Stablecoin Development Corp 10-K

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   Market Information   Our common stock is listed on the NYSE American, under the symbol “NBY.”   Holders   As of March 24, 2022, there were approximately 123 holders of record of our common stock. This figure does not reflect persons or entities that hold their stock in nominee or “street” name through various brokerage firms.   Dividend Policy   We have not paid cash dividends on our common stock since our inception. We currently expect to retain earnings primarily for use in the operation and expansion of our business; therefore, we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, restrictions under any existing indebtedness and other factors the Board of Directors deems relevant.   ITEM 6.   [RESERVED]   ITEM  7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in Part II, Item 8   of this report. This discussion contains forward-looking statements that involve risks and uncertainties. Words such as "expects," "anticipated," "will," " may ," "goals," "plans," "believes," "estimates," "concludes," determines," variations of these   words, and similar expressions are intended to identify these forward-looking statements. As a result of many factors, including those set forth under the section entitled "Risk Factors" in Item   1A. and elsewhere in this report, our actual results may differ materially from those anticipated in these forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions based upon assumptions made that we believed to be reasonable at the time and are subject to risks and uncertainties. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements.   Overview     We are a company focused on the development and sale of scientifically-created and clinically-proven eyecare and skincare products. Our portfolio of products includes a number of eyecare products under our Avenova brand, led by Avenova Spray which contains our proprietary, stable and pure form of hypochlorous acid, and over 30 dermatologist-developed skincare products under our DERMAdoctor brand, as further described in Item 1. (Business).   On November 5, 2021, we purchased DERMAdoctor, LLC (“DERMAdoctor”) (the “DERMAdoctor Acquisition”) for approximately $12.0 million as well as $3.0 million of contingent consideration payable in cash or our common stock over the next two years upon the achievement of certain contribution margin targets. For additional information regarding the DERMAdoctor Acquisition, see Note 3 “Business Combination” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report.   The DERMAdoctor Acquisition was funded, in part, through the sale of an aggregate of 15,000 shares of Preferred Stock (convertible into an aggregate of 37,500,000 shares of Common Stock) and the 2021 Warrants (exercisable for 37,500,000 shares of Common Stock) for an aggregate purchase price of $15.0 million. For additional information regarding the Preferred Stock and the 2021 Warrants, see Note 13, “Warrant Liability” and Note 14, “Stockholders’ Equity” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report.   In 2021, we also continued to expand our Avenova product offerings, including adding the following products under the Avenova eyecare brand: (1) Avenova Moist Heating Eye Compress and (2) the i-Chek. We expanded our distribution efforts through our partnership with ImprimisRx, one of the nation’s leading ophthalmology-focused pharmaceutical businesses to promote Avenova Spray.   Financial Overview and Outlook   We have incurred net losses and generated negative cash flows from operations since inception and expect to incur losses in the future as we continue to commercialize our eyecare and skincare products and integrate the DERMAdoctor business. Our net losses were $5.8 million and $11.0 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $141.9 million and current assets totaling $13.2 million.   We expect to grow commercial sales of Avenova and DERMAdoctor branded products through an expansion of domestic and international market penetration, with a particular focus on online channels, and the development of new product offerings under both brand names.   18 Table of Contents   Critical Accounting Policies and Estimates   Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. In preparing these consolidated financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. On an ongoing basis, we evaluate our estimates and judgments related to revenue recognition, research and development costs, patent costs, stock-based compensation, income taxes, earnout contingency, and warrant liability. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates.    While our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report, we believe that the following accounting policies are most critical to fully understanding and evaluating our reported financial results.   Allowance for Doubtful Accounts   The Company charges bad debt expense and records an allowance for doubtful accounts when management believes it to be unlikely that specific invoices will be collected. Management identifies amounts due that are in dispute, and it believes are unlikely to be collected. Management recorded no reserve for accounts receivable at December 31, 2021 and December 31, 2020.   Inventory   Inventory is comprised of (1) raw materials and supplies, such as bottles, packaging materials, labels, boxes, and pumps; (2) goods in progress; and (3) finished goods. We utilize contract manufacturers to produce our products and the price paid to these manufacturers is included in inventory. Inventory is stated at the lower of cost or estimated net realizable value determined by the first-in, first-out method. At December 31, 2021 and 2020, management had recorded an allowance for excess and obsolete inventory and lower of cost or estimated net realizable value adjustments of $641 thousand and $236 thousand, respectively.    Business Combinations     We account for business combinations using the acquisition method of accounting, in accordance with ASC 805, Business Combinations . The acquisition method requires identifiable assets acquired and liabilities assumed be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. The amount by which the fair value of consideration transferred as the purchase price exceeds the net fair value of assets acquired and liabilities assumed is recorded as goodwill.   The determination of estimated fair value requires us to make significant estimates and assumptions. These fair value determinations require judgment and involve the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, and asset lives, among other items.  As a result, we may record adjustments to the fair values of assets acquired and liabilities assumed within the measurement period (up to one year from the acquisition date) with the corresponding offset to goodwill.   Transaction costs associated with business combinations are expensed as they are incurred.   Goodwill and Intangible Assets   Goodwill represents the excess of the consideration transferred over the estimated fair value of assets acquired and liabilities assumed in a business combination. Intangible assets are measured at their respective fair values as of the acquisition date and may be subject to adjustment within the measurement period, which may be up to one year from the acquisition date. We do not amortize goodwill and intangible assets with indefinite useful lives. Goodwill and indefinite-lived intangible assets are tested for impairment annually, or more frequently if events or changes in circumstances indicate that it is more likely than not that the assets are impaired.   Intangible Asset   Fair Value (in thousands)     Useful Life (in years)     Amortization Method   Customer relationships   $ 290       7     Straight line   Trade secrets / product formulations     2,890       9     Straight line   Trade names     2,080     Indefinite       N/A     Goodwill     4,528     Indefinite       N/A         $ 9,788                     Valuation of Contingent Consideration Resulting from a Business Combination   In connection with certain acquisitions, we may be required to pay future consideration that is contingent upon the achievement of specified milestone events. We record contingent consideration resulting from a business combination at its fair value on the acquisition date. Each quarter thereafter, we revalue these obligations and record increases or decreases in their fair value within our consolidated statements of operations until such time as the specified milestone achievement period is complete.   Increases or decreases in fair value of the contingent consideration liabilities can result from updates to assumptions such as the expected timing or probability of achieving the specified milestones. Significant judgment is employed in determining these assumptions as of the acquisition date and for each subsequent period. Updates to assumptions could have a significant impact on our results of operations in any given period. Actual results may differ from estimates.   Impairment of Long-Lived Assets     The Company accounts for long-lived assets, other than goodwill and intangible assets, and operating lease right-of-use assets in accordance with ASC 360, Property, Plant and Equipment , which requires that companies consider whether events or changes in facts and circumstances, both internally and externally, may indicate that an impairment of long-lived assets held for use or right-of-use assets are present. The Company reviews long-lived assets and right-of-use assets for impairment at least annually or whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the asset, the assets are written down to their estimated fair values and the loss is recognized in the statements of operations. There were no impairment charges during the years ended December 31, 2021 and 2020, respectively.     19 Table of Contents   Leases   At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use assets may be required for items such as initial direct costs paid or incentives received.   The Company has elected to combine lease and non-lease components as a single component for all leases in which it is a lessee or a lessor. The lease expense is recognized over the expected term on a straight-line basis. Operating leases are recognized on the balance sheet as right-of-use assets, operating lease liabilities current and operating lease liabilities non-current.   Revenue Recognition   Revenue generated through the Company’s webstores, primarily Avenova.com and DERMAdoctor.com, is recognized upon fulfillment, which generally occurs upon delivery of the related products to multiple third-party carriers. Shipping and handling costs are expensed as incurred and included in cost of goods sold in the consolidated statements of operations and comprehensive loss. We present revenue net of sales taxes and refunds.   Revenue generated through third-party online retailers is also recognized upon fulfillment, which generally occurs upon delivery of the related products to a third-party carrier. We present revenue net of commissions and any related fulfillment and shipping fees charged by these partners. Fees paid to partners for promoting our product are expensed as incurred and are included in sales and marketing expenses within the operating expenses in the consolidated statements of operations and comprehensive loss.   The Company also generates Avenova Spray revenue through major pharmacy distribution partners. Product supply of Avenova Spray is the only performance obligation contained in these arrangements, and the Company recognizes product revenue upon transfer of control to its major distribution partners at the amount of consideration that the Company expects to be entitled to, generally upon delivery to the distributor on a “sell-in” basis. Upon recognition of product sales, contract liabilities are recorded for invoiced amounts that are subject to significant reversal, including product revenue allowances for cash consideration paid to customers for services, discounts, rebate programs, and product returns. The Company derives its rate of return from historical data and updates its return rate assumption quarterly. Payment for product supply is typically due 30 days after control transfers to the distributor.   Revenue generated through the Company’s partner pharmacies is recognized when control of the product transfers to the end customer.   Revenue for product sales to other retailers is generally recognized upon transfer of control to the retailer, which generally occurs upon delivery of the related products to a third-party carrier, net of estimated future product returns.   The following table summarizes the activity in the accounts related to product revenue allowances (in thousands):       Wholesaler/ Pharmacy fees     Cash discounts     Rebate     Returns     Total                                             Balance at December 31, 2020   $ (91 )   $ (10 )   $ 55     $ (527 )   $ (573 ) Current provision related to sales made during current period     (249 )     (60 )     (723 )     (819 )     (1,851 ) Payments     256       57       293       548       1,154   Balance at December 31, 2021   $ (84 )   $ (13 )   $ (375 )   $ (798 )   $ (1,270 )   20 Table of Contents   Cost   of   Goods   Sold   Cost of goods sold includes third-party manufacturing costs, shipping and handling costs, and other costs associated with products sold. Cost of goods sold also includes any necessary allowance for excess and obsolete inventory along with lower of cost and estimated net realizable value.   Research and Development Costs   The Company charges research and development costs to expense as incurred. These costs include all costs associated with research, development, and regulatory activities, including submissions to the Food and Drug Administration (“FDA”).   Stock-Based Compensation   The Company’s stock-based compensation includes grants of stock options and restricted stock units (“RSUs”) to employees, consultants and non-employee directors. The expense associated with these grants is recognized in the Company’s consolidated statements of stockholders’ equity based on their fair values as they are earned under the applicable vesting terms. For stock options granted, the fair value of the stock options is estimated using a Black-Scholes option pricing model. See Note 15, “Equity-Based Compensation” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report for further information regarding stock-based compensation expense and the assumptions used in estimating that expense. The Company accounts for RSUs issued to employees and non-employees (consultants and advisory board members) based on the fair market value of the Company’s common stock as of the date of issuance.   Income Taxes   The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion or the entire deferred tax asset will not be recognized.   Common Stock Warrant Liabilities   The Company accounts for common stock warrants issued in connection with its equity offerings in accordance with the provisions of Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity , and ASC 815,  Derivatives and Hedging .   The Company accounts for common stock warrants issued in connection with share-based compensation arrangements in accordance with the provisions of ASC 718, Stock Compensation, which encompasses the provisions of ASC 480, Distinguishing Liabilities from Equity .   The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).   For warrants that are classified as liabilities, the Company records the fair value of the warrants at each balance sheet date and records changes in the estimated fair value as a non-cash gain or loss in the consolidated statements of operations and comprehensive loss. The fair values of these warrants are determined using the Black-Scholes option pricing model, the Binomial Lattice (“Lattice”) valuation model, or the Monte Carlo simulation model where deemed appropriate. These values are subject to a significant degree of management’s judgment.   Recent Accounting Pronouncements   See Note 2, “Summary of Significant Accounting Policies”, in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report for information on recent accounting pronouncements.   21 Table of Contents   Results of Operations   Comparison of Years Ended December 31, 2021 and 2020       Year Ended December 31,     Dollar     Percent       2021     2020     Change     Change       (in thousands)     (in thousands)           Statement of Operations                                 Sales:                                 Product revenue, net   $ 8,397     $ 9,916     $ (1,519 )     (15 %) Other revenue, net     24       18       6       33 % Total sales, net     8,421       9,934       (1,513 )     (15 %)                                   Cost of goods sold     2,776       3,970       (1,194 )     (30 %) Gross profit     5,645       5,964       (319 )     (5 %)                                   Research and development     44       285       (241 )     (85 %) Sales and marketing     7,223       6,173       1,050       17 % General and administrative     7,240       5,932       1,308       22 % Total operating expenses     14,507       12,390       2,117       17 % Operating loss     (8,862 )     (6,426 )     (2,436 )     38 %                                   Non-cash gain (loss) on changes in fair value of warrant liability     4,615       (5,216 )     9,831       (188 %) Non-cash gain on changes in fair value of embedded derivative liability     -       3       (3 )     (100 %) Other (expense) income, net     (1,577 )     605       (2,182 )     (361 %)                                   Loss before provision for income taxes     (5,824 )     (11,034 )     5,210       (47 %) Provision for income taxes     -       (5 )     5       (100 %) Net loss and comprehensive loss   $ (5,824 )   $ (11,039 )   $ 5,215       (47 %)   Impact of DERMAdoctor Acquisition   The above results include the financial results of DERMAdoctor beginning at the time of the Acquisition Closing on November 5, 2021 (see Note 3, “Business Combination” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report) which includes product revenue, net, of $0.6 million, goods sold of $0.3 million, $0.2 million in sales and marketing costs and $0.3 million in general and administrative costs.   Total Net Sales, Cost of Goods Sold and Gross Profit   Product revenue, net, decreased by $1.5 million, or 15%, to $8.4 million for the year ended December 31, 2021, from $9.9 million for the year ended December 31, 2020. During the year ended December 31, 2020, we generated $3.1 million from the sale of KN95 Masks with no comparable revenue during the year ended December 31, 2021. We do not anticipate dedicating future Company resources toward the sale of KN95 Masks or other personal protective equipment and we do not expect any related future revenue.   Offsetting this decrease, revenue from Avenova Spray increased $0.8 million in 2021 from $6.0 million for the year ended December 31, 2020 to $6.8 million for the year ended December 31, 2021. The increase was the result of an overall increase in the number of Avenova Spray units sold. The increase in units sold reflects continued higher number of over-the-counter and physician dispensed units sold, partially offset by continued decrease in the number of units sold through pharmacy channels. The increase in over-the-counter units includes the impact of our ongoing focus and increasing spend on digital marketing and social media initiatives to promote Avenova Spray directly to end consumers. The overall increase in revenue due to unit sales was also partially offset by the lower average net selling price associated with over-the-counter and physician dispensed units as compared to units sold through our pharmacy channels.   We also recognized product revenue, net, of $0.6 million from the sale of DERMAdoctor products during the period after completion of the DERMAdoctor Acquisition on November 5, 2021, with no comparable revenue during the year ended December 31, 2020.   Cost of goods sold decreased by $1.2 million, or 30%, to $2.8 million for the year ended December 31, 2021, from $4.0 million for the year ended December 31, 2020. The decrease was primarily the result of cost of goods sold from the sale of KN95 Masks during the 2020 period, with no comparable cost in the 2021 period. This decrease was partially offset by the overall increase in the number of Avenova Spray units sold during the year ended December 31, 2021, as compared to the 2020 period. We also recognized cost of goods sold of $0.3 million from the sale of DERMAdoctor products during the period after completion of the DERMAdoctor Acquisition, with no comparable cost of goods sold during the year ended December 31, 2020.   22 Table of Contents   Gross profit decreased by $0.3 million, or 5%, to $5.6 million for the year ended December 31, 2021, from $6.0 million for the year ended December 31, 2020. The decrease reflects the lack of KN95 Mask sales during 2021, offset by an increase in sales of higher margin Avenova Spray during the 2021 period as well as the sale of DERMAdoctor products after the completion of the DERMAdoctor Acquisition.   Research and development     Research and development expenses decreased by $241 thousand, or 85%, to $44 thousand for the year ended December 31, 2021, from $285 thousand for the year ended December 31, 2020. The decrease was primarily the result of one-time regulatory expenses incurred in the 2020 period with no comparable expenditures in the 2021 period.   Sales and marketing   Sales and marketing expenses increased by $1.0 million, or 17%, to $7.2 million for the year ended December 31, 2021, from $6.2 million for the year ended December 31, 2020. This is reflective of an increase in marketing costs for Avenova branded products, primarily digital advertising, and costs associated with the Company’s relaunch of CelleRx Clinical Reset. Going forward, the Company anticipates focusing resources on the DERMAdoctor brand instead of driving growth of CelleRx Clinical Reset. The 2021 period also includes $0.2 million in sales and marketing costs incurred in connection with DERMAdoctor products during the period after the DERMAdoctor Acquisition on November 5, 2021 with no comparable expense during the year ended December 31, 2020. These increases were partially offset by a decrease in sales representative headcount and associated costs in the first quarter of 2021.   General and administrative     General and administrative expenses increased by $1.3 million, or 22%, to $7.2 million for the year ended December 31, 2021, from $5.9 million for the year ended December 31, 2020.   The increase was primarily a result of one-time costs incurred in conjunction with the DERMAdoctor Acquisition and the related financing during the year ended December 31, 2021 with no comparable expense in the 2020 period. Employee-related costs, consisting primarily of non-cash stock-based compensation costs, also increased in the 2021 period as compared to 2020. The 2021 period also includes $0.3 million in general and administrative costs incurred by DERMAdoctor during the period after the DERMAdoctor Acquisition on November 5, 2021 with no comparable costs during the year ended December 31, 2020.   These increases were partially offset overall by a decrease in 2021 in costs incurred in conjunction with a dispute with the Company’s former Interim President and Chief Executive Officer and Chief Financial Officer as further described in Note 10, “Commitments and Contingencies”, in the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report. The Company also received an insurance reimbursement for these costs which further reduced general and administrative costs in the 2021 period.   Non-cash gain (loss) on changes in fair value of warrant liability     The adjustments to the fair value of warrant liability resulted in a gain of $4.6 million for the year ended December 31, 2021 and a loss of $5.2 million for the year ended December 31, 2020. For additional information regarding the warrants and their valuation, please see Note 13, “Warrant Liability”, in the Notes to Consolidated Financial Statements, in Part II, Item 8 of this report.   Other   (expense) income, net   Other (expense) income, net, was a net expense of $1.6 million for the year ended December 31, 2021 as compared to a net income of $0.6 million for the year ended December 31, 2020. The expense of $1.6 million for the year ended December 31, 2021 represented issuance costs related to the 2021 Warrants. For additional information regarding the issuance of the 2021 Warrants, please see Note 14 “Stockholders’ Equity”. During the year ended December 31, 2020, the Company recorded income of $0.9 million as the result of income recognized as qualifying expenses incurred under the PPP Loan. Please see Note 20, “Paycheck Protection Program”, to the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report.   Comparison of Years Ended December 31, 2020 and 2019   For this discussion, see the “Comparison of Years Ended December 31, 2020 and 2019 in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.   Liquidity and Capital Resources     As of December 31, 2021, our cash and cash equivalents were $7.5 million, compared to $12.0 million as of December 31, 2020. Based primarily on the funds available at December 31, 2021, management believes that the Company’s existing cash and cash equivalents and cash flows generated from product sales will be sufficient to enable the Company to meet its planned operating expenses at least through March 29, 2023. However, changing circumstances may cause the Company to expend cash significantly faster than currently anticipated, and the Company may need to spend more cash than currently expected because of circumstances beyond its control that impact the broader economy such as the COVID-19 pandemic and the conflict between Russia and Ukraine.   23 Table of Contents   Cash Used in Operating Activities   Net cash used in operating activities was $9.2 million for the year ended December 31, 2021, which consisted primarily of a net loss of $5.8 million, adjusted primarily by non-cash gain of $4.6 million on the change in fair value of warrant liability, stock-based compensation expenses of $0.9 million, and a net decrease of $38 thousand in our net operating assets and liabilities.   