EnteroMedics Inc

Additionally, on January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally and on March 13, 2020, the United States declared a national emergency with respect to the coronavirus outbreak. This outbreak has severely impacted global economic activity, and many countries and many states in the United States have reacted to the outbreak by instituting quarantines, mandating business and school closures and restricting travel. These mandated business closures have included the cessation of non-elective surgeries in Australia, Europe and the United States for all but emergency procedures. There is no assurance that sales will return to normal levels during the second quarter of 2020 or at any time thereafter.  However, the full impact of the COVID-19 outbreak continues to evolve and it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce and have taken actions to mitigate the impact including among other things, temporary reductions in pay, and furloughs of certain positions along with deferrals in payment for cash preservation. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2020.

The Company’s tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter the Company updates its estimate of the annual effective tax rate. The Company’s quarter tax provision, and quarterly estimate of annual effective tax rate, are subject to significant volatility due to several factors, including the Company’s ability to accurately predict pre-tax income and loss. During the three months ended March 31, 2020 an $18 thousand benefit was recorded compared to no income tax expense or benefit for the quarter ended March 31, 2019, due to the valuation allowance on deferred tax assets. In assessing the realization of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Based on the level of historical losses, projections of losses in future periods and potential limitations pursuant to changes in ownership under Internal Revenue Code (“IRC”) Section 382, the Company provided a valuation allowance at both March 31, 2020 and December 31, 2019.

On January 30, 2020, WHO announced a global health emergency because of a new strain of coronavirus and the risks to the international community as the virus spreads globally beyond its points of origin. On March 27, 2020, President Trump signed into law the CARES Act. As part of the CARES Act, there is PPP Loan program, which the Company received $1.0 million dollars. See Note 2, Note 5 and Note 13 to the condensed consolidated financial statements.

On March 25, 2020, the Company executed a credit agreement with an institutional investor to borrow up to $3.5 million, of which $2.5 million was received up front. See Note 5 to the condensed consolidated financial statements.

Revenue totaled $2.8 million for the three months ended March 31, 2020, compared to $3.1 million for the same period in 2019. The primary reason for the decrease in revenue of $0.3 million or 9%, is due to a reduction in March 2020 sales from the COVID-19 pandemic, which caused elective surgeries to be shut down throughout the world. The increase to international revenue for the three months ended March 31, 2020, compared to the same period in 2019, is because revenue for the three months ended March 31, 2019 consisted of sales through Apollo, so there were no direct international sales.

 Net Interest Expense. Net interest expense for the three months ended March 31, 2020 was $0.1 million compared to $0.1 million for the same period in 2019. During the three months ended March 31, 2020, the Company had interest expense of approximately $60 thousand and $50 thousand related to the debt discount in connection with the Apollo asset purchase consideration and amortization of the deferred debt issuance cost related to the credit agreement, respectively. Whereas, during the three months ended March 31, 2019 the interest expense was related to the debt discount with the Apollo asset purchase consideration.

Loss on Foreign Currency Exchange. Loss on foreign currency exchange for the three months ended March 31, 2020 was $0.1 million. There was neither a loss nor a gain for the same period in 2019.