NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
NOTE 1. BACKGROUND AND ORGANIZATION
Business Operations
PLx Pharma Inc., together with its subsidiary PLx Opco Inc., is a specialty pharmaceutical company focusing on commercializing two U.S. Food and Drug Administration (“FDA”) approved, patent-protected lead products, VAZALORE™ 325 mg and VAZALORE™ 81 mg (referred to together as “VAZALORE”), for over-the-counter distribution as the first ever liquid-filled aspirin capsules.
Impact of COVID-19 Pandemic on Financial Statements
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a “pandemic”, or a worldwide spread of a new disease. Many countries imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus and have closed non-essential businesses.
In response to COVID-19, the Company has not experienced a disruption or delay in the development of VAZALORE. However, the extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the pandemic. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company has not experienced any significant negative impact on its June 30, 2021 unaudited consolidated financial statements related to COVID-19.
NOTE 2. LIQUIDITY
The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. The propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient cash from operations and potential other funding sources, in addition to cash on-hand, to meet its obligations as they become due.
The Company has not generated any revenue from the sale of products and has incurred operating losses in each year since it commenced operations. The Company expects to continue to incur significant operating expenses and operating losses for the foreseeable future as the Company continues the commercialization of VAZALORE. As of June 30, 2021, the Company had net working capital of $78.9 million, including cash and cash equivalents of $80.2 million.
Although the achievement of future profitable operations and the ability to generate sufficient cash from operations is uncertain at this time, the Company’s cash on hand at June 30, 2021 supports the belief that the Company can fund its obligations for at least one year from the date these financial statements were issued and mitigates the substantial doubt consideration.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Principles of Consolidation
The accompanying consolidated financial statements are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. The December 31, 2020 consolidated balance sheet included herein was derived from audited consolidated financial statements as of that date. Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim consolidated financial statements are read in conjunction with the audited financial statements and notes previously filed in its Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of management, the unaudited interim consolidated financial statements reflect all the adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company’s financial position as of June 30, 2021 and the results of operations for the three and six months ended June 20, 2021 and 2020.
The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, PLx Opco Inc. All significant intercompany balances and transactions have been eliminated within the consolidated financial statements.
Use of Estimates
The preparation of our unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying unaudited consolidated financial statements, estimates are used for, but not limited to, the impairment assessment of goodwill, the fair value of warrant liability, the fair value of stock-based compensation, allowance for inventory obsolescence, contingent liabilities, fair value and depreciable lives of long-lived assets, and deferred taxes and associated valuation allowance. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. The Company maintains cash and cash equivalents in a financial institution that at times exceeds federally insured limits. Management believes that the Company’s credit risk exposure is mitigated by the financial strength of the banking institution in which the deposits are held. As of June 30, 2021, the Company had cash and cash equivalents of $80.2 million in U.S. bank accounts which were not fully insured by the Federal Deposit Insurance Corporation.
Inventory
Inventory is stated at the lower of cost or net realizable value, using the first-in first-out method based on actual costs. Inventory as of June 30, 2021 and December 31, 2020 was comprised of the following:
Description
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Raw Material
|
|
$
|
129,687
|
|
|
$
|
143,380
|
|
Work-in-Progress
|
|
|
935,194
|
|
|
|
-
|
|
Finished Goods
|
|
|
197,600
|
|
|
|
-
|
|
Total Inventory
|
|
$
|
1,262,481
|
|
|
$
|
143,380
|
|
The Company anticipates sales and initial shipment of inventory to its customers beginning in mid- August 2021. The Company regularly reviews inventory quantities on hand and assesses the need for an allowance for obsolescence based on estimates of net realizable value. No allowance for obsolete inventory was necessary as of June 30, 2021 and December 31, 2020.
Fair Value of Financial Instruments
All financial instruments classified as current assets and liabilities are carried at cost, which approximates fair value, because of the short-term maturities of those instruments. The fair value of the Term Loan (as defined in Note 4) as of December 31, 2020 approximates its face value of $0.6 million based on the Company’s current financial condition and on the variable nature of the Term Loan’s interest feature as compared to current rates. For disclosures concerning fair value measurements, see Note 7.
Leases
At the inception of a contract, the Company determines if the arrangement is, or contains, a lease. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Rent expense is recognized on a straight-line basis over the lease term.
The Company has made certain accounting policy elections whereby the Company (i) does not recognize ROU assets or lease liabilities for short-term leases (those with original terms of 12-months or less) and (ii) combines lease and non-lease elements of its operating leases. Operating lease ROU assets are included in right of use assets and operating lease liabilities are included in other current and non-current liabilities in the Company’s consolidated balance sheets. As of June 30, 2021, the Company did not have any finance leases.
Goodwill
Goodwill is not amortized but is subject to periodic review for impairment. Goodwill is reviewed annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying amount of the goodwill might not be recoverable. Management performs its review of goodwill on its one reporting unit.
The Company performs a one-step test in its evaluation of the carrying value of goodwill, if qualitative factors determine it is necessary to complete a goodwill impairment test. In the evaluation, the fair value of the relevant reporting unit is determined and compared to the carrying value. If the fair value is greater than the carrying value, then the carrying value is deemed to be recoverable, and no further action is required. If the fair value estimate is less than the carrying value, goodwill is considered impaired for the amount by which the carrying amount exceeds the reporting unit’s fair value, and a charge is reported in impairment of goodwill in the Company’s consolidated statements of operations.
The Company has not identified any events or changes in circumstances that indicate that a potential impairment of goodwill occurred during the three and six months ended June 30, 2021 and 2020.
Revenue Recognition
The Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers; (ii) identification of distinct performance obligations in the contract; (iii) determination of contract transaction price; (iv) allocation of contract transaction price to the performance obligations; and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation. The Company recognizes revenues upon the satisfaction of its performance obligations (upon transfer of control of promised goods or services to customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services. Deferred revenue results from cash receipts from or amounts billed to customers in advance of the transfer of control of the promised services to the customer and is recognized as performance obligations are satisfied. When sales commissions or other costs to obtain contracts with customers are considered incremental and recoverable, those costs are deferred and then amortized as selling and marketing expenses on a straight-line basis over an estimated period of benefit.
Through June 30, 2021, the Company’s sole revenue was generated from a cost-reimbursable federal grant with the National Institutes of Health. This federal grant was completed in the second quarter of 2020. The Company recognizes revenue on this grant as grant-related expenses are incurred by the Company or its subcontractors. The Company recognized $0 and $27,907 of revenue under this arrangement during the three months ended June 30, 2021 and 2020, respectively. The Company recognized and $0 and $30,430 of revenue under this arrangement during the six months ended June 30, 2021 and 2020, respectively.
The Company expects to generate revenue from its sales of VAZALORE in the third quarter of 2021 and will account for revenue in accordance with Accounting Standards Codification 606, which requires revenue recognized when control of a promised good is transferred to a customer in an amount that reflects consideration that the company expects to be entitled to in exchange for that good. This occurs either when the finished goods are transferred to a common carrier for delivery to the customer or when a product is picked up by the customer or the customer’s carrier.
Nature of Goods and Services
The Company expects to generate revenue from the sale of its VAZALORE products through a broad distribution platform that includes drugstores, mass merchandisers, supermarkets and e-commerce channels, all of which will sell its products to consumers. Finished goods products will typically be shipped FOB destination and accordingly, the Company will recognize revenue upon delivery to the customer or pick-up by the customer’s carrier.
Satisfaction of Performance Obligations
The Company recognizes revenues upon the satisfaction of its performance obligations (upon transfer of control of promised goods or services to customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services.
Variable Consideration
Provisions for certain customer promotional programs, product returns and discounts to customers are accounted for as variable consideration and recorded as a reduction in sales. An estimate of future returns, and customer prompt payment discounts, redemption of coupons by consumers and trade promotional allowances paid to customers. These allowances cover extensive promotional activities, primarily comprised of cooperative advertising, slotting, coupons, periodic price reduction arrangements, and other in-store displays.
The reserves for sales returns and consumer and trade promotion liabilities are established based on the Company’s best estimate of the amounts necessary to settle future and existing obligations for products sold as of the balance sheet date. The Company uses trend experience and coupon redemption inputs in arriving at coupon reserve requirements and uses forecasted customer and sales organization inputs, and historical trend analysis for consumer brands in determining the reserves for other promotional activities and sales returns.
Cost of Sales
Cost of Sales include costs related to the manufacture and packaging of the Company’s products, charged by our contract manufacturer and packagers. Cost of Sales also includes warehousing costs and inbound and outbound shipping costs, and handling and storage costs.
Selling, Marketing and Administrative
Selling, marketing and administrative expenses (“SM&A”) expenses include costs related to functions such as sales, marketing, corporate management, insurance and legal costs. Broker commissions are incurred and expensed as SM&A costs in the underlying consolidated statements of income when the underlying sales take place. Marketing expenses include costs for advertising (excluding the costs of cooperative advertising programs, which are reflected in net sales), costs for coupon insertion (mainly cost of printing and distributions), consumer promotion costs (such as on-shelf advertisements and displays), package design and market research costs. Marketing costs are expensed as incurred.
The Company has not incurred incremental costs to obtain contracts with customers or material costs to fulfill contracts with customers and did not have any contract assets or liabilities as of June 30, 2021 and December 31, 2020.
Research and Development Expenses
Costs incurred in connection with research and development activities are expensed as incurred. Research and development expenses consist of direct and indirect costs associated with manufacturing and regulatory activities and include fees paid to various entities that perform research-related services for the Company.
Stock-Based Compensation
The Company recognizes expense in its consolidated statements of operations for the fair value of all stock-based compensation to key employees, nonemployee directors and advisors, generally in the form of stock options and stock awards. The Company uses the Black-Scholes option valuation model to estimate the fair value of stock options on the grant date. Compensation cost is amortized on a straight-line basis over the vesting period for each respective award. The Company accounts for forfeitures as they occur.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred income tax assets to the amount expected to be realized.
12
Tax benefits are initially recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions are initially, and subsequently, measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts.
Income (Loss) Per Share
In periods of net loss, basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. The Company’s Series A convertible preferred stock (the “Series A Preferred Stock”) and the Series B convertible preferred stock (the “Series B Preferred Stock” and, together with the Series A Preferred Stock, collectively the “Preferred Stock”) contain non-forfeitable rights to dividends, and therefore are considered to be participating securities; in periods of net income, the calculation of basic earnings per share excludes from the numerator net income attributable to the Preferred Stock and excludes the impact of those shares from the denominator.
In periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all potential dilutive common shares is anti-dilutive. For periods of net income, diluted earnings per share is computed using the more dilutive of the “two class method” or the “treasury method.” Dilutive earnings per share under the “two class method” is calculated by dividing net income available to common stockholders as adjusted for the participating impacts of the Preferred Stock, by the weighted-average number of shares outstanding plus the dilutive impact of all other potential dilutive common shares, consisting primarily of common shares underlying common stock options and stock purchase warrants using the treasury stock method. Dilutive earnings per share under the “treasury method” is calculated by dividing net income available to common stockholders by the weighted- average number of shares outstanding plus the dilutive impact of all potential dilutive common shares, consisting primarily of common shares underlying common stock options and stock purchase warrants using the treasury stock method, and convertible preferred stock using the if-converted method.
Due to net losses, none of the participating securities nor potential dilutive securities had a dilutive impact during the three and six months ended June 30, 2021 and 2020.
The following table sets forth the potentially dilutive securities:
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Stock Options
|
|
|
3,072,297
|
|
|
|
2,065,380
|
|
Warrants
|
|
|
7,557,277
|
|
|
|
2,704,593
|
|
Convertible Preferred Stock
|
|
|
6,476,275
|
|
|
|
9,031,843
|
|
Total Potential Dilutive Shares
|
|
|
17,105,849
|
|
|
|
13,801,816
|
|
Recent Adopted Accounting Standards
In November 2019, the Financial Accounting Standards Board (“FASB”) issued guidance (Accounting Standards Update ("ASU") 2019-12) simplifying the accounting for income taxes by removing the following exceptions: 1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, 2) exception requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and 4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss the year. The amendments also simplify accounting for income taxes by doing the following: 1) requiring that an entity recognize a franchise tax or similar tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, 2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, 3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements, 4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date, and 5) making minor Codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. The guidance is effective for reporting periods beginning after December 15, 2020, including interim periods within that fiscal year. The Company adopted the provisions of ASU 2019-12 on January 1, 2021, and the adoption did not have a material impact on its financial position, results of operations and cash flows.
Unadopted Accounting Standards
In August 2020, the FASB issued ASU 2020-06 Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (subtopic 815-40) that provides new guidance on the accounting for convertible debt instruments and contracts in an entity’s own equity. The guidance simplifies the accounting for convertible instruments by reducing the various accounting models that can require the instrument to be separated into a debt component and equity component or derivative component. Additionally, the guidance eliminated certain settlement conditions previously required to be able to classify a derivative in equity. The new guidance is effective on a modified or full retrospective basis for fiscal years beginning after December 15, 2023, including interim periods with those fiscal years. The Company will evaluate the impact on the consolidated financial statements.
The Company does not believe that any recently issued effective standards, or standards issued but not yet effective, if adopted, would have a material effect on the accompanying unaudited consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the prior-year financial statements to conform to the current-year presentation. These reclassifications had no effect on the reported results of operations.
Subsequent Events
The Company’s management reviewed all material events through the date the unaudited consolidated financial statements were issued for subsequent event disclosure consideration.
NOTE 4. DEBT
Term Loan Facility
On August 9, 2017, the Company entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”) that provides for a Term Loan Facility (the “Term Loan Facility” and all amounts borrowed thereunder, the “Term Loan”). The Company borrowed $7.5 million under the Term Loan. The Term Loan Facility carried interest at a floating rate of 4.0% above the prime rate per annum (for a total interest rate of 7.25% through payment on February 9, 2021), with interest payable monthly. The Term Loan Facility included a final payment fee equal to 8.0% of the original principal amount (“Final Payment Fee”), which was accrued using the effective interest method over the term. All outstanding principal, interest and Final Payment Fee under the Term Loan was due and paid on February 9, 2021. The Term Loan may not be reborrowed.
As of December 31, 2020, $0.6 million of the face value of the Term Loan was outstanding and was presented in the accompanying unaudited consolidated balance sheet net of current unamortized discounts and issuance costs of $2,735. Total interest expense recognized for the three months ended June 30, 2021 and 2020 was $0 and $104,671, respectively. Total interest expense recognized for the six months ended June 30, 2021 and 2020 was $11,177 and $250,499, respectively.
14
NOTE 5. STOCKHOLDERS’ EQUITY
Common Stock
On March 5, 2021, the Company completed an underwritten public offering in which the Company issued and sold 7,875,000 shares of its common stock at a price to the public of $8.00 per share (the "Offering"). Gross proceeds of the Offering were $63 million before deducting underwriting discounts and commissions and other offering expenses payable by the Company and resulted in net proceeds of $59 million after deducting underwriting discounts and commissions and other offering expenses payable by the Company. The underwriters retained a customary 30-day overallotment option to purchase up to 1,181,250 shares of common stock at the public offering price, less underwriting discounts and commission. The overallotment option was exercised on March 16, 2021 for 1,049,700 shares with gross proceeds of $8.4 million and net proceeds of $7.9 million after deducting underwriting discounts and commissions and other offering expenses payable by the Company.
Convertible Preferred Stock
Series A Preferred Stock
In December 2018, the Company entered into a purchase agreement with certain accredited investors for the private placement of $15.0 million of Series A Preferred Stock pending stockholders' approval, which approval was subsequently obtained on February 19, 2019. Accordingly, the Company completed the private placement on February 20, 2019, raising $15.0 million through the issuance of 15,000 shares of Series A Preferred Stock.
The Series A Preferred Stock was issued at $1,000 per share and was initially convertible into common shares at a conversion price of $2.60 per share, subject to certain adjustments. Holders of the Series A Preferred Stock are entitled to an initial dividend rate of 8.0% per annum, which ended on February 26, 2021, the date of the FDA’s approval of the supplemental NDA of VAZALORE 325 mg and VAZALORE 81mg. The dividends were compounded quarterly and payable in cash or shares of Series A Preferred Stock at the Company’s option or, alternatively, the initial conversion price will be adjusted upon conversion to reflect the impact of the accrued dividends. The Series A Preferred Stock carries a liquidation preference equal to its stated value of $1,000 plus accrued and unpaid dividends.
In June 2021, the Series A Preferred Stock holders converted 2,358 shares of Series A Preferred Stock into shares of common stock pursuant to the original terms of the Series A Preferred Stock. Upon conversion, accrued dividends payable of $2.6 million were settled by adjusting the initial conversion price, resulting in a new conversion price of $2.22 per share. The revision of the conversion price resulted in both the recognition and write-off of a contingent beneficial conversion feature in the amount of $2.2 million which is reflected as a deemed dividend which was accounted for as an increase and decrease to additional-paid-in capital in equity due to the Company’s accumulated deficit position. As a result of the conversion, Series A Preferred Stock carrying value was reduced $2.6 million and the Company issued 1,064,517 shares of its common stock to such holders.
As of June 30, 2021, 12,642 shares of Series A Preferred Stock remain outstanding with a conversion price of $2.22 per share. The Series A Preferred Stock is classified as temporary equity due to the presence of certain contingent cash redemption features, and has a carrying value of $13.7 million as of June 30, 2021.
The Company recognized $2,202,687 (or $0.19 per share) and $2,524,958 (or $0.13 per share) of total dividends on the Series A Preferred Stock (including the contingent beneficial conversion feature) during the three and six months ended June 30, 2021. The Company recognized $326,678 (or $0.04 per share) and $646,968 or ($0.07 per share) of total dividends on the Series A Preferred Stock during the three and six months ended June 30, 2020.
Series B Preferred Stock
In March 2020, the Company entered into a purchase agreement with certain accredited investors for the private placement of $8.0 million of Series B Preferred Stock pending stockholders' approval, which approval was subsequently obtained on May 15, 2020. Accordingly, the Company completed the private placement on May 15, 2020, raising $8.0 million through the issuance of 8,000 shares of Series B Preferred Stock. The Series B Preferred Stock was issued at $1,000 per share and is convertible into common shares at a conversion price of $3.10 per share, subject to certain adjustments. Holders of the Series B Preferred Stock are entitled to an initial dividend rate of 8.0% per annum, which ended on February 26, 2021, the date of the FDA’s approval of the supplemental NDA of VAZALORE 325 mg and VAZALORE 81mg. The dividends are compounded quarterly and payable in cash or shares of Series B Preferred Stock at the Company’s option or, alternatively, the initial conversion price will be adjusted upon conversion to reflect the impact of the accrued dividends. The Series B Preferred Stock carries a liquidation preference equal to its stated value of $1,000 plus accrued and unpaid dividends.
In June 2021, certain Series B Preferred Stock holders converted 5,636 shares of Series B Preferred Stock into shares of common stock pursuant to the original terms of the Series B Preferred Stock. Upon conversion, accrued dividends payable of $0.4 million were settled by adjusting the initial conversion price, resulting in a new conversion price of $2.91 per share for those holders (the conversion price for holders that did not convert shares remains at $3.10 per share). As a result of the conversion, Series B Preferred Stock carrying value was reduced by $5.8 million and the Company issued 1,935,483 shares of its common stock to such holders.
As of June 30, 2021, 364 shares of Series B Preferred Stock remain outstanding with a conversion price of $2.91 per share and 2,000 shares remain outstanding with a conversion price of $3.10 per share. The Series B Preferred Stock is classified as temporary equity due to the presence of certain contingent cash redemption features, and has a carrying value of $2.3 million as of June 30, 2021.
The Company recognized $0 (or $0.00 per share) and $105,065 (or $0.005 per share) of total dividends on the Series B Preferred Stock during the three and six months ended June 30, 2021. The Company recognized $80,657 (or $0.01 per share) of total dividends on the Series B Preferred Stock during the three and six months ended June 30, 2020.
Warrants
In June 2017, the Company issued stock purchase warrants to purchase 2,646,091 shares of common stock at an exercise price of $7.50 per share. The warrants, exercisable beginning six months and one day after issuance, have a 10-year term and are liability classified due to the holders’ right to require the Company to repurchase the warrants for cash upon certain deferred fundamental transactions. See Note 7 for the fair value measurement of the warrant liability.
In connection with the entry into the Term Loan Facility, the Company issued to SVB and one of its affiliates stock purchase warrants to purchase an aggregate of 58,502 shares of the Company’s common stock at an exercise price of $6.41 per share. These warrants are immediately exercisable, have a 10-year term, contain a cashless exercise provision, and are classified in equity.
In November 2020, the Company issued warrants to purchase 5,230,910 shares of common stock which have an exercise price of $4.31 per share, contain a cashless exercise provision, will expire five years from the date of issuance and are equity classified.
During the second quarter of 2021, holders of 168,226 of the June 2017 warrants and 210,000 of the November 2020 warrants exercised the warrants pursuant to their original terms. As a result of the warrants exercised, 131,862 of the warrans were exercised on a cashless basis and 246,364 for $1.2 million in cash, additional-paid-in-capital was increased $3.0 million and the Company issued an aggregate of 308,675 shares of common stock upon exercise of such warrants.
Following is a summary of warrant activities for the six months ended June 30, 2021:
Description
|
|
Outstanding
@ 12/31/2020
|
|
|
Exercised
|
|
|
Outstanding
@ 6/30/21
|
|
|
Exercise
Price
|
|
2017 Warrants
|
|
|
2,646,091
|
|
|
|
(168,226
|
)
|
|
|
2,477,865
|
|
|
$
|
7.50
|
|
2020 Warrants
|
|
|
5,230,910
|
|
|
|
(210,000
|
)
|
|
|
5,020,910
|
|
|
$
|
4.31
|
|
SVB Warrants
|
|
|
58,502
|
|
|
|
|
|
|
|
58,502
|
|
|
$
|
6.41
|
|
Total Warrants
|
|
|
7,935,503
|
|
|
|
(378,226
|
)
|
|
|
7,557,277
|
|
|
|
|
|
Stock Options
Following is a summary of stock option activities for the six months ended June 30, 2021:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding, December 31, 2020
|
|
|
2,979,047
|
|
|
$
|
9.35
|
|
|
|
7.84
|
|
|
$
|
2,074,0150
|
|
Granted
|
|
|
102,000
|
|
|
$
|
9.04
|
|
|
|
|
|
|
|
|
|
Exercised, cancelled, or forfeited
|
|
|
(8,750
|
)
|
|
$
|
81.28
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2021
|
|
|
3,072,297
|
|
|
$
|
9.14
|
|
|
|
7.45
|
|
|
$
|
21,567,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2021
|
|
|
1,486,847
|
|
|
$
|
13.73
|
|
|
|
5.70
|
|
|
$
|
7,318,425
|
|
On September 13, 2018, the Company’s stockholders approved the 2018 Incentive Plan (the “2018 Plan”). The 2018 Plan provides that the Company may grant equity interests to employees, consultants, and members of the Board of Directors in the form of incentive and nonqualified stock options, restricted stock and restricted stock units, stock appreciation rights and various other forms of stock-based awards. On September 23, 2020, the Board of Directors approved an amendment to the 2018 Plan to increase the number of shares of the Company’s common stock issuable under the 2018 Plan by 1,750,000 shares (the “Plan Amendment”), subject to stockholder approval. On November 10, 2020, the Company held its 2020 annual meeting of stockholders at which the Company’s stockholders approved the Plan Amendment. There are 3,000,000 shares authorized to be issued pursuant to the 2018 Plan, of which 855,650 shares remain available for issuance.
The Company granted 102,000 options during the six months ended June 30, 2021 with an aggregate fair value of $0.7 million calculated using the Black-Scholes model on the grant date. Variables used in the Black-Scholes model include: (1) discount rate ranging from 0.6% - 1.1%, (2) expected life of 6.0 years, (3) expected volatility ranging from of 87%-90%, and (4) zero expected dividends. As of June 30, 2021, the Company had $4.4 million in unamortized expense related to unvested options which is expected to be expensed over a weighted average of 2.1 years.
During the three months ended June 30, 2021 and 2020, the Company recorded $557,583 and $269,578, respectively, in total stock-based compensation expense related to the stock options. During the six months ended June 30, 2021 and 2020, the Company recorded $1,131,305 and $542,115, respectively, in total stock-based compensation expense related to the stock options. Substantially all stock-based compensation expense is classified as administrative expenses in the accompanying unaudited consolidated statements of operations.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Lease Agreements
The Company presently leases office space under operating lease agreements, expiring in July 2021, September 2023, and June 2024. The office leases require the Company to pay for its portion of taxes, maintenance, and insurance. Rental expense under these agreements was $89,849 and $87,601 for the three months ended June 30, 2021 and 2020, respectively, and was $177,885 and $175,203 for the six months ended June 30, 2021 and 2020, respectively.
In the second quarter of 2021, the Company renewed its headquarters office lease through September 2023. The modification resulted in an increase in its ROUassets and lease liabilities of $0.1 million, using a discount rate of 7.25%.
All of the Company’s existing leases as of June 30, 2021 are classified as operating leases and have a weighted average remaining lease term of 2.4 years. Certain of the Company’s existing leases have fair value renewal options, none of which the Company considers certain of being exercised or included in the minimum lease term. The discount rate used in the calculation of the Company’s lease liability ranges from 7.25% to 9.50%. In addition, the Company is the lessor for office space in New York that it sublets to a tenant; the sublease expires in 2021.
Lease costs, net of sublease income, for the six months ended June 30, 2021 consisted of the following:
|
|
|
|
|
Operating lease cost
|
|
$
|
89,849
|
|
Sublease income
|
|
|
(62,083
|
)
|
Total lease costs
|
|
$
|
27,766
|
|
A maturity analysis of the Company’s operating leases follows:
Future undiscounted cash flows:
|
|
|
|
|
2021
|
|
|
87,218
|
|
2022
|
|
|
132,231
|
|
2023
|
|
|
113,823
|
|
2024
|
|
|
30,132
|
|
Total
|
|
|
363,404
|
|
|
|
|
|
|
Discount factor
|
|
|
(36,897
|
)
|
Lease liability
|
|
|
326,507
|
|
Current lease liability
|
|
|
(132,036
|
)
|
Non-current lease liability
|
|
$
|
194,471
|
|
Purchase Commitments
As of July 15, 2021, the Company has entered commitments of $5.0 million for various media-related spending on VAZALORE which is expected to be paid during the remainder of 2021.
The Company has supply agreements with its contract manufacturer and packager for VAZALORE which contain minimum annual purchase commitments starting in 2021 and continuing through 2025. The minimum annual purchase commitments are intended to ensure that manufactured product is available when required to enable the Company to meet its expected market demand for VAZALORE.
NOTE 7. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received in the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has categorized all investments recorded at fair value based upon the level of judgment associated with the inputs used to measure their fair value.
Hierarchical levels, directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
|
●
|
Level 1: Quoted prices in active markets for identical assets or liabilities that the organization has the ability to access at the reporting date.
|
|
●
|
Level 2: Inputs other than quoted prices included in Level 1, which are either observable or that can be derived from or corroborated by observable data as of the reporting date.
|
|
●
|
Level 3: Inputs include those that are significant to the fair value of the asset or liability and are generally less observable from objective resources and reflect the reporting entity’s subjective determinations regarding the assumptions market participants would use in pricing the asset or liability.
|
Financial assets and liabilities measured at fair value on a recurring basis
The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs used in determining fair value and where such inputs lie within the hierarchy.
The stock purchase warrants issued in June 2017 contain certain cash settlement features and, accordingly, the Company considered them to be liabilities and accounted for them at fair value using Level 3 inputs. The Company determined the fair value of this warrant liability using a binomial asset pricing model that consisted of a conditional probability weighted expected return method that values the Company’s equity securities assuming various possible future outcomes to estimate the allocation of value within one or more of the scenarios. Using this method, unobservable inputs included the Company’s equity value, expected timing of possible outcomes, risk free interest rates and stock price volatility. Variables used at June 30, 2021 include: (1) the Company stock price of $13.80, (2) the risk-free rate of 1.03%, (3) remaining expected life of 5.95 years, and (4) expected volatility of 90%.
The Series A Preferred Stock and the Series B Preferred Stock both contain a contingent put option and, accordingly, the Company considered the put options to be liabilities and accounted for them at fair value using Level 3 inputs. The Company determined the fair value of these liabilities was de minimis at issuance and as of June 30, 2021, due to the remote possibly of its occurrence, a Level 3 unobservable input.
The following table sets forth a summary of changes in the fair value of Level 3 liabilities measured at fair value on a recurring basis for the three and six months ended June 30, 2021:
Description
|
|
Balance at
March 31,
2021
|
|
|
Established
in 2021
|
|
|
Change in
Fair Value
|
|
|
Balance at
June 30,
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
17,626,158
|
|
|
$
|
(1,862,916
|
)
|
|
$
|
10,028,175
|
|
|
$
|
25,791,417
|
|
Description
|
|
Balance at
December 31,
2020
|
|
|
Established
in 2021
|
|
|
Change in
Fair Value
|
|
|
Balance at
June 30,
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
9,691,271
|
|
|
$
|
(1,862,916
|
)
|
|
$
|
17,963,062
|
|
|
$
|
25,791,417
|
|
The following table identifies the carrying amounts of such liabilities at June 30, 2021 and December 31, 2020:
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25,791,417
|
|
|
$
|
25,791,417
|
|
Balance at June 30, 2021
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25,791,417
|
|
|
$
|
25,791,417
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,691,271
|
|
|
$
|
9,691,271
|
|
Balance at December 31, 2020
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,691,271
|
|
|
$
|
9,691,271
|
|
Financial assets and liabilities carried at fair value on a non-recurring basis
The Company does not have any financial assets or liabilities measured at fair value on a non-recurring basis.
Non-financial assets and liabilities carried at fair value on a recurring basis
The Company does not have any non-financial assets or liabilities measured at fair value on a recurring basis.
Non-financial assets and liabilities carried at fair value on a non-recurring basis
The Company measures its long-lived assets, including property and equipment and goodwill, at fair value on a non-recurring basis when they are deemed to be impaired. No such impairment was recognized during the three and six months ended June 30, 2021 and 2020.
Note 8. Subsequent Events
Through August 3, 2021, the holders of 20,364 of the June 2017 warrants and 732,599 of the November 2020 warrants exercised warrants pursuant to their original terms. As a result of the warrants exercised, the Company received $3.2 million in cash and issued 745,246 shares of common stock.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements in this Quarterly Report on Form 10-Q (the “Quarterly Report”) that are not strictly historical are forward-looking statements and include statements about products in development, results and analyses of pre-clinical studies, clinical trials and studies, research and development expenses, cash expenditures, and alliances and partnerships, among other matters. You can identify these forward-looking statements because they involve our expectations, intentions, beliefs, plans, projections, anticipations, or other characterizations of future events or circumstances. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements as a result of any number of factors. These factors include, but are not limited to, risks relating to our ability to conduct and obtain successful results from ongoing clinical trials, commercialize our technology, obtain regulatory approval for our product candidates, contract with third parties to adequately test and manufacture our proposed therapeutic products, protect our intellectual property rights and obtain additional financing to continue our development efforts. We do not undertake to update any of these forward-looking statements or to announce the results of any revisions to these forward-looking statements except as required by law.
We urge you to read this entire Quarterly Report, including the “Risk Factors” referenced under Part II. Item 1A, the financial statements, and related notes. As used in this Quarterly Report, unless the context otherwise requires, the words “we,” “us,” “our,” “the Company” and “PLx Pharma” refers to PLx Pharma Inc. and its subsidiary. The information contained herein is current as of the date of this Quarterly Report (June 30, 2021), unless another date is specified. We prepare our interim financial statements in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). Our financials and results of operations for the three and six months ended June 30, 2021 and 2020 are not necessarily indicative of our prospective financial condition and results of operations for the pending full fiscal year ending December 31, 2021. The interim financial statements presented in this Quarterly Report as well as other information relating to the Company contained in this Quarterly Report should be read in conjunction and together with the reports, statements and information filed by us with the United States Securities and Exchange Commission (the “SEC”).
