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, 2022 , 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, 2022 , 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, 2022, 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, 2022 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, 2022 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting. 87 Item 9 B. Other Information Annual Meeting Matters On March 3, 2023, our Board of Directors determined that the date of our 2023 Annual Meeting of Stockholders (the “2023 Annual Meeting”) will be Monday, August 4, 2023. The 2023 Annual Meeting is expected to be a virtual-only meeting conducted via remote communications. The record date, time, and meeting website information for the 2023 Annual Meeting will be set forth in a proxy statement for the 2023 Annual Meeting, which will be filed prior to the 2023 Annual Meeting with the Securities and Exchange Commission. Due to the fact that the meeting date for the 2023 Annual Meeting is advanced more than 30 days prior to the anniversary of our 2022 Annual Meeting which was held on December 2, 2022, we are providing the timelines for stockholder proposals and director nominations for the 2023 Annual Meeting. • For stockholder proposals to be presented for inclusion in the Company’s proxy materials for the 2023 Annual Meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 (the “Exchange Act”), they must be received not later than March 22, 2023; • For stockholder proposals not for inclusion in the Company’s proxy materials for the 2023 Annual Meeting, they must be received between April 6, 2023 and May 5, 2023; • For director nominations by stockholders not soliciting proxies, they must be received between April 6, 2023 and May 5, 2023; and • For director nominations by stockholders soliciting proxies, they must be received no later than June 5, 2023. Any of the foregoing proposals or nominations must be delivered to, or mailed and received by, the Company’s Corporate Secretary at the principal executive offices of the Company at 200 Forge Way, Suite 205, Rockaway, NJ 07866, in writing and in proper form, and must set forth the information required by the Company’s amended and restated bylaws and applicable requirements under the Exchange Act rules. Elimination of Series A Preferred Stock. On March 6, 2023 , we filed a certificate of elimination (the “Certificate of Elimination”), with the Secretary of State of the State of Delaware with respect to the Series A Preferred Stock, par value $0.001 per share (“Series A Preferred Stock”), that had been authorized and designated for issuance by our board on December 2, 2022. At the time of filing of the Certificate of Elimination, no shares of Series A Preferred Stock were outstanding. All previously issued shares of Series A Preferred Stock were redeemed pursuant to their terms on February 13, 2023. The Certificate of Elimination eliminated the previous designation of 80,000 shares of Series A Preferred Stock from our certificate of incorporation, and caused such previously designated shares to resume their status as authorized but unissued and non-designated shares of preferred stock. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 88 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 2023 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 2023 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 2023 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 2023 Annual Meeting of Stockholders or an amendment to this Annual Report, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G( 3 ) of Form 10-K. Item 14 . Principal Accountant Fees and Services The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2023 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. 89 PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this report: (1) Financial Statements: ​ Report of Independent Registered Public Accounting Firm (PCAOB ID # 688) F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Comprehensive Loss F-5 Consolidated Statements of Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8 (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 Not applicable. 90 Exhibit Number Description 3.1*** Certificate of Incorporation of electroCore, Inc . 3.2***** Amended and Restated Bylaws of electroCore, Inc . 3.3******* Certificate of Designation of the Series A Preferred Stock of the Company 3.4* Certificate of Elimination of the Series A Preferred Stock of the Company, dated March 3, 2023 3.5* Certificate of Amendment to the Certificate of Incorporation, filed February 13, 2023 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 Restricted Stock Unit 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. 10.17** Form of Common Unit Warrant 10.18** Form of Series A Warrant 10.19** Form of Bridge Warrant 91 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 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. ****** Incorporated by reference to the Company's Current Report on Form 8-K as filed with Commission on December 23, 2021 ******* Incorporated by reference to the Company's Current Report on Form 8-K as filed with the Commission on December 27, 2022. ******** Incorporated by reference to the Company's Current Report on Form 8-K as filed with the Commission on February 14, 2023. † Indicates management agreement 92 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 8, 2023 By: /s/ DANIEL S. GOLDBERGER Daniel S. Goldberger Chief Executive Officer and Director (Principal Executive Officer) Date: March 8, 2023 By: /s/ BRIAN M. POSNER Brian M. Posner Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Name Title Date /s/ Peter Cuneo Chairman of the Board March 8, 2023 Peter Cuneo /s/ Julie A. Goldstein Director March 8, 2023 Julie A. Goldstein /s/ Daniel S. Goldberger Director March 8, 2023 Daniel S. Goldberger /s/ John Gandolfo Director March 8, 2023 John Gandolfo /s/ Joseph P. Errico Director March 8, 2023 Joseph P. Errico /s/ Thomas Patton Director March 8, 2023 Thomas Patton /s/ Thomas J. Errico, M.D. Director March 8, 2023 Thomas J. Errico, M.D. /s/ Patricia Wilber Director March 8, 2023 Patricia Wilber /s/ Trevor J. Moody Director March 8, 2023 Trevor J. Moody 93 ​​ INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID # 688 ) F-2 Consolidated Balance Sheets as of December 31, 2022 and 2021 F-3 Consolidated Statements of Operations for the Years ended December 31, 2022 and 2021 F-4 Consolidated Statements of Comprehensive Loss for the Years ended December 31, 2022 and 2021 F-5 Consolidated Statements of Equity for the Years ended December 31, 2022 and 2021 F-6 Consolidated Statements of Cash Flows for the Years ended December 31, 2022 and 2021 F-7 Notes to Consolidated Financial Statements F-8 F-1 . Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of electroCore, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of electroCore, Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss , equity, and cash flows for each of the two years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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 experienced significant losses and cash used in operations and expects to continue to incur net losses. 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 audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2020. New York , NY March 8, 2022 F-2 ELECTROCORE, INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share data) December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 17,712 $ 34,689 Restricted cash 250 — Accounts receivable, net 401 438 Inventories, net 1,982 1,361 Prepaid expenses and other current assets 828 1,053 Total current assets 21,173 37,541 Inventories, noncurrent 2,194 3,941 Property and equipment, net 50 147 Operating lease right of use assets, net 565 613 Other assets, net 774 591 Total assets $ 24,756 $ 42,833 Liabilities and Equity Current liabilities: Accounts payable $ 2,129 $ 938 Accrued expenses and other current liabilities 4,842 4,486 Current portion of operating lease liabilities 74 61 Total current liabilities 7,045 5,485 Noncurrent liabilities: Operating lease liabilities, noncurrent 625 700 Total liabilities 7,670 6,185 Commitments and contingencies (see Note 13) — — Mezzanine equity: Preferred Stock, par value $ 0.001 per share; 10,000,000 shares authorized as of December 31, 2022 and December 31, 2021; 71,173 shares issued and outstanding at December 31, 2022 ($ 0.001 per share liquidation value) and 0 shares issued and outstanding at December 31, 2021 — — Stockholders' equity: Common Stock, par value $ 0.001 per share; 500,000,000 shares authorized as of both December 31, 2022 and 2021; 4,744,886 shares issued and outstanding at December 31, 2022, and 4,713,608 shares issued and outstanding at December 31, 2021 5 5 Additional paid-in capital 163,520 160,838 Accumulated deficit ( 146,370 ) ( 124,208 ) Accumulated other comprehensive (loss) income ( 69 ) 13 Total equity 17,086 36,648 Total liabilities and equity $ 24,756 $ 42,833 See accompanying notes to the consolidated financial statements. F-3 ELECTROCORE, INC. AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except per share data) Years ended December 31, 2022 2021 Net sales $ 8,592 $ 5,451 Cost of goods sold 1,616 1,385 Gross profit 6,976 4,066 Operating expenses: Research and development 5,520 2,536 Selling, general and administrative 24,330 21,573 Total operating expenses 29,850 24,109 Loss from operations ( 22,874 ) ( 20,043 ) Other (income) expense: Gain on extinguishment of debt — ( 1,422 ) Gain on termination of joint venture — ( 549 ) Interest and other income ( 287 ) ( 11 ) Other expense 6 8 Total other income ( 281 ) ( 1,974 ) Loss before income taxes ( 22,593 ) ( 18,069 ) Benefit from income taxes 431 851 Net loss ( 22,162 ) ( 17,218 ) Preferred stock dividend — — Net loss available for common shareholders $ ( 22,162 ) $ ( 17,218 ) Net loss per share of common stock - Basic and Diluted (see Note 9) $ ( 4.69 ) $ ( 4.36 ) Weighted average common shares outstanding - Basic and Diluted (see Note 9) 4,729 3,945 See accompanying notes to the consolidated financial statements. F-4 ELECTROCORE, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Loss (in thousands) Years ended December 31, 2022 2021 Net loss $ ( 22,162 ) $ ( 17,218 ) Other comprehensive income (loss): Foreign currency translation adjustment ( 82 ) 176 Foreign currency translation adjustment - deconsolidation — 86 Unrealized gain on marketable securities, net of taxes as applicable — 2 Other comprehensive (loss) income ( 82 ) 264 Preferred dividend — — Comprehensive loss available to common shareholders $ ( 22,244 ) $ ( 16,954 ) See accompanying notes to consolidated financial statements. F-5 ELECTROCORE, INC. AND SUBSIDIARIES Consolidated Statements of Equity (in thousands) Mezzanine Equity Stockholders' Equity Additional Accumulated other Total electroCore Preferred Stock Common Stock paid-in Accumulated comprehensive Inc., Noncontrolling Total Shares Amount Shares Amount capital deficit income (loss) equity interest equity Balances as of January 1, 2021 — — 3,038 45 130,205 ( 106,990 ) ( 251 ) 23,009 635 23,644 Net loss — — — — — ( 17,218 ) — ( 17,218 ) — ( 17,218 ) Other comprehensive income — — — — — — 264 264 — 264 Issuance of stock (see Note 8 ) — — 1,563 24 25,658 — — 25,682 — 25,682 Issuance of stock to satisfy certain obligations (see Note 8) — — 77 1 1,207 — — 1,208 — 1,208 Issuance of common stock in connection with employee stock plans, net of forfeitures — — 25 — — — — — — — Settlement of accrued bonus — — 11 — 400 — — 400 — 400 Share based compensation — — — 1 3,302 — — 3,303 — 3,303 Reverse stock split — — — ( 66 ) 66 — — — — — Termination of joint venture — — — — — — — — ( 635 ) ( 635 ) Balances as of January 1, 2022 — — 4,714 5 160,838 ( 124,208 ) 13 36,648 — 36,648 Net loss — — — — — ( 22,162 ) — ( 22,162 ) — ( 22,162 ) Other comprehensive loss — — — — — — ( 82 ) ( 82 ) — ( 82 ) Issuance of common stock in connection with employee stock plans, net of forfeitures — — 31 — — — — — — — Dividend preferred (see Note 8) 71 — — — — — — — — — Share based compensation — — — — 2,682 — — 2,682 — 2,682 Balances as of December 31, 2022 71 — 4,745 $ 5 $ 163,520 $ ( 146,370 ) $ ( 69 ) $ 17,086 $ — $ 17,086 See accompan ying notes to the c onsolidated financial statements. F-6 ELECTROCORE, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands) Year ended December 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 22,162 ) $ ( 17,218 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 2,682 3,302 Depreciation and amortization 548 382 Amortization of marketable securities premium — 142 Gain on extinguishment of debt — ( 1,422 ) Gain on termination of joint venture — ( 549 ) Gain on lease settlement — ( 57 ) Increase in allowance for doubtful accounts — 49 (Gain) loss on legal fee obligation settled with stock — ( 9 ) Noncash lease expense 48 55 Inventory reserve charge 196 70 Changes in operating assets and liabilities: Accounts receivable 37 ( 217 ) Inventories 296 371 Prepaid expenses and other assets 225 716 Accounts payable 1,191 464 Accrued expense and other current liabilities 356 425 Right of use operating lease assets — ( 151 ) Operating lease liabilities ( 62 ) 20 Net cash used in operating activities ( 16,645 ) ( 13,627 ) Cash flows from investing activities: Purchase of marketable securities — ( 5,083 ) Proceeds from maturities of marketable securities — 23,300 Net cash provided by investing activities — 18,217 Cash flows from financing activities: Proceeds from shares issued, net of related expenses — 25,682 Net cash provided by financing activities — 25,682 Effect of changes in exchange rates on cash and cash equivalents ( 82 ) 175 Net (decrease) increase in cash and cash equivalents ( 16,727 ) 30,447 Cash and cash equivalents – beginning of year 34,689 4,242 Cash and cash equivalents, and restricted cash – end of year $ 17,962 $ 34,689 Supplemental cash flows disclosures: Proceeds from sale of state net operating losses $ 445 $ 877 Income taxes paid $ — $ 39 Interest paid $ 6 $ 10 Supplemental schedule of noncash activity: Insurance premium financing $ 522 $ 874 Settlement of certain obligations through issuance of common stock $ — $ 1,275 2020 bonus paid in stock $ — $ 400 See accompanying notes to consolidated financial statements. F-7 ELECTROCORE, INC. ANd SUBSIDIARIES Notes to Consolidated Financial Statements Note 1. The Company electroCore , Inc . and its subsidiaries (“ electroCore ” or the “Company”) is a commercial stage bioelectronic medicine and wellness company dedicated to improving health through its non-invasive vagus nerve stimulation (“ nVNS ”) technology platform. The Company’s focus is the commercialization of medical devices for the management and treatment of certain medical conditions and consumer product offerings utilizing nVNS to promote general wellbeing and human performance in the United States and select overseas markets. electroCore, headquartered in Rockaway, NJ, has two wholly owned subsidiaries: electroCore UK Ltd and electroCore Germany GmbH. The Company has paused operations in Germany, with sales into the country and the rest of Europe being managed by electroCore UK Ltd. On November 2, 2021, the Company formally terminated its agreement with electroCore ( Aust ) Pty Limited (“ electroCore Australia”). Prior to this termination, electroCoreAustralia was subject to electroCore’s control on a basis other than voting interests and was a variable interest entity (“VIE”), for which electroCore was the primary beneficiary. As of May 2017, the VIE had ceased operations. (see Note 10) 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 the regulations of the Securities and Exchange Commission ("SEC"). At a special stockholders meeting held on February 13, 2023, the Company's stockholders approved an amendment to the Company's certificate of incorporation to effect of a reverse stock split of the Company's common stock at a ratio between 1-for-5 to 1-for-50 in order to achieve a minimum bid price of $ 1.00 per share for a minimum of 10 consecutive trading days, as required for continuing listing of the common stock on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The board of directors authorize d a 1-for-15 ratio for the reverse stock split, which became effectiv e on February 15, 2023. T he accompanying consolidated financial statements and notes to consolidated financial statements give retroactive effect to the reverse stock split for all periods presented. (b) Principles of Consolida tion The accompanying consolidated financial statements include the accounts of electroCore and its wholly owned subsidiaries. electroCore Australia was consolidated with the non-controlled equity presented as non-controlling interest in the Company's consolidated financial statements for the year ended December 31, 2020. As described in Note 1, the Company terminated its affiliation with electroCore Australia on November 2, 2021 and, as such, this dormant entity was not included in the Company's subsequent consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. (c) Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include allowances for doubtful accounts, trade credits, rebates, co-payment assistance and sales returns, valuation of inventory , estimated useful life of licensed product and cloud computing arrangements, stock compensation, incremental borrowing rate and contingencies. F-8 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued (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. For the years ended December 31, 2022 and 2021 , trade credits and discounts were immaterial. (e) Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less when purchased. The following table provides a reconciliation of cash, cash equivalents and restricted cash to the balance reflected on the Consolidated Statement of Cash Flow for the year ended December 31, 2022: (in thousands) Year Ended December 31, 2022 Cash and cash equivalents $ 17,712 Restricted cash 250 Total cash, cash equivalents and restricted cash $ 17,962 (f) Restricted Cash The Company's restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its corporate credit card arrangement with Citibank. F-9 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued (g) Concentration of Credit Risk Cash equivalents are financial instruments that potentially subject the Company to concentration of credit risk. As of December 31, 2022, the Company's cash equivalents securities were largely comprised of money market funds. The Company has established guidelines relative to diversification and maturities that are designed to help ensure safety and liquidity. These guidelines are periodically reviewed to take advantage of trends in yields and interest rates. As of December 31, 2022 , 95 % of the Company’s cas h and cash equivalents were denominated in U.S. Dollars, the balance is subject to foreign exchange risk. 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. (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, 2022 and 2021, 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. T he 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 goods 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 remaining term of lease Furniture and fixtures 5 – 10 years Computer equipment 5 years F-10 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued (k) Leases The Company determines if an arrangement is a lease at inception. For each lease, the lease term is determined at the commencement date and includes renewal options and termination options when it is reasonably certain that the Company will exercise that option. Operating leases with lease terms greater than one year are included in operating lease right-of-use (“ROU”) assets and current and long-term operating lease liabilities in the Company’s consolidated balance sheets. Operating lease ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term using an estimated rate of interest the Company would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date. The operating lease ROU assets are based on the liability adjusted for any prepaid or deferred rent and lease incentives. The incremental borrowing rate was utilized to discount lease payments over the expected term given that the Company’s operating leases do not provide an implicit rate. The Company estimates the incremental borrowing rate to reflect the profile of secured borrowing over the expected term of the leases based on the information available at the later of the date of adoption or the lease commencement date. Rent expense for the operating lease is recognized on a straight-line basis over the lease term. (l) Cloud Computing Arrangement Implementation costs for the Company’s cloud computing arrangement (“CCA”) are capitalized and amortized using the straight-line method over the life of the arrangement. The Company has capitalized implementation costs incurred in implementing its cloud computing arrangements, which is a hosting arrangement that is a service contract per FASB Accounting Standards Update (“ASU”) 2018-15. These costs include 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. The accompanying Consolidated balance sheet as of December 31, 2022 includes a total of $ 1.2 million of such capitalized costs and the corresponding net amortized asset totaled $ 235,000 . (m) Licensed Products The Company licenses a portion of its devices through its cash pay channels. The cost of these licensed devices is capitalized and included in Other Assets in the accompanying Consolidated Balance Sheets at December 31, 2022 and 2021, and is being recognized as cost of goods sold on the straight-line method over the estimated 12 - 36 month useful life of the devices. I f certain licensed devices are returned and no longer meet quality specifications or the carrying amount of certain licensed devices are no longer deemed to be recoverable, the Company records a charge to cost of goods sold to write down such licensed devices t o zero . During the year ended December 31, 2022, the Company recorded a charge to costs of goods sold of $ 239,000 related to such assets. The accompanying Consolidated balance sheet as of December 31, 2022 includes a total of $ 931,000 of capitalized licensed device costs and the corresponding net amortized assets totaled $ 538,000 . Cash flows from licensed devices are included in Inventory in the accompanying Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021. (n) Impairment of Long-Lived Assets Long lived assets, such as property 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. (o) 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-11 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued (p) Income Taxes The Company follows the asset and liability method of accounting for income taxes under ASC 740, "Income Taxes." Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax provisions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company is currently not aware of any issues under review that could result in significant payments, accruals or deviation from its position during the next twelve months. (q) 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. (r) 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. (s) 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. (t) Prior year presentation Prior year presentation has been conformed to current year presentation. (u) Recently Adopted Accounting Standards There are no recent accounting pronouncements that are expected to have a material impact on the Company’s consolidated financial statements or related disclosures. F-12 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued Note 3. Significant Risks and Uncertainties Going Concern The Company has experienced significant net losses and cash used in operations, and it expects to continue to incur net losses and cash used in operations for the near future as it works to increase market acceptance of its medical devices and wellness products. The Company has never been profitable and has incurred net losses and cash used in operations in each year since its inception. The United States Department of Veteran Affairs comprised 60.8 % of the Company's revenue during the year ended December 31, 2022. The Company expects that a majority of our 2023 sales will be made pursuant to its qualifying contract under the Federal Supply Schedule, or FSS, which was secured by the Company in December 2018, as well as open market sales to individual facilities within the government channels. The FSS is scheduled to expire on January 15, 2024. The Company intends to request an extension of the FSS from the United States Department of Veteran Affairs, but there is no assurance the FSS will be renewed, and if at all renewed at terms favorable to the Company. The Company's sales function in this channel is comprised of employees and independent contractors. The Company’s expected cash requirements for the next 12 months and beyond are largely based on the commercial success of its products. There are significant risks and uncertainties as to its ability to achieve these operating results. Due to the risks and uncertainties, the Company may need to reduce its activities significantly more than 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 funds 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 of 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 ("VA/ DoD ") pursuant to its qualifying contract under the Federal Supply Schedule and open market sales to individual Department of Veterans Affairs facilities, and (ii) in the United Kingdom from the National Health Service. The VA/ DoD and National Health Service were the Company’s sole customers accounting for 10 % or more of total net sales during the years ended December 31, 2022 and 2021. The following table reflects the respective concentration as a percentage of the Company's net sales: Years ended December 31, 2022 2021 Revenue channel: VA/DoD 60.8 % 59.8 % National Health Service 15.1 % 24.1 % During the years ended December 30, 2022 and 2021, one and two facilities accounted for more than 10 % of total VA/DOD net sales, respectively. During the years ended December 31, 2022 and 2 021, one facilit y accounted for more than 10 % of net sales from the National Health Service. Foreign Currenc y Exchang e 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 F-13 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued The Company continues to monitor the impact of the ongoing coronavirus pandemic on all aspects of its business and geographies, including how it will impact business partners, customers, and the global supply chain. While the Company experienced disruptions during the years ended December 31, 2022 and 2021 from the coronavirus pandemic, it is unable to predict the full impact that the coronavirus pandemic may have on its financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the ongoing pandemic and containment measures, the emergence of new viral strains that are not responsive to the vaccines, among others. The coronavirus pandemic has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. Depending upon the duration and severity of the pandemic, the continuing effect on the Company's results and outlook over the long term remains uncertain. Note 4. Revenue Recognition Geographical Net Sales The following table presents net sales disaggregated by geographic area: Years ended December 31, (in thousands) 2022 2021 Product revenue United States $ 6,974 $ 3,940 United Kingdom 1,296 1,344 Other 183 167 License revenue Japan 139 — Total Net Sales $ 8,592 $ 5,451 Contract Balances The Company generally invoices the customer and recognizes revenue once its performance obligations are satisfied, at which point payment is unconditional. In March 2022, the Company entered into an agreement with Teijin Limited (Teijin), to license certain exclusive rights to its nVNS technology for commercialization in Japan for a range of primary headache disorders. Under the agreement, the Company received a non-refundable, upfront payment for the licenses and rights granted to Teijin. The Company began to recognize revenue for this upfront payment ratably over a period of one year commencing in the second quarter of 2022. As of December 31, 2022, the Company's Consolidated balance sheet included a contract liability related to the Teijin agreement in the amount of $ 152,000 which is included in Accrued expenses and other current liabilities. No further contracts with customers gave rise to contract assets or liabilities during the year ended December 31, 2022 and 2021 . See Note 7 Accrued Expenses and other current liabilities. Agreed upon payment terms with customers are within 30 days of shipment. Accordingly, contracts with customers do not include a significant financing component. Note 5. Inventory As of December 31, 2022 and 2021, inventories consisted of the following: December 31, (in thousands) 2022 2021 Raw materials $ 944 $ 769 Work in process 2,879 4,072 Finished Goods 353 461 Total Inventory 4,176 5,302 Less: noncurrent inventory 2,194 3,941 Total current inventory $ 1,982 $ 1,361 As of December 31, 2022 and 2021, the Company reserved $ 668,000 and $ 821,000 respectively, for obsolete inventory . During the year ended December 31, 2022, the Company disposed of $ 110,000 of inventory which was previously reserved against. The Company records charges for obsolete inventory in cost of goods sold. As of December 31, 2022 and 2021 , noncurrent inventory was comprise d of approximately $ 0.1 million and $ 0.9 million of raw materials, respectively, and $ 2.1 million and $ 3.0 million of work in process, respectively. Inventory classified under the category Work in process consists of prefabricated assembled product. F-15 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued Note 6. Leases The Company accounts for leases in accordance with FASB ASU 2016-02, Leases (Topic 842), and its operating leases consist of manufacturing/warehouse space and office equipment. The Company elected not to recognize right of use assets and lease liabilities for short term leases, i.e., leases with a noncancelable period of 12 months or less. The Company recognized the option to renew its manufacturing/warehouse space (" Rockaway space") as part of the right of use asset and the lease liability as the Company deemed that the renewal option was reasonably certain to be exercised. In connection with its cost reduction strategies, the Compan y vacated its New Jersey corporate headquarters ("Basking Ridge office space") and r elocated its corporate headquarters to the Rockaway space effective December 31, 2021. Although the Basking Ridge lease agreement provided for sublease, the Company did not elect this option in light of the economic downturn in commercial real estate due to the pandemic and other factors. In December 2020, the Company informed the Basking Ridge landlord of its intention to vacate the Basking Ridge office space on December 31, 2021. On September 27, 2021, the Company entered into the Termination and Settlement Agreement ("Agreement") with the lessor of the Basking Ridge office space. The Agreement provided for the immediate termination of the Basking Ridge lease in its entirety. In consideration for the lease termination, the Company agreed to pay the lessor a total of $ 500,000 in cash and issue to the lessor 13,333 shares of its common stock. As of December 31, 2021, such payments were satisfied by the Company. The Company recorded a gain of $ 57,000 connection with the termination of the Agreement which is included in the accompanying Consolidated Statement of Operations for the year ended December 31, 2021 under the caption Operating expenses - Selling, general and administrative. For the years ended December 31, 2022 and 2021 , the Company recognized lease expense of $ 153,000 and $ 146,000 , respectively. This expense does not include non-lease components associated with the lease agreements as the Company elected not to include such charges as part of the lease expense. Supplemental Balance Sheet Information for Operating Leases: December 31, (in thousands) 2022 2021 Operating leases: Operating lease right of use assets $ 565 $ 613 Operating lease liabilities: Current portion of operating lease liabilities 74 61 Noncurrent operating lease liabilities 625 700 Total operating lease liabilities $ 699 $ 761 Weighted average remaining lease term (in years) 6.1 6.9 Weighted average discount rate 13.8 % 13.8 % Future minimum lease payments under non-cancellable operating leases as of December 31, 2022: Financial year (in thousands) 2023 $ 164 2024 168 2025 171 2026 161 2027 157 2028 and thereafter 216 Total future minimum lease payments 1,037 Less: Amounts representing interest ( 338 ) Total $ 699 F-16 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued Note 7. Accrued Expenses and Other Current Liabilities Accrued expenses as of December 31, 2022 and 2021 consisted of the following: December 31, (in thousands) 2022 2021 Accrued professional fees $ 524 $ 468 Accrued bonuses and incentive compensation 2,042 1,849 Accrued litigation legal fees expense 1,001 605 Accrued insurance expense 264 499 Accrued vacation and other employee related expenses 534 455 Accrued valued-added tax 133 263 Deferred Revenue 152 — Other 192 347 $ 4,842 $ 4,486 Finance and Security Agreements On July 5, 2022, the Company entered into a Commercial Insurance Premium Finance and Security Agreement (“the 2022 Agreement”). The 2022 Agreement provides for a single borrowing by the Company of approximately $ 783,000 with a nine -month term and an annual interest rate of 2.49 %. The proceeds from this transaction were used to partially fund the premiums due under certain 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 $ 87,900 beginning in July 2022. As of December 31, 2022 , the remaining balance un der the Agreement was $ 264,000 and during the year ended December 31, 2022, the Company recognized $ 4,000 in interest expense. On July 2, 2021, the Company entered into a Commercial Insurance Premium Finance and Security Agreement (“the 2021 Agreement”). The 2021 Agreement provides for a single borrowing by the Company of $ 1.2 million, with a ten -month term and an annual interest rate of 1.55 %. The proceeds from this transaction were used to partially fund the premiums due under some of the Company’s insurance policies. The amounts payable are secured by the Company’s rights under such policies. The Company began to pay monthly installments of approximately $ 124,800 beginning in July 2021. As of December 31, 2021 , the remaining balance un der the Agreement was $ 499,000 and during the year ended December 31, 2021, the Company recognized $ 5,000 in interest expense. Paycheck Protection Program On May 4, 2020, the Company received proceeds of $ 1.4 million in connection with a promissory note (the “Note”) entered into with Citibank, N.A. (the “Lender”) evidencing an unsecured loan (the “Loan”) under the Paycheck Protection Program ("PPP"). The PPP is a program of the SBA established under the CARES Act. Under the PPP, the proceeds of the Loan may be used for payroll and certain covered interest payments, lease payments and utility payments (“Qualifying Expenses”). The Company used the entire Loan amount for Qualifying Expenses under the PPP. On May 18, 2021, the Company received notification from the Lender of SBA's approval of the Company's application for loan forgiveness. Accordingly, the Company was not required to repay the loan. The Company recorded the loan forgiveness as a gain in the accompanying Consolidated Statements of Operations for the year ended December 31, 2021 under the caption Gain on extinguishment of debt. F-17 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued Note 8. Stockholders’ Equity All common stock share and per share data reflects the reverse stock split effective February 15, 2023, as described in Note 14. Subsequent Events, Reverse stock split . Dividend Preferred On December 2, 2022, the Company's board of directors declared a dividend of one one-thousandth of a share of Series A Preferred Stock, par value $ 0.001 per share (“Series A Preferred Stock”), for each outstanding share of the Company’s common stock, to stockholders of record on December 19, 2022. Each share of Series A Preferred Stock entitled the holder thereof to 1,000,000 votes per share, and each fraction of a share of Series A Preferred Stock had a ratable number of votes. Thus, each one-thousandth of a share of Series A Preferred Stock was entitled to 1,000 votes. The outstanding shares of Series A Preferred Stock voted together with the outstanding shares of the Company's common stock as a single class exclusively with respect to the proposal to adopt an amendment to the Company’s Certificate of Incorporation, as amended, to reclassify the outstanding shares of the Company's Common Stock into a smaller number of shares of common stock at a ratio specified in or determined in accordance with the terms of such amendment (the “Reverse Stock Split”). The Company was not solely in control of the redemption of the shares of Series A Preferred Stock since the holders had the option of deciding whether to vote in respect of the above described Reverse Stock Split, which determined whether a given holder’s shares of Series A Preferred Stock were redeemed in the Initial Redemption or the Subsequent Redemption. Since the redemption of the Series A Preferred Stock was not solely in the control of the Company, the shares of Series A Preferred Stock were classified within mezzanine equity in the Company’s audited consolidated balance sheet. The shares of Series A Preferred Stock were measured at redemption value. The value of the shares of Series A Preferred Stock as of December 31, 2022 was $ 71 . See Note 14. Subsequent Events, Redemption and Elimination of Series A Preferred Stock. F-18 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued Public Offering of Common Stock On July 2, 2021, the Company completed a public offering of 1,380,000 shares of its common stock at a purchase price of $ 15.00 per share. The net proceeds of the offering to the Company were approximately $ 18.8 million, after deducting the underwriting discounts, commissions, and other offering expenses. Other 2021 Securities Purchase Agreements On August 30, 2021, the Company entered into a Securities Purchase Agreement with its legal counsel pursuant to which the Company issued 63,492 shares of common stock, at a purchase price of $ 15.75 per share. Upon issuance of the shares, certain of the Company's outstanding financial obligations to its legal counsel were deemed paid and satisfied in full. Settlement of Lease Liability During 2021, the Company agreed to issue 13,333 shares of its common stock in connection with the lease termination related to its former headquarters located in Basking Ridge, NJ. Settlement of Accrued Bonus In January 2021, the Company issued 11,028 shares of its common stock as payment for certain executive incentive bonuses accrued in 2020. Stock Purchase Warrants The following table presents a summary of stock purchase warrants outstanding as of December 31, 2022: Number of Warrants (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding, January 1, 2022 14 $ 180.60 0.80 $ — Granted — — $ — Exercised — — $ — Expired 13 138.05 $ — Outstanding, December 31, 2022 1 $ 229.50 2.0 $ — Exercisable, December 31, 2022 1 $ 229.50 2.0 $ — Note 9. Net Loss Per Share All common stock share data reflects the reverse stock split effective February 15, 2023, as described in Note 14. Subsequent Events, Reverse stock split . 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, (in thousands) 2022 2021 Outstanding stock options 440 342 Nonvested restricted stock and unit awards 127 72 Stock purchase warrants 1 14 568 428 F-19 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued Note 10. Variable Interest Entity As discussed in Note 1 , electroCore was the primary beneficiary of electroCore (Aust) Pty Limited (" electroCore Australia") . electroCore has contributed certain intellectual property rights, all rights to distribute, market and sell specified products in Australia and New Zealand, and other rights outlined in the shareholders’ deed of electroCore (Aust) Pty Limited in return for 50 % of the shares of such entity. In addition, electroCore had the right to appoint two of the four directors and exercise significant influence. This along with the fact that electroCore was electroCore Australia ’s only supplier caused electroCore, for accounting purposes, to be the primary beneficiary of electroCoreAustralia. The activities related to electroCoreAustralia were not material to the Company's consolidated financial statements. Effective May 2017, the VIE had ceased operations. On November 2, 2021, the Company terminated its interest in electroCoreAustralia and recorded the related a gain of $ 0.5 million in the accompanying Consolidated Statement of Operations for the year ended December 31, 2021 under the caption Gain on termination of joint venture. Note 11. Income Taxes The benefit for income taxes for the years ended December 31, 2022 and 2021 consisted of foreign taxes, state minimum tax and a benefit from the sale of state net operating losses. Domestic and foreign components of the loss before provision for income taxes is as follows: (in thousands) December 31, 2022 December 31, 2021 Domestic $ ( 21,518 ) $ ( 16,679 ) Foreign ( 1,075 ) ( 1,390 ) Total $ ( 22,593 ) $ ( 18,069 ) The income tax (benefit)/expense from continuing operations contains the following components: (in thousands) December 31, 2022 December 31, 2021 Federal $ — $ — State ( 449 ) ( 870 ) Foreign 18 19 Total current (benefit)/expense ( 431 ) ( 851 ) Total deferred — — Total income tax (benefit)/expense $ ( 431 ) $ ( 851 ) F-20 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued The Company has evaluated the available evidence supporting the realization of its deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that its net deferred tax assets will not be realized in the United States and certain foreign jurisdictions. Due to uncertainties surrounding the realization of the deferred tax assets, the Company maintains a full valuation allowance against all of its net deferred tax assets. When the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets would have the effect of increasing net income in the period such determination is made. The net change in the valuation allowance was an increase of $ 4.18 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, (in thousands) 2022 2021 Deferred tax assets Net operating loss carryforwards $ 29,854 $ 26,924 Accrued expenses 257 579 Intangibles 1,720 469 Fixed assets 5 ( 6 ) Inventory 165 216 Allowance for bad debt 3 3 Charitable contributions 10 11 R&D credit 422 430 Deferred FICA Tax — 7 Lease liabilities 172 200 Stock compensation 4,744 4,430 Deferred tax assets 37,352 33,263 Less valuation allowance ( 37,046 ) ( 32,868 ) Total deferred tax assets 306 395 Prepaid expenses ( 167 ) ( 234 ) Right of use asset ( 139 ) ( 161 ) Total deferred tax liabilities ( 306 ) ( 395 ) Deferred tax assets, net $ — $ — A reconciliation of the income tax expense (benefit) computed at the U.S. federal statutory income tax rate of 21 % and the reported income tax expense (benefit) for the years ended December 31, 2022 and 2021 is as follows: Year ended December 31, 2022 2021 Statutory rate ( 21.0 )% ( 21.0 )% State tax expected (recovery), net of federal benefit ( 7.3 )% 5.7 % State tax rate change 9.5 % — % Stock compensation ( 0.2 )% ( 5.7 )% State tax NOL sale ( 1.6 )% ( 3.8 )% Nondeductible expenses 0.2 % 2.1 % PPP loan forgiveness — % ( 1.7 )% Unrealized gain from termination of joint venture — % ( 1.8 )% Change in valuation allowance for deferred tax assets 18.5 % 21.5 % Income tax benefit ( 1.9 )% ( 4.7 )% F-21 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued As of December 31, 2022 and 2021 , the Company had accumulated Federal net operating losses