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Table of Contents

 


UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

(Mark one)

 

Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended March 31, 2021

 

Or 

 

Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 001-36351

 

Commission File Number 001-36351

 

PLx Pharma Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 

 

46-4995704

State or other jurisdiction of

incorporation or organization

 

(I.R.S. Employer

Identification No.)

     

9 Fishers Lane, Suite E

Sparta, NJ

 

07871

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code (973) 409-6541 

 

 


 

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, $0.001 par value

PLXP

The NASDAQ Capital Market

     

(Title of each class)

(Trading Symbol)

(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. ☒Yes     ☐ No

 

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒Yes     ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☐

   

Non-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    ☒ No

 

As of May 11, 2021, there were 22,840,078 shares of common stock, $0.001 par value, issued and outstanding.

 

 

 

 

PLx Pharma Inc.

 

Table of Contents

 

     

Page #

       

PART I -

FINANCIAL INFORMATION

5

       
 

Item 1.

Consolidated Financial Statements (unaudited)

5

       
   

Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020

5

       
   

Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (unaudited)

6

       
   

Consolidated Statements of Changes in Series A and Series B Convertible Preferred Stock and Stockholders Equity (Deficit) for the Three Months Ended March 31, 2021 and 2020 (unaudited)

7

       
   

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited)

8

       
   

Notes to Consolidated Financial Statements (unaudited)

9

       
 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

18

       
 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

22

       
 

Item 4.

Controls and Procedures

22

       

PART II -

OTHER INFORMATION

23

       
 

Item 1.

Legal Proceedings

23

       
 

Item1A.

Risk Factors

23

       
 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

       
 

Item 3.

Defaults Upon Senior Securities

23

       
 

Item 4.

Mine Safety Disclosure

23

       
 

Item 5.

Other Information

23

       
 

Item 6.

Exhibits

24

       
   

Signatures

25

       
   

Certificates

 

 

 

 

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q and certain information incorporated herein by reference contain 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”). In this quarterly report, we refer to PLx Pharma Inc., together with its subsidiary, as the “Company,” “we,” “our” or “us.” All statements other than statements of historical facts contained herein, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect” or the negative version of these words and similar expressions are intended to identify forward-looking statements.

 

We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A “Risk Factors.” In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances included herein may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

 

 

our ability to bring our lead product candidates, VAZALORE™ 325 mg and VAZALORE™ 81 mg (referred to together as “VAZALORE”), to market-readiness;

 

our ability to maintain regulatory approval of VAZALORE and any future product candidates;

 

the benefits of the use of VAZALORE;

 

the projected dollar amounts of future sales of established and novel gastrointestinal(“GI”)-safer technologies for non-steroidal anti-inflammatory drugs (“NSAIDs”) and other analgesics;

 

our ability to successfully commercialize our VAZALORE products, or any future product candidates;

 

the rate and degree of market acceptance of our VAZALORE products or any future product candidates;

 

our expectations regarding government and third-party payor coverage and reimbursement;

 

our ability to scale up manufacturing of our VAZALORE products to commercial scale;

 

our ability to successfully build a specialty sales force and commercial infrastructure or collaborate with a firm that has these capabilities;

 

our ability to compete with companies currently producing GI-safer technologies for NSAIDs and other analgesics;

 

our reliance on third parties to conduct our clinical studies;

 

our reliance on third-party contract manufacturers to manufacture and supply our product candidates for us;

 

our reliance on our collaboration partners’ performance over which we do not have control;

 

our ability to retain and recruit key personnel, including development of a sales and marketing function;

 

our ability to obtain and maintain intellectual property protection for our VAZALORE products or any future product candidates;

 

our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for or ability to obtain additional financing;

 

our ability to identify, develop, acquire and in-license new products and product candidates;

 

our ability to successfully establish and successfully maintain appropriate collaborations and derive significant revenue from those collaborations, including but not limited to any milestone payments or royalties;

 

legal, political, judicial and regulatory changes;

  any impact of the COVID-19 pandemic on our business and financial results;
 

our financial performance; and

 

developments and projections relating to our competitors or our industry.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Any forward-looking statement made by us in this quarterly report speaks only as of the date on which it is made. We disclaim any duty to update any of these forward-looking statements after the date of this quarterly report to conform these statements to actual results or revised expectations.