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows.
Overview
We are a specialty pharmaceutical company focused on our clinically-validated and patent-protected PLxGuard™ drug delivery platform designed to provide more effective and safer products. The PLxGuard drug delivery platform works by targeting the release of active pharmaceutical ingredients to various portions of the GI tract. We believe this platform has the potential to improve the absorption of many drugs currently on the market or in development, and to reduce the risk of stomach erosions and ulcers associated with certain drugs.
VAZALORE, available in two doses 325 mg and 81 mg, is approved by the U.S. Food and Drug Administration (“FDA”). VAZALORE is a novel formulation of aspirin clinically shown to provide fast, reliable and predictable platelet inhibition for patients with vascular disease and diabetic patients who may be candidates for aspirin therapy as compared to the current standard of care, enteric-coated aspirin. It is also clinically shown to reduce the risk of stomach erosions and ulcers as compared with immediate-release aspirin, after seven days of treatment.
Our commercialization strategy will target the over-the-counter market, taking advantage of the existing distribution channels for aspirin. We intend to market VAZALORE to the healthcare professional and the consumer through several sales and marketing channels. Our product pipeline also includes other oral NSAIDs using the PLxGuard drug delivery platform that may be developed, including PL1200 Ibuprofen 200 mg and PL1200 Ibuprofen 400 mg, for pain and inflammation in Phase I clinical stage.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 3 of the Notes to the Consolidated Financial Statements (unaudited) included elsewhere herein describes the significant accounting policies used in the preparation of the financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.
A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: (1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and (2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance with U.S. GAAP and present a meaningful presentation of our financial condition and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements:
Impact of COVID-19 Pandemic on Financial Statements
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a “pandemic”, or a worldwide spread of a new disease. Many countries imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus and have closed non-essential businesses.
In response to COVID-19, the Company has not experienced a disruption or delay in the development of VAZALORE. However, the extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the pandemic. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company has not experienced any significant negative impact on its June 30, 2021 unaudited consolidated financial statements related to COVID-19.
Use of Estimates
The preparation of our unaudited 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 and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying unaudited consolidated financial statements, estimates are used for, but not limited to, the impairment assessment of goodwill, the fair value of warrant liability, the fair value of stock-based compensation, allowance for inventory obsolescence, contingent liabilities, fair value and depreciable lives of long-lived assets, and deferred taxes and associated valuation allowance. Actual results could differ from those estimates.
Fair Value Measurements
Fair value is defined as the price that would be received in the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has categorized all investments recorded at fair value based upon the level of judgment associated with the inputs used to measure their fair value.
Hierarchical levels, directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
|
●
|
Level 1: Quoted prices in active markets for identical assets or liabilities that the organization has the ability to access at the reporting date.
|
|
●
|
Level 2: Inputs other than quoted prices included in Level 1, which are either observable or that can be derived from or corroborated by observable data as of the reporting date.
|
|
●
|
Level 3: Inputs include those that are significant to the fair value of the asset or liability and are generally less observable from objective resources and reflect the reporting entity’s subjective determinations regarding the assumptions market participants would use in pricing the asset or liability.
|
Research and Development Expenses
Costs incurred in connection with research and development activities are expensed as incurred. Research and development expenses consist of direct and indirect costs associated with manufacturing and regulatory activities, and include fees paid to various entities that perform research-related services for the Company.
Stock-Based Compensation
The Company recognizes expense in the consolidated statements of operations for the fair value of all stock-based compensation to key employees, nonemployee directors and advisors, generally in the form of stock options and stock awards. The Company uses the Black-Scholes option valuation model to estimate the fair value of stock options on the grant date. Compensation cost is amortized on a straight-line basis over the vesting period for each respective award. The Company accounts for forfeitures as they occur.
Adopted Accounting Guidance
For a discussion of significant accounting guidance recently adopted or unadopted accounting guidance that has the potential of being significant, see Note 3 of the Notes to the Unaudited Consolidated Financial Statements included elsewhere herein.
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 2021 and 2020
Revenue
Total revenues were $0 for the three months ended June 30, 2021, compared to revenues of $27,907 for the three months ended June 30, 2020. Revenue in the 2020 period is attributable to work performed under a federal grant from the National Institutes of Health (“ NIH”) which came to an end in the second quarter of 2020.
Operating Expenses
Total operating expenses were $6.5 million during the three months ended June 30, 2021, an 80% increase from operating expenses of $3.6 million during the three months ended June 30, 2020. Operating expenses for the three months ended June 30, 2021 and 2020 were as follows:
|
|
Three Months Ended
June 30,
|
|
|
Increase (Decrease)
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
%
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
982,730
|
|
|
$
|
1,394,881
|
|
|
$
|
(412,151
|
)
|
|
|
(30
|
)%
|
Selling, marketing and administrative expenses
|
|
|
5,497,747
|
|
|
|
2,207,164
|
|
|
|
3,290,583
|
|
|
|
149
|
%
|
Total operating expenses
|
|
$
|
6,480,477
|
|
|
$
|
3,602,045
|
|
|
$
|
2,878,432
|
|
|
|
80
|
%
|
Research and Development Expenses
Research and development expenses totaled $1.0 million during the three months ended June 30, 2021 compared to $1.4 million during the three months ended June 30, 2020. The decrease in the current period reflects lower pre-commercial manufacturing-related activities for VAZALORE and the non-recurrence of clinical-related spending for the bioequivalence study in 2020.
Selling, Marketing and Administrative Expenses
Selling, marketing and administrative expenses totaled $5.5 million during the three months ended June 30, 2021, compared to $2.2 million during the three months ended June 30, 2020. The increase primarily reflects higher sales and marketing expenses to prepare for the VAZALORE launch and increased non-cash stock-based compensation.
Other income (expense), net
Other income (expense), net totaled $10.0 million other expense and $2.0 million of other expense during the three months ended June 30, 2021 and 2020, respectively. The increase is largely attributable to the non-cash change in fair value of warrant liability primarily due to the fluctuation of the price of the Company’s common stock combined with lower net interest due to the payoff of the Company’s term loan with Silicon Valley Bank.
Comparison of Six Months Ended June 30, 2021 and 2020
Revenue
Total revenues were $0 for the six months ended June 30, 2021, compared to revenues of $30,430 for the six months ended June 30, 2020. Revenue in the 2020 period is attributable to work performed under a federal grant from the NIH which came to an end in the second quarter of 2020.
Operating Expenses
Total operating expenses were $10.1 million during the six months ended June 30, 2021, a 52% increase from operating expenses of $6.6 million during the six months ended June 30, 2020. Operating expenses for the six months ended June 30, 2021 and 2020 were as follows:
|
|
Six Months Ended
June 30,
|
|
|
Increase
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
%
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
1,942,233
|
|
|
$
|
1,908,795
|
|
|
$
|
33,438
|
|
|
|
2
|
%
|
Selling, marketing and administrative expenses
|
|
|
8,134,076
|
|
|
|
4,700,415
|
|
|
|
3,433,661
|
|
|
|
73
|
%
|
Total operating expenses
|
|
$
|
10,076,309
|
|
|
$
|
6,609,210
|
|
|
$
|
3,467,099
|
|
|
|
52
|
%
|
Research and Development Expenses
Research and development expenses totaled $1.9 million during each of the six months ended June 30, 2021 and 2020. Research and development expenses primarily reflect pre-commercial manufacturing-related activities for VAZALORE and 2020 included costs related to the bioequivalence study.
Selling, Marketing and Administrative Expenses
Selling, marketing and administrative expenses totaled $8.1 million during the six months ended June 30, 2021, compared to $4.7 million during the six months ended June 30, 2020. The increase primarily reflects higher sales and marketing expenses to prepare for the VAZALORE launch and increased non-cash stock-based compensation.
Other income (expense), net
Other income (expense), net totaled $18.0 million other expense and $2.5 million of other income during the six months ended June 30, 2021 and 2020, respectively. The increase is largely attributable to the non-cash change in fair value of warrant liability primarily due to the fluctuation of the price of the Company’s common stock combined with lower net interest due to the payoff of the term loan.
LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
The following table summarizes the primary uses and sources of cash for the periods indicated:
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(9,759,125
|
)
|
|
$
|
(6,600,479
|
)
|
Net cash provided by investing activities
|
|
$
|
45,242
|
|
|
$
|
-
|
|
Net cash provided by financing activities
|
|
$
|
67,434,701
|
|
|
$
|
5,856,379
|
|
Net Cash Used in Operating Activities
Net cash used in operating activities of $9.8 million and $6.6 million for the six months ended June 30 2021 and 2020, respectively, is higher in 2021 due to the combination of higher operating expenses and inventory build to prepare for the launch of VAZALORE in the third quarter and the Final Payment Fee (as defined in Note 4 of the Notes to the Consolidated Financial Statements (unaudited)) on the Term Loan (as defined in Note 4 of the Notes to the Consolidated Financial Statements (unaudited)) offset by the timing of expense payments.
Net Cash Provided by Investing Activities
Net cash provided by investing activities was $45,242 for the six months ended June 30, 2021, generated from the sale of various property and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities totaled $67.4 million during the six months ended June 30, 2021 compared to $5.9 million of net cash provided by financing activities during the six months ended June 30, 2020. The current period reflects net proceeds from a public offering of common stock and exercises of various stock purchase warrants, offset by two months of payments of the Term Loan as this was paid off in February 2021. The 2020 period represents proceeds from the issuance of Series B Preferred Stock offset by principal payments on the Term Loan.
Future Liquidity and Capital Needs
As of June 30, 2021, we had working capital of $78.9 million, including cash and cash equivalents of $80.2 million.
We have not generated any revenue from the sale of products and have incurred operating losses in each year since we commenced operations. We expect to continue to incur significant operating expenses and operating losses for the foreseeable future as we continue the commercialization of VAZALORE. Even if we do generate revenues, we may never achieve profitability, and even if we do achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Although the achievement of future profitable operations and the ability to generate sufficient cash from operations is uncertain at this time, the Company’s cash on hand at June 30, 2021 supports the belief that the Company can fund its obligations for at least one year from the date these financial statements were issued and mitigate the substantial doubt consideration.
Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. If we are unable to achieve and sustain profitability, the market value of our common stock will likely decline. Because of the numerous risks and uncertainties associated with developing biopharmaceutical products, we are unable to predict the extent of any future losses or when, if ever, we will become profitable. We may need to obtain additional financing in the future to further our commercialization plan. We may obtain additional financing through public or private equity offerings, debt financings (including related-party financings), a credit facility or strategic collaborations. Additional financing may not be available to us when we need it or it may not be available to us on favorable terms, if at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. We currently have no understandings, commitments or agreements relating to any of these types of transactions. If we are unable to raise additional funds when needed, we may be required to sell or license our technologies or clinical product candidates or programs that we would prefer to develop and commercialize ourselves.