What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-01 compared with 2023-03-14 · 419 added, 453 removed, 500 unchanged (64% of the section changed)

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Report of Independent Registered Public Accounting Firm (Baker Tilly US, LLP, Tewksbury, MA, PCAOB ID 23 )

Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP, Florham Park, NJ, PCAOB ID 238 )

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Changes in Mezzanine Equity and Shareholders’ Equity

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of VYNE Therapeutics Inc.

and its subsidiaries (the “Company”) as of December 31, 2022, and the related consolidated statements of operations, changes in mezzanine equity and shareholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

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

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that VYNE Therapeutics Inc.

will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has an accumulated deficit and has incurred net losses and negative cash flows from operations since inception.

These factors raise substantial doubt about the Company’s ability to continue as a going concern.

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

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

We have audited the accompanying consolidated balance sheets of VYNE Therapeutics Inc.

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, changes in mezzanine equity and shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

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

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

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

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

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

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

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

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

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

Accordingly, we express no such opinion.

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

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

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

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

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

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

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

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Baker Tilly US, LLP

We have served as the Company’s auditor since 2022.

Tewksbury, Massachusetts

March 1, 2024

We have served as the Company’s auditor since 2022.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of VYNE Therapeutics Inc.

Opinion on the Financial Statements

We have audited the consolidated balance sheet of VYNE Therapeutics Inc.

and its subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statements of operations, of changes in mezzanine equity and shareholders' equity and of cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

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

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

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

As discussed in Note 1 to the consolidated financial statements, the Company has incurred losses and experienced negative operating cash flows since its inception that raise substantial doubt about its ability to continue as a going concern.

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

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

Basis for Opinion

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

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

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

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

We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB.

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

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

/s/ PricewaterhouseCoopers LLP

Florham Park, New Jersey

March 17, 2022, except for the effects of the reverse stock split discussed in Note 1 and the effects of discontinued operations discussed in Note 4 to the consolidated financial statements, as to which the date is March 14, 2023

We served as the Company’s auditor from 2020 to 2022.

VYNE THERAPEUTICS INC.

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Restricted cash 54 67

Trade receivable, net of allowances 173 7,583

Investment in marketable securities (Note 6) 62,633 —

Amount due from sale of MST Franchise — 5,000

Prepaid and other expenses 2,127 4,565

Operating lease right of use assets (Note 7) — 338

Discontinued operations - current assets (Note 4) — 7,845

Prepaid and other current assets 2,656 2,300

Total Current Assets 95,963 38,275

Property and equipment, net (Note 5) — 354

Non-current Assets:

Operating lease right of use assets (Note 9) 207 —

Non-current prepaid expenses and other assets 1,515 2,483

Total Non-current Assets 1,722 2,483

Total Assets $ 97,685 $ 40,758

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Operating lease liabilities (Note 9) 115 —

Total Current Liabilities 7,538 9,345

Long-term Liabilities :

Non-current operating lease liabilities (Note 9) 99 —

Other liabilities 1,313 —

Total Long-term Liabilities 1,412 —

Total Liabilities 8,950 9,345

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$ 0.0001 par value;

20,000,000 and 0 shares authorized at December 31, 2022 and December 31, 2021, respectively;

20,000,000 shares authorized at December 31, 2023 and December 31, 2022;

Series A Preferred Stock:

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Shareholders' Equity:

Preferred stock:

$ 0.0001 par value;

20,000,000 shares authorized at December 31, 2023 and December 31, 2022, respectively;

no shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively

Common stock:

$ 0.0001 par value;

150,000,000 shares and 150,000,000 shares authorized at December 31, 2022 and December 31, 2021, respectively;

150,000,000 shares authorized at December 31, 2023 and December 31, 2022;

14,098,888 and 3,229,704 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 780,044 693,937

Accumulated other comprehensive income 26 —

Accumulated deficit ( 691,336 ) ( 662,735 )

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VYNE THERAPEUTICS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

dollars in thousands, except per share data)

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Research and development 16,307 18,385

Selling, general and administrative 16,387 20,299

General and administrative 13,375 16,387

Total Operating Expenses 29,682 34,772

Operating Loss ( 29,258 ) ( 34,295 )

Interest expense — ( 5,610 )

Other income (expense), net 363 ( 135 )

Other income, net 1,386 363

Loss from continuing operations before income taxes ( 27,872 ) ( 33,932 )

Income tax expense (benefit) 13 ( 448 )

Income tax expense — 13

Loss from continuing operations ( 27,872 ) ( 33,945 )

Income (loss) from discontinued operations, net of income taxes 10,735 ( 29,121 )

(Loss) income from discontinued operations, net of income taxes ( 580 ) 10,735

Net Loss $ ( 28,452 ) $ ( 23,210 )

Loss per share from continuing operations, basic and diluted $ ( 2.72 ) $ ( 10.65 )

Income (loss) per share from discontinued operations, basic and diluted $ 3.37 $ ( 10.18 )

(Loss) income per share from discontinued operations, basic and diluted $ ( 0.06 ) $ 3.37

Loss per share basic and diluted $ ( 2.78 ) $ ( 7.28 )

Weighted average shares outstanding - basic and diluted 10,273 3,186

Other comprehensive income:

Unrealized gain on marketable securities, net of tax of $ 0

Total other comprehensive income 26 —

Comprehensive loss $ ( 28,426 ) $ ( 23,210 )

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

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CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY

dollars in thousands, except share data)

dollars in thousands)

Mezzanine Equity

(Convertible Preferred Stock) Common stock Additional paid-in

capital Accumulated deficit Total Shareholders' Equity

capital Accumulated

other comprehensive

income Accumulated deficit Total Shareholders' Equity

Number of shares Amounts Number of shares Amounts Amounts

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CHANGES DURING 2022:

Net loss — — — — — ( 73,329 ) ( 73,329 )

Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan — — 20,274 — 410 — 410

Reclassification due to reverse stock split — — — ( 5 ) 5 — —

Vesting of restricted stock units, net of withholding for tax, and shares issued under employee share purchase plan — — 16,749 — 9 — — 9

Stock-based compensation — — — — 4,297 — — 4,297

Deemed dividend to warrants holders due to warrant modification — — — — —

Issuance of common stock under at-the-market offering, net of $ 1,038 issuance costs

Issuance of equity line of credit commitment shares in March 2022 — — 92,644 — — — — —

Issuance of common stock in at-the-market offering, net of $ 135 in issuance costs

— — 143,770 — 1,470 — — 1,470

Issuance of common stock through a registered direct offering, net of $ 3,177 issuance costs

Issuance of convertible preferred stock, net of $ 89 in issuance costs

3,000 211 — — — — — —

Net loss — — — — — — ( 23,210 ) ( 23,210 )

BALANCE AT DECEMBER 31, 2022 3,000 $ 211 3,229,704 $ — $ 693,937 $ — $ ( 662,735 ) $ 31,202

CHANGES DURING 2023:

Net loss — — — — — ( 23,210 ) ( 23,210 )

Reclassification due to reverse stock split — — — ( 5 ) 5 — —

Vesting of restricted stock units and shares issued under employee share purchase plan — — 16,749 — 9 — 9

Vesting of restricted stock units, net of withholding for tax, and shares issued under employee share purchase plan — — 50,214 — ( 18 ) — — ( 18 )

Stock-based compensation — — — — 3,305 — — 3,305

Issuance of commitment shares in March 2022 — — 92,644 — — — —

Issuance of common stock, under at-the-market offering, net of $ 135 in issuance costs

Redemption of convertible preferred stock ( 3,000 ) ( 211 ) — — — ( 149 ) ( 149 )

Issuance of common stock in at-the-market offering, net of $ 5 in issuance costs

— — 34,589 — 156 — — 156

Issuance of convertible preferred stock, net of $ 89 in issuance costs

Issuance of common stock and pre-funded warrants in Private Placement, net of $ 5,486 in issuance costs

— — 10,652,543 1 82,664 — — 82,665

Cashless exercise of pre-funded warrants — — 131,838 — — — — —

Unrealized gains from marketable securities — — — — — 26 — 26

Net loss — — — — — ( 28,452 ) ( 28,452 )

BALANCE AT DECEMBER 31, 2023 — $ — 14,098,888 $ 1 $ 780,044 $ 26 $ ( 691,336 ) $ 88,735

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operating activities:

Depreciation and amortization 72 109

Depreciation — 72

Stock-based compensation 3,305 4,297

Non-cash finance expense, net — 2,472

Loss from sale and disposal of fixed assets — 282

Debt prepayment premium — 1,432

Gain on the sale of the MST Franchise — ( 12,918 )

Changes in operating asset and liabilities:

Decrease in trade receivables, prepaid and other assets 11,210 7,709

Amortization of premium or discount on marketable securities ( 255 ) —

Unrealized gains on cash equivalents 1 —

Changes in operating assets and liabilities:

Decrease in inventory — 97

Decrease in other non-current assets — 841

Decrease in trade payables, accrued expenses and employee related obligations and severance benefits ( 8,681 ) ( 2,675 )

Decrease in operating lease liabilities ( 349 ) ( 1,212 )

Decrease in trade receivables, prepaid and other current assets and operating lease right of use asset 405 11,210

Decrease in trade payables, accrued expenses, employee related obligations, liability for employee severance benefits and other long-term liabilities ( 559 ) ( 8,681 )

Increase (decrease) in operating lease liabilities 214 ( 349 )

Net cash used in operating activities ( 25,341 ) ( 29,200 )

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Proceeds from the sale of the MST Franchise 5,000 15,667

Proceeds from sale and maturity of marketable securities and bank deposits — 1,027

Net cash provided by investing activities 15,667 1,027

Purchases of marketable securities ( 62,354 ) —

Net cash (used in) provided by investing activities ( 57,354 ) 15,667

Cash Flows From Financing Activities:

Proceeds related to the issuance of common shares through offerings, net of issuance costs 1,470 75,981

Debt repayment — ( 36,432 )

(Withholdings) proceeds from exercise of options and issuance of shares for stock-based compensation arrangements, net ( 28 ) 522

Withholding tax from net exercise of restricted share units — ( 294 )

Proceeds related to issuance of convertible preferred stock, net of issuance costs 211 —

Proceeds related to the issuance of common shares and pre-funded warrants through private placement, net of issuance costs 82,665 —

Proceeds related to the issuance of common shares through at-the-market offerings, net of issuance costs 156 1,470

(Redemption) proceeds of convertible preferred stock ( 360 ) 211

Withholdings from exercise of options and issuance of shares for stock-based compensation arrangements, net ( 67 ) ( 28 )

Net cash provided by financing activities 82,394 1,653

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Restricted cash 54 67

Total cash, cash equivalents and restricted cash shown in statement of cash flows $ 30,975 $ 42,855

Total cash, cash equivalents and restricted cash $ 30,674 $ 30,975

VYNE THERAPEUTICS INC.

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Supplementary information on investing and financing activities not involving cash flows:

Accretion of preferred stock $ 149 $ —

Issuance of shares under employee share purchase plan $ 48 $ 37

Cashless exercise of warrants $ 132 $ —

Amount due from sale of MST Franchise $ — $ 5,000

Additions to operating lease right of use assets $ 207 $ —

Additions to operating lease liabilities $ 214 $ —

Supplemental disclosure of cash flow information:

Interest received $ 1,139 $ 446

Interest paid $ — $ 2,385

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

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(the "Company") is a clinical-stage biopharmaceutical company focused on developing proprietary, innovative and differentiated therapies for the treatment of immuno-inflammatory conditions.

In August 2021, the Company entered into a transaction with Tay Therapeutics Ltd.

(formerly known as In4Derm Limited, "Tay") providing the Company with exclusive worldwide rights to research, develop and commercialize products containing bromodomain and extra-terminal (“BET”) inhibitors for the treatment of any disease, disorder or condition in humans.

Through our access to this library of new chemical BET inhibitor compounds, the Company plans to develop product candidates for a diverse set of indications.

Based on preclinical data generated to date, the Company has chosen to focus its initial efforts for this platform on select therapeutic areas in immuno-inflammatory disease.

The Company's lead program is VYN201, a locally administered pan-BET inhibitor designed as a “soft” drug to address diseases involving multiple, diverse inflammatory cell signaling pathways while providing low systemic exposure.

To date, VYN201 has produced consistent reductions in pro-inflammatory and disease-related biomarkers, improvements in disease severity and a demonstrated local activity through several preclinical models.

The Company believes that these data suggest potential broad utility for VYN201 across multiple routes of administration.

In November 2022, the Company initiated a Phase 1a/b clinical trial evaluating a topical formulation of VYN201 for the treatment of nonsegmental vitiligo.

In February 2023, the Company announced positive preliminary safety data from the Phase 1a portion of the trial.

The first nonsegmental vitiligo patient was dosed in the Phase 1b portion of the trial in January 2023 and the Company expects topline results from this trial in mid-2023.

The Company's second program is VYN202, a BD2-selective oral small molecule BET inhibitor.

VYN202 is in preclinical development for the treatment of immuno-inflammatory indications, and is being designed to achieve class-leading selectivity (BD2 vs.

In August 2021, the Company entered into a transaction with Tay Therapeutics Ltd., formerly known as In4Derm Limited "Tay"), providing the Company with exclusive worldwide rights to research, develop and commercialize products containing bromodomain and extra-terminal domain (“BET”) inhibitors for the treatment of any disease, disorder or condition in humans.

Through its access to this library of new chemical BET inhibitor compounds, the Company plans to develop product candidates for a diverse set of indications.

Based on data generated to date, the Company has chosen to focus its initial efforts for this platform on select therapeutic areas in immuno-inflammatory disease.

The Company's lead program is VYN201, a locally administered pan-bromodomain ("BD") BET inhibitor designed as a “soft” drug to address diseases involving multiple, diverse inflammatory cell signaling pathways while providing low systemic exposure.

In preclinical testing, VYN201 produced consistent reductions in pro-inflammatory and disease-related biomarkers and improvements in disease severity across a variety of inflammatory and fibrotic models.

The Company's second program is VYN202, an oral small molecule BD2-selective BET inhibitor.

VYN202 has been designed to achieve potential class-leading selectivity (BD2 vs.

BD1), maximum potency versus BD2 and optimal oral bioavailability.

By maximizing BD2 selectivity, the Company believes VYN202 has the potential to be a more conveniently-administered non-biologic treatment option for both acute control and chronic management of immuno-inflammatory indications, where the damaging effects of unrestricted inflammatory signaling activity is common.

The Company intends to actively evaluate and enter into strategic partnerships to advance its product candidates through the clinic toward commercialization, and may also partner with leading pharmaceutical companies to advance the Company's molecules in therapeutic areas outside of its core focus in immunology.

The Company believes selectively entering into collaborations has the potential to expand and accelerate the development of its programs and maximize the value of its pipeline.

In August 2021, the Company determined to dispose of its legacy commercial business and focus its strategy on the development of BET inhibitor product candidates through its licensing arrangements with Tay.

For additional information regarding the sale of the commercial business to Journey Medical Corporation in January 2022 and the Company's licensing arrangements with Tay, see "—Note 3 - Strategic Agreements."

The Company intends to advance its product candidates through clinical development toward regulatory approval.

As part of its strategy to maximize the value of its pipeline, the Company may partner with larger pharmaceutical companies to expand and accelerate the development of its programs and explore therapeutic areas outside of its core focus in immunology.

For additional information regarding the sale of the Company's legacy commercial business (the "MST Franchise") to Journey Medical Corporation in January 2022 and the Company's licensing arrangements with Tay, see "—Note 3 - Strategic Agreements."

The Company is a Delaware corporation, has its principal executive offices in Bridgewater, New Jersey and operates as one business segment.

Reverse stock split and recasting of per-share amounts

On February 10, 2021, the Company's board of directors approved a one-for-four reverse stock split of its outstanding shares of common stock.

The reverse stock split was effected on February 12, 2021 at 5:00 p.m.

Eastern time.

At the effective time, every four issued and outstanding shares of the Company's common stock were converted into one share of common stock.

No fractional shares were issued in connection with the reverse stock split, and in lieu thereof, each stockholder holding fractional shares was entitled to receive a cash payment (without interest or deduction) from the Company’s transfer agent in an amount equal to such stockholder’s respective pro rata shares of the total net proceeds from the Company’s transfer agent sale of all fractional shares at the then-prevailing prices on the open market.

In connection with the reverse stock split, the number of authorized shares of the Company's common stock was also reduced on a one-for-four basis, from 300 million shares to 75 million shares.

The par value of each share of common stock remained unchanged.

A proportionate adjustment was also

made to the maximum number of shares issuable under the Company’s 2019 Equity Incentive Plan, 2018 Omnibus Incentive Plan and 2019 Employee Share Purchase Plan.

None of the authorized shares were impacted by the reverse stock split.

On July 19, 2021, the Company held its meeting of Stockholders (the "Annual Meeting").

Following the approval by the holders of a majority of the outstanding shares of common stock at the Annual Meeting, the Company filed a Certificate of Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 75,000,000 to 150,000,000 shares of common stock, par value $ 0.0001 per share.

On February 8, 2023, the Company's board of directors approved a 1-for-18 reverse stock split of its outstanding shares of common stock.

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At the effective time, every 18 issued and outstanding shares of the Company's common stock were converted into one share of common stock.

No fractional shares were issued in connection with the reverse stock split, and in lieu thereof, each stockholder holding fractional shares was entitled to receive a cash payment (without interest or deduction) in an amount equal to such stockholder’s respective pro rata share of the total net proceeds from the Company’s transfer agent's sale of all fractional shares at the then-prevailing prices on the open market.

A proportionate adjustment was also made to the maximum number of shares issuable under the Company’s 2019 Equity Incentive Plan, 2018 Omnibus Incentive Plan and 2019 Employee Share Purchase Plan.

The number of authorized shares of the Company's common stock and the par value of each share of common stock remained unchanged.

Unless noted, all common shares and per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect a 1-for-18 reverse stock split.

Unless noted, all common shares and per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect the 1-for-18 reverse stock split.

Securities Purchase Agreement

On October 27, 2023, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain institutional and other accredited investors (collectively, the “Purchasers”), pursu ant to which the Company agreed to sell and issue to the Purchasers in a private placement transaction (the “Private Placement”) (i) 10,652,543 shares of the Company’s common stock and (ii) with respect to certain Purchasers, pre-funded warrants to purchase 28,614,437 shares of

common stock in lieu of shares (the “Pre-Funded Warrants”).

The purchase price per share of common stock was $ 2.245 per share (the “Stock Purchase Price”) and the purchase price for the Pre-Funded Warrants was the Stock Purchase Price minus $ 0.0001 per Pre-Funded Warrant.

On November 1, 2023, the Company received gross proceeds of $ 88.2 million from the Private Placement.

This transaction resulted in $ 5.5 million of issuance costs and net proceeds of $ 82.7 million as of December 31, 2023.

Liquidity and Capital Resources

Since inception, the Company has funded operations primarily through private and public placements of its equity, debt and warrants and through fees, cost reimbursements and payments received from its licensees.

The Company commenced generating product revenues related to sales of AMZEEQ and ZILXI in January 2020 and October 2020, respectively.

AMZEEQ and ZILXI were sold as part of the sale of the MST Franchise on January 12, 2022 and, as such, the Company no longer generates revenue from the sale of these products.

The Company has incurred losses and experienced negative operating cash flows since its inception and anticipates that it will continue to incur losses until such a time when its product candidates, if approved, are commercially successful, if at all.

The Company will not generate any revenue from any current or future product candidates unless and until it obtains regulatory approval and commercializes such products.

As of December 31, 2023, the Company had cash, cash equivalents, restricted cash and marketable securities of $ 93.3 million and an accumulated deficit of $ 691.3 million.

For the year ended December 31, 2023, the Company incurred a net loss of $ 28.5 million and used $ 25.3 million of cash in operations.

The net loss was comprised of $ 10.7 million of income from discontinued operations and $ 33.9 million loss from continuing operations.

As of December 31, 2022, the Company had cash and cash equivalents, and restricted cash of $ 31.0 million and an accumulated deficit of $ 662.7 million.

The Company received the $ 5.0 million deferred payment from Journey on January 12, 2023, the one-year anniversary of the sale of the MST Franchise.

The net loss was comprised of a $ 27.9 million loss from continuing operations and a $ 0.6 million of loss from discontinued operations.

The Company had no outstanding debt as of December 31, 2023.

The Company has taken a number of actions to support its operations and meet its liquidity needs.

Beginning in the second quarter of 2021, the Company conducted a review of its commercial and research and development portfolio to determine how to optimally deploy capital and drive shareholder value.

Following its review, the Company initiated a process to explore a possible sale or license of its MST Franchise, including AMZEEQ, ZILXI, FCD105 and the underlying MST platform and refocus its resources on its immuno-inflammatory development programs.

As a result of this decision, the Company restructured its operations and reduced its workforce, which lowered operating costs.

In January 2022, the Company sold its MST Franchise.

In March 2022, the Company entered into an equity purchase agreement (the “Equity Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park up to $ 30.0 million of shares of its common stock over the 36 -month term of the Equity Purchase Agreement.

The Company has not made any sales pursuant to the Equity Purchase Agreement to date.

As described above, the Company refocused its limited resources on its immuno-inflammatory pipeline.

Continued research and development activities for these programs, including preclinical and clinical testing of the Company's product candidates, will require significant additional financing.

The future viability of the Company and its ability to continue as a going concern is dependent on its ability to raise sufficient working capital through either debt or equity financings to fund its operations and

successfully develop commercially viable product candidates.

There is no assurance the Company will be able to achieve these objectives under acceptable terms or at all.

In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that its consolidated financial statements are issued.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company's ability to continue as a going concern is expected to be impacted by the outcome of the plans outlined above, including the Company's ability to raise additional capital to fund its operations and the development and results from clinical trials for the BET inhibitor programs.

Based on its current plans and assumptions, the Company believes that absent sufficient proceeds received from financing transactions or business development transactions, the Company will not have sufficient cash and cash equivalents to fund its operations beyond one year from the issuance of these consolidated financial statements.

This assumption does not include proceeds that can be drawn from Lincoln Park.

Accordingly, the Company will, over the course of the next twelve months, require significant additional financing to continue its operations and meaningfully advance the development of its product candidates, including potentially selling a significant amount of shares pursuant to the Equity Purchase Agreement.

The Company may also employ strategies to further extend its ability to fund its operations including:

(1) identification of third-party partners to further develop, obtain marketing approval for and/or commercialize its product candidates, which may generate revenue and/or milestone payments and/or (2) refocusing its resources on research and development programs it chooses to prioritize and reducing spending on other programs by delaying or discontinuing development.

In addition, the amount of proceeds the Company may be able to raise pursuant to its existing shelf registration statement on Form S-3 may be limited.

As of the filing of this Annual Report on Form 10-K, the Company is subject to the general instructions of Form S-3 known as the "baby shelf rules." Under these instructions, the amount of funds the Company can raise through primary public offerings of securities in any 12-month period using its registration statement on Form S-3 is limited to one-third of the aggregate market value of the shares of its common stock held by non-affiliates of the Company.

Therefore, the Company will be limited in the amount of proceeds it is able to raise by selling shares of its common stock using its Form S-3 until such time as its public float exceeds $ 75.0 million.

These factors raise substantial doubt about the Company's ability to continue as a going concern.

Failure to successfully receive additional financing will require the Company to delay, scale back or otherwise modify its business and its research and development activities and other operations.

The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.

Other than in connection with its legacy commercial business, the Company has funded its operations primarily through private and public placements of its equity, debt and warrants and through fees, cost reimbursements and payments received from its licensees.

The Company will not generate any revenue from any current or future product candidates unless and until it obtains regulatory approval and commercializes such products.

If the Company's available cash, cash equivalents, restricted cash and marketable securities are insufficient to satisfy its liquidity requirements, the Company may need to raise additional capital to fund its operations.

No assurance can be given as to whether additional needed financing will be available on terms acceptable to the Company, if at all.

If sufficient funds on acceptable terms are not available when needed, the Company may be required to suspend or forego certain planned activities.

Failure to manage discretionary spending or raise additional financing, as needed, would adversely impact the Company’s ability to achieve its intended business objectives and have an adverse effect on its results of operations and future prospects.

The amount of proceeds the Company may be able to raise pursuant to its shelf registration statement on Form S-3 is limited.

As of the filing of this Annual Report on Form 10-K, the Company is subject to the general instructions of Form S-3 known as the "baby shelf rules." Under these rules, the amount of funds the Company can raise through primary public offerings of securities in any 12-month period using its registration statement on Form S-3 is limited to one-third of the aggregate market value of the shares of the Company's common stock held by its non-affiliates.

Therefore, the Company will be limited in the amount of proceeds it is able to raise by selling shares of common stock using its Form S-3 until such time as the Company's public float exceeds $ 75.0 million.

In accordance with Accounting Standards Codification (“ASC”) Subtopic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that its audited consolidated financial statements are issued.

As of the report date, the Company believes its existing cash, cash equivalents, restricted cash and marketable securities are sufficient to fund its operating and capital expenditure requirements for a period of at least 12 months from the date of issuance of these audited consolidated financial statements.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:

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The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period.

Significant items subject to such estimates and assumptions include revenue recognition and product returns accrual.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the

date of the financial statements and the reported amounts of income and expenses during the reporting period.

Significant items subject to such estimates and assumptions include product returns and research and development accruals.

Actual results could differ from the Company’s estimates.

The COVID-19 pandemic and government measures taken in response to the pandemic have had a negative impact on the Company's operations in 2021.

Access to healthcare providers was limited, which has negatively impacted sales and the

Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI prior to the sale of the assets to Journey in January 2022.

In addition, the Company further assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of December 31, 2022 and through the date of this report.

Foreign Currency Translation

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Cash and cash equivalents

The Company considers as cash equivalents all short-term, highly liquid investments, which include short-term bank deposits and money market funds with original maturities of three months or less from the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash.

As of December 31, 2022 and December 31, 2021, the Company had approximately $ 28.0 million and $ 29.5 million, respectively, of cash equivalents classified as Level 1 financial instruments.

The Company considers as cash equivalents all short-term, highly liquid investments, which include short-term bank deposits, treasury bills and money market funds with original maturities of three months or less from the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash.

Restricted Cash

As of December 31, 2022, the Company had restricted cash of $ 0.1 million.

This amount represents bank guarantees for the Company's Israeli branch.

As of December 31, 2023 and 2022, the Company had restricted cash of $ 0.1 million representing bank guarantees.

Marketable securities

The Company's marketable equity securities are recorded at fair value, with unrealized gains and losses included in other income, net in the consolidated statement of operations.

As of December 31, 2021 and January 12, 2022, the date the inventory was sold as part of the sale of the MST Franchise, inventories were stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis by product.

The Company capitalized inventory costs associated with products following regulatory approval when future commercialization was considered probable and the future economic benefit was expected to be realized.

The Company periodically reviewed its inventory levels and, if necessary, wrote down inventory that was expected to expire prior to being sold, inventory in excess of expected sales requirements and inventory that failed to meet commercial sale specifications, with a corresponding charge to cost of goods sold.

There were no material write-downs for the year ended December 31, 2021 and for the period from December 31, 2021 to January 12, 2022.

As a result of the sale of the MST Franchise there were no inventory balances at December 31, 2022.

Marketable securities with original maturities of greater than three months and remaining maturities of less than one year from the balance sheet date are classified as short-term.

Marketable securities with remaining maturities of greater than one year from the balance sheet date are classified as long-term.

The Company classifies all marketable securities as available-for-sale debt securities.

The Company’s marketable securities are measured and reported at fair value using either quoted prices in active markets for identical securities or quoted prices in markets that are not active for identical or similar securities.

Unrealized gains and losses are reported as a separate component of shareholders’ equity.

The cost of securities sold is determined on a specific identification basis, and realized gains and losses, if any, are included in other income, net within the consolidated statement of operations and comprehensive loss.

Property and equipment

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Impairment of long-lived assets

The Company tests long-lived assets for impairment whenever events or circumstances present an indication of impairment.

If the sum of expected future cash flows (undiscounted and without interest charges) of the assets is less than the carrying amount of such assets, an impairment loss would be recognized.

The Company tests long-lived assets for impair ment whenever events or circumstances present an indication of impairment.

If the sum of expected future cash flows (undiscounted and without interest charges) of the assets is less than the carrying amount

of such assets, an impairment loss would be recognized.

The assets would be written down to their estimated fair values, calculated based on the present value of expected future cash flows (discounted cash flows), or some other fair value measure.

Allowance for doubtful accounts

An allowance for doubtful accounts is maintained for potential credit losses based on the aging of trade receivables, historical bad debts experience and changes in customer payment patterns.

Trade receivable balances are written off against the allowance when it is deemed probable that the receivable will not be collected.

Trade receivables, net are stated net of reserves for certain sales allowances and provisions for doubtful accounts.

Provisions for doubtful accounts were no t material for the years ended December 31, 2022 and 2021.

Debt discounts created as a result of the allocation of proceeds received from a debt issuance to warrants issued are amortized to interest expense under the effective interest method over the life of the recognized debt liability.

Debt issuance costs include the costs of debt financings undertaken by the Company, including legal fees and other direct costs of the financing.

Debt issuance costs related to a recognized debt liability are presented on the consolidated balance sheet as a direct deduction from the carrying amount of the debt liability and are amortized to interest expense over the term of the related debt, using the effective interest method.

Credit losses

An allowance is maintained for potential credit losses in accordance with accounting standards update ("ASU") No.

The Company evaluates its allowance based on expected losses rather than incurred losses, which is known as the current expected credit loss (“CECL”) model.

The allowance is determined using the loss rate approach and is measured on a collective (pool) basis when similar risk characteristics exist.

Where financial instruments do not share risk characteristics, they are evaluated on an individual basis.

The allowance is based on relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts..

T rade receivable balances are written off against the allowance when it is deemed probable that the receivable will not be collected.

Trade receivables, net are stated net of reserves for certain sales allowances and credit losses.

Credit losses were not material for the years ended December 31, 2023 and 2022.

The Company's lease portfolio mainly consists of office space.

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If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability is recorded as accrued expenses in the Company’s financial statements.

If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then

the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material are disclosed.

If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material are disclosed.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantees are disclosed.

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As a result of the disposition of the MST Franchise in January 2022, the Company no longer has any revenue generating products;

however, it still receives certain royalty revenues (see Note 4 Discontinued Operations).

however, it still may receive royalty revenues from the sale of specified products (see Note 4, Discontinued Operations).

Royalty Revenues and Collaboration Agreements

The Company is entitled to royalty payments with respect to sales of a product developed by a customer in collaboration with the Company.

Royalties are recognized as the products are sold by the customer.

This product was not part of the MST Franchise that was sold in January 2022.

Royalties are recognized as revenue when the product is sold by the customer.

Revenues in the amount of $ 0.4 million and $ 0.5 million were recorded during the year ended December 31, 2023 and 2022, respectively.

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For performance obligations that are satisfied over time, the Company utilizes the input method and revenue is recognized by consistently applying a method of measuring progress toward complete satisfaction of that performance obligation.

The Company periodically review our estimated periods of performance based on

the progress under each arrangement and account for the impact of any changes in estimated periods of performance on a prospective basis.

The Company periodically reviews its estimated periods of performance based on the progress under each arrangement and accounts for the impact of any changes in estimated periods of performance on a prospective basis.

Milestone payments are a form of variable consideration as the payments are contingent upon achievement of a substantive

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Net product revenue was typically recognized when customers obtained control of the Company’s products, which occurred at a point in time, typically upon delivery of product to the customers.

The Company evaluated the creditworthiness of its customers to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur.

The Company evaluated the creditworthiness of its customers to determine whether it was probable that a significant reversal in the amount of the cumulative revenue recognized will not occur.

The Company did not assess whether a contract had a significant financing component if the expectation was such that the period between the transfer of the promised goods to the customer and the receipt of payment would be less than one year.

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Shipping and handling costs related to the Company’s product sales were included in selling, general and administrative expenses.

Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, copay program coupons, chargebacks, estimated returns and other incentives.

These reserves are classified as either reductions of accounts receivable or as current liabilities.

Product revenue was recorded net of distribution fees, trade discounts, allowances, rebates, copay program coupons, chargebacks, estimated returns and other incentives.

These reserves were classified as either reductions of accounts receivable or as current liabilities.

The estimates of reserves established for variable consideration reflect contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix.

The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net product revenues only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period.

Actual amounts may ultimately differ from these estimates.

If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment.

The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, was subject to constraint and was included in the net product revenues only to the extent that it was probable that a significant reversal of the amount of the cumulative revenues recognized would not occur in a future period.

Product Sales Provisions

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All other provisions, including rebates, other discounts and return provisions are reflected as a liability within accrued expenses on the consolidated balance sheet.

Provisions for revenue reserves reduced product revenues by $ 62.9 million for the year ended December 31, 2021.

The revenue reserve accrual was $ 2.7 million and $ 5.5 million as of December 31, 2022 and December 31, 2021, respectively and was reflected in accrued expenses in the consolidated balance sheet.

Actual amounts may ultimately differ from these estimates.

If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment.

The revenue reserve accrual was $ 2.3 million and $ 2.7 million as of December 31, 2023 and December 31, 2022, respectively.

Under the terms of the Asset Purchase Agreement, the Company retained and is responsible for historical liabilities of the commercial business operations based on events occurring prior to the sale other than those liabilities expressly assumed by Journey.

Distribution Fees and Trade Discounts and Allowances

The Company paid fees for distribution services and for certain data that distributors provide to the Company and generally provided discounts on sales to its distributors for prompt payment.

These fees and discounts are contractual in nature and the Company expects its distributors to earn these fees and discounts, and accordingly deducts the full amount of these fees and discounts from its gross product revenues at the time such revenues are recognized.

The Company paid fees for distribution services and for certain data that distributors provided to the Company and generally provided discounts on sales to its distributors for prompt payment.

These fees and discounts were contractual in nature and the Company expected its distributors to earn these fees and discounts, and accordingly deducted the full amount of these fees and discounts from its gross product revenues at the time such revenues were recognized.

Rebates, Chargebacks and Other Discounts

Product sales made under managed-care and governmental pricing programs in the U.S.

are subject to rebates.

Managed Care rebates relate to contractual agreements to sell products to managed care organizations and pharmacy benefit managers at contractual rebate percentages in exchange for volume and/or market share.

Chargebacks relate to contractual agreements to sell products to government agencies and other indirect customers at contractual prices that are lower than the list prices the Company charges wholesalers.

When these government agencies or other indirect customers purchase products through wholesalers at these reduced prices, the wholesaler charges the Company for the difference between the prices they paid the Company and the prices at which they sold the products to the indirect customers.

The Company estimates the rebates and chargebacks it expects to be obligated to provide and deducts these estimated amounts from its gross product revenue at the time the revenue is recognized.

The Company estimates the rebates and chargebacks that it expects to be obligated to provide based upon (i) the Company's current contracts and negotiations, (ii) estimates regarding the payer mix based on third-party data and utilization, (iii) inventory held by distributors and (iv) estimates of inventory held at the retail channel.

Other discounts include the Company’s co-pay assistance coupon programs for commercially-insured patients meeting certain eligibility requirements.

The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to pay associated with product that has been recognized as revenue.

Product sales made under managed-care and governmental pricing programs in the United States were subject to rebates.

Managed Care rebates related to contractual agreements to sell products to managed care organizations and pharmacy benefit managers at contractual rebate percentages in exchange for volume and/or market share.

Chargebacks related to contractual agreements to sell products to government agencies and other indirect customers at contractual prices that are lower than the list prices the Company charges wholesalers.

When these government agencies or other indirect customers purchased products through wholesalers at these reduced prices, the wholesaler charged the Company for the difference between the prices they paid the Company and the prices at which they sold the products to the indirect customers.

The Company estimated the rebates and chargebacks it expected to be obligated to provide and deducted these estimated amounts from its gross product revenue at the time the revenue was recognized.

The Company's estimates were based upon (i) the Company's contracts, (ii) estimates regarding the payor mix based on third-party data and utilization, (iii) inventory held by distributors and (iv) estimates of inventory held at the retail channel.

Other discounts included the Company’s co-pay assistance coupon programs for commercially-insured patients meeting certain eligibility requirements.

The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expected to pay associated with product that had been recognized as revenue.

Product Returns

Consistent with industry practice, customers are generally allowed to return products within a specified period of time before and after its expiration date.

The Company estimates the amount of product that will be returned and deducts these estimated amounts from its gross revenue at the time the revenue is recognized.

T he information utilized to estimate the returns provision includes:

Consistent with industry practice, customers were generally allowed to return products within a specified period of time before and after its expiration date.

The Company estimated the amount of product that would be returned and deducted these estimated amounts from its gross revenue at the time the revenue was recognized.

T he information utilized to estimate the returns provision included:

(i) actual return history (ii) historical return industry information regarding rates for comparable pharmaceutical products and product portfolios , (iii) external data with respect to inventory levels in the wholesale distribution channel, (iv) external data with respect to prescription demand for products and (v) remaining shelf lives of products at the date of sale.

Contract Assets and Contract Liabilities

The Company did not have any contract assets (unbilled receivables) related to product sales or as of December 31, 2022, as

customer invoicing generally occurs before or at the time of revenue recognition.

The Company did not have any contract

assets (unbilled receivables) related to its license revenues as of December 31, 2022 or 2021.

The Company did not have any contract assets (unbilled receivables) related to product sales as of December 31, 2023 or 2022, as customer invoicing generally occured before or at the time of revenue recognition.

The Company did not have any contract assets (unbilled receivables) related to its license revenues as of December 31, 2023 or 2022.

The Company did not have any contract liabilities as of December 31, 2023 or 2022, as the Company did not receive payments

in advance of fulfilling its performance obligations to its customers.

Sales Commissions

Sales commissions are generally attributed to periods shorter than one year and therefore are expensed when incurred.

Sales commissions are included in discontinued operations.

Collaboration arrangements

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All costs associated with research and developments are expensed as incurred.

Fair value measurement

Fair value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date.

In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described as follows:

Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

The fair value hierarchy gives the highest priority to Level 1 inputs.

Observable prices that are based on inputs not quoted on active markets, but corroborated by market data or active market data of similar or identical assets or liabilities.

Unobservable inputs are used when little or no market data is available.

The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

Income taxes:

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If this threshold is met, the second step is to measure the tax position as the largest amount that has more than a 50% likelihood of being realized upon ultimate settlement.

Loss per share

Net loss per share

Net loss per share, basic and diluted, is computed on the basis of the net loss from continuing operations for the period divided by the weighted average number of common shares outstanding during the period.

Diluted net loss per share is based upon the weighted average number of common stock and of common stock equivalents outstanding when dilutive.

Common stock equivalents include outstanding stock options and warrants which are included under the treasury share method when dilutive.

The following stock options, restricted stock units (“RSUs”) and warrants were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (share data):

Year ended December 31,

Outstanding share options and RSUs 313,403 294,797

Outstanding stock options and RSUs 1,205,516 313,403

Warrants 27,509 27,509

Fair value measurement

Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

The fair value hierarchy gives the highest priority to Level 1 inputs.

Observable prices that are based on inputs not quoted on active markets, but corroborated by market data or active market data of similar or identical assets or liabilities.

Unobservable inputs are used when little or no market data is available.

The fair value hierarchy gives the lowest priority to Level 3 inputs.

Discontinued Operations

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The Company deposits cash and cash equivalents with highly rated financial institutions and, as a matter of policy, limits the amounts of credit exposure to any single financial institution.

In addition, all marketable securities carry a high rating or are government insured.

In addition, all marketable securities carry a high credit rating or are government insured.

The Company has not experienced any material credit losses in these accounts and does not believe it is exposed to significant credit risk on these instruments.

For the year ended December 31, 2022, the Company had other receivables of $ 5.2 million primarily relating to the deferred payment from the sale of the MST Franchise and royalty receivables.

The Company received the $ 5.0 million deferred payment in January 2023.

Existing royalty receivables relate to one customer, but do not present a credit risk due to immaterial nature.

Restricted cash as of December 31, 2022 was $ 0.1 million which does not present a credit risk due to immaterial nature.

All marketable securities were sold as of December 31, 2021.

For the year ended December 31, 2021, the Company's three largest customers represented 17 %, 15 % and 9 %, of product revenue and collectively 58 % of accounts receivable.

Comprehensive loss

For the years ended December 31, 2022 and 2021, comprehensive loss was equal to the net loss as presented in the accompanying consolidated statements of operations.

Restricted cash as of December 31, 2023 was $ 0.1 million which does not present a credit risk due to its immaterial nature.

Employee Retention Tax Credit

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law, providing numerous tax provisions and other stimulus measures, including employee retention tax credits (“ERTC”).

The ERTC was a refundable tax credit against certain employment taxes for qualifying businesses retaining employees on their payroll during the COVID-19 pandemic and allowed eligible employers to claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they paid to employees, initially from March 27, 2020 until June 30, 2021, and extended through September 30, 2021.

During 2022, the Company filed returns with the Internal Revenue Service (IRS) and claimed credits totaling $ 1.3 million.

During the first quarter of 2023, the Company received the full $ 1.3 million.

As there is no authoritative guidance under U.S.

GAAP on accounting for government assistance to for-profit business entities, the Company has accounted for the ERTC by analogy to International Accounting Standard, Accounting for Government Grants and Disclosure of Government Assistance (“IAS 20”).

The ERTC filings remain open to examination by the IRS until April 2025, and as such the Company has recorded the $ 1.3 million received within other liabilities on the consolidated balance sheet as of December 31, 2023 until such a time that the Company has reasonable assurance that the conditions associated with the grants have been met.

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC Topic 815, Derivatives and Hedging (“ASC 815”).

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent reporting period end date while the warrants are outstanding.

For issued warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance.

For issued warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter.

Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.

Liability-classified warrants are required to be accounted for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded as a component of other income, net in the statements of operations.

As of December 31, 2023 all of the Company's outstanding warrants were equity-classified warrants.

Newly issued and recently adopted accounting pronouncements :

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2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ” (ASU 2016-13), which requires companies to measure credit losses of financial instruments, including customer accounts receivable, utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

Subsequent to the issuance of ASU 2016-13, the FASB issued several additional Accounting Standard Updates to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance.

As a smaller reporting company, the

Company will adopt ASU 2016-13 effective January 1, 2023.

Currently, the Company does not expect the adoption of the new standard to have a material impact to the consolidated financial statements.

In December 2019, the FASB issued Accounting Standards Update No.

2019-12, "Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes," which clarifies and simplifies certain aspects of the accounting for income taxes.

The standard is effective for years beginning after December 15, 2020, and interim periods beginning after December 15, 2020.

This guidance became effective during the first quarter of 2021.

The adoption of the new standard did not have a material impact to the Company's consolidated financial statements.

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No.

Measurement of Credit Losses on Financial Instruments ” (ASU 2016-13), which requires companies to measure credit losses of financial instruments, including customer accounts receivable and marketable securities, utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

Subsequent to the issuance of ASU 2016-13, the FASB issued several additional Accounting Standard Updates

to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance.

As a smaller reporting company, the Company adopted ASU 2016-13 effective January 1, 2023, and there was no material impact on the consolidated financial statements upon adoption.

In March 2020, the FASB issued Accounting Standards Update No.

2020-04, " Reference Rate Reform (Topic 848):

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The provisions of ASU 2020-04 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022.

In December 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No.

Adoption of the provisions of ASU 2020-04 was optional through December 31, 2022.

In December 2022, the FASB issued Accounting Standards Update No.

2022-06, " Reference Rate Reform (Topic 848):

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The Company adopted ASU 2020-06 as of January 1, 2022 and there was no material impact on the consolidated financial statements upon adoption.

In December 2023, the FASB issued ASU No.

2023-09, " Income Taxes (Topic 740)—Improvements to Income Tax Disclosures " ("ASU 2023-09"), which is intended to enhance the transparency and decision usefulness of income tax disclosures.

Public business entities are required to adopt this standard for annual fiscal periods beginning after December 31, 2024 and early adoption is permitted.

The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements and related disclosures.

NOTE 3 - STRATEGIC AGREEMENTS

Agreements with Tay Therapeutics

Evaluation and Option Agreement

In April 2021, the Company entered into an Evaluation and Option Agreement (the “Option Agreement”) with Tay.

Pursuant to the Option Agreement, Tay granted the Company an exclusive option to obtain certain exclusive worldwide rights to research, develop and commercialize products containing Tay’s BET inhibitor compounds for the treatment of any disease, disorder or condition in humans.

Pursuant to the Option Agreement, the Company agreed to use commercially reasonable efforts to stabilize, develop and manufacture a product with a pan-BD BET inhibitor as its active ingredient and Tay agreed to provide a mutually agreed data package and select new chemical entity development candidate from its highly selective BET inhibitor compounds (the "Oral BETi Compounds").

The Company paid a $ 1.0 million non-refundable cash payment to Tay upon execution of the Option Agreement, 50 % of which was to be used by Tay in the development of the Oral BETi Compounds.

Under the terms of the Option Agreement, the Company's option (the "Oral Option") with respect to the Oral BETi Compounds was to expire on June 30, 2022 (the "Option Term"), but in June 2022, the Company and Tay entered into a Letter Agreement (the “Letter Agreement”) to extend the Option Term to February 28, 2023.

Pursuant to the terms of the Letter Agreement, the Company paid Tay $ 386,366 (£ 300,000 ) on June 28, 2022 to extend the Option Term.

In addition, on August 29, 2022, the Company made a second payment to Tay of $ 997,407 (£ 850,000 ) pursuant to the terms of the Letter Agreement following the discovery of potential Oral BETi Compounds for further development.

Both payments were recorded as research and development expense.

On February 27, 2023, the parties entered into an additional Letter Agreement (the "Second Letter

Agreement") pursuant to which the Option Term was extended to April 30, 2023.

As consideration for the extension of the Option Term, the Company paid Tay $ 250,000 upon the execution of the Second Letter Agreement.

Per the terms of the Second Letter Agreement, this fee was deducted from the upfront fee paid by the Company to Tay following the Company's exercise of the Oral Option, as described below.

License for Locally Administered Pan-BD BET Inhibitor Program (VYN201)

On August 6, 2021, the Company exercised its option with respect to the VYN201 program and, on August 9, 2021, the parties entered into a License Agreement (the “VYN201 License Agreement”) granting the Company a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s pan-BD BET inhibitor compounds in all fields.

The Company has the sole responsibility for development, regulatory, marketing and commercialization activities to be conducted for the licensed products at its sole cost and discretion.

The Company is required to use commercially reasonable efforts to develop and, if approved, commercialize such products.

Pursuant to the VYN201 License Agreement, a joint development committee consisting of one representative from each party reviews the progress of the development plan for the licensed products.

Pursuant to the VYN201 License Agreement, the Company may develop a product that contains or incorporates a specific BET inhibitor, whether alone or in combination with other active ingredients, in any form, formulation, presentation, or dosage, and for any mode of administration.

The Company made a $ 0.5 million cash payment to Tay in connection with entering into the VYN201 License Agreement.

Pursuant to the VYN201 License Agreement, the Company has agreed to make cash payments to Tay upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed topical product in the United States of up to $ 15.75 million for all indications.

Tay is entitled to additional milestone payments upon the achievement of regulatory approvals in certain non-U.S.

jurisdictions.

In addition, with respect to any products the Company commercializes under the VYN201 License Agreement, the Company will pay tiered royalties to Tay on net sales of such licensed products by the Company, its affiliates, or sublicensees, of 5 %, 7.5 % and 10 % based on tiered annual net sales bands subject to specified reductions.

The Company is obligated to pay royalties until the latest of (1) the tenth anniversary of the first commercial sale of the relevant licensed product, (2) the expiration of the last valid claim of the licensed patent rights covering such licensed product in such country and (3) the expiration of regulatory exclusivity for the relevant licensed product in the relevant country, on a licensed product-by-licensed product and country-by-country basis.

License for Selective BET Inhibitor Program (VYN202)

On April 28, 2023, the Company exercised the Oral Option and entered into a license agreement (the "VYN202 License Agreement") with Tay granting the Company a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s Oral BETi Compounds in all fields.

The Company has the sole responsibility for development, regulatory, marketing and commercialization activities to be conducted for the licensed products at the sole cost and discretion of the Company, and shall use commercially reasonable efforts to develop and, if approved, commercialize such products.

VYNE may sublicense its rights to a third party without Tay’s consent.

Pursuant to the License Agreement, a joint development committee consisting of one representative from each party reviews the progress of the development plan for the licensed products.

The Company made a cash payment of $ 3.75 million, after deducting the $ 250,000 paid in February 2023, to Tay in connection with entering into the VYN202 License Agreement.

This payment was recorded as a research and development expense in the period paid.

Pursuant to the terms of the VYN202 License Agreement, the Company agreed to make cash payments to Tay of up to $ 43.75 million upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed oral product in the United States for all indications.

Tay is entitled to additional milestone payments upon the achievement of regulatory approvals in certain non-U.S.

jurisdictions.

In addition, with respect to any products the Company commercializes under the VYN202 License Agreement, the Company will pay tiered royalties to Tay on net sales of such licensed products by the Company, its affiliates, or sublicensees, of 5 %, 7.5 % and 10 % based on tiered annual net sales bands subject to specified reductions.

Sale of the MST Franchise

During the course of this review, the Company carefully considered the revenues received from the commercialization of AMZEEQ and ZILXI and the associated costs to drive those revenues, the protracted negative impact of the COVID-19 pandemic during the commercial launches of both AMZEEQ and ZILXI, the payor landscape, as well as the costs to develop each of its pipeline products.

During this process, the Company evaluated several strategic options including the acquisition of marketed assets, out-licensing its approved products outside of the United States, and possible partnering or co-development relationships with interested parties.

Following its review, the Company determined to initiate a process to explore a possible sale or license of its topical minocycline franchise, including AMZEEQ, ZILXI, FCD105 (the Company’s former Phase 3 proprietary novel topical combination foam formulation of minocycline and adapalene for the treatment of moderate-to-severe acne vulgaris) and the underlying Molecule Stabilizing Technology platform.

On January 12, 2022, VYNE entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Journey Medical Corporation ("Journey”) pursuant to which the Company sold its Molecule Stabilizing Technology franchise, including AMZEEQ, ZILXI, and FCD105 (the “MST Franchise”), to Journey.

The assets include certain contracts, including the license agreement with Cutia Therapeutics (HK) Limited (“Cutia”), inventory and intellectual property related to the MST Franchise (together, the “Assets”).

Pursuant to the Agreement, Journey assumed certain liabilities of the MST Franchise including, among others, those arising from VYNE’s patent infringement suit initiated against Padagis Israel Pharmaceuticals Ltd.

On January 12, 2022, VYNE entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Journey Medical Corporation (“Journey”) pursuant to which the Company sold its Molecule Stabilizing Technology franchise, including AMZEEQ, ZILXI, and FCD105 (referred to collectively as the “MST Franchise”), to Journey.

The assets included certain contracts, including the license agreement with Cutia Therapeutics (HK) Limited (“Cutia”), inventory and intellectual property related to the MST Franchise (together, the “Assets”).

Pursuant to the Agreement, Journey assumed certain liabilities of the MST Franchise.

There were no current or long-term liabilities recorded by the Company which were transferred to Journey.

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In addition, the Company is entitled to receive certain payments from any licensing or sublicensing of the assets by Journey outside of the United States.

As the Company transitioned from a commercial organization to one focused on research and development, the Company streamlined operations by eliminating the vast majority of planned expenditures supporting its commercial operations.

Furthermore, following its decision to divest the MST Franchise, the Company reduced its workforce by terminating approximately 70 employees.

The Company incurred a one-time charge of $ 1.6 million in the year ended December 31, 2021 in connection with this restructuring plan, consisting of $ 1.4 million of employee termination costs, including severance and other benefits, and retention payments of $ 0.2 million.

The Company did not incur any material expenses in 2022 as a result of the restructuring plan.

BET Inhibitor License Agreements

On August 12, 2021, the Company announced a transaction with Tay Therapeutics Limited (formerly known as In4Derm Limited), a company incorporated and registered in Scotland (“Tay”).

Tay is a spin-out of the University of Dundee’s School of Life Sciences which has discovered and is developing proprietary Bromodomain and Extra-Terminal Domain ("BET") inhibitors for the treatment of immunology and oncology conditions.

On April 30, 2021, the parties entered into an Evaluation and Option Agreement (the “Option Agreement”) pursuant to which Tay granted the Company an exclusive option to obtain exclusive worldwide rights to research, develop and commercialize products containing Tay’s BET inhibitor compounds, which are new chemical entities for treatments in all fields for any disease, disorder or condition in humans.

Under the terms of the Option Agreement, the Company's option with respect to selective BET inhibitor compounds ("Oral Option") was to expire upon the earlier of (i) 14 days following the delivery of an agreed data package and selection of a lead new chemical entity candidate by Tay or (ii) June 30, 2022 (the "Option Term").

On June 15, 2022, the parties entered into a Letter Agreement (the “Letter Agreement”) to extend the Option Term to February 28, 2023.

Pursuant to the terms of the Letter Agreement, the Company paid $ 386,366 (£ 300,000 ) on June 28, 2022 to Tay to extend the Option Term.

In addition, a second payment of $ 997,407 (£ 850,000 ) was paid to Tay pursuant to the terms of the Letter Agreement on August 29, 2022 following the discovery of potential preclinical candidates.

Both payments were recorded as research and development expense.

On February 27, 2023, the parties entered into a Letter Agreement (the "Second Letter Agreement") pursuant to which the Option Term has been extended to April 30, 2023.

As consideration for the extension of the Option Term, the Company paid Tay $ 250,000 upon the execution of the Second Letter Agreement.

Per the terms of the Second Letter Agreement, this fee will be deducted from the upfront fee payable by the Company to Tay in the event that the Company exercises the Oral Option.

On August 6, 2021, the Company exercised its option with respect to certain of Tay's pan-BD Inhibitor Compounds ("Topical Option").

On August 9, 2021, the parties entered into a License Agreement (the "VYN201 License Agreement") granting the Company a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s pan-BD BET inhibitor compounds in all fields.

The Company paid a $ 1.0 million cash payment to Tay upon the execution of the Option Agreement and $ 0.5 million in connection with entering into the VYN201 License Agreement.

These payments were recorded as a research and development expense in the period paid.

Tay is entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S.

The VYN201 License Agreement provides for tiered royalty payments of up to 10 % of annual net sales on the licensed product.

In the event that the Company exercises the Oral Option, the parties will enter into a license agreement (the "VYN202 License Agreement") granting the Company a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s selective BET inhibitor compounds in all fields.

The Company will owe a $ 4.0 million cash payment, less the extension fee paid in connection with Second Letter Agreement, to Tay in connection with entering into the VYN202 License Agreement.

If the parties enter into the VYN202 License Agreement, the Company will make cash payments to Tay of up to $ 43.75 million upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed oral product in the United States for all indications.

Tay will also be entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S.

The VYN202 License Agreement will provide for tiered royalty payments of up to 10 % of annual net sales on the licensed product.

NOTE 4 – DISCONTINUED OPERATIONS

On January 12, 2022, the Company entered into the Purchase Agreement with Journey pursuant to which the Company sold its MST Franchise to Journey.

The Company has determined that the sale of the MST Franchise represents a strategic shift that had a major effect on the business and therefore the MST Franchise met the criteria for classification as discontinued operations at March 31, 2022.

The Company determined that the sale of the MST Franchise represented a strategic shift that had a major effect on the business and therefore the MST Franchise met the criteria for classification as discontinued operations.

Accordingly the MST Franchise is reported as discontinued operations in accordance with ASC 205-20, Discontinued Operations .

Amounts applicable to prior years have been recast to conform to the discontinued operations presentation.

The Company recognized a gain on the sale of the MST Franchise upon closing.

The negative product sales for the year ended December 31, 2022 was primarily attributable to a change in the product returns provision following the sale of the MST Franchise.

The negative product sales for the years ended December 31, 2023 and 2022 were primarily attributable to a change in the product returns provision following the sale of the MST Franchise.

The following table presents the combined results of discontinued operations of the MST Franchise:

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Operating expenses:

Research and development — 5,415

Selling, general and administrative 55 259

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Net income (loss) from discontinued operations $ ( 580 ) $ 10,735

The following table presents the carrying amounts of the classes of assets related to the discontinued operations of the MST Franchise as of December 31, 2021:

(in thousands) December 31, 2021

Current assets:

Inventory $ 7,291

Prepaid expenses and other assets 554

Total current assets of discontinued operations $ 7,845

Inventory was primarily comprised of $ 3.3 million of raw materials and $ 4.0 million of finished goods.

The following table presents non-cash items related to discontinued operations, which are included in the Company's consolidated statement of cash flows for the years ended December 31, 2022 and 2021:

The following table presents non-cash items related to discontinued operations, which are included in the Company's consolidated statement of cash flows for the year ended December 31, 2022:

Year ended December 31,

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*Income from stock-based compensation is related to forfeitures.

There were no non-cash items related to discontinued operations for the year ended December 31, 2023.

The following table presents the gain on the sale of the MST Franchise:

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Cash proceeds 20,000

Proceeds paid in January 2023 5,000

Proceeds received in January 2023 5,000

Less transaction costs ( 4,334 )

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As such, the research and development, marketing, selling and general and administrative expenses in discontinued operations include corporate costs incurred directly to solely support the MST Franchise.

The milestone payment for sales of ZILXI, AMZEEQ and FCD105 represent contingent consideration.

The potential milestone payments for sales of ZILXI, AMZEEQ and FCD105 represent contingent consideration.

Contingent consideration has been accounted for as a gain contingency in accordance with ASC 450, Contingencies , and will be recognized in earnings in the period when realizable.

NOTE 5 - FAIR VALUE MEASUREMENTS

The Company’s financial assets that are measured at fair value as of December 31, 2023 are classified in the tables below in one of the three categories described in "Note 2(q) - Fair value measurement" above:

December 31, 2023

(in thousands) Level 1 Level 2 Level 3 Total

Cash equivalents $ 20,353 $ 10,267 $ — $ 30,620

Marketable securities — 62,633 — 62,633

Total assets $ 20,353 $ 72,900 $ — $ 93,253

As of December 31, 2022, the Company had $ 28.0 million of cash equivalents classified as Level 1 financial instruments and no marketable securities.

Other financial instruments consist of trade receivables, trade payables and accrued expenses.

The fair value of these financial instruments approximates their carrying values due to their short-term nature.

In determining the fair value of its Level 2 investments, the Company relied on quoted prices for identical securities in markets that are not active.

These quoted prices were obtained by the Company with the assistance of a third-party pricing service based on available trade, bid and other observable market data for identical securities.

NOTE 6 - MARKETABLE SECURITIES

Marketable securities as of December 31, 2023 consisted of U.S Government and agency bonds as well as U.S Treasury bills.

The Company did not hold any marketable securities as of December 31, 2022.

The following tables sets forth the Company’s marketable securities:

(in thousands) 2023

Government and agency bonds $ 31,886

Treasury bills 30,747

Total $ 62,633

As of December 31, 2023, the fair value, amortized cost, gross unrealized gains, and gross unrealized losses were as follows:

December 31, 2023

(in thousands) Amortized

Cost Gross Unrealized Gain Gross Unrealized

U.S Government and agency bonds 31,866 30 ( 10 ) 31,886

U.S Treasury bills 30,742 5 — 30,747

Total $ 62,608 $ 35 $ ( 10 ) $ 62,633

As of December 31, 2023, $ 62.6 million of the marketable securities were in an unrealized gain position.

The Company determined that unrealized gains and losses on marketable securities were primarily due to interest rate changes.

No allowance for credit losses related to any of these securities was recorded for the year ended December 31, 2023.

All maturities are less than 12 months.

NOTE 7 - PROPERTY AND EQUIPMENT

Leasehold improvements $ — $ 59

Computers and software — 374

Laboratory equipment — 53

Furniture — 419

Accumulated depreciation and amortization — 551

Property and Equipment, net $ — $ 354

Depreciation and amortization expense totaled $ 0.1 million and $ 0.1 million for the years ended December 31, 2022 and 2021, respectively.

During the years ended December 31, 2022 and December 31, 2021, the Company disposed of fixed assets in the net amount of $ 0.3 million and $ 0.1 million, respectively.

Loss on disposal of fixed assets during the year ended December 31, 2022 relates to the write-off of laboratory and leasehold improvements due to a reduction in office space in Israel and the US and is reflected in operating expenses in the Consolidated Statements of Operations.

During the year ended December 31, 2022, the Company disposed of fixed assets in the net amount of $ 0.3 million.

Loss on disposal of fixed assets during the year ended December 31, 2022 related to the write-off of laboratory and leasehold improvements due to a reduction in office space in Israel and the United States and is reflected within operating expenses on the consolidated statements of operations.

Depreciation expense totaled zero and $ 0.1 million for the years ended December 31, 2023 and 2022, respectively.

NOTE 8 - ACCRUED EXPENSES

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Product sales provisions $ 2,250 $ 2,695

Professional services 519 1,213

Research and development 990 987

Commercialized product accruals — 596

Professional services 648 519

Other 231 180

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NOTE 9 – OPERATING LEASE

As of December 31, 2022, the Company had operating leases for its principal executive office in Bridgewater, New Jersey.

As of December 31, 2021, the Company previously had operating leases for its vehicles.

In connection with the strategic business review and sale of the MST Franchise certain vehicle leases were transferred to members of the commercial workforce resulting in the elimination of the operating lease amounts related to fleet vehicles.

As of December 31, 2023, the Company had an operating lease for its principal executive office in Bridgewater, New Jersey.

On March 13, 2019, the Company signed an amendment to the original lease agreement for its principal executive office in Bridgewater, New Jersey (the “Lease Amendment”).

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In addition, the Company signed a Lease Agreement (the “Master Lease”) to lease the Leased Premises following the termination of the Sublease through September 30, 2025.

The Company will record a right of use asset and liability at the commencement date of the Master Lease.

The Master Lease is expected to result in total lease payments of approximately $ 0.3 million.

The lease agreement for the office space in Israel was a one year lease that expired in December 2022.

Given the short-term nature of the lease term, the Company did no t recognize a right-of-use asset and liability.

Operating lease costs for the year ended December 31, 2022 are as follows:

(in thousands) Year Ended December 31

The Company recorded a right of use asset of $ 0.2 million and liability of $ 0.3 million at the commencement date of the Master Lease on October 1, 2023.

The Company's lease agreement for its former office space in Israel was a one year lease that expired in December 2022.

Given the short-term nature of the lease term, the Company did no t recognize a right-of-use asset or liability.

The components of lease expense are as follows:

(in thousands) Year Ended December 31, 2023 Year Ended December 31, 2022

Operating lease expense $ 32 $ 271

Short-term lease expense $ 86 $ 217

Variable lease expense $ ( 16 ) $ 69

Total lease expense $ 102 $ 557

Variable lease expense primarily consists of utility and other common area maintenance ("CAM") charges.

For the year ended December 31, 2023 the variable lease expenses included a reversal of expense related to CAM charges.

Lease expense is included within general and administrative expenses on the consolidated statements of operations.

Operating cash flows for amounts included in the measurement of lease liabilities are as follows:

Year Ended December 31, 2023

Office lease expenses $ 297 $ 357

The operating lease costs include an immaterial amount of variable lease payments for the years ended December 31, 2022 and 2021, respectively.

Lease expense is included within selling, general and administrative expenses on the Consolidated Statements of Operations.

As of December 31, 2021, the lease liabilities reflect a weighted average discount rate of 13.10 % and a remaining weighted average lease term of 0.75 as of December 31, 2021.

There were no lease liabilities as of December 31, 2022.

As of December 31, 2021, the Company had a lien in the amount of $ 0.6 million related to a letter of credit on the Company’s cash in respect of bank guarantees granted in order to secure the lease agreements.

In April 2022, the lien was released and the Company reclassed the $ 0.6 million from restricted cash to cash and cash equivalents due to the lien release.

This amount was presented as restricted cash in the Company's consolidated balance sheet as of December 31, 2021.

Operating leases $ 25

Supplemental information related to leases are as follows:

December 31, 2023

Operating lease right-of-use assets $ 207

Operating lease liabilities $ 214

Weighted average remaining lease term 1.75

Weighted average discount rate 8.00 %

There were no right-of-use assets or lease liabilities as of December 31, 2022.

Maturities of lease liabilities are as follows:

Total lease payments 228

Less imputed interest ( 14 )

Total lease liability $ 214

Current operating lease liabilities 115

Non-current operating lease liabilities 99

Total lease liability $ 214

NOTE 10 - EMPLOYEE SAVINGS PLAN

Beginning September 2017, the Company has made retirement savings plans available to all employees of the Subsidiary, which are intended to qualify as deferred compensation plans under Section 401(k) of the Internal Revenue Code (the “401(k) Plans”).

The Company made contributions to these 401(k) Plans during the years ended December 31, 2022, and 2021 of approximately $ 0.1 million and $ 0.4 million, respectively.

The Company makes retirement savings plans available to all of its employees and those of its subsidiary, which are intended to qualify as deferred compensation plans under Section 401(k) of the Internal Revenue Code (the “401(k) Plans”).

The Company made contributions to these 401(k) Plans during the years ended December 31, 2023 and 2022 of $ 0.1 million in each period.

NOTE 11 – COMMITMENTS AND CONTINGENCIES

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The Company may periodically become subject to legal proceedings and claims arising in connection with its business.

As of December 31, 2022, there are no claims or actions pending against the Company that, in the opinion of management, are likely to have a material adverse effect on the Company.

NOTE 10 - LONG-TERM DEBT

On July 29, 2019, Foamix entered into a Credit Agreement (the "Credit Agreement") to secure up to $ 50.0 million from two lenders, one of which is a significant stockholder of the Company and is considered a related party, and a Securities Purchase Agreement with one of the lenders for gross proceeds of approximately $ 14.0 million, before deducting offering expenses (see "Note 12 - Share Capital" for more information).

On March 9, 2020, the Company entered into an Amended and Restated Credit Agreement and Guaranty (as further amended on August 5, 2020, the "Amended and Restated Credit Agreement"),

whereby the Company guaranteed the indebtedness obligations of the borrower and granted a first priority security interest in substantially all of the Company's assets for the benefit of the lenders.

The term loans drawn under the Amended and Restated Credit Agreement were comprised as follows:

(a) $ 15.0 million that was funded on July 29, 2019 (the “Tranche 1 Loan”) and (b) $ 20.0 million that was funded on December 17, 2019 (the “Tranche 2 Loan”).

The Tranche 2 Loan was borrowed following the FDA’s approval of the Company’s NDA for AMZEEQ and listing of AMZEEQ in the FDA’s “Orange Book,” in addition to maintaining its arrangements with a third party for the commercial supply and manufacture of AMZEEQ.

Subject to any acceleration as provided in the Amended and Restated Credit Agreement, including upon an event of default (as defined in the Amended and Restated Credit Agreement), the loans will mature on July 29, 2024 and bear interest equal to the sum of (A) 8.25 % (subject to increase in accordance with the terms of the Amended and Restated Credit Agreement) plus (B) the greater of (x) the one-month LIBOR as of the second business day immediately preceding the first day of the calendar month or the date of borrowing (if such loan is not outstanding as of the first day of the calendar month), as applicable, and (y) 2.75 %.

A fee in an amount equal to 1.0 % of the aggregate principal amount of all loans made on any given borrowing date shall be payable to the lenders.

The loans were scheduled to mature on July 29, 2024.

However, following discussions with the Company's lenders regarding the revenue targets included in the Amended and Restated Credit Agreement, the revenue expected to be generated for the trailing twelve month period ended June 30, 2021 and the Company's strategic business review discussed in Note 1, the Company determined to prepay its outstanding indebtedness in addition to a 4 % prepayment fee and accrued but unpaid interest in the total amount of approximately $ 36.5 million on August 11, 2021.

Following the prepayment, the Amended and Restated Credit Agreement and the security interests thereunder were terminated.

As of December 31, 2022 there was no debt outstanding.

Perceptive Credit Holdings II, LP ("Perceptive") was one of the lenders and the administrative agent under the Amended and Restated Credit Agreement.

As of August 11, 2021, the date of the prepayment, affiliates of Perceptive were holders of more than 5% of the Company's outstanding common stock.

In connection with the prepayment of the Company's indebtedness, Perceptive received $ 18.3 million, representing their portion of the principal amount, interest and prepayment premium.

As of December 31, 2021, Perceptive was no longer a related party.

In addition, on July 29, 2019, the lenders under the Credit Agreement were issued warrants to purchase up to an aggregate of 61,111 of Foamix ordinary shares, at an exercise price of $ 37.62 per share (the “Warrants”), which represented the five-day volume weighted average price of the Foamix ordinary shares as of the trading day immediately prior to the issuance of the Warrants.

In connection with the completion of the Merger on March 9, 2020, the applicable exchange ratio (the "Exchange Ratio") was applied to the Warrants such that they became exercisable for 36,202 shares of the Company's common stock, and the exercise price was adjusted to $ 63.54 .

On April 6, 2020, following the Phase 3 PN Trial results, the Warrants were further adjusted for the conversion of the contingent stock rights and reverse stock split.

As of December 31, 2022, the Warrants were exercisable for 27,509 shares of the Company's common stock with an exercise price of $ 76.78 per share.

Payment of the exercise price will be made, at the option of the holder, either in cash or as a reduction of common stock issuable upon exercise of the Warrant, with an aggregate fair value equal to the aggregate exercise price ("cashless exercise"), or any combination of the foregoing.

The Warrants are exercisable pursuant to the terms, and subject to the conditions, thereof and expire on July 29, 2026.

Any Warrants left outstanding will be cashless exercised on the Warrants' expiration date, if in the money.

The Warrants issued were classified as equity in accordance with ASC 815-40.

Proceeds received under the Tranche 1 Loan were allocated to the Warrants and the Tranche 1 Loan on a relative fair value basis.

The exercise price of the Warrants will be adjusted in the event of issuances of common stock at a price lower than the exercise price of the warrants then in effect (the “Down Round Feature”).

During the years ended December 31, 2022 and 2021, the Down Round Feature was triggered due to the price per share received from the issuance of common stock.

Refer to Note 11 - Mezzanine and Shareholders' Equity for further information on the impact of the Down Round Feature.

The Warrants expire on July 29, 2026.

During the year ended December 31, 2021 the Company recorded interest expense of $ 5.6 million comprised of interest on debt of $ 3.8 million and discount cost of $ 1.8 million.

The interest expense includes a debt prepayment fee of $ 1.4 million and the write-off of discount costs of $ 1.6 million associated with the Company's prepayment of outstanding indebtedness resulting in a total extinguishment loss of $ 3.0 million.

As of December 31, 2023, there were no claims or actions pending against the Company that, in the opinion of management, are likely to have a material adverse effect on the Company.

NOTE 12 - MEZZANINE AND SHAREHOLDERS' EQUITY

Preferred stock

As of December 31, 2022, the Company's Certificate of Incorporation, as amended, authorized the Company to issue 20,000,000 shares of preferred stock, par value $ 0.0001 per share.

There were 3,000 and 0 shares of Series A Convertible Preferred Stock issued and outstanding as of December 31, 2022 and December 31, 2021, respectively.

As of December 31, 2023, the Company's Amended and Restated Certificate of Incorporation (as amended, the "Certificate of Incorporation") authorized the Company to issue 20,000,000 shares of preferred stock, par value $ 0.0001 per share.

There wer e zero and 3,000 shares of Series A Convertible Preferred Stock issued and outstanding as of December 31, 2023 and December 31, 2022, respectively.

Shares of preferred stock may be issued from time to time in one or more series.

The voting powers (if any), preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions of any series of preferred stock will be set forth in a Certificate of Designation filed pursuant to the Delaware General Corporation Law, as determined by the Company's board of directors.

On November 11, 2022, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Mutual Fund Series Trust, on behalf of AlphaCentric LifeSci Healthcare Fund (the “Purchaser”), pursuant to which the Company issued on November 14, 2022 (the “Closing Date”), in a private placement transaction (the “Transaction”), an aggregate of 3,000 shares of Series A Convertible Preferred Stock, par value $ 0.0001 per share (the “Series A Preferred”), for an aggregate subscription amount equal to $ 300,000 .

This transaction resulted in $ 89,000 of issuance costs and a net subscription of $ 211,000 as of December 31, 2022.

The Company determined that the Series A Convertible Preferred Stock should be classified as Mezzanine Equity (temporary equity outside of permanent equity), that the Series A Convertible Preferred Stock more closely aligned with debt as the intent is for redemption by either the holder or issuer, most likely the issuer (the Company) due to the more favorable redemption terms.

The Purchase Agreement required that the Company convene, no later than January 31, 2023 (excluding adjournments and assuming no review of the Company’s proxy statement by the Securities and Exchange Commission), an annual meeting or special meeting of stockholders for the purpose of presenting to the Company’s stockholders a proposal (the “Proposal”) to approve a reverse stock split of its outstanding Common Stock (the “Reverse Stock Split”), with the recommendation of the board of directors that the Proposal be approved, and that the Company use reasonable best efforts to obtain approval of the Proposal.

The voting powers (if any), preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions of any series of

preferred stock will be set forth in a Certificate of Designation filed pursuant to the Delaware General Corporation Law, as determined by the Company's Board of Directors.

On November 11, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Mutual Fund Series Trust, on behalf of AlphaCentric LifeSci Healthcare Fund (the “Purchaser”), pursuant to which the Company issued on November 14, 2022, in a private placement transaction, an aggregate of 3,000 shares of Series A Convertible Preferred Stock, par value $ 0.0001 per share (the “Series A Preferred”), for an aggregate subscription amount equal to $ 300,000 .

This transaction resulted in $ 89,000 of issuance costs and net proceeds of $ 211,000 .

The Company determined that the Series A Preferred should be classified as Mezzanine Equity (temporary equity outside of permanent equity), because the Series A Preferred more closely aligned with debt as the intent was for redemption by either the holder or the Company due to the favorable redemption terms.

The Purchase Agreement required that the Company convene a meeting of stockholders for the purpose of presenting to the Company’s stockholders a proposal (the “Proposal”) authorizing the Company's board of directors to approve a reverse stock split of its outstanding Common Stock, with the recommendation of the board of directors that the Proposal be approved, and that the Company use reasonable best efforts to obtain approval of the Proposal.

The meeting was convened on January 12, 2023, and the Proposal was approved.

Additionally, the Purchase Agreement contained customary representations, warranties and agreements of the Company and the Purchaser, and customary indemnification rights and obligations of the parties.

The Certificate of Designation provided, among other things, that except as otherwise provided in the Certificate of Designation or as otherwise required by law, the Series A Preferred would have no voting rights (other than the right to vote as a class on certain matters as provided in the Certificate of Designation).

Pursuant to the Purchase Agreement, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series A Co nvertible Preferred Stock (the “Certificate of Designation”) with the Secretary of State of Delaware on November 14, 2022 designating 3,000 shares out of the authorized but unissued shares of its preferred stock as Series A Preferred with a par value of $ 0.0001 per share and establishing the rights, preferences and limitations of the Series A Preferred.

The Certificate of Designation prov ided, among other things, that except as otherwise provided in the Certificate of Designation or as otherwise required by law, the Series A Preferred would have no voting rights (other than the right to vote as a class on certain matters as provided in the Certificate of Designation).

However, pursuant to the Certificate of Designation, each share of Series A Preferred entitled the holder thereof (i) to vote on the Proposal and any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Proposal, and (ii) to 1,000,000 votes per share of Series A Preferred on the Proposal and any such adjournment proposal.

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provided, however, that such shares of Series A Preferred should, to the extent cast on the Proposal or any such adjournment proposal, be automatically and without further action of the holders thereof voted in the same proportion as the shares of common stock (excluding abstentions and any shares of common stock that are not voted) and any other issued and outstanding shares of preferred stock of the Company entitled to vote (other than the Series A Preferred or shares of such other preferred stock, if any, not voted) are voted on the Proposal.

On November 14, 2022, the Company filed the Certificate of Designation with the Secretary of State of the State of Delaware designating 3,000 shares out of the authorized but unissued shares of its preferred stock as Series A Preferred with a stated par value of $ 0.0001 per share.

The Series A Preferred were entitled to customary dividends and distributions when and if paid on shares of the Common Stock and were entitled to the voting rights discussed above.

In addition, the Series A Preferred were entitled to customary dividends and distributions when and if paid on shares of the common stock and were entitled to the voting rights discussed above.

The Series A Preferred had preference over the common stock with respect to distribution of assets or available proceeds, as applicable, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or any other deemed liquidation event.

after 15 business days following the earlier of (i) the date of the approval of the Proposal or (ii) the date the Company otherwise satisfies the Nasdaq listing requirements.

The shares of Series A Preferred were convertible at the option of the holder, at a conversion price of $ 4.68 per share (as adjusted for the reverse stock split), into shares of the Company’s common stock, at any time and from time to time from and after 15 business days following the earlier of (i) the date of the approval of the Proposal or (ii) the date the Company otherwise satisfied the Nasdaq listing requirements.

The Company had the right to redeem the Series A Preferred at any time during the 15 business days following the approval of the Proposal (the "Company Redemption Period") at 120 % of the stated value.

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In addition, the Company would automatically redeem all of the Series A Preferred within five business days following a delisting event as specified in the Certificate of Designation at 130 % of the stated value.

On January 17, 2023, the Company redeemed all outstanding shares of its Series A Preferred, for an aggregate of $ 360,000 paid to the sole holder of the Series A Preferred Stock.

The redemption payment represents 120 % of the stated value of the Series A Preferred Stock pursuant to the Certificate of Designation.

On January 17, 2023, the Company filed a Certificate of Elimination (the “Certificate”) with the Secretary of State of the State of Delaware with respect to the Series A Preferred Stock.

The Certificate (i) eliminated the previous designation of 3,000 shares of Series A Preferred Stock from the Company’s Amended and Restated Certificate of Incorporation, none of which were outstanding at the time of filing, and (ii) caused such shares of Series A Preferred Stock to resume their status as authorized but unissued and non-designated shares of preferred stock.

The number of shares of common stock authorized under the Company's Amended and Restated Certificate of Incorporation was proportionately reduced in connection with the Company's 1-for-4 reverse stock split in February 2021.

On July 19, 2021, the Company held its meeting of Stockholders (the "Annual Meeting").

Each share of common stock is entitled to one vote.

On January 17, 2023, the Company redeemed all outstanding shares of its Series A Preferred, for an aggregate of $ 360,000 paid to the sole holder of the Series A Preferred.

The redemption payment represented 120 % of the stated value of the Series A Preferred Stock pursuant to the Certificate of Designation.

On January 17, 2023, the Company filed a Certificate of Elimination (the “Certificate”) with the Secretary of State of the State of Delaware with respect to the Series A Preferred.

The Certificate (i) eliminated the previous designation of 3,000 shares of Series A Preferred from the Company’s Amended and Restated Certificate of Incorporation, none of which were outstanding at the time of filing, and (ii) caused such shares of Series A Preferred to resume their status as authorized but unissued and non-designated shares of preferred stock.

Pursuant to the Certificate of Incorporation, the Company is authorized to issue 150,000,000 shares of common stock, par value $ 0.0001 per share.

Each share of common stock is entitled to one v ote.

The holders of common stock are also entitled to receive dividends whenever funds are legally available and when and if declared by the board of directors, subject to the prior rights of holders of all classes of preferred stock outstanding.

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At the effective time, every 18 issued and outstanding shares of the Company's common stock were converted into one share of common stock.

No fractional shares were issued in connection with the reverse stock split, and in lieu thereof, each stockholder holding fractional shares was entitled to receive a cash payment (without interest or deduction) in an amount equal to such stockholder’s respective pro rata share of the total net proceeds from the Company’s transfer agent's sale of all fractional shares at the then-prevailing prices on the open market.

The number of authorized shares of the Company's common stock and the par value of each share of common stock remained unchanged.

Unless noted, all common shares and per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect a 1-for-18 reverse stock split.

Unless noted, all common shares and per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect the 1-for-18 reverse stock split.

The Company had reserved shares of common stock for future issuance as follows:

Year ended December 31, 2023

Shares underlying outstanding pre-funded warrants 28,482,594

Shares available for future grant under 2023 Plan (Note 13) 1,129,856

Common stock options outstanding (Note 13) 744,537

Shares available for grant under the Employee Stock Purchase Plan (Note 12) 116,463

Outstanding restricted stock units (Note 13) 460,979

Shares available for future grant under 2018 and 2019 Plans (Note 12) 72,148

Shares reserved for conversion of Series A Convertible Preferred Stock* 64,102

Shares underlying outstanding warrants 27,509

*The Series A Convertible Preferred Stock was fully redeemed on January 17, 2023.

As of December 31, 2022 and December 31, 2021, the Company had equity-classified warrants to purchase an aggregate of 27,509 shares of the Company’s common stock outstanding, with an exercise price of $ 76.78 as of December 31, 2022 and an expiration date of July 29, 2026.

The exercise price will be adjusted in the event the Down Round Feature is triggered.

During the year ended December 31, 2022 and 2021, the Down Round Feature was triggered due to the price per share received from the issuance of common stock.

The Company calculated the value of the effect of Down Round Feature measured as the difference between the warrants’ fair value, using the Black-Scholes-Merton option-pricing model, before and after the Down Round Feature was triggered using the original exercise price and the new exercise price.

The difference in fair value of the effect of the Down Round Feature was immaterial and had no impact on net loss per share in the periods presented.

The exercise price will continue to be adjusted in the event the Company issues additional shares of common stock below the current exercise price, in accordance with the terms of the warrants.

Shares available for grant under the Employee Stock Purchase Plan (Note 13) 101,202

Shares underlying other outstanding warrants 27,509

Issuance of stock

On February 1, 2019, the Company entered into a Sales Agreement (the "2019 Sales Agreement") with Cantor Fitzgerald & Co.

("Cantor Fitzgerald") to sell shares of the Company's common stock, from time to time, with aggregate gross sales proceeds of up to $ 50.0 million through an at-the-market equity offering program under which Cantor Fitzgerald acted as the Company's sales agent.

Cantor Fitzgerald was entitled to compensation for its services equal to up to 3.0 % of the gross proceeds of any shares of common stock sold under the 2019 Sales Agreement.

From January 1, 2021 through January 25, 2021 the Company issued and sold 154,334 shares of common stock at a weighted average price per share of $ 175.68 pursuant to the 2019 Sales Agreement for $ 26.3 million in net proceeds.

Effective as of January 25, 2021, the Company terminated the 2019 Sales Agreement.

On January 26, 2021, the Company entered into a Securities Purchase Agreement with certain institutional and accredited investors for the sale of an aggregate of 293,015 shares of common stock of the Company, at a purchase price of $ 170.64 per share in a registered direct offering.

The offering was completed on January 28, 2021 and the Company received approximately $ 46.8 million in net proceeds, after deducting placement agent fees and other offering expenses.

On August 12, 2021, the Company entered into a new sales agreement (the "Sales Agreement") with Cantor Fitzgerald to sell shares of the Company's common stock, from time to time, with aggregate gross sales proceeds of up to $ 50.0 million through an at-the-market equity offering program under which Cantor Fitzgerald will act as the Company's sales agent.

Cantor Fitzgerald is entitled to compensation for its services equal to up to 3.0 % of the gross proceeds of any shares of common stock sold under the Sales Agreement.

During the year ended December 31, 2021, the Company issued and sold 108,629 shares of common stock at a weighted average per share price of $ 28.26 pursuant to the Sales Agreement for $ 2.9 million in net proceeds.

During the year ended December 31, 2022, the Company issued and sold 143,770 shares of common stock at a weighted average per share price of $ 11.16 pursuant to the 2021 Sales Agreement for $ 1.5 million in net proceeds.

This agreement was in effect as of December 31, 2022.

On March 15, 2022, the Company entered into the Equity Purchase Agreement, with Lincoln Park which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park, at the

Company's discretion, up to $ 30.0 million of shares of its common stock over the 36 -month term of the Equity Purchase Agreement.

At-the-Market Equity Offering Programs

On August 12, 2021, the Company entered into a sales agreement (the "Cantor Sales Agreement") with Cantor Fitzgerald to sell shares of the Company's common stock, from time to time, with aggregate gross sales proceeds of up to $ 50.0 million through an at-the-market equity offering program under which Cantor Fitzgerald would act as the Company's sales agent.

Cantor Fitzgerald was entitled to compensation for its services equal to up to 3.0 % of the gross proceeds of any shares of common stock sold under the Cantor Sales Agreement.

During the year ended December 31, 2022, the Company issued and sold 143,770 shares of common stock at a weighted average per share price of $ 11.16 pursuant to the Cantor Sales Agreement for $ 1.5 million in net proceeds.

During the year ended December 31, 2023, the Company issued and sold 34,589 shares of common stock at a weighted average per share price of $ 4.66 pursuant to the Cantor Sales Agreement for $ 0.2 million in net proceeds.

On February 27, 2024, the Company delivered notice to Cantor Fitzgerald to terminate the Cantor Sales Agreement.

The Company cannot make any future sales of its common stock pursuant to the Cantor Sales Agreement.

On March 1, 2024, the Company entered into a Sales Agreement (the “Cowen Sales Agreement”) with Cowen and Company, LLC, as sales agent (“Cowen”) under which the Company may offer and sell, from time to time at its sole discretion, shares of the Company's common stock through Cowen in an at-the-market offering having an aggregate offering price up to $ 50.0 million.

Cowen is entitled to compensation for its services equal to 3.0 % of the gross proceeds of any shares of common stock sold under the Cowen Sales Agreement.

Sales pursuant to the Cowen Sales Agreement may only take place once the Registration Statement on Form S-3, of which the prospectus for such sales forms a part, is filed and declared effective by the Securities and Exchange Commission.

Equity Line of Credit

On March 15, 2022, the Company entered into a purchase agreement (the "Equity Purchase Agreement") with Lincoln Park Capital ("Lincoln Park") which provided that, upon the terms and subject to the conditions and limitations set forth therein, the Company could sell to Lincoln Park, at the Company's discretion, up to $ 30.0 million of shares of its common stock over the 36 -month term of the Equity Purchase Agreement.

Upon execution of the Equity Purchase Agreement, the Company issued 92,644 shares of its common stock to Lincoln Park as commitment shares in accordance with the closing conditions contained within the Equity Purchase Agreement.

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The commitment shares were valued at $ 0.9 million and recorded as an addition to equity for the issuance of common stock and treated as a reduction to equity as a cost of capital to be raised under the Equity Purchase Agreement.

Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s common stock.

The Equity Purchase Agreement may be terminated by the Company at any time, at its sole discretion, without any additional cost or penalty.

As of December 31, 2022, the Company had no t sold any shares of its common stock to Lincoln Park under the Equity Purchase Agreement.

The Equity Purchase Agreement could be terminated by the Company at any time, at its sole discretion, without any additional cost or penalty.

On October 30, 2023, the Company delivered notice to Lincoln Park terminating the Equity Purchase Agreement.

Private Placement

On October 27, 2023, the Company entered into the Securities Purchase Agreement, pursu ant to which the Company agreed to sell and issue to the Purchasers in the Private Placement (i) 10,652,543 shares of the Company’s common stock and (ii) with respect to certain Purchasers, Pre-Funded Warrants to purchase 28,614,437 shares of common stock in lieu of shares.

The Stock Purchase Price of common stock was $ 2.245 per share and the purchase price for the Pre-Funded Warrants was the Stock Purchase Price minus $ 0.0001 per Pre-Funded Warrant.

On November 1, 2023, the Company received gross proceeds of $ 88.2 million from the Private Placement.

This transaction resulted in $ 5.5 million of issuance costs and net proceeds of $ 82.7 million as of December 31, 2023 .

The Company expects to use the proceeds from the Private Placement to advance its clinical programs and for general corporate purposes.

Pre-Funded Warrants

The Pre-Funded Warr ants issued in the Private Placement will not expire until exercised in full.

The Pre-Funded Warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof immediately following such exercise would exceed a specified beneficial ownership limitation;

provided, however, that a holder may increase or decrease the beneficial ownership limitation by giving 60 days’ notice to the Company, but not to exceed any percentage in excess of 19.99 %.

As of December 31, 2023, 28,482,594 Pre-Funded Warrants remained outstanding.

Between the issuance and December 31, 2023, 131,838 Pre-Funded Warrants were exercised.

Other Warrants

As of December 31, 2023 and December 31, 2022, the Company had warrants to purchase an aggregate of 27,509 shares of the Company’s common stock outstanding, with exercise prices of $ 8.40 and $ 76.78 as of December 31, 2023 and 2022, respectively, and an expiration date of July 29, 2026.

These warrants were issued by Foamix (as defined below) in connection with a financing in July 2019 and were subsequently assumed by the Company in connection with the Merger (as defined below).

Pursuant to the warrant certificate, the exercise price of the warrant will be proportionally adjusted in the event that the Company distributes common stock at a price per share less than the exercise price (the "Down Round Feature").

During the years ended December 31, 2023 and 2022, the Down Round Feature was triggered due to the price per share received from the issuances of common stock.

The difference in fair value of the effect of the Down Round Feature was immaterial and had an immaterial impact on net loss per share in the periods presented.

exercise price will continue to be adjusted in the event the Company issues additional shares of common stock below the current exercise price, in accordance with the terms of the warrants.

The Pre-Funded Warrants and Warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, and permit the holders to receive a fixed number of shares of common stock upon exercise.

In addition, the Pre-Funded Warrants and Warrants do not provide any guarantee of value or return.

NOTE 13 - SHARE-BASED COMPENSATION

Equity incentive plans:

The Company maintains the 2019 Equity Incentive Plan (the “2019 Plan”) and 2018 Omnibus Incentive Plan (the "2018 Plan").

As of December 31, 2022, 57,338 shares remain issuable under the 2019 Plan and 14,810 shares remain issuable under the 2018 Plan.

In January 2022, the number of shares reserved under the 2018 Plan automatically increased by 41,666 shares of common stock pursuant to the terms of the 2018 Plan.

2023 Equity Incentive Plan:

On December 13, 2023, the Company's stockholders approved the Company's 2023 Equity Incentive Plan (the "2023 Plan").

The Company previously maintained the 2019 Equity Incentive Plan (the “2019 Plan”) and 2018 Omnibus Incentive Plan (the "2018 Plan").

Following stockholder approval, any shares then available for future grant under the 2019 Plan and 2018 Plan were allocated to the 2023 Plan.

As of December 31, 2023, 1,129,856 shares remained issuable under the 2023 Plan, and no further grants will be made under the 2018 Plan or 2019 Plan.

2024 Inducement Plan

On February 28, 2024, the Board approved the Company's 2024 Inducement Plan (the "Inducement Plan").

Pursuant to the Inducement Plan and Nasdaq Listing Rule 5635(c)(4), the Company is permitted to grant equity awards as an inducement material to an individual's entering into employment with the Company, subject to certain conditions ("Inducement Grants").

As of February 28, 2024, there were 500,000 shares available for future Inducement Grants.

2019 Employee Share Purchase Plan:

The Company adopted Foamix's Employee Share Purchase Plan ("ESPP") pursuant to which qualified employees (as defined in the ESPP) may elect to purchase designated shares of the Company’s common stock at a price equal to 85 % of the lesser of the fair market value of the common stock at the beginning or end of each semi-annual share purchase period (“Purchase Period”).

The Company has adopted an Employee Share Purchase Plan ("ESPP") pursuant to which qualified employees (as defined in the ESPP) may elect to purchase designated shares of the Company’s common stock at a price equal to 85 % of the lesser of the fair market value of the common stock at the beginning or end of each semi-annual share purchase period (“Purchase Period”).

Employees are permitted to purchase the number of shares purchasable with up to 15 % of the earnings paid (as such term is defined in the ESPP) to each of the participating employees during the Purchase Period, subject to certain limitations under Section 423 of the U.S.

Internal Revenue Code.

As of December 31, 2022, 116,463 shares remain available for grant under the ESPP.

During the year ended December 31, 2022 and 2021, 7,549 and 3,994 shares were issued to employees pursuant to the ESPP, respectively.

As of December 31, 2023, 101,202 shares remained available for grant under the ESPP.

During the years ended December 31, 2023 and 2022, 15,261 a nd 7,549 shares were issued to employees pursuant to the ESPP, respectively.

Options and Restricted Stock Units ("RSUs") granted to employees and directors:

In the years ended December 31, 2022 and 2021, the Company granted options and RSUs as follows:

In the years ended December 31, 2023 and 2022, the Company granted options and RSUs to employees and directors as follows:

Year ended December 31, 2023

Award amount Exercise price range Vesting period Expiration

Employees and Directors:

Options 535,000 $ 2.70

1 year - 4 years

RSU 40,339 — 4 years

RSUs 435,000 — 4 years —

Year ended December 31, 2022

Award amount Exercise price range Vesting period Expiration

Employees and Directors:

Options 48,861 $ 5.62 - $ 10.98

1 year - 4 years

RSU 53,934 — 2 years - 4 years

RSUs 40,339 — 4 years —

The fair value of options and RSUs granted to employees and directors during 2023 and 2022 was $ 2.4 million and $ 0.8 million, respectively.

One share of Common Stock will be issued for each RSU that vests.

One share of common stock will be issued upon settlement of each RSU that vests.

The fair value of RSUs granted to employees and directors is based on the share price on grant date.

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The Company’s management uses the expected term of each option as its expected life.

The expected term of the options granted represents the period of time that granted options are expected to remain outstanding.

The expected term of the options granted represents the period of time that granted options are expected to remain outstanding and is based on the simplified method.

Under the simplified method, the expected life of an option is presumed to be the midpoint between the vesting date and the end of the contractual term.

The Company used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options.

The underlying data used for computing the fair value of the options are as follows:

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In addition, for each option and RSU the holder received a contingent stock right ("CSR").

This transaction was considered by the Company to be a modification under ASC 718, Compensation - Stock Compensation.

This transaction was considered to be a modification under ASC 718, Compensation - Stock Compensation.

The modification did not affect the remaining requisite service period.

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On April 6, 2020, pursuant to the terms of the agreement governing the CSRs, each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective exchange ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share.

The conversion was considered by the company to be a modification under ASC 718.

As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded incremental compensation of $ 0.2 million and $ 1.8 million for the years ended December 31, 2022 and December 31, 2021, respectively.

As of December 31, 2022 there is $ 0.1 million of unrecognized incremental compensation expense related to the modification which will be amortized using a graded vesting method over the next 1 year.

As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded incremental compensation expense of $ 46 thousand and $ 0.2 million for the years ended December 31, 2023 and December 31, 2022, respectively.

As of December 31, 2023 there is an immaterial amount of unrecognized incremental compensation expense related to the modification which will be amortized using a graded vesting method over the next year.

Summary of outstanding and exercisable options and RSUs:

The following table summarizes the number of options outstanding for the year ended December 31, 2022, and related information:

The following table summarizes stock option activity for the year ended December 31, 2023:

Number of options Weighted Average Exercise Price

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Exercisable at December 31, 2023 176,688 $ 151.47

The weighted average remaining contractual term of outstanding and exercisable options as of December 31, 2022, is 6.5 years and 5.5 years, respectively.

Total unrecognized share based compensation for options at December 31, 2022 is $ 2.9 million, which is expected to be recognized over a weighted average period of 2.1 years.

The weighted average remaining contractual term of outstanding and exercisable options as of December 31, 2023 was 8.85 years and 5.74 years, respectively.

Total unrecognized share-based compensation for options at December 31, 2023 was $ 2.3 million, which is expected to be recognized over a weighted average period of 3.13 years.

There was no intrinsic value of outstanding and exercisable options as of December 31, 2023

The following table summarizes the number of RSUs outstanding for the year ended December 31, 2022:

Number of RSUs

The following table summarizes RSU activity for the year ended December 31, 2023:

Number of RSUs Weighted Average Grant Date

Outstanding at December 31, 2022 83,616 $ 43.30

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Outstanding at December 31, 2023 460,979 $ 4.99

Total unrecognized compensation expense related to the unvested portion of the Company's RSUs at December 31, 2022 was $ 2.9 million, which is expected to be recognized over a weighted average period of 2.1 years.

The weighted average remaining contractual term of outstanding RSUs as of December 31, 2023 was 2.16 years.

Total unrecognized compensation expense related to the unvested portion of the RSUs at December 31, 2023 was $ 2.3 million , which is expected to be recognized over a weighted average period of 3.88 years.

Share-based compensation expenses:

The following table illustrates the effect of share-based compensation on the statements of operations:

The following table illustrates the allocation of share-based compensation within the line items on the statements of operations:

Year ended December 31,

Research and development expenses 534 1,230

Selling, general and administrative 3,419 5,243

General and administrative expenses 2,771 3,419

Discontinued Operations* — ( 352 )

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NOTE 14 - INCOME TAX:

The income (loss) before income taxes and the related tax expense (benefit) is as follows:

The loss before income taxes and the related tax (benefit) expense is as follows:

Year ended December 31,

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Federal $ ( 123 ) $ —

Foreign 121 —

Total current taxes $ — $ 13

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federal income tax rate of 21% to loss before tax expense as a result of nondeductible expenses, changes in state effective tax rates, foreign taxes, tax credits generated, true up of net operating loss carryforwards, and increase in the Company’s valuation allowance.

The Company applies the elements of FASB ASC 740-10 regarding accounting for uncertainty in income taxes.

The Company applies the elements of ASC 740-10 regarding accounting for uncertainty in income taxes.

This clarifies the accounting for uncertainty in income taxes recognized in financial statements and required impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority.

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Deferred tax assets:

Net operating loss carry forward $ 72,903 $ 73,259

Net operating loss carryforwards $ 72,508 $ 72,903

Tax credit carryforwards 6,851 7,794

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Deferred tax liabilities:

Other — ( 40 )

Right of use assets — —

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As the achievement of required future taxable income is not likely, the Company recorded a full valuation allowance.

At December 31, 2022 and 2021, the Company recorded a valuation allowance against its net deferred tax assets of approximately $ 86.9 million and $ 85.6 million, respectively.

The change in the valuation allowance during the years ended December 31, 2022 and 2021 was an increase of approximately $ 1.3 million and $ 15.8 million, respectively.

At December 31, 2023 and 2022, the Company recorded a valuation allowance against its net deferred tax assets of $ 89.8 million and $ 86.9 million, respectively.

The change in the valuation allowance during the years ended December 31, 2023 and 2022 was an increase of $ 2.9 million and $ 1.3 million, resp ectively.

A valuation allowance has been recorded since, in the judgment of management, these assets are not more likely than not to be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences and carryforwards become deductible or are utilized.

As of December 31, 2022, the Company had federal and state pre-tax net operating loss carryforwards of approximately $ 318.3 million and $ 90.4 million, respectively.

As of December 31, 2022, research and development credit carryforwards for federal and state purposes are approximately $ 6.6 million and $ 1.2 million, respectively.

As of December 31, 2023, the Company had federal and state net operating loss carryforwards of $ 331.1 million and $ 41.7 million, respectively, of which $ 44.3 million will begin to expire in 2031 for federal and $ 21.3 million will begin to expire in 2040 for state purposes.

As of December 31, 2023, the Company had federal research and development tax credit carryforwards of $ 6.9 million which will begin to expire in 2031.

The Company has no state research and development tax credit carryforwards.

As a result of U.S.

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Sections 382 and 383 of the Internal Revenue Code of 1986 subject the future utilization of net operating losses and certain other tax attributes, such as research and development tax credits, to an annual limitation in the event of certain ownership changes, as defined.

The Company may have undergone ownership changes and therefore may be materially limited in the amount of NOL and R&D tax credit available for utilization in the future.

The Company has not completed a 382 study through December 31, 2023, however, it may have experienced ownership changes in the past, including in connection with the Merger.

In addition, the Private Placement likely resulted in an ownership change for purposes of Section 382 and therefore t he Company may be materially limited in the amount of NOL and R&D tax credit available for utilization in the future.

The Company generated research and development tax credits but has not conducted a study to document the qualified activities.

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Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently, affect the operating results of the Company.

The following table summarizes the activity of the Company unrecognized tax benefits (in thousands):

The following table summarizes the activity of the Company's unrecognized tax benefits (in thousands):

Balance at January 1, 2022

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data