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Item 9A. Controls and Procedures

2024-03-21 compared with 2023-02-21 · 264 added, 1015 removed, 447 unchanged (74% of the section changed)

2 unchanged sentences

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

2 unchanged sentences

Management’s Annual Report on Internal Control Over Financial Reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by the rules of the SEC for newly public companies.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting.

Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the authorizations of management and our Board;

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

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework provided in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, our management concluded that our internal control over financial reporting were effective as of December 31, 2023.

Changes in Internal Control Over Financial Reporting

12 unchanged sentences

OTHER INFORMATION

During the fiscal quarter ended December 31, 2023, no director or “officer” (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(c) of Regulation S-K.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Executive Officers and Directors

The following table provides information regarding our executive officers and directors as of the date of this annual report:

Executive Officers

President, Chief Executive Officer and Chairman

Senior Vice President, Chief Financial Officer

Christopher J.

Senior Vice President, Chief Development Officer

Maria Bedoya Toro Munera, Ph.D.

Senior Vice President, Regulatory Affairs & Quality Assurance

David Hale (2)(3)

Lead Director

Wendell Wierenga, Ph.D.

Kathleen Scott (1)

Mary Fisher (1)

Andrew Sandler, M.D.

Brittany Bradrick (1)

Member of the Audit Committee.

Member of the Compensation Committee.

Member of the Nominating and Governance Committee.

Proehl became a director and our President and Chief Executive Officer in December 2014 and became our Chairman in April 2021.

Proehl has more than 30 years of experience within the pharmaceutical industry.

From January 2002 until January 2014, Mr.

Proehl was President and CEO of Santarus, Inc., where he led the sale of Santarus, Inc.

to Salix Pharmaceuticals, Inc.

for $2.6 billion.

Prior to Santarus, Inc., Mr.

Proehl worked for Hoechst Marion Roussel, Inc.

for 14 years, where he served in various capacities, including VP of Global Marketing.

While at Hoechst, he was responsible for marketing products in multiple therapeutic areas, including cardiology, allergy/respiratory, immunology, and neurology.

Proehl holds a B.S.

in Education from State University of New York at Cortland, an M.A.

in Exercise Physiology from Wake Forest University, and an M.B.A.

from Rockhurst University.

Proehl currently serves as chairman of the board of one public company, Tenax Therapeutics, Inc.

Proehl was selected as an officer and director due to his leadership experience at other companies and his history of founding and operating specialty pharmaceutical companies.

Van Hoose became our Senior Vice President and Chief Financial Officer in September 2021.

Van Hoose is a seasoned and collaborative finance and accounting professional with over 20 years of experience, including more than 15 years of accounting and finance experience in the life science industry.

Prior to joining Dermata, from September 2020 to April 2021, Ms.

Van Hoose served as Chief Financial Officer of TEGA Therapeutics, Inc., a private biotechnology company.

Prior to TEGA, from November 2019 to April 2020, Ms.

Van Hoose served as the head of finance for Curzion Pharmaceuticals, Inc., a private, rare disease company, until its acquisition by Horizon Therapeutics plc in April 2020.

Van Hoose also served at Avelas Biosciences, Inc., a clinical-stage biotechnology company from December 2017 to July 2019.

From September 2005 to February 2016, Ms.

Van Hoose held leadership positions of increasing responsibilities at Acadia Pharmaceuticals, Inc., including Senior Director of Finance and Corporate Controller.

Van Hoose began her career at Deloitte and is a licensed Certified Public Accountant (California inactive).

Van Hoose earned her B.S.

in Accounting at the University of Southern California and M.B.A.

in Finance at University of California, Irvine.

Christopher J.

became our Senior Vice President and Chief Development Officer in July 2022.

Nardo has more than 15 years of experience in the pharmaceutical industry.

From September 2010 to May 2015, Dr.

Nardo served in positions of increasing responsibility at Allergan, PLC, initially leading clinical development of BOTOX® for the treatment of Over Active Bladder from Phase 3 to product approval and launch, and ultimately leading clinical development for the aesthetic group within the Dermatology Therapeutic Area, as well as serving as Global Development Team Leader for the Allergan/Medytox collaboration including serving as the Chair of the AGN/MTX Joint Development Committee.

From 2006 to 2010, Dr.

Nardo served as Vice President, Clinical Operations and Biostatistics at Spectrum Pharmaceuticals, Inc.

Prior to that, Dr.

Nardo held various clinical development leadership positions at CancerVax Corporation, The Immune Response Corporation, and Procter and Gamble Company (NYSE:

Nardo obtained a Ph.D.

in Epidemiology from the Gillings School of Public Health at the University of North Carolina at Chapel Hill, his M.P.H.

in Epidemiology and Biostatistics from the School of Public Health at San Diego State University, and his B.S.

in Biology at Loyola Marymount University.

Maria Bedoya Toro Munera, Ph.D.

became our Senior Vice President of Regulatory Affairs and Quality Assurance in January 2016.

Bedoya Toro Munera has more than 30 years of experience in regulatory compliance, quality control and quality assurance within the pharmaceutical industry.

From 2014 until its sale to Celgene in 2015, Dr.

Bedoya Toro Munera served as Senior Vice President, Regulatory Affairs and Quality Assurance at Receptos Inc.

Prior to Receptos, Inc., Dr.

Bedoya Toro Munera served as Senior Vice President of Regulatory Affairs and Quality Assurance at Santarus, Inc.

from June 2007 to January 2014.

She previously served as Senior Director Regulatory Affairs at Eisai Medical Research Inc., from November 2006 to May 2007, moving to Eisai from Ligand Pharmaceuticals, Inc.

when Ligand divested their oncology products to Eisai in November 2006.

Bedoya Toro Munera worked as Senior Director Global Regulatory Affairs and Compliance at Ligand from 2003 to 2006.

From 2000 to 2003, she served as Director Global Regulatory Affairs at Baxter Hyland Immuno.

From 1998 to 2000, Dr.

Bedoya Toro Munera worked at BASF Bioresearch Corporation as Director, Regulatory Affairs/Quality, and from 1996 to 1998, she worked as Director, Quality Assurance and Regulatory Compliance at Amylin Pharmaceuticals.

From 1988 to 1996, Dr.

Bedoya Toro Munera worked at Rhone-Poulenc Rorer in a number of increasingly responsible positions in regulatory compliance, quality assurance, quality control and compliance.

Bedoya Toro Munera holds an M.B.A.

from the University of Chicago, and a Ph.D.

in bio-analytical chemistry from Ohio University.

In addition, she has a M.A.

in bio-analytical chemistry and a B.S.

in chemistry from Western Michigan University.

Non-Employee Directors

David Hale is our co-founder and has served as a member of our board of directors since December 2014, and as Lead Director since April 2021.

Hale is Chairman and CEO of Hale BioPharma Ventures, LLC a private company focused on the formation and development of biotechnology, specialty pharma, diagnostic and medical device companies.

Hale is a serial entrepreneur who has been involved in the formation and development of a number of successful biomedical companies.

He served as the Chairman of Santarus, Inc., a specialty biopharmaceutical company, since 2004 and a member of Santarus’ board since 2000, prior to its acquisition by Salix Pharmaceuticals, Ltd.

in 2014, and as Chairman of SkinMedica, Inc., prior to its sale to Allergan in 2012, Micromet, Inc., prior to its sale to Amgen Inc.

in 2012, Somaxon Pharmaceuticals, Inc., prior to its sale to Pernix Therapeutics Holdings Inc.

in 2013, Crisi Medical Systems, Inc., prior to its sale to Becton Dickinson & Company in 2015, and Agility Clinical, Inc.

prior to its sale to Precision Medicine Inc.

Hale is a co-founder and currently serves as Chairman of Oncternal Therapeutics, Inc.

ONCT), since 2013.

Hale is also a co-founder and currently serves as a director of Neurelis, Inc., a private company, and is a co-founder of Zerigo Health, Inc., Cadence, Inc., Evoke Pharma, Inc., Elevation Pharma, Inc., and Zogenix, Inc.

Hale is a co-founder and serves on the Board of Directors of BIOCOM and CONNECT and is a former member of the Board of the Biotechnology Industry Organization (BIO), and the Biotechnology Institute.

He has served on the Board of Rady Children’s Hospital since 1986, including Chairman of the Board from 2011 to 2015, and is founder and Chairman of the Rady Children’s Institute of Genomic Medicine.

He is a member of the UCSD Rady School of Management Dean’s Advisory Council, a member of the board of the University of San Diego, and is a former Director of the San Diego Economic Development Corporation .

Hale was selected as a director due to his industry and executive business experience.

Wendell Wierenga, Ph.D.

became a director in September 2016.

From June 2011 to January 2014, Dr.

Wierenga served as Executive Vice President, Research and Development at Santarus, Inc., a public biopharmaceutical company that was acquired by Salix Pharmaceuticals, Inc.

in January 2014.

From July 2004 to May 2011, Dr.

Wierenga served as Executive Vice President, Research and Development at Ambit Biosciences Corporation and Neurocrine Biosciences, Inc.

Prior to Neurocrine, from August 1999 to June 2004 he served as the Chief Executive Officer for Syrrx, Inc.

where he built an early stage biotech company which was acquired by Takeda Pharmaceutical Company Limited in 2005.

From 1990 to 2000, Dr.

He also was Sr.

VP of Research at Parke Davis/Warner Lambert, when it was acquired by Pfizer Inc.

and prior to that held various positions in research at Upjohn Pharmaceuticals from 1974-1990.

Wierenga earned his Ph.D.

in chemistry from Stanford University and his B.A.

from Hope College in Holland, Michigan.

He is currently the chair of the Board of Directors of Crinetics (NASDAQ:

CRNX) and is also a member of the Board of Directors of Cytokinetics, Inc.

Most recently was on the Board of Directors for Anacor Pharmaceuticals Inc.

and XenoPort, Inc.

prior to their sales to Pfizer Inc.

and Arbor Pharmaceuticals, LLC, respectively.

Wierenga was selected as a director due to his industry and executive business experience.

Kathleen Scott became a director upon the effectiveness of our initial public offering in August 2021.

Scott is currently the Chief Financial Officer of ARS Pharmaceuticals, Inc., a publicly traded biotech company (Nasdaq:

Prior to ARS Pharmaceuticals, Ms.

Scott was the Chief Financial Officer of Neurana Pharmaceuticals from January 2017 to March 2022, Recros Medica from August 2014 to April 2021, Adigica Health from February 2016 to March 2021, Clarify Medical from August 2014 to December 2016, Oncternal Therapeutics from March 2016 to May 2016, MDRejuvena from August 2014 to August 2016, and BioSurplus from March 2010 to November 2014.

Prior to BioSurplus, Ms.

Scott was a Partner at RA Capital Advisors, a San Diego private investment bank providing financial advisory services.

Scott spent over 15 years with RA Capital Advisors, from December 1994 to July 2010, completing billions of dollars of mergers, acquisitions, divestitures, and restructurings for a broad range of corporate clients.

Scott started her career as an auditor in Arthur Andersen’s San Diego office, focusing on both public and private clients.

Scott is the past board chair and current director of the YMCA of San Diego County and is a CPA and CFA charter holder.

Scott graduated magna cum laude from UCLA with a B.S.

in economics/business.

Scott was selected as a director due to her extensive industry and financial experience.

became a director upon the effectiveness of our initial public offering in August 2021.

Since July 2005, Dr.

Mento has served as a director on the board of directors of Conatus Pharmaceuticals, Inc.

and from July 2005 to December 2012, Dr.

Mento served as chairman of Conatus’ board of directors.

Mento was a co-founder of Conatus and served as its President and Chief Executive Officer from July 2005 until its merger with Histogen Inc.

HSTO) in May 2020.

Mento has over 30 years of combined experience in the biotechnology and pharmaceutical industries.

From 1997 to 2005, Dr.

Mento was President, Chief Executive Officer and a member of the board of directors of Idun Pharmaceuticals, Inc.

Mento guided Idun during its transition from a discovery focused organization to a drug development company with multiple products in or near human clinical testing.

In April 2005, Idun was sold to Pfizer Inc.

Previously, Dr.

Mento served as President of Chiron Viagene, Inc.

(subsequently Chiron Technologies, Center for Gene Therapy) from 1995 to 1997, and Vice President of Chiron Corporation from 1995 to 1997.

Mento was Vice President of research and development at Viagene from 1992 to 1995.

Prior to Viagene, Dr.

Mento held various positions at American Cyanamid Company from 1982 to 1992, including as Director of Viral Vaccine Research and Development at Lederle-Praxis Biologicals, a business unit of American Cyanamid.

Mento currently serves on the board of directors of Histogen, BIOCOM California and various academic and charitable organizations.

He previously served on the boards of Biotechnology Innovation Organization, BIO Emerging Companies Section Governing Board, BIO Health Section Governing Board, and Sangamo Biosciences, Inc.

Mento holds a Ph.D.

and M.S., both in Microbiology, from Rutgers University, and a B.A.

in Microbiology from Rutgers College.

Mento was selected as a director due to his experience in the biotechnology and pharmaceutical industries, including executive leadership experience at several pharmaceutical companies.

Mary Fisher became a director upon the effectiveness of our initial public offering in August 2021.

Fisher currently serves as Chief Executive Officer, Chair and a Director at Colorescience Inc., a science-based skincare company and former division of SkinMedica, Inc.

While at SkinMedica, Ms.

Fisher served as Chief Executive Officer from April 2008 to December 2012, where she led the successful sale of the company to Allergan, Inc.

for $350 million.

Prior to joining SkinMedica, from June 2000 to July 2007, Ms.

Fisher served as the Chief Operating Officer of Acorda Therapeutics, Inc.

She previously held management and leadership positions at Cephalon, Inc.

from March 1994 to March 1999, Immunex Corp.

from November 1990 to March 1994, and Boehringer Ingelheim from 1981 to 1990.

She previously served on the Board of Directors at ZELTIQ Aesthetics, Inc.

from September 2012 to April 2017, and Ovascience from June 2013 to August 2018.

Fisher currently sits on the Board of Sientra since January 2019.

Fisher was selected as a director due to her extensive business and professional experience.

Andrew Sandler, M.D.

became a director upon the effectiveness of our initial public offering in August 2021.

Since September 2017, Dr.

Sandler has served as Chief Medical Officer at Kiadis Pharma N.V.

Prior to Kiadis, Dr.

Sandler was Senior Vice President, Medical Affairs at Medivation (acquired by Pfizer) from January 2016 to June 2017.

Sandler held various additional roles including Chief Medical Officer and Seattle Site Head at Dendreon Pharmaceuticals from October 2010 to April 2015.

Prior to Dendreon, Dr.

Sandler was Chief Medical Officer at Spectrum Pharmaceuticals from September 2008 to April 2010, and Vice President, Head of Global Medical Affairs, Oncology for Bayer Healthcare Pharmaceuticals from February 2008 to February 2010.

Sandler also held various positions at Berlex Oncology/Schering AG from October 2003 to August 2008, and Seagen, Inc.

from October 1999 to June 2003.

Sandler was a Fellow in Hematology/Medical Oncology at the University of California, San Francisco (UCSF) from July 1994 to June 1996.

He did his Internship, Residency, and Chief Residency at Mt.

Sinai Hospital in New York, NY from July 1990 to June 1994.

Sandler attended and received his MD degree from Mount Sinai School of Medicine (Icahn School of Medicine at Mt.

Sinai) from July 1986 to June 1990.

In addition, he graduated from the University of Rochester with a B.S.

degree in Neuroscience in 1986.

Sandler was selected as a director due to his experience in the biotechnology and pharmaceutical industries as well as his leadership experience.

Brittany Bradrick became a director in January 2022.

Bradrick has served as the Chief Operating Officer and Chief Financial Officer of Neurelis, Inc.

since September 2022 and the Chief Financial Officer since October 2021.

Prior to joining Neurelis, Ms.

Bradrick was Chief Operating Officer and Chief Financial Officer at ViaCyte Inc.

from June 2020 to September 2021.

Prior to Viacyte, Ms.

Bradrick served in strategy and corporate development positions at Insulet Corporation as Vice President, Strategy & Corporate Development from 2016 to 2020 and as Director, Business Development & Alliance Management at Abbott Laboratories (NYSE:

Prior to these positions, Ms.

Bradrick was an investment banker for the life science industry at Piper Jaffray, Credit Suisse, and Chase Securities from 1997 to 2007.

Bradrick began her career as a Federal Reserve Bank Examiner.

Bradrick holds an M.B.A.

from the Johnson Graduate School of Management at Cornell University and a B.S.

in Business Administration from the University of Missouri.

Bradrick was selected as a director due to her extensive industry and financial experience.

Family Relationships

There are no family relationships among any of the directors or executive officers.

Committees of the Board of Directors

Our board of directors has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee.

Our board of directors may establish other committees to facilitate the management of our business.

The composition and functions of each committee are described below.

Members serve on these committees until their resignation or until otherwise determined by our board of directors.

Each of these committees operate under a charter that has been approved by our board of directors, which are available on our website.

Audit Committee.

Our Audit Committee consists of Kathleen Scott, Mary Fisher, and Brittany Bradrick, with Ms.

Scott serving as the Chairwoman of the Audit Committee.

Our board of directors has determined that the three directors currently serving on our Audit Committee are independent within the meaning of the Nasdaq Marketplace Rules and Rule 10A-3 under the Exchange Act.

In addition, our board of directors has determined that Kathleen Scott qualifies as an audit committee financial expert within the meaning of SEC regulations and The Nasdaq Marketplace Rules.

The Audit Committee oversees and monitors our financial reporting process and internal control system, reviews and evaluates the audit performed by our registered independent public accountants and reports to the board of directors any substantive issues found during the audit.

The Audit Committee is directly responsible for the appointment, compensation and oversight of the work of our registered independent public accountants.

The Audit Committee reviews and approves all transactions with affiliated parties.

Compensation Committee.

Our Compensation Committee consists of Wendell Wierenga, David Hale and Andrew Sandler, with Dr.

Wierenga serving as the Chairman of the Compensation Committee.

Our board of directors has determined that the three directors currently serving on our Compensation Committee are independent under the listing standards, are “non-employee directors” as defined in rule 16b-3 promulgated under the Exchange Act and are “outside directors” as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, as amended.

The Compensation Committee provides advice and makes recommendations to the board of directors in the areas of employee salaries, benefit programs and director compensation.

The Compensation Committee also reviews and approves corporate goals and objectives relevant to the compensation of our President, Chief Executive Officer, and other officers and makes recommendations in that regard to the board of directors as a whole.

Nominating and Corporate Governance Committee.

Our Nominating and Corporate Governance Committee consists of David Hale, Steven Mento and Andrew Sandler, with Mr.

Hale serving as the Chairman of the Nominating and Corporate Governance Committee.

The Nominating and Corporate Governance Committee nominates individuals to be elected to the board of directors by our stockholders.

The Nominating and Corporate Governance Committee considers recommendations from stockholders if submitted in a timely manner in accordance with the procedures set forth in our bylaws and will apply the same criteria to all persons being considered.

All members of the Nominating and Corporate Governance Committee are independent directors as defined under the Nasdaq listing standards.

Board Composition

Our board of directors consists of seven members.

Our directors will hold office until their successors have been elected and qualified or until the earlier of their resignation or removal.

In accordance with the terms of our restated certificate of incorporation and bylaws, our board of directors is divided into three classes, class I, class II and class III, with each class serving staggered three-year terms.

Upon the expiration of the term of a class of directors, directors in that class will be eligible to be elected for a new three-year term at the annual meeting of stockholders in the year in which their term expires.

Our directors are divided among the three classes as follows:

The Class I directors are Andrew Sandler, and Mary Fisher;

their terms will expire at the 2025 annual meeting of stockholders.

The Class II directors are David Hale and Steven J.

their terms will expire at the 2023 annual meeting of stockholders.

The Class III directors are Gerald T.

Proehl, Wendell Wierenga, and Kathleen Scott;

their terms will expire at the 2024 annual meeting of stockholders.

We expect that any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.

The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control.

Our amended and restated certificate of incorporation and amended and restated bylaws provide that the authorized number of directors may be changed only by resolution of our board of directors.

Our amended and restated certificate of incorporation and amended and restated bylaws also provide that our directors may be removed only for cause, and that any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by vote of a majority of our directors then in office.

We have no formal policy regarding board diversity.

Our priority in selection of board members is identification of members who will further the interests of our stockholders through his or her established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business and understanding of the competitive landscape.

Code of Business Conduct and Ethics

We have adopted a written code of business conduct and ethics that applies to our employees, officers and directors.

A current copy of the code is posted on the Corporate Governance section of our website, which is located at www.dermatarx.com.

We intend to disclose future amendments to certain provisions of our code of business conduct and ethics, or waivers of such provisions applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and our directors, on our website identified above or in filings with the SEC.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our directors, officers and person who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC.

On July 7, 2022, Christopher Nardo filed a Form 4 reporting receipt of an equity grant one day late.

Based solely upon review of Forms 3, 4 and 5 (and amendments thereto) filed electronically with the SEC by our executive officers and directors owning mor than 10% of our common stock and upon any written representations received from the executive officers and directors, other than as described above, to our knowledge we believe that all other Section 16(a) filing requirements were met timely in fiscal year 2022.

Information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders.

EXECUTIVE COMPENSATION

The following tables and accompanying narrative disclosure set forth information about the compensation earned by our named executive officers during the years ended December 31, 2022, and 2021.

Our named executive officers, who are our principal executive officer and the two most highly compensated executive officers (other than our principal executive officer) serving as executive officers as of December 31, 2022, were:

Proehl, President and Chief Executive Officer;

Van Hoose, our Senior Vice President and Chief Financial Officer;

Christopher J.

Nardo, Ph.D., our Senior Vice President and Chief Development Officer.

Summary Compensation Table

The following table sets forth information concerning the compensation of our Named Executive Officers for the year ended December 31, 2022, and 2021:

Name and Principal Position

President and Chief Executive Officer

Senior Vice President, Chief Financial Officer (3)

Christopher J.

Senior Vice President, Chief Development Officer

Proehl’s bonus for 2021 was remunerated in fully vested stock options.

All stock options are granted pursuant to our 2021 Plan.

Van Hoose and Dr.

Nardo’s bonuses for 2021 were paid in cash.

No bonuses were paid for 2022.

In accordance with SEC rules, this column reflects the aggregate grant date fair value of the stock option awards granted during 2021.

These amounts have been computed in accordance with FASB ASC Topic 718.

Assumptions used in the calculation of this amount are described in Notes 7 to our financial statements included elsewhere in this document.

This amount does not reflect the actual economic value that will be realized by the executives upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options.

Van Hoose joined Dermata in September 2021.

Employment Arrangements with our Named Executive Officers

We are party to employment agreements with each of our Named Executive Officers listed below.

Each of these Named Executive Officers are currently party to customary confidentiality and intellectual property assignment agreements with us.

On December 6, 2021, we entered into an employment agreement with Mr.

Under the terms of the Proehl Agreement, Mr.

Proehl holds the position of President and Chief Executive Officer and receives a base salary of $350,000 annually.

In addition, Mr.

Proehl is eligible to receive an annual bonus, with a target amount equal to 50% of Mr.

Proehl’s base salary.

The actual amount of each annual bonus will be based upon the level of achievement of certain of our corporate objectives and Mr.

Proehl’s individual objectives, in each case, as established by the Company and Mr.

Proehl for the calendar year with respect to which the annual bonus relates.

The determination of the level of achievement of the corporate objectives and Mr.

Proehl’s individual performance objectives for a year shall be made by us in our reasonable discretion.

In addition, Mr.

Proehl is eligible to receive, from time to time, equity awards under our existing equity incentive plan, or any other equity incentive plan we may adopt in the future, and the terms and conditions of such awards, if any, will be determined our board of directors or the Compensation Committee, in their discretion.

Proehl will also be eligible to participate in any executive benefit plan or program we adopt.

We may terminate Mr.

Proehl’s employment at any time without Cause (as that term is defined in the Proehl Agreement) upon four weeks prior written notice to Mr.

Proehl may terminate his employment for Good Reason (as that term is defined in the Proehl Agreement) upon 60 days written notice.

Proehl’s employment is terminated without Cause or for Good Reason, Mr.

Proehl will be entitled to receive (i) his earned but unpaid base salary through the final day of his employment, (ii) expenses reimbursable under the Proehl Agreement incurred on or prior to the last day of his employment, (iii) any amounts or benefits that are vested amounts or benefits that Mr.

Proehl is entitled to receive under any of our equity compensation plans (clauses (i) through (iii) collectively, the Accrued Obligations), (iv) severance payments equal to 12 months of Mr.

Proehl’s base salary (to be paid in a lump sum on the next regular payroll date within 60 days of Mr.

Proehl’s termination), (v) a pro-rated payment equal to the annual bonus the Board determines is due, and (vi) if elected, we will reimburse Mr.

Proehl for certain COBRA health benefits for 12 months.

Notwithstanding the above, if Mr.

Proehl’s employment is terminated without Cause or he resigns for Good Reason either within three months immediately preceding or within one year after a Change of Control (as defined in the 2021 Plan), Mr.

Proehl will receive (i) the Accrued Obligations, (ii) severance payments equal to 18 months of Mr.

Proehl’s base salary (to be paid in a lump sum on the next regular payroll date within 60 days of Mr.

Proehl’s termination), (iii) the targeted annual bonus amount the Board determines is due to Mr.

Proehl, (iv) if elected, we will reimburse Mr.

Proehl for certain COBRA health benefits for 18 months, and (v) Mr.

Proehl will be deemed to be fully vested in all of his outstanding equity awards as of the date of his termination.

Proehl’s employment is terminated with Cause or without Good Reason, he will be entitled to receive (i) his earned but unpaid base salary through the final day of his employment, (ii) expenses reimbursable under the employment agreement incurred on or prior to the last day of his employment, and (iii) any amounts or benefits that are vested amounts or benefits that Mr.

Proehl is entitled to receive under any of our equity compensation plans.

We may terminate Mr.

Proehl’s employment at any time for Cause upon written notice to Mr.

Proehl may voluntarily terminate his employment at any time without Good Reason upon four weeks prior written notice.

On November 19, 2021, we entered into an employment agreement with Ms.

Van Hoose, which was subsequently amended on January 1, 2022 (as amended, the Van Hoose Agreement).

Under the terms of the Van Hoose Agreement, she holds the position of Senior Vice President and Chief Financial Officer and receives a base salary of $300,000 annually.

In addition, Ms.

Van Hoose is eligible to receive an annual bonus, with a target amount equal to forty percent (40%) of Ms.

Van Hoose’s base salary.

The actual amount of each annual bonus will be based upon the level of achievement of our corporate objectives and Ms.

Van Hoose’s individual objectives, in each case, as established by us and Ms.

Van Hoose for the calendar year with respect to which the annual bonus relates.

The determination of the level of achievement of the corporate objectives and the Ms.

Van Hoose’s individual performance objectives for a year shall be made by us in our reasonable discretion.

In addition, pursuant to the terms of her employment agreement, Ms.

Van Hoose is eligible to receive, from time to time, equity awards under our existing equity incentive plan, or any other equity incentive plan we may adopt in the future, and the terms and conditions of such awards, if any, will be determined by our board of directors or Compensation Committee, in their discretion.

Van Hoose is also eligible to participate in any executive benefit plan or program we adopt.

We may terminate Ms.

Van Hoose’s employment at any time without Cause (as that term is defined in Ms.

Van Hoose’s employment agreement) upon two weeks prior written notice to Ms.

Van Hoose may terminate her employment for Good Reason (as that term is defined in Ms.

Van Hoose’s employment agreement) upon 60 days written notice to us, upon which notice we have 30 days to cure the conditions that Ms.

Van Hoose considers to be Good Reason, subject to certain conditions set forth in her employment agreement.

Van Hoose’s employment is terminated without Cause or for Good Reason, Ms.

Van Hoose will be entitled to receive (i) the Accrued Obligations, (iv) severance payments equal to nine months of Ms.

Van Hoose’s base salary (to be paid in a lump sum on the next regular payroll date within 60 days of Ms.

Van Hoose’s termination), (v) the targeted annual bonus amount the Board determines is due to Ms.

Van Hoose, and (vi) if elected, the Company will reimburse Ms.

Van Hoose for certain COBRA health benefits for nine months.

Notwithstanding the above, if Ms.

Van Hoose’s employment is terminated without Cause or she resigns for Good Reason either within three months immediately preceding or within one year after a Change of Control (as defined in the 2021 Plan), Ms.

Van Hoose will receive (i) the Accrued Obligations, (ii) severance payments equal to 12 months of Ms.

Van Hoose’s base salary (to be paid in a lump sum on the next regular payroll date within 60 days of Ms.

Van Hoose’s termination), (iii) the targeted annual bonus amount the Board determines is due to Ms.

Van Hoose, (iv) if elected, the Company will reimburse Ms.

Van Hoose for certain COBRA health benefits for 12 months, and (v) Ms.

Van Hoose will be deemed to be fully vested in all of her outstanding equity awards as of the date of her termination.

Van Hoose’s employment is terminated with Cause or without Good Reason, she is entitled to receive (i) her earned but unpaid base salary through the final day of her employment, (ii) expenses reimbursable under the employment agreement incurred on or prior to the last day of her employment, and (iii) any amounts or benefits that are vested amounts or benefits that Ms.

Van Hoose is entitled to receive under any of our equity compensation plans.

We may terminate Ms.

Van Hoose’s employment at any time for Cause upon written notice to Ms.

Van Hoose may voluntarily terminate her employment at any time without Good Reason upon two weeks prior written notice to us.

Christopher J.

On August 17, 2021, we entered into an employment agreement with Dr.

Nardo, which was subsequently amended on December 6, 2021, January 1, 2022, and July 1, 2022 (as amended, the Nardo Agreement).

Nardo holds the position of Senior Vice President, Chief Development Officer and receives a base salary of $320,000 annually.

In addition, Dr.

Nardo is eligible to receive an annual bonus, with a target amount equal to forty percent (40%) of Dr.

Nardo’s base salary.

The actual amount of each annual bonus will be based upon the level of achievement of our corporate objectives and Dr.

Nardo’s individual objectives, in each case, as established by us and Dr.

Nardo for the calendar year with respect to which the annual bonus relates.

The determination of the level of achievement of the corporate objectives and the Dr.

Nardo’s individual performance objectives for a year shall be made by us in our reasonable discretion.

In addition, pursuant to the terms of his employment agreement, Dr.

Nardo is eligible to receive, from time to time, equity awards under our existing equity incentive plan, or any other equity incentive plan we may adopt in the future, and the terms and conditions of such awards, if any, will be determined by our board of directors or Compensation Committee, in their discretion.

Nardo is also eligible to participate in any executive benefit plan or program we adopt.

We may terminate Dr.

Nardo’s employment at any time without Cause (as that term is defined in Dr.

Nardo’s employment agreement) upon two weeks prior written notice to Dr.

Nardo may terminate his employment for Good Reason (as that term is defined in Dr.

Nardo’s employment agreement) upon 60 days written notice to us, upon which notice we have 30 days to cure the conditions that Dr.

Nardo considers to be Good Reason, subject to certain conditions set forth in his employment agreement.

Nardo’s employment is terminated without Cause or for Good Reason, Dr.

Nardo will be entitled to receive (i) the Accrued Obligations, (iv) severance payments equal to nine months of Dr.

Nardo’s base salary (to be paid in a lump sum on the next regular payroll date within 60 days of Dr.

Nardo’s termination), (v) the targeted annual bonus amount the Board determines is due to Dr.

Nardo, and (vi) if elected, the Company will reimburse Dr.

Nardo for certain COBRA health benefits for nine months.

Notwithstanding the above, if Dr.

Nardo’s employment is terminated without Cause or he resigns for Good Reason either within three months immediately preceding or within one year after a Change of Control (as defined in the 2021 Plan), Dr.

Nardo will receive (i) the Accrued Obligations, (ii) severance payments equal to 12 months of Dr.

Nardo’s base salary (to be paid in a lump sum on the next regular payroll date within 60 days of Dr.

Nardo’s termination), (iii) the targeted annual bonus amount the Board determines is due to Dr.

Nardo, (iv) if elected, the Company will reimburse Dr.

Nardo for certain COBRA health benefits for 12 months, and (v) Dr.

Nardo will be deemed to be fully vested in all of his outstanding equity awards as of the date of his termination.

Nardo’s employment is terminated with Cause or without Good Reason, he is entitled to receive (i) his earned but unpaid base salary through the final day of his employment, (ii) expenses reimbursable under the employment agreement incurred on or prior to the last day of his employment, and (iii) any amounts or benefits that are vested amounts or benefits that Dr.

Nardo is entitled to receive under any of our equity compensation plans.

We may terminate Dr.

Nardo’s employment at any time for Cause upon written notice to Dr.

Nardo may voluntarily terminate his employment at any time without Good Reason upon two weeks prior written notice to us.

Outstanding Equity Awards at Fiscal Year-End

The following table summarizes, for each of our Named Executive Officers, the number of shares of our Common Stock underlying outstanding stock options held as of December 31, 2022:

Number of Securities Underlying Unexercised Options

Unexercisable

Christopher J.

_____________

This stock option award was granted March 31, 2021.

The stock option vests in 35 equal monthly installments commencing January 11, 2021.

This stock option award was granted March 31, 2021.

The stock option vests in 48 equal monthly installments commencing January 1, 2021.

This stock option award was granted March 31, 2021.

The stock option vests in 48 equal monthly installments commencing January 1, 2018.

This stock option award was granted March 31, 2021.

The stock option vests in 48 equal monthly installments commencing December 19, 2018.

This stock option award was granted March 31, 2021.

The stock option vests in 48 equal monthly installments commencing December 11, 2019

This stock option award was granted March 31, 2021 and was fully vested at issuance.

This stock option award was granted September 1, 2021.

The stock option vests in 48 equal monthly installments commencing September 1, 2021.

This stock option award was granted on March 31, 2021 and is fully vested.

The stock option vested in 48 equal monthly installments commencing September 1, 2017.

This stock option award was granted January 3, 2022 and was fully vested at issuance.

This stock option award was granted January 3, 2022.

The stock option vests 40% at the first anniversary date of the stock option grant with the remaining 60% vesting over the remaining 36 months for a total vest period of 48 months.

This stock option award was granted July 1, 2022.

The stock option vests 25% at the first anniversary date of the stock option grant with the remaining vesting in 36 equal monthly installments commencing July 1, 2022.

We did not engage in any repricings or other modifications or cancellations to any of our named executive officers’ outstanding option awards during the year ended December 31, 2022.

Director compensation

The following table shows for the fiscal year ended December 31, 2022, certain information with respect to the compensation of all non-employee directors of the Company:

Fees Earned Paid in Cash (1)

Stock Awards (2)

Stock Option Awards

Wendell Wierenga Ph.D.

Kathleen Scott

Andrew Sandler M.D.

Brittany Bradrick

____________________________

Board of Director fees earned or paid in cash were for calendar year 2022, representing fees earned by our Directors.

Amounts in this column reflect the grant date fair value of RSUs granted to our non-employee directors.

These amounts have been computed in accordance with FASB ASC Topic 718.

For a discussion of valuation assumptions used to determine the grant date fair value of the foregoing RSU awards, see Note 1 to our audited consolidated financial statements for the year ended December 31, 2022, included in this Annual Report on Form 10-K.

In accordance with SEC rules, this column reflects the aggregate grant date fair value of the stock option awards granted during 2022.

These amounts have been computed in accordance with FASB ASC Topic 718.

Assumptions used in the calculation of this amount are described in the notes to our financial statements included elsewhere in this document.

This amount does not reflect the actual economic value that will be realized by the Directors upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options.

These stock option awards were granted on January 12, 2022, with a vesting schedule of 1/12 th vesting monthly.

We have adopted a compensation policy pursuant to which our board members receive $40,000 per year ($60,000 for Lead Director), each member of the Audit Committee receives $7,500 per year ($15,000 for the Chair), each member of the Compensation Committee receives $5,000 per year ($10,000 for the Chair), and each member of the Nominating and Corporate Governance Committee receives $4,000 per year ($8,000 for the Chair).

Any compensation to be paid under this policy may be made in cash or restricted stock units at the election of each board member which must be made in the prior calendar year.

As part of this non-employee director compensation policy, our directors may elect to receive their annual compensation (i) 100% in restricted stock units, (ii) 50% in cash and 50% in restricted stock units, or (iii) 100% in cash.

This policy is applicable for fiscal years commencing on January 1, 2022.

We have also adopted an equity compensation policy pursuant to which board members shall automatically be granted stock options to purchase 10,000 shares of our common stock upon joining the board of directors, and on January 1 of each year, each then serving non-employee director shall be automatically granted stock options to purchase 5,000 shares of our common stock.

These stock options shall have a term of ten years and shall have an exercise price equal to 100% of the fair market value of a share of common stock on the date of grant.

All options to be granted under this policy will be granted pursuant to our 2021 Plan.

Information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities Authorized for Issuance Under Equity Compensation Plans

On March 24, 2021, our board of directors and stockholders adopted the 2021 Plan which provides for the grant of incentive stock options and non-qualified stock options to purchase shares of our common stock and other types of awards.

On June 29, 2021, our board of directors and stockholders approved an amendment to the 2021 Plan to increase the aggregate number of shares of common stock available for issuance in connection with options and other awards granted under the 2021 Plan.

The general purpose of the 2021 Plan is to provide a means whereby eligible employees, officers, non-employee directors and other individual service providers develop a sense of proprietorship and personal involvement in our development and financial success, and to encourage them to devote their best efforts to our business, thereby advancing our interests and the interests of our stockholders.

By means of the 2021 Plan, we seek to retain the services of such eligible persons and to provide incentives for such persons to exert maximum efforts for our success and the success of our subsidiaries.

The following table provides information with respect to our compensation plans under which equity compensation was authorized as of December 31, 2022.

Number of securities

to be issued upon exercise of outstanding options, warrants and rights

Weighted average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a)

Plan category

Equity compensation plans approved by security holders (1)

Equity compensation plans not approved by security holders

The amounts shown in this row include securities under the 2021 Plan.

In accordance with the “evergreen” provision in the 2021 Plan, an additional 123,218 shares were automatically made available for issuance on the first day of 2023, which represents 1% of the number of shares outstanding on December 31, 2022;

these shares are excluded from this calculation.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information regarding beneficial ownership of our common stock as of February 14, 2023, by:

each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock;

each of our directors;

each of our named executive officers;

all of our current executive officers and directors as a group.

We have determined beneficial ownership in accordance with the rules of the SEC.

Under these rules, beneficial ownership includes any shares of common stock as to which the individual or entity has sole or shared voting power or investment power.

Applicable percentage ownership is based on 12,321,848 shares of common stock outstanding as of February 14, 2023.

In computing the number of shares beneficially owned by an individual or entity and the percentage ownership of that person, shares of common stock subject to options held by such person that are currently exercisable or will become exercisable within 60 days of February 14, 2023, are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person.

Each of the stockholders listed has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.

Name and Address of Beneficial Owner (1)

Number of Shares

Beneficially Owned (2)

5% or Greater Stockholders

Proehl Investment Ventures LLC

Named Executive Officers and Directors

Christopher J.

Wendell Wierenga Ph.D.

Kathleen Scott

Andrew Sandler M.D.

Brittany Bradrick

All Executive Officers and Directors as a group (11 persons)

Less than 1%.

Unless noted otherwise, the address of all listed stockholder is 3525 Del Mar Heights Rd., #322, San Diego, CA 92130.

Each of the stockholder listed has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.

We have determined beneficial ownership in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, which is generally determined by voting power and/or dispositive power with respect to securities.

Unless otherwise noted, the shares of common stock listed above are owned as of February 14, 2023, and are owned of record by each individual named as beneficial owner and such individual has sole voting and dispositive power with respect to the shares of common stock owned by each of them.

Proehl, our Chairman and Chief Executive Officer is the Chairman and Chief Executive Officer of Proehl Investment Ventures LLC.

Proehl’s ownership of Proehl Investment Ventures LLC, he may be deemed to have sole voting and dispositive control over the shares of our common stock held by Proehl Investment Ventures LLC.

As a result, Mr.

Proehl may be deemed to beneficially own the shares of our common stock held by Proehl Investment Ventures LLC.

Includes (i) 2,905,544 shares of common stock held by Proehl Investment Ventures LLC, (ii) 27,987 shares of common stock issuable upon exercise of warrants held by Proehl Investment Ventures LLC that are exercisable within 60 days of February 14, 2023.

Includes (i) 59,512 shares of common stock held by Mr.

Proehl, (ii) 383,510 shares of common stock issuable upon exercise of stock options held by Mr.

Proehl exercisable within 60 days of February 14, 2023, (iii) 8,928 shares of common stock held by Mr.

Proehl as Trustee of the Megan Proehl Wilder 2020 Irrevocable Trust, (iv) 17,857 shares of common stock held by Mr.

Proehl as Trustee of the Allison Taylor Proehl 2020 Irrevocable Trust, (v) 35,767 shares of common stock held by Mr.

Proehl as Trustee of the Sean Michael Proehl Irrevocable Trust Dated December 18, 2020, and (vi) 142,857 shares of common stock and warrants to purchase up to 142,857 shares of Common Stock held by Mr.

Proehl as Trustee of the Proehl Family Trust.

Does not include 85,150 shares of common stock issuable upon exercise of stock options held by Mr.

Proehl that are not exercisable within 60 days of February 14, 2023.

Includes (i) 25,121 shares of common stock held by Dr.

Nardo, (ii) 63,762 shares of common stock issuable upon exercise of stock options held by Dr.

Nardo exercisable within 60 days of February 14, 2023, and (iii) 2,439 shares of common stock held by Dr.

Nardo as Co-Trustee of the Nardo Family Trust Dated October 3, 2001.

Does not include 161,236 shares of common stock issuable upon exercise of stock options held by Dr.

Nardo that are not exercisable within 60 days of February 14, 2023.

Includes 43,187 shares of common stock issuable upon exercise of stock options held by Ms.

Van Hoose exercisable within 60 days of February 14, 2023.

Does not include 161,813 shares of common stock issuable upon exercise of stock options held by Ms.

Van Hoose that are not exercisable within 60 days of February 14, 2023.

David Hale, our Lead Director, is the Chairman and Chief Executive Officer of Hale BioPharma Ventures LLC.

Hale’s control of Hale BioPharma Ventures LLC, he may be deemed to have sole voting and dispositive control over the shares of our common stock held by Hale BioPharma Ventures LLC.

As a result, Mr.

Hale may be deemed to beneficially own the shares of our common stock held by Hale BioPharma Ventures LLC.

Includes (i) 532,925 shares of common stock held by Hale BioPharma Ventures LLC, and (ii) 3,048 shares of common stock held by Hale BioPharma Ventures LLC issuable upon exercise of warrants exercisable within 60 days of February 14, 2023.

Includes (i) 75,720 shares of common stock held by Mr.

Hale, (ii) 22,072 shares of common stock issuable upon exercise of stock options held by Mr.

Hale exercisable within 60 days of February 14, 2023, (iii) 12,195 shares of common stock held by a limited partnership of which Mr.

Hale serves as the General Partner and as such, has voting and dispositive control over the shares of common stock, and (iv) 35,714 shares of common stock and warrants to purchase up to 35,714 shares of Common Stock held by Mr.

Hale as Trustee of the Hale Family Trust.

Includes (i) 62,398 shares of common stock held by Dr.

Wierenga and (ii) 22,072 shares of common stock issuable upon exercise of stock options held by Dr.

Wierenga exercisable within 60 days of February 14, 2023.

Includes (i) 2,439 shares of common stock held by Ms.

Scott as Trustee of the Scott 2008 Trust dated 3/28/08, (ii) 27,145 shares of common stock held by Ms.

Scott, and (iii) 15,000 shares of common stock issuable upon exercise of stock options held by Ms.

Scott exercisable within 60 days of February 14, 2023.

Includes 15,000 shares of common stock issuable upon exercise of stock options held by Dr.

Mento exercisable within 60 days of February 14, 2023.

Includes (i) 23,443 shares of common stock held by Ms.

Fisher and (ii) 15,000 shares of common stock issuable upon exercise of stock options held by Ms.

Fisher exercisable within 60 days of February 14, 2023.

Includes (i) 24,184 shares of common stock held by Dr.

Sandler and (ii) 15,000 shares of common stock issuable upon exercise of stock options held by Dr.

Sandler exercisable within 60 days of February 14, 2023.

Includes (i) 23,443 shares of common stock held by Ms.

Bradrick and (ii) 15,000 shares of common stock issuable upon exercise of stock options held by Ms.

Bradrick exercisable within 60 days of February 14, 2023.

Information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The following is a description of transactions since January 1, 2022 to which we have been a participant in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or holders of more than 5% of our voting securities, or any members of their immediate family, had or will have a direct or indirect material interest, other than compensation arrangements with our Named Executive Officers which are described under “Executive Compensation.”

Sean Proehl, the son of Gerald T.

Proehl, our Chief Executive Officer, is currently employed as our Senior Director, Legal & Business Development.

Sean Proehl receives a salary of $168,000 a year.

In addition, Mr.

Sean Proehl is eligible to receive, from time to time, equity awards under our existing equity incentive plan, or any other equity incentive plan we may adopt in the future, and the terms and conditions of such awards, if any, will be determined by our board of directors or Compensation Committee, in their discretion.

Policies and Procedures for Related Party Transactions

Our Board of Directors has adopted a written related person transaction policy setting forth the policies and procedures for the review and approval or ratification of related person transactions.

This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant, where the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets as of December 31, 2022, and 2021, and a related person had, has or will have a direct or indirect material interest, including without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person.

In reviewing and approving any such transactions, our audit committee is tasked to consider all relevant facts and circumstances, including, but not limited to:

(i) whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction with an unrelated party;

(ii) the extent of the related person’s interest in the transaction;

(iii) the benefits to the Company;

(iv) the impact on a director’s independence in the event the related person is a director, an immediately family member of a director or an entity in which a director is a partner, stockholder or executive officer;

(v) the availability of other sources for comparable products or services;

(vi) the terms of the transaction;

and (vii) the terms available to unrelated third parties.

All related-party transactions may only be consummated if our audit committee has approved or ratified such transaction in accordance with the guidelines set forth in the policy.

Any member of the audit committee who is a related person with respect to a transaction under review will not be permitted to participate in the deliberations or vote respecting approval or ratification of the transaction.

However, such director may be counted in determining the presence of a quorum at a meeting of the audit committee that considers the transaction.

Director Independence

Under the rules of Nasdaq, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

In order to be considered independent for purposes of Rule 10A-3 of the Exchange Act, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries.

Our board of directors has determined that David Hale, Wendell Wierenga, Ph.D., Andrew Sandler, M.D., Mary Fisher, Steven J.

Mento, Brittany Bradrick, and Kathleen Scott are “independent directors” as such term is defined by Nasdaq Marketplace Rule 5605(a)(2).

We have established an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.

Our board of directors has determined that Kathleen Scott is an “audit committee financial expert,” as defined under the applicable rules of the SEC, and that all members of the Audit Committee are “independent” within the meaning of the applicable Nasdaq listing standards and the independence standards of Rule 10A-3 of the Securities Exchange Act of 1934.

Each of the members of the Audit Committee meets the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq Stock Market.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees Paid to the Independent Registered Public Accounting Firm

The following table summarizes the fees paid for professional services rendered by Mayer Hoffman McCann, P.C., or MHM, our independent registered public accounting firm, for each of the last two fiscal years.

Year ending December 31,

Audit fees (1)

Audit related fees

All other fees

Audit fees consist of fees incurred for professional services rendered for the audit of our annual financial statements, review of the quarterly financial statements, assistance with registration statements filed with the SEC, and services that are normally provided by our independent registered public accounting firm in connection with regulatory filings or engagements.

Substantially all of MHM’s personnel, who work under the control of MHM shareholders, are employees of wholly owned subsidiaries of CBIZ, Inc., which provides personnel and various services to MHM in an alternative practice structure.

Auditor Independence

In our fiscal year ended December 31, 2022, there were no other professional services provided by Mayer Hoffman McCann, P.C.

that would have required our audit committee to consider their compatibility with maintaining the independence of Mayer Hoffman McCann, P.C.

Audit Committee Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

Our audit committee has established a policy governing our use of the services of our independent registered public accounting firm.

Under this policy, our audit committee is required to pre-approve all audit and non-audit services performed by our independent registered public accounting firm in order to ensure that the provision of such services does not impair the public accountants’ independence.

All fees paid to Mayer Hoffman McCann, P.C.

for our fiscal year ended December 31, 2022, were pre-approved by our Board of Directors and/or Audit Committee.

Information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders.

PRINCIPAL ACCOUNTING FEES AND SERVICES

Information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements

The financial statements and related notes, together with the report of Mayer Hoffman McCann, P.C.

appear at pages F-1 through F-26 following the Exhibit List as required by “Part II—Item 8—Financial Statements and Supplementary Data” of this Form 10-K.

The financial statements and related notes, together with the report of Moss Adams LLP and Mayer Hoffman McCann P.C.

appear at pages F-1 through F-22 following the Exhibit List as required by “Part II—Item 8—Financial Statements and Supplementary Data” of the Form 10-K.

Financial Statement Schedules

All schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.

The following exhibits are filed as part of, or incorporated by reference into, this Amendment.

Description of Document

3 unchanged sentences

1 of the Amended and Restated Certificate of Incorporation of Dermata Therapeutics, Inc., filed with the Secretary of State of the State of Delaware on July 11, 2022 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the SEC on July 11, 2022).

Amendment No.

2 to the Amended and Restated Certificate of Incorporation of Dermata Therapeutics, Inc., dated March 13, 2023.

(incorporated by reference to Exhibit 3.1 to the Company’s Current Report file on Form 8-K filed on March 13, 2023).

Amended and Restated Bylaws of Dermata Therapeutics, Inc.

10 unchanged sentences

and Direct Transfer, LLC entered into in connection with the Company’s Initial Public Offering (incorporated by reference to Exhibit 4.5 of the Company’s Registration Statement on Form S-1 filed with the SEC on August 6, 2021).

Form of Common Stock Warrant issued in Registered Direct Offering (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the SEC on April 25, 2022).

Form of Pre-Funded Warrant issued in Registered Direct Offering (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed with the SEC on April 25, 2022).

Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.10 to the Company’s Registration Statement on Form S-1/A (File No.

333-270195) filed on March 13, 2023).

Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 24, 2023).

Form of Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on May 24, 2023).

Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.

to the Company’s Current Report on Form 8-K filed on May 24, 2023).

Form of New Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 17, 2023).

Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on November 17, 2023).

Description of Securities.*

6 unchanged sentences

2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.15 of the Company’s Registration Statement on Form S-1 filed with the SEC on August 6, 2021).†

Amendment No.

2 to the Dermata Therapeutics, Inc.

2021 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 3, 2023).†

Form of Nonqualified Stock Option Award under 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 of the Company’s Registration Statement on Form S-1 filed with the SEC on August 6, 2021).†

29 unchanged sentences

1 dated January 1, 2022 to the Employment Agreement by and between Dermata Therapeutics, Inc.

Van Hoose (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K filed with the SEC on March 8, 2022).

(incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-1/A (File No.

333-270195) filed March 16, 2023).†

Supply Agreement between Dermata Therapeutics LLC and Reka-Farm LLC, dated as of February 27, 2020 (incorporated by reference to Exhibit 10.8 of the Company’s Registration Statement on Form S-1 filed with the SEC on August 6, 2021).#

12 unchanged sentences

Form of Placement Agent Agreement dated April 20, 2022 between the Registrant and Maxim Group LLC (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on April 25, 2022).

Form of Purchase Agreement (incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form S-1/A (File No.

333-270195) filed on March 16, 2023).

Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 24, 2023).

Form of Inducement Letter (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 17, 2023).

Letter of Mayer Hoffman McCann P.C.

to the Securities and Exchange Commission, dated August 3, 2023 (incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on August 3, 2023).

Consent of Moss Adams LLP.*

Consent of Mayer Hoffman McCann P.C.*

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Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b).**

Clawback Policy of Dermata Therapeutics, Inc.*

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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Report of Independent Registered Public Accounting Firm (PCAOB ID 659 )

Report of Independent Registered Public Accounting Firm (PCAOB ID 199)

Financial Statements:

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

Dermata Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheet of Dermata Therapeutics, Inc.

(the “Company”) as of December 31, 2023, the related statement of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited the adjustments to the 2022 financial statements to retrospectively reflect the impact of the reverse stock split, described in Note 1.

In our opinion, such adjustments are appropriate and have been properly applied.

We were not engaged to audit, review or apply procedures to the 2022 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2022 financial statements taken as a whole.

Going Concern Uncertainty

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements, the Company has recurring losses from operations and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are described in Note 1.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Moss Adams LLP

San Diego, California

March 21, 2024

We have served as the Company’s auditor since 2023.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

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Opinion on the Financial Statements

We have audited the accompanying balance sheets of Dermata Therapeutics, Inc.

(formerly Dermata Therapeutics, LLC) (“Company”) as of December 31, 2022, and 2021, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

We have audited, before the effects of the adjustments to retrospectively apply the reverse stock split described in Note 1, the accompanying balance sheet of Dermata Therapeutics, Inc.

(“Company”) as of December 31, 2022, and the related statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

The 2022 financial statements before the effects of the adjustments discussed in Note 1 are not presented herein.

In our opinion, the financial statements, before the effects of the adjustments to retrospectively apply the reverse stock split described in Note 1, present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the reverse stock split described in Note 1 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied.

Those adjustments were audited by Moss Adams LLP.

Going Concern Uncertainty

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These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2016.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

We served as the Company's auditor from 2016 to 2023.

/s/ Mayer Hoffman McCann P.C.

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DERMATA THERAPEUTICS, INC.

(FORMERLY DERMATA THERAPEUTICS, LLC)

Balance Sheets

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Stockholders’ Equity:

Common Stock, par value $ 0.0001 , 250,000,000 shares authorized, and 12,321,848 shares issued and outstanding as of December 31, 2022;

and 90,000,000 shares authorized and 8,328,629 shares issued and outstanding as of December 31, 2021, respectively

Common Stock, par value $ 0.0001 , 250,000,000 shares authorized as of December 31, 2023, and 2022;

3,930,840 and 770,115 shares issued and outstanding as of December 31, 2023, and 2022, respectively.

Additional paid-in capital

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DERMATA THERAPEUTICS, INC.

(FORMERLY DERMATA THERAPEUTICS, LLC)

Statements of Operations

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Other income and expenses:

Interest (income) expense, net

$ ( 9,610,913 )

$ ( 7,902,477 )

Deemed dividend upon the redemption of 5,221,156 shares of Series 1c preferred stock (see Note 6)

Deemed dividend upon the amendment of terms of the Series 1d convertible preferred stock (see Note 6)

Net loss attributable to common stockholders

Interest income, net

$ ( 7,794,690 )

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Net loss per share of common stock, basic and diluted

Weighted-average basic and diluted common units/shares

Weighted-average basic and diluted common shares

The accompanying notes are an integral part of these financial statements.

DERMATA THERAPEUTICS, INC.

(FORMERLY DERMATA THERAPEUTICS, LLC)

Statements of Stockholder’s Equity (Deficit)

Class A Common

Class B Common

Series 1 Preferred

Series 1a Preferred

Series 1a Warrants

Series 1b Preferred

Series 1c Preferred

Series 1d Preferred

Preferred Stock

Preferred Stock Warrants

Stockholders’

Balance at December 31, 2021

$ ( 35,982,275 )

$ ( 3,177,939 )

Series 1d Preferred Units issued

Class B Common Units forfeited

Conversion of Common Units to Common Stock

( 1,744,983 )

$ ( 2,342,853 )

Conversion of Preferred Units to Preferred Stock

( 6,906,244 )

$ ( 6,833,877 )

( 5,018,750 )

$ ( 4,380,081 )

( 6,500,000 )

$ ( 4,119,595 )

( 46,553,188 )

$ ( 6,491,592 )

( 6,065,989 )

$ ( 5,034,801 )

Conversion of Warrant Units to Preferred Stock

( 1,419,228 )

$ ( 723,431 )

Redemption of Series 1c preferred shares

( 5,221,156 )

$ ( 1,000,000 )

Conversion of Preferred Stock to Common Stock

( 65,823,015 )

Conversion of Preferred Stock Warrants to Common Stock Warrants

( 1,419,228 )

Conversion of Convertible Debt to Common Stock

Issuance of Common Stock and warrants, net issuance costs

Issuance of Common Stock and warrants, net of issuance costs

Issuance of Common Stock upon exercise of pre-funded warrants

Issuance of restricted stock unit awards

Issuance of Common Stock upon conversion of restricted stock units

Stock-based compensation

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Issuance of Common Stock upon exercise of pre-funded warrants

Issuance of restricted stock unit awards

Issuance of common stock upon conversion of restricted stock units

Issuance of Common Stock upon exercise of warrants, net of issuance costs

Settlement of fractional shares paid in cash

Stock-based compensation

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DERMATA THERAPEUTICS, INC.

(FORMERLY DERMATA THERAPEUTICS, LLC)

Statements of Cash Flows

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Stock-based compensation

Amortization of debt discount costs

Increase (decrease) in cash resulting from changes in:

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Accrued and other current liabilities

Total adjustments to reconcile net loss to cash used in operations

Net cash used in operating activities

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Proceeds from issuance of Common Stock and warrants, net of issuance costs

Proceeds from issuances of common stock upon exercises of pre-funded warrants

Redemption of Series 1c preferred stock

( 1,000,000 )

Payments on debt

Net proceeds from issuance of convertible subordinated promissory notes

Proceeds from issuance of Series 1d preferred units

Proceeds from exercise of pre-funded warrants

Payment for fractional shares in reverse stock split

Net cash provided by financing activities

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Cash and cash equivalents at end of period

Supplemental disclosures:

Cash paid for interest

Supplemental disclosure:

Cash paid for taxes

Non-cash financing activities:

Conversion of common and preferred units and warrants to common and preferred stock and warrants

Conversion of convertible subordinated promissory notes to Series 1d preferred units

Deemed dividend upon amendment to the terms of the Series 1d convertible preferred stock

Conversion of convertible subordinated promissory notes and accrued interest to common shares at IPO

Conversion of preferred stock to common stock at IPO

Incremental fair value of March 2023 warrant modification

Incremental fair value of November 2023 warrant inducement

The accompanying notes are an integral part of these financial statements.

DERMATA THERAPEUTICS, INC.

(FORMERLY DERMATA THERAPEUTICS, LLC)

Notes to Financial Statements

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On March 24, 2021, the Company converted from an LLC to a Delaware C-corporation and changed its name to Dermata Therapeutics, Inc.

Any references in these Notes to Financial Statements to equity securities as “units” refer to pre-conversion equity securities and any references to “shares” or “stock” in these Notes to Financial Statements refer to post-conversion equity securities.

The Company is a clinical-stage biotechnology company focused on the treatment of medical and aesthetic skin conditions and diseases.

Initial Public Offering

On August 17, 2021, the Company completed its initial public offering (“IPO”), in which it sold 2,571,428 shares of its common stock together with 2,571,428 warrants to purchase one share of common stock with an exercise price of $ 7 .00 per share at a combined offering price of $ 7 .00.

Additionally, the underwriters exercised their option to purchase an additional 385,714 warrants to purchase common stock with an exercise price of $ 7 .00 per share.

On August 17, 2021, the Company completed its initial public offering (“IPO”), in which it sold 160,714 shares of its common stock, par value $ 0.0001 per share (“Common Stock”), together with 160,714 warrants to purchase one share of Common Stock with an exercise price of $ 112.00 per share, at a combined offering price of $ 112.00 .

Additionally, the underwriters exercised their option to purchase an additional 24,106 warrants to purchase Common Stock with an exercise price of $ 112.00 per share, resulting in total IPO warrants issued of 184,820 at an exercise price of $ 112.00 .

The Company received net cash proceeds of approximately $ 15.4 million from the IPO after deducting underwriters’ discounts and offering expenses of approximately $ 2.6 million.

Each of the following occurred in connection with the completion of the IPO in August 2021:

The sale of 2,571,428 shares of common stock along with 2,957,142 warrants to purchase common stock.

The conversion of 65,823,015 shares of convertible preferred stock into an aggregate of 3,813,973 shares of common stock.

The conversion of $ 175,000 principal amount of outstanding convertible promissory notes and accrued interest of $ 5,434 into 32,219 shares of common stock.

The conversion of 1,419,228 Series 1a preferred warrants into 69,212 warrants exercisable into common stock.

Each purchaser in the IPO received one share of common stock and one warrant to purchase one share of common stock at a combined offering price of $ 7 .00.

Each warrant to purchase common stock entitles the holder to purchase one share of common stock at an exercise price of $ 7 .00 per share, are immediately exercisable, and expire five years from the date of issuance.

The Company evaluated the terms of the warrants issued and determined that they should be classified as equity instruments.

The Company’s shares of common stock and warrants are listed on the Nasdaq Stock Market LLC under the symbols “DRMA,” and “DRMAW,” respectively, and both began trading in August 2021.

After the IPO, there were no shares of preferred stock or preferred stock warrants outstanding.

Prior to the IPO, the Company had 1,911,009 shares of common stock outstanding after giving effect for the Company’s reverse stock split in July 2021.

The Company’s shares of Common Stock and warrants are listed on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “DRMA,” and “DRMAW,” respectively, and both began trading in August 2021.

Reverse Stock Split

On July 1, 2021, the Company effected a reverse split of shares of the Company’s common stock at a ratio of 1-for-20.5 pursuant to an amendment to the Company’s certificate of incorporation approved by the Company’s board of directors and stockholders.

The par value was not adjusted as a result of the reverse split.

All issued and outstanding common stock shares and per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented, and the conversion ratios for the Company’s outstanding preferred stock was adjusted accordingly.

See Note 6 – Equity Securities for additional information.

On March 13, 2023, the Company effected a reverse stock split of shares of the Company’s Common Stock at a ratio of 1-for-16 pursuant to an amendment to the Company’s certificate of incorporation approved by the Company’s board of directors (the “Board”), and stockholders.

The par value and authorized shares were not adjusted as a result of the reverse split.

All issued and outstanding shares of Common Stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented.

Liquidity and Going Concern Uncertainty

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As of December 31, 2023, cash and cash equivalents totaled $ 7.4 million and the Company had an accumulated deficit of $ 53.4 million.

For the years ended December 31, 2022, and 2021, the Company used cash of $ 8.8 million and $ 5.7 million, respectively, in operations.

The Company’s cash balances are expected to fund operations into the third quarter of 2023.

For the year ended December 31, 2023, the Company used cash of $ 6.4 million in operations.

The Company’s cash and cash equivalents are expected to fund operations into the third quarter of 2024.

The Company anticipates that it will continue to incur net losses for the foreseeable future.

These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one-year period following the date that these financial statements were issued.

Historically, the Company’s principal sources of cash have included proceeds from the issuance of common and preferred equity units and proceeds from the issuance of debt.

Historically, the Company’s principal sources of cash have included proceeds from the issuance of equity securities and debt.

The Company’s principal uses of cash have included cash used in operations and payments for license rights.

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The Company expects that as research and development expenses continue to grow, it will need to raise additional capital to sustain operations and research and development.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

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.

Management’s Plan to Continue as a Going Concern

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Management can provide no assurance that any sources of a sufficient amount of financing or collaboration agreements will be available to the Company on favorable terms, if at all.

Additionally, the COVID-19 pandemic continues to evolve and has already disrupted global financial markets.

The Company’s ability to raise additional capital may be adversely impacted by potential worsening of global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the pandemic.

If the disruption persists or deepens, the Company could experience an inability to access additional capital.

The Company has raised additional capital through the initial public offering of its common stock and warrants;

however, management’s current plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

The Company’s ability to raise additional capital may be adversely impacted by potential worsening of global economic conditions, potential future global pandemics or health crises, and the recent disruptions to, and volatility in, the credit and financial markets in the United States.

Because of historical and expected operating losses and net operating cash flow deficits, there is substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the consolidated financial statements, which is not alleviated by management’s plans.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

Basis of Presentation

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The Company and the Company’s chief operating decision maker view the Company’s operations and manage its business in one operating segment, which is the business of developing and commercializing pharmaceuticals.

The Company operates in only one segment.

Deferred Financing Costs

The Company capitalizes certain legal, accounting, and other fees and costs that are directly attributable to in-process equity financings as deferred offering costs until such financings are completed.

Upon the completion of an equity financing, these costs are recorded as a reduction of additional paid-in capital of the related offering.

Upon the completion of the IPO in August 2021, approximately $ 2.6 million of offering costs related to the IPO were reclassified to additional paid-in capital.

As of December 31, 2021, the Company had deferred financing costs of $ 0.06 million and as of December 31, 2022, the Company had no deferred financing costs.

Cash and Cash Equivalents

The Company deposits its cash with reputable financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”).

This cash is held in checking, cash sweep, and money market accounts.

The Company deposits its cash and cash equivalents with accredited financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”), which are held in checking and cash sweep accounts.

At times, deposits held may exceed the amount of insurance provided by the FDIC.

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The Company considers all highly liquid investments with a maturity date of 90 days or less at the date of purchase to be cash equivalents.

The Company has not experienced any losses in its cash and cash equivalents and believes they are not exposed to significant credit risk.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents.

The Company is exposed to credit risk in the event of a default by the financial institutions holding the Company’s cash and cash equivalents to the extent of the amounts held in excess of FDIC limits.

The Company limits its credit risk by placing its cash and cash equivalents with financial institutions it believes are of high quality.

To date, the Company has not experienced any losses on its deposits of cash and cash equivalents.

Fair Value Measurement

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and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company’s cash sweep account is considered tier Level 1 since quoted prices are available in active and observable markets.

The Company believes the carrying amount of cash and cash equivalents, accounts payable, and accrued expenses approximate their estimated fair values due to the short-term maturities of these financial instruments.

The Company believes the carrying amount of cash and cash equivalents, accounts payable and accrued expenses approximate their estimated fair values due to the short-term nature of these assets and liabilities.

Interest Income

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

Patent costs related to obtaining and maintaining patent protection in both the United States and other countries are expensed as incurred.

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Advanced payments for goods or services to be received in the future for research and development activities are recorded as prepaid expenses and expensed as the related goods are received or services are performed.

From inception until March 24, 2021, the Company operated as a limited liability company taxed as a partnership.

Therefore, any income tax liability or benefit through that date accrued to the Company’s members.

Since March 24, 2021, the Company has operated as a C-Corporation and accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

The Company has operated as a C-Corporation since March 2021 and accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

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Stock-Based Compensation

In March 2021, the Company’s board of directors and shareholders approved the 2021 Omnibus Equity Incentive Plan (“the 2021 Plan”).

In March 2021, the Company’s board of directors and shareholders approved the Dermata Therapeutics, Inc.

2021 Omnibus Equity Incentive Plan (the “2021 Plan”).

For stock options granted under the 2021 Plan, the Company measures and recognizes compensation expense for all stock-based awards made to employees, directors, and non-employees, based on estimated fair values recognized using the straight-line method over the requisite service period.

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Restricted stock units (“RSUs”) granted under the 2021 Plan are measured at the grant date fair value of the Common Stock, with corresponding compensation expense recognized ratably over the requisite service period.

Refer to Note 7- Equity Incentive Plan for further discussion.

The Company performs 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 , and ASC 815, Derivatives and Hedging .

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 the Company’s own common stock and whether the warrant holders could potentially require cash settlement of the warrants.

The Company accounts for modifications and exchanges of warrants in accordance with ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40):

Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the Emerging Issues Task Force) (“ASU 2021-04”) .

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.

The Company has performed an assessment of all warrants issued and modified and determined that the Company’s warrants are equity-classified.

Comprehensive Loss

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The Company did not have other comprehensive income (loss) items such as unrealized gains and losses and so for the years ended December 31, 2023, and 2022, comprehensive loss was equal to the net loss.

Net Loss Per Common Unit/Share

On March 24, 2021, the Company converted from an LLC to a C-corporation.

Upon the conversion, each outstanding common unit and preferred unit was converted into one share of common stock and preferred stock, respectively.

Common units had similar rights and characteristics of common stock issued upon the conversion.

In calculating net loss per share, the Company retrospectively applied the effects of the conversion to the number of common units outstanding prior to the conversion.

Net loss per share for periods prior to the conversion to a C-corporation refers to net loss per common unit.

Basic net loss per unit/share is calculated by dividing net loss attributable to common unitholders or shareholders by the weighted-average number of units or shares outstanding during the period, contingently issuable restricted stock units for which no future service is required as a condition to the delivery of the underlying common stock, and pre-funded warrants because their exercise requires only nominal consideration for the delivery of shares (collectively, “basic shares”), without consideration of common unit or share equivalents.

Diluted net loss per unit or share is calculated by adjusting basic shares outstanding for the dilutive effect of common unit or share equivalents outstanding for the period.

For purposes of the diluted net loss per unit or share calculation, preferred units or shares, profit interests, and warrants to purchase preferred units or shares are considered to be common unit or share equivalents but are excluded from the calculation of diluted net loss per common unit or share if their effect would be anti-dilutive.

As the Company has reported a net loss for the periods presented, diluted net loss per common unit or share is the same as the basic net loss per common unit or share for the periods presented.

Net Loss Per Share of Common Stock

Basic net loss per share is calculated by dividing net loss attributable to common shareholders by the weighted-average number of shares outstanding during the period.

The weighted-average number of shares of common stock outstanding includes (i) contingently issuable restricted stock units for which no future service is required as a condition to the delivery of the underlying Common Stock, (ii) pre-funded warrants because their exercise requires only nominal consideration for the delivery of shares, and (iii) shares held in abeyance because there is no consideration required for delivery of the shares, (collectively, “basic shares”), without consideration of common share equivalents.

Diluted net loss per share is calculated by adjusting basic shares outstanding for the dilutive effect of common share equivalents outstanding for the period.

For purposes of the diluted net loss per share calculation, stock options and warrants are considered to be common share equivalents but are excluded from the calculation of diluted net loss per common share if their effect would be anti-dilutive.

As the Company has reported a net loss for the periods presented, diluted net loss per common share is the same as the basic net loss per common share for the periods presented.

Year Ended December 31,

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$ ( 9,610,913 )

Deemed dividend upon redemption of 5,221,156 shares of Series 1c convertible preferred stock

Deemed dividend upon amendment of the terms to the Series 1d convertible preferred stock

Net loss attributable to common stockholders

$ ( 9,610,913 )

$ ( 10,464,714 )

Basic and diluted net loss per common unit/share

Weighted-average basic and diluted common units/shares

The common unit or share equivalents that are not included in the calculation of diluted net loss per common unit or share but could potentially dilute basic earnings per share in the future are as follows:

Basic and diluted net loss per common share

Weighted-average basic and diluted common shares

The common share equivalents that are not included in the calculation of diluted net loss per common share but could potentially dilute basic earnings per share in the future are as follows:

As of December 31,

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Total potentially dilutive securities

Recently Adopted Accounting Pronouncements

For the year ended December 31, 2022, the Company has reviewed recent accounting standards and does not expect the future adoption of recently issued accounting pronouncements to have a material impact on the Company's financial position and results of operations.

Recent Accounting Pronouncements

For the year ended December 31, 2023, the Company has reviewed recent accounting standards and identified the following as relevant to the Company.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid.

ASU 2023-09 is effective for public entities with annual periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of this guidance on its financial statements and income tax footnote.

Balance Sheet Details

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Interest receivable

Deferred offering costs

Total prepaid expenses and other current assets

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Total accrued and other current liabilities

Subordinated Convertible Promissory Notes

In July and October 2020, the Company issued an aggregate of $ 3,000,000 of subordinated convertible promissory notes (the “Notes”).

Notes in the amount of $ 1,145,000 were issued to existing investors who are also related parties (See Note 11 - Related Parties), $ 1,730,000 were issued to existing investors who are not related parties and notes in the amount of $ 125,000 were issued to new investors.

The Notes bore interest at 4 % per annum and were to mature on July 17, 2021.

The Notes were subordinated to the Company’s long-term debt and were convertible into a qualified Series A financing of at least $ 10 million at a 20% discount to the lowest price per unit paid by investors for that financing.

Under authoritative accounting guidance, this contingent beneficial conversion feature was to be measured and recognized when the contingency is resolved.

The Notes were recorded upon issuance net of debt discount costs of $ 28,301 .

The Company recognized $ 16,888 of amortized debt discount costs during the year ended December 31, 2021, related to the Notes.

On January 27, 2021, the Company amended the terms of the Notes to increase the maximum amount of convertible promissory notes to be issued from $ 3,000,000 to $ 5,000,000 , to allow for the conversion of the convertible promissory notes into shares of common stock upon a Qualified Initial Public Offering with aggregate gross proceeds to the Company of at least $ 10,000,000 at a 20% discount to the lowest price per share paid by investors for that financing and to extend the maturity date to December 31, 2021.

In connection with this amendment, Notes in the amount of $ 1,255,000 were issued to existing investors who are also related parties (See Note 11 - Related Parties) and $ 311,000 were issued to existing investors who are not related parties.

In March 2021, the Company further amended the terms of the Notes to allow for the conversion of the Notes into Series 1d Preferred Units at the same price as purchasers of Series 1d Preferred Units.

As of March 15, 2021, $ 4,391,000 of the Notes, along with related interest of $ 73,801 , were converted to 5,379,247 Series 1d Preferred Units.

Since the Notes did not convert at a discount, there was no beneficial conversion feature.

The Company considers the above modification of the Notes in March 2021 to be a substantial modification requiring extinguishment accounting under Accounting Standards Codification (“ASC”) 470-50-40-10.

Based upon an independent valuation of the reacquisition price of the Notes, the difference between the reacquisition price and the net carrying amount of the Notes immediately prior to the modification is not material to the financial statements.

In connection with the Company’s IPO in August 2021, the outstanding principal of the Notes and accrued interest totaling $ 180,434 converted into 32,219 shares of common stock.

Upon this conversion, since the conversion contained a 20% discount, the Company measured the beneficial conversion feature and determined that it was not material to the financial statements.

As of December 31, 2022, and 2021, the Company had no promissory notes outstanding.

Long-Term Debt

In February 2017, the Company entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”) whereas SVB agreed to provide term loans to the Company in two tranches.

The first tranche of $ 2,500,000 was drawn in February 2017 and bore interest at a rate of 1.5 % above the prime rate, which was 3.25 % as of December 31, 2020, with principal and interest payable monthly through February 9, 2021.

The second tranche was not utilized.

In connection with the Loan and Security Agreement, SVB also received warrant units to purchase, at any time after February 9, 2017, and prior to February 9, 2027, 187,978 Series 1a Preferred Units or the equivalent Series A Preferred Units had they purchased Series 1a Preferred Units, if Series A Preferred Units are issued, at a price of $ 1 .00 per unit.

The estimated fair value of these warrant units of $ 104,630 (See Note 6 – Equity Securities), as well as costs associated with the term loan, including provision for a final payment of $ 225,000 , were recorded as a discount to outstanding debt and amortized to interest expense utilizing the effective interest method over the underlying term of the loan.

In June 2019, the Company and SVB entered into a First Amendment to the Loan and Security Agreement whereby if the Company did not achieve certain capital milestones by December 1, 2019, term loan principal payments would be deferred from December 21, 2019 through May 1, 2020 with the deferred principal payments being payable in equal monthly installments, in addition to those principal payments already scheduled to be paid, starting on June 1, 2020 and extending through the February 9, 2021 maturity date of the term loan.

In addition, if those principal payments were deferred for that six-month period, a non-refundable amendment fee of $ 100,000 would be due and payable on the earliest to occur of the maturity date, the prepayment of the term loan or the occurrence of an event of default.

The capital milestones were not achieved by December 1, 2019, and, therefore, the defined principal repayments were deferred.

The non-refundable amendment fee of $ 100,000 , as well as $ 12,280 of costs associated with the amendment, were recorded as a discount to outstanding debt and were amortized to interest expense utilizing the effective interest method over the remaining underlying term of the loan.

In January and February 2021, the Company paid the final principal payments of $ 231,482 under the SVB Loan and Security Agreement.

The Company also paid the final payment fee of $ 225,000 in February 2021 and the amendment fee of $ 100,000 in March 2021.

For the year ended December 31, 2021, the Company paid a total of $ 556,482 to SVB as final payments for its long-term debt.

As of December 31, 2022, and 2021, the Company had no long-term debt outstanding.

Equity Securities

Common Stock and Preferred Stock

On March 24, 2021, the Company entered into a Plan of Conversion (“Conversion”) whereby the Company converted from an LLC under the laws of the State of Delaware to a Delaware C-corporation with the name Dermata Therapeutics, Inc.

In connection with the Conversion, each fully paid preferred and common unit in the LLC was converted into a like number of shares of preferred and common stock of the Company with a par value of $0.0001 per share.

The Shares issued had the same rights, preferences and privileges that had accrued to the pre-converted Units.

The par value was not adjusted as a result of the reverse split.

All issued and outstanding common stock share and per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse split for all periods presented.

On August 17, 2021, the Company completed its IPO, in which it sold 2,571,428 shares of its common stock together with 2,571,428 warrants to purchase one share of common stock with an exercise price of $ 7 .00 per share at a combined offering price of $ 7 .00.

Additionally, the underwriters exercised their option to purchase an additional 385,714 warrants with an exercise price of $ 7 .00 per warrant.

The Company received net cash proceeds of approximately $ 15.4 million from the IPO after deducting underwriters’ discounts and offering expenses of approximately $ 2.6 million.

Each of the following occurred in connection with the completion of the IPO in August 2021:

The sale of 2,571,428 shares of common stock along with 2,957,142 warrants to purchase common stock.

The conversion of 65,823,015 shares of convertible preferred stock into an aggregate of 3,813,973 shares of common stock.

The conversion of $ 175,000 principal amount of outstanding convertible promissory notes and accrued interest of $ 5,434 into 32,219 shares of common stock.

The conversion of 1,419,228 Series 1a preferred warrants into 69,212 warrant shares exercisable into common stock.

After the IPO, there were no shares of preferred stock or preferred stock warrants outstanding.

Prior to the IPO, the Company had 1,911,009 shares of common stock outstanding after giving effect for the Company’s reverse stock split in July 2021.

On April 25, 2022, the Company closed a private placement (“PIPE”), in which it sold 898,585 shares of its common stock together with 2,875,000 pre-funded warrants to purchase one share of common stock with an exercise price of $ 0.0001 per share (“Pre-funded Warrant”), and 3,773,585 warrants to purchase one share of common stock with an exercise price of $ 1.325 per share (“PIPE Common Warrant”) at a combined offering price of $ 1.325 .

The Company received net cash proceeds of approximately $ 4.3 million from the PIPE after deducting underwriters’ discounts and offering expenses of approximately $ 0.7 million.

The PIPE Common Warrant related to this private placement will expire on May 12, 2027.

During the quarter ended June 30, 2022, 875,000 of the Pre-funded Warrants were exercised.

Further, during the quarter ended September 30, 2022, 2,000,000 of the Pre-funded Warrants were exercised.

No Pre-Funded Warrants were outstanding as of December 31, 2022.

The Company’s total common stock issued and outstanding was 12,321,848 and 8,328,629 shares as of December 31, 2022, and 2021, respectively.

Series 1 Preferred Units

From the Company’s formation on December 8, 2014, through 2016, the Company issued 6,906,244 Series 1 Preferred Units for net consideration of $ 6,833,877 .

The Company’s Series 1 Preferred Units were converted to preferred stock during the first quarter of 2021.

Additionally, in August 2021, the Company converted all preferred stock into common stock.

No Series 1 Preferred Units were outstanding as of December 31, 2022, and 2021.

Series 1a Preferred Units

In 2016, the Company issued 5,000,000 Series 1a Preferred Units in exchange for cash of $ 5,000,000 and net of issuance costs of $ 19,868 .

Purchasers of the Series 1a Preferred Units also received 1,250,000 Warrant Units to purchase an additional amount of Series 1a Preferred Units.

The estimated fair value of the warrant units was recorded as a separate component of members’ equity (deficit) in the accompanying balance sheet as of December 31, 2020, with an offset to the Series 1a proceeds.

In June 2020, 18,750 of the warrants were exercised for consideration of $ 18,750 , which consideration was received in July 2020.

The Company’s Series 1a Preferred Units were converted to preferred stock during the first quarter of 2021.

Additionally, in August 2021, the Company converted all preferred stock into common stock.

No Series 1a Preferred Units were outstanding as of December 31, 2022, and 2021.

Series 1b Preferred Units

In 2018, the Company issued 6,500,000 Series 1b Preferred Units in exchange for cash of $ 6,500,000 and net of issuance costs of $ 40,405 .

Purchasers of the Series 1b Preferred Units also received 1,268,279 Class B Common Units.

The estimated fair value of the Class B Common units has been recorded as a component of members’ equity (deficit) in the accompanying balance sheet as of December 31, 2020, with an offset to the Series 1b proceeds.

The Company’s Series 1b Preferred Units were converted to preferred stock during the first quarter of 2021.

Additionally, in August 2021, the Company converted all preferred stock into common stock.

No Series 1b Preferred Units were outstanding as of December 31, 2022, and 2021.

Series 1c Preferred Units

On June 14, 2019, the Company closed participation in a $ 5,785,000 Series 1c financing from current and new investors.

As of December 31, 2019, cash of $ 5,535,000 , including $ 150,000 from the conversion of a convertible note issued to a Managing Member of the Company for a loan made to the Company, net of issuance costs of $ 25,857 , had been received.

The accrued interest on the convertible note in the amount of $ 1,487 was also converted into Series 1c Preferred Units.

The remaining balance of $ 250,000 committed to the financing was paid in the amounts of $ 125,000 in May 2020 and $ 125,000 in June 2020.

In June 2019, 5,221,156 Series 1c Preferred Units were issued in connection with the settlement and license agreement, and in July 2021, the Company redeemed these units/shares in connection with an amendment to the settlement and license agreement.

See Note 9 – License Agreements for more information.

The Company’s Series 1c Preferred Units were converted to preferred stock during the first quarter of 2021.

Additionally, in August 2021, the Company converted all preferred stock into common stock.

No Series 1c Preferred Units were outstanding as of December 31, 2022, and 2021.

Series 1d Preferred Units

In March 2021, the Company issued 686,742 Series 1d Preferred Units at a cost of $ 0.83 per unit for total proceeds of $ 570,000 .

In addition, as described in Note 4 – Subordinated Convertible Promissory Notes, as of March 15, 2021, $ 4,391,000 of convertible promissory notes, along with related interest of $ 73,801 , were converted into 5,379,247 Series 1d Preferred Units.

The outstanding Series 1d Preferred Units were converted to preferred stock during the first quarter of 2021.

Additionally, in August 2021, the Company converted all preferred stock into common stock.

No Series 1d Preferred Units were outstanding as of December 31, 2022, and 2021.

Class A Common Units

During 2014 and 2015, the Company issued 508,777 Class A Common Units in exchange for consideration of $ 10,430 .

The Class A Common Units outstanding converted to common stock during the first quarter of 2021.

No Class A Common Units were outstanding as of December 31, 2022, and 2021.

Class B Common Units

The Company had 1,767,477 Class B Common Units outstanding as of December 31, 2020.

This includes 133,953 Class B Common Units issued for consideration of $ 2,853 and 1,268,279 Class B Common Units issued in connection with the issuance of the Series 1b Preferred Units, which were assigned an estimated fair value of $ 2,340,000 .

The remaining 365,245 Class B Common Units were issued as a profits interest as that term is defined by Revenue Procedure 93-27, 1993-2 C.B.

343, as clarified by Revenue Procedure 2001-43, 2001-2 C.B.

191, with participation thresholds from $ 0.001 to $ 0.36 .

During the first quarter 2020, the Company issued 2,439 Class B Common Units, all of which represented a profits interest.

During the first quarter of 2021, 22,494 Class B Common Units were forfeited as a result of employee resignations.

The remaining Class B Common Units outstanding converted to common stock during the first quarter of 2021.

No Class B Common Units were outstanding as of December 31, 2022, and 2021.

Liquidation Preference

Prior to the Company’s IPO in August 2021, the Company’s preferred units were subject to liquidation preferences contained herein.

So long as there were no Series A Preferred Units outstanding at the time of a liquidity event, any liquidity event proceeds would have been distributed as follows:

First, the Series 1d Preferred Units had a two times preference in liquidation over the Series 1c Preferred Units and then participated with the Series 1c, 1b and 1a Preferred Units once the Series 1c Preferred Unit preferences had been satisfied.

Second, proceeds to Series 1c Preferred Unit holders sufficient to cover two times their Series 1c investment;

third, proceeds to Series 1, Series 1a, Series 1b, Series 1c, and Series 1d Preferred Unit holders sufficient to cover interest at the rate of 8 % per annum on the Series 1 Preferred Units, the Series 1a Preferred Units, the Series 1b Preferred Units, the Series 1c Preferred Units, and Series 1d Preferred Units;

fourth, proceeds to the Series 1, Series 1a, Series 1b and Series 1c Preferred Unit holders sufficient to cover the unit value of Series 1 Preferred Units, Series 1a Preferred Units, Series 1b Preferred Units, Series 1c Preferred Units, and Series 1d Preferred Units;

fifth, to Class A and Class B Common holders proceeds sufficient to cover their pro-rata portion of distributions made to Series 1, Series 1a, Series 1b, Series 1c, and Series 1d Preferred Unit holders, provided that no Class B Common Units would share in any distribution until after the point at which the amount per Class A Common Unit exceeds the amount of such Class B Common Unit’s Participation Threshold;

and sixth, a pro-rata distribution of the remaining proceeds to all equity holders.

Upon the issuance of Series A Preferred Units, each Series 1 Preferred Unit, each Series 1a Preferred Unit, each Series 1b Preferred Unit, each Series 1c Preferred Unit and each Series 1d Preferred Unit would have automatically converted into the number of Series A Preferred Units equal to the sum of the unit value of the Series 1, Series 1a, Series 1b, Series 1c or Series 1d Preferred Units plus all accumulated preferred return as of the conversion date that would have been due with respect to such Series 1, Series 1a, Series 1b, Series 1c or Series 1d Preferred Units in the case of a liquidity event.

As of December 31, 2022, and 2021, no Series A Preferred Units had been issued, and no preferred stock remained outstanding.

Conversion Rights

Prior to the Company’s IPO in August 2021, the Company’s preferred units were subject to conversion rights contained herein.

Upon the first issuance by the Company of any Series A Preferred Units, each Series 1 Preferred Unit and each Series 1a Preferred Unit and each Series 1b Preferred Unit and each Series 1c Preferred Unit and each Series 1d Preferred Unit would have automatically been converted into the number of Series A Preferred Units equal to the sum of the Unit Value with respect to such Series 1 Preferred Unit or Series 1a Preferred Unit or Series 1b Preferred Unit or Series 1c Preferred Unit or Series 1d Preferred Unit as of the conversion date divided by the product of 0.80 multiplied by the Unit Value of the Series 1 Preferred Units or Series 1a Preferred Units or Series 1b Preferred Units or Series 1c Preferred Units or Series 1d Preferred Unit issued on the conversion date.

The Series A Preferred Units issued to the Series 1 Preferred Members and Series 1a Preferred Members and Series 1b Preferred Members and Series 1c Preferred Members and Series 1d Preferred Members upon conversion of such Series 1 Preferred Units and Series 1a Preferred Units and such Series 1b Preferred Units and Series 1c Preferred Units and Series 1d Preferred Units would have had the same rights, privileges and preferences as the other Series A Preferred Units issued by the Company on the conversion date.

The Company considered the classification of the Preferred Units and concluded that they were appropriately included as a component of equity since each class of Preferred Units participates in the same form of consideration received upon a change in control.

As of December 31, 2022, and 2021, no preferred units or stock remained outstanding.

Stockholders’ Agreements

On March 24, 2021, in connection with the conversion of Dermata Therapeutics, LLC into a Delaware corporation, the Company entered into a Stockholders’ Agreement (as amended, the Stockholders’ Agreement) with all of its then-existing stockholders, including Proehl Investment Ventures, LLC and Hale Biopharma Ventures, LLC.

The Stockholders’ Agreement among other things, provided for certain restrictions on transfer of the Company’s shares of capital stock, set forth agreements and understandings with respect to how shares of its capital stock held by the stockholders party thereto will have been voted on, or tendered in connection with, an acquisition of the Company and provided for certain voting rights with respect to the election of directors.

In addition, pursuant to the Stockholders’ Agreement, holders of the Company’s Series 1a Preferred Stock were entitled to purchase, at any time prior to March 14, 2026, such number of shares of the Company’s Series 1a Preferred Stock as such Series 1a Stockholder shall request, up to an aggregate number of shares of Series 1a Preferred Stock not to exceed the product of 25% and the aggregate number of shares Series 1a Preferred Stock then held by such Series 1a Stockholder (or the Series 1a Preferred Warrant Rights).

The shares of Series 1a Preferred Stock purchased pursuant to any Series 1a Preferred Warrant Right had a per share purchase price of $ 20.50 (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization).

Upon the consummation of the Company’s IPO of common stock, each Series 1a Preferred Stock Warrant became exercisable for the same number of shares of Common Stock with the same per share exercise price of $20.50 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization).

The Stockholders’ Agreement would have automatically terminated upon the earliest of (a) immediately prior to the consummation of the Company’s initial public offering of common stock, and (b) the consummation of a sale of the Company, subject to certain conditions.

The Company completed the IPO of common stock in August 2021, thereby terminating the Stockholders’ Agreement.

On June 29, 2021, with effectiveness on July 1, 2021, the Company’s board of directors amended its Certificate of Incorporation to adjust the conversion price and certain conversion mechanics of the Company’s issued and outstanding Series 1d Preferred Stock, whereby each share of Series 1d Preferred stock would convert into such number of Common Stock as determined by dividing (i) the product of (a) the Original Issue Price for the Series 1d Preferred Stock, multiplied by (b) 1.2, rounded to the nearest whole cent, by (ii) the 80% of the initial public per share offering price in the IPO.

The Series 1d conversion shall not be subject to further adjustment for any stock split.

On June 29, 2021, with effectiveness on July 1, 2021, the Company’s board of directors approved an amendment to the 2021 Plan to increase the number of shares of Common Stock available for issuances from 593,340 to 1,648,213 shares.

On June 29, 2021, the Company’s board of directors approved a 1-for-20.5 reverse split of all outstanding shares of common stock, effected on July 1, 2021 (no fractional shares were issued).

Except as otherwise noted, all references to share and per share amounts related to common stock and common units have been restated to reflect the reverse stock split.

On July 12, 2021, the Company’s board of directors amended its Certificate of Incorporation to further adjust the conversion price and certain conversion mechanics of the Company’s issued and outstanding Series 1d Preferred Stock.

The two amendments to the Series 1d Preferred Stock conversion terms were combined for purposes of accounting for the amendments.

In order to determine if these amendments resulted in a modification or extinguishment of the Series 1d Preferred Stock, pursuant to the related authoritative guidance, the Company engaged an independent third-party valuation firm to assist with determining the fair value of the Series 1d Preferred Stock immediately before the change in conversion terms, as well as immediately after the change in conversion terms.

This resulted in a substantive increase in fair value, and as such, the Company determined the amendments resulted in extinguishment accounting.

Accordingly, the Company applied ASC 260, Earnings per Share, and ASC 470, Debt, by analogy to determine the appropriate measurement and presentation.

The Company compared the fair value of the Series 1d Preferred Stock, as amended, to its carrying value and recorded the resulting difference of approximately $2.3 million as a deemed dividend for the Series 1d preferred shareholders .

The Company recorded the deemed dividend to additional paid-in capital because the Company is in an accumulated deficit position, thereby increasing the net loss attributable to the common shareholders for the year ended December 31, 2021.

On July 30, 2021, the Company entered into a Second Amendment to the License and Settlement Agreement (or, the Second License Amendment), whereby, for the settlement of certain disputes arising under the License Agreement, the Company agreed to exchange the shares of Series 1c Preferred Stock owned by Villani, Inc.

(“Villani”) for an increase of milestone payments and royalty rates due to Villani under the License Agreement.

On July 30, 2021, Villani surrendered 5,221,156 shares of Series 1c Preferred Stock to the Company and on August 17, 2021, the Company paid to Villani $1.0 million upon the close of the Company’s initial public offering for the redemption of the Series 1c shares.

The Company determined that the deemed dividend to Villani for the Series 1c preferred share redemption was the difference between the $ 1 .0 million paid for the shares and the carrying value of the shares of $ 730,962 , resulting in a deemed dividend of $ 269,038 .

This deemed dividend of $ 269,038 was recorded to additional paid-in capital because the Company is in an accumulated deficit position, thereby increasing the net loss attributable to common shareholders for the year ended December 31, 2021.

On August 14, 2021, the Company’s board of directors approved an amendment to the Company’s Certificate of Incorporation to increase the number of shares of Common Stock authorized to 90,000,000.

On July 11, 2022, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) with the Secretary of State of the State of Delaware to increase the number of authorized shares of the Company’s common stock from 90,000,000 shares to 250,000,000 shares.

On July 11, 2022, the Company filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to increase the number of authorized shares of the Company’s Common Stock from 90,000,000 shares to 250,000,000 shares.

The increase in the number of authorized shares was approved by the holders of a majority of the outstanding shares of Common Stock of the Company at its annual meeting on July 11, 2022.

Warrants issued at IPO

The underwriters exercised their option to purchase an additional 385,714 warrants, increasing the number of warrants issued at IPO to 2,957,142 .

Each warrant is immediately exercisable at the option of the holder and expires five years from the date of issuance.

The Company evaluated the terms of the warrants issued at the IPO and determined that they should be classified as equity instruments based upon accounting guidance provided in ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging.

Since the Company determined that the warrants were equity classified, the Company recorded the proceeds from the IPO, net of issuance costs, within common stock at par value and the balance of proceeds to additional paid in capital.

The fair value of each warrant on August 17, 2021, was $ 0.9995 based on the closing trading price on that day.

As of December 31, 2022, the outstanding warrants are exercisable into 2,957,142 shares of common stock whose fair value was $0.409 per share, based on the closing trading price on that day.

As of December 31, 2022, the Company had 2,957,142 warrants outstanding resulting from the IPO with an exercise price of $7.00 and which expire August 17, 2026.

Underwriter IPO Warrants

Upon the closing of the Company's IPO in August 2021, the Company issued to the underwriters warrants to purchase 128,571 of shares of common stock at an exercise price equal to 115 % of the public offering price, or $ 8.05 per share, exercisable for a period of five years, or until August 2026.

As of December 31, 2022, the Company had 128,571 warrants outstanding resulting from the underwriter IPO warrants with an exercise price of $ 8.05 and which expire August 17, 2026.

As of December 31, 2022, the outstanding warrants are exercisable for 128,571 shares of common stock whose fair value was $0.409 per share, based on the closing trading price on that day.

Warrants issued with Class B Common Units

In March 2021, the Company granted Class B Common Units Profits interests to certain former employees and consultants.

In connection with the conversion from an LLC to a C-Corporation, the Company converted 65,303 of vested Units to fully vested Common Stock Warrants with an exercise price of $ 5.74 .

These Common Stock Warrants issuances were considered a modification under ASC 718, Stock Compensation, in which the fair value of the Class B Common Units profits interests were measured at the modification date and compared to the fair value of the common stock warrants, with the difference of $ 279,812 recorded as stock-based compensation expense in the first quarter of 2021.

As of December 31, 2022, the Company had 65,303 common warrants outstanding related to the prior Class B Common Units with an exercise price of $ 5.7 4 and which expire December 31, 2024.

As of December 31, 2022, the outstanding warrants are exercisable into 65,303 shares of common stock whose fair value was $0.409 per share, based on the closing trading price on that day.

Warrants issued with Series 1a Preferred Units

In connection with the issuance of 5,000,000 Series 1a Preferred Units in November 2016, each Series 1a Preferred Member received Warrant Units to purchase from the Company, at any time after November 15, 2016 and on or prior to November 15, 2021, such number of Series 1a Preferred Units as such Series 1a Preferred Member shall request, up to an aggregate number of Series 1a Preferred Units not to exceed the product of 25% and the aggregate number of Series 1a Preferred Units then held by such Series 1a Preferred Member, which was 1,231,250 units at December 31, 2020.

The exercise price for each Warrant Unit was $1.00, subject to adjustment for unit splits and combinations.

The warrants had a 5-year term .

The Company received total proceeds of $5,000,000 for the Series 1a Preferred Units and warrants which were allocated on a relative fair value basis to the Units and warrants resulting in a relative fair value of $ 4,381,199 and $ 618,801 , respectively.

The estimated fair value of the Series 1a Warrant Units was recorded as a separate component of members’ equity (deficit) in the accompanying financial statements as of December 31, 2020.

In June 2020, 18,750 of the warrants were exercised for consideration of $ 18,750 , which consideration was received in July 2020.

In connection with the Loan and Security Agreement, SVB also received Warrant Units to purchase, at any time after February 9, 2017, and prior to February 9, 2027, 187,978 Series 1a Preferred Units or the equivalent Series A Preferred Units had they purchased Series 1a Preferred Units, if Series A Preferred Units are issued, at an exercise price of $1.00 per unit.

On March 24, 2021, in connection with the conversion from an LLC to a C-Corporation, each warrant to purchase Series 1a Preferred Units in the LLC was automatically converted into a warrant to purchase, upon the same terms and conditions, shares of Series 1a Preferred Stock of the Company.

In July 2021, the Company effected a reverse split of shares of the Company’s common stock at a ratio of 1-for-20.5, and the conversion ratio of the preferred stock was adjusted accordingly.

In August 2021, in connection with the Company’s IPO, the outstanding Series 1a preferred warrants were converted into 69,212 common warrants.

As of December 31, 2022, the Company had 69,212 common warrants outstanding related to the prior Series 1a preferred warrants with an exercise price of $20.50 and which expire November 15, 2026.

As of December 31, 2022, the outstanding warrants are exercisable into 69,212 shares of common stock whose fair value was $ 0.409 per share, based on the closing trading price on that day.

Common and Pre-Funded Warrants issued with PIPE

In April 2022, the Company completed the PIPE, in which it sold 898,585 shares of its common stock together with 2,875,000 Pre-funded Warrants to purchase one share of common stock with an exercise price of $0.0001 per share, and 3,773,585 PIPE Common Warrants to purchase one share of common stock with an exercise price of $1.325 per share, at a combined offering price of $ 1.325 .

Each PIPE Common Warrant is immediately exercisable at the option of the holder and expires May 13, 2027.

During the quarter ended June 30, 2022, 875,000 of the Pre-funded Warrants were exercised.

During the quarter ended September 30, 2022, the remaining 2,000,000 Pre-funded Warrants were exercised.

No additional Pre-funded Warrants are outstanding as of December 31, 2022.

As of December 31, 2022, the Company had 3,773,585 PIPE Common Warrants outstanding with an exercise price of $ 1.325 and which expire May 13, 2027.

As of December 31, 2022, the outstanding PIPE Common Warrants are exercisable into 3,773,585 shares of common stock whose fair value was $0.409 per share, based on the closing trading price on that day.

A summary of the Company’s equity securities as of December 31, 2023, is as follows:

Held in Abeyance

Common Stock, par value $0.001

Preferred Stock

2021 Omnibus Equity Incentive Plan

Total equity securities

On November 20, 2023, the Company closed on an inducement agreement (the “Inducement”) with a holder (the “Holder”) of certain of its existing warrants to purchase up to 3,472,095 shares of the Company’s common stock, issued to the Holder on (i) April 25, 2022 (as amended on March 20, 2023, the “April 2022 Warrants”) and (ii) March 20, 2023 (the “March 2023 Warrants” together with the April 2022 Warrants, the “Existing Warrants”).

The Existing Warrants had an exercise price of $ 2.82 .

Pursuant to the Inducement, the Holder agreed to exercise for cash its Existing Warrants at a reduced exercise price of $ 0.6511 per share in consideration for the Company’s agreement to issue in a private placement (i) new series A Common Stock purchase warrants (the “November 2023 Series A Common Warrants”) to purchase 3,707,944 shares of Common Stock and (ii) new series B Common Stock purchase warrants (the “November 2023 Series B Common Warrants” and together with the November 2023 Series A Common Warrants, the “New Warrants”) to purchase 3,236,246 shares of Common Stock .

The New Warrants are exercisable subject to stockholder approval, which the Company received at a stockholder meeting on January 12, 2024.

The Company received net cash proceeds of approximately $ 2.0 million from the Inducement after deducting underwriters’ discounts and offering expenses of approximately $ 0.3 million.

On May 26, 2023, the Company closed a private placement (the “2023 PIPE”) priced at the market under Nasdaq rules, in which it sold 458,555 shares of its Common Stock together with 342,322 pre-funded warrants to purchase up to an aggregate of 342,322 shares of Common Stock with an exercise price of $ 0.0001 per share (the “May 2023 Pre-Funded Warrants”), and 800,877 warrants to purchase up to an aggregate of 800,877 shares of Common Stock with an exercise price of $ 2.16 per share (the “May 2023 PIPE Common Warrants”) at a combined offering price of $ 2.285 .

The Company received net cash proceeds of approximately $ 1.5 million from the 2023 PIPE after deducting underwriters’ discounts and offering expenses of approximately $ 0.3 million.

The May 2023 Pre-Funded Warrants were exercised fully during the second quarter of 2023.

On March 20, 2023, the Company closed a public offering (the “March 2023 Offering”) priced at the market under Nasdaq rules, in which it sold an aggregate of (i) 85,000 shares of Common Stock, (ii) pre-funded warrants (the “March 2023 Pre-Funded Warrants”) to purchase up to an aggregate of 1,533,123 shares of Common Stock with an exercise price of $ 0.0001 per share, (iii) Series A warrants (the “March 2023 Series A Common Warrants”) to purchase up to an aggregate of 1,618,123 shares of Common Stock, and (iv) Series B warrants (the “March 2023 Series B Common Warrants” and collectively with the March 2023 Series A Common Warrants, the “March 2023 Offering Warrants”) to purchase up to an aggregate of 1,618,123 shares of Common Stock.

The March 2023 Offering Warrants had an exercise price of $ 2.82 per share.

The Company received net cash proceeds of approximately $ 4.2 million after deducting the underwriter’s discounts and offering expenses of approximately $ 0.8 million.

The March 2023 Pre-Funded Warrants were fully exercised during the first quarter of 2023, and the March 2023 Offering Warrants were exercised as part of the Inducement in November 2023.

On April 25, 2022, the Company closed a private placement (the “April 2022 PIPE”), in which it sold 56,161 shares of its Common Stock together with 179,687 pre-funded warrants to purchase up to an aggregate of 179,687 shares of Common Stock with an exercise price of $ 0.0001 per share (the “April 2022 PIPE Pre-Funded Warrants”), and 235,849 warrants to purchase up to an aggregate of 235,849 shares of Common Stock with an exercise price of $ 21.20 per share (the “April 2022 PIPE Common Warrants”) at a combined offering price of $21.20.

The Company received net cash proceeds of approximately $ 4.3 million from the April 2022 PIPE after deducting underwriters’ discounts and offering expenses of approximately $ 0.7 million.

The April 2022 PIPE Pre-Funded Warrants were fully exercised during 2022, and the April 2022 PIPE Common Warrants were exercised as part of the Inducement in November 2023.

Preferred Stock

While the Company has 10,000,000 shares of preferred stock authorized with a par value of $ 0.0001 , no shares of preferred stock are outstanding as of December 31, 2023, or 2022, respectively.

Abeyance Shares

Related to the November 2023 Inducement, the Holder left 2,730,000 shares in abeyance at the Company’s transfer agent to be delivered to the Holder at their request.

The 2,730,000 shares held in abeyance were delivered to the Holder on January 8, 2024.

Accordingly, as of December 31, 2023, 2,730,000 shares were held in abeyance, have not been issued and are not outstanding .

Summary of Warrants Outstanding

The table below lists outstanding warrants for the dates presented.

The warrants outstanding at December 31, 2023 are exercisable into 8,358,697 shares of common stock which had a fair value of $ 0.61 per share, based on the closing trading price on that day.

The aggregate intrinsic value of warrants outstanding as of December 31, 2023, is calculated as the difference between the exercise price of the warrants and the closing market price of the Company’s Common Stock on that date.

The intrinsic value of warrants outstanding as of December 31, 2023, was zero due to the warrants’ exercise prices above market value.

Quantity of Warrants Outstanding as of

Pre-IPO Series 1a Warrants

Pre-IPO Class B Common Warrants

IPO Underwriter Warrants

April 2022 PIPE Common Warrants

March 2023 Series A Common Warrants

March 2023 Series B Common Warrants

March 2023 Offering Placement Agent Warrants

May 2023 PIPE Common Warrants

May 2023 PIPE Placement Agent Warrants

November 2023 Series A Common Warrants

November 2023 Series B Common Warrants

November 2023 Offering Placement Agent Warrants

Total warrants outstanding

Warrant Inducement

In November 2023, the Company completed the Inducement, in which a Holder agreed to exercise 3,472,095 common warrants to purchase Common Stock at a reduced exercise price of $ 0.6511 per share in exchange for the 3,707,944 November 2023 Series A Common Warrants and 3,236,246 November 2023 Series B Common Warrants with an exercise price of $ 0.6511 per share.

The New Warrants are exercisable subject to stockholder approval, which the Company received at a stockholder meeting on January 12, 2024.

The Inducement, which resulted in the lowering of the exercise price of the Existing Warrants and the issuance of the New Warrants, is considered a modification of the Existing Warrants under the guidance of ASU 2021-04.

The modification is consistent with the equity issuance classification under that guidance as the reason for the modification was to induce the holders of the Existing Warrants to cash exercise their warrants, which raised equity capital and generated net proceeds for the Company of approximately $ 2.0 million.

As the Existing Warrants and the New Warrants were classified as equity instruments before and after the exchange, and as the exchange is directly attributable to an equity offering, the Company recognized the effect of the modification of approximately $ 3.0 million as an equity issuance cost.

Warrant Modification

In connection with the March 2023 Offering, the Company agreed to amend the terms of the April 2022 PIPE Common Warrants, which were held by the purchaser in the March 2023 Offering.

The exercise price of the April 2022 PIPE Common Warrants was reduced from $21.20 to $2.82 per share upon closing of the March 2023 Offering .

The original expiration date of the April 2022 PIPE Common Warrants was May 12, 2027, which was extended to five years after the closing of the March 2023 Offering, or March 20, 2028.

The modification of the April 2022 PIPE Common Warrants was accounted for as a modification of equity-linked instruments.

In accordance with ASU 2021-04, as the warrants were classified as equity instruments before and after the modification, and as the modification was directly attributable to an equity offering, the Company recognized the effect of the modification of approximately $ 0.1 million as an equity issuance cost.

Equity Incentive Plan

Under the Company’s 2021 Omnibus Equity Incentive Plan (the “2021 Plan”), the Company may grant options to purchase common stock, restricted stock awards, performance stock awards, incentive bonus awards, other cash-based awards or directly issue shares of common stock to employees, directors, and consultants of the Company.

Under the Company’s 2021 Omnibus Equity Incentive Plan (the “2021 Plan”), as amended, the Company may grant options to purchase shares of Common Stock, restricted stock awards, performance stock awards, incentive bonus awards, other cash-based awards or directly issue shares of Common Stock to employees, directors, and consultants of the Company.

Effective January 1, 2022, an evergreen provision contained in the Company’s 2021 Plan increased the total number of shares of common shares issuable under the 2021 Plan in an amount equal to one percent of the Company’s common shares outstanding as of December 31, 2021.

This evergreen provision resulted in an additional 83,286 common shares issuable pursuant to the 2021 Plan, increasing the total authorized shares available for issuance under the 2021 Plan to 1,731,499 as of January 1, 2022.

This evergreen provision resulted in an additional 7,701 and 5,205 shares of Common Stock issuable pursuant to the 2021 Plan as of January 1, 2023, and 2022, respectively.

At the Company’s 2023 Annual Meeting of Stockholders held on August 3, 2023, the Company’s stockholders approved an amendment to the Company’s 2021 Plan to increase the number of shares of common stock authorized for issuance thereunder by 513,150 shares to 629,069 shares.

Stock awards may be granted at an exercise price per share of not less than 100% of the fair market value at the date of grant.

Stock awards granted are exercisable over a maximum term of 10 years from the date of grant and generally vest over a period of four years for employees and one year for directors of the Company’s Board and consultants .

As of December 31, 2022, there remain an additional 455,539 shares reserved for issuance under the 2021 Plan.

As of December 31, 2023, there remain 513,277 shares reserved for issuance under the 2021 Plan, as amended.

See Note 9 for a discussion of cancellation of stock options during the first quarter of 2024.

Fair Value Measurement

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All options to purchase shares of the Company’s Common Stock are intended to be exercisable at a price per share not less than the per-share fair value of the Company’s Common Stock underlying those options on the date of grant.

In the absence of a public trading market for the Company’s common stock, before the initial public offering, on each grant date, the Company developed an estimate of the fair value of its common stock based on the information known to the Company on the date of grant, upon a review of any recent events and their potential impact on the estimated fair value per share of the common stock and in part on input from an independent third-party valuation firm.

After the Company’s initial public offering, the fair value of common stock is measured as the Company’s closing price of common stock on the date of grant.

The fair value of Common Stock is measured as the Company’s closing price of Common Stock on the date of grant.

Risk-Free Interest Rate.

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Expected Term.

The expected term represents the period that the Company’s stock-based awards are expected to be outstanding.

Because of the limitations on the sale or transfer of the Company’s common stock as a privately held company, the Company does not believe its historical exercise pattern is indicative of the pattern it will experience as a publicly traded company.

The Company plans to continue to use the SAB 110 simplified method until it has sufficient trading history as a publicly traded company.

The expected term represents the period that the Company’s stock-based awards are expected to be outstanding, which is calculated using the simplified method, as the Company has insufficient historical information to provide a basis for an estimate.

The simplified method calculates the expected term as the average of the vesting term plus the contractual life of the options.

The Company determines the price volatility based on the historical volatilities of industry peers as it has limited trading history for its Common Stock price.

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To date, the Company has not declared any dividends to common shareholders and, therefore, the Company has used an expected dividend yield of zero.

The following table presents the weighted-average assumptions used for the stock option grants:

The following table presents the weighted-average assumptions used for stock options granted during the following periods:

Year Ended December 31,

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In general, stock-based compensation is allocated to research and development expense or general and administrative expense according to the classification of cash compensation paid to the employee, director, or consultant to whom the stock award was granted.

On March 24, 2021, in connection with the conversion from an LLC to a C-Corporation, the Company converted 277,448 of Class B Common Units profits interests, for which no consideration had been received, into 277,448 options to purchase common stock at an exercise price of $ 5.74 to $ 6.314 per share.

The fair value of common stock prior to IPO was determined in part based upon input from an independent third-party valuation firm.

The Company considered the conversion of these Class B Common Units profits interests as a modification under ASC 718, Stock Compensation, in which the fair value of the Class B Common Units profits interests was measured at the modification date and compared to the fair value of the common stock options, with the difference of $ 1,339,993 resulting in incremental stock-based compensation expense recorded in the first quarter of 2021.

In December 2021, the Company’s board of directors authorized a stock option grant in lieu of a cash bonus for the Company’s Chairman and Chief Executive Officer.

In December 2021, the Board authorized a stock option grant in lieu of a cash bonus for the Company’s Chairman and Chief Executive Officer.

The stock-based compensation expense of $0.4 million related to the stock option grant was booked to the fiscal year ended December 31, 2021;

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The following table summarizes the total stock-based compensation expense related to stock options and RSUs included in the Company’s statements of operations:

As of December 31,

Research and development

General and administrative

As of December 31, 2022, total unrecognized compensation cost related to stock options was approximately $ 0.9 million and the weighted average period over which this cost is expected to be recognized is 2.4 years.

Stock Award Activity

A summary of the Company’s Equity Plans stock option activity is as follows:

Number of Options Outstanding

Weighted-Average Exercise Price

Weighted-Average Remaining Contractual Term (in Years)

Stock Option Award Activity

A summary of the Company’s 2021 Plan stock option activity is as follows:

Balance at December 31, 2022

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The aggregate intrinsic value of options exercisable as of December 31, 2023, is calculated as the difference between the exercise price of the underlying options and the closing market price of the Company’s Common Stock on that date, which was $ 0.61 per share.

The intrinsic value of options outstanding and exercisable as of December 31, 2022, was zero due to the underlying options exercise price above market value.

The intrinsic value of options outstanding and exercisable as of December 31, 2023, was zero.

As of December 31, 2023, total unrecognized compensation cost related to stock options was approximately $ 0.6 million and the weighted average period over which this cost is expected to be recognized is 1.8 years.

Restricted Stock Unit Award Activity

A summary of the Company’s Equity Plan restricted stock unit, or RSU, award activity is as follows:

RSU’s outstanding

Balance at December 31, 2021

RSUs cancelled

Balance at December 31, 2022

During the year ended December 31, 2022, the Company issued 219,634 RSUs as partial compensation to certain member of Dermata’s Board of Directors for their services during 2022.

The Company recognized stock-based compensation expense of approximately $ 0.2 million for the year ended December 31, 2022 related to the restricted stock unit awards.

There were no RSUs outstanding during fiscal year 2021, no RSU’s outstanding as of December 31, 2022, and there is no unrecognized compensation expense related to RSUs as of December 31, 2022.

Restricted Stock Units

During the year ended December 31, 2022, the Company issued 219,634 restricted stock units, or RSUs, as partial compensation to certain members of the Board for their services during 2022.

The Company recognized stock-based compensation expense of approximately $ 0.2 million for the year ended December 31, 2022, related to the RSU awards.

There were no RSUs issued or outstanding for the year ended December 31, 2023, and there is no unrecognized compensation expense related to RSUs as of December 31, 2023.

401(k) Employee Benefit Plan

The Company sponsors a 401(k) savings plan for all eligible employees.

The Company may make discretionary matching contributions to the plan to be allocated to employee accounts based upon employee deferrals and compensation.

To date, the Company has not made any matching contributions into the savings plan.

License Agreements

On March 31, 2017, the Company entered into a license agreement, as amended (the “License Agreement”) with Villani, Inc.

whereby Villani has granted the Company an exclusive, sub-licensable, royalty-bearing license (the “License”) under the Licensed Patents (as defined in the License Agreement), to formulate, develop, seek regulatory approval for, make or sell products that contain Spongilla lacustris (alone or in combination with other active or inactive ingredients) for the treatment of diseases, disorders and conditions of the skin, including but not limited to acne, rosacea, psoriasis, atopic dermatitis, seborrheic dermatitis, actinic keratosis and eczema that were developed using certain licensed know-how (“Licensed Products”).

The Company is responsible for the development (including manufacturing, packaging, non-clinical studies, clinical trials and obtaining regulatory approval and commercialization (including marketing, promotion, distribution, etc.)) for all Licensed Products.

In partial consideration of the License, the Company forgave its previous outstanding loan to Villani in the amount of $ 400,000 .

The original License Agreement was amended in 2019 and, in consideration of the receipt of certain know-how and patents, the Company issued to Villani 5,221,156 Series 1c Preferred Units equal to 5 % of the Company’s fully diluted capitalization, valued at $ 730,962 .

Pursuant to the amended License Agreement, the Company was required to make future milestone payments to Villani in an aggregate amount of up to $ 20.25 million upon the achievement of specified development and sales milestones, payable in cash or in equity, at the option of Villani, as well as single-digit royalty payments on net sales.

On July 30, 2021, the Company further amended the License Agreement in the Second Amendment to the License and Settlement Agreement (the “Second Amendment”).

In consideration of the Second Amendment, Villani exchanged the 5,221,156 Series 1c Preferred Shares issued to Villani in 2019 for an increase in milestone payments and royalty rates payable pursuant to the License Agreement and the Company paid Villani $ 1 million after the close of the IPO.

Pursuant to the Second Amendment, the Company is required to make future milestone payments to Villani in an aggregate amount of up to $ 40.5 million upon the achievement of specified development and sales milestones, payable in cash or in equity, at the option of Villani, as well as single-digit royalty payments on net sales.

The Second Amendment includes customary terms relating to, among others, indemnification, intellectual property protection, confidentiality, remedies, and warranties.

See Note 6 – Equity Securities for additional information regarding the Company’s redemption of the Series 1c Preferred Shares from Villani.

To date, the Company has not made any matching contributions to the savings plan.

Commitments and Contingencies

Coronavirus Pandemic

On March 11, 2020, the World Health Organization declared the outbreak of a coronavirus (COVID-19) pandemic.

Significant uncertainties may arise with respect to potential shutdowns of operations or government orders to cease activities due to emergency declarations, inability to operate, employee shortages, or claims for business interruption insurance, etc.

Each of these matters may have a significant impact on the future results of the Company.

Clinical Trials

During the fourth quarter of 2023, the Company initiated a Phase 3 clinical trial, STAR-1, which is expected to report data in 2025.

The total contract amount with the clinical research organization is approximately $6.9 million, which will extend from the fourth quarter of 2023 to the first half of 2025, which has a 30-day termination notice period.

Supplier Agreement

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The imposition of enhanced export controls and economic sanctions on transactions with Russia and Russian entities by the United States, the United Kingdom, and/or the European Union could prevent the Company from performing under this existing contract or any future contract it may enter or may prevent the Company from remitting payment for raw material purchased from the Company’s supplier.

The Company has received two shipments of raw material from its supplier during fiscal year 2022 containing additional quantities of Spongilla raw material which the Company believes will provide enough Spongilla raw material to support the initiation and completion of two Phase 3 studies in moderate-to-severe acne and support filing a new drug application for DMT310 in acne upon the successful completion of two Phase 3 studies.

The Company has received multiple shipments of raw material from its supplier subsequent to the implementation of export controls and sanctions, containing additional quantities of Spongilla raw material, which will provide the Company with sufficient quantities of Spongilla to initiate and complete two Phase 3 studies in moderate-to-severe acne and support filing a new drug application for DMT310 in acne upon the successful completion of two Phase 3 studies.

Depending on the extent and breadth of new sanctions or export controls that may be imposed against Russia, otherwise or as a result of the impact of the war in Ukraine, it is possible that the Company’s ability to obtain additional supply of the Spongilla raw material used in DMT310 and DMT410 could be negatively impacted, which could adversely affect its business, results of operations, and financial condition.

License Agreements

On March 31, 2017, the Company entered into a license agreement, as amended (the “License Agreement”) with Villani, Inc.

The original License Agreement was amended in 2019, and pursuant to the amended License Agreement, the Company was required to make future milestone payments to Villani in an aggregate amount of up to $20.25 million upon the achievement of specified development and sales milestones, payable in cash or in equity , at the option of Villani, as well as single-digit royalty payments on net sales.

On July 30, 2021, the Company further amended the License Agreement in the Second Amendment to the License and Settlement Agreement (the “Second Amendment”).

Pursuant to the Second Amendment, the Company is required to make future milestone payments to Villani in an aggregate amount of up to $40.5 million upon the achievement of specified development and sales milestones, payable in cash or in equity , at the option of Villani, as well as single-digit royalty payments on net sales.

The Second Amendment includes customary terms relating to, among others, indemnification, intellectual property protection, confidentiality, remedies, and warranties.

As of December 31, 2023, the Company evaluated the likelihood of the Company achieving the specified milestones and determined that the likelihood is not yet probable and as such no accrual of these payments is required as of December 31, 2023.

Legal Proceedings

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The Company is not a party to any legal proceedings or aware of any threatened legal proceedings which are expected to have a material adverse effect on its financial condition, results of operations or liquidity.

Related Parties

Prior to the Company converting from an LLC to a C-corporation in March 2021, the Company had two Managing Members.

One of the Managing Members remained the Company’s majority stockholder upon the close of the Company’s IPO and serves as the Company’s President, Chief Executive Officer, and Chairman of the Board of Directors.

The other Managing Member remained a beneficial owner upon the close of the Company’s IPO and serves as the Company’s Lead Director of the Board of Directors.

Hereinafter these two Managing Members, and their affiliates, are referred to collectively as the Principal Stockholders after the completion of the IPO.

During 2020, the Managing Members and other related parties loaned the Company $ 1,145,000 as subordinated convertible promissory notes.

Additionally, during the first quarter of 2021, the Managing Members and other related parties loaned the Company $ 1,255,000 as subordinated convertible promissory notes.

Refer to Note 4 – Subordinated Convertible Promissory Notes for further discussion.

During the third quarter of 2021, the Company amended the conversion terms of its Series 1d preferred stock, as described in Note 6 – Equity Securities.

As a result of the Series 1d preferred stock amendments, the Company presented a deemed dividend of approximately $ 2.3 million for the year ended December 31, 2021, approximately $ 1.2 million of which related to Series 1d preferred shares owned by the Company’s Principal Stockholders and their affiliates.

Historically, the Company conducted its operations through a pass-through entity that filed its income tax returns as a partnership for federal and state income tax purposes.

As a result, the Company was not subject to U.S.

federal or state income taxes as the related tax consequences were reported by members.

In March 2021, the Company changed its status from a limited liability company to a corporation, and accordingly, the Company became taxable at the entity level for U.S.

Dermata operates as a corporation, and accordingly, the Company is taxable at the entity level for U.S.

federal and state tax purposes.

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Such objective evidence limits the ability to consider other subjective evidence such as the Company’s projections for future growth.

Based on this evaluation, as of December 31, 2022, a valuation allowance of $ 3.7 million and $ 1.6 million, respectively, has been recorded against all of the Company’s net deferred tax assets, as the Company has determined that none of the Company’s balance of deferred tax assets is more likely than not to be realized.

Based on this evaluation, as of December 31, 2023, and 2022, a valuation allowance of $ 5.5 million and $ 3.7 million, respectively, or an increase of $ 1.8 million, has been recorded against all of the Company’s net deferred tax assets, as the Company has determined that none of the Company’s balance of deferred tax assets is more likely than not to be realized.

The amount of deferred tax assets considered realizable, however, could be adjusted in the future if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence, such as estimates of future taxable income during carryforward periods and the Company’s projections for growth.

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The Company had state NOL carryforwards available of $ 5.0 million as of December 31, 2023.

The federals NOLs may be used to offset future taxable income and will begin to expire in 2041, unless previously utilized.

The California credits carry forward indefinitely.

The state NOL may be used to offset future taxable income and will begin to expire in 2041 , unless previously utilized.

As of December 31, 2023, the Company had federal and state research and development tax credit carryforwards available of $ 0.7 million and $ 0.1 million, respectively.

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The Company is subject to examination by tax authorities in those jurisdictions from inception.

Subsequent Event

In January 2024, the Company granted 410,000 stock option awards to employees of the Company, subject to four-year vesting, with an exercise price of $ 0.6099 .

In January 2024, the Board unanimously approved to provide employees and directors of the Company the opportunity to cancel outstanding, out of the money, stock options without consideration, in accordance with an option cancellation agreement.

Accordingly, 101,465 of the 102,074 stock options outstanding as of December 31, 2023, were cancelled in February 2024.

Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DERMATA THERAPEUTICS, INC.

February 21, 2023

March 21, 2024

/s/ Gerald T.

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(Principal Executive Officer)

February 21, 2023

March 21, 2024

Chief Financial Officer

3 unchanged sentences

President, Chief Executive Officer, Chairman (Principal Executive Officer)

February 21, 2023

March 21, 2024

Chief Financial Officer (Principal Financial and Accounting Officer)

February 21, 2023

March 21, 2024

/s/ David Hale

Lead Director

February 21, 2023

March 21, 2024

/s/ Wendell Wierenga, Ph.D.

February 21, 2023

March 21, 2024

Wendell Wierenga, Ph.D.

/s/ Mary Fisher

February 21, 2023

March 21, 2024

/s/ Andrew Sandler, M.D.

February 21, 2023

March 21, 2024

Andrew Sandler, M.D.

/s/ Steven J.

February 21, 2023

March 21, 2024

/s/ Kathleen Scott

February 21, 2023

March 21, 2024

Kathleen Scott

/s/ Brittany Bradrick

February 21, 2023

March 21, 2024

Brittany Bradrick

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 9A. Controls and Procedures