PTPI 10-Q
Petros Pharmaceuticals, Inc. (PTPI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Mark One)
for the quarterly period ended
Or
for the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State of Incorporation) | (I. R. S. Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
☒ | Smaller reporting company | |||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 12, 2024, there were
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q may contain or incorporate by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements are based upon management’s assumptions, expectations, projections, intentions and beliefs about future events. Except for historical information, the use of predictive, future-tense or forward-looking words such as “intend,” “plan,” “predict,” “may,” “will,” “project,” “target,” “strategy,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “forecast,” “should” and similar expressions, whether in the negative or affirmative, that reflect our current views with respect to future events and operational, economic and financial performance are intended to identify such forward-looking statements. Such forward-looking statements are only predictions, and actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of risks and uncertainties, including, without limitation, Petros’ ability to execute on its business strategy, including its plans to develop and commercialize its product candidates; Petros’ ability to comply with obligations as a public reporting company; Petros’ ability to regain and maintain compliance with the Nasdaq Stock Market’s listing standards; the ability of Petros to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002; risks resulting from Petros’ status as an emerging growth company and smaller reporting company, including that reduced disclosure requirements may make shares of Petros common stock less attractive to investors; Petros’ ability to continue as a going concern; risks related to Petros’ history of incurring significant losses; risks related to Petros’ dependence on the commercialization of a single product, Stendra®; risks related to Petros’ ability to obtain regulatory approvals for, or market acceptance of, any of its products or product candidates. Additional factors that could cause actual results to differ materially from the results anticipated in these forward-looking statements are described in this Quarterly Report on Form 10-Q, in “Risk Factor Summary” and in Part I, Item 1A., “Risk Factors,” in Petros’ Annual Report on Form 10-K for the year ended December 31, 2023, as amended on May 31, 2024 (“2023 Form 10-K”) and in our other reports filed with the Securities and Exchange Commission (the “SEC”). We advise you to carefully review the reports and documents we file from time to time with the SEC, particularly our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. Petros cautions readers that the forward-looking statements included in, or incorporated by reference into, this Quarterly Report on Form 10-Q represent our beliefs, expectations, estimates and assumptions only as of the date hereof and are not intended to give any assurance as to future results. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, Petros cannot assess the effect of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement.
Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them and to the risk factors. We disclaim any obligation to update the forward-looking statements contained in, or incorporated by reference into, this Quarterly Report on Form 10-Q to reflect any new information or future events or circumstances or otherwise, except as required by the federal securities laws.
OTHER INFORMATION
All references to “Petros,” the “Company,” “we,” “us” and “our” in this Quarterly Report on Form 10-Q refer to Petros Pharmaceuticals, Inc. and its subsidiaries.
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS.
PETROS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||
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Assets |
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Current assets: |
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Cash | $ | | $ | | ||
Accounts receivable, net |
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Inventories |
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Prepaid inventory | | | ||||
Prepaid expenses and other current assets |
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Total current assets |
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Fixed assets, net |
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Intangible assets, net |
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API purchase commitment |
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Right of use assets |
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Total assets | $ | | $ | | ||
Liabilities, Convertible Redeemable Preferred Stock and Stockholders’ Equity |
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Current liabilities: |
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Current portion of promissory note | $ | | $ | | ||
Accounts payable | | | ||||
Accrued expenses |
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Accrued Series A Convertible Preferred payments payable |
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Other current liabilities |
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Total current liabilities |
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Promissory note, net of current portion | | |||||
Derivative Liability |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (see note 14) | ||||||
Series A convertible redeemable preferred stock (par value $ | | |||||
Stockholders’ Equity: |
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Common stock (par value $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total Stockholders’ Equity |
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Total Liabilities, Convertible Redeemable Preferred Stock and Stockholders’ Equity | $ | | $ | | ||
The accompanying Notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
4
PETROS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Nine Months Ended September 30, |
| For the Three Months Ended September 30, | ||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Net sales | $ | | $ | | $ | | $ | | ||||
Cost of goods sold | |
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Gross profit |
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Operating expenses: |
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Selling, general and administrative |
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Warrant issuance costs | — | | — | | ||||||||
Research and development expense |
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Depreciation and amortization expense |
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Total operating expenses |
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Loss from operations |
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Other income (expenses): | ||||||||||||
Change in fair value of derivative liability |
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Change in fair value of warrant liability | — | | — | | ||||||||
Interest income |
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Interest expense, promissory note | ( | ( | ( |
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Loss on issuance of Series A Preferred Stock |
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Total other income | | | | | ||||||||
Net loss before income taxes | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Provision for income taxes |
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| — | — | — | ||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Preferred Stock dividend and cash premiums | ( | ( | ( | ( | ||||||||
Preferred Stock accretion | ( | ( | ( | ( | ||||||||
Net loss attributable to common stockholders |
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| ( | ( |
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Basic and Diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average common shares outstanding |
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Basic and Diluted |
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The accompanying Notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
5
PETROS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(Unaudited)
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Convertible | Redeemable | |||||||||||||||||||
Redeemable | Preferred | Common | Additional | |||||||||||||||||
Preferred | Stock | Common | Stock | Paid-in | Accumulated | |||||||||||||||
| Stock |
| Amount |
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| Deficit |
| Total | ||||||
Three Months Ended September 30, 2024 | ||||||||||||||||||||
Balance, June 30, 2024 | | $ | |
| | $ | | $ | | $ | ( | $ | | |||||||
Stock-based compensation expense | — |
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| — | — | — | — | ||||||||||
Common Stock issued for services | — |
| — | | | | — | | ||||||||||||
Series A Preferred Stock accretion | — | | — | — | ( | — | ( | |||||||||||||
Series A Preferred Stock dividends | — | | — | — | ( | — | ( | |||||||||||||
Preferred Stock redemption including cash premium | ( | ( | | | | — | | |||||||||||||
Deemed dividends on Preferred Stock | — | — | — | — | ( | — | ( | |||||||||||||
Net loss | — |
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Balance, September 30, 2024 | | $ | |
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Convertible | Redeemable |
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Redeemable | Preferred | Common | Additional |
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Preferred | Stock | Common | Stock | Paid-in | Accumulated |
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Stock | Amount |
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Nine Months Ended September 30, 2024 |
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Balance, December 31, 2023 |
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Stock-based compensation expense |
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Common Stock issued for services |
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Series A Preferred Stock accretion |
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Series A Preferred Stock dividends |
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Preferred Stock redemption including cash premium |
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Deemed dividends on Preferred Stock |
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Net loss |
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Balance, September 30, 2024 |
| | $ | |
| | $ | | $ | | $ | ( | $ | | ||||||
Convertible | ||||||||||||||||||||
Convertible | Redeemable | |||||||||||||||||||
Redeemable | Preferred | Common | Additional | |||||||||||||||||
Preferred | Stock | Common | Stock | Paid-in | Accumulated | |||||||||||||||
| Stock |
| Amount |
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| Total | ||||||
Three Months Ended September 30, 2023 | ||||||||||||||||||||
Balance, June 30, 2023 | — | $ | — | | $ | | $ | | $ | ( | $ | | ||||||||
Stock-based compensation expense | — | — | — | — | | — | | |||||||||||||
Issuance of Series A Preferred Stock in private placement, net of discount and transaction costs $ | | — | — | — | — | — | — | |||||||||||||
Series A Preferred Stock accretion | — | | — | — | ( | — | ( | |||||||||||||
Series A Preferred Stock dividends | — | | — | — | ( | — | ( | |||||||||||||
Preferred Stock redemption including cash premium | ( | ( | — | — | ( | — | ( | |||||||||||||
Net loss | — | — | — | — | — | ( | ( | |||||||||||||
Balance, September 30, 2023 | | $ | | | $ | | $ | | $ | ( | $ | | ||||||||
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Convertible | Redeemable |
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Redeemable | Preferred | Common | Additional |
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Preferred | Stock | Common | Stock | Paid-in | Accumulated |
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Stock | Amount |
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Nine Months Ended September 30, 2023 |
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Balance, December 31, 2022 |
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Stock-based compensation expense |
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Shares issued for vested RSU’s |
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| — | | | ( | — | — | |||||||||||
Issuance of Series A Preferred Stock in private placement, net of discount and transaction costs $ | | — | — | — | — | — | — | |||||||||||||
Series A Preferred Stock accretion | — | | — | — | ( | — | ( | |||||||||||||
Series A Preferred Stock dividends | — | | — | — | ( | — | ( | |||||||||||||
Preferred Stock redemption including cash premium | ( | ( | — | — | ( | — | ( | |||||||||||||
Net loss |
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Balance, September 30, 2023 |
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The accompanying Notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
6
PETROS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended September 30, | |||||
| 2024 |
| 2023 | |||
Cash flows from operating activities: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Bad debt expense |
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Inventory and sample inventory reserve |
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Amortization of right of use asset | |
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Derivative liability |
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Warrant liability | — | ( | ||||
Loss on issuance of Series A Preferred Stock | — | | ||||
Noncash Warrant expense | — | | ||||
Employee stock-based compensation |
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Stock issued for services | | — | ||||
Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid inventory |
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Prepaid expenses and other current assets |
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Accounts payable |
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Accrued expenses | | | ||||
Deferred revenue |
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Other current liabilities |
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Other long-term liabilities | ( | ( | ||||
Net cash used in operating activities |
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Cash flows from investing activities: |
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Acquisition of fixed assets |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Payment of promissory note | ( | ( | ||||
Proceeds from Private Placement, net of transactions costs |
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Redemption of Series A Preferred Stock |
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Net cash provided by (used in) financing activities |
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Net increase (decrease) in cash |
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Cash, beginning of period |
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Cash, end of period | $ | | $ | | ||
Supplemental cash flow information: |
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Cash paid for interest during the period | $ | | $ | | ||
Noncash Items: | ||||||
Noncash increase in inventory due to API reclass | $ | — | $ | ( | ||
Noncash decrease in API purchase commitment | — | | ||||
Noncash decrease in other current assets: API purchase commitment | — | ( | ||||
Noncash issuance of common stock to non-employee | — | | ||||
Noncash initial fair value of warrant liability pursuant to private placement | — | | ||||
Noncash initial fair value of derivative liability pursuant to private placement | — | | ||||
Noncash redemption of Series A Preferred Stock | | — | ||||
Accrued Series A Convertible Preferred payments payable | | | ||||
Accretion of Series A convertible preferred stock to redemption value | | | ||||
Accrual of Series convertible preferred stock dividends | | | ||||
The accompanying Notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
7
PETROS PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1) Nature of Operations, Basis of Presentation, Liquidity and Going Concern
Nature of Operations
Petros Pharmaceuticals, Inc. (“Petros” or the “Company”) was incorporated in Delaware on May 14, 2020, for the purpose of effecting the transactions contemplated by that certain Agreement and Plan of Merger, dated as of May 17, 2020 (as amended, the “Merger Agreement”), by and between Petros, Neurotrope, Inc., a Nevada corporation (“Neurotrope”), Metuchen Pharmaceuticals LLC, a Delaware limited liability company (“Metuchen”), and certain subsidiaries of Petros and Neurotrope. Petros consists of wholly owned subsidiaries: Metuchen, Neurotrope, Timm Medical Technologies, Inc. (“Timm Medical”), and Pos-T-Vac, LLC (“PTV”). The Company is engaged in the commercialization and development of Stendra®, a U.S. Food and Drug Administration (“FDA”) approved PDE-5 inhibitor prescription medication for the treatment of erectile dysfunction (“ED”), which the Company has licensed from Vivus, Inc. (“Vivus”). Petros also markets its own line of ED products in the form of vacuum erection device products through its subsidiaries, Timm Medical and PTV.
Petros is committed to the goal of becoming a leading innovator in the emerging self-care market driving expanded access to key prescription pharmaceuticals as Over-The-Counter (“OTC”) treatment options. Currently, Petros is pursuing increased access for its flagship prescription ED therapy, Stendra®, via potential OTC designation. If ultimately approved by the FDA for OTC access, Stendra® may be the first in its class to achieve this marketing status, also establishing company know how as a proven platform for other prospective prescription therapeutics.
The Company manages its operations through two segments, Prescription Medications and Medical Devices, both of which focus on the treatment of ED. The Prescription Medications segment consists primarily of Stendra®, which is sold generally in the United States. The Medical Devices segment consists primarily of vacuum erection devices, which are sold domestically and internationally.
The Company’s priority is the ability to develop Stendra® OTC and its commercialization.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments necessary to present fairly the Company’s financial position and the results of its operations and cash flows for the interim periods presented. Such adjustments are of a normal recurring nature. The results of operations for the nine months ended September 30, 2024, may not be indicative of results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes to those statements for the year ended December 31, 2023, included in the Company’s 2023 Form 10-K. All transactions between the consolidated entities have been eliminated in consolidation.
Liquidity, Going Concern and Other Uncertainties
In accordance with Financial Accounting Standards Board (the “FASB”) Accounting Standards Update (“ASU”) ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. To date, the Company’s principal sources of capital used to fund operations have been the revenues from product sales, private sales, registered offerings and private placements of equity securities. The Company has experienced net losses and negative cash flows from operations since inception. As of September 30, 2024, the Company had cash of $
8
In January 2022, the Company executed a promissory note in favor of Vivus in connection with the Vivus Settlement Agreement (as defined herein) in the principal amount of $
The Company does not currently have sufficient available liquidity to fund its operations for at least the next 12 months. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these interim unaudited condensed consolidated financial statements are issued. The accompanying interim unaudited condensed consolidated financial statements do not include any adjustments that might result from these uncertainties. The unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
In response to these conditions and events, the Company is evaluating various financing strategies to obtain sufficient additional liquidity to meet its operating, debt service and capital requirements for the next twelve months following the date of this Quarterly Report. The potential sources of financing that the Company is evaluating include one or any combination of secured or unsecured debt, convertible debt and equity in both public and private offerings. The Company also plans to finance near-term operations with its cash on hand, including the gross proceeds of $
NASDAQ Capital Market Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard
On May 15, 2024, the Company received notice from the Listing Qualifications Staff of Nasdaq (the “Staff”) indicating that, based upon the closing bid price of the Company’s common stock for the
On November 12, 2024, the Company received notice from the Staff granting the Company’s request for a 180-day extension to regain compliance with the Rule, or, until May 12, 2025 (the “Compliance Period”).In order to regain compliance with Nasdaq’s minimum bid price requirement, the Company’s common stock must maintain a minimum closing bid price of $1.00 for at least ten consecutive business days during the Compliance Period. However, if it appears to Nasdaq that the Company will be unable to cure the deficiency Nasdaq will provide notice that the Company’s common stock will be subject to delisting. There can be no assurance that the Nasdaq staff would grant the Company’s request for continued listing subsequent to any delisting notification. In the event of such a notification, the Company may appeal the Nasdaq staff’s determination to delist its securities.
2) Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods. Such estimates include the adequacy of accounts receivable reserves, return reserves, inventory reserves, assessment of long-lived assets, including intangible asset impairment, and the valuation of the derivative liability, among others. Actual results could differ from these estimates and changes in these estimates are recorded when known.
9
Risks and Uncertainties
The Company is subject to risks common to companies in the pharmaceutical industry including, but not limited to, uncertainties related to commercialization of competitor products, regulatory approvals, dependence on key products, dependence on key customers and suppliers, and protection of intellectual property rights.
Concentration of Credit Risk
Financial instruments that subject the Company to concentrations of credit risk includes cash. The Company maintains cash on deposit at U.S.-based banks in amounts which, at times, may be in excess of insured limits of $250,000.
Segment Reporting
Operating segments are components of a Company for which separate financial information is available and evaluated regularly by the chief operating decision maker in assessing performance and deciding how to allocate resources. The Company’s
Revenue Recognition
Prescription Medication Sales
The Company’s prescription medication sales consist of sales of Stendra® in the U.S. for the treatment of ED. Under Accounting Standards Codification (“ASC”) Topic 606, Revenue Recognition (“Topic 606”), the Company recognizes revenue from prescription medication sales when its performance obligations with a customer have been satisfied. In the contracts with its customers, the Company has identified a single performance obligation to provide Stendra® upon receipt of a customer order. The performance obligation is satisfied at a point in time when the Company’s customers obtain control of Stendra®, which is typically upon delivery. The Company invoices its customers after Stendra® has been delivered and invoice payments are generally due within
In determining the transaction price, a significant financing component does not exist since the timing from when the Company delivers Stendra® to when the customers pay for the product is typically less than one year. The Company records prescription medication sales net of any variable consideration, including but not limited to discounts, rebates, returns, chargebacks, and distribution service fees (“DSA”). The Company uses the expected value method when estimating its variable consideration, unless terms are specified within contracts. The identified variable consideration is recorded as a reduction of revenue at the time revenues from sales of Stendra® are recognized. The Company recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. These estimates may differ from actual consideration received. The Company evaluates these estimates each reporting period to reflect known changes.
As of September 30, 2024, and December 31, 2023, the reserves for sales deductions were $
Product Returns
Consistent with industry practice, the Company maintains a return policy that generally allows its customers to return Stendra® and receive credit for product within
10
Contract Rebates, Coupon Redemptions and DSA Fees
The Company establishes contracts with wholesalers, chain stores, and indirect customers that provide for rebates, sales incentives, DSA fees and other allowances. Some customers receive rebates upon attaining established sales volumes. Direct rebates are generally rebates paid to direct purchasing customers based on a percentage applied to a direct customer’s purchases from us, including fees paid to wholesalers under the Company’s DSAs, as described below. Indirect rebates are rebates paid to indirect customers that have purchased the Company’s products from a wholesaler under a contract with us.
The Company has entered into DSAs with certain significant wholesaler customers that obligate the wholesalers, in exchange for fees paid by us, to: (i) manage the variability of their purchases and inventory levels within specified limits based on product demand and (ii) provide us with specific services, including the provision of periodic retail demand information and current inventory levels for the Company’s pharmaceutical products held at their warehouse locations. See Note 3 Accounts Receivable, net for further discussion of these reserves.
Medical Device Sales
The Company’s medical device sales consist of domestic and international sales of men’s health products for the treatment of ED. The men’s health products do not require a prescription and include vacuum erection devices, PreBoost, VenoSeal, penile injections (Rx), and urinary tract infection tests. Under Topic 606, the Company recognizes revenue from medical device sales when its performance obligations with its customers have been satisfied. In the contracts with its customers, the Company has identified a single performance obligation to provide medical devices upon receipt of a customer order. The performance obligation is satisfied at a point in time when the Company’s customers obtain control of the medical device, which is typically upon shipment. The Company invoices its customers after the medical devices have been shipped and invoice payments are generally due within
In determining the transaction price, a significant does not exist since the timing from when the Company delivers the medical devices to when the customers pay for the product is typically less than one year. The Company records medical device sales net of any variable consideration, including but not limited to returns. The Company uses the expected value method when estimating its variable consideration. The identified variable consideration is recorded as a reduction of revenue at the time revenues from the medical device sales are recognized. The Company recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. These estimates may differ from actual consideration received. The Company evaluates these estimates each reporting period to reflect known changes.
Product Returns
Consistent with industry practice, the Company maintains a return policy that generally allows its customers to return medical devices and receive credit for products within
Contract Costs
In relation to customer contracts, the Company incurs costs to fulfill a contract but does not incur costs to obtain a contract. These costs to fulfill a contract do not meet the criteria for capitalization and are expensed as incurred. As such, the Company did not have any contract assets at September 30, 2024, and December 31, 2023.
Contract Liabilities
Under Accounting Standards Codification Topic 606, Revenue Recognition, the Company recognizes revenue when its performance obligations with a customer has been satisfied. In the event it has not been satisfied, the Company records deferred revenue as a liability on the balance sheet. As of September 30, 2024, and December 31, 2023, deferred revenue was $
11
Fair Value of Financial Instruments
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market.
Level 3 – Unobservable inputs which are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
Financial instruments recognized at historical amounts in the consolidated balance sheets consist of cash, accounts receivable, other current assets, accounts payable, accrued expenses, and other current liabilities. The Company believes that the carrying values of cash, accounts receivable, other current assets, accounts payable, accrued expenses, note payable, and other current liabilities approximate their fair values due to the short-term nature of these instruments.
In connection with the Private Placement (as defined herein), the Company incurred liabilities related to derivatives arising from embedded features that were not clearly and closely related to the host instruments. The Company estimated the fair value of derivative liability utilizing Monte Carlo Simulation approach. These fair value measurements are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. See Notes 16 and 17.
Intangible Assets
The Company accounts for recognized intangible assets at cost. Intangible assets with finite useful lives are amortized over the useful life that the assets are expected to contribute directly or indirectly to future cash flows. Intangible assets are amortized using an accelerated method based on the pattern in which the economic benefits of the assets are consumed. The Company reviews the carrying value and useful lives of its intangible assets with definite lives whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable or the period over which they should be amortized has changed. When indicators of impairment exist, the Company determines whether the estimated undiscounted sum of the future cash flows of such assets is less than their carrying amounts. If less, an impairment loss is recognized in the amount, if any, by which the carrying amount of such assets exceeds their respective fair values. The Company evaluates the remaining useful life of each intangible asset that is being amortized during each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of the intangible asset’s remaining useful life has changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life.
The Company’s prepared projections including the undiscounted cash flows of the remaining estimated useful lives through December 2031 for the medical device products. Management continued to analyze the Company’s intangible assets during 2024. Management noted that the Company’s financial results were consistent with previous projections. Based on its analysis, Management concluded that there were no triggering events noted that would indicate a potential impairment for long-lived assets for any of the two asset groups, Metuchen Pharmaceuticals and TIMM/PTV.
Derivative Financial Instruments
The Company evaluates all its financial instruments to determine if such instruments contain features that qualify as embedded derivatives per ASC 815, Derivatives and Hedging (“ASC 815”). Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract. Bifurcated embedded derivatives are recognized at fair value, with changes in fair value recognized in the statement of operations each period. Bifurcated embedded derivatives are classified with the related host contract in the Company’s balance sheet.
12
Preferred Stock
The Company records shares of convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. The Company concluded that the Series A Preferred Stock is more akin to a debt-type instrument than an equity-type instrument, therefore certain conversion features associated with the convertible preferred stock were deemed to not be clearly and closely related to the host instrument and were bifurcated as a derivative under ASC 815. The Company has applied the guidance in ASC 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securities and has therefore classified the Series A convertible preferred stock as mezzanine equity as it redeemable in monthly installments. The Company adjusts the carrying values of the convertible preferred stock by accreting the discount and accruing dividends to the state the convertible preferred stock at redemption value each reporting period.
Recent Accounting Pronouncements
Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. This guidance will be effective for the annual periods beginning the year ended December 31, 2024, and for interim periods beginning January 1, 2025. Early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating segment disclosures related to its annual report for fiscal year 2024.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This guidance will be effective for the annual periods beginning the year ended December 31, 2025. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. The Company is currently evaluating income tax disclosures related to its annual report for fiscal year 2025.
In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements and related disclosures.
3) Accounts Receivable, net
Accounts receivable, net is comprised of the following:
September 30, | December 31, | |||||
| 2024 |
| 2023 | |||
Gross accounts receivables | $ | | $ | | ||
Distribution service fees |
| ( |
| ( | ||
Chargebacks accrual |
| ( |
| ( | ||
Cash discount allowances |
| ( |
| ( | ||
Allowance for credit losses |
| ( |
| ( | ||
Total accounts receivable, net | $ | | $ | | ||
For the nine months ended September 30, 2024, gross billings to customers representing 10% or more of the Company’s total gross billings included
13
September 30, 2024, gross billings to customers representing 10% or more of the Company’s total gross billings included
Receivables from customers representing 10% or more of the Company’s gross accounts receivable included
Effective November 1, 2024, the Company determined to discontinue sales of Stendra® to wholesalers to mitigate the risk of returns associated with expired or near-expired prescription medication due to Stendra® having less than a six-month shelf life. Sales of Stendra® to wholesalers collectively accounted for approximately
4) Inventories
Inventory is comprised of the following:
| September 30, 2024 |
| December 31, 2023 | |||
Raw Materials | $ | | $ | | ||
Finished goods |
| |
| | ||
Total inventory | $ | | $ | | ||
Finished goods are net of valuation reserves of $
5) Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets are comprised of the following:
| September 30, 2024 |
| December 31, 2023 | |||
Prepaid insurance | $ | | $ | | ||
Prepaid FDA fees |
| — |
| | ||
Prepaid R&D expenses |
| |
| | ||
API purchase commitment asset (see Note 13) |
| |
| | ||
Other prepaid expenses |
| |
| | ||
Other current assets |
| |
| | ||
Total prepaid expenses and other current assets | $ | | $ | | ||
6) Intangible Assets
Intangible Assets are comprised of the following:
Balance at December 31, 2022 |
| $ | |
Amortization expense |
| ( | |
Balance at December 31, 2023 |
| | |
Amortization expense | ( | ||
Balance at September 30, 2024 | $ | |
14
The future annual amortization related to the Company’s intangible assets is as follows as of September 30, 2024:
2024 (remaining 3 months) |
| $ | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
2028 | | ||
Thereafter |
| | |
Total | $ | |
The intangible assets held by the Company are the Stendra® product, Timm Medical product, and PTV product and are being amortized over their estimated useful lives of
7) Accrued Expenses
Accrued expenses are comprised of the following:
| September 30, 2024 |
| December 31, 2023 | |||
Accrued product returns | $ | | $ | | ||
Accrued contract rebates |
| |
| | ||
Due to 3PL/Wholesalers |
| |
| | ||
Accrued bonuses | | | ||||
Accrued professional fees |
| — |
| | ||
Accrued R&D fees | |
| | |||
Other accrued expenses |
| |
| | ||
Total accrued expenses | $ | | $ | | ||
8) Debt
Promissory Note
In connection with the Settlement Agreement entered into with Vivus (see Note 13), Petros executed an interest-bearing promissory note (the “Note”) in favor of Vivus in the principal amount of $
Under the terms of the Note, the original principal amount of $
On October 1, 2024, the Company failed to make the required payment due pursuant to the Note and related Security Agreement with Vivus in the amount of $
15
Future minimum principal payments of the Note are as follows:
2024 (remaining 3 months) |
| $ | |
2025 | | ||
2026 | | ||
2027 | | ||
Total | $ | | |
Less: current portion | ( | ||
Promissory note, net of current portion | $ | |
9) Stockholders’ Equity
On December 21, 2023, the Company approved and accrued for the issuance of $
On January 5, 2024, the Company executed an advisory agreement (“Maxim Agreement”) with Maxim Group LLC (“Maxim”) that included the issuance of $
10) Stock Options
The following is a summary of stock options for the nine months ended September 30, 2024:
|
| Weighted-Average |
| |||||||
Weighted- | Remaining | Aggregate Intrinsic | ||||||||
Number of | Average | Contractual | Value | |||||||
| Shares |
| Exercise Price |
| Term (Years) |
| ($ in thousands) | |||
Options outstanding at December 31, 2023 |
| | $ | |
| $ | | |||
Options granted |
| — |
| — |
| — |
| — | ||
Less: options forfeited |
| — |
| — |
| — |
| — | ||
Less: options expired/cancelled |
| — |
| — |
| — |
| — | ||
Less: options exercised | — | — | — | — | ||||||
Options outstanding at September 30, 2024 |
| | $ | |
| $ | — | |||
Options exercisable at September 30, 2024 |
| | $ | |
| $ | — | |||
Stock-based compensation expense recognized for the nine months ended September 30, 2024, and 2023 was $
16
11) Common Stock Warrants
The following is a summary of warrants for the nine months ended September 30, 2024:
| Aggregate | |||||||||
Intrinsic | ||||||||||
Weighted-Average | Remaining | Value ($ in | ||||||||
| Number of Warrants |
| Exercise Price |
| Contractual Term |
| thousands) | |||
Warrants outstanding - December 31, 2023 |
| | $ | $ | — | |||||
Warrants issued |
| — | — | — | — | |||||
Warrants exercised |
| — | — | — | — | |||||
Warrants expired |
| ( | — | — | ||||||
Warrants outstanding and exercisable- September 30, 2024 |
| | $ | $ | — | |||||
12) Dilutive convertible securities
The following table summarizes the potentially dilutive securities convertible into common shares that were excluded from the calculation of diluted net income (loss) per share because their inclusion would have been antidilutive:
For the Three Months Ended | For the Nine Months Ended | |||||||
September 30, | September 30, | |||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |
Stock Options |
| |
| | |
| | |
Series A Convertible Preferred stock | | | | | ||||
Warrants |
| |
| | |
| | |
Total |
| |
| | |
| | |
13) Marketing, Licensing and Distribution Agreements
(a) Vivus
On September 30, 2016, the Company entered into a License and Commercialization Agreement (the “License Agreement”) with Vivus to purchase and receive the license for the commercialization and exploitation of Stendra® for a one-time fee of $
Under the License Agreement, the Company will pay MTPC a royalty of
In addition, the Company will be responsible for a pro-rata portion of a $
On January 18, 2022, Petros and Vivus entered into a Settlement Agreement (the “Vivus Settlement Agreement”) related to the minimum purchase requirements under the Vivus Supply Agreement in 2018, 2019 and 2020 and certain reimbursement rights asserted by a third-party retailer in connection with quantities of the Company’s Stendra® product that were delivered to the third-party retailer and later returned. In connection with the Vivus Settlement Agreement, Petros retained approximately $
17
In addition to the payments to be made in accordance with the Note, the Company further agreed in the Vivus Settlement Agreement to (i) grant to Vivus a right of first refusal to provide certain types of debt and convertible equity (but not preferred equity) until the Note is paid in full, and (ii) undertake to make certain regulatory submissions to effectuate Vivus’ ability to exercise its rights under the License Agreement. On January 18, 2022, the Company made a prepayment of the obligations under the Note in the amount of $
As a result of entering into the Vivus Settlement Agreement, the Company decreased accrued expenses by $
API inventory is not a finished good. The additional API inventory that the Company does not have title to is classified as API Inventory in either other current assets or other assets, depending on whether the Company expects to take title to the product within one year from the date of the financial statements. As of September 30, 2024, and December 31, 2023, there was $
During the nine months ended September 30, 2024, and 2023, the Company incurred royalties to MTPC for Stendra® of $
The license agreement between MTPC and Vivus (“MTPC License”) contains certain termination rights that would allow MTPC to terminate the agreement if Vivus were to breach any of the terms of the MTPC License or become insolvent or bankrupt. In the event that MTPC terminates the MTPC License with Vivus because of any contractual breach the Company has step-in rights with MTPC, which would allow the Company to continue to sell Stendra®.
(b) Patheon
Following the termination of the Vivus Supply Agreement, Petros, through its subsidiary Metuchen, entered into a Technology Transfer Service Agreement on January 20, 2022, with Patheon Pharmaceuticals Inc., part of Thermo Fisher Scientific (“Patheon”), pursuant to which the Company and Patheon agreed to collaborate as strategic partners for commercial production of Stendra® tablets at Patheon’s facilities in Cincinnati, Ohio. Under the agreement, Patheon or one of its affiliates will provide pharmaceutical development and technology transfer services in order to establish and validate its ability to manufacture supply of the Company’s Stendra® product. Any commercial sale of product manufactured during the performance of the agreement must be subject to a subsequent commercial manufacturing services agreement (with associated quality agreement) between the parties before it can be offered for commercial sale.
14) Commitments and Contingencies
(a) Legal Proceedings
On July 14, 2020, Greg Ford, the former Chief Executive Officer of the Company, was terminated. On July 14, 2020, Mr. Ford, through his attorney, claimed that he was entitled to severance pay pursuant to an employment agreement following the termination of his employment on that same date. This claim is currently at an early stage where the Company is unable to determine the likelihood of any unfavorable outcome.
From time to time, the Company is involved in various legal matters arising in the normal course of business. The Company does not expect the outcome of such proceedings, either individually or in the aggregate, to have a material effect on the Company’s financial position, cash flows or results of operations.
18
(b) Contract Research
The Company is currently conducting non-clinical consumer studies in connection with the pursuit of potential FDA approval for Stendra® Non-Prescription OTC use in treating ED. The Company has contracted with a leading Contract Research Organization (“CRO”) in the conduct of Rx-to-OTC Switch development including self-selection studies, human factors studies and various web app studies. The Company has committed approximately $
15) Segment Information
The Company manages its operations through
The Company’s results of operations by reportable segment for the nine months ended September 30, 2024, are summarized as follows:
| Prescription |
| Medical |
|
| |||||||
For the Nine Months Ended September 30, 2024 |
| Medications |
| Devices |
| Corporate |
| Consolidated | ||||
Net sales | $ | | $ | | $ | — | $ | | ||||
Cost of goods sold |
| |
| |
| — |
| | ||||
Selling, general and administrative expenses |
| |
| |
| |
| | ||||
Research and development expenses |
| |
| — |
| — |
| | ||||
Depreciation and amortization expense |
| |
| |
| — |
| | ||||
Change in fair value of derivative liability | — | — | ( | ( | ||||||||
Interest income | — | — | ( | ( | ||||||||
Interest expense |
| — |
| — |
| |
| | ||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
The Company’s results of operations by reportable segment for the nine months ended September 30, 2023, are summarized as follows:
| Prescription |
| Medical |
|
| |||||||
For the Nine Months Ended September 30, 2023 |
| Medications |
| Devices |
| Corporate |
| Consolidated | ||||
Net sales | $ | | $ | | $ | — | $ | | ||||
Cost of goods sold |
| |
| |
| — |
| | ||||
Selling, general and administrative expenses |
| |
| |
| |
| | ||||
Warrant issuance costs | — | — | | | ||||||||
Research and development expenses |
| |
| |
| — |
| | ||||
Depreciation and amortization expense | |
| |
| — |
| | |||||
Change in fair value of derivative liability |
| — | — | | | |||||||
Change in fair value of warrant liability | — |
| — |
| ( |
| ( | |||||
Interest income | — | — | ( | ( | ||||||||
Interest expense |
| — |
| — |
| |
| | ||||
Loss on issuance of Series A Preferred Stock | — |
| — |
| |
| | |||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
19
The Company’s results of operations by reportable segment for the three months ended September 30, 2024, are summarized as follows:
| Prescription |
| Medical |
|
| |||||||
For the Three Months Ended September 30, 2024 | Medications | Devices | Corporate | Consolidated | ||||||||
Net sales | $ | | $ | | $ | — | $ | | ||||
Cost of goods sold |
| |
| |
| — |
| | ||||
Selling, general and administrative expenses |
| |
| |
| |
| | ||||
Research and development expenses |
| |
| — |
| — |
| | ||||
Depreciation and amortization expense |
| |
| |
| — |
| | ||||
Change in fair value of derivative liability |
| — |
| — |
| ( |
| ( | ||||
Interest income |
| — |
| — |
| ( |
| ( | ||||
Interest expense |
| — |
| — |
| |
| | ||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
The Company’s results of operations by reportable segment for the three months ended September 30, 2023, are summarized as follows:
| Prescription |
| Medical |
|
| |||||||
For the Three Months Ended September 30, 2023 | Medications | Devices | Corporate | Consolidated | ||||||||
Net sales | $ | | $ | | $ | — | $ | | ||||
Cost of goods sold |
| |
| |
| — |
| | ||||
Selling, general and administrative expenses |
| |
| |
| |
| | ||||
Warrant issuance costs | — | — | | | ||||||||
Research and development expenses |
| |
| |
| — |
| | ||||
Depreciation and amortization expense |
| | | — | | |||||||
Change in fair value of derivative liability | — | — | | | ||||||||
Change in fair value of warrant liability | — | — | ( | ( | ||||||||
Interest income |
| — |
| — |
| ( |
| ( | ||||
Interest expense |
| — |
| — |
| |
| | ||||
Loss on issuance of Series A Preferred Stock | — |
| — |
| |
| | |||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
The following table reflects net sales by geographic region for the three and nine months ended September 30, 2024, and 2023:
For the Three Months Ended | For the Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
Net sales |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
United States | $ | | $ | | $ | | $ | | ||||
International | |
| | |
| | ||||||
$ | | $ | | $ | | $ | | |||||
No individual country other than the United States accounted for 10% of total sales for the three and nine months ended September 30, 2024, and 2023.
The Company’s assets by reportable segment and reconciliation of segment assets to consolidated assets as of September 30, 2024, are summarized as follows:
Prescription |
| Medical |
| ||||||
| Medications |
| Devices |
| Consolidated | ||||
Intangible assets, net | $ | | $ | | $ | | |||
Total segment assets | $ | | $ | | $ | | |||
20
The Company’s assets by reportable segment and reconciliation of segment assets to consolidated assets as of December 31, 2023, are summarized as follows:
Prescription | Medical | ||||||||
| Medications |
| Devices |
| Consolidated | ||||
Intangible assets, net | $ | | $ | | $ | | |||
Total segment assets | $ | | $ | | $ | | |||
16) Private Placement
On July 13, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”), pursuant to which the Company agreed to sell in a private placement to the Investors (i) an aggregate of
Series A Preferred Stock
The terms of the Series A Preferred Shares are as set forth in the form of Certificate of Designations. The Series A Preferred Shares will be convertible into shares of Common Stock (the “Conversion Shares”) at the election of the holder at any time at an initial conversion price of $
21
The holders of the Series A Preferred Shares are entitled to dividends of
On October 11, 2024, the Company entered into an Amendment Agreement with the Required Holders (as defined in the Certificate of Designations), pursuant to which, the Required Holders agreed to amend the Certificate of Designations of the Company’s Series A Preferred Stock, as described below, by filing a Certificate of Amendment to the Certificate of Designations (the “October 2024 Certificate of Amendment”) with the Secretary of State of the State of Delaware. The October 2024 Certificate of Amendment amends the Certificate of Designations to, among other things, provide that, except as required by applicable law, the holders of the Series A Preferred Stock will be entitled to vote with holders of the Common Stock on an as converted basis, with the number of votes to which each holder of Series A Preferred Stock is entitled to be determined by dividing the Stated Value by a conversion price equal to $
On November 13, 2024, the Company entered into an Amendment Agreement with the Required Holders (as defined in the Certificate of Designations), pursuant to which, the Required Holders agreed to (i) amend the Certificate of Designations of the Company’s Series A Preferred Stock, as described below, by filing a Certificate of Amendment to the Certificate of Designations (the “November 2024 Certificate of Amendment”) with the Secretary of State of the State of Delaware, (ii) defer any payment amounts that have accrued and that are unpaid as of November 13, 2024 pursuant to the Certificate of Designations, to January 15, 2025, and (iii) waive any breach or violation of the Purchase Agreement, the Certificate of Designations, or the Warrants resulting from the Company’s failure to pay such outstanding amounts. The November 2024 Certificate of Amendment amends the Certificate of Designations to, (i) extend the maturity date to January 15, 2025, (ii) modify the schedule of Installment Dates (as defined in the Certificate of Designations), and (iii) adds an additional restrictive covenant to the Certificate of Designations requiring the Company from November 13, 2024 until January 15, 2025, to maintain unencumbered, unrestricted cash and cash equivalents on hand in amount equal to at least $
During December 2023, the Company issued as equity awards, shares of Common Stock and options to purchase shares of Common Stock representing an aggregate of
The Series A Preferred Shares were determined to be more akin to a debt-like host than an equity-like host. The Company identified the following embedded features that are not clearly and closely related to the debt host instrument: 1) make-whole interest upon a contingent redemption event, 2) make-whole interest upon a conversion event, 3) an installment redemption upon an Equity Conditions Failure (as defined in the Certificate of Designation), and 4) variable share-settled installment conversion. These features were bundled together, assigned probabilities of being affected and measured at fair value. Subsequent changes in fair value of these features are recognized in the unaudited condensed consolidated statements of operations.
During the three and nine months ended September 30, 2024, the Company recorded a gain of $
22
of
As of September 30, 2024, the Company has notified the investors of its intention to redeem the upcoming installment due in cash and recorded a liability of $
During the three months ended September 30, 2024, the Company experienced an Equity Conditions Failure in which the Company’s average stock price during the Installment Conversion Price Measuring Period (as defined in the Certificate of Designations) corresponding to the September 1, 2024, and October 1, 2024, installments (the “Affected Installments”) was below the Floor Price (as defined in the Certificate of Designations) (the “Floor Price Condition”). As a result of the Floor Price Condition, the Company is required to redeem the Affected Installments as well as any previously deferred installment amounts at a
During the three months ended September 30, 2024, the Company redeemed a total of
During the nine months ended September 30, 2024, the Company redeemed a total of
17) Fair Value Measurements
Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of and during the quarter ended September 30, 2024. The carrying amounts of cash equivalents, accounts receivable, other current assets, other assets, accounts payable, and accrued expenses approximated their fair values as of September 30, 2024, due to their short-term nature. The fair value of the bifurcated embedded derivative related to the convertible preferred stock was estimated using a Monte Carlo simulation model, which uses as inputs the fair value of the Company’s Common Stock and estimates for the equity volatility and traded volume volatility of the Company’s Common Stock, the time to maturity of the convertible preferred stock, the risk-free interest rate for a period that approximates the time to maturity, dividend rate, a penalty dividend rate, and the Company’s probability of default.
Fair Value on a Recurring Basis
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. The estimated fair value of the warrant liability and bifurcated embedded derivatives represent Level 3 measurements. The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis at September 30, 2024, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
|
| September 30, | |||
Description | Level | 2024 | |||
Liabilities: |
|
|
|
| |
Bifurcated embedded derivative liability |
| 3 | $ | | |
23
The following table sets forth a summary of the change in the fair value of the bifurcated embedded derivative liability that is measured at fair value on a recurring basis:
Balance on December 31, 2023 |
| $ | |
Change in fair value of bifurcated embedded derivative |
| ( | |
Balance on September 30, 2024 | $ | |
18) Restatement of Previously Issued Financial Statements
The Company identified certain errors related to the omission of the accretion of the Company’s Series A convertible preferred stock (the “Preferred Stock”) to its redemption value that was recognized during the three months ended September 30, 2023, from the calculation of net loss per share, which resulted in the following misstatements in the financial statements as of and for the three and nine months ended September 30, 2023:
| ● | Omission of the Preferred Stock accretion in the calculation of net income attributable to common stockholders as presented on the condensed consolidated statements of operations for the three and nine months ended September 30, 2023, and a resulting error in the calculation of basic and diluted earnings per share. |
The Company’s prior accounting for the Preferred Stock accretion did not have any effect on the Company’s previously reported cash flows or cash.
The following tables summarize the effect of the restatement on each financial statement line item as of the dates, and for the period, indicated:
For the three months ended, September 30, 2023:
CONDENSED CONSOLIDATED |
| September 30, |
|
| September 30, | ||||
STATEMENTS OF OPERATIONS | 2023 | 2023 | |||||||
| As Reported |
| Adjustment |
| As Restated | ||||
Accretion of Series A convertible preferred stock to redemption value | $ | — | $ | ( | $ | ( | |||
Net loss attributable to common stockholders |
| ( |
| ( |
| ( | |||
Net loss per share, basic and diluted | $ | ( | $ | ( | $ | ( | |||
For the nine months ended, September 30, 2023:
CONDENSED CONSOLIDATED |
| September 30, |
|
| September 30, | ||||
STATEMENTS OF OPERATIONS | 2023 | 2023 | |||||||
| As Reported |
| Adjustment |
| As Restated | ||||
Accretion of Series A convertible preferred stock to redemption value | $ | — | $ | ( | $ | ( | |||
Net loss attributable to common stockholders |
| ( |
| ( |
| ( | |||
Net loss per share, basic and diluted | $ | ( | $ | ( | $ | ( | |||
CONDENSED CONSOLIDATED |
| September 30, |
|
| September 30, | ||||
STATEMENTS OF CASH FLOWS | 2023 | 2023 | |||||||
| As Reported |
| Adjustment |
| As Restated | ||||
Supplemental disclosure of cash flows information |
|
|
|
|
|
| |||
Accretion of Series A convertible preferred stock to redemption value | $ | | $ | ( | $ | | |||
19) Subsequent Events
On October 1, 2024, the Company failed to make the required payment due pursuant to the Note and related Security Agreement with Vivus in the amount of $
24
Note (whether principal, interest, or otherwise), to be due and payable, and, subject to the terms of the Security Agreement, foreclose on the Collateral, which includes the Company’s Stendra® API and products and the Company’s rights under the License Agreement. As a result of the Event of Default, the Company accrued an additional $
On October 1, 2024, John Shulman, who served as a member of the Board, tendered his resignation from his role as director of the Company, effective as of October 1, 2024. Mr. Shulman’s resignation from the Board was not in connection with any disagreement between Mr. Shulman and the Company, its management, the Board or any committee of the Board on any matter relating to the Company’s operations, policies or practices, or any other matter.
On October 2, 2024, Greg Bradley, who served as a member of the Board tendered his resignation from his role as director of the Company, effective as of October 2, 2024. Mr. Bradley’s resignation from the Board was not in connection with any disagreement between Mr. Bradley and the Company, its management, the Board or any committee of the Board on any matter relating to the Company’s operations, policies or practices, or any other matter.
On October 11, 2024, the Company entered into an Amendment Agreement with the Required Holders (as defined in the Certificate of Designations), pursuant to which, the Required Holders agreed to amend the Certificate of Designations of the Company’s Series A Preferred Stock, as described below, by filing a Certificate of Amendment with the Secretary of State of the State of Delaware . The October 2024 Certificate of Amendment amends the Certificate of Designations to, among other things, provide that, except as required by applicable law, the holders of the Series A Preferred Stock will be entitled to vote with holders of the Common Stock on an as converted basis, with the number of votes to which each holder of Series A Preferred Stock is entitled to be determined by dividing the Stated Value by a conversion price equal to $
On October 16, 2024, the Company entered into an Offer Letter Amendment (the “Amendment”), effective as of October 16, 2024 (the “Effective Date”), with Fady Boctor (“Boctor”), the Company’s President and Chief Commercial Officer, for the purpose of amending that certain Employment Offer Letter, effective February 19, 2021, by and between the Company and Boctor (the “Offer Letter”). The Amendment, among other things: (i) allows Boctor to engage in other consulting or employment activities for direct or indirect remuneration, so long as such engagement or service does not create a conflict of interest with, or interfere with the performance of, his duties under the Offer Letter or conflict with any covenants with the Company; (ii) amends the term of the Offer Letter, which shall terminate on December 31, 2024; and (iii) adjusts Boctor’s base salary from an annual rate of $
In October 2024, the Company experienced an Equity Conditions Failure in which the Company’s average stock price during the Installment Conversion Price Measuring Period relating to the November 1, 2024, installment (the “November Installment”) was below the Floor Price (the “November Installment Floor Price Condition”). As a result of the November Installment Floor Price Condition, the Company is required to redeem the November Installment at a
On November 13, 2024, the Company entered into an Amendment Agreement with the Required Holders (as defined in the Certificate of Designations), pursuant to which, the Required Holders agreed to (i) amend the Certificate of Designations of the Company’s Series A Preferred Stock, as described below, by filing the November 2024 Certificate of Amendment with the Secretary of State of the State of Delaware, (ii) defer any payment amounts that have accrued and that are unpaid as of November 13, 2024 pursuant to the Certificate of Designations, to January 15, 2025, and (iii) waive any breach or violation of the Purchase Agreement, the Certificate of Designations, or the Warrants resulting from the Company’s failure to pay such outstanding amounts. The November 2024 Certificate of Amendment amends the Certificate of Designations to, (i) extend the maturity date to January 15, 2025, (ii) modify the schedule of Installment Dates (as defined in the Certificate of Designations), and (iii) adds an additional restrictive covenant to the Certificate of Designations requiring the Company from November 13, 2024 until January 15, 2025, to maintain unencumbered, unrestricted cash and cash equivalents on hand in amount equal to at least $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of Petros’ financial statements with a narrative from the perspective of management on the Company’s financial condition, results of operations, liquidity and certain other factors that may affect future results. In certain instances, parenthetical references are made to relevant sections of the Notes to Condensed Consolidated Financial Statements to direct the reader to a further detailed discussion. This section should be read in conjunction with the Consolidated Financial Statements and Supplementary Data included in this Quarterly Report on Form 10-Q. This MD&A contains forward-looking statements reflecting Petros’ current expectations, whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” contained in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as amended.
Overview
Petros is committed to the goal of becoming a leading innovator in the emerging self-care market driving expanded access to key prescription pharmaceuticals as Over-the-Counter treatment options. Petros consists of wholly owned subsidiaries, Metuchen Pharmaceuticals, LLC (“Metuchen”), Timm Medical Technologies, Inc. (“Timm Medical”), and Pos-T-Vac, LLC (“PTV”). On September 30, 2016, the Company entered into a License and Commercialization Agreement (the “License Agreement”) with Vivus, Inc (“Vivus”) to purchase and receive the license for the commercialization and development of Stendra® for a one-time fee of $70 million. The License Agreement gives the Company the right to sell Stendra® in the U.S and its territories, Canada, South America, and India. Stendra® is a U.S. Food and Drug Administration (“FDA”) approved PDE-5 inhibitor prescription medication for the treatment of erectile dysfunction (“ED”) and is the only patent protected PDE-5 inhibitor on the market in the US. Stendra® offers the ED therapeutic landscape a valuable addition as an oral ED therapy that may be taken as early as approximately 15 minutes prior to sexual engagement, with or without food when using the 100mg or 200mg dosing (does not apply to 50mg dosing). Petros is also currently conducting non-clinical consumer studies in connection with the contemplated pursuit of FDA approval for Stendra® for Non-Prescription / Over-The-Counter (“OTC”) use in treating ED.
In addition to Stendra®, Petros’ ED portfolio also includes external penile rigidity devices, namely Vacuum Erection Devices (“VEDs and related accessories”), which are sold domestically and internationally.
Licensing and Distribution
The Company acquired the rights to Stendra® avanafil on September 30, 2016, when it entered into the License Agreement with Vivus to purchase and receive the license for the commercialization and exploitation of Stendra® avanafil for a one-time fee of $70 million. The License Agreement gives the Company the exclusive right to sell avanafil in the U.S. and its territories, as well as Canada, South America, and India. In December 2000, Vivus originally was granted the license from Mitsubishi Tanabe Pharma Corporation (“MTPC”) to develop, market, and manufacture Stendra®. Stendra® was approved by the FDA in April 2012 to treat ED.
The Company will pay MTPC a royalty of 5% on the first $500 million of net sales and 6% of net sales thereafter until the expiration of the applicable patent in a particular country. The last scheduled patent expiration is in April 2025. In consideration for the trademark assignment and the use of the trademarks associated with Stendra® and the Vivus technology, the Company shall (a) during the first, second, and third years following the expiration of the royalty period in a particular country in the Company’s territory, pay to Vivus a royalty equal to 2% of the net sales of Stendra® in such territory; and (b) following the fourth and fifth years following the expiration of the royalty period in such territory, pay to Vivus a royalty equal to 1% of the net sales of Stendra® in such territory. After the royalty period, no further royalties shall be owed with respect to net sales of Stendra® in such territory. In addition, the Company will be responsible for a pro-rata portion of a one-time $6 million milestone payment to be paid once $250 million in sales has been reached on the separate revenue stream of Stendra® during any calendar year.
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In connection with the License Agreement, the Company and Vivus also entered into a Supply Agreement on September 30, 2016, which has since been terminated, effective as of September 30, 2021. Following the termination of the Vivus Supply Agreement, Petros, through its subsidiary Metuchen, entered into a Technology Transfer Service Agreement on January 20, 2022, with Patheon Pharmaceuticals Inc., part of Thermo Fisher Scientific (“Patheon”), pursuant to which the Company and Patheon agreed to collaborate as strategic partners for commercial production of Stendra® tablets at Patheon’s facilities in Cincinnati, Ohio. Under the agreement, Patheon or one of its affiliates will provide pharmaceutical development and technology transfer services in order to establish and validate its ability to manufacture supply of the Company’s Stendra® product. Any commercial sale of product manufactured during the performance of the agreement must be subject to a subsequent commercial manufacturing services agreement (with associated quality agreement) between the parties before it can be offered for commercial sale.
The license agreement between MTPC and Vivus contains certain termination rights that will allow MTPC to terminate the agreement if Vivus were to breach any of the terms of the MTPC License or become insolvent or bankrupt. In the event that MTPC terminates the MTPC License with Vivus because of any contractual breach the Company has step-in rights with MTPC, which would allow the Company to continue to sell Stendra®.
On March 27, 2018, the Company entered into a Sublicense Agreement with Acerus Pharmaceuticals Corporation (“Acerus”) whereby the Company granted to Acerus an exclusive sublicense in Canada for, among other things, the development and commercialization of Stendra® avanafil for a one-time fee of $100,000. The Company was entitled to receive an additional fee of $400,000 if Stendra® is approved by Canadian regulators, as well as commercial milestone payments and royalty fees of 12% of net sales. However, in April 2020 Health Canada issued a Notice of Deficiency (“NOD”) against the New Drug Submission. Metuchen and Acerus attempted to renegotiate modified terms to the sub-license agreement and the viability of a pathway required to address the deficiency noted by Health Canada but to no avail. In March of 2023, Acerus announced commencement of a court - approved (issued by the Ontario Superior Court of Justice and granted by the U.S. Bankruptcy Court for the District of Delaware) sale and investment solicitation process for all or part of its assets. The Sublicense Agreement with Acerus has therefore been halted indefinitely.
Vivus Settlement Agreement, Promissory Note and the Security Agreement
On January 18, 2022, Petros (through its wholly-owned subsidiary) and Vivus entered into a Settlement Agreement (the “Vivus Settlement Agreement”) related to the minimum purchase requirements under the Vivus Supply Agreement in 2018, 2019 and 2020 and certain reimbursement rights asserted by a third-party retailer in connection with quantities of the Company’s Stendra® product that were delivered to the third-party retailer and later returned. In connection with the Vivus Settlement Agreement, Petros retained approximately $7.3 million of API inventory (representing the 2018 and 2019 minimum purchase requirements) out of approximately $12.4 million due under the Vivus Supply Agreement, in conjunction with forgiveness of approximately $4.25 million of current liabilities relating to returned goods and minimum purchase commitments. In exchange for the API and reduction of current liabilities, Petros executed an interest-bearing promissory note (the “Note”) in favor of Vivus in the principal amount of $10,201,758. The parties also entered into a Security Agreement to secure Petros’ obligations under the Note. The Company recorded the impact of this transaction, including the gain in the first quarter of 2022.
In addition to the payments to be made in accordance with the Note, the Company further agreed in the Vivus Settlement Agreement to (i) grant to Vivus a right of first refusal to provide certain types of debt and convertible equity (but not preferred equity) financing issued by or to Metuchen (including any subsidiaries and intermediaries) until the Note is paid in full, and (ii) undertake to make certain regulatory submissions to effectuate Vivus’ ability to exercise its rights under the License Agreement. On January 18, 2022, the Company made a prepayment of the obligations under the Note in the amount of $900,000, and a payment of $1,542,904 with respect to a purchase order made in 2021 to Vivus. In consideration of these payments and upon the Company’s satisfaction of certain regulatory submissions. Vivus released 50% of the quantity of bulk Stendra® tablets under the Company’s existing open purchase order (the “Open Purchase Order”) being held by Vivus, which represented approximately a six-month supply of inventory. Pursuant to the Vivus Settlement Agreement, Vivus released the remaining 50% of the quantity of bulk Stendra® tablets under the Open Purchase Order, later during the first quarter of 2022, upon the Company’s satisfaction of the remaining regulatory submission requirements.
27
Under the terms of the Note, the principal amount of $10,201,758 is payable in consecutive quarterly installments beginning on April 1, 2022, through January 1, 2027. Interest on the principal amount will accrue at a rate of 6% per year until the principal is repaid in full and is due and payable, in arrears, on the first day of each January, April, July, and October of each calendar year, commencing on April 1, 2022. The Company may prepay the Note, in whole or in part, at any time, with no premium or penalty. Defaults under the Security Agreement require all principal amounts outstanding under the Note at the time of the default to bear interest at a rate of 9% per year until the full and final payment of all principal and interest under the Note has been paid (regardless of whether any default is waived or cured). If the Note is placed in the hands of any attorney for collection, or if it is collected through any legal proceeding at law or in equity or in bankruptcy, receivership, or other court proceedings, the Company will also be required to pay all costs of collection including, but not limited to, court costs and attorneys’ fees. Pursuant to the Security Agreement, dated January 18, 2022, the Company granted to Vivus a continuing security interest in all of its Stendra® API and products and its rights under the License Agreement. The Security Agreement contains customary events of default. For the nine months ended September 30, 2024, and 2023, the Company paid Vivus $1.0 million and $1.5 million, respectively. As of September 30, 2024, the principal balance on the Note is $7.2 million.
Nasdaq Listing Requirements
On May 15, 2024, we received notice from the Listing Qualifications Staff of Nasdaq (the “Staff”) indicating that, based upon the closing bid price of our Common Stock for the 30 consecutive business day period between April 3, 2024, through May 14, 2024, we did not meet the minimum bid price of $1.00 per share required for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Rule”). The letter also indicated that we were provided with a compliance period until November 11, 2024, in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).
On November 12, 2024, the Company received notice from the Staff granting the Company’s request for a 180-day extension to regain compliance with the Rule, or, until May 12, 2025 (the “Compliance Period”).
In order to regain compliance with Nasdaq’s minimum bid price requirement, the Company’s Common Stock must maintain a minimum closing bid price of $1.00 for at least ten consecutive business days during the Compliance Period. However, if it appears to Nasdaq that the Company will be unable to cure the deficiency Nasdaq will provide notice that the Company’s Common Stock will be subject to delisting. There can be no assurance that the Nasdaq staff would grant the Company’s request for continued listing subsequent to any delisting notification. In the event of such a notification, the Company may appeal the Nasdaq staff’s determination to delist its securities.
Critical Accounting Estimates
The preparation of unaudited condensed consolidated financial statements and related disclosures in conformity with U.S. GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 2, “Summary of Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2023 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s unaudited condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the 2023 Form 10-K.
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Nine Months Ended September 30, 2024, and 2023 (Unaudited)
The following table sets forth a summary of our statements of operations for the nine months ended September 30, 2024, and 2023:
For the Nine Months Ended September 30, | ||||||
| 2024 |
| 2023 | |||
Net sales | $ | 4,386,640 | $ | 6,186,638 | ||
Cost of sales |
| 947,946 |
| 1,473,073 | ||
Gross profit |
| 3,438,694 |
| 4,713,565 | ||
Operating expenses: |
|
|
|
| ||
Selling, general and administrative |
| 7,299,391 |
| 6,382,166 | ||
Warrant Issuance Costs | — | 2,855,000 | ||||
Research and development |
| 2,513,105 |
| 1,574,760 | ||
Depreciation and amortization expense |
| 2,175,126 |
| 2,480,385 | ||
Total operating expenses |
| 11,987,622 |
| 13,292,311 | ||
Loss from operations |
| (8,548,928) |
| (8,578,746) | ||
Change in fair value of derivative liability |
| 3,550,000 |
| (430,000) | ||
Change in fair value of warrant liability |
| — | 11,739,000 | |||
Interest income | 347,028 | 287,722 | ||||
Interest expense, promissory note | (393,450) |
| (410,317) | |||
Loss on issuance of Series A Preferred Stock |
| — |
| (11,088,997) | ||
Total Other income (expense) | 3,503,578 | 97,408 | ||||
Loss before income taxes |
| (5,045,350) | (8,481,338) | |||
Income tax expense |
| — | — | |||
Net loss | $ | (5,045,350) | $ | (8,481,338) | ||
Net Sales
Net sales for the nine months ended September 30, 2024, were $4,386,640, composed of $2,086,180 of net sales from Prescription Medicines and net sales of $2,300,460 from Medical Devices.
Net sales for the nine months ended September 30, 2023, were $6,186,638, composed of $3,416,444 of net sales from Prescription Medicines and net sales of $2,770,194 from Medical Devices.
For the nine months ended September 30, 2024, gross billings to customers representing 10% or more of the Company’s total gross billings included three customers that represented approximately 28%, 25%, and 14% of total gross billings, respectively. Gross billings is a non-GAAP financial measure. For a reconciliation of net sales to gross billings, see the section titled “Reconciliation of Non-GAAP Financial Measures” below.
For the nine months ended September 30, 2023, gross billings to customers representing 10% or more of the Company’s total gross billings included three customers that represented approximately 23%, 19%, and 17% of total gross billings. Gross billings is a non-GAAP financial measure. For a reconciliation of net sales to gross billings, see the section titled “Reconciliation of Non-GAAP Financial Measures” below.
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Prescription Medicines sales consist of sales of Stendra® in the U.S. for the treatment of male ED. Stendra® is primarily sold directly to three main customers, as described above, which collectively accounted for approximately 95% of Stendra® net sales for the nine months ended September 30, 2024. Individually, sales to the three main customers, accounted for 40%, 35%, and 20% of Stendra® gross billings for the nine months ended September 30, 2024.
Medical Device sales consist of domestic and international sales of men’s health products for the treatment of ED. The men’s health products do not require a prescription and include VEDs and related accessories.
Net sales were $1,799,998 or 29% lower during the nine months ended September 30, 2024, compared to the same period in 2023 consisting of a $1,330,264 decrease in the net sales of Stendra® and a $469,734 decrease in Medical Device Sales. The decrease in net sales of Stendra® was substantially due to decreased wholesaler sales due to decreased demand and decreased related sales allowances stemming from a reduction in promotional activities. The decrease in net sales for Medical Devices included a decrease in domestic and international sales of VED systems.
Effective November 1, 2024, the Company determined to discontinue sales of Stendra® to wholesalers to mitigate the risk of returns associated with expired or near-expired prescription medication due to Stendra® having less than a six-month shelf life.
Cost of Sales
Cost of sales for the nine months ended September 30, 2024, were $947,946, composed of $194,035 of cost of sales for our Prescription Medicines segment and $753,911 for our Medical Devices segment.
Cost of sales for the nine months ended September 30, 2023, were $1,473,073, composed of $343,109 of cost of sales for our Prescription Medicines segment and $1,129,964 for our Medical Devices segment.
Cost of sales for the Prescription Medicine segment for the nine months ended September 30, 2024, consisted of 38% third-party product cost of sales, 54% royalty expenses, and 8% 3PL order fulfillment and shipping expenses.
Cost of sales for the Medical Device segment for the nine months ended September 30, 2024, consisted of 83% raw materials and 17% production labor.
Cost of sales decreased by $525,127 or 36% during the nine months ended September 30, 2024, compared to the same period in 2023. For the nine months ended September 30, 2024, and September 30, 2023, cost of sales as a percentage of net sales was 22% and 24%, respectively.
Gross Profit
Gross profit for the nine months ended September 30, 2024, was $3,438,694 or 78%, composed of $1,892,145 of gross profit from Prescription Medicines and $1,546,549 from Medical Devices. Gross profit for the nine months ended September 30, 2023, was 4,713,565, or 76% of net sales, composed of $3,073,335 of gross profit from Prescription Medicines and $1,640,230 from Medical Devices. The increase in gross profit was driven by the factors noted above.
Operating Expenses
Selling, general and administrative
Selling, general and administrative expenses for the nine months ended September 30, 2024, were $7,299,391, composed of $1,774,594 of selling, general and administrative expenses of our Prescription Medicines segment, $1,673,122 of selling, general and administrative expenses of our Medical Devices segment and $3,851,675 of general corporate expenses.
Selling, general and administrative expenses for the nine months ended September 30, 2023, were $6,382,166, composed of $1,006,666 of selling, general and administrative expenses of our Prescription Medicines segment, $1,398,890 of selling, general and administrative expenses of our Medical Devices segment and $3,976,610 of general corporate expenses.
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Selling, general and administrative expenses for both segments include selling, marketing and regulatory expenses. Unallocated general corporate expenses include costs that were not specific to a particular segment but are general to the group, including expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses.
Selling, general and administrative expenses increased by $917,225 or 14% during the nine months ended September 30, 2024, compared to the same period in 2023. Increased selling general and administrative expenses were primarily driven by a waiver of FY 23 PDUFA fees by the FDA resulting in a $937,652 increase in PDUFA expense and increased professional service fees of $213,884 and increased franchise taxes of $36,301 partially offset by decreased insurance expenses of $202,443 and decreased other operating expenses of $68,169.
Warrant issuance costs
For the nine months ended September 30, 2024, and September 30, 2023, respectively, the Company recorded warrant issuance costs of $0 and $2.9 million associated with the Private Placement (as defined herein).
Research and development
Research and development expenses for the nine months ended September 30, 2024, were $2,513,105, composed of $2,513,105 for our Prescription Medicines segment and $0 for our Medical Devices segment, respectively.
Research and development expenses for the nine months ended September 30, 2023, were $1,574,760, composed of $1,499,842 for our Prescription Medicines segment and $74,918 for our Medical Devices segment, respectively.
Research and development expenses for the Prescription Medicines segment for the nine months ended September 30, 2024, are composed of $2,157,786 for clinical development, $323,867 for consulting fees, and $31,452 for legal fees related to the Company’s OTC Strategies related to Stendra®. Research and development expenses for the Prescription Medicines segment for the nine months ended September 30, 2023, are composed of $836,507 for clinical development and $436,222 for consulting fees related to the Company’s OTC Strategies related to Stendra®; $200,000 for upfront licensing fees and $24,620 for consulting fees related to the H100 license acquired in March 2020, which was later terminated during the second quarter of 2023, and $2,493 related to the Company’s tech transfer of its manufacturing process.
Research and development expenses for the Medical Devices segment for the nine months ended September 30, 2024, were $0. Research and development expenses for the Medical Devices segment for the nine months ended September 30, 2023, are composed of $74,918 for license fees related to the Company’s Tissue-Specific Oxygenation Sensor Technology Strategies.
Research and development expenses increased by $938,345 or 60% during the nine months ended September 30, 2024, compared to the same period in 2023. Increased research and development expenses were primarily driven by increased clinical development expenses related to the Company’s OTC strategies related to Stendra®.
Depreciation and amortization
Depreciation and amortization expenses for the nine months ended September 30, 2024, were $2,175,126, composed of $1,522,207 of depreciation and amortization expenses of our Prescription Medicines segment and $652,919 of depreciation and amortization expenses of our Medical Devices segment.
Depreciation and amortization expenses for the nine months ended September 30, 2023, were $2,480,385, composed of $1,726,409 of depreciation and amortization expenses of our Prescription Medicines segment and $753,976 of depreciation and amortization expenses of our Medical Devices segment.
Prescription Medicines depreciation and amortization consists primarily of the amortization of the intangible assets related to Stendra® over its estimated useful life of 10 years. Medical Devices depreciation and amortization primarily consists of the amortization of the intangible assets related to Timm Medical and PTV over their estimated useful life of 12 years. The decrease in total depreciation and amortization results from the use of the accelerated method of amortization.
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Change in fair value of derivative liability
For the nine months ended September 30, 2024, and September 30, 2023, the Company recorded a gain of $3.6 million and a loss of $0.4 million, respectively, for the change in fair value of the derivative liability. The gains and losses related to the change in the fair value of a derivative liability established for certain bifurcated features of the Series A Preferred Stock issued in the Private Placement (as defined herein).
Change in fair value of warrant liability
For the nine months ended September 30, 2024, and September 30, 2023, respectively, the Company recorded a gain of $0 and $11.7 million for the change in fair value of the warrant liability. The gain related to the decrease in the fair value of warrants issued in the Private Placement (as defined herein) which were classified as liabilities in accordance with ASC 815.
Interest Income
Interest income for the nine months ended September 30, 2024, and 2023, was $347,028 and $287,722, respectively. Petros invested its cash in money market securities during 2024 and 2023.
Interest Expense, Promissory Note
In January 2022, the Company executed a promissory note in favor of Vivus with a principal amount of $10,201,758 in connection with the Vivus Settlement Agreement. Interest expense, promissory note for the nine months ended September 30, 2024, and 2023, was $393,450 and $410,317, respectively.
Loss on issuance of Series A Preferred Stock
As the fair value of the liabilities required to be subsequently measured at fair value exceeded the net proceeds received, for nine months September 30, 2023, the Company recognized the excess of the fair value over the net proceeds received as a loss upon issuance of preferred stock of $11.1 million, which is included in other income (expense) in the condensed consolidated statement of operations. No similar losses were recognized during the nine months ended September 30, 2024, as no issuances of this nature occurred.
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Three Months Ended September 30, 2024, and 2023 (Unaudited)
The following table sets forth a summary of our statements of operations for the three months ended September 30, 2024, and 2023:
For the Three Months Ended September 30, | ||||||
| 2024 |
| 2023 | |||
Net sales | $ | 1,576,366 | $ | 1,674,657 | ||
Cost of sales |
| 287,005 |
| 408,475 | ||
Gross profit |
| 1,289,361 |
| 1,266,182 | ||
Operating expenses: |
|
|
|
| ||
Selling, general and administrative |
| 2,301,305 |
| 2,001,935 | ||
Warrant issuance costs | — | 2,855,000 | ||||
Research and development |
| 588,355 |
| 389,093 | ||
Depreciation and amortization expense |
| 739,449 |
| 826,795 | ||
Total operating expenses |
| 3,629,109 |
| 6,072,823 | ||
Loss from operations |
| (2,339,748) |
| (4,806,641) | ||
Change in fair value of derivative liability |
| 202,000 |
| (430,000) | ||
Change in fair value of warrant liability | — | 11,739,000 | ||||
Interest income |
| 75,817 | 168,481 | |||
Interest expense, promissory note |
| (158,730) |
| (131,351) | ||
Loss on issuance of Series A Preferred Stock | — |
| (11,088,997) | |||
Total Other income (expense) | 119,087 | 257,133 | ||||
Loss before income taxes |
| (2,220,661) |
| (4,549,508) | ||
Income tax expense |
| — |
| — | ||
Net loss | $ | (2,220,661) | $ | (4,549,508) | ||
Net Sales
Net sales for the three months ended September 30, 2024, were $1,576,366, composed of $858,063 of net sales from Prescription Medicines and net sales of $718,303 from Medical Devices.
Net sales for the three months ended September 30, 2023, were $1,674,657, composed of $925,759 of net sales from Prescription Medicines and net sales of $748,898 from Medical Devices.
For the three months ended September 30, 2024, gross billings to customers representing 10% or more of the Company’s total gross billings included three customers that represented approximately 30%, 25%, and 14% of total gross billings, respectively. Gross billings is a non-GAAP financial measure. For a reconciliation of net sales to gross billings, see the section titled “Reconciliation of Non-GAAP Financial Measures” below.
For the three months ended September 30, 2023, gross billings to customers representing 10% or more of the Company’s total gross billings included three customers that represented approximately 24%, 21%, and 18% of total gross billings. Gross billings is a non-GAAP financial measure. For a reconciliation of net sales to gross billings, see the section titled “Reconciliation of Non-GAAP Financial Measures” below.
Prescription Medicines sales consist of sales of Stendra® in the U.S. for the treatment of male ED. Stendra® is primarily sold directly to three main customers, as described above, which collectively accounted for approximately 94% of Stendra® net sales for the three months ended September 30, 2024. Individually, sales to the three main customers, accounted for 41%, 34%, and 19% of Stendra® gross billings for the three months ended September 30, 2024.
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Medical Device sales consist of domestic and international sales of men’s health products for the treatment of ED. The men’s health products do not require a prescription and include VEDs and related accessories.
Net sales were $98,291 or 6% lower during the three months ended September 30, 2024, compared to the same period in 2023 consisting of a $67,697 decrease in the net sales of Stendra® and a $30,594 decrease in Medical Device Sales. The decrease in net sales of Stendra® was substantially due to decreased wholesaler sales due to decreased demand and decreased related sales allowances stemming from a reduction in promotional activities. The decrease in net sales for Medical Devices was substantially due to decrease in domestic sales of VED systems.
Cost of Sales
Cost of sales for the three months ended September 30, 2024, were $287,005, composed of $48,707 of cost of sales for our Prescription Medicines segment and $238,298 for our Medical Devices segment.
Cost of sales for the three months ended September 30, 2023, were $408,475, composed of $85,388 of cost of sales for our Prescription Medicines segment and $323,087 for our Medical Devices segment.
Cost of sales for the Prescription Medicine segment for the three months ended September 30, 2024, consisted of an 11% benefit in third-party product cost of sales, 88% royalty expenses, and 23% 3PL order fulfillment and shipping expenses.
Cost of sales for the Medical Device segment for the three months ended September 30, 2024, consisted of 80% raw materials and 20% production labor.
Cost of sales decreased by $121,470 or 30% during the three months ended September 30, 2024, compared to the same period in 2023. For the three months ended September 30, 2024, and September 30, 2023, cost of sales as a percentage of net sales was 18% and 24%, respectively. The decrease in cost of sales as a percentage of net sales was primarily the result of fully reserved inventory being sold through during the three months ended September 30, 2024, compared to the same period in 2023.
Gross Profit
Gross profit for the three months ended September 30, 2024, was $1,289,361 or 82%, composed of $809,356 of gross profit from Prescription Medicines and $480,005 from Medical Devices. Gross profit for the three months ended September 30, 2023, was $1,266,182, or 76% of net sales, composed of $840,371 of gross profit from Prescription Medicines and $425,811 from Medical Devices. The increase in gross profit was driven by the factors noted above.
Operating Expenses
Selling, general and administrative
Selling, general and administrative expenses for the three months ended September 30, 2024, were $2,301,305, composed of $471,669 of selling, general and administrative expenses of our Prescription Medicines segment, $600,565 of selling, general and administrative expenses of our Medical Devices segment and $1,229,071 of general corporate expenses.
Selling, general and administrative expenses for the three months ended September 30, 2023, were $2,001,935, composed of $251,674 of selling, general and administrative expenses of our Prescription Medicines segment, $493,447 of selling, general and administrative expenses of our Medical Devices segment and $1,256,814 of general corporate expenses.
Selling, general and administrative expenses for both segments include selling, marketing and regulatory expenses. Unallocated general corporate expenses include costs that were not specific to a particular segment but are general to the group, including expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses.
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Selling, general and administrative expenses increased by $299,370 or 15% during the three months ended September 30, 2024, compared to the same period in 2023. Increased selling general and administrative expenses were primarily driven by a waiver of FY 23 PDUFA fees by the FDA resulting in a $312,551 increase in PDUFA expense and increased franchise taxes of $121,205 and increased other operating expenses of $5,774 partially offset by decreased insurance expenses of $57,096, decreased professional service fees of $52,224 and decreased stock-based compensation expense of $30,840.
Warrant issuance costs
For the three months ended September 30, 2024, and September 30, 2023, respectively, the Company recorded warrant issuance costs of $0 and $2.9 million associated with the Private Placement.
Research and development
Research and development expenses for the three months ended September 30, 2024, were $588,355, composed of $588,355 for our Prescription Medicines segment and $0 for our Medical Devices segment, respectively.
Research and development expenses for the three months ended September 30, 2023, were $389,093, composed of $369,505 for our Prescription Medicines segment and $19,588 for our Medical Devices segment, respectively.
Research and development expenses for the Prescription Medicines segment for the three months ended September 30, 2024, are composed of $463,527 for clinical development, $119,265 for consulting fees, and $5,563 for legal fees related to the Company’s OTC Strategies related to Stendra®. Research and development expenses for the Prescription Medicines segment for the three months ended September 30, 2023, are composed of $187,911 for clinical development and $181,594 for consulting fees related to the Company’s OTC Strategies related to Stendra®.
Research and development expenses for the Medical Devices segment for the three months ended September 30, 2024, were $0. Research and development expenses for the Medical Devices segment for the three months ended September 30, 2023, are composed of $19,588 for license fees related to the Company’s Tissue-Specific Oxygenation Sensor Technology Strategies.
Research and development expenses increased by $199,262 or 51% during the three months ended September 30, 2024, compared to the same period in 2023. Increased research and development expenses were primarily driven by increased clinical development expenses and consulting fees related to the Company’s OTC strategies related to Stendra®.
Depreciation and amortization
Depreciation and amortization expenses for the three months ended September 30, 2024, were $739,449, composed of $521,597 of depreciation and amortization expenses of our Prescription Medicines segment and $217,852 of depreciation and amortization expenses of our Medical Devices segment.
Depreciation and amortization expenses for the three months ended September 30, 2023, were $826,795, composed of $575,470 of depreciation and amortization expenses of our Prescription Medicines segment and $251,325 of depreciation and amortization expenses of our Medical Devices segment.
Prescription Medicines depreciation and amortization consists primarily of the amortization of the intangible assets related to Stendra® over its estimated useful life of 10 years. Medical Devices depreciation and amortization primarily consists of the amortization of the intangible assets related to Timm Medical and PTV over their estimated useful life of 12 years. The decrease in total depreciation and amortization results from the use of the accelerated method of amortization.
