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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

for the quarterly period ended June 30, 2021

Or

   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from                      to                   

Commission File Number: 001-39752

Petros Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Delaware

85-1410058

(State of Incorporation)

(I. R. S. Employer Identification No.)

1185 Avenue of the Americas, 3rd Floor, New York, New York

10036

(Address of principal executive offices)

(Zip Code)

(973) 242-0005

(Registrant’s telephone number, including area code)

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

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common stock, par value $0.0001

PTPI

The Nasdaq Stock Market LLC

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 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 (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

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 August 9, 2021, there were 9,826,599 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q may contain or incorporate by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements are based upon management’s assumptions, expectations, projections, intentions and beliefs about future events. Except for historical information, the use of predictive, future-tense or forward-looking words such as “intend,” “plan,” “predict,” “may,” “will,” “project,” “target,” “strategy,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “forecast,” “should” and similar expressions, whether in the negative or affirmative, that reflect our current views with respect to future events and operational, economic and financial performance are intended to identify such forward-looking statements. Such forward-looking statements are only predictions, and actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of risks and uncertainties, including, without limitation, Petros’ ability to execute on its business strategy, including its plans to develop and commercialize its product candidates; Petros’ ability to comply with obligations as a public reporting company; the ability of Petros to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002; the risk that the financial performance of Petros may not be as anticipated by the merger transactions that resulted in the Company’s creation; risks resulting from Petros’ status as an emerging growth company, including that reduced disclosure requirements may make shares of Petros common stock less attractive to investors; risks related to Petros’ history of incurring significant losses; risks related to Petros’ dependence on the commercialization of a single product, Stendra®, and on a single distributor thereof; risks related to Petros’ commercial supply agreement with Vivus, including the risk that Petros may not be able to obtain sufficient quantities of Stendra® in a timely manner or on commercially viable terms; risks related to Petros’ ability to obtain regulatory approvals for, or market acceptance of, any of its products or product candidates; and the expected or potential impact of the novel coronavirus (“COVID-19”) pandemic, including the emergence of new variants, such as the Delta variant, and the related responses of governments, consumers, customers, suppliers, employees and the Company, on our business, operations, employees, financial condition and results of operations. Additional factors that could cause actual results to differ materially from the results anticipated in these forward-looking statements are described in this Quarterly Report on Form 10-Q, in “Risk Factor Summary” and in Part I, Item 1A., “Risk Factors,” in Petros’ Annual Report on Form 10-K for the year ended December 31, 2020 and in our other reports filed with the Securities and Exchange Commission (the “SEC”). We advise you to carefully review the reports and documents we file from time to time with the SEC, particularly our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. Petros cautions readers that the forward-looking statements included in, or incorporated by reference into, this Quarterly Report on Form 10-Q represent our beliefs, expectations, estimates and assumptions only as of the date hereof and are not intended to give any assurance as to future results. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, Petros cannot assess the effect of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement.

Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them and to the risk factors. We disclaim any obligation to update the forward-looking statements contained in, or incorporated by reference into, this this Quarterly Report on Form 10-Q to reflect any new information or future events or circumstances or otherwise, except as required by the federal securities laws.

OTHER INFORMATION

All references to “Petros,” the “Company,” “we,” “us” and “our” in this Quarterly Report on Form 10-Q refer to Petros Pharmaceuticals, Inc. and its subsidiaries.

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TABLE OF CONTENTS

    

Page

PART I—FINANCIAL INFORMATION

4

Item 1. Financial Statements (unaudited).

4

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

4

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020

5

Condensed Consolidated Statements of Changes in Stockholders’ Equity/Members’ Capital for the three and six months ended June 30, 2021 and 2020

6

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020

7

Notes to Condensed Consolidated Financial Statements

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

31

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

48

Item 4. Controls and Procedures.

48

PART II—OTHER INFORMATION

50

Item 1. Legal Proceedings.

50

Item 1A. Risk Factors.

50

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

50

Item 3. Defaults Upon Senior Securities.

50

Item 4. Mine Safety Disclosures.

50

Item 5. Other Information.

50

Item 6. Exhibits.

51

Signatures.

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PETROS PHARMACEUTICALS, INC.

(formerly Metuchen Pharmaceuticals, LLC)

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 

    

2021

December 31, 

    

(Unaudited)

    

2020

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash

$

11,031,177

$

17,139,694

Accounts receivable, net

 

2,020,915

 

5,152,969

Inventories

 

439,232

 

760,530

Deposits with related party

 

 

4,576

Prepaid expenses and other current assets

 

2,742,728

 

2,847,284

Total current assets

 

16,234,052

 

25,905,053

Fixed assets, net

 

54,507

 

64,250

Intangible assets, net

 

28,708,372

 

32,160,919

API purchase commitment

 

11,144,257

 

11,144,257

Other assets

 

529,056

 

579,535

Total assets

$

56,670,244

$

69,854,014

Liabilities and Stockholders’ Equity

 

 

  

Current liabilities:

 

 

  

Current portion of senior debt, net

$

3,425,378

$

7,175,029

Accounts payable

 

2,597,891

 

5,609,556

Accrued expenses

 

13,764,857

 

14,683,786

Accrued inventory purchases

 

14,203,905

 

14,203,905

Other current liabilities

 

497,915

 

221,766

Total current liabilities

 

34,489,946

 

41,894,042

Derivative liability

 

2,220,000

 

9,890,000

Other long-term liabilities

 

469,571

 

600,920

Total liabilities

 

37,179,517

 

52,384,962

Stockholders’ Equity:

 

 

  

Preferred stock (par value of $0.0001 per share, 50,000,000 shares authorized, 0 and 500 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively)

 

 

Common stock (par value of $0.0001 per share, 150,000,000 shares authorized, 9,826,599 and 9,707,655 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively)

 

983

 

971

Additional paid-in capital

 

80,295,724

 

79,170,225

Accumulated deficit

 

(60,805,980)

 

(61,702,144)

Total Stockholders’ Equity

 

19,490,727

 

17,469,052

Total Liabilities and Stockholders' Equity

$

56,670,244

$

69,854,014

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

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PETROS PHARMACEUTICALS, INC.

(formerly Metuchen Pharmaceuticals, LLC)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For the Three Months Ended

 

For the Six Months Ended

June 30, 

 

June 30, 

    

2021

    

2020

    

2021

    

2020

Net sales

$

2,457,649

$

1,373,564

$

6,533,255

$

3,165,485

Cost of goods sold

393,294

 

539,231

1,036,680

1,323,266

Gross profit

 

2,064,355

 

834,333

5,496,575

1,842,219

Operating expenses:

 

  

 

  

Selling, general and administrative

 

4,116,173

 

4,059,698

7,997,890

8,876,162

Research and development expense

 

500,046

 

131,583

519,227

270,968

Depreciation and amortization expense

 

1,728,828

 

1,661,360

3,457,657

3,322,722

Total operating expenses

 

6,345,047

5,852,641

11,974,774

12,469,852

Loss from operations

 

(4,280,692)

 

(5,018,308)

(6,478,199)

(10,627,633)

Change in fair value of derivative liability

 

2,290,000

 

7,670,000

Interest expense, senior debt

 

(115,525)

 

(357,409)

(288,937)

(784,992)

Interest expense, subordinated related party term loans

 

 

(402,435)

(478,717)

Income (loss) before income taxes

 

(2,106,217)

 

(5,778,152)

902,864

(11,891,342)

Income tax expense (benefit)

 

6,700

 

(13,781)

6,700

(43,752)

Net income (loss)

$

(2,112,917)

$

(5,764,371)

896,164

(11,847,590)

Net income (loss) per common share

 

  

 

  

Basic and Diluted

$

(0.22)

$

(1.68)

$

0.09

$

(3.45)

Weighted average common shares outstanding

 

  

 

  

Basic

 

9,802,309

 

3,434,551

9,777,834

3,434,551

Diluted

 

9,802,309

 

3,434,551

9,779,335

3,434,551

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

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PETROS PHARMACEUTICALS, INC.

(formerly Metuchen Pharmaceuticals, LLC)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY / MEMBERS’ CAPITAL

(Unaudited)

    

    

Preferred 

    

    

Common 

    

    

    

Common

    

Additional

    

    

Preferred 

Units 

Common

Units 

Preferred 

Common 

Stock 

Paid-in 

Accumulated 

Units

Amount

Units

Amount

Stock

Stock

Amount

Capital

Deficit

Total

Three Months Ended June 30, 2021

Balance, March 31, 2021

 

 

 

9,798,261

$

980

79,615,223

$

(58,693,063)

$

20,923,140

Issuance of Common Stock for Service

 

 

 

 

 

28,338

 

3

 

89,999

 

 

90,002

Stock-based Compensation Expense

 

 

 

 

 

 

 

590,502

 

 

450,502

Net loss

 

 

 

 

 

 

 

 

(2,112,917)

 

(1,972,917)

Balance, June 30, 2021

 

$

 

$

 

9,826,599

$

983

80,295,724

$

(60,805,980)

$

19,490,727

Three Months Ended June 30, 2020

 

 

 

Balance, March 31, 2020

1,619,754

$

20,018,205

3,434,551

$

29,117,233

$

$

$

(47,199,435)

$

1,936,003

Net loss

(5,764,371)

(5,764,371)

Balance, June 30, 2020

1,619,754

$

20,018,205

3,434,551

$

29,117,233

$

$

$

(52,963,806)

$

(3,828,368)

Six Months Ended June 30, 2021

Balance, December 31, 2020

$

$

500

9,707,655

$

971

79,170,225

$

(61,702,144)

$

17,469,052

Conversion of Preferred Stock

(500)

60,606

6

(6)

Issuance of Common Stock for Service

58,338

6

187,796

187,802

Stock-based Compensation Expense

937,709

797,709

Net income

896,164

1,036,164

Balance, June 30, 2021

$

$

9,826,599

$

983

$

80,295,724

$

(60,805,980)

$

19,490,727

Six Months Ended June 30, 2020

Balance, December 31, 2019

1,619,754

$

20,018,205

3,434,551

$

29,117,233

$

(411,162,196)

$

8,019,222

Net loss

(11,847,590)

(11,847,590)

Balance, June 30, 2020

1,619,754

$

20,018,205

3,434,551

$

29,117,233

$

$

$

(52,963,806)

$

(3,828,368)

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

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PETROS PHARMACEUTICALS, INC.

(formerly Metuchen Pharmaceuticals, LLC)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

    

For the Six Months Ended June 30, 

2021

2020

Cash flows from operating activities:

 

  

 

  

Net income (loss)

$

896,164

$

(11,847,590)

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

 

 

Depreciation and amortization

 

3,457,657

 

3,322,722

Bad debt expense

 

17,742

 

Inventory and sample inventory reserve

 

(360,514)

 

115,410

Non-cash paid-in-kind interest

 

 

523,166

Amortization of deferred financing costs and debt discount

 

12,500

 

12,500

Accretion for end of term fee

 

 

84,064

Deferred tax benefit

 

 

(194,358)

Lease expense

 

50,479

 

45,042

Derivative liability

 

(7,670,000)

 

Deferred revenue

89,805

Employee stock based compensation

 

937,709

 

Non-employee stock based compensation

187,802

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

3,114,312

 

1,490,995

Inventories

 

710,496

 

381,494

Deposits

 

4,576

 

2,326

Prepaid expenses and other current assets

 

80,505

 

1,911,349

Accounts payable

 

(3,011,666)

 

1,921,252

Accrued expenses

 

(918,929)

 

(5,678,278)

Accrued inventory purchases

 

 

(250,000)

Other current liabilities

 

186,343

 

120,347

Long-term liabilities

 

(131,347)

 

(75,752)

Net cash used in operating activities

 

(2,346,366)

 

(8,115,311)

Cash flows from investing activities:

 

  

 

  

Acquisition of fixed assets

 

 

(4,429)

Net cash used in investing activities

 

 

(4,429)

Cash flows from financing activities:

 

  

 

  

Payment of senior debt

 

(3,227,914)

 

(3,144,309)

Payment of portion of senior debt end of term fee

 

(534,237)

 

Proceeds from subordinated related party term loans

 

 

10,000,000

Debt issuance costs

 

 

(50,000)

Net cash (used in) provided by financing activities

 

(3,762,151)

 

6,805,691

Net decrease in cash

 

(6,108,517)

 

(1,314,049)

Cash, beginning of period

 

17,139,694

 

2,145,812

Cash, end of period

 

11,031,177

 

831,763

Supplemental cash flow information:

 

  

 

  

Cash paid for interest during the period

$

309,497

$

683,118

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

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PETROS PHARMACEUTICALS, INC.

(formerly Metuchen Pharmaceuticals, Inc.)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1)    Nature of Operations, Basis of Presentation, and Liquidity

Nature of Operations

Petros Pharmaceuticals, Inc. (“Petros” or the “Company”) was incorporated in Delaware on May 14, 2020 for the purpose of effecting the transactions contemplated by that certain Agreement and Plan of Merger, dated as of May 17, 2020 (the “Original Merger Agreement”), by and between Petros, Neurotrope, Inc., a Nevada corporation (“Neurotrope”), PM Merger Sub 1, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Petros (“Merger Sub 1”), PN Merger Sub 2, Inc., a Delaware corporation and a wholly-owned subsidiary of Petros (“Merger Sub 2”), and Metuchen Pharmaceuticals LLC, a Delaware limited liability company (“Metuchen”). On July 23, 2020, the parties to the Merger Agreement entered into the First Amendment to the Agreement and Plan of Merger and Reorganization (the “First Merger Agreement Amendment”) and on September 30, 2020, the parties to the Original Merger Agreement entered into the Second Amendment to the Agreement and Plan of Merger and Reorganization (the “Second Merger Agreement Amendment” and, together with the Original Merger Agreement and the First Merger Agreement Amendment, the “Merger Agreement”). The Merger Agreement provided for (1) the merger of Merger Sub 1, with and into Metuchen, with Metuchen surviving as a wholly-owned subsidiary of Petros (the “Metuchen Merger”) and (2) the merger of Merger Sub 2 with and into Neurotrope, with Neurotrope surviving as a wholly-owned subsidiary of Petros (the “Neurotrope Merger” and together with the Metuchen Merger, the “Mergers”). As a result of the Mergers, Metuchen and Neurotrope became wholly-owned subsidiaries of Petros, and Petros became a publicly traded corporation on December 1, 2020. On December 7, 2020, Neurotrope completed the spin-off of certain assets, whereby (i) any cash in excess of $20,000,000, subject to adjustment as provided in the Merger Agreement, and all of the operating assets and liabilities of Neurotrope not retained by Neurotrope in connection with the Mergers were contributed to Synaptogenix, Inc. (formerly known as Neurotrope Bioscience, Inc.), a Delaware corporation (“Synaptogenix”), and a wholly-owned subsidiary of Neurotrope.

The Mergers were accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Metuchen was determined to be the accounting acquirer based on an analysis of the criteria outlined in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) No. 805, Business Combinations (“ASC 805”) and the facts and circumstances specific to the Mergers, including: (1) Metuchen Securityholders owned approximately 51.0% of the equity securities of Petros immediately following the closing of the transaction; (2) a majority of the board of directors of Petros are composed of directors designated by Metuchen under the terms of the Mergers; and (3) a majority of the existing members of Metuchen’s management are the management of Petros. The net assets of Metuchen are stated at historical costs in the Company’s Condensed Consolidated Financial Statements, with no goodwill or intangible assets recorded. Accordingly, the historical financial statements of Metuchen through November 30, 2020 became the Company’s historical financial statements, including the comparative prior periods. These Condensed Consolidated Financial Statements include Metuchen, Petros and Neurotrope, Inc, after the spin-off discussed above, from December 1, 2020, the date the reverse recapitalization was consummated.

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Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary to present fairly our financial position, results of operations and cash flows. However, actual results could differ from those estimates. The condensed consolidated balance sheet at December 31, 2020, has been derived from audited financial statements as of that date. The unaudited interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the United States Securities and Exchange Commission. This Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes previously distributed in our Annual Report on Form 10-K for the year ended December 31, 2020. Certain prior year amounts have been reclassified for consistency with current year presentation. These reclassifications had no effect on the reported results of operations.

Principles of Consolidation

The unaudited interim condensed consolidated financial statements include the accounts of TIMM Medical, Inc. (“Timm Medical”), and Pos-T-Vac, LLC (“PTV”), subsidiaries of Metuchen, as well as the accounts of Metuchen and Neurotrope, subsidiaries of Petros. All intercompany accounts and transactions are eliminated in consolidation.

Liquidity

The Company has experienced net losses and negative cash flows from operations since its inception. As of June 30, 2021, the Company had cash of $11.0 million, negative working capital of approximately $18.3 million, including debt of $3.4 million that matures in 2021, and sustained cumulative losses attributable to common stockholders of $60.8 million. Our plans include, or may include, utilizing our cash and cash equivalents on hand, negotiating an extension of our debt arrangement and our liability due to Vivus as well as exploring additional ways to raise capital in addition to increasing cash flows from operations. While we are optimistic that we will be successful in our efforts to achieve our plan, there can be no assurances that we will be successful in doing so. As such, we obtained a continued support letter from our largest shareholder, JCP III SM AIV, L.P., (“the JCP Investor”) through August 17, 2022.

2)    Summary of Significant Accounting Policies

Use of Estimates

The preparation of Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements, and reported amounts of revenue and expenses during the reporting periods. Such estimates include the adequacy of accounts receivable reserves, return reserves, inventory reserves, and assessment of long-lived assets, including intangible asset impairment and the determination of the fair value of the derivative liability, among others. Actual results could differ from these estimates and changes in these estimates are recorded when known.

Risks and Uncertainties

The Company is subject to risks common to companies in the pharmaceutical industry including, but not limited to, uncertainties related to commercialization of competitor products, regulatory approvals, dependence on key products, dependence on key customers and suppliers, and protection of intellectual property rights.

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In January 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China ( “COVID-19”) and the risks to the international community. The WHO declared COVID-19 a global pandemic on March 11, 2020 and since that time many of the previously imposed restrictions and other measures which were instituted in response have been subsequently reduced or lifted. However, the COVID-19 pandemic remains highly unpredictable and dynamic and its duration and extent continue to be dependent on various developments, such as the emergence of variants to the virus that may cause additional strains of COVID-19, the administration and ultimate effectiveness of vaccines, and the eventual timeline to achieve a sufficient level of herd immunity among the general population. Accordingly, the COVID-19 pandemic may continue to have negative effects on the health of the U.S. economy for the foreseeable future. The Company cannot reasonably estimate the length or severity of the impact that the COVID-19 pandemic will have on its financial results, and the Company may experience a material adverse impact on its sales, results of operations, and cash flows in fiscal 2021.

During 2020, government regulations and the voluntary business practices of the Company and prescribing physicians have prevented in-person visits by sales representatives to physicians’ offices. The Company has taken steps to mitigate the negative impact on its businesses of such restrictions. In March 2020, the Company reduced its sales representative head count to reflect the lack of in-person visits. The Company has maintained a core sales team which continues to contact physicians via telephone and videoconference as well as continuing to have webinars provided by the Company’s key opinion leaders to other physicians and pharmacists. The Company anticipates rehiring and/or assigning representatives to cover sales territories as physician access resumes new normal levels. In response to the spread of COVID-19, in March 2020, the Company closed its administrative offices and as of June 30, 2021, they remain closed, with the Company’s employees continuing their work outside of the Company’s offices. The Company has selectively resumed in-person interactions by its customer-facing personnel in compliance with local and state restrictions. The Company also continues to engage with customers virtually as the Company seeks to continue to support healthcare professionals and patient care. However, the Company’s ability to engage in personal interactions with physicians and customers remains limited, and it is unknown when the Company’s offices will reopen, and these interactions will be fully resumed.

Revenue Recognition

Prescription Medication Sales

The Company’s prescription medication sales consist of sales of Stendra® in the U.S. for the treatment of male erectile dysfunction. Under ASC Topic 606, Revenue Recognition (“Topic 606”), the Company recognizes revenue from prescription medication sales when its performance obligations with a customer has been satisfied. In the contracts with its customers, the Company has identified a single performance obligation to provide Stendra® upon receipt of a customer order. The performance obligation is satisfied at a point in time when the Company’s customers obtain control of Stendra®, which is typically upon delivery. The Company invoices its customers after Stendra® has been delivered and invoice payments are generally due within 30 to 75 days of invoice date.

In determining the transaction price, a significant financing component does not exist since the timing from when the Company delivers Stendra® to when the customers pay for the product is typically less than one year. The Company records prescription medication sales net of any variable consideration, including but not limited to discounts, rebates, returns, chargebacks, and distribution fees. The Company uses the expected value method when estimating its variable consideration, unless terms are specified within contracts. The identified variable consideration is recorded as a reduction of revenue at the time revenues from sales of Stendra® are recognized. The Company recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. These estimates may differ from actual consideration received. The Company evaluates these estimates each reporting period to reflect known changes.

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As of June 30, 2021 and December 31, 2020, the reserves for sales deductions were $7.2 million and $8.6 million, respectively. The most significant sales deductions included in this reserve relate to returns, contract rebates, and distribution service (“DSA”) fees. Our estimates are based on factors such as our direct and indirect customers’ buying patterns and the estimated resulting contractual deduction rates, historical experience, specific known market events and estimated future trends, current contractual and statutory requirements, industry data, estimated customer inventory levels, current contract sales terms with our direct and indirect customers, and other competitive factors. Significant judgment and estimation is required in developing the foregoing and other relevant assumptions. The most significant sales deductions are further described below.

Product Returns

Consistent with industry practice, the Company maintains a return policy that generally allows its customers to return Stendra® and receive credit for product within six months prior to expiration date and up to one year after expiration date. The provision for returns is based upon the Company’s estimates for future Stendra® returns and historical experience. The provision of returns is part of the variable consideration recorded at the time revenue is recognized. As of June 30, 2021 and December 31, 2020, the reserves for product returns were $5.7 million and $7.1 million, respectively, and are included as a component of accrued expenses.

Contract Rebates, Coupon Redemptions and DSA Fees

The Company establishes contracts with wholesalers, chain stores, and indirect customers that provide for rebates, sales incentives, DSA fees and other allowances. Some customers receive rebates upon attaining established sales volumes. Direct rebates are generally rebates paid to direct purchasing customers based on a percentage applied to a direct customer’s purchases from us, including fees paid to wholesalers under our DSAs, as described below. Indirect rebates are rebates paid to indirect customers that have purchased our products from a wholesaler under a contract with us.

The Company has entered into DSAs with certain of our significant wholesaler customers that obligate the wholesalers, in exchange for fees paid by us, to: (i) manage the variability of their purchases and inventory levels within specified limits based on product demand and (ii) provide us with specific services, including the provision of periodic retail demand information and current inventory levels for our pharmaceutical products held at their warehouse locations.

Medical Device Sales

The Company’s medical device sales consist of domestic and international sales of men’s health products for the treatment of erectile dysfunction. The men’s health products do not require a prescription and include vacuum erection devices, VenoSeal, and other related accessories. Under Topic 606, the Company recognizes revenue from medical device sales when its performance obligations with its customers have been satisfied. In the contracts with its customers, the Company has identified a single performance obligation to provide medical devices upon receipt of a customer order. The performance obligation is satisfied at a point in time when the Company’s customers obtain control of the medical device, which is typically upon shipment. The Company invoices its customers after the medical devices have been shipped and invoice payments are generally due within 30 days of invoice date for domestic customers and 90 days for international customers.

In determining the transaction price, a significant financing component does not exist since the timing from when the Company delivers the medical devices to when the customers pay for the product is typically less than one year. The Company records medical device sales net of any variable consideration, including but not limited to returns. The Company uses the expected value method when estimating its variable consideration. The identified variable consideration is recorded as a reduction of revenue at the time revenues from the medical device sales are recognized. The Company recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. These estimates may differ from actual consideration received. The Company evaluates these estimates each reporting period to reflect known changes.

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Product Returns

Consistent with industry practice, the Company maintains a return policy that generally allows its customers to return medical devices and receive credit for products within 90 days of the sale. The provision for returns is based upon the Company’s estimates for future product returns and historical experience. The Company has not made significant changes to the judgments made in applying Topic 606. As of June 30, 2021 and December 31, 2020, the reserves for product returns for medical devices were not significant.

Contract Costs

In relation to customer contracts, the Company incurs costs to fulfill a contract but does not incur costs to obtain a contract. These costs to fulfill a contract do not meet the criteria for capitalization and are expensed as incurred. As such, the Company did not have any contract assets at June 30, 2021and December 31, 2020.

Fair Value of Financial Instruments

Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by an observable market.

Level 3 — Unobservable inputs which are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

Financial instruments recognized at historical amounts in the condensed consolidated balance sheets consist of cash, accounts receivable, other current assets, accounts payable, accrued expenses, other current liabilities, and senior debt. The Company believes that the carrying value of cash, accounts receivable, other current assets, accounts payable, accrued expenses, and other current liabilities approximates their fair values due to the short-term nature of these instruments.

The carrying value of senior debt as of June 30, 2021 and December 31, 2020, approximated fair value. The fair value of the senior debt was estimated by discounting to present value the scheduled coupon payments and principal repayment, using an appropriate fair market yield and is considered Level 3 in the fair value hierarchy.

In connection with the Mergers in December 2020, each security holder of Metuchen received an earnout consideration classified as a derivative liability to be paid in the form of Petros Common Stock. The Company estimated their fair value using a Monte Carlo Simulation approach. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the derivative liability as of June 30, 2021 and December 31, 2020, was $2.2 million and $9.9 million, respectively. See Note 10 Stockholders’ Equity.

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Stock-Based Compensation

The Company accounts for stock-based awards to employees and consultants in accordance with applicable accounting principles, which requires compensation expense related to stock-based transactions, including employee stock options and consultant warrants, to be measured and recognized in the financial statements based on a determination of the fair value of the stock options or warrants. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. Employee stock option and consulting expenses are recognized over the employee’s or consultant’s requisite service period (generally the vesting period of the equity grant).

The Company’s option pricing model requires the input of highly subjective assumptions, including the volatility and expected term. Any changes in these highly subjective assumptions can significantly impact stock-based compensation expense. See Note 11 Stock Options.

Income Taxes

Prior to the consummation of the Mergers, Metuchen was a limited liability company (“LLC”) for federal income tax purposes and had elected to be treated as a Partnership for federal and state income tax purposes. PTV is a disregarded entity for federal income tax purposes. As such, all income tax consequences resulting from the operations were reported on the member’s income tax return. In addition, Timm Medical was included in the Company’s structure where taxes were paid at the entity level.

Subsequent to the Mergers, Metuchen’s activity is included in the Company’s consolidated group. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period the rate change is enacted.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize deferred tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions in accordance with FASB ASC No. 740 Income Taxes (“ASC 740) on the basis of a two-step process in which (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying condensed consolidated statement of operations. As of June 30, 2021 and December 31, 2020 no accrued interest or penalties are recorded in the condensed consolidated balance sheets.

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Basic and Diluted Net Loss per Common Share

The Company computes basic net loss per common share by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period, excluding the dilutive effects of stock options and warrants to purchase common shares. The Company computes diluted net loss per common share by dividing the net loss applicable to common share by the sum of the weighted-average number of common shares outstanding during the period plus the potential dilutive effects of its convertible preferred stocks, stock options and warrants to purchase common shares, but such items are excluded if their effect is anti-dilutive. See Note 13 Basic and Diluted Net Loss per Common Share.

Recent Accounting Pronouncements

Pending Adoption as of June 30, 2021

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13, together with a series of subsequently issued related ASUs, has been codified in Topic 326. Topic 326 establishes new requirements for companies to estimate expected credit losses when measuring certain financial assets, including accounts receivables. The new guidance is effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating the effect that the new guidance will have on its condensed consolidated financial statements and related disclosures.

3)    Accounts Receivable, net

Accounts receivable, net is comprised of the following:

    

June 30, 

    

December 31, 

2021

2020

Gross accounts receivables

$

3,292,674

$

6,560,291

Distribution service fees

 

(940,505)

 

(972,652)

Chargebacks accrual

 

(17,653)

 

(121,269)

Cash discount allowances

 

(67,060)

 

(84,601)

Allowance for doubtful accounts

 

(246,541)

 

(228,800)

Total accounts receivable, net

$

2,020,915

$

5,152,969

For the six months ended June 30, 2021 and 2020, gross sales from customers representing 10% or more of the Company’s total gross sales included two customers which represented approximately 62% and 79% of total gross sales, respectively.

Receivables from customers representing 10% or more of the Company’s gross accounts receivable included two customers at June 30, 2021 and December 31, 2020 equal to 64% and 93%, respectively, of the Company’s total gross accounts receivables.

4)    Inventories

Inventory is comprised of the following:

    

June 30, 2021

    

December 31, 2020

Raw materials

$

261,157

$

325,932

Finished goods

 

178,075

 

434,598

Total inventory

$

439,232

$

760,530

Finished goods are net of valuation reserves of $546,668 and $935,866 as of June 30, 2021 and December 31, 2020, respectively. Raw materials are net of valuation reserves of $2,872,977 as of both June 30, 2021 and December 31, 2020, respectively, which is related to bulk inventory that is fully reserved.

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5)    Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets are comprised of the following:

    

June 30, 2021

    

December 31, 2020

Prepaid samples

$

$

58,483

Prepaid insurance

 

188,209

 

149,452

Prepaid FDA fees

 

252,324

 

756,972

Prepaid coupon fees

 

71,500

 

71,500

API purchase commitment asset (see Note 14)

 

1,304,541

 

1,304,541

Other prepaid expenses

 

789,794

 

391,552

Other current assets

 

136,360

 

114,784

Total prepaid expenses and other current assets

$

2,742,728

$

2,847,284

Prepaid samples, which are presented net of reserves, are expensed when distributed to the sales force. The prepaid samples reserve amount was $379,908 and $351,224 as of June 30, 2021 and December 31, 2020, respectively.

6)    Intangible Assets

Balance at December 31, 2019

    

$

38,811,137

Amortization expense

 

(6,650,218)

Balance at December 31, 2020

32,160,919

Amortization expense

 

(3,452,547)

Balance at June 30, 2021

$

28,708,372

The future annual amortization related to the Company’s intangible assets is as follows as of June 30, 2021:

2021 (remaining 6 months)

    

3,415,225

2022

 

6,191,740

2023

 

5,445,729

2024

 

4,650,787

Thereafter

 

9,004,891

Total

$

28,708,372

The intangible assets held by the Company are the Stendra® product, Timm Medical product, and PTV product and are being amortized over their estimated useful lives of 10 years , 12 years , and 12 years, respectively. The carrying value of the Stendra® product, Timm Medical product, and PTV product as of June 30, 2021 are $21.8 million, $5.4 million, and $1.5 million, respectively. The carrying value of the Stendra® product, Timm Medical product, and PTV product as of December 31, 2020 are $24.6 million, $5.9 million, and $1.6 million, respectively.

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7)    Accrued Expenses

Accrued expenses are comprised of the following:

    

June 30, 2021

    

December 31, 2020

Accrued price protection

$

1,853,979

$

1,853,979

Accrued product returns

 

8,107,386

 

9,452,248

Accrued contract rebates

 

506,229

 

412,046

Due to Vivus (see Note 14)

 

2,267,523

 

2,267,523

Due to third-party logistic provider

 

532,321

 

Accrued severance

 

75,436

 

519,609

Accrued professional fees

 

23,479

 

Other accrued expenses

 

398,504

 

178,381

Total accrued expenses

$

13,764,857

$

14,683,786

As part of its acquisition of Stendra®, the Company provides the previous owner with price protection for certain Stendra® product returns that are processed by the previous owner in accordance with the Company's returned goods policy. Some customer agreements require that product returns be credited at the current wholesale acquisition cost (“WAC”). If the Company subsequently raises the WAC, the Company will reimburse the previous owner for the difference between the current WAC and the original sale price for returns processed by the previous owner.

8)    Debt

Senior Debt

The following is a summary of the Company’s senior indebtedness at June 30, 2021 and December 31, 2020:

    

June 30, 2021

    

December 31, 2020

Principal balance

$

3,425,378

$

6,653,292

Plus: End of term fee

 

 

534,237

Less: Debt issuance costs

 

 

(12,500)

Total senior debt

$

3,425,378

$

7,175,029

On September 30, 2016, the Company entered into a loan and security agreement with Hercules Capital, Inc. (“Hercules”), a third party, for a $35 million term loan (the “Senior Debt”). The Senior Debt includes an additional Paid-In-Kind (“PIK”) interest that increases the outstanding principal on a monthly basis at an annual rate of 1.35% and a $787,500 end of term charge. The end of term charge is being recognized as interest expense and accreted over the term of the Senior Debt using the effective interest method.

On November 22, 2017, the Company and Hercules entered into Amendment No. 1 to the Senior Debt (the “First Amendment”). A covenant was added, in which the Company may achieve a certain minimum EBITDA, as defined in the First Amendment, target for the trailing twelve-month period, ending June 30, 2018. The end of term charge was increased from $787,500 to $1,068,750. The minimum EBITDA for each of the trailing six months and the fixed charge coverage ratio were reduced from 1:1 to 0.9:1. The Company was also required to prepay $10 million in principle.

On April 13, 2020, the Company and Hercules entered into Amendment No. 2 to the Senior Debt (the “Second Ammendment”). The Second Amendment waived all financial covenant defaults for all periods since inception through the period ending March 31, 2020. The Second Amendment also included the following changes:

Extended the maturity date from October 1, 2020 to April 2021, which can be further extendable to December 1, 2021 upon achieving the Financing Milestone, as defined in the agreement.
Increased the cash interest rate from the greater of (a) 10.75% or (b) 10.75% plus the US WSJ Prime minus 4.50% to the greater of (a) 11.50% or (b) 11.50% plus the US WSJ Prime minus 4.25%.

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Removed the PIK interest rate.
Removed the prepayment penalty.

The end of term charge of $1,068,750 was partially extended with $534,375 paid on October 1, 2020 and $534,375 paid on February 1, 2021.

Effective September 30, 2020, the Company and Hercules entered into the Third Amendment to  the Senior Debt Loan and Security Agreement (the “Third Amendment”) to provide for interest only payments commencing on October 1, 2020 and continuing through December 22, 2020 unless the Company raised net cash proceeds of at least $25 million through an equity or debt financing or other transaction on or before December 21, 2020. The Third Amendment also amended the minimum cash, minimum net revenue and minimum EBITDA financial covenants. On that same date, Juggernaut Capital Partners III, L.P, an affiliate of the JCP Investor., Hercules and Wells Fargo Bank, N.A. entered into an escrow agreement (the “Escrow Agreement”) to escrow funds amounting to approximately $1.5 million, an amount equal to the aggregate of certain principal payments due under the Loan Agreement, as amended. In connection with the consummation of the Mergers, the funds held in escrow were disbursed back to Juggernaut Capital Partners III, L.P. and the Escrow Agreement was terminated.

The Company satisfied the maturity date extension requirement pursuant to funds retained upon the closing of the Mergers in December 2020. As a result, the Senior Debt now has a maturity date of December 1, 2021. As of June 30, 2021, the Company was in compliance with its covenants.

Interest expense on the Senior Debt was as follows for the periods indicated:

For the Three Months Ended

For the Six Months Ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

Interest expense for term loan

$

115,525

$

340,477

$

276,437

$

728,043

Amortization of debt issuance costs

 

 

12,500

 

12,500

 

12,500

PIK interest

 

 

4,432

 

 

44,449

$

115,525

$

357,409

$

288,937

$

784,992

Included in accrued expenses in the accompanying condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, is $32,825 and $65,885, respectively, of accrued and unpaid interest.

Subordinated Related Party Term Loans

Subordinated Related Party Term Loans Entered into During 2020

During 2020, the Company entered into Subordinated Promissory Notes with the JCP Investor in the principal amount of $15.5 million. The maturity date of the Subordinated Promissory Notes was April 2, 2021 and they had PIK interest that increased the outstanding principal on a daily basis at an annual rate of 20%.

In connection with the entry into the Merger Agreement on May 17, 2020, the JCP Investor, Neurotrope and Metuchen entered into a Note Conversion and Loan Repayment Agreement pursuant to which, the JCP Investor agreed to convert all of the above outstanding subordinated promissory notes and accrued PIK interest held by Juggernaut Capital Partners LLP and the JCP Investor, into Petros common stock in connection with the consummation of the Mergers on December 1, 2020, and the Subordinated Promissory Notes were terminated. Accordingly, the principal balance of the Subordinated Promissory Notes and accrued PIK interest was $0 as of both June 30, 2021 and December 31, 2020.

Interest expense on this debt was $402,435 and $478,717, comprised entirely of PIK interest, for the three and six months ended June 30, 2020, respectively.

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9)    Members’ Capital

(a)    Capitalization

Prior to September 16, 2019, the Company authorized 100 units of Class A Common Units (the “Class A Units”) to be issued and outstanding. In addition, there were Restricted Member Units (“RMU’s”) that were designated as a class of incentive units (also known as “Class B Units”).

On September 16, 2019, the Company amended and restated its operating agreement creating the rights and preferences relating to the Preferred Units and Common Units mentioned in the Private Placement Offering below. The issued and outstanding Preferred Units and Common Units were exchanged for Common Stock of the Company in connection with the Mergers.

(b)    Preferred Units

A holder of a Preferred Unit was entitled to vote on any matter requiring the approval of such units. In addition, the Preferred Unit holders were entitled to distributions, after adjustment for specific items, for each fiscal year.

The following actions required the prior consent of the holders of a majority of the outstanding Preferred Units: (a) amend, alter or repeal any provision of the amended and restated operating agreement (if such amendment would adversely affect any of the rights or preferences of the Preferred Units); (b) authorize or create membership interests that have a preference over the Preferred Units as to dividends or liquidation; (c) declare or pay any dividends or distributions; (d) dissolve or liquidate (in whole or in part), consolidate, merge, convey, lease, sell, or transfer all or substantially all of the assets of the Company; or purchase or otherwise acquire (directly or indirectly) all or substantially all of the assets or equity interest issued by another company; or file a petition for bankruptcy or receivership of the Company; (e) repurchase or redeem any Membership Interests; or (f) enter into any agreement, commitment or arrangement to do any of the foregoing.

(c)    Common Units (formerly known as Class A Units)

A holder of a Common Unit was entitled to vote on any matter requiring the approval of such units. In addition, the Common Unit holders were entitled to distributions, after adjustment for specific items, for each fiscal year.

Effective with the amended and restated operating agreement on August 26, 2019, each Class A Unit was exchanged for 10,000 Common Units. There was no change to the ownership percentages as a result of the exchange and the rights and privileges of Common Unit holders is consistent with that of the  holders of Class A Units.

(d)    Class B Units

As of September 16, 2019, none of the Class B Units had been issued. Effective with the amended and restated operating agreement on September 16, 2019, the Class B Units were no longer an authorized membership interest of the Company.

(e)    Liquidation

Upon liquidation of the Company or upon any Company sale, the Company was required to pay, hold, or distribute, or cause to be paid, held or distributed, the proceeds thereof as follows: (a) first, to the holders of Preferred Units, pro rata in proportion to the number of Preferred Units held by such holders, until the holders of such Preferred Units receive in respect of each Preferred Unit held by them, the preferred liquidation preference amount; (b) second, to the holders of Common Units, pro rata in proportion to the number of Common Units held by such holders, the remaining proceeds available for distribution.

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10)     Stockholders’ Equity

Upon consummation of the Mergers, each outstanding Common Unit or Preferred Unit of Metuchen was exchanged for a number of shares of Petros common stock, par value $0.0001 per share (the “Petros Common Stock”), equal to 0.4968, which resulted in an aggregate of 4,949,610 shares of Petros Common Stock issued to the holders of Metuchen units in the Mergers. In addition, each holder of Neurotrope common stock, par value $0.0001 per share (the “Neurotrope Common Stock”) received one (1) share of Petros Common Stock for every five (5) shares of Neurotrope Common Stock held, and each holder of Neurotrope preferred stock, par value $0.001 per share (the “Neurotrope Preferred Stock”) received one (1) share of Petros preferred stock (the “Petros Preferred Stock”) for every one (1) share of Neurotrope Preferred Stock held. In addition, each holder of outstanding options to purchase Neurotrope Common Stock or outstanding warrants to purchase Neurotrope Common Stock that were not previously exercised prior to the consummation of the Mergers was converted into equivalent options and warrants to purchase one (1) share of Petros Common Stock for every five (5) shares of Neurotrope Common Stock outstanding pursuant to such options or warrants.

As a result of the Mergers, the former Neurotrope shareholders collectively owned approximately 4,758,045 shares of Petros Common Stock and 500 shares of Petros Preferred Stock and the former Metuchen unit holders collectively owned 4,949,610 shares of Petros Common Stock. Accordingly, the former Metuchen unit holders collectively owned approximately 51% of Petros and the former Neurotrope shareholders collectively owned approximately 49% of Petros.

On January 26, 2021, 500 shares of the Company’s Preferred Stock were converted into 60,606 shares of the Company’s common stock.

Effective January 1, 2021, the Company entered into a Marketing and Consulting Agreement (the “CorIRAgreement”) with CorProminence, LLC (the “Consultant”) for certain shareholder information and relation services. The term of the CorIRAgreement is for one year with automatic consecutive one-year renewal terms. As consideration for the shareholder information and relation services, the Company will pay the Consultant a monthly retainer of $7,500 and issued 30,000 restricted shares of the Company’s common stock to the Consultant on March 24, 2021 (the “CorIR Grant Date”). The restricted shares vested immediately on the CorIR Grant Date.

Effective April 1, 2021, the Company entered into a Consulting and Advisory Agreement (the “King Agreement”) with Tania King, an employee of Juggernaut Capital Partners LLP, for certain services. The term of the King Agreement is indefinite but may be terminated by either party, with or without cause. As consideration for the consulting and advisory services, the Company will pay Ms. King a monthly fee of $4,000, an additional $12,000 payment included with the first monthly fee for services provided since January 1, 2021 and issue restricted stock units for shares of the Company’s common stock (“RSU’s”) with a cash value of $72,000 as of the date of the grant (the “King Grant Date”). The RSU’s shall vest and settle in full on the one-year anniversary of the King Grant Date.

Effective June 4, 2021, the Company entered into a Service Agreement (the “IRTH Agreement”) with IRTH Communications, LLC (“ITRH”) for certain investor relations services. The term of the IRTH is for one year with an optional one-year renewal term. As consideration for the services, the Company will pay IRTH a fixed fee of $6,750 per month for the term of the IRTH Agreement and issued 28,338 restricted shares of the Company’s common stock with a value of $90,002 as of the date of the grant (the “IRTH Grand Date”). The restricted shares vest immediately on the IRTH Grant Date.

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Backstop Agreement

In connection with the entry into the Merger Agreement, Neurotrope and an affiliated entity of the JCP Investor entered into a Backstop Agreement pursuant to which Juggernaut agreed to contribute to Metuchen at the closing of the Mergers an amount equal to the Working Capital Shortfall Amount (as defined in the Merger Agreement), if any, as determined in accordance with the Merger Agreement, up to an aggregate amount not to exceed $6,000,000 (the “Commitment Cap”). Following the closing of the Mergers and until the one-year anniversary of the closing of the Mergers (the “Anniversary Date”), Juggernaut agreed to contribute, or cause an affiliate to contribute, to Petros an amount equal to the Commitment Cap less the Working Capital Shortfall Amount (the “Post-Closing Commitment”) on the Anniversary Date; provided, however, that, (a) in the event that, at any time between the closing of the Mergers and the Anniversary Date, the closing price per share of Petros’s Common Stock on The Nasdaq Capital Market or any other securities exchanges on which the Petros Common Stock is then traded equals or exceeds $2.175 for a period of ten consecutive trading days, then the Post-Closing Commitment shall be reduced by fifty percent (50%) and (b) in the event that, at any time between the closing of the Mergers and the Anniversary Date, the closing price per share of Petros’s Common Stock on The Nasdaq Capital Market or any other securities exchanges on which the Petros Common Stock is then traded equals or exceeds $2.5375 for a period of ten (10) consecutive trading days, then the Post-Closing Commitment shall be $0.

Pursuant to the Backstop Agreement and upon closing of the Mergers, Juggernaut paid the Company $2.6 million for the Working Capital Shortfall Amount, which was recorded in equity in relation to the net proceeds received from the reverse capitalization.

Contingent Consideration

Pursuant to the Merger Agreement, each security holder of Metuchen received a right to receive such security holder’s pro rata stock of an aggregate of 14,232,090 stocks of Petros Common Stock potentially issuable upon the achievement of certain milestones set forth in the Merger Agreement. The milestones are for the achievement of stock price and market capitalization, as defined over a two-year period.

Milestone Earnout Payments

In connection with the Mergers, each security holder of Metuchen received an equity classified earnout consideration to be paid in the form of Petros Common Stock if the Closing Price (as defined in the Merger Agreement) per share of stock of Petros’ Common Stock equals or exceeds certain milestones set forth in the Merger Agreement, as discussed below. Each milestone earnout payment is only achievable and payable one time and upon attainment of such milestone earnout payment. In no event will the sum of the milestone earnout payments be greater than 4,000,000 shares of Petros Common Stock. As of June 30, 2021, the milestones have not been achieved.

If at any time following the Closing (as defined in the Merger Agreement) and prior to the one-year anniversary of the Closing, the Closing Price per share of Petros Common Stock is, for a period of twenty (20) trading days during any thirty (30) consecutive trading day period, greater than or equal to:

$8.00 - then the earnout payment will be equal to 1,000,000 shares of Petros Common Stock.
$10.00 - then the earnout payment will be equal to 1,000,000 shares of Petros Common Stock.
$13.00 - then the earnout payment will be equal to 1,000,000 shares of Petros Common Stock.
$15.00 - then the earnout payment will be equal to 1,000,000 shares of Petros Common Stock.

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If at any time within the twelve (12) month period following the one-year anniversary of the Closing, the Closing Price per share of Petros Common Stock is, for a period of twenty (20) trading days during any thirty (30) consecutive trading day period, greater than or equal to:

$10.00 - then the earnout payment will be equal to 1,000,000 shares of Petros Common Stock.
$12.50 - then the earnout payment will be equal to 1,000,000 shares of Petros Common Stock.
$16.25 - then the earnout payment will be equal to 1,000,000 shares of Petros Common Stock.
$18.75 - then the earnout payment will be equal to 1,000,000 shares of Petros Common Stock.

Market Capitalization/Gross Proceeds Earnout Payments

In connection with the Mergers, each security holder of Metuchen received the right to receive earnout consideration, which is liability classified, to be paid in the form of Petros Common Stock if either Petros’ Market Capitalization (as defined in the Merger Agreement) or Petros receives aggregate gross proceeds that equals or exceeds certain milestones set forth in the Merger Agreement, as discussed below. Each milestone earnout payment is only achievable and payable one time and upon attainment of such milestone. In no event will the sum of the milestone earnout payments be greater than 10,232,090 shares of Petros Common Stock. As of June 30, 2021, the milestones have not been achieved. The fair value of the derivative liability was $2.2 million and $9.9 million as of June 30, 2021 and December 31, 2020, respectively.

Metuchen equity holders will have the opportunity to receive the following during the period ending on the second anniversary of the Closing:

a.The Earnout Payment shall be equal to 2,000,000 shares of Petros Common Stock if:
i.Petros’ Market Capitalization (as defined in the Merger Agreement) is greater than or equal to $250,000,000 for a period of twenty (20) trading days during any thirty (30) consecutive trading day period with a Closing Price of no less than $17.50 on each such trading day; or
ii.Petros receives aggregate gross proceeds of at least $25,000,000 in an offering (or series of offerings within a sixty (60) calendar day period) of Petros Common Stock with a price per share of Petros Common Stock sold equal to no less than $17.50 in each offering (or series of offerings) and where Petros has a Market Capitalization immediately prior to each such offering (or series of offerings) equal to at least $250,000,000.
b.The Earnout Payment shall be equal to 2,000,000 shares of Petros Common Stock if:
i.Petros’ Market Capitalization is greater than or equal to $300,000,000 for a period of twenty (20) trading days during any thirty (30) consecutive trading day period with a Closing Price of no less than $18.75 on each such trading day; or
ii.Petros receives aggregate gross proceeds of at least $30,000,000 in an offering (or series of offerings within a sixty (60) calendar day period) of Petros Common Stock with a price per share of Petros Common Stock sold equal to no less than $18.75 in each offering (or series of offerings) and where Petros has a Market Capitalization immediately prior to each such offering (or series of offerings) equal to at least $300,000,000.
c.The Earnout Payment shall be equal to 3,000,000 shares of Petros Common Stock if:
i.Petros’ Market Capitalization is greater than or equal to $400,000,000 for a period of twenty (20) trading days during any thirty (30) consecutive trading day period with a Closing Price of no less than $22.50 on each such trading day; or

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ii.Petros receives aggregate gross proceeds of at least $40,000,000 in an offering (or series of offerings within a sixty (60) calendar day period) of Petros Common Stock with a price per share of Petros Common Stock sold equal to no less than $22.50 in each offering (or series of offerings) and where Petros has a Market Capitalization immediately prior to each such offering (or series of offerings) equal to at least $400,000,000.
d.The Earnout Payment shall be equal to 3,232,090 shares of Petros Common Stock if:
i.Petros’ Market Capitalization is greater than or equal to $500,000,000 for a period of twenty (20) trading days during any thirty (30) consecutive trading day period with a Closing Price of no less than $23.75 on each such trading day; or
ii.Petros receives aggregate gross proceeds of at least $50,000,000 in an offering (or series of offerings within a sixty (60) calendar day period) of Petros Common Stock with a price per share of Petros Common Stock sold equal to no less than $23.75 in each offering (or series of offerings) and where Petros has a Market Capitalization immediately prior to each such offering (or series of offerings) equal to at least $500,000,000.

11)    Stock Options and Restricted Stock Units (“RSU’s”)

The Company established the 2020 Omnibus Incentive Compensation plan (the “2020 Plan”) which provides for the grants of awards to our directors, officers, employees, and consultants. The 2020 Plan authorizes the grant of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, restricted stock units and other stock-based awards and cash-based awards. As of June 30, 2021 there were 1,213,301 shares authorized, and 0 shares available for issuance, under the 2020 Plan.

Upon the consummation of the Mergers as disclosed in Note 1, Neurotrope options issued and outstanding as of December 1, 2020 were converted into equivalent options to purchase stocks of Petros common stock and restricted stock units were adjusted to give effect to the Exchange Ratio set forth in the Merger Agreement. The following is a summary of stock options for the six months ended June 30, 2021:

    

    

Weighted-Average 

    

Weighted-

Remaining 

Aggregate Intrinsic 

Number of