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Item 7. Management’s Discussion and Analysis

2024-03-13 compared with 2023-03-08 · 116 added, 169 removed, 148 unchanged (66% of the section changed)

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(See, “Item 8 – Notes to consolidated financial statements – Note 2 - Basis of Presentation”).

We are a commercial stage bioelectronic medicine and wellness company dedicated to improving health through our non-invasive vagus nerve stimulation (“nVNS”) technology platform.

Our 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.

nVNS is a platform bioelectronic technology that modulates neurotransmitters and immune function through its effects on both the peripheral and central nervous systems.

We are a commercial stage bioelectronic medicine and wellness company dedicated to improving health and quality of life through our propriety non-invasive vagus nerve stimulation (“nVNS”) technology platform.

nVNS modulates neurotransmitters through its effects on both the peripheral and central nervous systems.

Our nVNS treatment is delivered through a proprietary high-frequency burst waveform that safely and comfortably passes through the skin and stimulates therapeutically relevant fibers in the vagus nerve.

Various scientific publications suggest that VNS works through several mechanistic pathways including the modulation of neurotransmitters.

Various scientific publications suggest that nVNS works through a variety of mechanistic pathways including the modulation of neurotransmitters.

Historically, vagus nerve stimulation or VNS, required an invasive surgical procedure to implant a costly medical device.

This limitation has generally limited VNS from being used by anyone other than the most severe patients.

Our medical devices and wellness products are self-administered and intended for regular or intermittent use over many years.

Our business is supported by our in-house capabilities spanning research and development, regulatory affairs and compliance, sales and marketing, product testing, assembly, fulfillment, and customer support.

We derive revenues from the sale of medical devices and wellness products in the United States and select overseas markets.

This has generally limited VNS from being used by anyone other than the most severe patients.

Our non-invasive medical devices and general wellness products are self-administered and intended for regular or intermittent use over many years.

Our capabilities include product development, regulatory affairs and compliance, sales and marketing, product testing, assembly, fulfillment, and customer support.

We derive revenues from the sale of products in the United States and select overseas markets.

We have two principal product categories:

Handheld, personal use medical devices for the management and treatment of certain medical conditions;

• Handheld, personal use consumer product offerings utilizing nVNS technology to promote general wellbeing and human performance.

We believe our nVNS treatment may be used in the future to effectively treat additional medical conditions or improve human performance.

Handheld, personal use medical devices for the management and treatment of certain medical conditions such as primary headache;

Handheld, personal use consumer products utilizing nVNS technology to promote general wellness and human performance.

We believe our nVNS treatment may be used in the future to effectively treat additional medical conditions.

Our goal is to be a leader in non-invasive neuromodulation by using our proprietary nVNS platform technology to deliver better health.

To achieve this, we offer multiple propositions:

• gammaCore for the treatment of certain medical conditions such as primary headache;

Prescription gammaCore medical devices for the treatment of certain medical conditions such as primary headache;

Truvaga for the support of general health and wellbeing;

• TAC-STIM for human performance as defined by the United States Air Force Research Laboratory.

Our flagship model, gammaCore Sapphire, is a prescription medical device currently FDA cleared for a variety of primary headache conditions.

TAC-STIM for human performance.

Our flagship gammaCore Sapphire is a prescription medical device that is FDA cleared for a variety of primary headache conditions.

gammaCore is available by prescription only and Sapphire is a portable, reusable, rechargeable and reloadable personal use option for patients to use at home or on the go.

Prescriptions are written by a health care provider and dispensed from a specialty pharmacy, through the patient’s healthcare system, or fulfilled directly to certain patients directly from our facility in Rockaway, NJ.

After the initial prescription is filled, access to additional therapy can be refilled for certain of our gammaCore products periodically through the input of a prescription-only authorization.

Truvaga is a personal use consumer electronics wellness product that does not require a prescription and is available direct-to-consumer from electroCore at www.truvaga.com .

Truvaga is not intended for medical use.

TAC-STIM is a form of nVNS for human performance and has been developed in collaboration with the United States Department of Defense Biotech Optimized for Operational Solutions and Tactics, or BOOST program.

We are exploring strategies to make this product offering available to other branches of the active-duty military and certain human performance professionals in the United States and abroad.

TAC-STIM is available as a Commercial Off the Shelf (COtS) solution to professional organizations and is the subject of ongoing research at the United States Air Force Research Laboratory.

TAC-STIM is not intended for medical use.

We have generally focused most of our historical sales efforts in two channels, the United States Department of Veterans Affairs and United States Department of Defense, or VA/DoD, and the United Kingdom utilizing our FDA cleared and CE marked product, gammaCore.

The United States Department of Veteran Affairs comprised 60.8 % of our revenue during the year ended December 31, 2022.

We expect that a majority of our 2023 sales will be made pursuant to our qualifying contract under the Federal Supply Schedule or FSS, which was secured by us 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.

We intend 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 us.

Our sales function in this channel is comprised of employees and independent contractors.

Sales under the MTFM program for cluster headache in the UK comprised 15.1% of our revenue during the year ended December 31, 2022.

In 2023, we plan on continued expansion under this program, as well as continue to utilize distribution partners to commercialize our nVNS technology in territories outside the United States and United Kingdom.

Prescriptions are written by a health care provider and dispensed from a specialty pharmacy, through the patient’s healthcare system, or shipped directly to certain patients in the United States directly from our facility in Rockaway, NJ.

After the initial prescription is filled, access to additional therapy can be refilled for certain of our gammaCore products through the input of a prescription-only authorization.

Truvaga is a personal use consumer electronics general wellness product that does not require a prescription and is available direct-to-consumer from electroCore at www.truvaga.com.

TAC-STIM product is a form of nVNS for human performance and has been developed in collaboration with the United States Department of Defense Biotech Optimized for Operational Solutions and Tactics, or BOOST program.

TAC-STIM products are available as a Commercial Off the Shelf (COtS) solution to professional organizations and are the subject of ongoing research and evaluation within the United States Air Force Special Operations Command, the United States Army Special Operations Command and at the United States Air Force Research Laboratory.

Truvaga and TAC-STIM are intended for general wellness in compliance with the FDA guidance document entitled “General Wellness:

Policy for Low-Risk Devices;

Guidance for Industry and FDA Staff, issued on September 27, 2019.” Truvaga and TAC-STIM products are not intended to diagnose, treat, cure, or prevent any disease or medical condition.

We are exploring strategies to make our TAC-STIM product available to other branches of the active-duty military and certain human performance professionals in the United States and abroad.

Our TAC-STIM product is not a medical device and is not intended to diagnose, cure, mitigate, prevent, or treat a disease or condition.

Our two largest customers by revenue are the United States Department of Veterans Affairs and United States Department of Defense, or VA/DoD, and the United Kingdom National Health Service or NHS utilizing our FDA cleared and CE marked product, gammaCore.

The VA comprised 60.1% of our revenue during the year ended December 31, 2023.

The majority of our 2023 sales were made through open market sales to individual facilities within the VA Hospital system and a smaller amount pursuant to our qualifying contract under the Federal Supply Schedule, or FSS, which was secured by us in December 2018.

The initial term of our FSS contract was scheduled to expire on January 15, 2024.

On January 5, 2024, we obtained a modification to the initial contract, temporarily extending the term from January 15, 2024, to March 14, 2024, and subsequently extended to June 14, 2024.

Although we continue to work with the appropriate government personnel to replace our existing FSS contract, there can be no assurance that the VA/DoD will accept our application which may limit or eliminate our ability to sell certain gammaCore products into the government channel pursuant to our qualifying FSS contract or individual facilities that utilize our FSS contract number for open market purchases.

In August 2023, we signed a non-exclusive distribution agreement with Lovell Government Services, or Lovell, providing Lovell the right to list and distribute certain gammaCore products into the federal market.

Lovell is a Service-Disabled Veteran-Owned Small Business (SDVOSB) offering medical and pharmaceutical goods and services to federal healthcare providers.

Listing products with Lovell is intended to streamline the sales process to a variety of government procurement channels through Lovell’s compliance with contracting regulations and its provision of logistical solutions connected directly into government contracting portals, all of which are intended to help government agencies meet their SDVOSB procurement goals.

Customers for these vehicles are federal healthcare systems such as the Veterans Health Administration (VHA, which includes the VA/DoD), the Military Health System (MHS), and Indian Health Services (IHS), which we believe serve up to approximately 21 million patients combined.

Between November 2023 and January 2024, certain gammaCore products were added to the FSS, the VA/DoD’s Distribution and Pricing Agreement or DAPA, GSA Advantage, and Defense Logistics Agency’s ECAT system procurement portals through the Lovell contract vehicles, enabling the purchase of gammaCore products within the government channel and throughout the federal markets, including, but not limited to, the VA/DoD.

The gammaCore products offered through Lovell provide government customers with similar product configuration options to those currently sold through our existing FSS contract and open market sales made directly to individual VA/DoD facilities.

We expect a significant portion of our 2024 sales to continue in the government channel broadly, and to our largest customer the VA/DoD, specifically, pursuant to our FSS contract if replaced and / or through our relationship with Lovell and its qualifying FSS, GSA, DAPA, and ECAT contracts for which gammaCore has been added.

Sales under the Med Tech Funding Mandate, or MTFM, program for cluster headache in the UK comprised 7.5 % and 15.1 % of our revenue during the years ended December 31, 2023 and 2022, respectively .

In October 2023, we were notified by NHS Supply Chain that it intends to continue to include the gammaCore device within their framework agreement, commencing March 2024 through March 2026 with our option to extend for a further two years.

In 2024, we expect NICE to review the guidance document and any changes in recommendation or pricing may adversely impact our ability to work with NHS England on the MTFM program.

We believe there may be significant opportunities beyond these areas.

In 2023, therefore, we plan to continue our investment in expanded commercial adoption of gammaCore with cash pay, physician dispense, and direct-to-consumer approaches, and continue our early efforts to begin building wellness and human performance propositions through Truvaga and TAC-STIM.

We face a variety of challenges and risks that we will need to address and manage as we pursue our strategies, including our ability to develop and retain an effective sales force, achieve market acceptance of gammaCore among physicians, patients, and third-party payers, expand the use of gammaCore to additional therapeutic indications, and to develop our nascent wellness and human performance business.

Because of the numerous risks and uncertainties associated with our commercialization efforts, as well as research and clinical development activities, we are unable to predict the timing or amount of increased expenses, or when, if ever, we will be able to achieve or maintain profitability.

We believe there may be significant opportunities beyond these two areas.

Specifically, we believe there may be a large commercial opportunity for our gammaCore medical device with additional insurance covered lives, cash pay, physician dispense, and direct-to consumer approaches, along with wellness and human performance propositions through our Truvaga and TAC-STIM products.

Therefore, we will continue our investments to expand our efforts in these channels and markets in 2024.

We face a variety of challenges and risks that we will need to address and manage as we pursue our strategies, including our ability to develop and retain an effective sales force, achieve market acceptance of our gammaCore medical device among clinicians, patients, and third-party payers, expand the use of our gammaCore medical device to additional therapeutic indications, and to develop our nascent wellness and human performance business including the planned launch of Truvaga Plus, our next generation app-enabled device under the Truvaga brand.

Because of the numerous risks and uncertainties associated with our commercialization efforts, as well as research and product development activities, we are unable to predict the timing or amount of increased expenses, or when, if ever, we will be able to achieve or maintain profitability.

Even if we are able to increase sales of our products, we may not become profitable.

If we fail to become profitable or are unable to sustain profitability, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

Our expected cash requirements for the next 12 months and beyond are based on the commercialization success of our products and our ability to control operating expenses.

There are significant risks and uncertainties as to our ability to achieve these operating results, including as a result of the potential adverse impact on our business from the ongoing COVID-19 pandemic.

Our expected cash requirements for the next 12 months and beyond are based on the commercial success of our products and our ability to control operating expenses.

There are significant risks and uncertainties as to our ability to achieve these operating results.

Due to these risks and uncertainties, we may need to reduce our activities significantly more than our current operating plan and cash flow projections assume in order to fund operations for the next 12 months.

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These conditions raise substantial doubt about our ability to continue as a going concern.

See “Liquidity and Capital Resources.”

See “Liquidity Outlook.”

Capital Activities

In connection with a registered direct offering and concurrent private placement with certain institutional and accredited investors, on August 2, 2023, we issued and sold an aggregate of 1,062,600 shares of common stock, 613,314 pre-funded common stock purchase warrants that were exercisable upon issuance, and warrants to purchase up to an aggregate of 837,955 shares of common stock.

Pursuant to a private placement on the same date with six of the Company’s officers and directors, we issued and sold 169,968 shares of common stock and warrants to purchase up to an aggregate of 84,982 shares of common stock.

The combined effective offering price of the securities sold pursuant to these transactions was $4.4125 per share of common stock and related warrant to purchase one-half of a share of common stock.

The common stock purchase warrants are exercisable as of February 2, 2024 at a price of $4.35 per share and will expire five years after they become exercised.

The net proceeds to the Company resulting from the registered direct offering and concurrent private placements was approximately $7.5 million, after deducting the placement agent fees and expenses, and other offering expenses payable by the Company, and excluding the proceeds, if any, from the potential exercise of the common stock purchase warrants sold in the concurrent private placements.

The 922,937 common stock purchase warrants that were issued to certain institutional and accredited investors, and certain of our officers and directors, and 169,968 shares of common stock issued to such officers and directors were registered for resale on Form S-1 (File No.:

33274199) filed with the Securities Exchange Commission on August 24, 2023 and declared effective on August 31, 2023.

On January 18, 2022, we filed a Form S-3 registration statement, or the 2022 Shelf Registration Statement, with the SEC, for the issuance of common stock, preferred stock, warrants, rights, debt securities and units, up to an aggregate amount of $75 million.

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The proposed maximum offering price per unit and the proposed maximum aggregate offering price per class of security will be determined from time to time by us in connection with the issuance by us of the securities registered under the 2022 Shelf Registration Statement.

Until such time as the aggregate market value of our securities held by non-affiliates equals or exceeds $ 75 million, the aggregate maximum offering price of all securities issued by the us in any given 12 -calendar month period pursuant to this and any of our other registration statements may not exceed one -third of the aggregate market value of our securities held by non-affiliates.

As of December 31, 2023, we have approximately $67.7 million remaining for potential issuance under the 2022 Shelf Registration Statement.

Until such time as the aggregate market value of our securities held by non-affiliates equals or exceeds $75 million, the aggregate maximum offering price of all securities issued by the us in any given 12-calendar month period pursuant the 2022 Shelf Registration Statement may not exceed one-third of the aggregate market value of our securities held by non-affiliates.

If we raise additional funds by issuing equity or debt securities, either through the sale of securities pursuant to a registration statement or by other means, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders.

On July 2, 2021, we completed a public offering of 1,380,000 shares of our common stock at a purchase price of $15.00 per share.

The net proceeds of the offering to us were approximately $18.8 million, after deducting the underwriting discounts and commissions and other estimated offering expenses.

We intend to use the net proceeds of the offering for sales and marketing, working capital, and general corporate purposes.

In addition, we believe that opportunities may exist from time to time to expand our current business through acquisitions or in-licenses of, or investments in, complementary companies, medicines, intellectual property, or technologies.

While we have no current agreements or commitments for any specific acquisitions, in-licenses or investments at this time, we may use a portion of the net proceeds for these purposes.

On August 30, 2021, we entered into a Securities Purchase Agreement with our legal counsel pursuant to which we issued 63,479 shares of common stock, at a purchase price of $15.75 per share.

Upon issuance of the shares, certain of our outstanding financial obligations to our legal counsel were deemed paid and satisfied in full.

On October 4, 2021, we issued 13,333 shares of our common stock in connection with the lease termination related to our former headquarters located in Basking Ridge, NJ.

Outside the US

In August 2011, we received a CE Certificate of Conformity for gammaCore for the treatment of primary headache from the British Standards Institution, a European Union notified body.

This CE Certificate of Conformity allowed us to affix the CE Mark on gammaCore and to commercialize it in the European Economic Area and other countries that recognize the European CE Mark.

In addition to the CE Certificate of Conformity for primary headache, between September 2011 and October 2013 we received CE Certificates of Conformity on gammaCore covering four other indications for use, including reactive airway disease and gastric motility disorders.

In 2019 , the National Institute for Health and Care Excellence, or NICE published a Medical Technology Guidance document recommending the use of gammaCore for Cluster Headache or CH within the National Health Service, or NHS, of England and Wales.

On January 2021, NHS Scotland adopted the NICE recommendation and recommended gammaCore for use in the treatment of CH in Scotland.

NHS England awarded gammaCore a place on the Innovation Technology Payment, or ITP, program for treatment of patients with reflectory cluster headache, a reimbursement pathway that opened in April 2019.

In October 2020, we announced that the ITP program was extended through March 2021.

Effective April 1, 2021, gammaCore Sapphire was included in a new long-term, reimbursement policy, titled the MedTech Funding Mandate Policy 2021 / 22 , or MTFM.

In August 2021, we announced the release of an article entitled “gammaCore for Cluster Headaches:

A NICE Medical Technologies Guidance” in the journal PharmacoEconomics highlighting the cost impact of gammaCore’s non-invasive vagus nerve stimulation therapy platform for patients with cluster headaches.

The paper is part of a series that provides insight into the development of NICE medical technologies guidance for new or innovative medical devices or diagnostics.

The aim of the guidance is to support the adoption of clinically effective and cost-saving technologies in the UK National Health Service.

The paper validated that gammaCore both reduces the frequency and severity of cluster headaches when used with standard of care and provides a £ 450 per patient savings in the first year of therapy versus standard of care alone.

In October 2021, we announced the publication of a peer-reviewed paper entitled “Non-invasive vagus nerve stimulation for treatment of cluster headache:

a retrospective review of prescribing in England,” in the British Journal of Healthcare Management.

The paper reviews the prescribing trends of gammaCore in England from April 2019 through the end of 2020 and is one of the largest clinical audits of patients with cluster headache.

The paper highlights that of the 655 patients who started on gammaCore, 46.3 % of patients were prescribed at least one refill and 30.9 % were prescribed two or more refills.

These real-world results suggest a durable benefit for patients utilizing gammaCore’s non-invasive vagus nerve stimulation (nVNS) for cluster headache in England.

In April 2021, we announced that Health Canada has granted regulatory approval for the promotion and sale of the gammaCore Sapphire family of products in Canada for prevention and therapeutic treatment of migraine and cluster headache, as outlined in the registration application with Health Canada.

Later in the year, the company received an amended Medical Device License from Health Canada to expand the label of gammaCore nVNS to include the acute and preventive treatment of migraine in adolescents between 12 and 17 years of age.

gammaCore is now cleared for most forms of primary headache including the acute and preventive treatment of migraine in adolescents and adults, as well as the acute and preventive treatment of cluster headache in adults.

In December 2022, we announced the launch of an ecommerce shop for patients residing in the United Kingdom.

The site, which can be found at www.gammacore.co.uk, requires patients to complete a healthcare questionnaire in order to purchase a gammaCore Sapphire™, non-invasive vagus nerve stimulator (nVNS) device online.

The first product launched on the platform is designed to treat menstrual migraine, supporting the 60 % of women who report migraine symptoms associated with their menstrual cycle.

This platform will allow patients to experience a fully virtual experience by completing an online clinical assessment, having product delivered to their door, and being trained via video calls with a member of the UK customer service team.

In 2022, we continued executing on the plan to expand international distribution by onboarding exclusive distribution partners outside the United States and United Kingdom.

On March 29, 2022, we 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, we received a non-refundable, upfront payment for the licenses and rights granted to Teijin.

We began to recognize revenue for this upfront payment ratably over a period of one year commencing in the second quarter of 2022.

The financial terms of the Teijin license agreement contain milestone payments, payable upon the decision by Teijin to commercialize the licensed product for specific indications.

We will also receive an annual license fee commencing on the first anniversary of the agreement and payable annually until the first commercial sale on any approved indication.

Upon favorable regulatory and payor coverage decisions in Japan, the parties plan to enter into an exclusive commercial supply agreement for gammaCore nVNS.

The agreement contains customary terms and conditions, including renewal and termination provisions, as well as minimum purchase commitments once a commercial supply agreement is in place.

Furthermore, Teijin is responsible for all costs associated with regulatory approval by the Pharmaceuticals and Medical Devices Agency (PMDA), the Japanese FDA equivalent.

As part of the agreement, Teijin will have the right of first negotiation for a license to additional indications in Japan.

Impact of COVID- 19

The ongoing coronavirus pandemic has impacted, and may continue to impact, our headquarters, manufacturing, and warehousing and ecommerce facilities, as well as those of our third-party vendors, including through the effects of facility closures, employee furloughs, reductions in operating hours, staggered shifts and other social distancing efforts, labor shortages, decreased productivity and unavailability of materials or components.

The ongoing coronavirus pandemic may also impact our ability to sell our product, ship our product on a timely basis and may increase our costs.

The spread of coronavirus caused us to modify certain of our business practices (including social distancing practices, requiring non-essential production related team members to work remotely where possible, restricting business travel, cancelling certain events, and limiting visitor access to our facilities), and we may relax, extend, modify, or take further actions that may be required by government authorities or that we determine are necessary or advisable.

Work-from-home and other measures introduce additional operational risks, including cybersecurity risks, and have affected the way we conduct our business, which could have an adverse effect on our operations.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and illness and workforce disruptions could lead to unavailability of key personnel and harm our ability to perform critical functions.

In addition, work-from-home and related business practice modifications present significant challenges to maintaining our corporate culture, including employee engagement and productivity, both during the immediate pandemic crisis and as we make additional adjustments in the eventual transition from it.

Implementing new business practices in order to protect employees, vendors and other parties with whom we interact may result in increased costs.

Furthermore, even if we follow what we believe to be best practices, there can be no assurance that our measures will prevent the transmission of COVID- 19 between employees.

Any incidents of actual or perceived transmission may expose us to liability claims, adversely impact employee productivity and morale, and result in negative publicity and reputational harm.

Additionally, our sales and marketing efforts are, and may from time to time be, adversely affected by protocols for screening and restricting outside visitors and vendors that have been adopted by the Department of Veterans Affairs, commercial prescribers and other third parties.

Officially imposed quarantines and self-quarantines could also interfere with patients’ ability to see a health care provider and obtain our gammaCore therapy.

Critical Accounting Policies and Estimates

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Actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of unforeseen events or otherwise, which could have a material impact on our financial position and results of operations.

We believe the judgements estimates and assumptions associated with the following critical accounting policies have the greatest potential impact on the consolidated financial statements:

Several of our accounting policies involve significant estimates and judgements:

Licensed Products;

Income Taxes;

Stock-based Compensation;

Loss Contingencies.

Revenue Recognition

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Revenue from the Veterans Administration and the Department of Defense

Revenue from sales of our products is recognized under terms of the Federal Supply Schedule, or FSS, as well as purchase orders for open market sales to individual VA sites and a distributor who purchases our products on behalf of the DoD.

Revenue from the VA includes sales of therapy for up to 36 months.

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

Revenue from sales of our products is recognized under the terms of qualifying FSS, GSA, DAPA, ECAT contracts through a distributor who purchases our products on behalf of federal healthcare providers, as well as purchase orders for open market sales to individual VA sites.

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

A cash refund is allowed under specific circumstances for undamaged and non-defective products.

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

In 2023, the United Kingdom National Health Service or NHS granted a two-year extension in which our gammaCore therapy will continue to be listed in the NHS catalogue.

This extension is through March 17, 2026, with an option for us to extend an additional two years.

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

Recently, product offering in the United Kingdom has expanded to 10 -day therapy at a fixed price for menstrual migraine patients purchasing product through our UK ecommerce store.

All revenue associated with the menstrual migraine product are paid prior to product being shipped.

United States Commercial Revenue Outside of Federal Supply Schedule Channel

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

Managed care rebates represent our estimated obligations to pharmacy benefit managers.

Rebate accruals are recognized in the same period the related revenue is recognized.

Co-payment assistance represents financial assistance to qualified patients, to assist them with co-payments for gammaCore therapy.

The calculation of the accrual is based on an estimate of claims and the cost per claim that we expect to incur associated with inventory that exists in the distribution channel at period end.

The amount of monthly co-payment assistance is up to a maximum of $ 100 per prescription.

We expense the cost, as incurred, of product damaged as a result of shipping.

This expense, historically, has been immaterial.

United States Commercial Revenue Outside of Veterans Administration and the Department of Defense

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

We expect to receive payment on all of our customer receivables within one year and therefore classify all receivables as current assets.

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A cash refund is allowed in our discretion under specific circumstances for undamaged and non-defective returned product.

We expense the cost, as incurred, of product damaged as a result of shipping.

This expense, historically, has been immaterial.

Accounts receivable are net of an allowance for doubtful accounts, which are accounts from which payment is not expected to be received although product was provided, and revenue was earned.

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The fair value of each stock option award granted was estimated on the date of grant using the Black-Scholes model.

Since our common stock was not publicly traded until June 2018 there has been insufficient volatility data available.

Accordingly, we have used an expected volatility based on historical common stock volatility of our peers.

Beginning in December 2022, we began incorporating our 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.

Effective July 1, 2023, expected volatility was based on 100% of the Company's historical common stock volatility.

For the periods prior to July 1, 2023, expected volatility was based on a composite comprising of 50% of the Company's historical common stock volatility;

the remaining 50% was based on historical volatility of its peers.

This composite rate was utilized as our common stock was not publicly traded until June 2018 and there was insufficient volatility data available.

Since we currently do not intend to pay dividends on our common stock, we estimate the dividend yield percentage to be zero.

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Emerging Growth Company Status

In April 2012, the JOBS Act was enacted by the federal government.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards.

Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.

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

We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO (December 31, 2023), (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

We ceased to be an emerging growth company on December 31, 2023, the last day of the fiscal year following the fifth anniversary of our IPO, and therefore are no longer able to take advantage of the reduced regulatory and reporting requirements of emerging growth companies.

Results of Operations

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Other (income) expense:

Gain on extinguishment of debt

Gain on termination of joint venture

Interest and other income

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Net sales for the year ended December 31, 2023 increased 87% as compared to the year ended December 31, 2022 .

The increase of $ 3.1 million is due to an increase in net sales across all major channels including the U.S.

Department of Veteran Affairs, U.S.

commercial channel, and sales from outside the U.S.

which includes licensing revenue of $ 139,000 .

There was no licensing revenue in the comparable prior year.

Revenue from outside the U.S.

was adversely impacted due to the strengthening of the U.S.

dollar during the last half of 2022.

The increase of $ 7.4 million is due to an increase in net sales across major channels including our prescription gammaCore medical devices sold in the U.S.

and revenue from the sales of our nonprescription general wellness and human performance Truvaga and TAC-STIM products.

We expect that the majority of 2024 fiscal year revenue will continue to come from the U.S.

Department of Veterans Affairs and United Kingdom.

Additionally, we expect revenues to expand from our cash pay propositions which include ecommerce stores , direct to physician models for traditional neurology headache specialists, as well as the wide range of medical providers who manage patients' headache conditions including primary care physicians, women's health, pain management, sports medicine, functional and integrative medicine professionals, as well as chiropractors, and PharmDs (Doctors of Pharmacy).

In addition, we believe we may generate additional revenue from sales of our Truvaga and TAC-STIM products.

Department of Veterans Affairs.

See above Overview for discussion regarding our Federal Supply Schedule.

The following table sets forth our channel net sales:

(in thousands)

Years ended December 31,

Rx gammaCore - Department of Veteran Affairs and Department of Defense

Rx gammaCore - U.S.

Outside the United States

Gross profit in creased $ 6.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 .

Gross margin was 83% and 81% for the years ended December 31, 2023 and 2022 , respectively .

Our evolving commercial strategy has resulted in the launch of cash payment models under which we license a portion of our devices.

The cost of the licensed device is being recognized as cost of goods sold over the estimated useful life of the device.

The increase in gross margin was primarily due to the favorable impact on gross margin associated with the licensing of a portion of our devices in the year ended December 31, 2022.

Moreover, in 2022, we sold an increasing amount of longer duration therapy, resulting in a higher average selling price, as well as selling an increased number of refill kits with a lower cost of goods.

These factors, including Teijin license revenue with no associated cost of goods, contributed to the increase in gross margin.

For the years ended December 31, 2023 and 2022, we recorded inventory charges to Cost of goods sold which totaled $ 0.7 million and $ 0.2 million, respectively.

Excluding these inventory charges, gross margin was 86.8% and 83.5% for the years ended December 31, 2023 and 2022, respectively.

In 2023, we sold an increasing amount of longer duration therapy, resulting in a higher average selling price, as well as selling an increased number of refill kits with a lower cost of goods.

These factors, as well as revenue recognized from the A2PEX program, contributed to the increase in gross margin.

Gross profit and gross margin in 2024 will be largely dependent on revenue levels, product mix, and any changes in the estimated useful lives of licensed devices.

