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:

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, trade names and service marks, including:

	●	PLX®
	●	PLX PHARMA®
	●	PLXGUARD™
	●	VAZALORE™VAZALORE®
	●	FIRST LIQUID-FILLED ASPIRIN CAPSULES™CAPSULES®
	●

Solely for convenience, the trademarks and trade names in this quarterly report are sometimes referred to without the TM symbol,® or ™ symbols, 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.

PLx Pharma Inc.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

See accompanying notes to unaudited consolidated financial statements.(in thousands, except share and per share data)

PLx Pharma Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to unaudited consolidated financial statements.

PLx Pharma Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except share and per share data)

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)

(in thousands, except per share data)

For the Three and Nine Months Ended September 30,March 31, 2022 and 2021 and 2020

See accompanying notes to unaudited consolidated financial statements.

PLx Pharma Inc.

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(in thousands)

See accompanying notes to unaudited consolidated financial statements. 

PLx Pharma Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021March 31, 2022

(unaudited)

NOTE 1. BACKGROUND AND ORGANIZATION

Business Operations

PLx Pharma Inc. (the “Company”, “we”, “our” or “us”), together with its subsidiary PLx Opco Inc., is a commercial-stage drug delivery platform technology company focused on improving how and where active pharmaceutical ingredients (APIs)(“APIs”) are absorbed in the gastrointestinal (GI)("GI") tract via its clinically validatedclinically-validated and patent protectedpatent-protected PLxGuard™ technology.  The Company has two Food and Drug Administration (“FDA”) approved products, VAZALORE™VAZALORE® 32581 mg and VAZALORE™VAZALORE® 81325 mg (referred to together as “VAZALORE”), which are liquid-filled aspirin capsules for over-the-counter distribution.distribution ("OTC").  

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 and continue to enforce 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 significant disruption or delay in the development, manufacturing or sale of VAZALORE.VAZALORE, and has not otherwise experienced any significant negative impact on its financial condition, results of operations or cash flows. 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 unaudited 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 September 30, 2021March 31, 2022 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 had not generated any revenue from the sale of products prior to the quarter ended September 30, 2021 and has incurred operating losses in each year since it commenced operations. The Company began generating revenue in the U.S. from its sales of VAZALORE in the third quarter of 2021. 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. Additionally, as of September 30, 2021,March 31, 2022, the Company hashad entered into media and advertising commitments for VAZALORE of $2.4$2.9 million which isare expected to be paid duringin the restsecond quarter of 2021.2022.  Further, the Company has supply agreements with its contract manufacturer and packager for VAZALORE which contain minimum annual purchase commitments startingthat started in 2021 and continuingcontinue through 2025; the minimum annual purchase commitments are intended to ensure that manufactured product is available when required to enable the Company to meet its expected market demand for VAZALORE.

As of September 30, 2021,March 31, 2022, the Company had working capital of $81.2$44.5 million, including cash and cash equivalents of $82.6$52.5 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 September 30, 2021March 31, 2022 supports that the Company can fund its obligations for at least one year from the date these financial statements were issued and mitigates the substantial doubt consideration.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and Principles of Consolidation

The accompanying consolidated financial statements are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. The December 31, 20202021 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, 2020.2021. 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 September 30, 2021March 31, 2022 and the results of operations for the three and ninemonths ended September 20, 2021March 31, 2022 and 2020.2021.

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 unaudited 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, sales returns and allowances, trade promotional allowances, 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 September 30, 2021, the Company had cash and cash equivalents of $82.6 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 September 30, 2021March 31, 2022 and December 31, 20202021 was comprised of the following:

The Company began shipping inventory to its customers in the third quarter of 2021.The Company regularly reviews inventory quantities on hand and assesses the need for an allowance for obsolescence based on estimates of net realizable value, 0value. The allowance for obsolete inventory was necessary as of September 30, 2021March 31, 2022 and December 31, 2020.2021 was not material.

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 September 30, 2021, the Company did not have any finance leases.

Goodwill

Goodwill is not amortized but is subject to periodic review for impairment. Goodwill is reviewed annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying amount of the goodwill might not be recoverable. Management performs its review of goodwill on its one reporting unit.

The Company performs a one-step test in its evaluation of the carrying value of goodwill, if qualitative factors determine it is necessary to complete a goodwill impairment test. In the evaluation, the fair value of the relevant reporting unit is determined and compared to the carrying value. If the fair value is greater than the carrying value, then the carrying value is deemed to be recoverable, and no further action is required. If the fair value estimate is less than the carrying value, goodwill is considered impaired for the amount by which the carrying amount exceeds the reporting unit’s fair value, and a charge is reported in impairment of goodwill in the Company’s consolidated statements of operations.

The Company has not identified any events or changes in circumstances that indicate that a potential impairment of goodwill occurred during the three and nine months ended September 30, 2021 and 2020.

Revenue Recognition

The Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers; (ii) identification of distinct performance obligations in the contract; (iii) determination of contract transaction price; (iv) allocation of contract transaction price to the performance obligations; and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation. The Company recognizes revenue upon the satisfaction of its performance obligations (upon transfer of control of promised goods or services to customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services. Deferred revenue results from cash receipts from or amounts billed to customers in advance of the transfer of control of the promised services to the customer and is recognized as performance obligations are satisfied. When sales commissions or other costs to obtain contracts with customers are considered incremental and recoverable, those costs are deferred and then amortized as selling and marketing expenses on a straight-line basis over an estimated period of benefit.

Through June 30, 2021, the Company’s sole revenue was generated from a cost-reimbursable federal grant with the National Institutes of Health, which grant was completed in the second quarter of 2020. The Company recognized revenue on this grant as grant-related expenses were incurred by the Company or its subcontractors. The Company recognized $30,430 of revenue under this arrangement during the nine months ended September 30, 2020.

The Company began generating revenue in the U.S. from its sales of VAZALORE in 81mg81 mg and 325 mg doses in the third quarter of 2021 and recognizes revenue, at a point in time, when control of a promised good is transferred to a customer in an amount that reflects consideration that the Company expects to be entitled to in exchange for that good. This occurs either when the finished goods are received by the customer or when a product is picked up by the customer or the customer’s carrier. The Company recognized total revenue from sales of VAZALORE of $6.6$2.1 million with $1.7 million or 79% of net sales for the 81 mg dose and $0.4 million or 21% of net sales for the 325 mg dose for the three months ended September 30, 2021.March 31, 2022.

Nature of Goods and Services

The Company generates revenue from the sale of its VAZALORE products through a broad distribution platform that includes drugstores, mass merchandisers, supermarkets,grocery stores, and e-commerce channels, all of which sell its products to consumers. Finished goods products are typically shipped FOB destination and accordingly, the Company recognizes revenue upon delivery to the customer or pick-up by the customer’s carrier.

Satisfaction of Performance Obligations

The Company recognizes revenue 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. The Company had 0no unsatisfied performance obligations or deferred revenue as of September 30, 2021.March 31, 2022.

Variable Consideration

Provisions for certain customer promotional programs, product returns and discounts to customers are accounted for as variable consideration and recorded as a reduction in sales, based on an estimate of future returns, and customer prompt payment discounts, redemption of coupons by consumers and trade promotional allowances paid to customers. These allowances cover extensive promotional activities, primarily comprised of cooperative advertising, slotting, coupons, periodic price reduction arrangements, and other in-store displays.

The reserves for sales returns and consumer and trade promotion obligations are established based on the Company’s best estimate of the amounts necessary to settle future and existing obligations for products sold as of the balance sheet date.  The Company uses trend experience and coupon redemption inputs in arriving atto determine coupon reserve requirements and uses forecasted customer and sales organization inputs, and historical trend analysis for consumer brands in determiningto determine the reserves for other promotional activities and sales returns. The balance of reserves for sales returns and consumer and trade promotion obligations, reflected in the accompanying unaudited condensed consolidated balance sheets as a reduction toin accounts receivable,payable and accrued liabilities, was $1.8$1.0 million as of September 30, 2021 (March 31, 2022 NaNand $1.3 million as of December 31, 2020).2021.

Cost of Sales

Advertising

Cost of sales include costs related to the manufacture and packaging of the Company’s products charged by our contract manufacturer and packagers. Cost of sales also includes inbound and outbound shipping and warehousing costs, expenses related to order process, quality assurance and royalties.

Sales, Marketing and Administrative

Selling, marketing and administrative (“SM&A”) expenses include costs related to functions such as sales, marketing, corporate management, insurance, and legal costs. Broker commissions are incurred and expensed as SM&A costs in the underlying consolidated statements of income when the underlying sales take place. Sales and marketing expenses also include costs for advertising (excluding the costs of cooperative advertising programs, which are reflected in net sales), contract field force, consumer promotion costs (such as on-shelf advertisements and displays). Sales and marketingAdvertising costs are expensed as they are incurred.

The Company hasincurred advertising costs of $9.6 million during the notthree 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 ofmonths ended September 30, 2021March 31, 2022, and December 31, 2020.

Research and Development Expenses

Costs incurredwhich are included 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 recognizesSM&A expense in itsthe unaudited consolidated statements of operations, forand did not have any advertising costs during the fair value of all stock-based compensation to key employees, nonemployee directors and advisors, generally in the form of stock options. 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.three months ended March 31, 2021. 

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- averageweighted-average number of shares outstanding plus the dilutive impact of all potential dilutive common shares, consisting primarily of common shares underlying common stock options and stock purchase warrants using the treasury stock method, and convertible preferred stock using the if-converted method.

Due to net losses, none of the participating securities nor potential dilutive securities had a dilutive impact during the three and ninemonths ended September 30, 2021March 31, 2022 and 2020.2021.

The following table sets forth the potential dilutive securities:

Recent Adopted Accounting StandardsDevelopments

In November 2019,June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance (AccountingAccounting Standards Update ("ASU"(“ASU”) 20192016-1213,Financial Instruments-Credit Losses (Topic 326) simplifying: Measurement of Credit Losses on Financial Instruments, which is designed to provide financial statement users with more information about the accounting for income taxesexpected credit losses on financial instruments and other commitments to extend credit held by removinga reporting entity at each reporting date. When determining such expected credit losses, the following exceptions: 1) exceptionguidance requires companies to the incremental approach for intraperiod tax allocation when there isapply a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit 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. Theestimates. This guidance is effective on a modified retrospective basis for reporting periodsfiscal years beginning after December 15, 2020,2022, including interim periods within thatthose fiscal year.years. The Company adoptedwill evaluate the provisions of ASU 2019-12 on January 1, 2021, and the adoption did not have a material impact on itsthe consolidated financial position, results of operations and cash flows.

Unadopted Accounting Standardsstatements.

In August 2020, the FASB issued ASU 2020-06 Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (subtopic 815-40) that provides new guidance on the accounting for convertible debt instruments and contracts in an entity’s own equity. The guidance simplifies the accounting for convertible instruments by reducing the various accounting models that can require the instrument to be separated into a debt component and equity component or derivative component. Additionally, the guidance eliminated certain settlement conditions previously required to be able to classify a derivative in equity. The new guidance is effective on a modified or full retrospective basis for fiscal years beginning after December 15, 2023, including interim periods with those fiscal years. The Company will evaluate the impact on the consolidated financial statements.

The Company does not believe that any recently issued effective standards, or standards issued but not yet effective, if adopted, would have a material effect on the accompanying unaudited consolidated financial statements.

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 the Final Payment Fee under the Term Loan were 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 September 30, 2021 and 2020 was $0 and $73,477, respectively. Total interest expense recognized for the nine months ended September 30, 2021 and 2020 was $11,177 and $323,976, 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 the Company’s 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 $59.0 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.

ATM Offering

On August 6, 2021, the Company entered into an Equity Distribution Agreement with JMP Securities LLC (“JMP”), as sales agent, and commenced an at-the-market offering (the “ATM Offering”) pursuant to which the Company may sell from time to time, at its option, shares of the Company’s common stock, having an aggregate offering price of up to $75.0 million. Sales of the common stock under the ATM Offering are made under the Company’s previously filed and currently effective shelf registration statement on Form S-3 and the sales agreement prospectus that forms a part of such registration statement. The aggregate compensation payable to JMP is 3.0% of the gross proceeds from each sale of the Company’s common stock. Under the ATM Offering, the Company sold 448,268 shares and raised gross proceeds of $8.0 million and net proceeds of $7.6 million during the three months ended September 30, 2021. As of September 30, 2021 $67.0 million remained available under the ATM Offering.

Convertible Preferred Stock

Series A Preferred Stock

In December 2018, the Company entered into a purchase agreement with certain accredited investors for the private placement of $15.0 million of Series A Preferred Stock pending stockholders' approval, which approval was subsequently obtained on February 19, 2019. Accordingly, the Company completed the private placement on February 20, 2019, raising $15.0 million through the issuance of 15,000 shares of Series A Preferred Stock.

The Series A Preferred Stock was issued at $1,000 per share and was initially convertible into shares of common stock at a conversion price of $2.60 per share, subject to certain adjustments. Holders of the Series A Preferred Stock were entitled to an initial dividend rate of 8.0% per annum, which ended on February 26, 2021, the date of the FDA’s approval of the supplemental NDA of VAZALORE 325 mg and VAZALORE 81mg. The dividends were compounded quarterly and payable in cash or shares of Series A Preferred Stock at the Company’s option or, alternatively, the initial conversion price will be adjusted upon conversion to reflect the impact of the accrued dividends. The Series A Preferred Stock carries a liquidation preference equal to its stated value of $1,000 plus accrued and unpaid dividends.

In June 2021, the Series A Preferred Stock holders converted 2,358 shares of Series A Preferred Stock into shares of common stock pursuant to the original terms of the Series A Preferred Stock.  Upon conversion, accrued dividends payable of $2.6 million were settled by adjusting the initial conversion price, resulting in a new conversion price of $2.22 per share.  The revision of the conversion price resulted in the recognition of a contingent beneficial conversion feature in the amount of $2.2 million which is reflected as a deemed dividend which was accounted for as an increase and decrease to additional-paid-in capital in equity due to the Company’s accumulated deficit position. As a result of the conversion, Series A Preferred Stock carrying value was reduced $2.6 million and the Company issued 1,064,517 shares of its common stock. 

As of September 30, 2021, 12,642 shares of Series A Preferred Stock remain outstanding with a conversion price of $2.22 per share. The Series A Preferred Stock is classified as temporary equity due to the presence of certain contingent cash redemption features and has a carrying value of $13.7 million as of September 30, 2021.

The Company recognized $2,419,893 (or $0.11 per share) of total dividends on the Series A Preferred Stock (including the contingent beneficial conversion feature) during the nine months ended September 30, 2021 (none during the three months ended September 30, 2021).  The Company recognized $336,855 (or $0.04 per share) and $983,823 (or $0.11 per share) of total dividends on the Series A Preferred Stock (including the contingent beneficial conversion feature) during the three and nine months ended September 30, 2020.

Series B Preferred Stock

In March 2020, the Company entered into a purchase agreement with certain accredited investors for the private placement of $8.0 million of Series B Preferred Stock pending stockholders' approval, which approval was subsequently obtained on May 15, 2020. Accordingly, the Company completed the private placement on May 15, 2020, raising $8.0 million through the issuance of 8,000 shares of Series B Preferred Stock. The Series B Preferred Stock was issued at $1,000 per share and is convertible into shares of common stock at a conversion price of $3.10 per share, subject to certain adjustments. Holders of the Series B Preferred Stock were entitled to an initial dividend rate of 8.0% per annum, which ended on February 26, 2021, the date of the FDA’s approval of the supplemental NDA of VAZALORE 325 mg and VAZALORE 81mg. The dividends were compounded quarterly and payable in cash or shares of Series B Preferred Stock at the Company’s option or, alternatively, the initial conversion price will be adjusted upon conversion to reflect the impact of the accrued dividends. The Series B Preferred Stock carries a liquidation preference equal to its stated value of $1,000 plus accrued and unpaid dividends.

In June 2021, certain Series B Preferred Stock holders converted 5,636 shares of Series B Preferred Stock into shares of common stock pursuant to the original terms of the Series B Preferred Stock.  Upon conversion, accrued dividends payable of $0.4 million were settled by adjusting the initial conversion price, resulting in a new conversion price of $2.91 per share for those holders (the conversion price for holders that did not convert shares remains at $3.10 per share).  As a result of the conversion, Series B Preferred Stock carrying value was reduced by $5.8 million and the Company issued 1,935,483 shares of its common stock. 

As of September 30, 2021, 364 shares of Series B Preferred Stock remain outstanding with a conversion price of $2.91 per share and 2,000 shares remain outstanding with a conversion price of $3.10 per share.  The Series B Preferred Stock is classified as temporary equity due to the presence of certain contingent cash redemption features and has a carrying value of $2.3 million as of September 30, 2021.

The Company recognized $105,065 (or $0.005 per share) of total dividends on the Series B Preferred Stock during the nine months ended September 30, 2021 (NaN during the three months ended September 30, 2021). The Company recognized $162,942 (or $0.02 per share) and $243,599 (or $0.03 per share) of total dividends on the Series B Preferred Stock during the three and nine months ended September 30, 2020.

Warrants

In June 2017, the Company issued stock purchase warrants to purchase 2,646,091 shares of common stock at an exercise price of $7.50 per share. The warrants, exercisable beginning six months and one day after issuance, have a 10-year term and are liability classified due to the holders’ right to require the Company to repurchase the warrants for cash upon certain deferred fundamental transactions ( “June 2017 Warrants”). 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 (the “November 2020 Warrants”).

During the

The following is a summary of warrant activitiesactivity for the ninethree months ended September 30, 2021:March 31, 2022:

Stock Options

The following is a summary of stock option activitiesactivity for the ninethree months ended September 30, 2021:March 31, 2022: