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| PART I |
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| Item 1. Business | 1 |
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| Item 1A. Risk Factors | 6 |
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| Item 1B. Unresolved Staff Comments | 32 |
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| Item 1C. Cybersecurity | 32 |
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| Item 2. Properties | 33 |
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| Item 3. Legal Proceedings | 33 |
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| Item 4. Mine Safety Disclosures | 33 |
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| PART II |
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| Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 34 |
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| Item 6. Reserved | 34 |
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| Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 34 |
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| Item 7A. Quantitative and Qualitative Disclosures about Market Risk | 56 |
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| Item 8. Financial Statements and Supplementary Data | 56 |
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| Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 56 |
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| Item 9A. Controls and Procedures | 56 |
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| Item 9B. Other Information | 58 |
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| Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 59 |
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| PART III |
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| Item 10. Directors, Executive Officers and Corporate Governance | 60 |
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| Item 11. Executive Compensation | 65 |
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| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 76 |
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| Item 13. Certain Relationships and Related Transactions, and Director Independence | 80 |
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| Item 14. Principal Accounting Fees and Services | 81 |
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| PART IV |
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| Item 15. Exhibits, Financial Statement Schedules | 82 |
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| SIGNATURES | 86 |
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All references to “Petros,” the “Company,” “we,” “us” and “our” in this Annual Report on Form 10-K (this “Form 10-K”) refer to Petros Pharmaceuticals, Inc. and its consolidated subsidiaries.
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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. In some cases, predictive, future-tense or forward-looking words such as “intend,” “plan,” “predict,” “may,” “will,” “project,” “target,” “strategy,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity,” “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, but are not the exclusive means of identifying such 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 a proprietary Rx-to-OTC switch technology; Petros’ ability to comply with obligations as a public reporting company; Petros’ ability to maintain compliance with the Nasdaq Stock Market’s listing standards; the ability of Petros to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002; 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, par value $0.0001 per share (“Common Stock”) less attractive to investors; risks related to Petros’ ability to continue as a going concern; risks related to Petros’ history of incurring significant losses; risks related to Petros’ ability to obtain regulatory approvals for, or market acceptance of, any of its products or product candidates. Additional factors that could cause actual results to differ materially from the results anticipated in these forward-looking statements are described in this Annual Report, including under the section entitled “Risk Factors,” and in our other reports filed with the Securities and Exchange Commission (the “SEC”). The Company advise you to carefully review the reports and documents the Company files 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 Annual Report on Form 10-K 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 Annual Report to reflect any new information or future events or circumstances or otherwise, except as required by the federal securities laws.
ii
We are subject to a variety of risks and uncertainties. The following is a summary of the principal risks that we deem material to an investment in our securities, all of which are more fully described in, and should be read in conjunction with the section titled “Risk Factors” below.
Risks Related to Petros’ Capital Requirements and Financing
| ● | Our consolidated financial statements have been prepared on a going concern basis; we must raise additional capital to fund our operations in order to continue as a going concern. |
| ● | Petros has incurred significant losses and may continue to experience losses in the future. |
| ● | We expect to require additional capital in the future in order to develop our products, fund operations, and otherwise implement our business strategy. If we do not obtain any such additional financing, it may be difficult to effectively realize our long-term strategic goals and objectives. |
| ● | Any additional capital raised through the sale of equity or equity-backed securities may dilute our stockholders’ ownership percentages and could also result in a decrease in the market value of our equity securities. |
| ● | Petros’ consolidated balance sheet contains significant amounts of intangible assets, and a decline in the fair value of an intangible asset could result in an asset impairment charge. |
Risks Related to Petros’ Business, Industry and Operations
| ● | Our focus on the development of our platform may adversely impact our operations and financial performance. |
| ● | We are in the early development stage with no revenues from our platform and have no operating history in the broad commercialization of platforms for consumer use. |
| ● | We defaulted on certain covenants included in the Promissory Note with Vivus that has resulted in the Obligations becoming immediately due and payable on the date of the Foreclosure Notice and the forfeiture of assets pledged as collateral under the Promissory Note. |
| ● | The Vivus Event of Default (as defined herein) constitutes a Triggering Event (as defined in the Certificate of Designations (as defined herein) pursuant to the terms of the Certificate of Designations, which may materially and adversely affect our liquidity, financial condition and results of operations. |
| ● | Our technology may be viewed as relatively new or untested, which could result in regulatory delays or disruptions in the pathway to commercialization. |
| ● | If we fail to successfully initiate broad commercialization of, market and sell our platform cost-effectively, our sales, business, financial condition and results of operations will be negatively affected. |
| ● | Petros has concluded that there are material weaknesses in its internal control over financial reporting, which, if not remediated, could materially adversely affect its ability to timely and accurately report its results of operations and financial condition. The accuracy of Petros’ financial reporting depends on the effectiveness of its internal controls over financial reporting. |
| ● | Our products and information technology systems are critical to our business. Issues with product development or enhancements, IT system integration, implementation, updates and upgrades could disrupt our operations and have a material impact on our business and operating results. |
iii
Risks Related to Government Regulation and Legal Proceedings
| ● | Rx-to-OTC switches are part of our future growth, and may be affected by regulatory developments governing Rx-to-OTC switches. |
| ● | We may not receive the necessary authorizations to market our platform or any future new products, and any failure to timely do so may adversely affect our ability to grow our business. |
| ● | Ongoing changes in healthcare regulation could negatively affect our revenues, business and financial condition. |
| ● | Our products may cause or contribute to adverse medical events that we are required to report to FDA and other governmental authorities, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, results of operations, and financial condition. The discovery of serious safety issues with our products, or a recall of our products either voluntarily or at the direction of FDA or another governmental authority, could have a negative impact on us. |
| ● | We may be subject to certain federal, state, and foreign fraud and abuse laws, health information privacy and security laws, and transparency laws, which, if violated, could subject us to substantial penalties. Additionally, any challenge to or investigation into our practices under these laws could cause adverse publicity and be costly to respond to, and thus could harm our business. |
| ● | Since our platform will utilize cloud-based information systems and the exchange of information between patents and doctors, we will be subject to numerous U.S. federal and state laws and regulations related to the privacy and security of personally identifiable information, including health information. |
| ● | Changes in laws could negatively impact Petros’ business. |
| ● | The regulatory framework for artificial intelligence (“AI”) technologies is rapidly evolving as many federal, state and foreign government bodies and agencies have introduced or are currently considering additional laws and regulations. In addition, existing laws and regulations may be interpreted in ways that would affect the use of AI in our business. As a result, implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine the impact future laws, regulations, standards, or market perception of their requirements may have on our business and may not always be able to anticipate how to respond to these laws or regulations. |
| ● | Petros may be subject to potential product liability and other claims, creating risks and expense. |
Risks Related to Petros’ Intellectual Property
| ● | If Petros fails to protect its intellectual property rights, its ability to pursue the development of its products would be negatively affected. |
| ● | Petros may be involved in lawsuits to protect or enforce its patents, which could be expensive and time consuming. |
| ● | If Petros infringes the rights of third parties, it could be prevented from selling products and forced to pay damages and defend against litigation. |
| ● | Petros may be subject to claims that its employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties. |
iv
Risks Related to Petros’ Series A Preferred Stock
| ● | Holders of our Series A Convertible Preferred Stock, par value $0.0001 per share (“Series A Preferred Stock”) (issued in July 2023 pursuant to a private placement (the “Private Placement”)) are entitled to certain payments under the Certificate of Designations of the Series A Convertible Preferred Stock (“Certificate of Designations”) that may be paid in cash or in shares of Common Stock depending on the circumstances. If we make these payments in cash, we may be required to expend a substantial portion of our cash resources. If we make these payments in Common Stock, it may result in substantial dilution to the holders of our Common Stock. |
| ● | The Certificate of Designations for the Series A Preferred Stock and the warrants issued concurrently therewith (the “Warrants”) contain anti-dilution provisions that may result in the reduction of the conversion price of the Series A Preferred Stock or the exercise price of such Warrants in the future. These features may increase the number of shares of Common Stock being issuable upon conversion of the Series A Preferred Stock or upon the exercise of the Warrants. |
| ● | Under the Purchase Agreement (as defined herein) we are subject to certain restrictive covenants that may make it difficult to procure additional financing. |
Risks Related to Petros’ Common Stock
| ● | We are an “emerging growth company” and our election to delay adoption of new or revised accounting standards applicable to public companies may result in our consolidated financial statements not being comparable to those of other public companies. As a result of this and other reduced disclosure requirements applicable to emerging growth companies, our securities may be less attractive to investors. |
| ● | Our stock price may be volatile, and sales of a substantial number of shares of our Common Stock, or the perception that such sales may occur, may adversely impact the price of our Common Stock. |
| ● | Our largest stockholder maintains the ability to significantly influence all matters submitted to Petros’ stockholders for approval. |
v
