Item 7. Management’s Discussion and Analysis
Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Annual Report, including those set forth under Item 1 A. “Risk Factors” and under “Forward-Looking Statements” in this Annual Report.
Note: Information concerning the shares of our common stock and related share prices in this Item 7 has been adjusted to reflect the 1-for-15 reverse split of our common stock that was made effective on February 15, 2023. (See, “Item 8 – Notes to consolidated financial statements – Note 2 - Basis of Presentation”).
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Overview
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 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 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 such as primary headache; and
•
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:
•
Prescription gammaCore medical devices for the treatment of certain medical conditions such as primary headache;
•
Truvaga for the support of general health and wellbeing; and
•
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 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.
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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 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 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. 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. See “Liquidity Outlook.”
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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. The 2022 Shelf Registration Statement was declared effective on January 25, 2022. The proposed maximum offering price per unit and the proposed maximum aggregate offering price per class of security will be determined from time to time by us in connection with the issuance by us of the securities registered under the 2022 Shelf Registration Statement. 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.
Critical Accounting Policies and Estimates
The significant accounting policies and basis of presentation of our consolidated financial statements are described in Note 2 “Summary of Significant Accounting Policies” of the consolidated financial statements included with the annual report on Form 10-K.
The preparation of our financial statements is in accordance with U.S. Generally Accepted Accounting Principles, or GAAP, and we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and other related disclosures. While we believe our estimates, assumptions and judgments are reasonable, they are based on information presently available. Actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of unforeseen events or otherwise, which could have a material impact on our financial position and results of operations. Several of our accounting policies involve significant estimates and judgements:
Revenue;
Inventories;
Licensed Products;
Income Taxes;
Stock-based Compensation; and
Loss Contingencies.
Revenue Recognition
Our principal source of revenue is product sales. Our contracts with customers generally contain a single performance obligation and we recognize revenue from product sales when or as we have satisfied our performance obligation by transferring control of the product to our customers. Control of the product generally transfers to the customer upon delivery. Revenue is recognized at the amount to which we expect to be entitled in exchange for the sale of our products. Variability in the transaction price for our products pursuant to our contract with customers primarily arises from discounts and rebates. We offer discounts and rebates to certain distributors and customers under our arrangements. In many cases, these amounts are fixed at the time of sale and the transaction price is reduced accordingly.
We have a standardized approach to estimate the amount of consideration that we expect to be entitled to, including the impact of discounts and rebates. Our historical collection is an integral part of the estimation process related to revenues and receivables. Further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.
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Revenue from the Veterans Administration and the Department of Defense
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. Damaged or defective products are replaced at no charge.
United Kingdom Revenue
In the United Kingdom, an award from the Innovation Technology Payment program of the NHS and evidence-based recommendations published in December 2022 by NICE offer the potential for us to generate revenue from the treatment of CH. This is the primary commercial channel from which our United Kingdom revenue is derived. The first 93 days of therapy is free under this program. The cost to produce the free therapy in the 93 -day period is recorded as promotional expense within selling, general and administrative expenses.
Effective April 1, 2021, gammaCore Sapphire 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.
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. In accordance with our policy, damaged or defective products are replaced at no charge under our standard warranty. A cash refund is allowed in our discretion under specific circumstances for undamaged and non-defective returned product.
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. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received.
Inventories
We value inventory at the lower of cost or net realizable value. Cost is determined on a first in first out basis. This policy requires us to make estimates regarding the net realizable value of our inventory, including an assessment of excess or obsolete inventory. We evaluate inventory for excess quantities and obsolescence based on an estimate of the future demand for our product within a specified timeframe and record an allowance to reduce the carrying value of inventory as determined necessary. The estimates we use for demand are also used for near-term capacity planning and inventory purchasing and are consistent with our revenue forecasts. We evaluate inventory with respect to our operating cycle and classify inventory as either current or long-term on our balance sheet. We further consider inventory shelf life in our estimates regarding the net realizable value of our inventory. If our actual demand is less than our forecast demand, we may be required to take additional excess inventory charges, which would decrease gross margin and adversely impact net operating results in the future.
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Licensed Products
We license a portion of our devices through our cash pay channels. The cost of these licensed devices is capitalized and included in Other Assets in our Balance Sheet at December 31, 2023 and 2022 , and is being recognized as cost of goods sold over the estimated useful life of the device. 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, we record a charge to cost of goods sold to write down such licensed devices to zero.
Income Taxes
We routinely assess whether a valuation allowance should be established against our deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard. The assessment of the realizability of deferred tax assets requires management to make numerous estimates and assumptions. Factors that are considered in this assessment include the nature, frequency, and severity of recent losses; a forecast of future profitability; the duration of statutory carryback and carryforward periods; our experience with tax attributes expiring unused; and tax planning alternatives.
Stock-based Compensation
We recognize compensation expense associated with the issuance of equity instruments to employees and non-employees for their services. Compensation expense is determined based on the grant date fair value and is expensed over the vesting period. The grant date fair value of stock options is measured using the Black-Scholes option valuation model. The input assumptions used in determining the fair value of options are expected life, expected volatility, risk-free interest rate and expected dividend yield. These input assumptions are based on management’s estimates, and these estimates are evaluated periodically for reasonability. The expected life of the option represents the period the stock-based awards are expected to be outstanding. We use the simplified method for estimating the expected life of the options. The fair value of each stock option award granted was estimated on the date of grant using the Black-Scholes model. 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. We base the risk-free interest rate on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of the stock options being valued.
Loss Contingencies
We are subject to claims and lawsuits in the ordinary course of business, including claims by employees or former employees, with respect to our products and involving commercial disputes, or shareholder actions. We accrue for loss contingencies when it is deemed probable that a loss has been incurred and the loss is estimable. The amounts accrued are based on the full amount of the estimated loss considering insurance proceeds, if applicable, and do not include legal fees expected to be incurred in connection with the loss contingency. The process of analyzing, assessing, and establishing reserve estimates relative to legal proceedings involves a high degree of judgment. Our consolidated financial statements do not reflect any material amounts related to unfavorable outcomes of claims and lawsuits to which we are currently a party because we currently believe that such claims and lawsuits are not expected to result in a material adverse effect on our financial condition. Management estimates that its current insurance coverage is sufficient to meet the potential liabilities of pending legal proceedings. Changes in facts and circumstances related to such proceedings could lead to significant adjustments to reserve estimates for such matters and could have a material impact on our results of operations, cash flows and financial condition in the period that reserve estimates are adjusted or paid.
Emerging Growth Company Status
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.
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Results of Operations
Comparison of the years ended December 31, 2023 and 2022
The following table summarizes our results of operations for the years ended December 31, 2023 and 2022 with the changes in those items in dollars.
Years ended December 31,
(in thousands)
2023
2022
Change
Net sales
$
16,030
$
8,592
$
7,438
Cost of goods sold
2,804
1,616
1,188
Gross profit
13,226
6,976
6,250
Gross margin
83%
81%
Operating expenses:
Research and development
5,321
5,520
( 199
)
Selling, general and administrative
27,174
24,330
2,844
Total operating expenses
32,495
29,850
2,645
Loss from operations
( 19,269
)
( 22,874
)
3,605
Other (income) expense:
Interest and other income
( 433
)
( 287
)
( 146
)
Other expense
184
6
178
Total other (income) expense
( 249
)
( 281
)
32
Loss before income taxes
( 19,020
)
( 22,593
)
3,573
Benefit from income taxes
186
431
( 245
)
Net loss
$
( 18,834
)
$
( 22,162
)
$
3,328
Net Sales
Net sales for the year ended December 31, 2023 increased 87% as compared to the year ended December 31, 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 abroad; 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. 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,
Channel
2023
2022
Rx gammaCore - Department of Veteran Affairs and Department of Defense
$
9,636
$
5,099
Rx gammaCore - U.S. Commercial
1,797
1,735
Outside the United States
1,821
1,618
Truvaga
1,027
15
TAC-STIM
1,749
125
$
16,030
$
8,592
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Gross Profit
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 . 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 $ 5.3 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 $ 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. channels.
Other (Income) Expense
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
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.
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Liquidity and Capital Resources
At December 31, 2023 , our cash, cash equivalents, and restricted cash was $ 10.6 million compared to $18.0 million at December 31, 2022 .
December 31,
(in thousands)
2023
2022
Net cash (used in) provided by
Operating activities
$
( 14,668
)
$
( 16,645
)
Investing activities
$
( 206
)
$
—
Financing activities
$
7,487
$
—
Operating Activities
Net cash used in operating activities was $ 14.7 million and $ 16.6 million for the years ended December 31, 2023 and 2022 , respectively. 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.
Financing Activities
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.
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Liquidity Outlook
In 2024, we expect to continue to incur substantial negative cash flows from operations. We intend to continue to make targeted investments in sales and marketing, as well as the next generation of our therapy delivery platform.
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.
On January 18, 2022, we filed a Form S-3 registration statement, or the 2022 Shelf Registration Statement, with the SEC, for the issuance of common stock, preferred stock, warrants, rights, debt securities and units, which we refer to collectively as the Shelf Securities, up to an aggregate amount of $75.0 million. The 2022 Shelf Registration Statement was declared effective on January 25, 2022. The proposed maximum offering price per unit and the proposed maximum aggregate offering price per class of security will be determined from time to time by us in connection with the issuance by us of the securities registered under the 2022 Shelf Registration Statement. Until such time as the aggregate market value of our securities held by non-affiliates equals or exceeds $75.0 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
We did not have during the periods presented, and we do not have any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Impact of Recently Issued Accounting Standards
In the normal course of business, we evaluate all new accounting pronouncements issued by the FASB, SEC, or other authoritative accounting bodies to determine the potential impact they may have on our Consolidated Financial Statements. See Note 2 “Basis of Presentation” of the notes to our consolidated financial statements in this Annual Report for additional information about these recently issued accounting standards and their potential impact on our financial condition or results of operations.
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