 

Other risks may be described from time to time in our filings made under applicable securities laws. New risks emerge from time to time. It is not possible for our management to predict all risks. All forward-looking statements in this quarterly report speak only as of the date made and are based on our current beliefs and expectations. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

 

NOTE REGARDING TRADEMARKS

 

We own various U.S. federal trademark registrations and applications and unregistered trademarks and service marks, including:

 

 

PLX®

     
 

PLX PHARMA®

     
 

PLXGUARD™

     
 

VAZALORE™

     
 

FIRST LIQUID-FILLED ASPIRIN CAPSULES™

     
 

plxp20210331_10qimg001.gif ™

 

Solely for convenience, the trademarks and trade names in this quarterly report are sometimes referred to without the TM symbol, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies, products or services.

 

 

PART I. 

FINANCIAL INFORMATION

   

ITEM 1. 

CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

PLx Pharma Inc.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   

March 31,

2021

   

December 31,

2020

 

ASSETS

               

CURRENT ASSETS

               

Cash and cash equivalents

  $ 84,423,464     $ 22,448,651  

Inventory

    143,380       143,380  

Prepaid expenses and other current assets

    300,556       393,470  

TOTAL CURRENT ASSETS

    84,867,400       22,985,501  

NON-CURRENT ASSETS

               

Property and equipment, net

    1,125,719       1,225,879  

Right of use assets

    249,738       327,161  

Goodwill

    2,061,022       2,061,022  

Security deposit

    17,036       17,036  

TOTAL ASSETS

  $ 88,320,915     $ 26,616,599  
                 

LIABILITIES, SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

               

CURRENT LIABILITIES

               

Accounts payable and accrued liabilities

  $ 962,608     $ 862,568  

Accrued bonuses

    246,647       1,184,823  

Accrued interest

    -       597,411  

Term loan, net of discount and fees

    -       622,265  

Other current liabilities

    199,939       275,247  

TOTAL CURRENT LIABILITIES

    1,409,194       3,542,314  

NON-CURRENT LIABILITIES

               

Warrant liability

    17,626,158       9,691,271  

Accrued dividends

    3,118,066       2,795,795  

Other liabilities

    121,651       134,184  

TOTAL LIABILITIES

    22,275,069       16,163,564  
                 

Series A convertible preferred stock: $0.001 par value; liquidation value of $17,603,176; 45,000 shares authorized, 15,000 issued and outstanding

    13,661,578       13,661,578  

Series B convertible preferred stock: $0.001 par value; liquidation value of $8,514,890; 25,000 shares authorized, 8,000 and 0 issued and outstanding

    7,723,312       7,723,312  
                 

Commitments and contingencies

               
                 

STOCKHOLDERS' EQUITY (DEFICIT)

               

Preferred stock; $0.001 par value; 930,000 shares authorized; none issued and outstanding

    -       -  

Common stock; $0.001 par value; 100,000,000 shares authorized; 22,836,333 and 13,911,633 shares issued and outstanding, respectively

    22,836       13,912  

Additional paid-in capital

    158,327,448       91,203,050  

Accumulated deficit

    (113,689,328 )     (102,148,817 )

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)

    44,660,956       (10,931,855 )

TOTAL LIABILITIES, SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

  $ 88,320,915     $ 26,616,599  

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

PLx Pharma Inc. 

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) 

 

   

Three Months Ended

 
   

March 31,

2021

   

March 31,

2020

 

REVENUES:

               

Federal grant

  $ -     $ 2,523  

TOTAL REVENUES

    -       2,523  
                 

OPERATING EXPENSES:

               

Research and development

    959,503       513,914  

General and administrative

    2,636,329       2,493,251  

TOTAL OPERATING EXPENSES

    3,595,832       3,007,165  

OPERATING LOSS

    (3,595,832 )     (3,004,642 )
                 

OTHER INCOME (EXPENSE):

               

Interest expense, net of interest income

    (9,792 )     (98,525 )

Change in fair value of warrant liability

    (7,934,887 )     4,599,253  

TOTAL OTHER INCOME (EXPENSE)

    (7,944,679 )     4,500,728  
                 

INCOME (LOSS) BEFORE INCOME TAXES

    (11,540,511 )     1,496,086  

Income taxes

    -       -  

NET INCOME (LOSS)

    (11,540,511 )     1,496,086  
                 

Preferred dividends

    (322,271 )     (320,290 )

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS

  $ (11,862,782 )   $ 1,175,796  
                 

Net income (loss) per common share - basic

  $ (0.73 )   $ 0.08  

Net income (loss) per common share - diluted

  $ (0.73 )   $ 0.08  
                 

Weighted average shares of common shares - basic

    16,361,583       9,156,260  

Weighted average shares of common shares - diluted

    16,361,583       9,216,667  

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

PLx Pharma Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

(Unaudited)

 

 

 

For the Three Months Ended March 31, 2021 and 2020

   

Temporary Equity

   

Permanent Equity

 
   

Series A Convertible

Preferred Stock

   

Series B Convertible

Preferred Stock

   

Common stock

   

Additional paid-in

   

Accumulated

   

Total stockholders'

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

capital

   

deficit

   

equity (deficit)

 
                                                                         

Balance at December 31, 2020

    15,000     $ 13,661,578       8,000     $ 7,723,312       13,911,633     $ 13,912     $ 91,203,050     $ (102,148,817 )   $ (10,931,855 )
                                                                         

Stock-based compensation expense

                                                    573,722               573,722  

Series A Preferred - declared dividends

                                                    (217,206 )             (217,206 )

Series B Preferred - declared dividends

                                                    (105,065 )             (105,065 )

Public offering

                                    8,924,700       8,924       66,872,947               66,881,871  

Net loss

                                                            (11,540,511 )     (11,540,511 )
                                                                         

Balance at March 31, 2021

    15,000       13,661,578       8,000       7,723,312       22,836,333     $ 22,836     $ 158,327,448     $ (113,689,328 )   $ 44,660,956  
                                                                         
                                                                         
                                                                         
                                                                         

Balance at December 31, 2019

    15,000     $ 13,661,578       15,000     $ 13,661,578       9,156,260     $ 9,156     $ 74,837,046     $ (86,938,163 )   $ (12,091,961 )
                                                                         

Stock-based compensation expense

                                                    272,537               272,537  

Series A Preferred - declared dividends

                                                    (320,290 )             (320,290 )

Net income

                                                            1,496,086       1,496,086  
                                                                         

Balance at March 31, 2020

    15,000     $ 13,661,578       15,000     $ 13,661,578       9,156,260     $ 9,156     $ 74,789,293     $ (85,442,077 )   $ (10,643,628 )

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

PLx Pharma Inc.

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

 

   

Three months ended

 
   

March 31,

2021

   

March 31,

2020

 
                 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net income (loss)

  $ (11,540,511 )   $ 1,496,086  

Adjustments to reconcile net income (loss) to net cash used in operating activities:

               

Depreciation of property and equipment

    26,555       31,868  

Stock-based compensation

    573,722       272,537  
Amortization of right of use assets     77,423       70,069  

Amortization of debt discounts and issuance costs

    2,735       34,969  

Change in fair value of warrant liability

    7,934,887       (4,599,253 )

Loss on disposal of property and equipment

    28,363       -  

Changes in operating assets and liabilities

               

Accounts receivable

    -       16,160  

Prepaid expenses and other assets

    138,156       14,671  

Accounts payable and accrued liabilities

    100,040       (210,851 )

Accrued bonuses

    (938,176 )     (849,187 )

Accrued interest

    (597,411 )     20,853  

Other current and long-term liabilities

    (87,841 )     (72,609 )

Net cash used in operating activities

    (4,282,058 )     (3,774,687 )
                 

CASH FLOWS FROM INVESTING ACTIVITIES

               

Purchases of property and equipment

    -       (2,346 )

Net cash used in investing activities

    -       (2,346 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES

               

Net proceeds from issuance of common stock

    66,881,871       -  

Repayments of long-term debt

    (625,000 )     (937,500 )

Net cash provided by (used in) financing activities

    66,256,871       (937,500 )
                 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

    61,974,813       (4,714,533 )

Cash and cash equivalents, beginning of period

    22,448,651       14,001,304  

Cash and cash equivalents, end of period

  $ 84,423,464     $ 9,286,771  
                 

SUPPLEMENTAL INFORMATION

               

Cash paid during the period for:

               

Income taxes

  $ -     $ -  

Interest

  $ 601,951     $ 90,006  
                 

NON-CASH INVESTING AND FINANCING TRANSACTIONS

               

Property and equipment included in accounts payable

  $ -     $ 43,518  

Preferred stock dividends

  $ 322,271     $ 320,290  

 

See accompanying notes to unaudited consolidated financial statements.

 

 

PLx Pharma Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

MARCH 31, 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 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 and is the first ever liquid-filled aspirin capsule.  

 

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 March 31, 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 March 31, 2021, the Company had working capital of $83.5 million, including cash and cash equivalents of $84.4 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 March 31, 2021 support 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.

 

 

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 March 31, 2021 and the results of operations for the three months ended March 31, 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 March 31, 2021, the Company had cash and cash equivalents of $84.4 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 March 31, 2021 and December 31, 2020 was comprised primarily of raw materials for the manufacture of VAZALORE. 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 March 31, 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 March 31, 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 months ended March 31, 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.

 

The Company’s sole revenue arrangement is 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 $2,523 of revenue under this arrangement during the three months ended March 31, 2021 and 2020, respectively.

 

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 March 31, 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. 

 

 

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. For the three months ended March 31, 2020, the “two class method” was more dilutive.

 

The Company has calculated basic and diluted earnings per share for the three months ended March 31, 2020 as follows:

 

   

Basic earnings
per share

   

Diluted
earnings per
share

 

Net income

  $ 1,496,086     $ 1,496,086  
                 

Preferred stock dividends

    (320,290

)

    (320,290

)

Impact of participation rights

    (479,236

)

    (479,236

)

                 

Net income available for common shares

  $ 696,560     $ 696,560  
                 

Weighted average outstanding common shares

    9,156,260       9,156,260  
                 

Impact of stock options

    -       60,407  
                 

Weighted average outstanding common shares

    9,156,260       9,216,667  
                 

Earnings per share

  $ 0.08     $ 0.08  

 

Due to net losses, none of the potential dilutive securities had a dilutive impact during the three months ended March 31, 2021.

 

The number of anti-dilutive shares for the three months ended March 31, 2021 and 2020 was 20.5 million and 11.2 million, respectively, consisting of common shares underlying (i) common stock options of 3.0 million and 2.2 million, respectively, (ii) stock purchase warrants of 7.9 million and 2.7 million, respectively, and (iii) convertible preferred stock of 9.6 million and 6.3 million, respectively, which have been excluded from the computation of diluted income (loss) per share..

 

 

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 Entitys 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.

 

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 March 31, 2021 and 2020 was $11,177 and $145,828, respectively.                                                              

 

 

 

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 is 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 are compounded quarterly and payable in cash or shares of Series A Preferred Stock at the Company’s option. The Series A Preferred Stock carries a liquidation preference equal to its stated value of $1,000 plus accrued and unpaid dividends.

 

The Series A Preferred Stock is classified as temporary equity due to the presence of certain contingent cash redemption features. At March 31, 2021, the carrying value of the temporary equity was $13.7 million, net of $1.3 million in offering costs.

 

The Company recognized $217,206 (or $0.01 per share) and $320,290 (or $0.03 per share) of total dividends on the Series A Preferred Stock during the three months ended March 31, 2021 and 2020, respectively.

 

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. The Series B Preferred Stock carries a liquidation preference equal to its stated value of $1,000 plus accrued and unpaid dividends.

 

The Series B Preferred Stock is classified as temporary equity due to the presence of certain contingent cash redemption features. At March 31, 2021, the carrying value of the temporary equity was $7.7 million, net of $0.3 million in offering costs.

 

The Company recognized $105,065 (or $0.01 per share) and $0 of total dividends on the Series B Preferred Stock during the three months ended March 31, 2021 and 2020, respectively.

 

 

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.

 

Stock Options

 

Following is a summary of stock option activities for the three months ended March 31, 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     $ 2,074,150  

Granted

    54,000     $ 5.38                  

Exercised, cancelled, or forfeited

    -                          

Outstanding, March 31, 2021

    3,033,047     $ 9.28       7.64     $ 9,797,453  
                                 

Exercisable, March 31, 2021

    1,481,097     $ 14.21       5.92     $ 2,887,420  

 

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. There are 3,000,000 shares authorized to be issued pursuant to the 2018 Plan, of which 903,650 shares remain available for issuance.

 

The Company granted 54,000 options during the three months ended March 31, 2021 with an aggregate fair value of $0.2 million calculated using the Black-Scholes model on the grant date. Variables used in the Black-Scholes model include: (1) discount rate of 0.62%, (2) expected life of 6.0 years, (3) expected volatility of 87%, and (4) zero expected dividends. As of March 31, 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 2.2 years.

 

During the three months ended March 31, 2021 and 2020, the Company recorded $573,722 and $272,537, respectively, in total stock-based compensation expense related to the stock options. Substantially all stock-based compensation expense is classified as general and 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 on July 31, 2021, October 3, 2021, and June 30, 2024. The office leases require the Company to pay for its portion of taxes, maintenance, and insurance. Rental expense under these agreements was $88,035 and $87,601 for the three months ended March 31, 2021 and 2020, respectively.

