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Item 7. Management’s Discussion and Analysis

2026-03-26 compared with 2025-03-17 · 444 added, 234 removed, 28 unchanged (96% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.

Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

As a result of many factors, including those factors set forth in the “Risk Factors” section of this report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

References in the following discussion to “we”, “our”, “us”, “Dermata”, or “the Company”, refer to Dermata Therapeutics, Inc.

We are a late-stage medical dermatology company focused on identifying, developing, and commercializing innovative pharmaceutical product candidates for the treatment of medical skin diseases and aesthetic applications we believe represent significant market opportunities.

Dermatological diseases such as acne, psoriasis vulgaris (or psoriasis), hyperhidrosis, and various aesthetic indications, affect millions of people worldwide each year which may negatively impact their quality of life and emotional well-being.

While there are multiple current treatment options for these indications on the market, we believe that most have significant drawbacks, including underwhelming efficacy, cumbersome application regimens and varying negative side effects, all of which we believe lead to decreased patient compliance.

A majority of these indications are first treated with topical therapy;

however, many patients frequently switch treatments or discontinue treatment altogether due to patient dissatisfaction.

This is primarily due to slow and modest response rates, early onset of negative side effects, daily application schedules and long duration of therapy.

Given the limitations with current topical therapies, we believe there is a significant opportunity to address the needs of frustrated patients searching for topical products that satisfy their dermatological and lifestyle needs.

Our two product candidates, XYNGARI™ and DMT410, both incorporate our proprietary, multifaceted, Spongilla technology to topically treat a variety of dermatological conditions.

Our Spongilla technology is derived from a naturally grown freshwater sponge, Spongilla lacustris or Spongilla , which is processed into a powder that is mixed with a fluidizing agent immediately prior to application to form an easily applicable paste.

Spongilla is a unique freshwater sponge that only grows in commercial quantities in select regions of the world and under specific environmental conditions, all of which give it its distinctive anti-microbial, anti-inflammatory, and mechanical properties.

The combination of these environmental conditions, the proprietary harvesting protocols developed with our exclusive supplier, and our post-harvest processing procedures produce a pharmaceutical product candidate that optimizes the mechanical components as well as the chemical components of the sponge to create a product candidate with multiple mechanisms of action for the treatment of inflammatory skin conditions and aesthetic applications.

We believe our Spongilla technology platform will enable us to develop and formulate singular and combination products that are able to target the topical delivery of chemical compounds into the dermis for a variety of dermatology indications.

We believe the combination of Spongilla’s mechanical and chemical components (which we believe have demonstrated, in-vitro , anti-microbial and anti-inflammatory properties), add to the versatility of our Spongilla technology platform’s effectiveness as a singular product, in the treatment of a wide variety of medical skin diseases like acne and psoriasis.

We also believe the mechanical properties of our Spongilla technology allows for the intradermal delivery of a variety of large molecules, like botulinum toxins, monoclonal antibodies, or dermal fillers, to target treatment sites, through topical application without the need for needles.

Our lead product candidate, XYNGARI™, is intended to utilize our Spongilla technology for the once weekly treatment of a variety of skin diseases, with our initial focus being the treatment of acne, which has a U.S.

market size of approximately 30 million patients seeking treatment.

In November 2024, we completed patient enrollment in the first of two Phase 3 clinical trials of XYNGARI™ in moderate-to-severe acne.

We expect to receive top-line results from the first Phase 3 trial in March 2025.

Both Phase 3 studies will be double blinded, randomized, placebo controlled, and enroll about 550 patients, age 9 years or older across sites in the United States and Latin America.

The primary endpoints include absolute reduction in inflammatory and noninflammatory lesions and the improvement in investigators global assessment (IGA) of acne.

Patients will be treated once a week for 12 weeks with either XYNGARI™ or placebo and will be evaluated monthly.

As requested by the FDA, the second Phase 3 study will be followed by an extension study to follow patients for a 12-month total treatment period.

Previously XYNGARI™ has shown its ability to treat the multiple causes of acne in a Phase 2b study where we initially saw a 45% reduction in inflammatory lesions after four treatments, with XYNGARI™ achieving statistically significant improvements at all time points for all three primary endpoints throughout the study (reduction in inflammatory lesions, reduction in non-inflammatory lesions, and improvement in IGA).

In addition, based on the multiple mechanisms of action and anti-inflammatory effect seen with the XYNGARI™ acne trial, we completed a Phase 1b proof of concept, or POC, trial in psoriasis where we saw encouraging results warranting further investigation upon receipt of adequate funds.

XYNGARI™ consists of two grams of powder processed from the naturally grown freshwater sponge, Spongilla lacustris.

The patient mixes the powder with a fluidizing agent (3% hydrogen peroxide) immediately prior to application by the patient to form an easy-to-apply paste.

The paste is applied like a mud mask and is left on the skin for approximately ten to fifteen minutes, after which time it is washed off with water.

Due to the unique combination of XYNGARI™’s mechanical components and chemical components, and based on our Phase 2 acne data, we believe patients will only need to apply XYNGARI™ once weekly to produce the desired treatment effect.

The mechanical components of the Spongilla powder consist of many microscopic siliceous, needle-like spicules that, when massaged into the skin, penetrate the stratum corneum (the skin’s outermost protective layer) and create microchannels into the dermis where pro-inflammatory cytokines and bacteria reside.

We believe that the penetration of the spicules also leads to the opening of microchannels, which allow oxygen to enter pilosebaceous glands, helping to kill C.

acnes , which grow in an anaerobic (without oxygen) environment C.

acnes is the bacteria that cause inflammatory lesions in acne patients).

The spicules also cause rejuvenation of the top layer of dead skin, thereby increasing collagen production.

Additionally, we believe the newly created microchannels provide a conduit for XYNGARI™’s naturally occurring chemical compounds to be delivered to the dermis and pilosebaceous glands, helping to kill the C.

acnes and fight inflammation .

In addition to these anti-microbial compounds, XYNGARI™ also appears to have anti-inflammatory chemical compounds, as demonstrated in in vitro experiments, that inhibit inflammation through the reduction of C.acnes stimulated IL-8 production and by inhibiting IL-17A and IL-17F expression in human cell lines.

Also, during in vitro studies of XYNGARI™’s organic compounds, we observed the inhibition of the lipogenesis of sebocytes, which may translate to a reduction in sebum (an oily and waxy substance produced by the human body’s sebaceous glands) production and the oiliness of the skin in patients, which was observed by a number of clinical investigators in our Phase 2 acne studies.

We believe the combination of these biological and mechanical effects could be important factors in treating multiple inflammatory skin diseases, as seen in our clinical trials.

Our second product candidate utilizing our Spongilla technology is DMT410.

DMT410 is intended to consist of one treatment of our proprietary sponge powder followed by one topical application of botulinum toxin for delivery into the dermis.

Currently, botulinum toxin is only approved to be delivered to the dermis by intradermal injections, which can be painful for the patient and time-consuming for the physician.

However, we believe DMT410’s ability to topically deliver botulinum toxin into the dermis could have similar levels of efficacy to existing delivery techniques, with fewer tolerability issues, and a quicker application time, possibly replacing the need for intradermal injections.

We first tested DMT410 in a Phase 1 POC trial of axillary hyperhidrosis patients, which saw 80% of patients achieve a reduction in gravimetric sweat production greater than 50% four weeks after a single treatment.

With almost 40% of the hyperhidrosis market currently being treated with intradermal injections of botulinum toxin, we believe there could be significant opportunity for DMT410 to break into this market and replace intradermal injections of botulinum toxin.

Based on DMT410’s ability to effectively deliver botulinum toxin to the dermis as observed in the Phase 1 axillary hyperhidrosis trial, we also conducted a Phase 1 POC trial of DMT410 for the treatment of multiple aesthetic skin conditions, including reduction of pore size, sebum production, and fine lines, among others.

In November 2021, we announced top-line results from this trial, where we saw promising data that we believe warrants further investigation of DMT410.

In January 2025, we entered into the Clinical Trial Agreement with Revance pursuant to which we in collaboration with Revance intend to conduct a multi-center Phase 2 clinical trial to evaluate the topical application of XYNGARI™, with DAXXIFY® (daxibotulinumtoxinA-lanm), Revance’s botulinum toxin type A, for the treatment of axillary hyperhidrosis.

We have a limited operating history.

Since our inception, our operations have focused on developing XYNGARI™ and DMT410, organizing and staffing our company, raising capital, establishing our supply chain and manufacturing processes, further characterizing the multiple mechanisms of action of our Spongilla technology, building an intellectual property portfolio, and conducting non-clinical and clinical trials.

We do not have any product candidates approved for marketing and have not generated any revenue from product sales.

We have funded our operations primarily through the sale of our equity securities and debt securities.

Since inception, we have raised an aggregate of approximately $68.8 million of gross proceeds from the sale of our debt and equity securities, including the securities sold in our initial public offering.

We have not generated any revenue to date and have incurred significant operating losses.

Our net losses were $12.3 million and $7.8 million for years ended December 31, 2024, and 2023, respectively, and as of December 31, 2024, we had an accumulated deficit of $65.7 million.

should read the following discussion and analysis of our financial condition and results of operations together with our financial statements

and related notes thereto included elsewhere in this Annual Report on Form 10-K.

Some of the information contained in this discussion

and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes

forward-looking statements that involve risks and uncertainties.

As a result of many factors, including those factors set forth in the

“Risk Factors” section of this report, our actual results could differ materially from the results described in or implied

by the forward-looking statements contained in the following discussion and analysis.

References in the following discussion to “we”,

“our”, “us”, “Dermata”, or “the Company”, refer to Dermata Therapeutics, Inc.

We are a scientific leader in skincare, dedicated

to the development and commercialization of products that address common and underserved skin conditions.

Dermata initially was founded

with a focus on researching and developing prescription products subject to the FDA approval process.

As part of this focus, we had one

lead asset, referred to as XYNGARI, also known as DMT310, which we had been studying in clinical trials for the treatment of moderate-to-severe

In March 2025, we announced that we achieved statistically significant results from our Phase 3 STAR-1 clinical trial of XYNGARI,

formerly our lead prescription (“Rx”) candidate incorporating our Spongilla lacustris for moderate-to-severe acne.

XYNGARI demonstrated statistically significant results across all three co-primary endpoints at weeks 4, 8, and 12 when compared with

Following the successful completion of the STAR-1 trial, we conducted a full assessment of the Rx acne landscape and the future

Rx acne development pathway for XYNGARI.

In September 2025, after an extensive review of current trends in dermatology, changing consumer

preferences, additional non-clinical and clinical development costs, and go-to market costs for an Rx acne product, management, with support

from our board of directors, determined that a strategic shift to developing and distributing DTC and B2B skincare products, that are

backed by science, would be a better path to commercialization with potentially greater financial upside and faster time to market.

believe we can leverage our history and knowledge of Rx dermatology to create skincare products that are effective and safe, and available

to consumers without the nuisance of obtaining a prescription.

We believe this strategic repositioning will accelerate our path to commercialization,

reduce our regulatory burden, and decrease development expenses, all while enabling us to address broad consumer segments in the skincare

We believe the skincare market, from a cosmetic,

OTC, and Rx perspective, has seen a substantial shift towards consumers first relying upon multifaceted cosmetics and OTC products that

simplify routines.

Consumer preferences are changing to favor natural products that do more for their skin.

There appears to be a resurgence

of interest in traditional remedies to treat various conditions.

We have also seen an increasing trend towards the use of OTC treatments

for common skin diseases such as acne vulgaris (or “acne”), psoriasis vulgaris (or “psoriasis”), and acne rosacea

(or “rosacea”).

The causes, symptoms, and treatments for common skin issues, like acne, have over 50 million patients in the

U.S., and are well researched by consumers due to the extensive publicly available information.

Thus, we believe consumers are more willing

to conduct and trust their own research and treat these diseases with OTC offerings prior to seeing a dermatologist.

Over 70% of patients

with acne first choose to try multiple OTC products to treat their acne before seeing a dermatologist.

However, many of the currently

available OTC acne products are mildly effective and have many tolerability issues that result in poor patient compliance.

Consumers with

acne that do not get satisfactory results, either due to lack of efficacy or tolerability issues, typically wait about one year before

scheduling a visit with a dermatologist to seek alternative therapies.

Additionally, due to the cost-effective pricing of OTC products,

as compared to Rx products, a desire for self-administration, difficulty getting appointments with dermatologists, or insurance coverage

for branded Rx products, many consumers are first relying on OTC products to fill their treatment needs.

We believe that if we can provide

consumers with a unique topical acne treatment, we have an opportunity to capture a large segment of acne patients prior to them seeking

Rx products through a physician.

While this is a major shift in strategy for our company, we believe pursuing the commercial sale of both

cosmetic and OTC skincare products is the best path forward to meet our mission of providing consumers with efficacious and safe skincare

treatment options.

We view this shift in consumer preferences as

a significant benefit for our strategic repositioning.

We have gained substantial clinical knowledge of various dermatology diseases and

skin conditions.

We plan to leverage this knowledge to create a whole product line of skincare treatments that consumers can access directly

for each of their skincare needs.

While our background is in clinical products, we plan to leverage the unique attributes of our hero

ingredient, Spongilla lacustris , to develop both cosmetic and OTC skincare treatments.

We plan to launch our first cosmetic product

in the middle of 2026, with our first OTC acne product to follow shortly thereafter.

In the future, we plan to offer additional products

that target specific needs of consumers.

For example, for consumers who want to improve the general appearance of their skin we plan to

commercialize a once weekly foundational treatment for skin renewal.

Consumers suffering from many common forms of acne, we plan to offer

our OTC topical acne system.

The foundational treatment will utilize our Bioneedle, which is 100% Spongilla lacustris powder, to

provide a once weekly skin renewal routine that is simple addition to skincare routines.

This kit will contain our Bioneedle which will

be combined with a fluidizing agent for easy application.

Our Bioneedle is derived from a wildly grown freshwater

sponge, Spongilla lacustris or Spongilla , which is processed into a fine, purified powder and packaged with no additives.

Spongilla is a unique freshwater sponge that only grows in commercial quantities in select regions of the world, which gives our

Bioneedle its distinctive organic and mechanical properties.

The combination of a proprietary harvesting protocol, developed by our exclusive

supplier, and the post-harvest processing procedures, produce an ingredient that we believe optimizes the mechanical components, which

are silica microstructures also called spicules, as well as the organic components of Spongilla , while eliminating any harmful bacteria

that could be found in many freshwater or marine sponges.

Keeping our clinical roots in mind, we plan to offer an acne system that has

been dermatologist tested.

Our weekly Bioneedle treatment, aimed to help

refine the appearance of a consumer’s skin will be used alongside a daily salicylic acid wipe to help fight the acne lesions.

believe the unique attributes of our clearing treatment used in tandem with an OTC monograph active ingredient (salicylic acid) could

produce a superior OTC product unlike anything currently on the market.

We plan to develop and distribute a variety of cosmetic and OTC

products that are backed by science and are easily accessible by consumers who are more comfortable treating their skin problems independently

with readily available therapies.

Our core values will remain unchanged during this strategic shift as we strive to provide consumers

with affordable, safe, and effective treatment options, that can be obtained either through our DTC channels or through healthcare professionals,

without having to get a prescription.

We believe consumers are seeking greater flexibility and freedom in treating their skin and we believe

we can offer them a solution.

In addition to the DTC channel for our products,

we believe there is a market for our technology to aid in the intradermal delivery of macromolecules for various aesthetic conditions.

Typically, for facial aesthetics, botulinum toxins are injected into facial muscles to reduce forehead, lateral canthal, and glabella

However, this is limited to the use of intradermal delivery of botulinum toxin for a variety of skin diseases and conditions.

Botox is currently the only approved botulinum toxin for the treatment of axillary hyperhidrosis via intradermal injections.

While effective,

intradermal injections, including 10-15 per axilla, of Botox can be painful for patients and very time consuming for dermatologists.

we believe developing a less painful, less time-consuming topical delivery of botulinum toxin into the dermis for various aesthetic and

medical skin diseases and conditions, would provide physicians with an attractive alternative to intradermal injections of botulinum toxins.

We believe our Bioneedle can increase the number

of intradermal uses for botulinum toxin by leveraging the unique microstructure of our Bioneedle, to create microchannels into the dermis,

enabling improved dermal penetration of botulinum toxins (i.e.

Additionally, we believe our technology can allow for broader coverage

of larger surface areas of the skin, which we believe will provide a better field effect of the botulinum toxin.

We plan to leverage our Bioneedle platform

for broad applicability across dermatologic and aesthetic skin conditions, potentially allowing dermatologists and aestheticians to increase

the use of botulinum toxin.

We believe this non-invasive approach could meaningfully expand the therapeutic and aesthetic utility of botulinum

toxin for conditions such as axillary, palmar, and plantar hyperhidrosis, acne, acne scars, rosacea, and improved facial aesthetics (including

improvements in skin luminosity and brightness, reducing pore size and number of pores, reducing fine lines, and reducing skin oiliness

by decreasing sebum production).

We plan to continue to explore additional uses for this platform and look forward to getting our technology

in the hands of aestheticians and dermatologists so they may better serve the medical and aesthetic needs of their patients.

have a limited operating history.

Since our inception, our operations have focused on developing XYNGARI™ and DMT410, organizing

and staffing our company, raising capital, establishing our supply chain and manufacturing processes, further characterizing the multiple

mechanisms of action of Spongilla lacustris , building an intellectual property portfolio, and conducting non-clinical and clinical

We do not have any commercial products and have not generated any revenue from product sales.

We have funded our operations primarily

through the sale of our equity securities and debt securities.

Since inception, we have raised an aggregate of approximately $82.0 million

of gross proceeds from the sale of our debt and equity securities, including the securities sold in our initial public offering.

have not generated any revenue to date and have incurred significant operating losses.

Our net losses were $7.6 million and $12.3 million

for the years ended December 31, 2025, and 2024, respectively, and as of December 31, 2025, we had an accumulated deficit of $73.2 million.

We expect to continue to incur significant expenses and operating losses for the foreseeable future.

We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:

complete development of XYNGARI™ for the treatment of acne, including non-clinical studies and Phase 3 clinical trials;

prepare and file for regulatory approval of XYNGARI™ for the treatment of moderate-to-severe acne upon positive results from the Phase 3 clinical program;

continue development of XYNGARI™ for the treatment of psoriasis, including a Phase 2 clinical trial and Phase 3 clinical trials, pending additional finances or strategic partner;

sign a partnership agreement with a botulinum toxin partner for DMT410 for the treatment of aesthetic and medical skin conditions;

prepare for commercialization of XYNGARI™, if approved, including the hiring of sales and marketing personnel;

manufacture our product candidates for Phase 2 and Phase 3 trials and commercial sale;

hire additional research and development and selling, general and administrative personnel;

maintain, expand, and protect our intellectual property portfolio; and

incur additional costs associated with operating as a public company.

We will need additional financing to support our operations.

We may seek to fund our operations through public or private equity or debt financings or other sources.

We anticipate that our expenses

will increase significantly in connection with our ongoing activities, as we:

prepare for the launch of our first commercial product, Tome Foundational Treatment;

to market our first commercial product, Tome Foundational Treatment;

for the launch of our second commercial product, Tome Clearing Treatment

research and development on additional skincare products for future launches;

our products for commercial sale;

additional marketing, general and administrative personnel;

expand, and protect our intellectual property portfolio; and

additional costs associated with operating as a public company.

will need additional financing to support our operations.

We may seek to fund our operations through public or private equity or debt

financings or other sources.

Adequate additional financing may not be available to us on acceptable terms, or at all.

Our failure to raise capital when needed or on favorable terms would have a negative impact on our financial condition and our ability to pursue our business strategy.

Our failure to

raise capital when needed or on favorable terms would have a negative impact on our financial condition and our ability to pursue our

business strategy.

We will need to generate significant revenues to achieve profitability, and we may never do so.

Components of Results of Operations

We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products in the near future until we obtain regulatory approval of, and commercialize, our product candidates.

Operating Expenses

Research and Development Expenses

Research and development activities are central to our business model.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of late-stage clinical trials.

We expect research and development costs to increase significantly for the foreseeable future as our pipeline of product candidates progress further into clinical trials.

However, we do not believe it is possible at this time to accurately project total program-related expenses to reach commercialization based on numerous factors.

In addition, there are numerous unknown expenses related to the commercialization of our product candidates including continued regulatory requirements, many of which cannot be determined with accuracy at this time.

Research and development expenses consist of expenses incurred in connection with the development of our product candidates.

We expense development costs as incurred.

These expenses include:

expenses incurred under agreements with CROs, as well as investigative sites and consultants that conduct our clinical trials and preclinical studies;

manufacturing and supply scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial supply and commercial supply, including manufacturing validation batches; and

outsourced laboratory services, including materials and supplies used to support our research and development activities, including payments made for license fees and milestone payments.

The successful development of our product candidates is highly uncertain.

At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of, or when, if ever, material net cash inflows may commence from our product candidates.

This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, which vary significantly over the life of a project as a result of many factors, including:

the number of clinical sites included in the clinical trials;

the length of time required to enroll suitable patients;

the size of patient populations participating in the clinical trials;

the number of doses a patient receives;

the duration of patient follow-ups;

the development state of the product candidates; and

the efficacy and safety profile of the product candidates.

Our expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals, and the expense of filing, prosecuting, defending, and enforcing any patent claims or other intellectual property rights.

We may never succeed in achieving regulatory approval for our product candidates.

We may obtain unexpected results from our clinical trials.

We may elect to discontinue, delay, or modify clinical trials of our product candidates.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate.

For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

Product commercialization will take several years and millions of dollars in development costs.

of Results of Operations

and Development Expenses

research and development activities had been central to our business model, in September 2025, we made a strategic shift from researching

and developing prescription products to becoming a science-driven leader in dermatologic solutions anticipating the launch of our first

DTC product in mid-2026.

Research and development costs primarily consist of salaries and related expenses for personnel, stock-based

compensation expense, external research and development costs to conduct clinical studies, costs related to compliance with regulatory

requirements, costs related to procuring components, manufacturing, and packaging our products, outsourced laboratory services, and other

allocated expenses.

In addition, there are numerous unknown expenses related to the commercialization of our products including continued

OTC regulatory requirements, many of which cannot be determined with accuracy at this time.

We expense research and development costs

successful development and commercialization of our products is uncertain.

At this time, we cannot reasonably estimate or know the nature,

timing and costs of the efforts that will be necessary to generate revenue from our products, or when, if ever, material net cash inflows

may commence from our products.

This uncertainty is due to the numerous risks and uncertainties associated with launching our first products

including our ability to secure contracts with key vendors with favorable terms, if ever, and our ability to build inventory to support

commercial sales, if any.

expenditures are subject to additional uncertainties, including the terms and timing of expenditures in designing, packaging and manufacturing

our first products, and the expense of filing, prosecuting, defending, and enforcing any patent claims or other intellectual property

A change in the outcome of any of these variables with respect to the development of our products could mean a significant change

in the costs and timing associated with the development of our products or the timing or discontinuation of our product launch.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for personnel in executive and administrative functions, travel expenses and recruiting expenses.

Other general and administrative expenses include stock-based compensation expenses, professional fees for legal, accounting and tax related services, insurance costs, as well as payments made to consultants.

We expense all general and administrative expenses as incurred.

We anticipate that our general and administrative expenses will increase as a result of increased payroll, expanded infrastructure and higher consulting, legal and tax related services associated with maintaining compliance with stock exchange listing and SEC requirements, accounting and investor relations costs, and director and officer insurance premiums associated with being a public company.

Interest Income

Interest income consists of interest income earned on cash equivalents from interest bearing demand accounts.

Critical Accounting Policies and Significant Judgments and Estimates

We have based our management’s discussion and analysis of financial condition and results of operations on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported expenses during the reporting periods.

On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued research and development expenses and warrants.

We base our estimates on historical experience and on various other factors that we believe to be appropriate under the circumstances.

general and administrative expenses consist principally of salaries and related costs for personnel in executive, marketing, and administrative

functions, stock-based compensation expenses, marketing expenses, professional fees for legal, accounting and tax related services, insurance

costs, as well as payments made to consultants.

We expense all selling, general and administrative expenses as incurred.

anticipate that our selling, general and administrative expenses will increase as a result of increased marketing and advertising expenses

as we prepare to launch our first products, increased employee payroll, expanded infrastructure and greater consulting costs, legal and

tax related services associated with maintaining compliance with stock exchange listing and SEC requirements, accounting and investor

relations costs, and director and officer insurance premiums associated with being a public company.

expenditures are subject to additional uncertainties, including uncertainty around the number of employees or consultants we may need

to support the launch of our first commercial products, if ever.

We may not be able to build a sustainable infrastructure to support

the operations, accounting, and revenue recognition of any commercial sales, if any.

We may obtain unexpected results from our marketing

studies, and we may elect to discontinue, delay, or modify the marketing studies of our products.

It is result of these many variables

that we are unable to estimate the expected increases in selling, general and administrative expenses.

income consists of interest income earned on cash equivalents from interest bearing demand accounts.

Accounting Estimates

We have based our management’s discussion

and analysis of financial condition and results of operations on our financial statements, which have been prepared in accordance with

accounting principles generally accepted in the United States.

The preparation of these financial statements requires us to make estimates,

judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements as well

as the reported expenses during the reporting periods.

On an ongoing basis, we evaluate our estimates and judgments that are based on

historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

The result of these evaluations

forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are

not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 to our audited financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to record actual research and development expenses and to estimate accrued research and development expenses, current assets, and other current liabilities.

This process involves reviewing open contracts and commitments, communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost.

The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met.

We make estimates of our accrued research and development expenses, current assets, and other current liabilities as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time.

Examples of estimated accrued research and development expenses, prepaid assets, and other current liabilities include fees paid to contract manufacturers made in connection with the manufacturing of clinical trials materials and contract research organizations made in connection the performance of clinical trials on our behalf.

We base our expenses related to clinical manufacturing and clinical trials on our estimates of the services performed pursuant to contracts with the entities performing those services on our behalf.

The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows.

Payments under these types of contracts depend heavily upon the successful completion of many separate tasks involved in the manufacturing of drug product and the performance of clinical trials.

In the case of clinical trials, a portion of the estimated cost normally relates to the projected cost to treat a patient in the trials, and this cost is recognized based on the number of patients enrolled in the trial.

Other indirect costs are generally recognized on a straight-line basis over the estimated period of the study.

As actual costs become known to us, we adjust our accruals.

Management considers an accounting estimate to

be critical if it requires a significant level of estimation uncertainty, and changes in the estimate are reasonably likely to have a

material effect on our financial condition or results of operations.

While our significant accounting policies are more fully described

in Note 2 to our audited financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following critical

accounting estimates describe the most significant judgments and estimates used in the preparation of our financial statements.

Research and Development Expenses

As part of the process of preparing our financial

statements, we are required to record actual research and development expenses and to estimate accrued research and development expenses.

This process involves reviewing open contracts and commitments, communicating with our personnel to identify services that have been performed

for us, and estimating the level of service performed, and the associated cost incurred, for the service when we have not yet been invoiced

or otherwise notified of the actual cost.

The majority of our service providers invoice us monthly in arrears for services performed or

when contractual milestones are met.

Nonrefundable advance payments for goods and services are deferred and recognized as expense in the

period that the related goods are consumed, or services are performed.

We make estimates of our accrued research and development expenses

as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time.

Examples of estimated

accrued research and development expenses include fees paid to contract manufacturers made in connection with the manufacturing of clinical

trials materials and contract research organizations made in connection with the performance of clinical trials on our behalf.

our expenses related to clinical manufacturing and clinical trials on our estimates of the services performed pursuant to contracts with

the entities performing those services on our behalf.

The financial terms of these agreements are subject to negotiation, vary from contract

to contract, and may result in uneven payment flows.

Payments under these types of contracts depend heavily upon the successful completion

of many separate tasks involved in the manufacturing of drug products and the performance of clinical trials.

In the case of clinical

trials, we accrue and expense clinical trial activities performed by third parties based upon estimates of the proportion of work completed

over the life of the individual clinical trial and patient enrollment rates in accordance with agreements established with clinical research

organizations (“CROs”) and clinical trial sites.

We determine the estimates by reviewing contracts and through discussions

with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the

agreed-upon fee to be paid for such services.

However, actual costs and timing of clinical trials are highly uncertain, subject to risks

and may change depending upon a number of factors, including our clinical development plan.

If the actual timing of the performance of

services or the level of effort varies from the estimate, we will adjust the accrual or prepaid accordingly.

Although we do not expect

our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed

relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low

in any particular period.

To date, our estimates have not differed materially from the actual costs incurred.

However, subsequent changes in estimates may result in a material change in our accruals, which could also materially affect our balance sheet and results of operations.

We accrue and expense clinical trial activities performed by third parties based upon estimates of the proportion of work completed over the life of the individual clinical trial and patient enrollment rates in accordance with agreements established with clinical research organizations (“CROs”) and clinical trial sites.

We determine the estimates by reviewing contracts, vendor agreements and purchase orders, and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.

However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan.

We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time.

If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly.

Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed, or services are performed.

We perform an assessment of warrants upon issuance to determine their proper classification in the financial statements based upon the warrant’s specific terms, in accordance with the authoritative guidance provided in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) , and ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity (“ASC 815-40”) .

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480 and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed in our own Common Stock and whether the warrant holders could potentially require cash settlement of the warrants.

For issued or modified warrants that meet all the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital.

For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be liability-classified and recorded at their initial fair value on the date of issuance and remeasured at fair value at each balance sheet date thereafter.

We have performed an assessment of all warrants issued and modified and determined that our warrants are equity classified.

Comparison of the Years Ended December 31, 2024, and 2023

The following table summarizes our results of operations for the years ended December 31, 2024, and 2023, respectively:

Year Ended December 31,

of the Years Ended December 31, 2025, and 2024

following table summarizes our results of operations for the years ended December 31, 2025, and 2024, respectively:

Ended December 31,

Operating expenses:

Research and development

General and administrative

$ (5,273,708 )

Selling, general and administrative

Total operating expenses

5 unchanged sentences

$ (12,287,461 )

$ (4,492,771 )

Research and Development Expenses

Research and development expenses increased by approximately $4.1 million from $4.1 million for the year ended December 31, 2023, to $8.2 million for the year ended December 31, 2024.

The increase in research and development expense was the result of $4.9 million of increased clinical trial expenses, offset by approximately $0.2 million of decreased non-clinical expenses and approximately $0.6 million in decreased chemistry, manufacturing, and controls, or CMC, expenses.

These increases were the result of our efforts dedicated to running the XYNGARI™ Phase 3 STAR-1 clinical trial.

and Development Expenses

and development expenses decreased by approximately $5.3 million from $8.2 million for the year ended December 31, 2024, to $2.9 million

for the year ended December 31, 2025.

The decrease in research and development expenses primarily resulted from approximately $5.1 million

of decreased clinical expenses from our STAR-1 acne study, which was completed during the second quarter of 2025.

Other research and

development activities, including chemistry, manufacturing and controls, or CMC, and non-clinical expenses also decreased by $0.1 million

from the prior year as result of the Company’s pivot to focus on DTC product sales.

The remaining decrease in research and development

expenses of $0.1 million was related to personnel expenses, reflecting an increase in employee expenses of approximately $0.1 million

offset by $0.2 million of decreased stock-based compensation expense.

While we plan to initiate a user marketing study in the near term

and continue to focus on designing, packaging, and manufacturing of our first products, we anticipate that research and development expenses

will not materially increase as we prepare for launching our first products.

General and Administrative Expenses

General and administrative expenses increased by approximately $0.3 million from $4.0 million for the year ended December 31, 2023, to $4.3 million for the year ended December 31, 2024.

The increase in general and administrative expenses was primarily attributable to $0.3 million of increased audit related fees as a result of changing auditors in late 2023.

Interest income

We earn interest income via overnight deposits on our cash and cash equivalents.

Interest income was approximately $0.2 million for the years ended December 31, 2024, and 2023.

The following table summarizes our cash flows from operating and financing activities:

general and administrative expenses increased by approximately $0.5 million from $4.3 million for the year ended December 31, 2024, to

$4.8 million for the year ended December 31, 2025.

The increase in selling, general and administrative expenses was primarily attributable

to $0.7 million of marketing expenses incurred during the year ended December 31, 2025, offset by approximately $0.2 million of decreased

personnel expenses, reflecting an increase in employee expenses of approximately $0.1 million offset by $0.3 million of decreased stock-based

compensation expense.

We expect selling, general and administrative expenses to continue to increase related to marketing, advertising,

and personnel expenses as we continue to prepare for our first product launches in mid-2026.

earn interest income via overnight deposits on our cash and cash equivalents.

Interest income was approximately $0.2 million for the

years ended December 31, 2025, and 2024.

following table summarizes our cash flows from operating and financing activities:

Ended December 31,

Statements of cash flows data:

5 unchanged sentences

$ (4,276,565 )

Operating activities

Cash used in operations of approximately $11.1 million for the year ended December 31, 2024, was the result of the net loss of $12.3 million and a decrease in accounts payable of $0.1 million, offset by non-cash stock-based compensation of $0.7 million, an increase in accrued and other current liabilities of $0.4 million, as well as a decrease in prepaid expenses and other current assets of $0.2 million.

Cash used in operations of $6.4 million for the year ended December 31, 2023, was the result of the net loss of $7.8 million, offset by non-cash stock-based compensation of $0.5 million, an increase in accounts payable of $0.4 million and an increase in accrued and other current liabilities of $0.3 million, as well as a decrease in prepaid expenses and other current assets of $0.2 million.

Financing activities

Cash provided by financing activities of approximately $6.9 million for the year ended December 31, 2024, was the result of the $3.1 million of net proceeds from the September 2024 PIPE financing, net proceeds of $1.4 million from the sale of our common stock through the ATM Agreement, and net proceeds of $2.3 million from our warrant inducement financing in May 2024.

Cash provided by financing activities of $7.6 million for the year ended December 31, 2023, was the result of $4.2 million of net proceeds received from the issuance of common stock and warrants issued in offering conducted in March 2023, $1.5 million of net proceeds received from the issuance of common stock and warrants in an offering conducted in May 2023, as well as $2.0 million of net proceeds from a warrant inducement offering conducted in November 2023.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue or commercialized any products.

As of December 31, 2024, our cash and cash equivalents totaled $3.2 million, and we had an accumulated deficit of $65.7 million.

For the year ended December 31, 2024, and 2023, we used cash in operations of approximately $11.1 million and $6.4 million, respectively.

Historically, our principal sources of cash have included proceeds from the issuance of equity and debt.

Our principal uses of cash have included cash used in operations (including clinical development of our product candidates and general and administrative expenses) and payments for license rights.

We expect that the principal uses of cash in the future will be for continuing operations, funding of research and development, and general working capital requirements.

We expect that as research and development expenses continue to grow for our Phase 3 development program, we will need to raise additional capital to sustain operations and fund research and development activities, including our ongoing Phase 3 STAR-1 clinical study.

used in operations of $7.8 million for the year ended December 31, 2025, was the result of the net loss of approximately $7.6 million

and a decrease in accounts payable of $0.4 million, partially offset by non-cash stock-based compensation of $0.1 million.

used in operations of approximately $11.1 million for the year ended December 31, 2024, was the result of the net loss of $12.3 million

and a decrease in accounts payable of $0.1 million, offset by non-cash stock-based compensation of $0.7 million, an increase in accrued

and other current liabilities of $0.4 million, as well as a decrease in prepaid expenses and other current assets of $0.2 million.

provided by financing activities of $12.1 million for the year ended December 31, 2025, was the result of several financings, including

the January 2025 PIPE financing which raised net proceeds of approximately $2.2 million, the March 2025 Warrant Inducement financing

which raised net proceeds of $5.7 million, the December 2025 PIPE financing which raised net proceeds of approximately $3.8 million,

as well as proceeds from the sale of Common Stock from ATM sales during December 2025 which raised net proceeds of approximately $0.4

provided by financing activities of approximately $6.9 million for the year ended December 31, 2024, was the result of the $3.1 million

of net proceeds from the September 2024 PIPE financing, net proceeds of $1.4 million from the sale of our common stock through the ATM

Agreement, and net proceeds of $2.3 million from our warrant inducement financing in May 2024.

and Capital Resources

Since our inception, we have not generated any revenue or commercialized

any products.

As of December 31, 2025, our cash and cash equivalents totaled $7.5 million, and we had an accumulated deficit of $73.2

For the years ended December 31, 2025, and 2024, we used cash in operations of approximately $7.8 million and $11.1 million,

respectively.

anticipate that we will continue to incur net losses for at least the next twelve months from the date of this filing.

While we plan

to launch our first DTC product in mid-2026, it is uncertain when we will generate operating income to sustain operations.

These factors

raise substantial doubt about our ability to continue as a going concern for the one-year period following the date that these financial

statements were issued.

Historically,

our principal sources of cash have included proceeds from the issuance of equity securities.

Our principal uses of cash have been for

operations, and we expect that the principal uses of cash in the future will be for continuing operations, marketing and commercialization

activities for skincare products, funding of research and development, and general working capital requirements.

We expect that as marketing

expenses continue to grow, we may need to raise additional capital to sustain operations.

June 2024, we entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C.

Wainwright &Co., LLC (“Wainwright”),

as sales agent, pursuant to which we may offer and sell, from time to time through Wainwright, shares of our common stock for aggregate

proceeds of up to $1,662,761 (upon the terms and subject to the conditions and limitations set forth in the ATM Agreement).

In the twelve

months ended December 31, 2024, we sold 55,001 shares of common stock under the ATM Agreement, for net proceeds of $1.4 million, after

deducting $0.3 million of expenses, including approximately $126,000 paid to Wainwright as sales agent.

November 7, 2025, we filed a prospectus supplement, pursuant to which we may offer and sell, from time to time through sales agent, shares

of our Common Stock for aggregate proceeds of $4,159,390 (upon the terms and subject to the conditions and limitations set forth in the

ATM Agreement).

In June 2024, we entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C.

Wainwright &Co., LLC (“Wainwright”), as sales agent, pursuant to which we may offer and sell, from time to time through Wainwright, shares of our common stock for aggregate proceeds of up to $1,662,761 (upon the terms and subject to the conditions and limitations set forth in the ATM Agreement).

In the twelve months ended December 31, 2024, we sold 550,024 shares of common stock under the ATM Agreement, for net proceeds of $1.4 million, after deducting $0.3 million of compensation to Wainwright, auditors, lawyers, and other administration fees.

Future Capital Requirements

We plan to focus in the near term on the development, regulatory approval, and potential commercialization of XYNGARI™ for the treatment of acne and psoriasis.

We anticipate we will continue to incur net losses for the next several years as we complete clinical development of XYNGARI™ for the treatment of acne and psoriasis and continue research and development of DMT410 for the treatment of aesthetic and medical skin conditions.

In addition, we plan to seek opportunities to identify, acquire or in license and develop additional drug candidates, potentially build commercial capabilities, and expand our corporate infrastructure.

We may not be able to complete the development and initiate commercialization of these programs if, among other things, our clinical trials are not successful or if the FDA does not approve our drug candidate arising out of our current clinical trials when we expect, or at all.

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical costs, external research and development services, legal and other regulatory expenses, and administrative and overhead costs.

Our future funding requirements will be heavily determined by the resources needed to support development of our drug candidates.

We believe that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements into the third quarter of 2025.

We have based this estimate of cash runway on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

We will require additional capital to conduct Phase 3 studies for XYNGARI™ for the treatment of acne, and to pursue in licenses or acquisitions of other drug candidates.

Additional funds may not be available on a timely basis, on favorable terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to implement our long-term business strategy.

If we are unable to raise sufficient additional capital, we may need to substantially curtail our planned operations and the pursuit of our growth strategy.

We may raise additional capital through the sale of equity or convertible debt securities.

In such an event, the terms of these securities may include liquidation or other preferences that adversely affect the rights of a holder of our common stock.

Because of the numerous risks and uncertainties associated with research, development, and commercialization of pharmaceutical drugs, we are unable to estimate the exact amount of our working capital requirements.

Our future funding requirements will depend on many factors, including:

the number and characteristics of the drug candidates we pursue;

the scope, progress, results, and costs of researching and developing our drug candidates, and conducting preclinical studies and clinical trials;

the timing of, and the costs involved in, obtaining regulatory approvals for our drug candidates;

the cost of manufacturing our drug candidates and any drugs we successfully commercialize;

our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims, including litigation costs and the outcome of such litigation; and

the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future drug candidates, if any.

To continue to grow our business over the longer term, we plan to commit substantial resources to research and development, clinical trials of our product candidates, and other operations and potential product acquisitions and in licensing.

We have evaluated and expect to continue to evaluate a wide array of strategic transactions as part of our plan to acquire or in license and develop additional products and product candidates to augment our internal development pipeline.

Strategic transaction opportunities that we may pursue could materially affect our liquidity and capital resources and may require us to incur additional indebtedness, seek equity capital or both.

In addition, we may pursue development, acquisition or in licensing of approved or development products in new or existing therapeutic areas or continue the expansion of our existing operations.

Accordingly, we expect to continue to opportunistically seek access to additional capital to license or acquire additional products, product candidates or companies to expand our operations, or for general corporate purposes.

Strategic transactions may require us to raise additional capital through one or more public or private debt or equity financings or could be structured as a collaboration or partnering arrangement.

We have no arrangements, agreements, or understandings in place at the present time to enter into any acquisition, in licensing or similar strategic business transaction.

If we raise additional funds by issuing equity securities, our stockholder will experience dilution.

Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences that are not favorable to us or our stockholder.

If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us.

We cannot be certain that additional funding will be available on acceptable terms, or at all.

In addition, future debt financing into which we enter may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions.

If we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates, restrict our operations or obtain funds by entering into agreements on unattractive terms, which would likely have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business relationships, at least until additional funding is obtained.

If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all of their investment in us.

In addition, our ability to achieve profitability or to respond to competitive pressures would be significantly limited.

Going Concern

Since inception we have been engaged in organizational activities, including raising capital and research and development activities.

We have not generated revenues and have not yet achieved profitable operations, nor have we ever generated positive cash flow from operations.

There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis.

We are subject to those risks associated with any late-clinical stage pharmaceutical company that has substantial expenditures for research and development.

There can be no assurance that our research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable.

In addition, we operate in an environment of rapid technological change and is largely dependent on the services of our employees and consultants.

Further, our future operations are dependent on the success of the Company’s efforts to raise additional capital.

These uncertainties raise substantial doubt about our ability to continue as a going concern for 12 months after the issuance date of our financial statements.

The accompanying financial statements have been prepared on a going concern basis.

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the company to continue as a going concern, which contemplates the continuation of operations, realization of assets and liquidation of liabilities in the ordinary course of business.

We incurred a net loss of $12.3 million for the year ended December 31, 2024, and had an accumulated deficit of $65.7 million as of December 31, 2024.

We anticipate incurring additional losses until such time, if ever, that we can generate significant revenue from our product candidates currently in development.

Our primary source of capital has been the issuance of debt and equity securities.

Recently Issued Accounting Standards

For a discussion of recent accounting pronouncements, please see the Summary of Significant Accounting Policies in the Notes to our financial statements included elsewhere in this Annual Report.

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was signed into law.

The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company”.

As an “emerging growth company,” we are electing to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

Section 107 of the JOBS Act provides that our decision not to take advantage of the extended transition period is irrevocable.

Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

These exemptions will apply until the fifth anniversary of the completion of our initial public offering, which would be August 2026, or until we no longer meet the requirements for being an “emerging growth company,” whichever occurs first.

During December 2025, we sold 149,341 shares of common stock under the ATM Agreement, for net proceeds of $0.4 million,

net of the approximately $15,000 fees paid to Wainwright as sales agent, leaving approximately $1.4 million of capacity under the ATM

Agreement as of December 31, 2025.

January 2026, we sold an additional 824,283 shares of our Common Stock under the ATM Agreement resulting in approximately $2.0 million

of net proceeds after deducting approximately $67,000 of sales agent issuance costs.

We do not have any capacity remaining under the

ATM Agreement.

Capital Requirements

plan to focus in the near term on the development and commercialization of our Tome skincare products, our Foundational Treatment

as well as Clearing Treatment for acne.

We anticipate we will continue to incur net losses for the next months as we complete the launch

of our Tome Foundational Treatment and ramp up marketing activities.

We also plan to invest in developing additional skincare

products to add to our portfolio that complement our Foundational Treatment.

In addition, we plan to seek opportunities to

identify, acquire or in license and develop additional skincare candidates, potentially expand commercial capabilities, and expand our

corporate infrastructure.

We may not be able to complete the development and initiate commercialization of these programs without raising

additional capital.

primary uses of capital are, and we expect will continue to be, compensation and related expenses, marketing and advertising expenses,

external research, development and manufacturing costs, legal and other regulatory expenses, and administrative and overhead costs.

future funding requirements will be heavily dependent upon any product revenues generated from our first product launch, of which we

cannot estimate at this time, as well as the resources needed to support additional development of future products.

believe that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements

into the first quarter of 2027.

We have based this estimate of cash runway on assumptions that may prove to be wrong, and we could utilize

our available capital resources sooner than we expect.

We may require additional capital to continue to commercialize our Tome skincare

products, and to pursue in licenses or acquisitions of other drug candidates.

funds may not be available on a timely basis, on favorable terms, or at all, and such funds, if raised, may not be sufficient to enable

us to continue to implement our long-term business strategy.

If we are unable to raise sufficient additional capital, we may need to

substantially curtail our planned operations and the pursuit of our growth strategy.

may raise additional capital through the sale of equity or convertible debt securities.

In such an event, the terms of these securities

may include liquidation or other preferences that adversely affect the rights of a holder of our common stock.

of the numerous risks and uncertainties associated with launching our first products, as well as any revenues generated from those products,

we are unable to estimate the exact amount of our working capital requirements.

Our future funding requirements will depend on many factors,

number and characteristics of the skincare products we pursue;

scope, progress, results, and costs of developing our products, and marketing such products if commercialized;

timing of, and the costs involved in, launching our products;

cost of manufacturing our products and any products we successfully commercialize;

ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims, including litigation costs

and the outcome of such litigation; and

timing, receipt and amount of revenues, if any, or milestone payments related to or royalties on, our current or future products,

continue to refocus our business on skincare products and other operations and potential product acquisitions and in licensing.

evaluated and expect to continue to evaluate a wide array of strategic transactions as part of our plan to acquire or in license and

develop additional products to add to our Tome skincare brand.

Strategic transaction opportunities that we may pursue could materially

affect our liquidity and capital resources and may require us to incur additional indebtedness, seek equity capital or both.

we expect to continue to opportunistically seek access to additional capital to license or acquire additional products or companies to

expand our Tome skincare brand and operations, or for general corporate purposes.

Strategic transactions may require us to raise additional

capital through one or more public or private debt or equity financings or could be structured as a collaboration or partnering arrangement.

We have no arrangements, agreements, or understandings in place at the present time to enter into any acquisition, in licensing or similar

strategic business transaction.

we raise additional funds by issuing equity securities, our stockholders will experience dilution.

Debt financing, if available, would

result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to

take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

Any debt financing or additional

equity that we raise may contain terms, such as liquidation and other preferences that are not favorable to us or our stockholders.

we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable

rights to our technologies, future revenue streams or products or to grant licenses on terms that may not be favorable to us.

cannot be certain that additional funding will be available on acceptable terms, or at all.

In addition, future debt financing into which

we enter may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional

debt, pay dividends, redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions.

we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back

or discontinue the development and commercialization of one or more of our products, restrict our operations or obtain funds by entering

into agreements on unattractive terms, which would likely have a material adverse effect on our business, stock price and our relationships

with third parties with whom we have business relationships, at least until additional funding is obtained.

If we do not have sufficient

funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our

stockholders losing some or all of their investment in us.

In addition, our ability to achieve profitability or to respond to competitive

pressures would be significantly limited.

inception, we have devoted substantially all of our resources to research and development activities.

We have not generated revenues

and have not yet achieved profitable operations, nor have we ever generated positive cash flow from operations.

There is no assurance

that profitable operations, if achieved, could be sustained on a continuing basis.

In addition, we operate in an environment of rapid

technological change, and we are largely dependent on the services of our employees and consultants.

Further, our future operations are

dependent on the success of our efforts to raise additional capital.

These uncertainties raise substantial doubt about our ability to

continue as a going concern for 12 months after the issuance date of our financial statements.

The accompanying financial statements

have been prepared on a going concern basis.

The financial statements do not include any adjustments to reflect the possible future effects

on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible

inability of the company to continue as a going concern, which contemplates the continuation of operations, realization of assets and

liquidation of liabilities in the ordinary course of business.

We incurred a net loss of $7.6 million for the year ended December 31,

2025, and had an accumulated deficit of $73.2 million as of December 31, 2025.

We anticipate incurring additional losses until such time,

if ever, that we can generate sufficient revenue from our products currently in development.

Our primary source of capital has been the

issuance of equity and equity-linked securities.

Issued Accounting Standards

a discussion of recent accounting pronouncements, please see the Summary of Significant Accounting Policies in the Notes to our financial

statements included elsewhere in this Annual Report.

April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was signed into law.

The JOBS Act contains provisions

that, among other things, reduce certain reporting requirements for an “emerging growth company”.

As an “emerging growth

company,” we elected not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of

new or revised accounting standards, and as a result, we will comply with new or revised accounting standards on the relevant dates on

which adoption of such standards is required for non-emerging growth companies.

Section 107 of the JOBS Act provides that our decision

not to take advantage of the extended transition period is irrevocable.

to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we are not required to, among other things,

(i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404,

(ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall

Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight

Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the

audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items

such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation

to median employee compensation.

These exemptions will apply until the fifth anniversary of the completion of our initial public offering,

which would be August 2026, or until we no longer meet the requirements for being an “emerging growth company,” whichever

occurs first.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item appears in a separate section of this Annual Report on Form 10-K beginning on page F-1 and is incorporated herein by reference.

information required by this item appears in a separate section of this Annual Report on Form 10-K beginning on page F-1 and is incorporated

herein by reference.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis