 876,436 890,992 Prepaid expenses and other current assets 1,288,588 1,087,111 Total current assets 25,063,667 26,533,384 Inventories, noncurrent 4,865,181 6,020,180 Property and equipment, net 244,047 345,236 Operating lease right of use assets, net 517,257 1,430,641 Other assets, net 828,011 1,132,238 Total assets $ 31,518,163 $ 35,461,679 Liabilities and Equity Current liabilities: Accounts payable $ 2,078,699 $ 5,208,979 Accrued expenses 2,800,820 3,337,379 Notes payable, current 476,236 111,878 Current portion of operating lease liability 534,547 486,445 Total current liabilities 5,890,302 9,144,681 Note payable, noncurrent 1,097,946 — Operating lease liabilities, noncurrent 885,333 1,419,880 Total liabilities 7,873,581 10,564,561 Commitments and contingencies (Note 18) Preferred Stock, par value $ 0.001 per share; 10,000,000 shares authorized at December 31, 2020 and December 31, 2019; 0 shares issued and outstanding at December 31, 2020 and December 31, 2019 — — Common Stock, par value $ 0.001 per share; 500,000,000 shares authorized at December 31, 2020 and December 31, 2019; 45,559,765 shares issued and outstanding at December 31, 2020, and 29,835,183 shares issued and outstanding at December 31, 2019 45,560 29,835 Additional paid-in capital 130,205,027 107,752,066 Accumulated deficit ( 106,990,148 ) ( 83,479,098 ) Accumulated other comprehensive loss ( 251,467 ) ( 41,295 ) Total stockholders' equity 23,008,972 24,261,508 Noncontrolling interest 635,610 635,610 Total equity 23,644,582 24,897,118 Total liabilities and equity $ 31,518,163 $ 35,461,679 See accompanying notes to the consolidated financial statements. F-4 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Consolidated Statements of Operations Years ended December 31, 2020 2019 Net sales $ 3,495,832 $ 2,390,279 Cost of goods sold 1,737,539 1,156,957 Gross profit 1,758,293 1,233,322 Operating expenses: Research and development 4,201,279 9,902,254 Selling, general and administrative 21,840,919 35,422,301 Restructuring and other severance related charges 464,606 1,997,292 Total operating expenses 26,506,804 47,321,847 Loss from operations ( 24,748,511 ) ( 46,088,525 ) Other (income)expense Interest and other income ( 84,327 ) ( 970,594 ) Other expense 17,756 12,253 Total other (income)expense ( 66,571 ) ( 958,341 ) Loss before income taxes ( 24,681,940 ) ( 45,130,184 ) Benefit/(provision) for income taxes 1,170,890 ( 17,699 ) Net loss $ ( 23,511,050 ) $ ( 45,147,883 ) Net loss per share of common stock - Basic and Diluted (see Note 13) $ ( 0.60 ) $ ( 1.54 ) Weighted average common shares outstanding - Basic and Diluted (see Note 13) 38,998,698 29,379,975 See accompanying notes to the consolidated financial statements. F-5 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Consolidated Statements of Comprehensive Loss Years ended December 31, 2020 2019 Net loss $ ( 23,511,050 ) $ ( 45,147,883 ) Other comprehensive (loss)/income: Foreign currency translation adjustment ( 207,012 ) ( 145,418 ) Unrealized (loss) gain on marketable securities, net of taxes as applicable ( 3,160 ) 43,280 Other comprehensive loss ( 210,172 ) ( 102,138 ) Comprehensive loss $ ( 23,721,222 ) $ ( 45,250,021 ) See accompanying notes to consolidated financial statements. F-6 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Consolidated Statements of Equity For the Years Ended December 31, 2020 and 2019 Additional Accumulated other Total electroCore, Inc., Common Stock paid-in Accumulated comprehensive stockholders' Noncontrolling Total Shares Amount capital deficit income (loss) equity interest equity Balances as of January 1, 2019 29,450,035 $ 29,450 $ 103,791,013 $ ( 38,331,215 ) $ 60,843 $ 65,550,091 $ 635,610 $ 66,185,701 Net loss — — — ( 45,147,883 ) — ( 45,147,883 ) — ( 45,147,883 ) Other comprehensive income — — — — ( 102,138 ) ( 102,138 ) — ( 102,138 ) Issuance of warrants in settlement of lawsuit — — 16,692 — — 16,692 — 16,692 Issuance of common stock in connection with employee stock plans, net 385,148 385 48,580 — — 48,965 — 48,965 Stock based compensation — — 3,895,781 — — 3,895,781 — 3,895,781 Balances as of December 31, 2019 29,835,183 29,835 107,752,066 ( 83,479,098 ) ( 41,295 ) 24,261,508 635,610 24,897,118 Net loss — — — ( 23,511,050 ) — ( 23,511,050 ) — ( 23,511,050 ) Other comprehensive income — — — — ( 210,172 ) ( 210,172 ) — ( 210,172 ) Issuance of stock (see Note 12) 14,308,048 14,308 19,370,888 — — 19,385,196 — 19,385,196 Equity financing commitment fee* 692,514 693 ( 693 ) — — — — — Financing fees — — ( 182,821 ) — — ( 182,821 ) — ( 182,821 ) Issuance of common stock in connection with employee stock plans, net 724,020 724 ( 724 ) — — — — — Stock based compensation — — 3,266,311 — — 3,266,311 — 3,266,311 Balances as of December 31, 2020 45,559,765 $ 45,560 $ 130,205,027 $ ( 106,990,148 ) $ ( 251,467 ) $ 23,008,972 $ 635,610 $ 23,644,582 * 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. F-7 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Consolidated Statements of Cash Flows Year ended December 31, 2020 2019 Cash flows from operating activities: Net loss $ ( 23,511,050 ) $ ( 45,147,883 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 3,266,311 3,895,781 Depreciation and amortization 399,242 249,583 Amortization of marketable securities premium(discount) 31,096 ( 530,104 ) Cloud computing arrangement implementation costs — ( 1,114,568 ) Legal expense settled with stock 156,434 — Noncash lease expense 372,304 57,780 Inventory reserve charge 433,918 — Write-off of right of use operating lease 557,543 — Noncash portion of litigation settlement — 16,692 Other 676 76,279 Changes in operating assets and liabilities: Accounts receivable 225,594 ( 228,541 ) Inventories 735,637 ( 4,961,770 ) Prepaid expenses and other assets ( 165,707 ) 859,204 Accounts payable ( 1,581,579 ) 2,797,727 Accrued expense and other current liabilities ( 536,561 ) ( 1,036,721 ) Operating lease liabilities ( 486,445 ) — Net cash used in operating activities ( 20,102,587 ) ( 45,066,541 ) Cash flows from investing activities: Purchase of marketable securities ( 24,463,158 ) ( 37,224,879 ) Proceeds from maturities of marketable securities 16,500,000 88,266,000 Purchases of property and equipment — ( 69,675 ) Net cash (used in) provided by investing activities ( 7,963,158 ) 50,971,446 Cash flows from financing activities: Proceeds from shares issued, net of related expenses 17,489,563 — Proceeds from note issued 2,558,360 807,347 Repayments of notes issued ( 1,096,056 ) ( 695,469 ) Proceeds from shares issued in connection with employee stock purchase plan — 48,965 Net cash provided by financing activities 18,951,867 160,843 Effect of changes in exchange rates on cash and cash equivalents ( 207,976 ) ( 102,241 ) Net (decrease) increase in cash and cash equivalents ( 9,321,854 ) 5,963,507 Cash and cash equivalents – beginning of year 13,563,791 7,600,284 Cash and cash equivalents – end of year $ 4,241,937 $ 13,563,791 Supplemental cash flows disclosures: Proceeds from sale of state net operating losses $ 1,170,890 $ — Income taxes paid $ 3,769 $ 29,542 Interest paid $ 12,895 $ 3,457 Supplemental schedule of noncash activity: Accounts payable paid through issuance of common stock $ 1,548,702 $ — See accompanying notes to consolidated financial statements. F-8 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Notes to Consolidated Financial Statements Note 1. The Company electroCore, Inc. (“electroCore” or the “Company”) is a medical device company, engaged in the commercialization and development of a platform non-invasive Vagus Nerve Stimulation (“ nVNS”) therapy that can be self-administered by patients. electroCore was founded in 2005 and has primarily focused on headache conditions (migraine and cluster headache). electroCore, headquartered in 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. In addition, an affiliate, electroCore (Aust) Pty Limited (“electroCore Australia”), is subject to electroCore’s control on a basis other than voting interests and is a variable interest entity (“VIE”), for which electroCore is the primary beneficiary. As of May 2017, the VIE ceased operations. In January 2018, the U.S. Food and Drug Administration ("FDA") cleared the use of gammaCore, the Company's first generation disposable non-invasive vagus nerve stimulator therapy for the treatment of pain associated with migraine headache in adult patients. Previously in April 2017, the FDA cleared the use of gammaCore for the acute treatment of pain associated with episodic cluster headache in adult patients. Effective August 1, 2018, the Company announced gammaCore Sapphire, a rechargeable and reloadable version of the product for multi-year use, was available in the United States. The Company continues to market the non-reloadable disposable version of its gammaCore products in certain markets and to deploy it for use in clinical studies where a rechargeable version is not necessary. In November 2018, the FDA provided 510(k) clearance for an expanded label for gammaCore nVNS therapy for adjunctive use for the preventive treatment of cluster headache in adult patients. In March 2020, the FDA provided 510(k) clearance for an expanded label for gammaCore nVNS therapy for the preventive treatment of migraine headache in adult patients. In July 2020, the FDA granted the Company an Emergency Use Authorization ("EUA") authorizing the use of the Company's gammaCore Sapphire CV nVNS therapy at home or in a healthcare setting to acutely treat adult patients with known or suspected COVID-19 who are experiencing exacerbation of asthma-related dyspnea and reduced airflow, and for whom approved drug therapies are not tolerated or provide insufficient symptom relief. In February 2021, gammaCore was cleared by the FDA for the acute and preventive treatment of migraine in adolescents between 12 and 17 years of age. 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"). F-9 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE 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. electroCore ( Aust ) Pty Limited, a VIE for which electroCore is the primary beneficiary, is also consolidated with the non-controlled equity presented as non-controlling interest. The VIE has ceased its operations. 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 valuation of inventory , stock compensation, and contingencies. (d) Revenue Recognition T he 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 revenues when 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. Shipping fees are not billed to the customer and are reflected as part of selling, general, and administrative expenses. (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. F-10 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE 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, 2020, the Company's cash equivalents and marketable securities were largely comprised of money market funds and U.S. treasury bonds. 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, 2020, approximately 95.8 % 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, 2020 and 2019, 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 Leasehold improvements Lesser of estimated useful life or term of lease Furniture and fixtures 5 – 10 years Computer equipment 5 years F-11 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE 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. The new lease accounting guidance permits companies to utilize certain practical expedients in their implementation of the new standard. The Company elected this package of practical expedients and was therefore not required to reassess the following upon adoption: (i) whether an expired or existing contract met the definition of a lease; (ii) the lease classification at January 1, 2019 for existing leases; and (iii) whether leasing costs previously capitalized as initial direct costs would continue to be amortized. This allowed the Company to continue to account for its existing office space leases as operating leases. Upon adoption, the Company did not have an adjustment to the opening balance of retained earnings due to the election of these practical expedients . (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 p ayroll 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. F-12 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Notes to Consolidated Financial Statements — Continued (o) Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred taxes are recognized based on the differences between financial statement and income tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company provides a full valuation allowance on substantially all deferred tax assets. The provision for income taxes represents the current state tax payable for the period. The federal tax provision is immaterial given the Company reports losses in all its taxable jurisdictions and is recording a full valuation allowance on the net deferred tax asset. The Company recognizes the effect of an income tax position only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities. Interest and penalties related to uncertain tax positions are recorded as income tax expense. (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) 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. I n 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. (t) Recently Accounting Standards Not Yet Adopted 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 does not expect this guidance to have a material impact on its consolidated financial statements upon adoption. F-13 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Notes to Consolidated Financial Statements — Continued Note 3. Significant Risks and Uncertainties Going Concern The Company is subject to risks common to emerging medical device companies, including uncertainties related to commercialization of products and failing to secure additional funding. The Company has experienced significant net losses, and it expects to continue to incur losses for the near future as it operates its sales and marketing infrastructure, and works to increase market acceptance of its gammaCore therapy for the acute treatment of episodic cluster headache (“eCH”), the prevention of cluster headache, and the preventive and acute treatment of migraine. The Company has never been profitable and has incurred net losses in each year since its inception. The Company incurred net losses of $ 23.5 million and $ 45.1 million for the years ended December 31, 2020 and 2019 , respectively. As of December 31, 2020, its accumulated deficit was $ 107.0 million. The Company’s expected cash requirements for the next 12 months and beyond are based on the commercial success of its products and its ability to reduce operating expenses. 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 COVID-19 pandemic and significant potential investment necessary to generate potential sales of gammaCore Sapphire™ CV. Due to these risks and uncertainties, the Company may need to reduce its activities significantly more than in its current operating plan and cash flow projections assume in order to fund its operations beyond one year of the date the accompanying financial statements are issued. There can be no assurance that the Company will have sufficient cash flow and liquidity to fund its planned activities, which could force it to significantly reduce or curtail its activities and, ultimately, potentially cease operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. There is no assurance that the Company will generate sufficient funding through its operating results or financing activity, raising substantial doubt about the Company’s ability to continue as a going concern within one year of the date the accompanying financial statements are issued. The accompanying financial statements do not include any adjustment that might result from the outcome of this uncertainty. 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 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. In total, net sales from these two channels represented 86.9 % and 57.3 % of the Company’s net sales for years ended December 31, 2020 and 2019, respectively. Each of these two channels accounted for 10 % or more of the Company's net sales as summarized below: Years ended December 31, 2020 2019 Revenue channel: Department of Veterans Affairs and Department of Defense 57.9 % 31.1 % National Health Service 29.0 % 26.2 % In 2020, five specific VA/DoD facilities represented approximately 50 % of the Company’s revenue from this channel, and two of those facilities each accounted for more than 10 % individually. 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 COVID-19 pandemic on all aspects of its business and geographies, including how it will impact business partners. While the Company experienced disruptions during the year ended December 31, 2020 from the COVID-19 pandemic, it is unable to predict the full impact that the COVID-19 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 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. 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. F-14 Note 4. Revenue Recognition Geographical Net Sales The following table presents net sales disaggregated by geographic area: Years ended December 31, 2020 2019 Geographic Market United States $ 2,374,687 $ 1,605,814 United Kingdom 1,051,206 665,627 Germany 53,925 102,427 Other 16,014 16,411 Total Net Sales $ 3,495,832 $ 2,390,279 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, 2020 and 2019, trade credits and discounts were immaterial. In October 2018, the Company launched its Partners for Coverage program that allows eligible commercial insurance patients uninterrupted access to gammaCore for up to two months while insurance coverage is being pursued. In February 2019, this program was modified to provide therapy to patients for up to 12 months while insurance coverage is being pursued. In December 2019, the Company terminated this program. Reimbursement for co-payments made by patients under the co-payment assistance program is considered variable consideration. Beginning in February 2019, eligible patients could receive a reduction of up to $ 300 from the cost of co-payments for the first month of therapy and a reduction of up to $ 250 from the cost of each refill for a maximum of 12 months. Effective March 1, 2020, the amount of monthly co-payment assistance was reduced to a maximum of $ 100 per prescription. For the years ended December 31, 2020 and 2019 , net sales reflect a reduction for the reduced cost of therapy under the co-payment assistance program. The calculation of the accrual is based on an estimate of claims and the cost per claim that the Company expects to incur associated with inventory that exists in the distribution channel at period end. Managed care rebates represent our estimated obligations to pharmacy benefit managers. Rebate accruals are recognized in the same period the related revenue is recognized. Gross to net accruals based on estimated rebates were determined to be de minimis. Contract Balances The Company generally invoices the customer and recognizes revenue once its performance obligations are satisfied, at which point payment is unconditional. Accordingly, under ASC 606, the Company’s contracts with customers did not give rise to contract assets or liabilities during the year ended December 31, 2020 and 2019. Agreed upon payment terms with customers are within 120 days of shipment. Accordingly, contracts with customers do not include a significant financing component. F-15 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE 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, 2020 and 2019. As of December 31, 2020 Amortized Cost Unrealized Gain Unrealized (Loss) Fair Value Cash and cash equivalents $ 4,241,937 $ — $ — $ 4,241,937 U.S. Treasury Bonds 18,388,970 — ( 2,810 ) 18,386,160 Total marketable securities $ 18,388,970 $ — $ ( 2,810 ) $ 18,386,160 Total cash, cash equivalents and marketable securities $ 22,630,907 $ — $ ( 2,810 ) $ 22,628,097 As of December 31, 2019 Amortized Cost Unrealized Gain Unrealized (Loss) Fair Value Cash and cash equivalents $ 13,564,252 $ — $ ( 461 ) $ 13,563,791 U.S. Treasury Bonds 10,494,539 811 — 10,495,350 Total marketable securities $ 10,494,539 $ 811 $ — $ 10,495,350 Total cash, cash equivalents and marketable securities $ 24,058,791 $ 811 $ ( 461 ) $ 24,059,141 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. • Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. F-16 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Notes to Consolidated Financial Statements — Continued A summary of the assets and liabilities carried at fair value in accordance with the hierarchy defined above is as follows: Fair Value Hierarchy December 31, 2020 Total (Level 1) (Level 2) (Level 3) Assets Cash and cash equivalents $ 4,241,937 $ 4,241,937 $ — $ — Marketable Securities: U.S. Treasury Bonds 18,386,160 18,386,160 — — Total $ 22,628,097 $ 22,628,097 $ — $ — December 31, 2019 Assets Cash and cash equivalents $ 13,563,791 $ 13,563,791 $ — $ — Marketable Securities: U.S. Treasury Bonds 10,495,350 10,495,350 — — Total $ 24,059,141 $ 24,059,141 $ — $ — 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, 2020 and 2019. 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, 2020 and 2019, inventories consisted of the following: December 31, 2020 2019 Raw materials $ 1,008,653 $ 1,065,345 Work in process 4,304,415 5,314,763 Finished Goods 428,549 531,064 Total Inventory 5,741,617 6,911,172 Less: noncurrent inventory 4,865,181 6,020,180 Total current inventory $ 876,436 $ 890,992 As of December 31, 2020 and 2019, the Company reserved $ 721,462 and $ 287,544 respectively, for obsolete inventory . The Company records charges for obsolete inventory in cost of goods sold. As of December 31, 2020 and 2019, noncurrent inventory was comprised of approximately $ 0.7 million and $ 1.0 million of raw materials, respectively, and $ 4.2 million and $ 5.0 million of work in process, respectively. Note 8. Leases The Company implemented FASB ASU 2016-02, Leases (Topic 842), which required lessees to recognize most leases on its balance sheet effective January 1, 2019 . The Company recognized $ 3.9 million of right of use assets for leases for office, manufacturing and warehouse space and office equipment. The Company also recognized $ 4.2 million for lease liabilities. 