Net cash used in operating activities was $4.7 million for the year ended December 31, 2020, which consisted primarily of a net loss of $11.0 million, adjusted primarily by non-cash loss of $5.2 million on the change in fair value of warrant liability, stock-based compensation expenses of $0.5 million, issuance of RSUs for services of $0.2 million, non-cash interest expense related to amortization of debt issuance cost and debt discount of $0.2 million, and a net increase of $0.2 million in our net operating assets and liabilities.   Cash Used in Investing Activities   For the years ended December 31, 2021, cash used in investing activities was $12.0 million which was primarily the result of $12.0 million, net of cash, paid at closing of the DERMAdoctor Acquisition (see Note 3, “Business Combination” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report). Capital expenditures were $52 thousand and $26 thousand for the years ended December 31, 2021 and 2020, respectively, for the purchase of property and equipment.    Cash Provided by Financing Activities   Net cash provided by financing activities was $17.0 million for the year ended December 31, 2021. The Company received net proceeds of $14.9 million from the 2021 Private Placement. Additionally, the Company received net proceeds of $1.8 million from an at-the-market offering and equity program (“ATM Program”) with Ladenburg Thalmann & Co. Inc. (“Ladenburg”). See Note 14, “Stockholders’ Equity” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report for further information regarding the 2021 Private Placement and the ATM Program.   Net cash provided by financing activities was $9.8 million for the year ended December 31, 2020. The Company received net proceeds of $5.2 million from an ATM Program, and an additional $7.1 million from the exercise of warrants. These amounts were offset by repayments of $1.5 million on the Convertible Note (as later defined) issued to Iliad Research and Trading L.P. and repayment of $1.0 million on the Promissory Note (as later defined), both paid using proceeds raised through an ATM Program with Ladenburg. See Note 14, “Stockholders’ Equity,” Note 12, “Convertible Note” and Note 11, “Related Party Note Payable” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report for further information regarding the ATM Program, Convertible Note and Promissory Note.   24 Table of Contents   Quarterly Results of Operations (unaudited)   The following table presents unaudited quarterly results of operations for the eight most recent quarters ending with the quarter ended December 31, 2021. This information has been derived from our unaudited consolidated financial statements and has been prepared by us on a basis consistent with our audited annual consolidated financial statements and includes all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the information for the periods presented.       Quarter Ended       December 31,     September 30,     June 30,     March 31,     December 31,     September 30,     June 30,     March 31,       2021     2021     2021     2021     2020     2020     2020     2020       (in thousands, except per share data)   Statements of Operations Data:                                                                 Sales:                                                                 Product revenue, net   $ 2,636     $ 1,834     $ 2,126     $ 1,801     $ 1,878     $ 2,167     $ 3,979     $ 1,892   Other revenue, net     5       6       7       6       10       3       5       —   Total sales, net     2,641       1,840       2,133       1,807       1,888       2,170       3,984       1,892                                                                     Cost of goods sold     1,214       493       614       455       813       536       2,040       581   Gross profit     1,427       1,347       1,519       1,352       1,075       1,634       1,944       1,311   Operating expenses:                                                                 Research and development     9       10       21       5       36       125       115       9   Sales and marketing     1,900       1,855       1,788       1,680       1,498       1,692       1,423       1,560   General and administrative     2,713       1,771       1,569       1,187       1,299       1,879       1,477       1,277   Total operating expenses     4,622       3,636       3,378       2,872       2,833       3,696       3,015       2,846   Operating loss     (3,195 )     (2,289 )     (1,859 )     (1,520 )     (1,758 )     (2,062 )     (1,071 )     (1,535 )                                                                   Non-cash gain (loss) on changes in fair value of warrant liability     4,615       —       —       —       8       (1,589 )     (3,772 )     137   Non-cash gain (loss) on changes in fair value of embedded derivative liability     —       —       —       —       —               —       2   Other (expense) income, net     (1,579 )     —       —       2       —       429       362       (186 ) Loss before provision for income taxes     (159 )     (2,289 )     (1,859 )     (1,518 )     (1,750 )     (3,221 )     (4,481 )     (1,582 ) Provision for income taxes     —       —       —       —       (4 )     —       (1 )     —   Net loss   $ (159 )   $ (2,289 )   $ (1,859 )   $ (1,518 )   $ (1,754 )   $ (3,221 )   $ (4,482 )   $ (1,582 )                                                                   Less: Preferred deemed dividend     735       —       —       —       —       —       —       —   Net loss attributable to common stockholders   $ (894 )   $ (2,289 )   $ (1,859 )   $ (1,518 )   $ (1,754 )   $ (3,221 )   $ (4,482 )   $ (1,582 )                                                                                                                                     Net loss per share attributable to common stockholders:                                                                 Basic and diluted   $ (0.02 )   $ (0.05 )   $ (0.04 )   $ (0.04 )   $ (0.04 )   $ (0.08 )   $ (0.15 )   $ (0.06 ) Shares used in computing net loss per share:                                                                 Basic and diluted     45,311       44,921       42,561       41,782       41,776       40,037       30,384       27,978     As of December 31, 2021, we had net operating loss carryforwards for federal and state income tax purposes of $125.9 million and $106.8 million, respectively. The federal net operating loss carryforwards consist of $94.9 million generated before January 1, 2018, which will begin to expire in 2024 and $31.0 million that will carryforward indefinitely but are subject to an 80% limitation for years following December 31, 2021. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) changed net loss carryforward provisions, allowing a full utilization of NOL carryforwards through December 31, 2020. The state net operating loss carryforwards will begin to expire in 2028. As of December 31, 2021, we also had tax credit carryforwards for federal income tax purposes of $1.3 million and $0.3 million for state tax purposes. If not utilized, the federal tax credits will begin expiring in 2026. The state tax credits have an indefinite carryover period.   Current federal and California tax laws include substantial restrictions on the utilization of net operating loss carryforwards in the event of an ownership change of a corporation. Accordingly, our ability to utilize net operating loss carryforwards may be limited as a result of such ownership changes. Such a limitation could result in the expiration of carryforwards before they are utilized.   25 Table of Contents   Inflation   We do not believe that inflation has had a material impact on our business and operating results during the periods presented, and we do not expect it to have a material impact in the near future, although there can be no assurances that our business will not be affected by inflation in the future.   Off-Balance Sheet Arrangements   We did not have any off-balance sheet arrangements at December 31, 2021 and December 31, 2020 as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.   Seasonality   Avenova Branded Products   Consistent with our peers in the United States pharmaceutical industry, prescriptions for Avenova Spray experience seasonality with the first quarter of each year typically being the lowest revenue quarter. This annual phenomenon is due to consumers facing the need to satisfy health insurance deductibles and changes to copays as each new insurance year begins. Sales of Avenova Spray through non-prescription channels, along with the other Avenova branded products, experience less seasonality with demands consistent throughout the year.   Dermatology/Skincare Products   Our DERMAdoctor products are sold through wholesale distribution relationships with third parties such as Costco, Amazon and others; therefore, we may receive periodic large orders that result in large chunks of revenue that are received in irregular intervals during the year. Historically sales of DERMAdoctor products that contain sunscreen and antiperspirants are higher in the summer seasons and sales of DERMAdoctor products that contain moisturizers are higher in the fall and winter months. In addition, DERMAdoctor products will typically experience an uptick in sales during the fourth quarter around the holidays of each country in which its products are sold, particularly in the United States and China.   Contractual Obligations   Our contractual cash commitments as of December 31, 2021 were as follows (in thousands):   Contractual Obligations   Less than 1 year     1-3 years     3-5 years     More than 5 years     Total   Facility leases   $ 203     $ 259     $ —     $ —     $ 462   Equipment leases     13       —       —       —       13   Total   $ 216     $ 259     $ —     $ —     $ 475     Our commitments as of December 31, 2021 consisted primarily of facility operating leases and an operating lease for two copiers.   The total commitment for the facility leases were $0.5 million due over the leases’ terms as of December 31, 2021 and December 31, 2020, respectively. Our corporate headquarters lease was subsequently amended on January 19, 2022, which included extending the lease term until 2027.   We had an operating lease for two copiers as of December 31, 2021. The total commitment for the lease as of December 31, 2021 was $13 thousand due over the lease terms, compared to $29 thousand as of December 31, 2020.   See Note 10, “Commitments and Contingencies” and Note 22, “Subsequent Events” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report for further information regarding these leases.