Change in fair value of derivative liability
For the three months ended September 30, 2024, the Company recorded a gain of $0.2 million for the change in fair value of the derivative liability compared to a loss of $0.4 million for the three months ended September 30, 2023. The gains and losses related to the change in the fair value of a derivative liability established for certain bifurcated features of the Series A Preferred Stock issued in the Private Placement (as defined herein).
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Change in fair value of warrant liability
For the three months ended September 30, 2024, and September 30, 2023, respectively, the Company recorded a gain of $0 and $11.7 million for the change in fair value of the warrant liability. The gain related to the decrease in the fair value of warrants issued in the Private Placement (as defined herein) which were classified as liabilities in accordance with ASC 815.
Interest Income
Interest income for the three months ended September 30, 2024, and 2023, was $75,817 and $168,481, respectively. Petros invested its cash in money market securities during 2024 and 2023.
Interest Expense, Promissory Note
In January 2022, the Company executed a promissory note in favor of Vivus with a principal amount of $10,201,758 in connection with the Vivus Settlement Agreement. Interest expense, promissory note for the three months ended September 30, 2024, and 2023, was $158,730 and $131,351, respectively.
Loss on issuance of Series A Preferred Stock
As the fair value of the liabilities required to be subsequently measured at fair value exceeded the net proceeds received, for three months ended September 30, 2023, the Company recognized the excess of the fair value over the net proceeds received as a loss upon issuance of preferred stock of $11.1 million, which is included in other income (expense) in the condensed consolidated statement of operations. No similar losses were recognized during the three months ended September 30, 2024, as no such issuances of this nature occurred.
Liquidity and Capital Resources
General
Cash totaled $3,894,685 at September 30, 2024, compared to $13,336,975 at December 31, 2023.
The Company has experienced net losses and negative cash flows from operations since inception. As of September 30, 2024, we had cash of $3.9 million, negative working capital of $1.8 million, and an accumulated deficit of $103.9 million. The Company’s plans include, or may include, utilizing cash on hand, as well as exploring additional ways to raise capital in addition to increasing cash flows from operations. In January 2022, the Company executed a promissory note in favor of Vivus in connection with the Vivus Settlement Agreement in the principal amount of $10,201,758, net of a prepayment of $900,000. The terms of this promissory note are discussed in the section titled “Vivus Settlement Agreement, Promissory Note and the Security Agreement” above.
To date, the Company’s principal sources of capital used to fund operations have been the revenues from product sales, private sales, registered offerings and private placements of equity securities. The Company does not currently have sufficient available liquidity to fund its operations for at least the next 12 months. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these interim unaudited condensed consolidated financial statements are issued.
July 2023 Private Placement
On July 13, 2023, the Company entered into the Purchase Agreement with certain accredited investors (the “Investors”), pursuant to which the Company agreed to sell in a private placement to the Investors (i) an aggregate of 15,000 shares of the Company’s newly-designated Series A Preferred Stock initially convertible into up to 6,666,668 shares of the Company’s common stock at an initial conversion price of $2.25 per share and (ii) warrants to acquire up to an aggregate of 6,666,668 shares of common stock (the “Warrants”) at an initial exercise price of $2.25 per share (collectively, the “Private Placement”). Pursuant to the terms of the Certificate of Designations and the Warrants, each of the Conversion Price (as defined below) and the exercise price and the number of shares underlying the Warrants is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of common stock, or securities convertible, exercisable or exchangeable for common stock, at a price below the then-applicable Conversion Price (subject to certain exceptions). As of September 30, 2024, the Conversion Price and the exercise price of the Warrants was equal to $2.25 per share.
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Series A Preferred Stock
The terms of the Series A Preferred Stock are as set forth in the form of Certificate of Designations. The Series A Preferred Stock is convertible into shares of common stock (the “Conversion Shares”) at the election of the holder at any time at an initial conversion price of $2.25 (the “Conversion Price”). The Conversion Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of common stock, or securities convertible, exercisable or exchangeable for common stock, at a price below the then-applicable Conversion Price (subject to certain exceptions). The Company is required to redeem the Series A Preferred Stock in 13 equal monthly installments, commencing on November 1, 2023. The amortization payments due upon such redemptions are payable, at the Company’s election, in cash at 107% of the Installment Redemption Amount (as defined in the Certificate of Designations), or subject to certain limitations, in shares of common stock valued at the lower of (i) the Conversion Price then in effect and (ii) the greater of (A) 80% of the average of the three lowest closing prices of the common stock during the thirty trading day period immediately prior to the date the amortization payment is due or (B) $0.396 or such lower amount as permitted, from time to time, by the Nasdaq Stock Market, subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events. The Company may require holders to convert their Series A Preferred Stock into Conversion Shares if the closing price of the Common stock exceeds $6.75 per share (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events) for 20 consecutive trading days and the daily dollar trading volume of the common stock exceeds two million dollars ($2,000,000) per day during the same period and certain equity conditions described in the Certificate of Designations are satisfied.
The holders of the Series A Preferred Stock are entitled to dividends of 8% per annum, compounded monthly, which are payable at the Company’s option, in cash or shares of common stock, or in combination thereof, in accordance with the terms of the Certificate of Designations. On September 29, 2023, the Company filed an amendment to the Certificate of Designations with the Secretary of State of the State of Delaware, pursuant to which the terms of the Series A Preferred Stock were amended to permit certain additional procedures for the payment of redemptions and conversions Upon the occurrence and during the continuance of a Triggering Event (as defined in the Certificate of Designations), the Series A Preferred Stock will accrue dividends at the rate of 15% per annum.
On October 11, 2024, the Company entered into an Amendment Agreement with the Required Holders (as defined in the Certificate of Designations), pursuant to which, the Required Holders agreed to amend the Certificate of Designations of the Company’s Series A Preferred Stock, as described below, by filing a Certificate of Amendment to the Certificate of Designations with the Secretary of State (the “October 2024 Certificate of Amendment”). The October 2024 Certificate of Amendment amends the Certificate of Designations to, among other things, provide that, except as required by applicable law, the holders of the Series A Preferred Stock will be entitled to vote with holders of the common stock on an as converted basis, with the number of votes to which each holder of Series A Preferred Stock is entitled to be determined by dividing the Stated Value by a conversion price equal to $2.25 per share, which was the “Minimum Price” (as defined in Nasdaq Listing Rule 5635(d)) applicable immediately before the execution and delivery of the Purchase Agreement, subject to certain beneficial ownership limitations and adjustments for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions, as set forth in the Certificate of Designations. The October 2024 Certificate of Amendment was filed with the Secretary of State of the State of Delaware, effective as of October 11, 2024.
On November 13, 2024, the Company entered into an Amendment Agreement with the Required Holders (as defined in the Certificate of Designations), pursuant to which, the Required Holders agreed to (i) amend the Certificate of Designations of the Company’s Series A Preferred Stock, as described below, by filing a Certificate of Amendment to the Certificate of Designations (the “November 2024 Certificate of Amendment”) with the Secretary of State of the State of Delaware, (ii) defer any payment amounts that have accrued and that are unpaid as of November 13, 2024 pursuant to the Certificate of Designations, to January 15, 2025, and (iii) waive any breach or violation of the Purchase Agreement, the Certificate of Designations, or the Warrants resulting from the Company’s failure to pay such outstanding amounts. The November 2024 Certificate of Amendment amends the Certificate of Designations to, (i) extend the maturity date to January 15, 2025, (ii) modify the schedule of Installment Dates (as defined in the Certificate of Designations), and (iii) adds an additional restrictive covenant to the Certificate of Designations requiring the Company from November 13, 2024 until January 15, 2025, to maintain unencumbered, unrestricted cash and cash equivalents on hand in amount equal to at least $1,500,000. The November 2024 Certificate of Amendment was filed with the Secretary of State of the State of Delaware, effective as of November 13, 2024.
During the nine months ended September 30, 2024, the Company has redeemed or converted approximately 8,983 shares of Series A Preferred Stock and issued 6,563,523 shares of common stock pursuant to the terms of the Certificate of Designations.
There is no established public trading market for the Series A Preferred Stock and the Company does not intend to list the Series A Preferred Stock on any national securities exchange or nationally recognized trading system.
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Warrants
The Warrants became exercisable for shares of common stock (the “Warrant Shares”) immediately upon issuance, at an initial exercise price of $2.25 per share (the “Exercise Price”) and expire five years from the date of issuance. The Exercise Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment, on a “full ratchet” basis, in the event of any issuances of common stock, or securities convertible, exercisable or exchangeable for common stock, at a price below the then-applicable Exercise Price (subject to certain exceptions). Upon any such price-based adjustment, the number of Warrant Shares issuable upon exercise of the Warrants will be increased proportionately. There is no established public trading market for the Warrants and the Company does not intend to list the Warrants on any national securities exchange or nationally recognized trading system.
On March 21, 2024, the Company entered into a Waiver and Amendment with the Investors in the Private Placement, effective as of December 31, 2023. The Waiver and Amendment amended certain terms of the Warrants relating to the rights of the holders of the Warrants to provide that, in the event of a Fundamental Transaction (as defined in the Warrants) that is not within the Company’s control, including not approved by the Company’s Board of Directors, the holder of a Warrant shall only be entitled to receive from the Company or any successor entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of such Warrant, that is being offered and paid to the holders of the Company’s common stock in connection with the Fundamental Transaction.
Debt
Vivus Note
As noted above, in January 2022, the Company executed a promissory note in favor of Vivus with a principal amount of $10,201,758 in connection with the Vivus Settlement Agreement. For more information, see the section above titled “—Vivus Settlement Agreement, Promissory Note and the Security Agreement.”
Cash Flows
The following table summarizes the Company’s cash flows for the nine months ended September 30, 2024, and 2023:
For the Nine Months Ended September 30, | ||||||
| 2024 |
| 2023 | |||
Net cash used in operating activities | $ | (3,568,456) | $ | (5,366,635) | ||
Net cash used in investing activities |
| (19,138) | — | |||
Net cash provided by (used in) financing activities |
| (5,854,696) |
| 13,910,320 | ||
Net increase (decrease) in cash | $ | (9,442,290) | $ | 8,543,685 | ||
Cash Flows from Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2024, was $3,568,456, which primarily reflected the Company’s net loss of $5,045,350, in addition to noncash adjustments to reconcile net loss to net cash used in operating activities of $824,807 consisting primarily of depreciation and amortization and change in the fair value of derivative liability, the Company also had changes in operating assets and liabilities of $2,301,701 largely driven by accrued product returns provision and API.
Net cash used in operating activities for the nine months ended September 30, 2023, was $5,366,635 which primarily reflected our net loss of $8,481,338, in addition to noncash adjustments to reconcile net loss to net cash used in operating activities of $4,231,207 consisting primarily of depreciation and amortization, costs associated with the Private Placement, and changes in operating assets and liabilities of $1,116,504.
Cash Flows from Investing Activities
Net cash used in investing activities was $19,138 for the nine months ended September 30, 2024, consisting of $19,138 for the purchase of office equipment for use in the Medical Device segment.
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Cash Flows from Financing Activities
Net cash used in financing activities was $5,854,696 for the nine months ended September 30, 2024, consisting of $5,089,417 of redemptions of Series A Preferred Stock and $765,279 of principal payments of the promissory note.
Net cash provided by financing activities was $13,910,320 for the nine months ended September 30, 2023, consisted of the gross proceeds of the Private Placement, offset by payments of the promissory note.
Off-Balance Sheet Commitments and Arrangements
The Company has not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. The Company has not entered into any derivative contracts that are indexed to the Company’s shares and classified as stockholder’s equity or that are not reflected in the Company’s financial statements included in this Quarterly Report on Form 10-Q. Furthermore, the Company does not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. The Company does not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure utilized by management to evaluate the Company’s performance on a comparable basis. The Company believes that Adjusted EBITDA is useful to investors as a supplemental way to evaluate the ongoing operations of the Company’s business as Adjusted EBITDA may enhance investors’ ability to compare historical periods as it adjusts for the impact of financing methods, tax law and strategy changes, and depreciation and amortization and to evaluate the Company’s ability to service debt. In addition, Adjusted EBITDA is a financial measurement that management and the Company’s Board of Directors use in their financial and operational decision-making and in the determination of certain compensation programs. Adjusted EBITDA is a non-GAAP financial measure commonly used in the Company’s industry and should not be construed as an alternative to net income as an indicator of operating performance (as determined in accordance with GAAP). The Company’s presentation of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
Adjusted EBITDA is adjusted to exclude certain items that affect comparability. The adjustments are itemized in the tables below. You are encouraged to evaluate these adjustments and the reason the Company considers them appropriate for supplemental analysis. In evaluating adjustments, you should be aware that in the future the Company may incur expenses that are the same as or similar to some of the adjustments set forth below. The presentation of these adjustments should not be construed as an inference that future results will be unaffected by unusual or recurring items.
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The Company defines Adjusted EBITDA as net income (loss) adjusted to exclude (i) interest expense, net, (ii) depreciation and amortization and (iii) income taxes, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of its ongoing operating performance or that are non-recurring in nature. For example, Adjusted EBITDA:
| ● | does not reflect the Company’s capital expenditures, future requirements for capital expenditures or contractual commitments; |
| ● | does not reflect changes in, or cash requirements for, the Company’s working capital needs; |
| ● | does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company’s debt; and |
| ● | does not reflect payments related to income taxes, if applicable. |
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for the three and nine months ended September 30, 2024, and 2023:
For the Nine Months Ended | For the Three Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Net Loss | $ | (5,045,350) | $ | (8,481,338) | $ | (2,220,661) | $ | (4,549,508) | ||||
Interest income |
| (347,028) |
| (287,722) | (75,817) | (168,481) | ||||||
Interest expense, promissory note |
| 393,450 |
| 410,317 | 158,730 | 131,351 | ||||||
Depreciation and amortization expense |
| 2,175,126 |
| 2,480,385 | 739,449 | 826,795 | ||||||
EBITDA |
| (2,823,802) |
| (5,878,358) | (1,398,299) | (3,759,843) | ||||||
Stock based compensation | 197,215 | 204,492 | — | 30,840 | ||||||||
Change in fair value of derivative liability | (3,550,000) | 430,000 | (202,000) | 430,000 | ||||||||
Change in fair value of warrant liability | — | (11,739,000) | — | (11,739,000) | ||||||||
Loss on issuance of Series A Preferred Stock |
| — |
| 11,088,997 | — | 11,088,997 | ||||||
Adjusted EBITDA | $ | (6,176,587) | $ | (5,893,869) | $ | (1,600,299) | $ | (3,949,006) | ||||
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of the Company’s results as reported under GAAP.
Gross Billings
Gross billings is a non-GAAP financial measure utilized as a key performance metric by management and the Company’s Board of Directors in their financial and operational decision-making as well as for the preparation of the annual budget. The Company believes that gross billings is useful to investors as a supplemental way to provide an alternative measure of the total demand for the products sold by the Company. Gross billings is a non-GAAP financial measure commonly used in the Company’s industry and should not be construed as an alternative to net sales as an indicator of operating performance (as determined in accordance with GAAP). The Company’s presentation of gross billings may not be comparable to similarly titled measures reported by other companies.
Gross billings is adjusted to exclude certain items that affect comparability. The adjustments are itemized in the tables below. You are encouraged to evaluate these adjustments and the reason the Company considers them appropriate for supplemental analysis. In evaluating adjustments, you should be aware that in the future the Company may incur expenses that are the same as or similar to some of the adjustments set forth below. The presentation of these adjustments should not be construed as an inference that future results will be unaffected by unusual or recurring items.
The Company defines gross billings as the amount of its aggregate sales billed to customers at standard prices before the application of certain adjustments that reduce the net amount received from customers, including product returns, certain rebates and coupon redemptions, discounts and fees.
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The following table presents a reconciliation of net sales to gross billings for the three and nine months ended September 30, 2024, and 2023:
For the Three Months Ended | For the Nine Months Ended | |||||||||||
September 30 | September 30 | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Net Sales | $ | 1,576,366 | $ | 1,674,657 | $ | 4,386,640 | $ | 6,186,638 | ||||
Product Returns | 354,759 |
| 516,440 | 1,157,728 |
| 1,290,465 | ||||||
Contract Rebates | 232,956 |
| 225,085 | 707,957 |
| 1,037,271 | ||||||
Chargebacks | 58,300 |
| 42,190 | 168,419 |
| 118,490 | ||||||
Cash Discounts | 35,445 |
| 36,266 | 101,940 |
| 125,679 | ||||||
Distribution Service Fees | 231,677 |
| 216,234 | 803,249 |
| 678,857 | ||||||
Coupon Redemptions | 105,982 |
| 146,626 | 337,982 |
| 1,176,562 | ||||||
Gross Billings | $ | 2,595,485 | $ | 2,857,498 | $ | 7,663,915 | $ | 10,613,962 | ||||
Gross billings has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of the Company’s results as reported under GAAP.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this Quarterly Report on Form 10-Q, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed by us under the Exchange Act is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
A material weakness is a control deficiency (within the meaning of Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5) or combination of control deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. As disclosed in Part II Item 9A Controls and Procedures in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, we identified a material weaknesses in internal control related to (1) Petros has an insufficient level of monitoring and oversight controls and does not enforce the implementation of key controls reflected on its internal control process matrices; (2) the sizes of Petros’ accounting and IT departments make it impracticable to achieve an appropriate segregation of duties; and (3) Petros does not have appropriate IT access related controls.
Management plans to expand the scope of its remediation of its internal controls over financial reporting at the consolidated level and has developed a plan to address the remediation of the foregoing deficiencies. Petros’ remediation efforts are ongoing and it will continue its initiatives to implement and document policies, procedures, and internal controls. The remediation efforts include the implementation of additional controls to ensure all risks have been addressed. Management is further emphasizing compliance with existing internal controls. The Company has continued to utilize an external consultant to assist in the remediation of the deficiencies.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and
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instances of fraud, if any, have been detected. Management believes that the financial statements included in this Quarterly Report on Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than as noted above.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of business.
The information set forth in Note 14 Commitments and Contingencies of the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q is incorporated by reference herein.
ITEM 1A. RISK FACTORS.
The following description of risk factors includes any material changes to, and supersedes the description of, risk factors associated with our business, financial condition and results of operations previously disclosed in “Item 1A. Risk Factors” of our 2023 Form 10-K. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in our annual report, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results, and stock price.
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Quarterly Report on Form 10-Q. The following information should be read in conjunction with the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.
We defaulted on certain covenants included in the Note with Vivus that could result in the acceleration of the related debt or the exercise of other remedies.
On October 1, 2024, we failed to make the payment due pursuant to the Note and related Security Agreement in the amount of $0.5 million, constituting an event of Default (as defined in the Note) under the Note and Security Agreement. The outstanding principal amount on the Note, plus accrued and unpaid interest thereon, was $7.2 million as of September 30, 2024.
Borrowings under the Note and Security Agreement are secured by the Company’s Stendra® API and products and the Company’s rights under the License Agreement (the “Collateral”). Pursuant to the Note, upon and at all times after the occurrence of any Event of Default, all principal outstanding under the Note will bear increased interest at a rate of 9% per year until the full and final payment of all principal and interest under the Note is paid (regardless of whether any default is waived or cured). Further, Vivus, at its option, may declare any or all amounts owing under the Note (whether principal, interest, or otherwise), to be due and payable, and, subject to the terms of the Security Agreement, foreclose on the Collateral. If the Note is placed in the hands of any attorney for collection, or if it is collected through any legal proceeding at law or in equity or in bankruptcy, receivership, or other court proceedings, the Company will also be required to pay all costs of collection including, but not limited to, court costs and attorneys’ fees. Any such actions could further impair our ability to operate our business and may result in the loss of key assets necessary for our operations. If we are unable to cure the default, obtain a waiver, or restructure the terms of the Note, we may be forced to seek additional financing on unfavorable terms, restructure our operations, or pursue other alternatives, including bankruptcy.
If we fail to comply with the continued listing requirements of the Nasdaq Capital Market, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.
Our common stock is currently listed for trading on The Nasdaq Capital Market. We must satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price of $1.00 per share or risk delisting, which would have a material adverse effect on our business. A delisting of our common stock from The Nasdaq Capital Market could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities.
On November 12, 2024, the Company received notice from the Staff granting the Company’s request for a 180-day extension to regain compliance with the Rule, or, until May 12, 2025 (the “Compliance Period”).
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On May 15, 2024, we received notice from the Listing Qualifications Staff of Nasdaq indicating that, based upon the closing bid price of our common stock for the 30 consecutive business day period between April 3, 2024, through May 14, 2024, we did not meet the minimum bid price of $1.00 per share required for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Rule”). The letter also indicated that we were provided with a compliance period until November 11, 2024in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). In order to regain compliance with Nasdaq’s minimum bid price requirement, the Company’s common stock must maintain a minimum closing bid price of $1.00 for at least ten consecutive business days during the Compliance Period. However, if it appears to Nasdaq that the Company will be unable to cure the deficiency Nasdaq will provide notice that the Company’s common stock will be subject to delisting. There can be no assurance that the Nasdaq staff would grant the Company’s request for continued listing subsequent to any delisting notification. In the event of such a notification, the Company may appeal the Nasdaq staff’s determination to delist its securities.
There is no assurance that we will maintain compliance with such minimum listing requirements. If our common stock were delisted from Nasdaq, trading of our common stock would most likely take place on an over-the-counter market established for unlisted securities, such as the OTCQB or the Pink Market maintained by OTC Markets Group Inc. An investor would likely find it less convenient to sell, or to obtain accurate quotations in seeking to buy, our common stock on an over-the-counter market, and many investors would likely not buy or sell our common stock due to difficulty in accessing over-the-counter markets, policies preventing them from trading in securities not listed on a national exchange or other reasons. In addition, as a delisted security, our common stock would be subject to SEC rules as a “penny stock,” which impose additional disclosure requirements on broker-dealers. The regulations relating to penny stocks, coupled with the typically higher cost per trade to the investor of penny stocks due to factors such as broker commissions generally representing a higher percentage of the price of a penny stock than of a higher-priced stock, would further limit the ability of investors to trade in our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities. For these reasons and others, delisting would adversely affect the liquidity, trading volume and price of our common stock, causing the value of an investment in us to decrease and having an adverse effect on our business, financial condition and results of operations, including our ability to attract and retain qualified employees and to raise capital.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On August 13, 2024, the Company issued 136,986 shares of common stock to Maxim Group LLC (“Maxim”) in connection with a services agreement with Maxim. The Company relied upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder for transactions not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
On September 16, 2024, the Board of Directors of the Company determined that the Company’s 2024 Annual Meeting of Stockholders (the “2024 Annual Meeting”) will be held on Wednesday, November 20, 2024, and that the record date for the determination of stockholders of the Company entitled to receive notice of and to vote at the 2024 Annual Meeting shall be the close of business on October 14, 2024. The time and location of the 2024 Annual Meeting will be as set forth in the Company’s definitive proxy statement for the 2024 Annual Meeting to be filed with the Securities and Exchange Commission.
Due to the fact that the date of the 2024 Annual Meeting has been changed by more than 30 days from the anniversary date of the 2023 Annual Meeting of Stockholders, the Company is providing the due date for submission of any qualified stockholder proposal or qualified stockholder nominations.
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Stockholders of the Company who wish to have a proposal considered for inclusion in the Company’s proxy materials for the 2024 Annual Meeting pursuant to Rule 14a-8 under the Exchange Act, must ensure that such proposal is received by the Company’s President and Chief Commercial Officer, Fady Boctor, at 1185 Avenue of the Americas, 3rd Floor, New York, New York 10036, on or before the close of business on September 29, 2024, which the Company has determined to be a reasonable time before it expects to begin in print and send its proxy materials in accordance with Rule 14a-5(f) and Rule 14a-8(e) under the Exchange Act. Any such proposal must also meet the requirements set forth in the rules and regulations of the Securities and Exchange Commission in order to be eligible for inclusion in the proxy materials for the 2024 Annual Meeting.
In addition, in accordance with the requirements contained in the Company’s amended and restated By-laws (“By-laws”), stockholders of the Company who wish to bring business before the 2024 Annual Meeting outside of Rule 14a-8 of the Exchange Act or to nominate a person for election as a director must ensure that written notice of such proposal (including all information specified in the Company’s By-laws) is received by the Company’s President and Chief Commercial Officer at the address specified above no later than the close of business on September 29, 2024. Any such proposal must meet the requirements set forth in the Company’s By-laws in order to be brought before the 2024 Annual Meeting.
In addition, to comply with the universal proxy rules, stockholders who intend to solicit proxies in support of director nominees other than our nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act by September 29, 2024.
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ITEM 6. EXHIBITS.
Exhibit No. |
| Description |
3.1 | ||
3.2* | ||
10.1* | ||
10.2+ | ||
10.3 | ||
31.1* | Rule 13a-14(a)/15d-14(a) Certification – Principal Executive Officer. | |
31.2* | Rule 13a-14(a)/15d-14(a) Certification – Principal Financial Officer. | |
32** | Section 1350 Certification – Principal Executive Officer and Principal Financial Officer. | |
101 | The following materials from Petros Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Changes in Stockholders’ Equity/Members’ Capital; (iv) Consolidated Statements of Cash Flows; and (v) Notes to the Consolidated Financial Statements. | |
104 | Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101. |
* | Filed herewith. |
** | Furnished herewith. |
+ | Management contract or compensatory plan or arrangement. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Petros Pharmaceuticals, Inc. | ||
Date: November 13, 2024 | By: | /s/ Fady Boctor |
Fady Boctor | ||
Chief Commercial Officer and Principal Executive Officer | ||
Date: November 13, 2024 | By: | /s/ Mitchell Arnold |
Mitchell Arnold | ||
Vice President of Finance and Principal Financial Officer | ||
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