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’s leases have remaining lease terms of approximately one to four years , some of which include options to extend the leases for up to an additional five years . For the leases for the office space in Basking Ridge, New Jersey and the manufacturing and warehouse space in Rockaway, New Jersey, the Company recognized the options to renew the leases as part of the right of use asset and the lease liability as the Company deemed that the renewal options were reasonably certain to be exercised. However, due to the Company’s decision to implement a comprehensive redeployment and cost reduction plan implemented in June 2019, the Company determined the renewal option for the office space at the Basking Ridge location was no longer reasonably certain to be exercised. The Company remeasured the Basking Ridge right of use asset and the lease liability beginning June 1, 2019 utilizing the newly expected lease term. F-17 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Notes to Consolidated Financial Statements — Continued Consistent with the Company’s 2019 cost reduction plan, it continues to evaluate and implement cost reduction strategies as appropriate. Effective December 31, 2020, the Company relocated its corporate headquarters to the site of its manufacturing facility in Rockaway, New Jersey. Although the Basking Ridge lease agreement provides for sublease, the Company will not elect this option in light of the current 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. The Company is currently in negotiations with the Basking Ridge landlord. Effective December 31, 2020, the Company vacated the Basking Ridge office space. On December 31, 2020, the Company wrote off the net book value of the operating lease right of use asset 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 . The incremental borrowing rate used to determine the net present value of the leases at inception was 9.75 %. This is the incremental borrowing rate that represents the rate of interest that the Company would expect to pay to borrow an amount equal to the lease payments under similar terms. As the Company does not borrow on a collateralized basis, the non-collateralized borrowing rate is used as an input in deriving the incremental borrowing rate. Following the comprehensive redeployment and cost reduction plan announcement and as required in the lease remeasurement process under Topic 842, the incremental borrowing rate was reassessed and increased to 13.75 % at the time of remeasurement. The remeasurement updated the net present value of all operating leases from inception using the new discount rate at June 1, 2019. For the years ended December 31, 2020 and 2019 , the Company recognized lease expense of $ 573,046 and $ 787,952 , 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 Balanc e Sheet Information for Operating Leases: December 31, 2020 2019 Operating leases: Operating lease right of use assets $ 517,257 $ 1,430,641 Operating lease liabilities: Current portion of operating lease liabilities 534,547 486,445 Noncurrent operating lease liabilities 885,333 1,419,880 Total operating lease liabilities $ 1,419,880 $ 1,906,325 Weighted average remaining lease term (in years) 5.7 5.9 Weighted average discount rate 13.75 % 13.75 % Future minimum lease payments under non-cancellable operating leases as of December 31, 2020 : Financial year 2021 $ 786,584 2022 337,254 2023 142,892 2024 146,044 2025 149,700 2026 and thereafter 526,560 Total future minimum lease payments 2,089,034 Less: Amounts representing interest ( 669,154 ) Total $ 1,419,880 F-18 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE 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 incurre d. In July 2019, the Company began amortizing the related deferred costs over the remaining period of the noncancelable arrangement. Amortization costs for the year ended December 31, 2020 and 2019 were $ 282,075 and $ 141,037 , respectively. As of December 31, 2020, the remaining term of the lease is approximately three years . The CCA is included under the caption Other assets, net as presented in the Company's balance sheet for the years ended December 31, 2020 and 2019 and is summarized below: December 31, 2020 2019 Cloud Computing Arrangement $ 1,222,322 $ 1,222,322 Less: accumulated amortization 423,112 141,037 Cloud Computing Arrangement, net $ 799,210 $ 1,081,285 Note 10. Accrued Expenses Accrued expenses as of December 31, 2020 and 2019 consisted of the following: December 31, 2020 2019 Accrued professional fees $ 270,543 $ 1,255,494 Accrued bonuses 1,424,878 804,082 Other employee related expenses 371,033 836,754 Other 734,366 441,049 $ 2,800,820 $ 3,337,379 Note 11. Notes Payable Loan Under the 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 intends to use the entire Loan amount for Qualifying Expenses under the PPP. The interest rate on the Loan is 1.0 % per annum. The Note matures on February 2, 2023 . On September 2, 2021 (the “First Payment Date”), the Company is required to pay all accrued interest under the Loan that is not forgiven in accordance with the terms of the PPP. Additionally, on the First Payment Date and on the second day of each month thereafter until February 2, 2023, the Company must make equal monthly payments of the amount of principal under the Loan that is not forgiven in accordance with the terms of the PPP and related accrued interest thereon. The Company intends to apply for loan forgiveness under the guidelines of the SBA, which would result in a delay or elimination of the repayment period, if accepted in whole or in part by the Lender and SBA. The Note contains events of default and other conditions customary for a Note of this type. F-19 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Notes to Consolidated Financial Statements — Continued Under the terms of the CARES Act, PPP loan recipients can be granted forgiveness for all or a portion of the loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of Qualifying Expenses and the recipient maintaining its payroll levels over certain required thresholds under the PPP. The terms of any forgiveness also may be subject to further requirements in any regulations and guidelines the SBA may adopt. No assurance can be provided that the Company will obtain forgiveness of the Note in whole or in part. Official guidance and interpretations of the requirements of the program have been limited and have been changing over time. Despite the Company’s good-faith belief that it properly satisfied all eligibility requirements for the PPP loan, there has been increasing scrutiny of public companies that received loans, and there can be no assurance that the Company will not become subject to regulatory or other scrutiny, including a request or requirement for repayment of some or all of the loan. The Company has accounted for the Loan in accordance with FASB ASC Topic 470, Debt . Accordingly, the Loan is reflected as a liability on its Consolidated Balance Sheet as of December 31, 2020, $ 311,604 as a current liability and $ 1,097,946 and as a noncurrent liability. The Company will record a gain if the Loan is forgiven in whole or in part. Finance and Security Agreements On July 1, 2020, the Company entered into a Commercial Insurance Premium Finance and Security Agreement (“the Agreement”). The Agreement provides for a single borrowing by the Company of $ 1.2 million, with a seven -month term and an annual interest rate of 2.18 %. 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 $ 164,800 beginning in July 2020. As of December 31, 2020, the remaining balance un der the Agreement was $ 164,832 and during the year ended December 31, 2020, the Company recognized $ 8,339 in interest expense. On July 1, 2019, the Company entered into a separate Commercial Insurance Premium Finance and Security Agreement (“the 2019 Agreement”). The 2019 Agreement provided for a single borrowing by the Company of $ 807,347 , with a seven -month term, and an annual interest rate of 2.99 %. The proceeds from this transaction were used to partially fund the premiums due under some of the Company’s insurance policies. As of December 31, 2020, the balance was fully paid. During the years ended December 31, 2020 and 2019, the Company recognized $ 341 and $ 3,457 in interest expense, respectively. F-20 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Notes to Consolidated Financial Statements — Continued Note 12. Stockholders’ Equity 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 to 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. As of December 31, 2020, the Company had the right to sell under the Purchase Agreement approximately $ 9.5 million of additional shares of common stock. See Note. 20 Subsequent Events for further discussion of the Purchase Agreement. Other 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. F-21 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Notes to Consolidated Financial Statements — Continued 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, 2020 2019 Outstanding stock options 3,815,585 3,131,266 Nonvested restricted stock and unit awards 1,039,768 1,368,998 Stock purchase warrants 715,199 715,199 5,570,552 5,215,463 The following table summarizes the stock purchase warrants outstanding as of December 31, 2020 and 2019: # of Warrants Exercise Price Expiration Date 8,576 $ 8.86 4/1/2021 429,948 $ 12.60 6/24/2021 59,731 $ 12.60 6/24/2021 22,253 $ 5.68 3/30/2022 17,066 $ 12.60 6/30/2022 151,364 $ 12.60 8/18/2022 14,286 $ 12.60 8/31/2022 11,975 $ 15.30 12/22/2025 715,199 Note 14. Variable Interest Entity As discussed in Note 1 , electroCore is the primary beneficiary of electroCore (Aust) Pty Limited. 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 can also appoint two of the four directors and can exercise significant influence. This along with the fact that electroCore is electroCore (Aust) Pty Limited’s only supplier causes electroCore, for accounting purposes, to be the primary beneficiary of electroCore (Aust) Pty Limited. The activities related to electroCore (Aust) Pty Limited are not material to the consolidated financial statements. Effective May 2017, the VIE ceased operations. Note 15. Income Taxes The provision for income taxes for the years ended December 31, 2020 and 2019 related to 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: December 31, 2020 December 31, 2019 Domestic $ ( 23,706,566 ) $ ( 43,661,897 ) Foreign ( 975,373 ) ( 1,468,287 ) Total $ ( 24,681,940 ) $ ( 45,130,184 ) The income tax provision from continuing operations contains the following components: December 31, 2020 December 31, 2019 Federal $ — $ — State ( 1,170,890 ) 7,712 Foreign — 9,987 Total current ( 1,170,890 ) 17,699 Total deferred — — Total income tax (benefit) expense $ ( 1,170,890 ) $ 17,699 F-22 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE 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 $ 7.8 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, 2020 2019 Deferred tax assets Net operating loss carryforwards $ 24,319,202 $ 18,883,686 Accrued expenses 540,072 796,849 Intangibles 429,783 355,288 Inventory 202,580 78,206 Deferred rent 27,019 — Charitable contributions 11,277 19,028 R&D credit 438,117 394,981 Lease liabilities 398,689 518,480 Stock compensation 3,069,124 750,449 Deferred tax assets 29,435,863 21,796,967 Less valuation allowance ( 28,974,378 ) ( 21,171,967 ) Total deferred tax assets 461,485 625,000 Fixed assets ( 16,119 ) ( 15,222 ) Prepaid expenses ( 300,125 ) ( 220,673 ) Right of use asset ( 145,241 ) ( 389,105 ) Total deferred tax liabilities ( 461,485 ) ( 625,000 ) 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, 2020 and 2019 is as follows: Year ended December 31, 2020 2019 Statutory rate 21.0 % 21.0 % State tax expected (recovery), net of federal benefit 4.2 % 6.7 % Stock compensation 6.8 % —% State tax NOL sale 3.7 % —% Nondeductible expenses 0.5 % ( 0.1 )% Loss incurred as pass-through —% —% Other 0.1 — Change in valuation allowance for deferred tax assets ( 31.6 )% ( 27.6 )% Provision for income taxes 4.7 % —% F-23 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Notes to Consolidated Financial Statements — Continued As of December 31, 2020 and 2019 , the Company had accumulated net operating losses totaling $ 87.2 million and $ 65.7 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 $ 3.9 million and $ 3.5 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 . As of December 31, 2020, 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, 2020 , 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 does not expect that any provision of the CARES Act would result in a material cash benefit to the Company or have a material impact on its financial statements or internal controls over financial reporting. Note 16. Stock Based Compensation On June 21, 2018, the Company adopted the 2018 Omnibus Equity Incentive Plan (“Plan”). This plan reserved 6.2 million shares with an increase to be added annually beginning in 2019 through 2028 up to 4 % 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 of 45 million shares, and a maximum of 40 million shares pursuant to the exercise of stock options. Effective January 1, 2021, the number of shares reserved under the Plan was increased by 2.0 million to approximately 8.9 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 of 10 years 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, 2020 and 2019. Total unrecognized compensation cost related to equity awards as of December 31, 2020 was $ 5.0 million and is expected to be recognized over the next 2.3 years. Year ended December 31, 2020 2019 Selling, general and administrative $ 2,360,629 $ 2,703,578 Research and development 831,944 1,146,268 Cost of goods sold 73,738 45,935 Total expense $ 3,266,311 $ 3,895,781 F-24 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Notes to Consolidated Financial Statements — Continued The following table presents a summary of stock option award activity during the year ended December 31, 2020: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding, December 31, 2019 3,131,266 $ 8.53 8.9 * Granted 2,019,298 1.33 Exercised — — Cancelled ( 1,334,979 ) 11.93 Outstanding, December 31, 2020 3,815,585 $ 5.56 8.6 $ — Exercisable, December 31, 2020 1,339,372 $ 9.21 8.0 $ 47,883 * de minimis The intrinsic value is calculated as the difference between the fair market value at December 31, 2020 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, 2020: Exercise Price Options Outstanding (number) Options Outstanding Weighted Average Remaining Contractual Life (Years) Options Exercisable (number) $ 1.40 - $ 2.50 2,423,235 9.1 468,750 $ 2.51 - $ 7.52 347,731 8.2 159,801 $ 7.53 - $ 15.00 1,044,619 7.5 710,821 The following table presents a summary of restricted stock award ("RSA" or "RSAs") activity during the year ended December 31, 2020: Number of Shares Weighted Average Grant Date Fair Value Nonvested, December 31, 2019 127,505 $ 8.09 Granted — — Vested ( 79,960 ) 9.97 Cancelled ( 21,900 ) 9.88 Nonvested, December 31, 2020 25,645 $ 10.07 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, 2020: Number of Shares Weighted Average Grant Date Fair Value Nonvested, December 31, 2019 1,241,493 $ 2.86 Granted 732,140 0.91 Vested ( 690,869 ) 2.31 Cancelled ( 268,641 ) 2.93 Nonvested, December 31, 2020 1,014,123 $ 1.50 F-25 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Notes to Consolidated Financial Statements — Continued 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. Prior to 2020, expected volatility was based on historical volatility of the Company’s common stock. 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: 2020 2019 Fair value at grant date $ 0.98 $ 3.39 Expected volatility 134.2 % 95.9 % Risk-free interest rate 0.7 % 2.1 % Expected holding period, in years 6.1 5.9 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. Note 17. Employee 401(K) Plan The Company has a defined contribution 401 (k) plan which covers all employees. Employees are eligible upon date of hire. Employee contributions are voluntary and are based on specific percentages of compensation, which may not exceed ma ximum amounts established by Internal Revenue Code. Employer contributions are discretionary. The maximum Company matching contribution is $ 0.25 per dollar subject to a limit of 3 % of eligible employee compensation. The Company's expense for contributions to its defined contribution plan totaled $ 15,600 for 2020. There were no employer contributions for the year ended December 31, 2019. F- 26 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Notes to Consolidated Financial Statements — Continued Note 18 . 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 fully briefed as of July 17, 2020. The date for argument of the appeal has not yet 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 on the motion to dismiss has not yet been scheduled. The parties have agreed to a non-binding mediation with JAMS, which will occur on March 30, 2021. 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 Erin 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. F-27 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Notes to Consolidated Financial Statements — Continued Settlement Agreement In January 2019, the Company settled a dispute with one of its former advisors, Madison Global Partners ("Madison Global"), which had filed a complaint against the Company in the Supreme Court of the State of New York, County of New York (Index No. 652329/2018). As part of that settlement, the Company paid Madison Global $ 325,000 and issued to Madison Global and its representatives warrants to purchase in the aggregate 62,181 shares of its common stock at prices ranging from $ 5.68 per share to $ 12.60 per share. In January 2019, 5,192 warrants with an exercise price of $ 5.68 were issued and the expense was recognized. All other amounts were accrued in prior accounting periods. The warrants issued are shown in the following table: # Warrants Exercise Price Expiration Dates 8,576 $ 8.86 April 1, 2021 22,253 $ 5.68 March 30, 2022 17,066 $ 12.60 June 30, 2022 14,286 $ 12.60 August 31, 2022 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 approximate ly $ 2.3 million as of December 31, 2020 . Note 19. Restructuring Charges and Other Related Charges The following table provides a summary of the Company’s restructuring and other related charges for the years end December 31, 2020 and 2019: Year ended December 31, 2020 2019 Employee separation costs $ 271,164 $ 1,997,292 Payment in lieu of severance 175,000 — Other restructuring costs 18,442 — $ 464,606 $ 1,997,292 As of December 31, 2020 , $ 25,000 is payable by the Company in connection with the above described charges. This amount is included under the caption Accrued expenses and other current liabilities in the Company’s Consolidated Balance Sheet as of December 31, 2020 Restructuring charges On May 29, 2019, the Company announced significant adjustments to the deployment of personnel and resources across the organization. The effort was intended to focus the Company on currently available and near-term revenue opportunities and on clinical programs specifically designed to expand the gammaCore product labeling. To achieve this goal, the Company reduced the size of its organizational structure, including its field sales force and clinical operations. The costs associated with this initiative primarily represent severance and other costs associated with employee terminations, the majority of which have been settled in cash, and totaled approximately $ 1,050,000 . In June 2019, as part of this process, the Company formally communicated the termination of employment to 32 employees, and as of September 30, 2019, the Company had terminated all of these employees. F-28 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE Notes to Consolidated Financial Statements — Continued Other Severance Related Charges In January 2020, the Company entered into a separation agreement with a former officer which agreement required an aggregate severance payment of $ 190,000 over a six-month period. In January 2020, the Company also entered into an agreement with a new employee that requires the unconditional payment of $ 175,000 , in lieu of future severance to be paid in equal monthly installments over a fourteen-month period. On June 10, 2019, Frank Amato, the Company’s former Chief Executive Officer, offered his resignation. The Company entered into a Separation Agreement with Mr. Amato, pursuant to which he remained as Chief Executive Officer and a member of the board until September 30, 2019 (the “Separation Date”). Pursuant to the Separation Agreement, Mr. Amato was paid $ 800,000 on October 1, 2019. In addition, all options to purchase Company common stock held by Mr. Amato continued to vest through the Separation Date and remain exercisable until the one-year anniversary of the Separation Date. All restricted stock units held by Mr. Amato continued to vest through the Separation Date. Since Mr. Amato provided substantial se rvices to the Company, the Company recognized all costs related to the Separation Agreement over the period from June 10, 2019 to September 30, 2 019. In connection with the Separation Agreement, the Company recorded a cash charge of $ 800,000 during the year ended December 31, 2020. Effective July 31, 2019, the Company entered into a Separation Agreement with a former officer. Pursuant to the agreement, a severance payment of $ 147,500 was recognized and is to be paid evenly over the subsequent six months. Note 20. Subsequent Events Sale of Common Stock and Termination of Purchase Agreement In January 2021, the Company sold 2,750,000 shares of the Company’s common stock under its purchase agreement with Lincoln Park ("Purchase Agreement"), resulting in aggregate proceeds of approximately $ 6.9 million to the Company. On March 11 , 2021, the Company terminated its Purchase Agreement with Lincoln Park . F- 29