What changed in this filing

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Item 1. Financial Statements

2024-05-15 compared with 2023-11-09 · 129 added, 163 removed, 241 unchanged (55% of the section changed)

2 unchanged sentences

Balance Sheets

September 30,

Cash and cash equivalents

6 unchanged sentences

Stockholders’ Equity:

Common Stock, par value $ 0.0001 , 250,000,000 shares authorized, and 3,189,034 shares issued and outstanding as of September 30, 2023;

and 250,000,000 shares authorized, and 770,115 shares issued and outstanding as of December 31, 2022, respectively.

Common Stock, par value $ 0.0001 , 250,000,000 shares authorized;

6,660,840 shares issued and outstanding as of March 31, 2024;

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

Additional paid-in capital

8 unchanged sentences

For the three months ended

September 30,

For the nine months ended

September 30,

Operating expenses:

3 unchanged sentences

Loss from operations

( 1,811,978 )

( 2,446,072 )

( 5,822,074 )

( 7,962,797 )

Other income and expenses:

Interest income, net

$ ( 1,719,211 )

$ ( 2,424,586 )

$ ( 5,660,717 )

$ ( 7,941,311 )

Net loss per share of common stock, basic and diluted

7 unchanged sentences

Stock-based compensation

Issuance of Common Stock and warrants, net of issuance costs

Issuance of Common Stock upon exercise of pre-funded warrants

Settlement of fractional shares paid in cash

Issuance of abeyance shares

( 3,134,262 )

2 unchanged sentences

$ ( 56,522,140 )

Stock-based compensation

Issuance of Common Stock and warrants, net of issuance costs

Issuance of Common Stock upon exercise of pre-funded warrants

( 1,701,364 )

Balance at June 30, 2023

$ ( 49,534,694 )

Stock-based compensation

Issuance costs

( 1,719,211 )

Balance at September 30, 2023

$ ( 51,253,905 )

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

5 unchanged sentences

Stock-based compensation

( 2,786,151 )

Balance at March 31, 2022

$ ( 38,768,426 )

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

Stock-based compensation

( 2,730,573 )

Balance at June 30, 2022

$ ( 41,498,999 )

Issuance of common stock upon exercise of pre-funded warrants

Issuance of restricted stock unit awards

Stock-based compensation

Settlement of fractional shares paid in cash

( 2,240,142 )

Balance at September 30, 2022

Balance at March 31, 2023

$ ( 47,833,330 )

2 unchanged sentences

Statements of Cash Flows

For the nine months ended

September 30,

For the three months ended

Cash flows from operating activities:

12 unchanged sentences

Cash flows from financing activities:

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

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

Proceeds from exercise of pre-funded warrants

5 unchanged sentences

Cash and cash equivalents at end of period

Supplemental disclosure:

Cash paid for taxes

Non-cash financing activities:

Issuance of abeyance shares

Incremental fair value of March 2023 warrant modification

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

16 unchanged sentences

Since its inception, the Company has devoted substantially all of its resources to research and development activities and has not generated any revenue or commercialized any product candidates.

As of September 30, 2023, cash and cash equivalents totaled $ 6.6 million and the Company had an accumulated deficit of $ 51.3 million.

For the nine months ended September 30, 2023, and the year ended December 31, 2022, the Company used cash of $ 5.3 million and $ 8.8 million, respectively, in operations.

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

As of March 31, 2024, cash and cash equivalents totaled $ 4.7 million and the Company had an accumulated deficit of $ 56.5 million.

For the three months ended March 31, 2024, and the year ended December 31, 2023, the Company used cash of $ 2.7 million and $ 6.4 million, respectively, 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 securities 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.

8 unchanged sentences

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.

The Company has raised additional capital through the initial public offering of its Common Stock and warrants, as well as a private placement financing in April 2022, an at-the-market public offering in March 2023, and an at-the-market private placement in May 2023;

however, prior completed financings do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

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 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.

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.

Basis of Presentation

5 unchanged sentences

Actual results could differ materially from those estimates.

The unaudited financial statements included in this Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 21, 2024, which includes a broader discussion of the Company’s business and the risks inherent therein.

Summary of Significant Accounting Policies

2 unchanged sentences

The preparation of the Company’s financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, and expenses and disclosure of contingent assets and liabilities in the financial statements and accompanying notes.

On an ongoing basis, management evaluates these estimates and judgments, including those related to accrued research and development expenses, stock-based compensation, and the estimated fair values of equity instruments.

On an ongoing basis, management evaluates these estimates and judgments, including those related to accrued research and development expenses.

Management evaluates its estimates on an ongoing basis.

4 unchanged sentences

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.

Cash and Cash Equivalents

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

1 unchanged sentence

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.

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

14 unchanged sentences

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 is 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.

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.

7 unchanged sentences

Stock-Based Compensation

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.

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.

The fair value of options to purchase Common Stock granted to employees is estimated on the grant date using the Black-Scholes valuation model.

1 unchanged sentence

Forfeitures are accounted for in the period they occur.

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.

Restricted stock units granted under the Company’s 2021 Omnibus Equity Incentive Plan (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 5 - 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 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.

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

Comprehensive loss includes net loss and other comprehensive income (loss) for the periods presented.

The Company did not have other comprehensive income (loss) items such as unrealized gains and losses and so for the three and nine months ended September 30, 2023, and 2022, comprehensive loss was equal to the net loss.

The Company did not have other comprehensive income (loss) items such as unrealized gains and losses and so for the periods presented, comprehensive loss was equal to the net loss.

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, 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 share equivalents.

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, preferred shares, and warrants to purchase preferred shares 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.

Three Months Ended

September 30,

Nine Months Ended

September 30,

$ ( 1,719,211 )

$ ( 2,424,586 )

$ ( 5,660,717 )

$ ( 7,941,311 )

Weighted-average basic and diluted common shares

Basic and diluted net loss per common share

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.

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 September 30,

As of March 31,

Common Stock options

2 unchanged sentences

Recent Accounting Pronouncements

For the nine months ended September 30, 2023, 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.

For the quarter ended March 31, 2024, 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

The following provides certain balance sheet details:

September 30,

Prepaid expenses and other current assets:

1 unchanged sentence

Prepaid research and development costs

Prepaid other

Interest receivable

Prepaid other and other current assets

Total prepaid expenses and other current assets

2 unchanged sentences

Accrued compensation and benefits

Accrued legal fees

Accrued other

1 unchanged sentence

Equity Securities

A summary of the Company’s equity securities as of March 31, 2024, is as follows:

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.

Related to the November 2023 Inducement, as of December 31, 2023, the Holder left 2,730,000 shares in abeyance at the Company’s transfer agent to be delivered to the Holder at their request, which were then delivered to the Holder on January 8, 2024 .

Accordingly, as of December 31, 2023, 2,730,000 shares were held in abeyance, which were not issued and not outstanding.

As of March 31, 2024, no shares were held in abeyance.

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 .

1 unchanged sentence

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, and no May 2023 Pre-Funded Warrants were outstanding as of September 30, 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 “Series A Common Warrants”) to purchase up to an aggregate of 1,618,123 shares of Common Stock, and (iv) Series B warrants (the “Series B Common Warrants” and collectively with the Series A Warrants, the “2023 Offering Warrants”) to purchase up to an aggregate of 1,618,123 shares of Common Stock.

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

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 no March 2023 Pre-Funded Warrants were outstanding as of September 30, 2023.

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 April 2022 PIPE Common Warrants related to the private placement were to expire on May 12, 2027.

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 no April 2022 PIPE Pre-Funded Warrants were outstanding as of December 31, 2022, or September 30, 2023.

In connection with the March 2023 Offering, the Company agreed to amend the terms of the April 2022 PIPE Common Warrants, which are 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 resulted in an increase in additional paid-in capital since the warrants are equity classified before and after the modification in connection with the March 2023 Offering.

Stockholders’ Agreements

On March 13, 2023, the Company filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware on March 14, 2023, a 1-for-16 reverse stock split of the Company’s issued and outstanding shares of Common Stock.

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.

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.

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 September 30, 2023, or December 31, 2022.

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 Accounting Standards Codification, or ASC, 480 Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging.

Additional accounting guidance regarding modifications is provided in Accounting Standards Update, or 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), effective as of January 1, 2022.

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.

Common and Pre-Funded Warrants issued in the May 2023 PIPE

In May 2023, the Company completed the 2023 PIPE, in which it sold 458,555 shares of its Common Stock together with 342,322 May 2023 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, and 800,877 May 2023 PIPE Common Warrants to purchase up to an aggregate of 800,877 shares of Common Stock with an exercise price of $ 2.16 per share, at a combined offering price of $ 2.285 .

Each May 2023 Common Warrant is immediately exercisable at the option of the holder and expires November 27, 2028 .

In connection with the 2023 PIPE, the Company issued Placement Agent Warrants to purchase up to 56,061 shares of Common Stock at an exercise price equal to $ 2.8563 per share (the “May 2023 PIPE Placement Agent Warrants”).

The May 2023 PIPE Placement Agent Warrants are exercisable immediately upon issuance and expire on May 23, 2028 .

During the second quarter of 2023, all 342,322 of the May 2023 Pre-Funded Warrants were exercised.

No additional May 2023 Pre-Funded Warrants are outstanding as of September 30, 2023.

Common and Pre-Funded Warrants issued with March 2023 Offering

In March 2023, the Company completed the March 2023 Offering, in which it sold 85,000 shares of its Common Stock together with 1,533,123 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, and 1,618,123 Series A Common Warrants to purchase up to an aggregate of 1,618,123 shares of Common Stock with an exercise price of $ 2.82 per share, and 1,618,123 Series B Common Warrants to purchase up to an aggregate of 1,618,123 shares of Common Stock with an exercise price of $ 2.82 per share, at a combined offering price of $ 3.09 .

Each Series A Common Warrant is immediately exercisable at the option of the holder and expires March 20, 2028.

Each Series B Common Warrant is immediately exercisable at the option of the holder and expires July 20, 2025 .

In connection with the March 2023 Offering, the Company issued Placement Agent Warrants to purchase up to 113,269 shares of Common Stock at an exercise price equal to $ 3.8625 per share (the “March 2023 Offering Placement Agent Warrants”).

The March 2023 Offering Placement Agent Warrants are exercisable immediately upon issuance and expire on March 16, 2028.

During the first quarter of 2023, 1,533,123 of the 2023 Pre-Funded Warrants were exercised.

No additional March 2023 Pre-Funded Warrants are outstanding as of September 30, 2023.

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 March 31, 2024 or December 31, 2023, respectively.

Summary of Warrants Outstanding

The table below lists outstanding warrants for the dates presented.

The aggregate intrinsic value of warrants outstanding as of September 30, 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, which was $ 1.06 per share.

The intrinsic value of warrants outstanding as of September 30, 2023, was zero due to the warrants' exercise prices above market value.

The warrants outstanding at March 31, 2024 are exercisable into 8,358,697 shares of common stock which had a fair value of $ 0.4108 per share, based on the closing trading price on March 28, 2024.

The aggregate intrinsic value of warrants outstanding as of March 31, 2024, 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 March 31, 2024, was zero due to the warrants’ exercise prices being above market value.

Quantity of Warrants Outstanding as of

September 30, 2023

March 31, 2024

December 31, 2023

Exercise Price

Expiration Date

Pre-IPO Series 1a Warrants

1 unchanged sentence

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

1 unchanged sentence

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 Accounting Standards Update 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”).

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”), 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.

Under the Company’s 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.

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.

Further, effective January 1 each year, an evergreen provision contained in the Company’s 2021 Plan increases 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 the prior calendar year.

This evergreen provision resulted in an additional 39,308 and 7,701 shares of Common Stock issuable pursuant to the 2021 Plan as of January 1, 2024, and 2023, respectively.

The total authorized shares available for issuance under the 2021 Plan was 115,919 as of January 1, 2023.

At the Company’s 2023 Annual Meeting of Stockholders held on August 3, 2023, the Company’s stockholders approved an amendment (the “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 September 30, 2023, there remain 513,277 shares reserved for issuance under the 2021 Plan, as amended.

As of March 31, 2024, there remain 205,108 shares reserved for issuance under the 2021 Plan, as amended.

Fair Value Measurement

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Fair Value of Common Stock.

The estimated fair value of the Common Stock underlying the Company’s stock option plan was determined by management by considering various factors as discussed below.

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:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Grant date fair value

Risk-free rate

Risk-free interest rate

Dividend yield

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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.

The following table summarizes the total stock-based compensation expense related to stock options and RSUs included in the Company’s statements of operations:

Three Months Ended September 30,

Nine Months Ended

September 30,

The following table summarizes the total stock-based compensation expense related to stock options included in the Company’s statements of operations:

Three Months Ended

Research and development

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Stock Option Award Activity

A summary of the Company’s Equity Plan stock option activity is as follows:

A summary of the Company’s 2021 Plan stock option activity is as follows:

Balance at December 31, 2023

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Options cancelled

Balance at September 30, 2023

Options exercisable at September 30, 2023

The aggregate intrinsic value of options exercisable as of September 30, 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 $ 1.06 per share.

The intrinsic value of options outstanding and exercisable as of September 30, 2023, was zero.

As of September 30, 2023, total unrecognized compensation cost related to stock options was approximately $ 0.8 million and the weighted average period over which this cost is expected to be recognized is 1.8 years.

Balance at March 31, 2024

Options exercisable at March 31, 2024

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, 101,831 of the 102,074 stock options outstanding as of December 31, 2023, were cancelled in February 2024 .

In accordance with accounting guidance provided in ASC 718, since the stock option cancellations were not accompanied by a concurrent grant, or offer to grant, a replacement award, any unrecognized compensation cost was recognized at the cancellation date.

Accordingly, the Company recognized stock-based compensation expense of $ 568,372 resulting from the stock option cancellation during the first quarter of 2024.

The aggregate intrinsic value of options outstanding and exercisable as of March 31, 2024, 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 March 28, 2024, which was $ 0.4108 per share.

The intrinsic value of options outstanding and exercisable as of March 31, 2024, was zero.

As of March 31, 2024, total unrecognized compensation cost related to stock options was approximately $ 0.2 million and the weighted average period over which this cost is expected to be recognized is 1.8 years.

Commitments and Contingencies

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, and which has a 30-day termination notice period.

As of March 31, 2024, the Company has recognized $ 1.4 million in expense for the STAR-1 trial.

Supplier Agreement

As a result of Russia’s invasion of Ukraine, the United States, the United Kingdom, and the European Union governments, among others, have developed coordinated sanctions and export-control measure packages against Russian individuals and entities.

The Company is currently a party to an exclusive supply agreement for the supply of the Spongilla raw material used in DMT310 and DMT410.

The counterparty to this supply agreement is a Russian entity.

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 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

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The Second Amendment includes customary terms relating to, among others, indemnification, intellectual property protection, confidentiality, remedies, and warranties.

Supplier Agreement

The Company is currently a party to an exclusive supply agreement for the supply of the Spongilla raw material used in DMT310 and DMT410.

The counterparty to this supply agreement is a Russian entity.

The Company has received multiple shipments of raw material from its supplier, 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.

As of March 31, 2024, 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 March 31, 2024.

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.

Subsequent Events

On May 7, 2024, the Company held its 2024 annual meeting of stockholders (the “2024 Annual Stockholder Meeting”) at which time the Company’s stockholders approved amendments to the 2021 Omnibus Equity Incentive Plan to (i) increase the number of shares reserved for issuance under the plan to from 629,069 to 1,198,951 shares and (ii) increase the annual evergreen percentage from 1% to 5%.

Also at the 2024 Annual Stockholder Meeting, the Company’s stockholders approved an amendment to its Amended and Restated Certificate of Incorporation to affect a reverse stock split of the issued and outstanding shares of the Company’s common stock at a specific ratio, ranging from one-for-five (1:5) to one-for-thirty (1:30) , with the exact ratio to be determined by the Company’s board of directors without further approval or authorization of the Company’s stockholders.

On May 8, 2024, the Company’s Board set and approved a reverse split ratio of one-for-fifteen (1:15) and authorized the Company’s management to effect the reverse stock split on May 16, 2024 (the “2024 Reverse Stock Split”).

The financial statements contained herein do not reflect the 2024 Reverse Stock Split as the 2024 Reverse Stock Split will not have become effective as of the date of the issuance of these financial statements.

As previously reported, on November 15, 2023, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s Common Stock for the prior 30 consecutive business days, the Company was not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on Nasdaq, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”).

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided a grace period of 180 days, or until May 13, 2024, to regain compliance with the Minimum Bid Price Requirement.

On May 14, 2024, the Company received a letter from Nasdaq advising that the Company had been granted a 180-day extension to November 11, 2024, to regain compliance with the Minimum Bid Price Requirement.

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-Q

Item 1. Financial Statements