totaling $ 119.7 million and $ 103.9 million, respectively. Also, as of December 31, 2022 and 2021, the Company had state post-apportioned net operating losses totaling $ 47.0 million and $ 40.5 million, respectively. The net operating losses 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 $ 3.4 million and $ 3.6 million for the years ended December 31, 2022 and 2021, respectively, in Germany which can be carried forward indefinitely. However, the NOL carryforwards may be, or become subject to, an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three year period in excess of 50 %, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. This could limit the amount of NOLs that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to an ownership change. Subsequent ownership changes may further affect the limitation in future years. If and when the Company utilizes the NOL carryforwards in a future period, it will perform an analysis to determine the effect, if any, of these loss limitation rules on the NOL carryforward balances . During the year ended December 31, 2022 in accordance with the State of New Jersey's Technology Business Tax Certificate Program, which allowed certain high technology and biotechnology companies to sell unused NOL carry forwards to other New Jersey based corporate taxpayers, the Company sold New Jersey NOL carry forwards, resulting in the recognition of $ 445,000 of income tax benefit, net of transaction costs. The Company recognized $ 877,000 of income tax benefit from the sale of New Jersey carry forwards in 2021. There can be no assurance as to the continuation or magnitude of this program in the future. As of December 31, 2022, the Company had Federal and NJ research and development credits of $ 283,000 and $ 192,000 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’s U.S. federal and state net operating losses have occurred since inception in 2018 and as such, tax years subject to potential tax examinations could apply from that date because the utilization of net operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities. The Company currently has no tax years under examination. As of December 31, 2022 , 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. F-22 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued Note 12. Stock Based Compensation All common stock share and per share data reflects the reverse stock split effective February 15, 2023, as described in Note 14. Subsequent Events, Reverse stock split . On June 21, 2018, the Company adopted the 2018 Omnibus Equity Incentive Plan (“Plan”). This plan reserved 0.4 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 3.0 million shares, and a maximum of 2.7 million shares pursuant to the exercise of stock options. Effective January 1, 2023 , the number of shares reserved under the Plan was increased by 0.2 million to approximately 0.9 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, 2022 and 2021. Total unrecognized compensation cost related to equity awards as of December 31, 2022 was $ 2.8 million and is expected to be recognized over the next 1.5 years. Year ended December 31, (in thousands) 2022 2021 Selling, general and administrative $ 2,319 $ 2,902 Research and development 335 332 Cost of goods sold 28 68 Total expense $ 2,682 $ 3,302 The following table presents a summary of stock option award activity during the year ended December 31, 2022: Number of Options (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding, January 1, 2022 342 $ 69.15 8.0 $ — Granted 105 10.05 $ — Exercised — — $ — Cancelled ( 7 ) 30.00 $ — Outstanding, December 31, 2022 440 $ 55.65 7.5 $ — Exercisable, December 31, 2022 230 $ 88.80 6.6 $ — The intrinsic value is calculated as the difference between the fair market value at December 31, 2022 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, 2022: Exercise Price Options Outstanding (in thousands) Options Outstanding Weighted Average Remaining Contractual Life (Years) Options Exercisable (in thousands) $ 0.01 - $ 37.50 328 7.9 135 $ 37.65 - $ 112.80 43 7.1 26 $ 112.95 - $ 225.00 69 5.5 69 F-23 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued The following table presents a summary of restricted and deferred stock unit (“Unit” or "Units") activity during the year ended December 31, 2022: Number of Shares (in thousands) Weighted Average Grant Date Fair Value Nonvested, January 1, 2022 70 $ 24.90 Granted 89 5.85 Vested ( 31 ) 23.70 Cancelled ( 1 ) 30.90 Nonvested, December 31, 2022 127 $ 11.85 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. Beginning in December 2022, the Company began incorporating its historical common stock volatility at a weighting of 50 % of the total composite volatility rate. During 2023, the Company will continue to evaluate the volatility rate used to value stock options. 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: 2022 2021 Fair value at grant date $ 7.20 $ 19.80 Expected volatility 90.6 % 80.2 % Risk-free interest rate 2.1 % 0.7 % Expected holding period, in years 5.8 6.0 Dividend yield — — The fair value of Units is the market close price of the Company’s common stock on the trading day immediately preceding the date of grant. F-24 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued Note 13 . 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 include present and past directors and officers, Evercore Group L.L.C., Cantor Fitzgerald & Co., JMP Securities LLC and BTIG, LLC, the underwriters for its IPO; and two of the Company’s stockholders. On August 15, 2019, the Superior Court entered an order consolidating the Kuehl and Stone actions, which proceeded under Docket No. SOM-L 000876-19. Each plaintiff was appointed a co-lead plaintiff. The plaintiffs filed a consolidated amended complaint, which sought certification of a class of stockholders who purchased common stock in the IPO or whose purchases are traceable to that offering. The consolidated amended complaint alleged that the defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act with respect to the registration statement and related prospectus for the IPO. The complaint sought unspecified compensatory damages, interest, costs and attorneys’ fees. On October 31, 2019, the Company and the other defendants filed a motion to dismiss the complaint or in the alternative to stay the action in favor of the pending federal action (discussed below). On February 21, 2020, the court granted the defendants’ motion to dismiss the consolidated amended complaint with prejudice. On March 2, 2020, the court entered an amended order dismissing the consolidated amended complaint with prejudice. On March 27, 2020, the plaintiffs filed a notice of appeal with the N.J. Superior Court – Appellate Division. The appeal was argued on September 27, 2021. On October 8, 2021, the Appellate Division issued an order reversing the decision of the Superior Court. The case has been remanded to the Superior Court for oral argument on the motion to dismiss. On November 11, 2021, the defendants filed a supplemental motion to dismiss based on the forum selection clause in our certificate of incorporation's. On December 10, 2021, the Superior Court heard argument of the original motion to dismiss and the supplemental motion to dismiss based on the federal forum selection clause. On December 14, 2021, the Superior Court granted the supplemental motion to dismiss based on the federal forum selection clause with prejudice and granted the original motion to dismiss without prejudice. On January 27, 2022, the plaintiffs filed a notice of appeal to the Appellate Division. On April 15, 2022, the plantiffs filed their appeal brief. The brief of defendant-appellees was filed on May 16, 2022. The appeal is fully briefed. Oral argument is scheduled for April 19, 2023. 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. The Priewe case was voluntarily dismissed on February 19, 2020. In the Turnofsky case, on November 25, 2019, several plaintiffs and their counsel moved to be selected as lead plaintiff and lead plaintiff’s counsel. On April 24, 2020, the Court granted the motion of Carole Tibbs and the firm Bragar, Eagel & Squire, P.C. On July 17, 2020, the plaintiffs filed an amended complaint in Turnofsky . In addition to the prior claims, the amended complaint added an additional director defendant and two investors as defendants and adds a claim against the Company and the underwriters for violating Section 12(a)(2) of the Securities Act. On September 15, 2020, the Company and the other defendants filed a motion to dismiss the amended complaint for failure to state a claim. On November 6, 2020, the plaintiffs filed their opposition to the motion to dismiss. The Company and the other defendants filed reply papers in support of the motion on December 7, 2020. Argument of the motion to dismiss occurred on June 18, 2021. On August 13, 2021, the Court dismissed the amended complaint with leave to re-plead. On October 4, 2021, the plaintiffs filed a second amended complaint in the Turnofsky case. The defendants have moved to dismiss. Briefing on the motion was complete on January 7, 2022. On July 5, 2022, the case was reassigned to Judge Zahid N. Quraishi, who has ordered that he will consider the pending motion to dismiss in due course. Argument of the motion has not yet been scheduled. F-25 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued On March 4, 2021, purported stockholder Richard Maltz 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 Erin 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 plaintiffs in the Maltz and Yuson derivative actions agreed to consolidate and stay those actions. The actions are stayed until and through the resolution of any motion for summary judgment in the Turnofsky federal securities class action. A stipulation to that effect was filed by the plaintiffs on April 14, 2021, and ordered by the court on April 30, 2021. These cases also have been re-assigned to Judge Quraishi. The Company intends to continue to vigorously defend itself in these matters. However, in light of, among other things, the preliminary stage of these litigation matters, the Company is unable to determine the reasonable probability of loss or a range of potential loss. Accordingly, the Company has not established an accrual for potential losses, if any, that could result from any unfavorable outcome, and there can be no assurance that these litigation matters will not result in substantial defense costs and/or judgments or settlements that could adversely affect the Company’s financial condition. The Company is subject to various claims, complaints and legal actions in the normal course of business from time to time. The Company is not aware of any further currently pending litigation for which it believes the outcome could have a material adverse effect on its operations or financial position. The Company expenses associated legal fees including those relating to the stockholder litigation described in this Note 13 in the period they are incurred. Purchase Commitments The Company enters into contracts in the normal course of business with contract research organizations for its clinical trials, contract manufacturing organizations for the manufacture and supply of its clinical and commercial product needs and other vendors for other research and development and commercial activities, as well as services and products for operating purposes. The Company’s agreements generally provide for termination with notice. Such agreements that are cancelable contracts are not included as purchase commitments. The Company has included as purchase obligations its commitments under agreements to the extent they are quantifiable and are not cancelable. The Company has no material purchase obligations as of December 31, 2022. F-26 ELECTROCORE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements — Continued Note 14. Subsequent events Reverse stock split On February 13, 2023, the Company held a special meeting (the “ Special Meeting ”) of stockholders of the Company . At the Special Meeting, the Company’s shareholders voted to approve an amendment to the Company’s Certificate of Incorporation to effect a reverse stock split of the Company’s common stock (the “Reverse Stock Split”) at a ratio between 1-for-5 and 1-for-50 . Following the Special Meeting, the board of directors of the Company approved a 1-for-15 Reverse Stock Split. The Reverse Stock Split became effective on February 15, 2023. Upon the effectiveness of the Reverse Stock Split, every 15 shares of common stock were automatically combined and converted into one share of common stock. Appropriate adjustments were also made to all outstanding derivative securities of the Company, including all outstanding equity awards and warrants. No fractional shares were issued in connection with the Reverse Stock Split. Instead, all fractional shares received a cash payment based on the closing sales price on the Nasdaq Capital Market of the Company’s common stock on February 14, 2023. Redemption and Elimination of Series A Preferred Stock All shares of Series A Preferred Stock that were not present in person or by proxy as of immediately prior to the opening of the polls at the Special Meeting were automatically redeemed by the Company (the “Initial Redemption”). Any outstanding shares of Series A Preferred Stock that had not been so redeemed were redeemed automatically upon the approval at the Special Meeting of the Reverse Stock Split (the “Subsequent Redemption”). Each share of Series A Preferred Stock redeemed was entitled to receive an amount equal to $ 0.01 in cash for each 10 whole shares of Series A Preferred Stock owned immediately prior to the Redemption. O n March 6, 2023 , the Company filed a certificate of elimination (the “Certificate of Elimination”), with the Secretary of State of the State of Delaware with respect to the Series A Preferred Stock. The Certificate of Elimination (i) eliminated the previous designation of 80,000 shares of Series A Preferred Stock from the Company’s Certificate of Incorporation, none of which were outstanding at the time of the filing of the Certificate of Elimination, and (ii) caused such shares of Series A Preferred Stock to resume their status as authorized but unissued and non-designated shares of preferred stock. Sales of net operating losses The Company may be eligible, from time to time, to receive cash from the sale of its net operating losses under New Jersey's Department of the Treasury - Division of Taxation NOL Transfer Program. On January 10, 2023, the Company received a net cash amount of approximately $ 211,000 from the sale of its New Jersey state net operating losses. F-27