 

 

All the Company’s existing leases as of March 31, 2021 are classified as operating leases and have a weighted average remaining lease term of 2.0 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 is 9.5%. 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 three months ended March 31, 2021 consisted of the following:

       

Operating lease cost

  $ 88,035  

Sublease income

    (62,582

)

Total lease costs

  $ 25,453  

 

A maturity analysis of the Company’s operating leases follows:

 

Future undiscounted cash flows:

       

2021

    166,785  

2022

    60,819  

2023

    60,264  

2024

    30,132  

Total

    318,000  
         

Discount factor

    (30,618

)

Lease liability

    287,382  

Current lease liability

    (165,731

)

Non-current lease liability

  $ 121,651  

 

Patent License Agreement with the Board of Regents of the University of Texas

 

On January 8, 2003, the Company entered into a patent license agreement with the Board of Regents of The University of Texas System (the “University”), under which it acquired an exclusive license for several patents and patent applications both inside and outside of the United States relating to GI safer formulations of NSAIDs. Additionally, the Company acquired worldwide rights to commercialize licensed products which allow for the Company to grant sublicenses subject to royalty payments.

 

Under terms of the agreement, the Company is responsible for conducting clinical trials involving investigational use of a licensed product for the determination of metabolic and pharmacologic actions in humans, the side effects associated with increasing doses, examination of suspected indications, determination of the potential short-term side effects in humans and for establishing the safety, efficacy, labeled indications and risk-benefit profile in humans. The patent license agreement also requires the Company to provide reimbursement for all expenses incurred by The University of Texas Health Science Center at Houston for filing, prosecuting, enforcing and maintaining patent rights and requires an annual nonrefundable license management fee. In addition, the Company is obligated to pay certain milestone payments in future years relating to royalties resulting from the approval to sell licensed products and the resulting sales of such licensed products. The Company recognized total expenses of $2,000 and $1,640 related to the University in the three months ended March 31, 2021 and 2020, respectively.

 

 

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 March 31, 2021 include: (1) the Company stock price of $9.03, (2) the risk-free rate of 1.21%, (3) remaining expected life of 6.2 years, and (4) expected volatility of 91%.

 

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 March 31, 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 months ended March 31, 2021:

 

Description

 

Balance at

December

31,

2020

   

Established

in 2020

   

Change in

Fair Value

   

Balance at

March
31,

2021

 
                                 

Warrant liability

  $ 9,691,271     $ -     $ 7,934,887     $ 17,626,158  

 

 

The following table identifies the carrying amounts of such liabilities at March 31, 2021 and December 31, 2020:

 

Description

 

Level 1

   

Level 2

   

Level 3

   

Total

 
                                 

Warrant liability

  $ -     $ -     $ 17,626,158     $ 17,626,158  

Balance at March 31, 2021

  $ -     $ -     $ 17,626,158     $ 17,626,158  

 

 

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 months ended March 31, 2021 and 2020.

 

 

 

ITEM 2.         MANAGEMENTS 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 (March 31, 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 months ended March 31, 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 (“OTC”) 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 March 31, 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 March 31, 2021 and 2020

 

Revenue

 

Total revenues were $0 for the three months ended March 31, 2021, compared to revenues of $2,523 for the three months ended March 31, 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 $3.6 million during the three months ended March 31, 2021, a 20% increase from operating expenses of $3.0 million during the three months ended March 31, 2020. Operating expenses for the three months ended March 31, 2021 and 2020 were as follows:

 

   

Three Months Ended

March 31,

   

Increase (Decrease)

 
   

2021

   

2020

           

%

 

Operating Expenses

                               

Research and development expenses

  $ 959,503     $ 513,914     $ 445,589       87

%

General and administrative expenses

    2,636,329       2,493,251       143,078       6

%

Total operating expenses

  $ 3,595,832     $ 3,007,165     $ 588,667       20

%

 

Research and Development Expenses

 

Research and development expenses totaled $1.0 million during the three months ended March 31, 2021 compared to $0.5 million during the three months ended March 31, 2020. The increase in the current period reflects increased manufacturing-related activities for VAZALORE.

 

General and Administrative Expenses

 

General and administrative expenses totaled $2.6 million during the three months ended March 31, 2021, compared to $2.5 million during the three months ended March 31, 2020. The increase primarily reflects higher pre-launch marketing expenses and increased non-cash stock-based compensation. This was somewhat offset by lower compensation-related expenses combined with savings resulting from COVID-19 travel restrictions.

 

 

Other income (expense), net

 

Other income (expense), net totaled $7.9 million other expense and $4.5 million of other income during the three months ended March 31, 2021 and 2020, respectively. The decrease 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 which was impacted by a lower principal debt balance and lower interest rates.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Financial Condition

 

The following table summarizes the primary uses and sources of cash for the periods indicated:

 

   

Three Months Ended

March 31,

 
   

2021

   

2020

 
                 

Net cash used in operating activities

  $ (4,282,058

)

  $ (3,774,687

)

Net cash used in investing activities

  $ -     $ (2,346

)

Net cash provided by (used in) financing activities

  $ 66,256,871     $ (937,500

)

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities of $4.3 million and $3.8 million for the three months ended March 31, 2021 and 2020, respectively, is higher in 2021 due to higher operating expenses combined with 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 Used in Investing Activities

 

Net cash used in investing activities totaled $0 and $2,346 in the three months ended March 31, 2021 and 2020, respectively.

 

Net Cash Provided by (Used In) Financing Activities

 

Net cash provided by financing activities totaled $66.3 million during the three months ended March 31, 2021 compared to $0.9 million of net cash used in financing activities during the three months ended March 31, 2020. The current period reflects net proceeds from the Offering (as defined in Note 5 of hte Notes to the Consolidated Financial Statements (unaudited)) offset by two months of payments of the Term Loan as this was paid off in February 2021. The 2020 period represents three months of the Term Loan’s principal payments.

 

Future Liquidity and Capital Needs

 

As of March 31, 2021, we had working capital of $83.5 million, including cash and cash equivalents of $84.4 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 March 31, 2021 support 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.  

 

 

ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are not required to provide the information required by this item as we are considered a smaller reporting company, as defined in Section 229.10(f)(1) of Regulation S-K.

 

ITEM 4.         CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Based on an evaluation under the supervision, and with the participation, of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of March 31, 2021 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness. 

 

Inherent Limitations Over Internal Controls

 

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. The Company’s internal control over financial reporting includes those policies and procedures that:

 

 

 

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

 

 

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and

 

 

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Management, including the Company’s principal executive officer and principal financial officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed 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. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls with respect to future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

 

PART II.       OTHER INFORMATION

 

ITEM 1.        LEGAL PROCEEDINGS

 

From time to time we are party to legal proceedings that we believe to be ordinary, routine litigation incidental to the business of present or former operations. It is management’s opinion, based on the advice of counsel, that the ultimate resolution of such litigation will not have a material adverse effect on our financial condition, results of operations or cash flows.

 

ITEM 1A.     RISK FACTORS

 

In addition to the other information set forth in this Quarterly Report, please carefully consider the risk factors described in our most recent Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2020, under the heading “Part I – Item 1A. Risk Factors.” The risks described are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that our management currently deems to be immaterial, also may adversely affect our business, financial condition, and/or operating results. There have been no material changes to those risk factors since their disclosure in our most recent Annual Report on Form 10-K, as amended.

 

ITEM 2.         UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3.         DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.         MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5.         OTHER INFORMATION

 

None.

 

ITEM 6.         EXHIBITS

 

The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Quarterly Report.

 

 

INDEX TO EXHIBITS 

 

Number 

Description

   
10.1 Termination of Equity Distribution Agreement, dated March 2, 2021, by and between the Company and JMP Securities LLC (incorporated by reference herein to Exhibit 10.1 to the Company’s Form 8-K, filed with the SEC on March 2, 2021).
   

31.1

Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

   

31.2

Certification of the Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

   

32.1

Certification of the Principal Executive Officer and Principal Financial and Accounting Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

   
   

101.INS

XBRL Instance Document.*

   

101.SCH 

XBRL Taxonomy Extension Schema Document.*

   

101.CAL

XBRL Taxonomy Calculation Linkbase Document.*

   

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.*

   

101.LAB

XBRL Taxonomy Label Linkbase Document.*

   

101.PRE

XBRL Taxonomy Presentation Linkbase Document.*

 

 

*        Filed herewith.

 

 

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.

 

 

PLX PHARMA INC.

 
       

Date: May 14, 2021

 

/s/ Natasha Giordano

 
   

By: Natasha Giordano

 
   

Title: President and Chief Executive

Officer (Principal Executive Officer)

 
       
   

/s/ Rita O’Connor

 
   

By: Rita O’Connor

 
   

Title: Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

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