While, as a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, we are not required to provide updated quarterly information under this Item, we are providing the below disclosure as additional material risks we face.
−Removed: For additional information regarding factors that could affect our business, results of operations, financial condition and liquidity, see the risk factors discussed under Part I, Item 1A included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 29, 2022.
−Removed: Risks Relating to Owning Our Common Stock
−Removed: There is uncertainty about our ability to continue as a going concern.
−Removed: We have sustained operating losses for the majority of our corporate history and expect that our 2022 expenses will exceed our 2022 revenues, as we continue to invest in our Avenova and DERMAdoctor commercialization efforts.
−Removed: Our operating cash flow is not sufficient to support our ongoing operations, and we expect to continue incurring operating losses and negative cash flows until revenues reach a level sufficient to support ongoing growth and operations.
−Removed: We expect that the net proceeds from the 2022 Warrant Reprice Transaction may only provide adequate working capital into at least the second quarter of 2023, or into at least the fourth quarter of 2023, assuming the completion of the 2022 Private Placement.
−Removed: As such, additional funding or substantial revenue growth will be needed in both the short- and long-term in order to pursue our business plan.
−Removed: These circumstances raise doubt about our ability to continue as a going concern, which depends on our ability to raise capital to fund our current operations.
−Removed: If we are unable to comply with the continued listing requirements of the NYSE American and satisfy the obligations set forth in the Deficiency Letter, then our common stock would be delisted from the NYSE American, which would limit investors ’
−Removed: ability to effect transactions in our common stock and subject us to additional trading restrictions.
−Removed: Our common stock is currently listed on the NYSE American.
−Removed: In order to maintain our listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of stockholders’
−Removed: equity and a minimum number of public stockholders.
−Removed: In addition to these objective standards, NYSE American may delist the securities of any issuer for other reasons involving the judgment of NYSE American.
−Removed: For example, the NYSE American Company Guide (the “Company Guide”) provides that the NYSE American may suspend or remove from listing any common stock selling for a substantial period of time at a low price per share, if the issuer shall fail to effect a reverse split of such shares within a reasonable time after being notified that NYSE American deems such action to be appropriate under all the circumstances.
−Removed: On October 3, 2022, we received a notification (“Deficiency Letter”) from the NYSE American stating that we are not in compliance with certain NYSE American continued listing standards.
−Removed: Specifically, the Deficiency Letter indicated that the Company is not in compliance with Section 1003(f)(v) of the Company Guide because the NYSE American staff determined that our common stock has been selling for a low price per share for a substantial period of time.
−Removed: Pursuant to Section 1003(f)(v) of the Company Guide and as provided in the Deficiency Letter, the Company’s continued listing is predicated on it effecting the Reverse Stock Split of its common stock or otherwise demonstrating sustained price improvement within a reasonable period of time, which the NYSE American staff determined to be no later than April 3, 2023.
−Removed: The Deficiency Letter further stated that as a result of the foregoing, the Company has become subject to the procedures and requirements of Section 1009 of the Company Guide, which could, among other things, result in the initiation of delisting proceedings, unless we cure the deficiency in a timely manner.
−Removed: Our Board of Directors has unanimously approved, and has recommended that our stockholders approve, an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, to effect the Reverse Stock Split, which stockholders subsequently approved on November 10, 2022.
−Removed: However, we cannot assure you that the Reverse Stock Split will be sufficient to enable the Company to maintain its listing on the NYSE American.
−Removed: Therefore, there is a continued risk that our common stock will be delisted if action is not taken to the satisfaction of the NYSE American.
−Removed: If the NYSE American delists our common stock from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect the common stock would qualify to be quoted on an over-the-counter market.
−Removed: If this were to occur, we could face significant material adverse consequences, including:
−Removed: a limited availability of market quotations for our securities;
−Removed: reduced liquidity for our securities;
−Removed: substantially impair our ability to raise additional funds;
−Removed: result in a loss of institutional investor interest and a decreased ability to issue additional securities or obtain additional financing in the future;
−Removed: a determination that our common stock is a “penny stock,” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
−Removed: a limited amount of news and analyst coverage;
−Removed: potential breaches of representations or covenants of our agreements pursuant to which we made representations or covenants relating to our compliance with applicable listing requirements, which, regardless of merit, could result in costly litigation, significant liabilities and diversion of our management’s time and attention and could have a material adverse effect on our financial condition, business and results of operations.
−Removed: The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.”
−Removed: Because our common stock is listed on the NYSE American, our common stock qualifies as a covered securities under such statute.
−Removed: Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case.
−Removed: If we were no longer listed on the NYSE American, our common stock would not be a covered security and we would be subject to regulation in each state in which we offer our securities.
−Removed: Risks Related to the 2022 Warrant Reprice Transaction and 2022 Private Placement
−Removed: As a result of the warrants that we issued in connection with the 2022 Warrant Reprice Transaction and the securities we expect to issue in the 2022 Private Placement, our stockholders will experience significant dilution as a result of the issuance of shares of our common stock upon future exercise of the related warrants, and if issued, the conversion of the Series C Preferred Stock.
−Removed: When exercisable, the November 2021 Warrants, as amended, and the Amended July 2020 Warrants, will be exercisable for 30,825,000 underlying shares of common stock and the September 2022 Warrants will be exercisable for 11,475,000 underlying shares of common stock.
−Removed: In addition, upon completion of the 2022 Private Placement, 3,250 shares of Series C Preferred Stock will be issued and will be immediately convertible into 18,057,000 shares of common stock (subject to potential increase or other adjustment in the number of shares due to applicable anti-dilution adjustments), the Series A-1 Warrants will be exercisable for 18,055,557 underlying shares of common stock and the Series A-2 Warrants will be exercisable for 18,055,557 underlying shares of common stock.
−Removed: Accordingly, as a result of the 2022 Warrant Reprice Transaction and, if completed, the 2022 Private Placement, an aggregate of 96,468,114 shares of common stock could become issuable, subject to potential increase in the number of shares due to applicable anti-dilution adjustments.
−Removed: Also, an additional 35,510,720 shares of common stock became issuable upon conversion of the Series B Preferred Stock as a result of the automatic anti-dilution adjustment that occurred pursuant to of the Certificate of Designation for the Series B Preferred Stock.
−Removed: Accordingly, upon the conversion or exercise (as applicable) of some or all of the securities issued in the 2022 Warrant Reprice Transaction, or to be issued in the 2022 Private Placement, the percentage ownership and voting power held by our existing stockholders will be significantly reduced and our stockholders will experience significant dilution.
−Removed: In addition, if the Reverse Stock Split is effected, there will be a significant number of additional authorized shares of common stock that we may issue in the future, which our Board of Directors will have discretion to issue in the future, including, without limitation, in connection with future capital raise transactions and financings, except to the extent prohibited or limited for a period of time by the terms of the 2022 Private Placement.
−Removed: Stockholders will not have a right to approve any such issuances or transactions, unless required by our governing documents or applicable law, and any such issuance of our common stock in the future may be dilutive to stockholders.
−Removed: If we offer common stock or other securities in the future and the price that we sell those securities for is less than the current conversion price of our Series B Preferred Stock that was recently adjusted or, when and if issued, the Series C Preferred Stock, then we will be required to issue additional shares of common stock to the holders of the Series B Preferred Stock and/or Series C Preferred Stock, as the case may be, upon conversion, which will be dilutive to all of our other stockholders.
−Removed: The Certificate of Designation for the Series B Preferred Stock contains, and the Certificate of Designation for the Series C Preferred Stock is expected to contain, anti-dilution provisions that require the lowering of the conversion price, as then in effect, to the purchase price of equity or equity-linked securities issued by us in subsequent offerings, if lower than the current conversion price.
−Removed: A reduction in the conversion price of either series of preferred stock will result in a greater number of shares of common stock being issuable upon conversion of such preferred stock for no additional consideration, causing greater dilution to our stockholders.
−Removed: For example, as described above, the consummation of the 2022 Warrant Reprice Transactions triggered the anti-dilution protection in the Series B Certificate of Designation, and as a result there are now an additional 35,510,720 shares of common stock that are issuable upon conversion of the shares of Series B Preferred Stock outstanding as of the date of this prospectus.
−Removed: Furthermore, as there is no floor on the conversion price, we cannot determine the total number of shares issuable upon conversion.
−Removed: In addition, it is possible that when the Reverse Stock Split becomes effective, we may not have a sufficient number of authorized and available shares to satisfy the conversion of the Series B Preferred Stock and/or Series C Preferred Stock, as the case may be, if we enter into a future transaction that reduces the applicable conversion price.
−Removed: Risks Relating to the Proposed Reverse Stock Split
−Removed: The proposed Reverse Stock Split, if effected, may not increase our stock price, and could lead to a decrease in our overall market capitalization.
−Removed: We expect that the Reverse Stock Split, if effected, will increase the per share trading price of our common stock.
−Removed: However, the market price per share of our common stock after the Reverse Stock Split may not rise (or remain constant) in proportion to the reduction in the number of shares of common stock outstanding before the Reverse Stock Split.
−Removed: We cannot predict the effect of the Reverse Stock Split on the per share trading price of our common stock, and the history of reverse stock splits for other companies is varied, particularly since some investors may view a reverse stock split negatively.
−Removed: In many cases, the market price of a company’s shares declines after a reverse stock split, or the market price of a company’s shares immediately after a reverse stock split does not reflect a proportionate or mathematical adjustment to the market price based on the ratio of the reverse stock split.
−Removed: Accordingly, our total market capitalization after the Reverse Stock Split, if approved and effective, may be lower than our total market capitalization before the Reverse Stock Split, and it is possible that the Reverse Stock Split may not result in a per share trading price that would attract investors who do not trade in lower priced stocks.
−Removed: Even if the Reverse Stock Split is implemented, the per share trading price of our common stock may decrease due to factors unrelated to the Reverse Stock Split.
−Removed: Other factors, such as our financial results, market conditions and the market perception of our business, may adversely affect the per share trading price of our common stock.
−Removed: As a result, we cannot assure you that the Reverse Stock Split, if completed, will result in the benefits that we anticipate, that the per share trading price of our common stock will increase following the Reverse Stock Split or that the per share trading price of our common stock will not decrease in the future.
−Removed: The proposed Reverse Stock Split, if approved by stockholders and effected, may decrease the liquidity of our common stock.
−Removed: The liquidity of our common stock may be harmed by the proposed Reverse Stock Split, given the reduced number of shares that would be outstanding after the Reverse Stock Split, particularly if the per share trading price does not increase proportionately as a result of the Reverse Stock Split.
−Removed: While our Board of Directors believes that a higher stock price may help generate the interest of new investors, the Reverse Stock Split may not result in a per-share price that will attract certain types of investors, such as institutional investors or investment funds, and such share price may not satisfy the investing guidelines of institutional investors or investment funds.
−Removed: As a result, the trading liquidity of our common stock may not improve as a result of a Reverse Stock Split and could be adversely affect by a higher per share price.
−Removed: Accordingly, the Reverse Stock Split may not increase marketability of our common stock.
−Removed: In addition, investors might consider the increased proportion of unissued authorized shares to issued shares to have an anti-takeover effect under certain circumstances, because the proportion allows for dilutive issuances that could prevent certain stockholders from changing the composition of the Board of Directors or render tender offers for a combination with another entity more difficult.
−Removed: The proposed Reverse Stock Split, if effected, may result in some stockholders owning “
−Removed: odd lots ”
−Removed: that may be more difficult to sell or require greater transaction costs per share to sell.
−Removed: If the proposed Reverse Stock Split is implemented, it will increase the number of stockholders who own “odd lots”
−Removed: of less than 100 shares of common stock.
−Removed: A purchase or sale of less than 100 shares of common stock may result in incrementally higher trading costs through certain brokers, particularly “full service”
−Removed: Therefore, those stockholders who own less than 100 shares of our common stock following the Reverse Stock Split may be required to pay higher transaction costs if they sell their shares of common stock.
−Removed: The proposed Reverse Stock Split, if effected, will result in a significant increase in our authorized common stock and may result in future dilution to our stockholders.
−Removed: The Reverse Stock Split will reduce the number of outstanding shares of our common stock without a proportionate reduction in the number of shares of authorized but unissued common stock in the Company’s Amended and Restated Certificate of Incorporation, as amended,, which will give the Company a significantly larger number of authorized shares, as a percentage of total outstanding shares, available for future issuance without further stockholder action, except as may be required by applicable laws or the rules of any stock exchange on which our common stock is listed.
−Removed: The issuance of additional shares of common stock may have a dilutive effect on the ownership of existing stockholders.
−Removed: UNRESOLVED STAFF COMMENTS
−Removed: Not Applicable.
+Added: For information regarding factors that could affect our business, results of operations, financial condition and liquidity, see the risk factors discussed under Part I, Item 1A included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 31, 2023. 
+Added: Risk Relating to the Debentures
+Added: We have debt, which is secured by all of our assets, and defaulting on such debt may have a material adverse effect on the Company.
+Added: The Debentures represent outstanding secured convertible notes of the Company.
+Added: Pursuant to the Security Agreement and Subsidiary Guarantee, all of our assets, including our accounts receivable and general intangibles, including all inventory, machinery, equipment, furniture and fixtures and the products and proceeds of all the foregoing, have been pledged as collateral to secure the repayment of the Debentures.
+Added: If we are unable to repay these Debentures or if another type of event of default occurs, a decision by the holders of the Debentures to foreclose on their security interest would materially and adversely affect our future.
+Added: The issuance of our Common Stock in connection with the conversion of the Debentures would cause substantial dilution, and could materially affect the trading price of our common shares.
+Added: There is an aggregate principal amount of $3.3 million outstanding under the Debentures.
+Added: To the extent we or the holders of the Debentures converts the Debentures into our Common Stock, including for more shares of Common Stock than we currently anticipate due to the monthly redemption provision in the Debentures and the trading price of our Common Stock potentially declining, substantial amounts of our Common Stock will be issued.
+Added: Such issuances could result in substantial decreases to our stock price and dilution to our existing shareholders.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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