What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-09 compared with 2023-08-10 · 326 added, 258 removed, 1245 unchanged (32% of the section changed)

3 unchanged sentences

(in thousands, except par value amounts)

December 31,  

September 30,

Current assets:

2 unchanged sentences

$ 5,362  

Accounts receivable, net of allowance for credit losses ($ 3 and $ 19 at June 30, 2023 and December 31, 2022, respectively)

Inventory, net of allowance for excess and obsolete inventory and lower of cost or estimated net realizable value adjustments ($ 446 and $ 499 at June 30, 2023 and December 31, 2022, respectively)

Accounts receivable, net of allowance for credit losses ($ 3 and $ 19 at September 30, 2023 and December 31, 2022, respectively)

Inventory, net of allowance for excess and obsolete inventory and lower of cost or estimated net realizable value adjustments ($ 556 and $ 499 at September 30, 2023 and December 31, 2022, respectively)

Prepaid expenses and other current assets

1 unchanged sentence

11,332  

Operating lease right-of-use assets

7 unchanged sentences

$ 1,080  

Accrued liabilities

Convertible Notes, net

Embedded derivative liabilities

Operating lease liabilities

7 unchanged sentences

Series B Preferred Stock;

9 and 12 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

6 and 12 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

Series C Preferred Stock;

1 and 2 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

1 and 2 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

Common stock, $ 0.01 par value;

150,000 shares authorized, 4,214 and 2,035 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

150,000 shares authorized, 6,529 and 2,035 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively*

Additional paid-in capital*

7 unchanged sentences

$ 16,399  

After giving retroactive effect to a 1-for-35 reverse stock split that became effective November 15, 2022.

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

2 unchanged sentences

(in thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Product revenue, net

11 unchanged sentences

Non-cash gain on changes in fair value of contingent liability

Non-cash loss on modification of common stock warrants

Other expense, net

Retained earnings reduction related to preferred stock down round feature triggered

Increase to accumulated deficit due to adjustment to Series B Preferred Stock conversion price

Increase to accumulated deficit due to adjustment to Series C Preferred Stock conversion price

Net loss attributable to common stockholders

1 unchanged sentence

Weighted-average shares of common stock outstanding used in computing net loss per share of common stock (basic and diluted)*

After giving retroactive effect to a 1-for-35 reverse stock split that became effective November 15, 2022.

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

5 unchanged sentences

Balance at December 31, 2022

$ 2,973  

$ 165,713  

$ ( 158,152 )

$ 10,554  

Stock-based compensation expense related to employee and director stock awards

Balance at March 31, 2023

$ 2,973  

$ 165,788  

$ ( 159,891 )

$ 8,890  

Conversion of Series B Preferred Stock to common stock

1 unchanged sentence

Modification of common stock warrants

Down round feature adjustment related to Series B & C Preferred Stock

Adjustment of Series B Preferred Stock conversion price  

Adjustment of Series C Preferred Stock conversion price  

( 194 )  

Reclassification of May 2023 Warrants

2 unchanged sentences

Balance at June 30, 2023

$ 2,124  

$ 170,321  

$ ( 163,923 )

$ 8,563  

Conversion of Series B Preferred Stock to common stock

Reclassification of derivative liability

Stock-based compensation expense related to employee and director stock awards

Balance at September 30, 2023

$ 1,977  

$ 170,675  

$ ( 165,680 )

$ 7,037  

Preferred Stock

1 unchanged sentence

Balance at December 31, 2021

Reclassification of November 2021 Warrants

$ 151,365  

$ ( 141,887 )

$ 10,171  

Reclassification of November 2021 Warrants

Conversion of Series B Preferred Stock to common stock

1 unchanged sentence

Balance at March 31, 2022

$ 159,121  

$ ( 141,998 )

$ 17,746  

Conversion of Series B Preferred Stock to common stock

2 unchanged sentences

Balance at June 30, 2022

$ 159,313  

$ ( 144,153 )

$ 15,745  

Modification of common stock warrants

Exercise of warrants, net of offering costs

Reclassification of common stock warrants to liability

Adjustment of Series B Preferred Stock conversion price

Stock-based compensation expense related to employee and director stock awards

Balance at September 30, 2022

$ 163,142  

$ ( 149,946 )

$ 13,784  

After giving retroactive effect to a 1-for-35 reverse stock split that became effective November 15, 2022.

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

3 unchanged sentences

(In thousands)

Six Months Ended June 30

Nine Months Ended September 30

Operating activities:

3 unchanged sentences

Stock-based compensation expense related to employee and director stock awards

Modification of common stock warrants, included in Other expense

Non-cash loss on modification of common stock warrants

Non-cash gain on changes in fair value of warrant liability

16 unchanged sentences

Debt issuance cost

Proceeds from the exercise of warrants

Payment on the line of credit

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net change in cash, cash equivalents, and restricted cash

1 unchanged sentence

Cash, cash equivalents and restricted cash, end of period

Six Months Ended June 30,

$ 3,948  

$ 4,020  

Nine Months Ended September 30,

Supplemental disclosure of cash flow information:

Interest paid

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental disclosure of non-cash information:

Warrant liability transferred to equity

Addition of operating lease, right-of-use asset

Conversion of Series B Preferred Stock to common stock

Conversion of Series C Preferred Stock to common stock

Derivative liability transferred to equity

Adjustment of Series B Preferred Stock conversion price

Adjustment of Series C Preferred Stock conversion price

Equity transferred to warrant liability

Addition of operating lease, right-of-use asset

Reassessment of operating lease, right-of-use asset

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

5 unchanged sentences

Avenova Spray is available direct to consumers primarily through online distribution channels and is also available by prescription and dispensed by eyecare professionals for blepharitis and dry-eye disease.

Other eyecare products offered under the Avenova eyecare brand include Novawipes by Avenova, Avenova Lubricant Eye Drops, Avenova Moist Heating Eye Compress, and the i-Chek eyelid and eyelash mirror by Avenova.

Because dry eye is a complex condition, we offer a complementary portfolio of scientifically developed products for each step of the standard at home treatment regimen, including the Avenova Eye Health Support antioxidant-rich oral supplement, Avenova Lubricating Eye Drops for instant relief, NovaWipes by Avenova, Avenova Warm Eye Compress to soothe the eyes, and the i-Chek by Avenova to monitor physical eyelid health.

Through our subsidiary DERMAdoctor, LLC (“DERMAdoctor”), the Company offers over 30 dermatologist-developed products targeting common skin concerns, ranging from aging and blemishes to dry skin, perspiration and keratosis pilaris.

1 unchanged sentence

We acquired DERMAdoctor in November 2021 ( the “DERMAdoctor Acquisition”), and since completing this transaction we have been working to integrate and expand the DERMAdoctor business in order to achieve strategic objectives contemplated by the acquisition, including revenue growth, cost reductions and overall profitability.

The Company also manufactures and sells its proprietary form of hypochlorous acid for the wound care market through our NeutroPhase and PhaseOne branded products.

We also manufacture and sell our proprietary form of hypochlorous acid for the wound care market through our NeutroPhase and PhaseOne branded products.

NeutroPhase and PhaseOne are used for the cleansing and irrigation as part of surgical procedures, as well as treating certain wounds, burns, ulcers and other injuries.

13 unchanged sentences

Liquidity and Going Concern

Based primarily on the funds available on June 30, 2023 and the 2023 Private Placement, the Company believes that the Company’s existing cash and cash equivalents and cash flows generated from product sales will be sufficient to fund its existing operations, meet its planned operating expenses and to meet the Monthly Redemptions of the Convertible Notes (both as defined below) into at least the second quarter of 2024.

Based primarily on the funds available on September 30, 2023 and the 2023 Private Placement, the Company believes that the Company’s existing cash and cash equivalents and cash flows generated from product sales will be sufficient to fund its existing operations, meet its planned operating expenses and to meet the Monthly Redemptions of the Convertible Notes (both as defined below) into at least the second quarter of 2024.

The Company has sustained operating losses for the majority of its corporate history and expects that its 2023 expenses will exceed its 2023 revenues, as the Company continues to invest in both its Avenova and DERMAdoctor commercialization efforts.

35 unchanged sentences

The unaudited condensed consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period.

The condensed consolidated financial statements and notes included herein should be read in conjunction with the annual consolidated financial statements and notes for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2022, which was filed with the SEC on March 31, 2023.

1 to the Annual Report on Form 10 -K, which was filed with the SEC on April 28, 2023 ( collectively, the “Annual Report”).

Change in Accounting and Revision of Prior Period Financial Statements

9 unchanged sentences

During the third quarter of 2022, the Company concluded that these commissions relate to sales activity and began expensing them as incurred as sales and marketing expenses within the Company’s unaudited condensed consolidated statements of operations.

The identified error impacted the Company’s previously issued 2022 first and second quarter condensed consolidated financial statements, as well as the 2021 annual consolidated financial statements.

The identified error impacted the Company’s previously issued 2022 first and second quarter condensed consolidated financial statements.

Management believes that the impact of these adjustments to correct such error is immaterial to the previously issued consolidated financial statements, based on an evaluation of both quantitative and qualitative factors.

6 unchanged sentences

Cash and cash equivalents are stated at cost, which approximates fair value.

As of June 30, 2023 and December 31, 2022, the Company’s cash and cash equivalents were held in a major financial institution in the United States.

As of September 30, 2023 and December 31, 2022, the Company’s cash and cash equivalents were held in a major financial institution in the United States.

The following table provides a reconciliation of the cash, cash equivalents, and restricted cash reported in the condensed consolidated balance sheets (in thousands):

September 30,

Cash and cash equivalents

11 unchanged sentences

Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows.

During the three and six months ended June 30, 2023 and 2022, revenues were derived primarily from sales of Avenova and DERMAdoctor branded products, directly to consumers through Amazon.com, Avenova.com and DERMAdoctor.com.

During the three and six months ended June 30, 2023 and 2022, revenues from significant product categories were as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

During the three and nine months ended September 30, 2023 and 2022, revenues were derived primarily from sales of Avenova and DERMAdoctor branded products, directly to consumers through Amazon.com, Avenova.com and DERMAdoctor.com.

During the three and nine months ended September 30, 2023 and 2022, revenues from significant product categories were as follows (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Avenova Spray

5 unchanged sentences

Total product revenue, net

10,971  

10,743  

Other revenue, net

4 unchanged sentences

$ 10,761  

During the three months ended June 30, 2023 and 2022, sales of Avenova Spray via Amazon comprised 61 % and 69 % of total Avenova Spray net revenue, respectively.

During the six months ended June 30, 2023 and 2022, sales of Avenova Spray via Amazon comprised 68 % and 75 % of total Avenova Spray net revenue, respectively.

No other individual distributor comprised greater than 10% of total Avenova Spray net revenue during the three and six months ended June 30, 2023 or 2022.

As of June 30, 2023 and December 31, 2022, accounts receivable from our major distribution partners and major retailers greater than 10% were as follows:

During the three months ended September 30, 2023 and 2022, sales of Avenova Spray via Amazon comprised 66 % and 70 % of total Avenova Spray net revenue, respectively.

During the nine months ended September 30, 2023 and 2022, sales of Avenova Spray via Amazon comprised 68 % and 73 % of total Avenova Spray net revenue, respectively.

No other individual distributor comprised greater than 10% of total Avenova Spray net revenue during the three and nine months ended September 30, 2023 or 2022.

As of September 30, 2023 and December 31, 2022, accounts receivable from our major distribution partners and major retailers greater than 10% were as follows:

September 30,

Major distribution partner

Avenova Spray Pharmacy Distributor A

Major International Retailer A

Avenova Spray Pharmacy Distributor B

7 unchanged sentences

The Company’s cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments.

The Convertible Notes (as defined below) entered into on April 27, 2023 are carried at cost, which management believes approximates fair value.

Additionally, the derivative liability related to certain embedded features contained within the Convertible Notes, restricted cash, warrant liabilities, and contingent consideration are carried at fair value.

The Convertible Notes (as defined below) entered into on April 27, 2023 are carried at proceeds, net of discounts, which management believes approximates fair value.

The Company follows ASC 820, Fair Value Measurements and Disclosures , with respect to assets and liabilities that are measured at fair value on a recurring basis and nonrecurring basis.

15 unchanged sentences

The Company’s future collection experience can differ significantly from historical collection trends due to such factors as changing customer circumstances and uncertain economic and industry trends.

Management recorded a reserve for allowance for credit losses of $ 3 thousand and $ 19 thousand as of June 30, 2023 and December 31, 2022, respectively.

Management recorded a reserve for allowance for credit losses of $ 3 thousand and $ 19 thousand as of September 30, 2023 and December 31, 2022, respectively.

Inventory is comprised of ( 1 ) raw materials and supplies, such as bottles, packaging materials, labels, boxes and pumps;

3 unchanged sentences

Inventory is stated at the lower of cost or estimated net realizable value determined by the first -in, first -out method.

At June 30, 2023 and December 31, 2022, management had recorded an allowance for excess and obsolete inventory and lower of cost or estimated net realizable value adjustments of $ 446 thousand and $ 499 thousand, respectively.

At September 30, 2023 and December 31, 2022, management had recorded an allowance for excess and obsolete inventory and lower of cost or estimated net realizable value adjustments of $ 556 thousand and $ 499 thousand, respectively.

Property and Equipment, net

8 unchanged sentences

The Company did not record any goodwill or indefinite-lived asset impairment charges during the 

three and six months ended June 30, 2023 or 2022.

three and nine months ended September 30, 2023 or 2022.

Valuation of Contingent Consideration Resulting from a Business Combination

9 unchanged sentences

Additionally, we do not expect the financial target to be met for the calendar year 2023.

As a result, the liability recorded for potential earn out payments in the Company’s condensed consolidated balance sheets was zero as of June 30, 2023 and December 31, 2022.

As a result, the liability recorded for potential earn out payments in the Company’s condensed consolidated balance sheets was zero as of September 30, 2023 and December 31, 2022.

This amount is subject to change in the event that there are changes to our expectations and related valuation assumptions, which are valued using Level 3 fair value inputs.

6 unchanged sentences

The Company did not record any long-lived asset impairments during the 

three and six months ended June 30, 2023 or 2022.

three and nine months ended September 30, 2023 or 2022.

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.

38 unchanged sentences

Management believes that the impact of this error is immaterial to the previously issued consolidated financial statements, based on an evaluation of both quantitative and qualitative factors.

However, revisions to prior period amounts presented in this report have been made to conform to the current period presentation as outlined below.

The revisions had no impact on operating loss, net loss or net loss per share in the Company’s condensed consolidated statements of operations in the periods presented in this report or in previously issued annual consolidated financial statements.

The changes also did not impact cash or ending cash balances in the Company’s condensed consolidated balance sheets in the periods presented in this report or in previously issued annual consolidated financial statements.

Financial statement line items included in the condensed consolidated statements of operations for the three and six months ended June 30, 2022 were adjusted for the above changes as follows (in thousands, except per share amounts):

Three Months Ended June 30, 2022

Six Months Ended June 30, 2022

As Previously

Product revenue, net

$ 3,043  

$ 3,660  

$ 5,666  

$ 6,927  

Product cost of goods sold

Operating expenses

Sales and marketing

Net loss per share attributable to common stockholders (basic and diluted)

The Company also generates Avenova Spray revenue through major pharmacy distribution partners.

9 unchanged sentences

Revenue for product sales to other retailers is generally recognized upon transfer of control to the retailer, which generally occurs upon delivery of the products to a third -party carrier, net of estimated future product returns.

The Company may be required to defer recognition of revenue for upfront payments until it performs its obligations under these arrangements, and such amounts are recorded as deferred revenue upon receipt. Deferred revenue was $ 4 thousand as of June 30, 2023 and December 31, 2022, which is recorded within Accrued liabilities on the Company’s unaudited condensed consolidated balance sheets.

The Company may be required to defer recognition of revenue for upfront payments until it performs its obligations under these arrangements, and such amounts are recorded as deferred revenue upon receipt. Deferred revenue was $ 103 thousand and $ 4 thousand as of September 30, 2023 and December 31, 2022, respectively, which is recorded within Accrued liabilities on the Company’s unaudited condensed consolidated balance sheets.

Cost of goods sold includes third -party manufacturing costs, shipping and handling costs, third -party fulfillment fees, and other costs associated with products sold.

8 unchanged sentences

Advertising costs are included in sales and marketing expenses in the condensed consolidated statements of operations.

Advertising expenses were $ 0.3 million and $ 0.4 million for the three months ended June 30, 2023 and 2022, respectively.

Advertising expenses were $ 0.6 million and $ 1.0 million for the six months ended June 30, 2023 and 2022, respectively.

Advertising expenses were $ 0.3 million and $ 0.5 million for the three months ended September 30, 2023 and 2022, respectively.

Advertising expenses were $ 0.9 million and $ 1.6 million for the nine months ended September 30, 2023 and 2022, respectively.

Stock-Based Compensation

16 unchanged sentences

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 condensed consolidated statements of operations.

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.

The fair values of these warrants are determined using the Black-Scholes option pricing model.

These values are subject to a significant degree of management’s judgment.

6 unchanged sentences

The following table sets forth the calculation of basic EPS and diluted EPS (in thousands, except per share amounts):

Three Months Ended June 30,

Six Months Ended June 30,

Net loss  

$ 2,036  

$ ( 2,155 )  

$ ( 3,775 )  

Retained earnings reduction due to preferred stock down round feature triggered  

Three Months Ended

September 30,

Nine Months Ended

September 30,

Increase in accumulated deficit due to Series B Preferred Stock conversion price

( 5,657 )  

Increase in accumulated deficit due to Series C Preferred Stock conversion price

( 194 )  

2 unchanged sentences

Net loss per share (basic and diluted)

For the three and six months ended June 30, 2023 and 2022, Series B Convertible Preferred Stock (the “Series B Preferred Stock”) and the Series C Convertible Preferred Stock (the “Series C Preferred Stock”) were excluded from the computation of diluted net loss per share as their inclusion on an “if converted”

After giving retroactive effect to a 1 -for- 35 reverse stock split that became effective November 15, 2022.

For the three and nine months ended September 30, 2023 and 2022, Series B Non-Voting Convertible Preferred Stock (the “Series B Preferred Stock”) and the Series C Non-Voting Convertible Preferred Stock (the “Series C Preferred Stock”) were excluded from the computation of diluted net loss per share as their inclusion on an “if converted”

basis would have been anti-dilutive.

1 unchanged sentence

The following outstanding preferred stock, stock options and stock warrants were excluded from the diluted EPS computation as their effect would have been anti-dilutive (in thousands):

As of June 30,

As of September 30,

Series B Preferred Stock

5 unchanged sentences

For information regarding recent accounting pronouncements that could affect our business, results of operations, financial condition, and liquidity, see Note 2, “Summary of Significant Accounting Policies”

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.

included in the Annual Report.

The Company continues to evaluate the potential impact of adopting the new accounting guidance on its consolidated financial position, results of operations and cash flows.

9 unchanged sentences

As a result of certain call and put options within the Convertible Notes entered into in April 2023, the Company recorded a combined embedded derivative liability on its consolidated balance sheet with a corresponding debt discount which is netted against the face value of the Convertible Notes.

The fair value of the embedded derivative liability is classified within Level 2 of the fair value hierarchy because the stock price used in the related Black Sholes valuation model is adjusted for the dilutive effect of the 2023 Private Placement.

The fair value of the embedded derivative liability was classified within Level 2 of the fair value hierarchy because the stock price used in the related Black Sholes valuation model is adjusted for the dilutive effect of the 2023 Private Placement.

This price was also used in the fair value models used by the Company to value the 2023 Warrants issued in conjunction with the 2023 Private Placement as well as in accounting for the warrant amendment and preferred stock conversion price adjustments that resulted from the 2023 Private Placement.

5 unchanged sentences

for further discussion of related fair value calculations.

The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of June 30, 2023 ( in thousands):

The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of September 30, 2023 ( in thousands):

Fair Value Measurements Using

for Identical

September 30,

Restricted cash held as a certificate of deposit

Deposit held as a certificate of deposit

Combined embedded derivative liability

Total liabilities

The following table presents the Company’s cash equivalent assets measured at fair value on a recurring basis as of December 31, 2022 ( in thousands):

5 unchanged sentences

Prepaid expenses and other current assets consisted of the following (in thousands):

September 30,

Prepaid inventory

6 unchanged sentences

Inventory consisted of the following (in thousands):

September 30,

Raw materials and supplies

8 unchanged sentences

Property and equipment consisted of the following (in thousands):

September 30,

Office and laboratory equipment

5 unchanged sentences

Total property and equipment, net

Depreciation expenses were $ 13 thousand and $ 29 thousand for the three months ended June 30, 2023 and 2022, respectively, and $ 26 thousand and $ 59 thousand for the six months ended June 30, 2023 and 2022, respectively.

Depreciation expenses were $ 13 thousand and $ 29 thousand for the three months ended September 30, 2023 and 2022, respectively, and $ 39 thousand and $ 88 thousand for the nine months ended September 30, 2023 and 2022, respectively.

OTHER INTANGIBLE ASSETS

Other intangible assets consist of the following (in thousands):

Balance at June 30, 2023

Balance at September 30, 2023

Indefinite-lived intangible assets

20 unchanged sentences

caption in the Company’s consolidated statements of operations.

The Company did not record any intangible asset impairment charges for the three and six months ended June 30, 2023 or 2022.

Amortization expenses were $ 38 thousand and $ 91 thousand for the three months ended June 30, 2023 and 2022, respectively, and $ 76 thousand and $ 182 thousand for the six months ended June 30, 2023 and 2022, respectively.

Based on the amortizable intangible assets as of June 30, 2023, future amortization expenses are expected to be as follows (in thousands):

The Company did not record any intangible asset impairment charges for the three and nine months ended September 30, 2023 or 2022.

Amortization expenses were $ 38 thousand and $ 90 thousand for the three months ended September 30, 2023 and 2022, respectively, and $ 114 thousand and $ 272 thousand for the nine months ended September 30, 2023 and 2022, respectively.

Based on the amortizable intangible assets as of September 30, 2023, future amortization expenses are expected to be as follows (in thousands):

$ 1,056  

1 unchanged sentence

Accrued liabilities consisted of the following (in thousands):

September 30,

Contract liabilities (see Note 14)

3 unchanged sentences

Marketing costs

Accrued interest on Convertible Notes  

Inventory purchases

3 unchanged sentences

CONVERTIBLE NOTE

(ii) a new long-term Series B- 1 warrant exercisable for up to an aggregate of 2,538,464 shares of common stock through June 9, 2028 ( “Series B- 1 Warrants”), and (iii) a new short-term Series B- 2 warrant exercisable for up to an aggregate of 2,538,464 shares of common stock through June 9, 2025 ( “Series B- 2 Warrants” and, together with the Series B- 1 Warrants, the “May 2023 Warrants”).

On April 27, 2023, the Company entered into a Securities Purchase Agreement with existing accredited institutional investors (the “Purchasers”) of the Company that provided for the issuance and sale in a private placement (the “2023 Private Placement”) of (i) $ 3.3 million aggregate principal amount  (the “Aggregate Principal Amount”) of Original Issue Discount Senior Secured Convertible Debentures Due November 1, 2024 ( the “Convertible Notes”) that may be converted or redeemed into up to an aggregate of 2,538,464 shares of common stock (the “Conversion Shares”), (ii) a new long-term Series B- 1 warrant exercisable for up to an aggregate of 2,538,464 shares of common stock through June 9, 2028 ( “Series B- 1 Warrants”), and (iii) a new short-term Series B- 2 warrant exercisable for up to an aggregate of 2,538,464 shares of common stock through June 9, 2025 ( “Series B- 2 Warrants” and, together with the Series B- 1 Warrants, the “May 2023 Warrants”).

The May 2023 Warrants have an exercise price of $ 1.30 per share.

5 unchanged sentences

The Convertible Notes are subject to a limitation upon conversion into shares of common stock to the extent that, after giving effect to such conversion, the holder of a Convertible Note (together with the holder’s affiliates, and any other persons acting as a group together with the holder or any of the holder’s affiliates), would beneficially own in excess of 4.99% or 9.99% of the outstanding common stock.

The Company is required to make a monthly redemption of the Convertible Notes (“Monthly Redemption”) beginning on June 1, 2023 equal to 1/18 th  of the Aggregate Principal Amount multiplied by 1.10 in cash;

The Company is required to make a monthly redemption of the Convertible Notes (“Monthly Redemption”), which began on June 1, 2023, equal to 1/18th  of the Aggregate Principal Amount multiplied by 1.10 in cash;

or, as provided in the Convertible Notes, in shares of common stock at the election of the Company under certain conditions as defined in the agreement with a conversion rate equal to the lower of (i) the Conversion Price or (ii) 90 % of the Company’s average volume-weighted average price over 10 trading days.

19 unchanged sentences

The fair value of the combined embedded derivative was $ 209 thousand as of April 27, 2023.

The key assumptions used to value the combined embedded derivative as of June 30, 2023 were as follows:

June 30, 2023

As of June 9, 2023, the date of stockholder approval for the shares underlying potential conversion of the Convertible Notes, the fair value of the combined embedded derivative liability was determined to be $ 169 thousand in accordance with the following key assumptions:

$ 0.75  

2 unchanged sentences

Remaining term

The fair value of the combined embedded derivative was $ 169 thousand as of June 30, 2023.

The change of $ 40 thousand in fair value between the date of issuance and June 9, 2023 was recorded as a non-cash gain in the consolidated statements of operations and comprehensive loss.

The aggregate $ 300 thousand original issue discount, and the $ 294 thousand of debt issuance costs that were allocated to the Convertible Notes based on the relative fair value method, were recorded at issuance as an offset to the Convertible Notes on the Company’s unaudited condensed consolidated balance sheet. The Convertible Notes are presented as follows as of June 30, 2023:

The derivative liability was subsequently reclassified to equity.

(in thousands)

4 unchanged sentences

Total Convertible Note, net

The Convertible Notes, net is classified as short term in the Company’s unaudited condensed consolidated balance sheet.

The Convertible Notes, net are classified as short term in the Company’s unaudited condensed consolidated balance sheet.

The discount and debt issuance costs are being amortized to interest expense using the effective interest rate method over the term of the Convertible Notes, assuming that the Convertible Notes will be redeemed for cash of $ 193 thousand per month beginning in June 2023.

During both the three and six months ended June 30, 2023, the effective interest rate on the Convertible Notes was 173 %.

Interest expense recognized, including amortization of the issuance costs and debt discount, was $ 501 thousand during the three and six months ended June 30, 2023.

As of June 30, 2023, the Company's contractual maturity of the principal balance of the Convertible Notes was as follows:

During both the three and nine months ended September 30, 2023, the effective interest rate on the Convertible Notes was 173% .

During the three and nine months ended September 30, 2023, interest expense recognized, including amortization of the issuance costs and debt discount, was $ 0.7 million and $ 1.2 million, respectively.

As of September 30, 2023, the Company's contractual maturity of the principal balance of the Convertible Notes was as follows:

(in thousands)

1 unchanged sentence

$ 2,567  

$ 3,117  

COMMITMENTS AND CONTINGENCIES

5 unchanged sentences

The Company believes the fair value of these indemnification agreements is minimal.

Accordingly, it has not recorded any liabilities for these agreements as of June 30, 2023 or December 31, 2022. 

Accordingly, it has not recorded any liabilities for these agreements as of September 30, 2023 or December 31, 2022. 

In the normal course of business, the Company provides indemnification of varying scope under its agreements with other entities, typically its clinical research organizations, investigators, clinical sites, suppliers, and others.

6 unchanged sentences

As a result, it believes the fair value of these indemnification agreements is minimal.

Accordingly, the Company has not recorded any liabilities for these agreements as of June 30, 2023 or December 31, 2022. 

Accordingly, the Company has not recorded any liabilities for these agreements as of September 30, 2023 or December 31, 2022. 

Legal Matters

3 unchanged sentences

If one or more legal matters are resolved against the Company in a reporting period for an amount above expectations, the Company’s financial condition and operating results for that period may be adversely affected.

As of June 30, 2023 and December 31, 2022, there were no legal matters that, in the opinion of management, would ultimately result in liability that would have a material adverse effect on the Company’s financial position, results of operations or cash flows.

As of September 30, 2023 and December 31, 2022, there were no legal matters that, in the opinion of management, would ultimately result in liability that would have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Any outcome, whether favorable or unfavorable, may materially and adversely affect the Company due to legal costs and expenses, diversion of management attention and other factors.

9 unchanged sentences

The leases include variable components (e.g., common area maintenance) that are paid separately from the monthly base payment based on actual costs incurred and therefore were not included in the right-of-use assets and lease liability, but are reflected as an expense in the period incurred.

The components of lease expense for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):

The components of lease expense for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Operating lease cost

3 unchanged sentences

The weighted average remaining lease term and the weighted average discount rate are summarized as follows:

June 30, 2023

June 30, 2022

September 30,

Weighted-average remaining lease term (in years)

Weighted-average discount rate

Future lease payments under non-cancelable leases as of June 30, 2023 were as follows (in thousands):

Future lease payments under non-cancelable leases as of September 30, 2023 were as follows (in thousands):

Total future minimum lease payments

23 unchanged sentences

$ 0.22  

As of June 9, 2022, the date of shareholder approval, the fair value of these May 2023 Warrants, was determined to be $ 1.4 million in accordance with the following key assumptions, at which time they were reclassified to equity:

As of June 9, 2022, the date of stockholder approval, the fair value of these May 2023 Warrants, was determined to be $ 1.4 million in accordance with the following key assumptions, at which time they were reclassified to equity:

$ 0.68  

10 unchanged sentences

The September 2022 Warrants were issued by the Company on September 9, 2022, in connection with the 2022 Warrant Reprice Transaction.

The September 2022 Warrants were not exercisable prior to the effective date of the Reverse Stock Split, which was approved by Company stockholders on November 10, 2022.

The September 2022 Warrants were not exercisable prior to stockholder approval being received on November 10, 2022.

Under ASC 480, Distinguishing Liabilities from Equity , the September 2022 Warrants were classified as liabilities from the date of issuance until Company stockholders approval on November 10, 2022, at which time they were reclassified to equity.

16 unchanged sentences

The November 2021 Warrants were subsequently amended in September 2022 pursuant to the 2022 Warrant Reprice Transaction.

The November 2021 Warrants were not initially exercisable prior to shareholder approval for an increase in authorized share capital which the Company received on January 31, 2022. 

The November 2021 Warrants were not initially exercisable prior to certain stockholder approval being received on January 31, 2022. 

Under ASC 480, Distinguishing Liabilities from Equity , the November 2021 Warrants were classified as liabilities from the date of issuance through the date of approval of the increase in authorized shares at which time they were reclassified to equity.

7 unchanged sentences

$ 8.75  

As of January 31, 2022, the fair value of the November 2021 Warrants was determined to be $ 7.5 million in accordance with the following key assumptions, at which time the liability was adjusted and reclassified to equity:

As of January 31, 2022 upon receipt of stockholder approval, the fair value of the November 2021 Warrants was determined to be $ 7.5 million in accordance with the following key assumptions, at which time the liability was adjusted and reclassified to equity:

Expected price volatility

5 unchanged sentences

Unexercised November 2021 Warrants exercisable for 803,574 shares of common stock were amended on September 9, 2022, in connection with the 2022 Warrant Reprice Transaction.

As a result of the amendment, these November 2021 Warrants were no longer exercisable prior to the effective date of the Reverse Stock Split, which was approved by Company stockholders on November 10, 2022.

As a result of the amendment, these November 2021 Warrants were no longer exercisable prior to certain stockholder approval being received on November 10, 2022.

Under ASC 480, Distinguishing Liabilities from Equity , the November 2021 Warrants were reclassified as liabilities on the date of amendment and remained recorded as liabilities through the date of approval of the Reverse Stock Split at which time they were reclassified to equity.

5 unchanged sentences

Weighted-average fair value of warrants

$ 4.55  

As of November 10, 2022, the fair value of these November 2021 Warrants, as amended, was determined to be $ 1.3 million in accordance with the following key assumptions, at which time they were reclassified to equity:

7 unchanged sentences

On September 9, 2022, in connection with the 2022 Warrant Reprice Transaction, the Company amended certain July 2020 Warrants.

The Amended July 2020 Warrants exercisable for 77,145 shares of common stock were no longer exercisable prior to the effective date of the Reverse Stock Split.

Under ASC 480, Distinguishing Liabilities from Equity , these Amended July 2020 Warrants were reclassified as liabilities on the date of amendment and remained recorded as liabilities through the date of approval of the Reverse Stock Split at which time they were reclassified to equity.

The Amended July 2020 Warrants exercisable for 77,145 shares of common stock were no longer exercisable prior to certain stockholder approval being received on November 10, 2022.

Under ASC 480, Distinguishing Liabilities from Equity , these Amended July 2020 Warrants were reclassified as liabilities on the date of amendment and remained recorded as liabilities through the date of approval of certain stockholder approval on November 10, 2022 at which time they were reclassified to equity.

The fair value of these Amended July 2020 Warrants was determined to be $ 0.3 million as of the date of amendment on September 9, 2022 in accordance with the following key assumptions, at which time they were reclassified as liabilities:

26 unchanged sentences

For additional information regarding the Convertible Notes, please see Note 9 , “Convertible Note”.

For additional information regarding the warrant liability and valuation, please see Note 11 , “Warrant Liability”.

In connection with the 2023 Private Placement, certain Amended November 2021 Warrants, Amended July 2020 Warrants, September 2022 Warrants and 2022 Warrants previously issued to participants in the 2023 Private Placement exercisable for 1,724,455 shares of common stock were amended to lower the exercise price from $ 6.30 to $ 1.50 per share, as further described below.

For additional information regarding the 2023 Warrants and the related warrant liability and valuation, please see Note 11 , “Warrant Liability”.

In connection with the 2023 Private Placement, certain Amended November 2021 Warrants, Amended July 2020 Warrants, September 2022 Warrants and 2022 Warrants previously issued to participants exercisable for 1,724,455 shares of common stock were amended in the 2023 Private Placement to lower the exercise price from $ 6.30 to $ 1.50 per share, as further described below.

2022 and 2023 Warrant Reprice Transactions, Amended November 2021 Warrants, Amended July 2020 Warrants and September 2022 Warrants

27 unchanged sentences

$ 3.50  

As a result of the 2023 Private Placement transaction amendments to the September 2022 Warrants, the Company allocated $ 46 thousand between other expenses and Convertible Notes debt issuance cost.

As a result of the amendments to the September 2022 Warrants as part of the 2023 Private Placement, the Company allocated $ 46 thousand between other expenses and Convertible Notes debt issuance cost.

The $ 46 thousand represents the difference in value immediately before and after modification using the Black-Scholes option pricing model.

The fair value of the September 2022 Warrants was determined to be $ 48 thousand immediately prior to the modification in accordance with the following key assumptions:

Stock price  

$ 0.72  

6 unchanged sentences

The fair value of the September 2022 Warrants was determined to be $ 94 thousand immediately after the modification in accordance with the following key assumptions:

Stock price  

$ 0.72  

5 unchanged sentences

$ 0.39  

As of June 30, 2023, the September 2022 Warrants were exercisable for an aggregate of 327,860 shares of common stock.

As a result of the 2023 Private Placement transaction, amendments to the Amended November 2021 Warrants and the Amended July 2020 Warrants, the Company allocated $ 117 thousand between other expenses and Convertible Notes debt issuance cost.

As of September 30, 2023, the September 2022 Warrants were exercisable for an aggregate of 327,860 shares of common stock.

As a result of the amendments to the Amended November 2021 Warrants and the Amended July 2020 Warrants as part of the 2023 Private Placement, the Company allocated $ 117 thousand between other expenses and Convertible Notes debt issuance cost.

The $ 117 thousand represents the difference in value immediately before and after modification using the Black-Scholes option pricing model.

1 unchanged sentence

November 2021

Stock price  

$ 0.72  

9 unchanged sentences

November 2021

Stock price  

$ 0.72  

7 unchanged sentences

$ 0.24  

As of June 30, 2023, the Amended November 2021 Warrants were exercisable for an aggregate of 803,574 shares of common stock and the Amended July 2020 Warrants were exercisable for an aggregate of 77,145 shares of common stock.

As of September 30, 2023, the Amended November 2021 Warrants were exercisable for an aggregate of 803,574 shares of common stock and the Amended July 2020 Warrants were exercisable for an aggregate of 77,145 shares of common stock.

Additionally, in connection with the 2022 Warrant Reprice Transaction, the Company issued to certain participants in the 2022 Warrant Reprice Transaction that exercised their Amended November 2021 Warrants and their Amended July 2020 Warrants, new common stock purchase warrants (the “September 2022 Warrants”) to purchase a number of shares of common stock equal to 100% of the number of shares that a participant exercised under its November 2021 Warrant or Amended July 2020 Warrant, as applicable.

1 unchanged sentence

The September 2022 Warrants expire on September 11, 2028.

As of June 30, 2023, the September 2022 Warrants were exercisable for an aggregate of 327,860 shares of common stock.

As of September 30, 2023, the September 2022 Warrants were exercisable for an aggregate of 327,860 shares of common stock.

The 2022 Warrant Reprice Transaction resulted in gross proceeds of approximately $ 2.1 million.

24 unchanged sentences

The fair value of the Series C Preferred Stock was determined to be $ 0.9 million immediately prior to the conversion price adjustment in accordance with the following key assumptions:

Stock price  

$ 0.72  

6 unchanged sentences

The fair value of the Series C Preferred Stock was determined to be $ 1.1 million immediately after the conversion price protection adjustment in accordance with the following key assumptions:

Stock price  

$ 0.72  

5 unchanged sentences

$ 0.61  

As of June 30, 2023, the Series A- 1 Warrants were exercisable into 515,876 shares of common stock and the Series A- 2 Warrants were exercisable into 515,876 shares of common stock.

As of June 30, 2023, 2,153 shares of the Series C Preferred Stock had been converted into common stock.

Each of the remaining 1,097 shares of the Series C Preferred Stock, as of June 30, 2023, were convertible into 770 shares of common stock at a conversion price of $ 1.30 .

As of September 30, 2023, the Series A- 1 Warrants were exercisable into 515,876 shares of common stock and the Series A- 2 Warrants were exercisable into 515,876 shares of common stock.

As of September 30, 2023, 2,153 shares of the Series C Preferred Stock had been converted into common stock.

Each of the remaining 1,097 shares of the Series C Preferred Stock, as of September 30, 2023, were convertible into 770 shares of common stock at a conversion price of $ 1.30 .

As a result of the 2023 Private Placement transaction, amendments to the Series A- 1 Warrants and the Series A- 2 Warrants, the Company allocated $ 122 thousand between other expenses and Convertible Notes debt issuance cost.

1 unchanged sentence

The fair value of the Series A- 1 Warrants and the Series A- 2 Warrants was determined to be $ 93 thousand immediately prior to the adjustment to the exercise price with the following key assumptions:

Stock price  

$ 0.72  

8 unchanged sentences

The fair value of the Series A- 1 Warrants and the Series A- 2 Warrants was determined to be $ 216 thousand immediately after the adjustment to the exercise price with the following key assumptions:

Stock price  

$ 0.72  

19 unchanged sentences

In accordance with ASC 820, the deemed dividend was measured as the difference between ( 1 ) the fair value of the Series B Preferred Stock immediately prior to the conversion price adjustment (but without the anti-dilution protection feature) and ( 2 ) the fair value of the Series B Preferred Stock immediately after the conversion price adjustment (but without the anti-dilution protection feature).

The fair value of the Series B Preferred Stock was determined to be $ 6.8  million immediately prior the conversion price adjustment in accordance with the following key assumptions:

The fair value of the Series B Preferred Stock was determined to be $ 6.8  million immediately prior to the conversion price adjustment in accordance with the following key assumptions:

Expected price volatility

18 unchanged sentences

The fair value of the Series B Preferred Stock was determined to be $ 8.7 million immediately prior the conversion price adjustment in accordance with the following key assumptions:

Stock price  

$ 0.72  

6 unchanged sentences

The fair value of the Series B Preferred Stock was determined to be $ 10.5 million immediately after the conversion price protection adjustment in accordance with the following key assumptions:

Stock price  

$ 0.72  

4 unchanged sentences

Weighted-average fair value of warrants

As of June 30, 2023, 5,844 shares of the Series B Preferred Stock had been converted into common stock.

Each of the remaining 9,156 shares of the Series B Preferred Stock as of June 30, 2023, was currently convertible into 770 shares of common stock at a conversion price of $ 1.30 .

$ 0.61  

As of September 30, 2023, 8,850 shares of the Series B Preferred Stock had been converted into common stock.

Each of the remaining 6,150 shares of the Series B Preferred Stock as of September 30, 2023, was currently convertible into 770 shares of common stock at a conversion price of $ 1.30 .

Further, on September 9, 2022, in connection with the 2022 Warrant Reprice Transaction, the November 2021 Warrants were amended to reduce the exercise price to $ 6.30 and extend the expiration date to September 11, 2028.

8 unchanged sentences

A portion of these warrants were subsequently amended as described above to become the Amended July 2020 Warrants.

As of June 30, 2023, outstanding July 2020 Warrants which were not amended were exercisable for 59,960 shares of common stock.

As of September 30, 2023, outstanding July 2020 Warrants which were not amended were exercisable for 59,960 shares of common stock.

The July 2020 Warrants expire on January 22, 2026.

3 unchanged sentences

Summary of Warrants Outstanding

The details of all outstanding warrants as of June 30, 2023 and December 31, 2022 are as follows:

The details of all outstanding warrants as of September 30, 2023 and December 31, 2022 are as follows:

(in thousands)

3 unchanged sentences

Warrants expired

Outstanding at June 30, 2023

Outstanding at September 30, 2023

EQUITY-BASED COMPENSATION

36 unchanged sentences

On March 31, 2023, the number of shares available for future awards under the 2017 Plan was increased by 81,417 shares.

June 30, 2023, 

September 30, 2023, 

there were 

21 unchanged sentences

of Outstanding Equity Awards

The following table summarizes information about the Company’s equity awards outstanding at June 30, 2023 and activity during the period ended June 30, 2023: 

The following table summarizes information about the Company’s equity awards outstanding at September 30, 2023 and activity during the period ended September 30, 2023: 

(in thousands, except years

9 unchanged sentences

Restricted stock units cancelled

Outstanding at June 30, 2023

Outstanding at September 30, 2023

$ 26.26  

Vested and expected to vest at June 30, 2023

Vested and expected to vest at September 30, 2023

$ 32.34  

Vested at June 30, 2023

Vested at September 30, 2023

$ 59.30  

Exercisable at June 30, 2023

Exercisable at September 30, 2023

$ 59.30  

The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the underlying stock option awards and the closing market price of the Company’s common stock as quoted on the NYSE American as of June 30, 2023 for options that have a quoted market price in excess of the exercise price.

There were no stock option awards exercised during the three and six months ended June 30, 2023 and 2022.

The Company received no cash payments for the exercise of stock options during the three and six months ended June 30, 2023 and 2022.

As of June 30, 2023, total unrecognized compensation cost related to unvested stock options and restricted stock units was approximately $ 0.3 million.

The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the underlying stock option awards and the closing market price of the Company’s common stock as quoted on the NYSE American as of September 30, 2023 for options that have a quoted market price in excess of the exercise price.

There were no stock option awards exercised during the three and nine months ended September 30, 2023 and 2022.

The Company received no cash payments for the exercise of stock options during the three and nine months ended September 30, 2023 and 2022.

As of September 30, 2023, total unrecognized compensation cost related to unvested stock options and restricted stock units was approximately $ 0.3 million.

This amount is expected to be recognized as stock-based compensation expense in the Company’s unaudited condensed consolidated statements of operations over the remaining weighted average vesting period of 2.1 years.

6 unchanged sentences

for a description of the accounting policies that the Company applied to value its stock-based awards. 

During the six months ended June 30, 2023 and 2022, the Company granted options to employees and directors to purchase an aggregate of 42,150 and 9,605 shares of common stock, respectively.

During the nine months ended September 30, 2023 and 2022, the Company granted options to employees and directors to purchase an aggregate of 6,150 and 17,892 shares of common stock, respectively.

The weighted-average assumptions used in determining the value of options are as follows: 

Six Months Ended June 30,

Nine Months Ended September 30,

Expected price volatility

14 unchanged sentences

This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.

During the six months ended June 30, 2023, the Company granted 5,148 shares of restricted stock to employees and directors.

During the six months ended June 30, 2022, the Company granted 5,148 shares of restricted stock to employees and directors.

For the three months ended June 30, 2023 and 2022, the Company recognized stock-based compensation expense of $ 64 thousand and $ 154 thousand, respectively, for stock-based awards to employees and directors.  For the six months ended June 30, 2023 and 2022, the Company recognized stock-based compensation expense of $ 139 thousand and $ 338 thousand, respectively, for stock-based awards to employees and directors.

During the nine months ended September 30, 2023, the Company granted 5,148 shares of restricted stock to employees and directors.

During the nine months ended September 30, 2022, the Company granted 5,148 shares of restricted stock to employees and directors.

For the three months ended September 30, 2023 and 2022, the Company recognized stock-based compensation expense of $ 62 thousand and $ 208 thousand, respectively, for stock-based awards to employees and directors.  For the nine months ended September 30, 2023 and 2022, the Company recognized stock-based compensation expense of $ 201 thousand and $ 130 thousand, respectively, for stock-based awards to employees and directors.

Stock-Based Awards to Non-Employees

During the nine months ended September 30, 2023, the Company granted options to non-employees to purchase an aggregate of 36,000 shares of common stock in exchange for advisory and consulting services.

During the nine months ended September 30, 2022, the Company did not grant options exercisable for shares of common stock to non-employees in exchange for advisory and consulting services.

When the Company grants stock options, the stock options are recorded at their fair value on the grant date and recognized over the respective service or vesting period.

The fair value of the stock options that are granted is calculated using the Black-Scholes option pricing model.

For the 

three  months ended 

September 30, 

2023,  the Company recognized compensation expense of $ 3 thousand as compared to no  stock-based compensation expense for the 

three  months ended 

September 30, 

2022,  related to non-employee stock option grants.

For the 

nine  months ended 

September 30, 

2023,  the Company recognized stock-based compensation expense of $ 7 thousand as compared to a nominal stock-based compensation expense for the 

nine  months ended 

September 30, 

2022,  related to non-employee stock option grants.

During the nine months ended September 30, 2023, the Company did not grant restricted stock to non-employees.

Summary of Stock-Based Compensation Expense

A summary of the stock-based compensation expense included in results of operations for the options and restricted stock awards discussed above is as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Research and development

6 unchanged sentences

Product Sales Discounts and Allowances  

The following table presents activities and ending reserve balances for each significant category of discounts and allowance, which constitute variable consideration for the six months ended June 30, 2023 ( in thousands): 

Product Returns,

6 unchanged sentences

Payments and customer credits issued

Balance at June 30, 2023

Balance at September 30, 2023

$ 1,000  

3 unchanged sentences

The Company has also entered into direct agreements with preferred pharmacy networks as part of our Partner Pharmacy Program.

During the three months ended June 30, 2023 and 2022, the Company earned $ 195 thousand and $ 142 thousand, respectively, in net sales revenue for its Avenova Spray product from these distribution and partner pharmacy agreements.

The Company earned net sales revenue of $ 287 thousand during the six months ended June 30, 2023, and a net sales loss of $ 57 thousand during the six months ended June 30, 2022 for its Avenova Spray product from these distribution and partner pharmacy agreements.

Under these product distribution arrangements, the Company had a contract liability balance of $ 1.6 million as of June 30, 2023 and December 31, 2022, respectively.

During the three months ended September 30, 2023 and 2022, the Company earned $ 232 thousand and $ 170 thousand, respectively, in net sales revenue for its Avenova Spray product from these distribution and partner pharmacy agreements.

During the nine months ended September 30, 2023 and 2022, the Company earned $ 519 thousand and $ 113 thousand, respectively, in net sales revenue for its Avenova Spray product from these distribution and partner pharmacy agreements.

Under these product distribution arrangements, the Company had a contract liability balance of $ 0.7 million and $ 1.6 million as of September 30, 2023 and December 31, 2022, respectively.

The contract liability is included in accrued liabilities in the condensed consolidated balance sheets.

The Company also recorded a prepayment of $ 35 thousand for rebates related to these distribution agreements as of June 30, 2023, with no such prepayment recorded as of December 31, 2022, that is recorded in the prepaid expenses and other current assets in the condensed consolidated balance sheets (see Note 4, “Prepaid Expenses and Other Current Assets”).

The Company also recorded a prepayment of $ 141 thousand for rebates related to these distribution agreements as of September 30, 2023, with no such prepayment recorded as of December 31, 2022, that is recorded in the prepaid expenses and other current assets in the condensed consolidated balance sheets (see Note 4, “Prepaid Expenses and Other Current Assets”).

Over-the-Counter Sales of Avenova Spray

1 unchanged sentence

customers primarily on Amazon.com, the Company’s website (Avenova.com) and Walmart.com.

During the three and six months ended June 30, 2023, the revenue generated from over-the-counter Avenova Spray was $ 1.3 million and $ 2.9 million, respectively.

During the three and six months ended June 30, 2022, the revenue generated from over-the-counter Avenova Spray was $ 1.7 million and $ 3.5 million, respectively. 

During the three and nine months ended September 30, 2023, the revenue generated from over-the-counter Avenova Spray was $ 1.6 million and $ 4.5 million, respectively.

During the three and nine months ended September 30, 2022, the revenue generated from over-the-counter Avenova Spray was $ 1.6 million and $ 5.1 million, respectively. 

DERMAdoctor Products Distribution Agreements

DERMAdoctor products are sold through distribution arrangements with third parties such as Costco and others.

During the three and six months ended June 30, 2023, the Company earned $ 0.1 million and $ 0.2 million, respectively, in sales revenue for its DERMAdoctor products from these distribution agreements.

During the three and six months ended June 30, 2022, the Company lost $ 0.2 million and earned $ 0.1 million, respectively, in sales revenue for its DERMAdoctor products from these distribution agreements.

Under these distribution arrangements, the Company had a contract liability balance of $ 0.2 million as of June 30, 2023 and December 31, 2022.

During the three and nine months ended September 30, 2023, the Company earned $ 0.1 million and $ 0.5 million, respectively, in sales revenue for its DERMAdoctor products from these distribution agreements.

During both the three and nine months ended September 30, 2022, the Company earned $ 0.4 million in sales revenue for its DERMAdoctor products from these distribution agreements.

Under these distribution arrangements, the Company had a contract liability balance of $ 0.3 million and $ 0.2 million as of September 30, 2023 and December 31, 2022, respectively.

The contract liability is included in accrued liabilities in the condensed consolidated balance sheets.

2 unchanged sentences

The Company provides matching contributions equal to 100 % of the first 3 % of compensation deferred, plus 50 % of the next 2 % of compensation deferred.

During the three and six months ended June 30, 2023, the Company contributed $ 32 thousand and $ 63 thousand, respectively.

During the three and six months ended June 30, 2022, the Company contributed $ 30 thousand and $ 76 thousand, respectively.

During the three and nine months ended September 30, 2023, the Company contributed $ 32 thousand and $ 95 thousand, respectively.

During the three and nine months ended September 30, 2022, the Company contributed $ 25 thousand and $ 101 thousand, respectively.

RELATED PARTY TRANSACTIONS       

1 unchanged sentence

The following table summarizes information about the Company’s related party revenue and cost of goods sold (in thousands): 

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Related party revenue:

$ 1,043  

Total related party revenue

$ 1,043  

Cost of goods sold:

$ ( 895 )  

$ ( 514 )  

$ ( 895 )  

Total related party expenses

$ ( 895 )  

$ ( 514 )  

$ ( 895 )  

Related party accounts receivable was $ 0.7 million and $ 0.2 million as of June 30, 2023 and December 31, 2022, respectively.

Related party accounts receivable was $ 0.2 million as of September 30, 2023 and December 31, 2022.

SEGMENT REPORTING

7 unchanged sentences

Select financial information for each segment is as follows:

of Total Sales,

Percentage  

of Total  

Sales,  

Eyecare & Wound Care

4 unchanged sentences

$ 3,826  

Operating Loss

September  

of Total  

September  

of Total  

Operating  

Eyecare & Wound Care

Total operating loss

of Total Sales,

September  

of Total  

September  

of Total  

Eyecare & Wound Care

4 unchanged sentences

$ 10,761  

Percentage  

of Total  

Operating Loss

5 unchanged sentences

10 -Q with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the condensed consolidated financial statements as of 

June 30, 2023 ,  and events which occurred subsequently but were 

September 30, 2023 ,  and events which occurred subsequently but were 

not  recognized in the condensed consolidated financial statements.

6 unchanged sentences

s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission (the “

) on March 31, 2023.

) on March 31, 2023, as amended by Amendment No.

1 to the Annual Report on Form 10-K, which was filed with the SEC on April 28, 2023.

Words such as “

18 unchanged sentences

Overview  

We are a company focused on the development and commercialization of scientifically-created and clinically-proven eyecare, skincare and wound care products.

We are a company focused on the sale of scientifically-created and clinically-proven eyecare, skincare and wound care products.

Our leading product, Avenova Spray, is proven in laboratory testing to have broad antimicrobial properties as it removes foreign material including microorganisms and debris from the skin around the eye, including the eyelid.

1 unchanged sentence

Other eyecare products offered under the Avenova eyecare brand include our Novawipes, Lubricant Eye Drops, Moist Heating Eye Compress, i-Chek lash mirror, and the Eye Health Support Oral Supplement with MaquiBright.

In September 2023, we launched the Avenova Allograft, a dehydrated single-layer amnion membrane used by eyecare professionals as protective covering for the repair of ocular surfaces.

Through our subsidiary DERMAdoctor, LLC (“DERMAdoctor”), we offer over 30 dermatologist-developed products targeting common skin concerns, ranging from aging and blemishes to dry skin, perspiration and keratosis pilaris.

2 unchanged sentences

We have not been able to achieve these objectives to date, as DERMAdoctor’s product revenue declined in 2023 compared to 2022, while operating costs relating to these products remained substantially the same.

We are working to achieve our overall objectives, as well as continuing to evaluate additional strategies for our Company and our business to address our capital and liquidity needs, as well as potential other strategic alternatives.

We also manufacture and sell our proprietary form of hypochlorous acid for the wound care market with our NeutroPhase and PhaseOne branded products.

NeutroPhase and PhaseOne are used for cleansing and irrigation as part of surgical procedures, as well as treating certain wounds, burns, ulcers and other injuries.

We currently sell these products through distributors.

We currently sell these products only through distributors.

Recent Developments

2023 Private Placement

On April 27, 2023, the Company entered into the Purchase Agreement with existing accredited institutional investors of the Company for the 2023 Private Placement that provided for the issuance and sale of (i) $3.3 million aggregate principal amount of Convertible Notes, (ii) the Series B-1 Warrants, and (iii) the Series B-2 Warrants.

On April 27, 2023, the Company entered into a Securities Purchase Agreement with existing accredited institutional investors of the Company for the 2023 Private Placement that provided for the issuance and sale of (i) $3.3 million aggregate principal amount of Convertible Notes, (ii) the Series B-1 Warrants, and (iii) the Series B-2 Warrants.

The 2023 Private Placement closed on May 1, 2023 and the Company received gross proceeds of $3.0 million, before deducting placement agent fees and other offering expenses.

Due to the number of shares of common stock that may be issued upon conversion or redemption of the Convertible Notes and the exercise of the May 2023 Warrants, we were required to obtain the Stockholder Approval for the issuance of these shares of common stock in accordance with Section 713(a) and 713(b) of the NYSE American Company Guide.

The Company received Stockholder Approval at its 2023 Annual Meeting of Stockholders on June 9, 2023, and, as a result the Convertible Notes and the May 2023 Warrants are currently convertible or exercisable, as applicable, in accordance with their respective terms.

The Company received the Stockholder Approval at its 2023 Annual Meeting of Stockholders on June 9, 2023, and, as a result the Convertible Notes and the May 2023 Warrants are currently convertible or exercisable, as applicable, in accordance with their respective terms.

In connection with the 2023 Private Placement, certain previously issued common stock purchase warrants issued to participants in the 2023 Private Placement exercisable for 1,724,455 shares of common stock were amended to lower the exercise price from $6.30 to $1.50 per share, as further described below.

Anti-Dilution Adjustment to Series B Preferred Stock and the Series C Preferred Stock

The Certificate of Designation of Preferences, Rights and Limitations for the Company’s outstanding Series B Preferred Stock (the “Series B Certificate of Designation”) and the Certificate of Designation of Preferences, Rights and Limitations for the Company’s outstanding Series C Preferred Stock (the “Series C Certificate of Designation”) provides for anti-dilution protections in the event that the Company grants any right to reprice any Company security or issue a new Company security that would entitle the holder to acquire common stock at an effective price per share that is lower than the conversion price of the Series B Preferred Stock and the Series C Preferred Stock, which is referred to as “full-ratchet”

The Certificate of Designation of Preferences, Rights and Limitations for the Company’s outstanding Series B Preferred Stock (the “Series B Certificate of Designation”) and the Certificate of Designation of Preferences, Rights and Limitations for the Company’s outstanding Series C Preferred Stock (the “Series C Certificate of Designation”) both provide for anti-dilution protection in the event that the Company grants any right to reprice any Company security or issues a new Company security that would entitle the holder to acquire common stock at an effective price per share that is lower than the conversion price of the Series B Preferred Stock and the Series C Preferred Stock, which is referred to as “full-ratchet”

anti-dilution protection.

6 unchanged sentences

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.

Our net losses were $4.0 million and $2.2 million for the three months ended June 30, 2023 and 2022, respectively.

In addition, our net losses were $5.8 million and $2.3 million for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, we had an accumulated deficit of $163.9 million, total current assets of $11.2 million and total assets of $16.0 million.

Our net losses were $1.8 million and $0.1 million for the three months ended September 30, 2023 and 2022, respectively.

In addition, our net losses were $5.5 million and $2.4 million for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, we had an accumulated deficit of $165.7 million, total current assets of $8.2 million and total assets of $12.9 million.

We expect to grow commercial sales of Avenova branded products and expect to grow commercial sales of our 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.

5 unchanged sentences

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”

24 unchanged sentences

Comparison of the Three Months  

Ended June 30, 2023 and 2022 (dollars in thousands)

Ended September 30, 2023 and 2022 (dollars in thousands)

Three Months Ended

September 30,

Statement of Operations

8 unchanged sentences

Operating loss

Non-cash loss on modification of common stock warrants

Non-cash gain on changes in fair value of warrant liability

Non-cash gain on changes in fair value of combined embedded derivative liability

Non-cash loss on modification of common stock warrants

Other expense, net

3 unchanged sentences

Changes and revisions to prior period amounts presented in this report have been made to conform to the current period presentations.

For the three months ended June 30, 2022, the result of these changes and revisions was an increase of $617 thousand in product revenue, net, which was offset by an increase of $329 thousand in product cost of goods sold and $288 thousand in sales and marketing expenses.

These changes and revisions did not impact operating loss, net loss or net loss per share in the Company’s unaudited condensed consolidated statement of operations in the periods presented in this report or in previously issued annual and quarterly Company consolidated financial statements.

The changes and revisions also did not impact cash or ending cash balances in the Company’s unaudited condensed consolidated balance sheets as of the dates presented in this report or in previously issued annual and quarterly Company consolidated financial statements.

Total Net Sales, Cost of Goods Sold and Gross Profit

Product revenue, net, increased by $939 thousand, or 26%, to $4.6 million for the three months ended June 30, 2023, from $3.7 million for the three months ended June 30, 2022, primarily due to increases in revenue recognized from our wound care and DERMAdoctor branded skincare products.

Revenue from eyecare products, including Avenova Spray, decreased $0.1 million to $2.2 million for the three months ended June 30, 2023, from $2.3 million for the three months ended June 30, 2022.

Revenue from the Company’s wound care products increased $0.6 million to $1.2 million for the three months ended June 30, 2023, from $0.6 million for the three months ended June 30, 2022, due to an unusually large order of the NeutroPhase branded wound care product.

Revenue from DERMAdoctor branded skincare products increased $0.3 million to $1.1 million for the three months ended June 30, 2023, from $0.8 million for the three months ended June 30, 2022, due to an increase in sales in our international and domestic wholesale and retail channels.

Product cost of goods sold increased by $0.5 million, or 26%, to $2.3 million for the three months ended June 30, 2023, from $1.8 million for the three months ended June 30, 2022 primarily due to the increase in wound care and DERMAdoctor branded skincare products sold during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Total Net Sales and Product Cost of Goods Sold

Product revenue, net, decreased $0.5 million, or 15%, to $3.3 million for the three months ended September 30, 2023, from $3.8 million for the three months ended September 30, 2022, primarily due to a decrease in revenue recognized from our DERMAdoctor branded skincare products.

Revenue from eyecare products, including Avenova Spray, increased $0.2 million to $2.4 million for the three months ended September 30, 2023, from $2.2 million for the three months ended September 30, 2022.

The increase was due to an overall increase in physician dispensed units sold and units sold through online channels.

The increase was partially offset by the decrease in the number of other Avenova branded optical products sold, including the Company’s NovaWipes by Avenova and Avenova Warm Eye Compress.

Revenue from the Company’s wound care products decreased $0.2 million to $0.1 million for the three months ended September 30, 2023, from $0.3 million for the three months ended September 30, 2022.

Revenue from DERMAdoctor branded skincare products decreased $0.5 million to $0.8 million for the three months ended September 30, 2023, from $1.3 million for the three months ended September 30, 2022, due to a decrease in sales in our international and domestic wholesale and retail channels.

Product cost of goods sold decreased by $0.1 million, or 2%, to $1.4 million for the three months ended September 30, 2023, from $1.5 million for the three months ended September 30, 2022 primarily due to the decrease in wound care and DERMAdoctor branded skincare products sold during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

Sales and marketing

Sales and marketing expenses decreased by $0.3 million, or 16%, to $1.7 million for the three months ended June 30, 2023, from $2.0 million for the three months ended June 30, 2022.

The decrease was due primarily to lower digital advertising and related consulting costs incurred in the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

Sales and marketing expenses decreased by $0.1 million, or 7%, to $1.7 million for the three months ended September 30, 2023, from $1.8 million for the three months ended September 30, 2022.

The decrease was due primarily to lower digital advertising and related consulting costs incurred in the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

General and administrative  

General and administrative expenses were $1.9 million for the three months ended June 30, 2023 and June 30, 2022.

General and administrative expenses increased by $0.2 million, or 28%, to $1.2 million for the three months ended September 30, 2023, from $1.0 million for the three months ended September 30, 2022, primarily due to lower non-cash stock-based compensation expenses recorded in the 2022 period.

Non-cash gain on changes in fair value of warrant liability

Adjustments to the fair value of warrant liability resulted in a gain of $216 thousand for the three months ended June 30, 2023.

The warrant liability was reclassified to equity during the three months ended June 30, 2023 and will no longer require fair value adjustments which will impact our results of operations.

For additional information regarding the warrant liability and their valuation, please see Note 11, “Warrant Liability”, in the Notes to Unaudited Condensed Consolidated Financial Statements, in Part I, Item 1 of this report.

The Company did not record a comparable loss or gain for the three months ended June 30, 2022.

Non-cash gain on changes in fair value of embedded derivative liability

The adjustments to the fair value of derivative liability resulted in a gain of $40 thousand for the three months ended June 30, 2023.

The gain results from the increase in the price of the Company’s common stock price during that period.

The Company did not record a comparable loss or gain for the three months ended June 30, 2022.

Adjustments to the fair value of warrant liability resulted in a gain of $2.4 million for the three months ended September 30, 2022 with no comparable adjustment for the three months ended September 30, 2023.

Non-cash loss on modification of common stock warrants

Adjustments to the fair value of common stock warrants resulted in a loss of $1.9 million for the three months ended September 30, 2022 with no comparable adjustment for the three months ended September 30, 2023.

This loss related to modification of common stock warrants, which occurred due to amendments to the Amended July 2020 Warrants and the November 2021 Warrants, as amended, in connection with the 2022 Warrant Reprice Transaction.

Other expense, net

Other expense, net increased $934 thousand to $937 thousand for the three months ended June 30, 2023, from $3 thousand for the three months ended June 30, 2022.

The increase was primarily due to the amortization of discount and issuance cost related to the Convertible Notes issued in May 2023 and modification of common stock warrants with no comparable item for the three months ended June 30, 2022.

Comparison of the Six Months  

Ended June 30, 2023 and 2022 (dollars in thousands)

Six Months Ended

Other expense, net increased $0.4 million to $0.6 million for the three months ended September 30, 2023, from $0.2 million for the three months ended September 30, 2022.

The increase was primarily due to the amortization of discount and issuance cost related to the Convertible Notes issued in May 2023 with no comparable expense for the three months ended September 30, 2022.

Comparison of the Nine Months  

Ended September 30, 2023 and 2022 (dollars in thousands)

Nine Months Ended

September 30,

Statement of Operations

11 unchanged sentences

Non-cash gain on changes in fair value of contingent liability

Non-cash loss on modification of common stock warrants

Other expense, net

Total Net Sales, Cost of Goods Sold and Gross Profit

Product revenue, net, increased by $789 thousand, or 11%, to $7.7 million for the six months ended June 30, 2023, from $6.9 million for the six months ended June 30, 2022, primarily due to increased revenue from our wound care and DERMAdoctor branded skincare products.

Revenue from eyecare products, including Avenova Spray decreased $0.1 million to $3.7 million for the six months ended June 30, 2023, from $3.8 million for the six months ended June 30, 2022.

Revenue from the Company’s wound care products increased $0.6 million to $1.4 million for the six months ended June 30, 2023, from $0.8 million for the six months ended June 30, 2022, due to an unusually large order of the NeutroPhase branded wound care product.

Revenue from DERMAdoctor branded skincare products was $1.8 million for each of the six months ended June 30, 2023 and 2022.

Product cost of goods sold increased by $209 thousand, or 6%, to $3.5 million for the six months ended June 30, 2023, from $3.3 million for the six months ended June 30, 2022 primarily due to the increase in wound care products sold during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Total Net Sales and Product Cost of Goods Sold

Product revenue, net, increased $0.3 million, or 2%, to $11.0 million for the nine months ended September 30, 2023, from $10.7 million for the nine months ended September 30, 2022, primarily due to increased revenue from our wound care products.

Revenue from eyecare products, including Avenova Spray increased $0.3 million to $6.8 million for the nine months ended September 30, 2023, from $6.5 million for the nine months ended September 30, 2022, primarily due to an increase in the number of Avenova Spray and NovaWipes by Avenova bundles sold through online channels.

Revenue from the Company’s wound care products increased $0.5 million to $1.6 million for the nine months ended September 30, 2023, from $1.1 million for the nine months ended September 30, 2022, due to a large order of the NeutroPhase branded wound care product in the current year.

Revenue from DERMAdoctor branded skincare products decreased $0.5 million to $2.6 million for the nine months ended September 30, 2023, from $3.1 million for the nine months ended September 30, 2022, primarily due to an overall decrease in units sold through online channels and through domestic and international wholesalers.

Product cost of goods sold increased by $0.2 million, or 4%, to $4.9 million for the nine months ended September 30, 2023, from $4.7 million for the nine months ended September 30, 2022 primarily due to the increase in the margins of our wound care products sold during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

Sales and marketing

Sales and marketing expenses decreased by $0.7 million, or 16%, to $3.4 million for the six months ended June 30, 2023, from $4.0 million for the six months ended June 30, 2022.

The decrease was due primarily to lower digital advertising and related consulting costs incurred in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Sales and marketing expenses decreased by $0.8 million, or 13%, to $5.1 million for the nine months ended September 30, 2023, from $5.9 million for the nine months ended September 30, 2022.

The decrease was due primarily to lower digital advertising and related consulting costs incurred in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

General and administrative  

General and administrative expenses decreased $0.2 million to $3.9 million for the six months ended June 30, 2023, from $4.1 million for the six months ended June 30, 2022.

The change is primarily the result of a decrease in variable compensation costs, including non-cash stock-based compensation expense, recorded in the comparable periods.

General and administrative expenses increased by $0.1 million, or 2%, to $5.1 million for the nine months ended September 30, 2023, from $5.0 million for the nine months ended September 30, 2022.

Non-cash gain on changes in fair value of warrant liability  

Adjustments to the fair value of warrant liability resulted in a gain of $0.2 million for the six months ended June 30, 2023 compared to a gain of $2.1 million for the six months ended June 30, 2022.

Adjustments to the fair value of warrant liability resulted in a gain of $0.2 million for the nine months ended September 30, 2023 compared to a gain of $4.5 million for the nine months ended September 30, 2022.

Non-cash gain on changes in fair value of embedded derivative liability

The adjustments to the fair value of derivative liability resulted in a gain of $40 thousand for the three months ended June 30, 2023.

The gain results from the increase in the price of the Company’s common stock price during that period.

The Company did not record a comparable loss or gain for the three months ended June 30, 2022.

Non-cash gain on changes in fair value of combined embedded derivative liability

The adjustments to the fair value of combined embedded derivative liability resulted in a gain of $40 thousand for the nine months ended September 30, 2023.

The gain results from the increase in the price of the Company’s common stock price during the period that the derivative liability was recorded.

The Company did not record a comparable loss or gain for the nine months ended September 30, 2022.

Non-cash gain on changes in fair value of contingent liability  

Adjustments to the fair value of contingent liability resulted in a gain of $0.2 million for the six months ended June 30, 2022 with no comparable adjustment for the current year period.

Adjustments to the fair value of contingent liability resulted in a gain of $0.2 million for the nine months ended September 30, 2022 with no comparable adjustment for the nine months ended September 30, 2023.

This contingent liability related to potential future contingent consideration of earn out payments that could have become payable as part of the DERMAdoctor Acquisition if specified milestone events were achieved.

As of June 30, 2023, the Company does not anticipate that any such earn out payments will be made.

As of September 30, 2023, the Company does not anticipate that any such earn out payments will be made.

Non-cash loss on modification of common stock warrants

Adjustments to the fair value of common stock warrants resulted in a loss of $0.3 million for the nine months ended September 30, 2023.

The loss related to modification of common stock warrants, which occurred due to amendments to the Amended July 2020 Warrants, Amended November 2021 Warrants, and the September 2022 Warrants, as amended, in connection with the 2023 Private Placement.

Adjustments to the fair value of common stock warrants resulted in a loss of $1.9 million for the nine months ended September 30, 2022.

Other expense, net

Other expense, net increased $935 thousand to $942 thousand for the six months ended June 30, 2023, from $7 thousand for the six months ended June 30, 2022.

Other expense, net increased $1.1 million to $1.3 million for the nine months ended September 30, 2023, from $0.2 million for the nine months ended September 30, 2022.

The increase was primarily due to the amortization of discount and issuance cost related to the Convertible Notes issued in May 2023 with no comparable expense for the nine months ended September 30, 2022.

Financial Condition, Liquidity and Capital Resources  

As of June 30, 2023, our cash and cash equivalents were $4.4 million, compared to $5.4 million as of December 31, 2022.

Our cash and cash equivalents as of June 30, 2023 includes $2.8 million of net proceeds from the issuance of the Convertible Notes and the May 2023 Warrants in the 2023 Private Placement that closed on May 1, 2023.

As of September 30, 2023, our cash and cash equivalents were $3.5 million, compared to $5.4 million as of December 31, 2022.

Our cash and cash equivalents as of September 30, 2023 includes $2.8 million of net proceeds from the issuance of the Convertible Notes and the May 2023 Warrants in the 2023 Private Placement that closed on May 1, 2023.

Under the terms of the Convertible Notes, we are required to make a monthly redemption of the principal amount of the Convertible Notes (“Monthly Redemption”) over an 18-month period beginning on June 1, 2023 in an amount equal to $193 thousand per month, unless such Monthly Redemption is eligible under the terms of the Convertible Notes to instead be settled through the issuance of our common stock.

We have paid the Monthly Redemption in cash for the first three payments.

We have paid the Monthly Redemption in cash for the first six payments.

For additional information regarding the 2023 Private Placement and the Convertible Notes, see Note 9 “Convertible Note,”

2 unchanged sentences

in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report and the Company’s Current Report on Form 8-K filed with the SEC on April 27, 2023.

Based primarily on the funds available on June 30, 2023, the Company believes that the Company’s existing cash and cash equivalents and cash flows generated from product sales will be sufficient to fund its existing operations, meet its planned operating expenses and to meet the Monthly Redemption of the Convertible Notes into at least the second quarter of 2024.

Based primarily on the funds available on September 30, 2023, the Company believes that the Company’s existing cash and cash equivalents and cash flows generated from product sales will be sufficient to fund its existing operations, meet its planned operating expenses and to meet the Monthly Redemption of the Convertible Notes into at least the second quarter of 2024.

We have sustained operating losses for the majority of our corporate history and expect that our 2023 expenses will exceed our 2023 revenues, as we continue to invest in both Avenova and DERMAdoctor commercialization efforts.

15 unchanged sentences

Cash Used in Operating Activities

Net cash used in operating activities was $3.5 million for the six months ended June 30, 2023, which consisted primarily of a net loss of $3.8 million, adjusted by depreciation and amortization expenses of $102 thousand, stock-based compensation expenses of $139 thousand, modification of common stock warrants expense of $285 thousand, gain on changes in fair value of warrant liability of $216 thousand, gain on changes in fair value of combined derivative liability of $40 thousand, accretion of interest and amortization of debt discounts on convertibles notes of $457 thousand, and a net change of $406 thousand in our net operating assets and liabilities.

Net cash used in operating activities was $3.8 million for the six months ended June 30, 2022, which consisted primarily of a net loss of $2.3 million, adjusted primarily by a non-cash gain of $2.1 million on the change in fair value of warrant liability, non-cash gain of $219 thousand on the change in fair value of contingent liability, depreciation and amortization expenses of $241 thousand, stock-based compensation expenses of $338 thousand, and a net increase of $206 thousand in our net operating assets and liabilities.

Net cash used in operating activities was $3.8 million for the nine months ended September 30, 2023, which consisted primarily of a net loss of $5.5 million, adjusted by depreciation and amortization expenses of $0.2 million, stock-based compensation expenses related to employee and director stock awards of $0.2 million, non-cash loss on modification of common stock warrants expense of $0.3 million, non-cash gain on changes in fair value of warrant liability of $0.2 million, non-cash gain on changes in fair value of combined derivative liability of $0.1 million, accretion of interest and amortization of debt discounts on convertibles notes of $1.1 million, and a net increase of $0.2 million in our net operating assets and liabilities.

Net cash used in operating activities was $5.4 million for the nine months ended September 30, 2022, which consisted primarily of a net loss of $2.4 million, non-cash loss on modification of common stock warrants of $1.9 million, non-cash gain on the change in fair value of warrant liability of $4.5 million, non-cash gain on the change in fair value of contingent liability of $0.2 million, depreciation and amortization expenses of $0.4 million, stock-based compensation expenses related to employee and director stock awards of $0.1 million, and a net decrease in our net operating assets and liabilities of $0.8 million.

Cash Used in Investing Activities

Net cash used in investing activities for the purchase of property and equipment was $15 thousand and $32 thousand, for the six months ended June 30, 2023 and 2022, respectively.

Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities was $2.5 million for the six months ended June 30, 2023, which included the net proceeds of $2.8 million received in the 2023 Private Placement of the Convertible Notes and the May 2023 Warrants.

Pursuant to the terms of the Convertible Notes, we paid $193 thousand for the first Monthly Redemption of the Convertible Notes, which will be payable in cash each month, unless such payment is made by us in common stock, subject to the terms of the Convertible Notes.

For the six months ended June 30, 2022, net cash used in financing activities of $105 thousand consisted of a repayment of the DERMAdoctor line of credit, which was subsequently terminated. 

Net cash used in investing activities for the purchase of property and equipment was $17 thousand and $112 thousand, for the nine months ended September 30, 2023 and 2022, respectively.

Cash Provided by Financing Activities

Net cash provided by financing activities was $1.9 million for the nine months ended September 30, 2023, which included the net proceeds of $2.8 million received in the 2023 Private Placement of the Convertible Notes and the May 2023 Warrants.

The aggregate proceeds were offset by repayment of $0.8 million for the Monthly Redemption through September 30, 2023 on the Convertible Notes issued and debt issuance cost of $0.3 million.

Net cash provided by financing activities was $1.6 million for the nine months ended September 30, 2022 and was primarily related to the proceeds received in the 2022 Warrant Reprice Transaction partially offset by the repayment of the DERMAdoctor line of credit, which was terminated in the first quarter of 2022.

Net Operating Losses and Tax Credit Carryforwards

12 unchanged sentences

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements at June 30, 2023 and December 31, 2022 as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

We did not have any off-balance sheet arrangements at September 30, 2023 and December 31, 2022 as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Avenova Branded Products

8 unchanged sentences

Contractual Obligations

Our contractual cash commitments as of June 30, 2023 were as follows (in thousands):

Our contractual cash commitments as of September 30, 2023 were as follows (in thousands):

Contractual Obligations

1 unchanged sentence

Equipment lease

Our commitments as of June 30, 2023 consisted primarily of facility operating leases and an operating lease for one copier.

Our commitments as of September 30, 2023 consisted primarily of facility operating leases and an operating lease for one copier.

The total commitment for the facility leases were $1.9 million due over the leases’

terms as of June 30, 2023.

terms as of September 30, 2023.

The total commitment for the copier lease was $18 thousand due over the leases’

terms as of June 30, 2023.

terms as of September 30, 2023.

See Note 10, “Commitments and Contingencies”

1 unchanged sentence

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