Research and Development

Research and development expense of $ 5.5 m illion for the year ended December 31, 2022 in creased by $3.0 million.

This increase was primarily due to targeted investments to support the future iterations of our therapy delivery platform, including the use of our intellectual property around the delivery of smart phone-integrated and smart phone-connected non-invasive therapies .

I n 2023, we plan to continue to invest in the next generation of our therapy delivery platform.

Research and development expense of $ 5.3 m illion for the year ended December 31, 2023 decreased by $ 0.2 million.

This decrease in research and development expense was due to a decrease in compensation associated with cost cutting measures effected April 1, 2023 and offset by targeted investments to support the future iterations of our therapy delivery platform, including the use of our intellectual property around the delivery of smart phone-integrated and smart phone-connected non-invasive therapies.

We expect our research and development expense to decrease in 2024 with the launch of our next generation therapies.

Selling, General and Administrative

Selling, general and administrative expense of $ 24.3 million for the year ended December 31, 2022 increased by $2.8 million as we continued to make targeted investments to support our commercial efforts, particularly around sales and marketing efforts for our cash pay propositions which include ecommerce stores, direct to physician models for traditional neurology headache specialists, as well as the wide range of medical providers who manage patients' headache conditions including primary care phy sicians, women's health, pain management, sports medicine, functional and integrative medicine professionals, as well as chiropractors, and PharmDs (Doctors of Pharmacy).

In 2023, w e plan on continuing to make targeted investments in sales and marketing to support our commercial efforts.

Selling, general and administrative expense of $ 27.2 million for the year ended December 31, 2023 increased by $ 2.8 million compared to $ 24.3 million for the previous year.

This increase was due to severance charges totaling $ 464,000 , as well as our greater variable selling and marketing costs consistent with our increase in sales.

continuing targeted investments in sales and marketing to support our commercial efforts, and offset by decreases in insurance and stock-based compensation expenses.

In 2024, we plan on continuing to make targeted investments in sales and marketing to support our commercial efforts, particularly around sales and marketing efforts across all major U.S.

Other (Income) Expense

Other (income) expense for the year ended December 31, 2021 primarily represents the gain of $1.4 million related to the forgiveness of the Paycheck Protection Program loan and the gain of $0.5 million recorded related to the termination of the joint venture in Australia.

The increase in Interest and other income is primarily due rising interest rates.

Interest and other income of $ 433,000 for the year ended December 31, 2023 increased $ 146,000 primarily due to rising interest rates and an increased cash balance due to our July 2023 financing activities.

Other expense for the year ended December 31, 2023 primarily represents a casualty loss of $173,000, net of insurance recovery.

Subsequent to December 31, 2023, we recovered an additional $123,000 of proceeds related to this casualty loss.

This additional recovery will be recognized as other income during the three month period ending March 31, 2024.

Benefit from Income Taxes

The Benefit from income taxes of $0.4 million and $0.9 million for the years ended December 31, 2022 and 2021, respectively, primarily represent the sale of our state net operating losses and research and development tax credits under the State of New Jersey’s NOL Transfer Program.

We may be eligible, from time to time, to receive cash from the sale of our net operating losses under New Jersey's Department of the Treasury - Division of Taxation NOL Transfer Program.

During the years ended December 31, 2023 and 2022, we received a payment of $ 0.2 million and $ 0.4 million from the sale of our New Jersey state net operating losses, respectively.

Liquidity and Capital Resources

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Net cash used in operating activities was $ 14.7 million and $ 16.6 million for the years ended December 31, 2023 and 2022 , respectively.

This increase is primarily due to the increase in our net loss from operations.

The decrease of $ 2.0 million is primarily due to the decrease in our net loss from operations as adjusted for non-cash expense items.

Investing Activities

During the year ended December 31, 2023, cash used in investing activities was related to equipment purchases.

No cash was provided by investing activities during the year ended December 31, 2022.

For the year ended December 31, 2021, net cash provided by investing activities was $18.2 million reflecting funds received from the maturity of marketable securities partially offset by our purchases of marketable securities.

Financing Activities

No cash was provided by financing activities during the year ended December 31, 2022.

For the year ended December 31, 2021, net cash provided by financing activities was $25.7 million representing proceeds from the sale of our common stock.

Net cash provided by financing activities for the year ended December 31, 2023 was $ 7.5 million which was attributable to (i) a registered direct offering and concurrent private placement closed on August 2, 2023 with certain institutional and accredited investors pursuant to which we issued and sold an aggregate of 1,062,600 shares of common stock, 613,314 pre-funded common stock purchase warrants that are exercisable upon issuance, and warrants to purchase up to an aggregate of 837,955 shares of common stock and (ii) a concurrent private placement closed on August 2, 2023 with certain of the Company's officers and directors pursuant to which we issued and sold 169,968 shares of common stock and warrants to purchase up to an aggregate of 84,982 shares of common stock.

No cash was provided by financing activities for the year ended December 31, 2022.

Liquidity Outlook

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We intend to continue to make targeted investments in sales and marketing, as well as the next generation of our therapy delivery platform.

As a result, we will need to seek additional funds in the future or curtail or forgo some or all such activities.

If we seek to and are unable to raise funds on favorable terms, or at all, we may not be able to support our commercialization efforts or research and development activities, and the growth of our business may be negatively impacted.

As a result, we may be unable to compete effectively.

We expect that a majority of our 2023 sales will be made pursuant to our qualifying contract under the Federal Supply Schedule, or FSS, as well as open market sales to individual facilities within the government channels.

The FSS is scheduled to expire on January 15, 2024.

We intend to request an extension of the FSS from the United States Department of Veteran Affairs , but there is no assurance the FSS agreement will be renewed, if at all, or at terms favorable to us.

In addition, other possible changes including those relating to the payer and competitive landscape, our commercialization strategy, our development activities, and regulatory matters, may occur beyond our control that would cause us to consume our available capital more quickly.

Even if we are not required to curtail our activities sooner, our ability to execute our operating plan beyond the next 12 months from the date these financial statements are issued depends on our ability to increase revenue, control operating expenses and obtain additional funding from the sale of equity and or debt securities, a strategic transaction or otherwise.

However, these alternatives may not be available to us on attractive terms, or at all.

There is no assurance that we will generate sufficient cash flow and funding through our operating results or the sale of securities or from a strategic transaction or otherwise, raising substantial doubt about our ability to continue as a going concern within one year of the date these financial statements are issued.

Please see Overview above for a discussion concerning our Federal Supply Schedule.

We have historically funded our operations from the sale of our common stock.

We entered into a registered direct offering with certain institutional and accredited investors, and concurrent private placements with such investors and certain of our officers and directors which closed on August 2, 2023, resulting in net proceeds of approximately $7.5 million after deducting the placement agent fees and expenses, and other offering expenses payable by us.

Our expected cash requirements for the next 12 months and beyond are largely based on the commercial success of our products.

We believe our cash and cash equivalents will enable us to fund our operating expenses, working capital, and capital expenditure requirements, as currently planned, through 12 months from the date of the accompanying financial statements.

There are significant risks and uncertainties as to our ability to achieve these operating results.

Due to these risks and uncertainties, there can be no assurance that we will have sufficient cash flow and liquidity to fund our planned activities, which could force us to significantly reduce or curtail our activities and, ultimately, potentially cease operations.

These conditions raise substantial doubt about our ability to continue as a going concern within one year of the date these accompanying financial statements are issued.

The accompanying financial statements do not include any adjustment that might result from the outcome of this uncertainty.

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Until such time as the aggregate market value of our securities held by non-affiliates equals or exceeds $75 million, the aggregate maximum offering price of all securities issued by the us in any given 12-calendar month period pursuant to this and any of our other registration statements may not exceed one-third of the aggregate market value of our securities held by non-affiliates.

On February 13, 2023, we held a special meeting (the “Special Meeting”) of our stockholders.

At the Special Meeting, our shareholders voted to approve an amendment to our Certificate of Incorporation as amended to effect a Reverse Stock Split of our ordinary shares (the “Reverse Stock Split”) at a ratio of not less than 1-for 5 and not more than 1-for-50, with such ratio and the implementation and timing of the Reverse Stock Split to be determined by the our board of directors in its sole discretion.

Following the Special Meeting, our board of directors approved a 1-for-15 Reverse Stock Split and our Certificate of Incorporation, as amended was amended accordingly.

The Reverse Stock Split became effective on February 15, 2023.

The purpose of the Reverse Stock Split was to increase the per share trading price of our common stock on the Nasdaq Capital Market to regain compliance with the Bid Price Rule.

On March 6, 2023, we received a letter from Nasdaq confirming that our common stock had regained compliance with the Bid Price Rule, and as a result, our common stock continues to trade on the Nasdaq Capital Market.

If in the future we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the Bid Price Rule, Nasdaq may take steps to delist our common stock.

The Reverse Stock Split of our common stock had the effect of reducing the number of shares of common stock outstanding.

There can be no assurance that the value and liquidity of our common stock will not be adversely affected by the Reverse Stock Split, which in turn could have a material adverse effect on our ability to raise the additional capital that we may require or increase the dilutive impact of any such financing.

Until such time as the aggregate market value of our securities held by non-affiliates equals or exceeds $75.0 million, the aggregate maximum offering price of all securities issued by us in any given 12-calendar month period pursuant to the 2022 Shelf Registration Statement may not exceed one-third of the aggregate market value of our securities held by non-affiliates.

Approximately $7.3 million of the securities issued or issuable pursuant to our July 31, 2023 registered direct financing were issued pursuant to the 2022 Shelf Registration Statement and accordingly, as of December 31, 2023, we have approximately $67.7 million remaining for potential issuance under the 2022 Shelf Registration Statement.

We have also agreed generally not to effect or enter into an agreement to effect any issuance of our securities involving a variable rate transaction until August 2, 2024.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis