UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission File Number:
(Exact Name of Registrant as Specified in Its Charter) |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
|
| The | ||
|
| The |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
There were
DERMATA THERAPEUTICS, INC.
(FORMERLY DERMATA THERAPEUTICS, LLC)
Form 10-Q
Table of Contents
INDEX
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| 2 |
| Table of Contents |
Part I
Item 1: Financial Statements
DERMATA THERAPEUTICS, INC.
(FORMERLY DERMATA THERAPEUTICS, LLC)
Balance Sheets
|
| June 30, 2022 |
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| December 31, 2021 |
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| (unaudited) |
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Assets: |
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Cash |
| $ |
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| $ |
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Prepaid expenses and other current assets |
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Total assets |
| $ |
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| $ |
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Liabilities and Stockholders’ Equity: |
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Liabilities: |
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Accounts payable |
| $ |
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| $ |
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Accrued and other current liabilities |
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Total liabilities |
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Commitments and Contingencies (see Note 10) |
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Stockholders’ Equity: |
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Common Stock, par value $ |
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Additional paid-in capital |
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Accumulated deficit |
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| ( | ) |
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| ( | ) |
Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
| $ |
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| $ |
| ||
The accompanying notes are an integral part of these financial statements.
| 3 |
| Table of Contents |
DERMATA THERAPEUTICS, INC.
(FORMERLY DERMATA THERAPEUTICS, LLC)
Statements of Operations
|
| For the three months ended June 30, |
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| For the six months ended June 30, |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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| (unaudited) |
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| (unaudited) |
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| (unaudited) |
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| (unaudited) |
| ||||
Operating expenses: |
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Research and development |
| $ |
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| $ |
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| $ |
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| $ |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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| ( | ) |
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| ( | ) |
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| ( | ) |
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| ( | ) |
Other income and expenses: |
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Interest expense, net |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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Net loss per share of common stock, basic and diluted |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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Weighted-average basic and diluted common units/shares |
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The accompanying notes are an integral part of these financial statements.
| 4 |
| Table of Contents |
DERMATA THERAPEUTICS, INC.
(FORMERLY DERMATA THERAPEUTICS, LLC)
Statements of Stockholder’s Equity
Unaudited
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| Additional |
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| Total |
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| Common Stock |
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| Paid-in |
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| Accumulated |
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| Stockholders’ |
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| Shares |
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| Par Value |
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| Capital |
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| Deficit |
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| Equity |
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Balance at December 31, 2021 |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
| ||||
Stock-based compensation |
|
| - |
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| - |
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| - |
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Net loss |
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| - |
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| - |
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| - |
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| ( | ) |
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| ( | ) |
Balance at March 31, 2022 |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
| ||||
Issuance of common stock and warrants, net of issuance costs |
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| - |
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Issuance of common stock upon exercise of pre-funded warrants |
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| - |
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| - |
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Issuance of restricted stock unit awards |
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| - |
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| - |
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| - |
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Stock-based compensation |
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| - |
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| - |
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| - |
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Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| ( | ) |
|
| ( | ) |
Balance at June 30, 2022 |
|
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|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||
The accompanying notes are an integral part of these financial statements.
| 5 |
| Table of Contents |
DERMATA THERAPEUTICS, INC.
(FORMERLY DERMATA THERAPEUTICS, LLC)
Statements of Stockholder's Equity
Unaudited
|
| Class A Common |
|
| Class B Common |
|
| Series 1 Preferred |
|
| Series 1a Preferred |
|
| Series 1a Warrants |
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| Series 1b Preferred |
|
| Series 1c Preferred |
| |||||||||||||||||||||||||||||||||||
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| Units |
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| Amount |
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| Units |
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| Amount |
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| Units |
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| Amount |
|
| Units |
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| Amount |
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| Units |
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| Amount |
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| Units |
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| Amount |
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| Units |
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| Amount |
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Balance at December 31, 2020 |
|
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
| ||||||||||||||
Series 1d Preferred Units issued |
|
| - |
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| - |
|
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| - |
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| - |
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| - |
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| - |
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| ||||||||
Class B Common Units forfeited |
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| ( | ) |
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Conversion of Common Units to Common Stock |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
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|
| - |
|
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|
| - |
|
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| - |
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|
| - |
| ||||||
Conversion of Preferred Units to Preferred Stock |
|
| - |
|
|
| - |
|
|
| - |
|
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| ( | ) |
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| ( | ) |
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| ( | ) |
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| ( | ) |
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| ( | ) |
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| ( | ) |
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| ( | ) |
|
| ( | ) | |
Conversion of Warrant Units to Preferred Stock Warrants |
|
| - |
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| - |
|
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| - |
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| - |
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| ( | ) |
|
| ( | ) |
|
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|
|
|
|
| - |
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| |||||||
Stock-based Compensation |
|
| - |
|
|
| - |
|
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| - |
|
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|
|
| - |
|
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| - |
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| - |
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| |||||||
Net loss |
|
| - |
|
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|
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| - |
|
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| - |
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| - |
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| - |
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| - |
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Balance at March 31, 2021 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
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| - |
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| - |
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| - |
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| - |
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Stock-based Compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
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| - |
|
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| - |
|
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| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
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Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
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| - |
|
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| - |
|
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| - |
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| - |
|
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Balance at June 30, 2021 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
| ||||||
The accompanying notes are an integral part of these financial statements.
| 6 |
| Table of Contents |
DERMATA THERAPEUTICS, INC.
(FORMERLY DERMATA THERAPEUTICS, LLC)
Statements of Stockholder's Equity Unaudited - (Continued)
|
| Series 1d Preferred |
|
| Preferred Stock |
|
| Preferred Stock Warrants |
|
| Common Stock |
|
| Additional |
|
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| |||||||||||||||||||||||||
|
| Units |
|
| Amount |
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Par Value |
|
| Paid-in Capital |
|
| Accumulated Deficit |
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| Total |
| |||||||||||
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Balance at December 31, 2020 |
|
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| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ | ( | ) |
| $ | ( | ) | ||||||
Series 1d Preferred Units issued |
|
|
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|
|
| - |
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| - |
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|
| - |
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| ||||||||
Conversion of Common Units to Common Stock |
|
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|
|
| - |
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| - |
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| |||||||||
Conversion of Preferred Units to Preferred Stock |
|
| ( | ) |
|
| ( | ) |
|
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| - |
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| - |
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| |||||||
Conversion of Warrant Units to Preferred Stock Warrants |
|
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|
|
| - |
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| - |
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| |||||||||
Stock-based Compensation |
|
|
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|
|
| - |
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|
| - |
|
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|
| - |
|
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| ||||||||
Net loss |
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| - |
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|
| - |
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| - |
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| ( | ) |
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| ( | ) | ||||||
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Balance at March 31, 2021 |
|
| - |
|
|
| - |
|
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| ( | ) |
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Stock-based Compensation |
|
| - |
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| - |
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| - |
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| - |
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| - |
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|
| - |
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| - |
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| - |
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| - |
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| ||
Net loss |
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| - |
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| - |
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| - |
|
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| - |
|
|
| - |
|
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| - |
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| - |
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| - |
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| - |
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| ( | ) |
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| ( | ) |
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Balance at June 30, 2021 |
|
| - |
|
| $ | - |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ | ( | ) |
| $ | ( | ) | |||||||
The accompanying notes are an integral part of these financial statements.
| 7 |
| Table of Contents |
DERMATA THERAPEUTICS, INC.
(FORMERLY DERMATA THERAPEUTICS, LLC)
Statements of Cash Flows
|
| For the six months ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (unaudited) |
|
| (unaudited) |
| ||
Cash flows from operating activities: |
|
|
|
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation |
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Amortization of debt discount costs |
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Increase (decrease) in cash resulting from changes in: |
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Prepaid expenses and other current assets |
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Accounts payable |
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Accrued and other current liabilities |
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Net cash used in operating activities: |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock and warrants, net of issuance costs |
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Proceeds from issuance of common stock upon exercise of pre-funded warrants |
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Payments on debt |
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Net proceeds from issuance of convertible subordinated promissory notes |
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Proceeds from issuance of Series 1d preferred units |
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Net cash provided by financing activities: |
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Net decrease in cash |
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Cash at beginning of period |
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Cash at end of period |
| $ |
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| $ |
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Supplemental disclosures: |
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Cash paid for interest |
| $ |
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| $ |
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Cash paid for taxes |
| $ |
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| $ |
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Non-cash financing activities: |
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Conversion of convertible subordinated promissory notes to Series 1d Preferred Units |
| $ |
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| $ |
| ||
Conversion of Common and Preferred Units and Warrants to Common and Preferred Stock and Warrants |
| $ |
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| $ |
| ||
The accompanying notes are an integral part of these financial statements.
| 8 |
| Table of Contents |
DERMATA THERAPEUTICS, INC.
(FORMERLY DERMATA THERAPEUTICS, LLC)
Notes to Financial Statements
(unaudited)
1. Organization and Basis of Presentation
Dermata Therapeutics, Inc., (the “Company”), was formed in December 2014 as a Delaware limited liability company (“LLC”) under the name Dermata Therapeutics, LLC. On March 24, 2021, the Company converted from an LLC to a Delaware C-corporation and changed its name to Dermata Therapeutics, Inc. Any references in these Notes to Financial Statements to equity securities as “units” refer to pre-conversion equity securities and any references to “shares” or “stock” in these Notes to Financial Statements refer to post-conversion equity securities. The Company is a clinical-stage biotechnology company focused on the treatment of medical and aesthetic skin conditions and diseases.
Initial Public Offering
On August 17, 2021, the Company completed its initial public offering (“IPO”), in which it sold
Each of the following occurred in connection with the completion of the IPO in August 2021:
| - | The sale of |
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| - | The conversion of |
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| - | The conversion of $ |
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| - | The conversion of |
Each purchaser in the IPO received one share of common stock and one warrant to purchase one share of common stock at a combined offering price of $
The Company’s shares of common stock and warrants are listed on the Nasdaq Stock Market LLC under the symbols “DRMA,” and “DRMAW,” respectively, and both began trading in August 2021.
After the IPO, there were no shares of preferred stock or preferred stock warrants outstanding. Prior to the IPO, the Company had
Reverse Stock Split
On July 1, 2021, the Company effected a reverse split of shares of the Company’s common stock at a ratio of 1-for-20.5 pursuant to an amendment to the Company’s certificate of incorporation approved by the Company’s board of directors and stockholders. The par value was not adjusted as a result of the reverse split. All issued and outstanding common stock shares and per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented, and the conversion ratios for the Company’s outstanding preferred stock was adjusted accordingly. See Note 6 – Equity Securities for additional information.
| 9 |
| Table of Contents |
Liquidity and Going Concern Uncertainty
Since its inception, the Company has devoted substantially all of its resources to research and development activities and has not generated any revenue or commercialized any product candidates. As of June 30, 2022, cash totaled $
Historically, the Company’s principal sources of cash have included proceeds from the issuance of common and preferred equity units and proceeds from the issuance of debt. The Company’s principal uses of cash have included cash used in operations and payments for license rights. The Company expects that the principal uses of cash in the future will be for continuing operations, funding of research and development, conducting preclinical studies and clinical trials, and general working capital requirements. The Company expects that as research and development expenses continue to grow, it will need to raise additional capital to sustain operations and research and development. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
Management’s Plan to Continue as a Going Concern
To continue as a going concern, the Company will need, among other things, to raise additional capital resources. Until the Company can generate significant cash from operations, management’s plans to obtain such resources for the Company include proceeds from offerings of the Company’s equity securities or debt, or transactions involving product development, technology licensing or collaboration. Management can provide no assurance that any sources of a sufficient amount of financing or collaboration agreements will be available to the Company on favorable terms, if at all. Additionally, the COVID-19 pandemic continues to evolve and has already disrupted global financial markets. The Company’s ability to raise additional capital may be adversely impacted by potential worsening of global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the pandemic. If the disruption persists or deepens, the Company could experience an inability to access additional capital.
The Company has raised additional capital through the initial public offering of its common stock and warrants and through a private placement financing; however, management’s current plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair statement of the financial position, results of operations, cash flows, and stockholders’ equity for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ materially from those estimates.
| 10 |
| Table of Contents |
2. Summary of Significant Accounting Policies
Use of Estimates
The Company’s financial statements are prepared in accordance with GAAP. The preparation of the Company’s financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, and expenses and disclosure of contingent assets and liabilities in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates and judgments, including those related to accrued research and development expenses, stock-based compensation, and the estimated fair values of equity instruments. Management evaluates its estimates on an ongoing basis. The Company bases its estimates on various assumptions that it believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company and the Company’s chief operating decision maker view the Company’s operations and manage its business in one operating segment, which is the business of developing and commercializing pharmaceuticals. The Company operates in only one segment.
Deferred Financing Costs
The Company capitalizes certain legal, accounting, and other fees and costs that are directly attributable to in-process equity financings as deferred offering costs until such financings are completed. Upon the completion of an equity financing, these costs are recorded as a reduction of additional paid-in capital of the related offering. Upon the completion of the IPO in August 2021, approximately $
Cash
The Company deposits its cash with reputable financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”). This cash is held in checking and savings accounts. At times, deposits held may exceed the amount of insurance provided by the FDIC. The Company has not experienced any losses in its cash and believes they are not exposed to any significant credit risk.
Fair Value Measurement
The Company uses a three-tier fair value hierarchy to prioritize the inputs used in the Company’s fair value measurements. These tiers include Level 1, defined as observable inputs such as quoted prices in active markets for identical assets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company believes the carrying amount of cash, accounts payable, accrued expenses and debt approximate their estimated fair values due to the short-term maturities of these financial instruments.
Patent Costs
Patent costs related to obtaining and maintaining patent protection in both the United States and other countries are expensed as incurred. Patents costs are classified as general and administrative expenses.
| 11 |
| Table of Contents |
Research and Development
Research and development costs consist of expenses incurred in connection with the development of the Company’s product candidates. Such expenses include expenses incurred under agreements with contract research organizations, manufacturing and supply scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial supply, outsourced laboratory services, including materials and supplies used to support the Company’s research and development activities, and payments made for license fees and milestones that have not been demonstrated to have commercial value. Such costs are expensed in the periods in which they are incurred. Upfront payments and milestone payments for licensed technology are expensed as research and development as incurred or when the milestone is achieved or is determined to be probable of being achieved. Advanced payments for goods or services to be received in the future for research and development activities are recorded as prepaid expenses and expensed as the related goods are received or services are performed.
Income Taxes
From inception until March 24, 2021, the Company operated as a limited liability company taxed as a partnership. Therefore, any income tax liability or benefit through that date accrued to the Company’s members. Since March 24, 2021, the Company has operated as a C-Corporation and accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability.
Stock-Based Compensation
In March 2021, the Company’s board of directors and shareholders approved the 2021 Omnibus Equity Incentive Plan (“the 2021 Plan”). For stock options granted under the 2021 Plan, the Company measures and recognizes compensation expense for all stock-based awards made to employees, directors, and non-employees, based on estimated fair values recognized using the straight-line method over the requisite service period. The fair value of options to purchase common stock granted to employees is estimated on the grant date using the Black-Scholes valuation model. The calculation of stock-based compensation expense requires that the Company make certain assumptions and judgments about variables used in the Black-Scholes model, including the expected term of the stock-based award, expected volatility of the underlying common stock, dividend yield, and the risk-free interest rate. Forfeitures are accounted for in the period they occur. Restricted stock units (“RSUs”) granted under the 2021 Plan are measured at the grant date fair value of the common stock, with corresponding compensation expense recognized ratably over the requisite service period. Refer to Note 7- Equity Incentive Plan for further discussion.
| 12 |
| Table of Contents |
Comprehensive Loss
Comprehensive loss includes net loss and other comprehensive income (loss) for the periods presented. The Company did not have other comprehensive income (loss) items such as unrealized gains and losses and so for the three and six months ended June 30, 2022, and June 30, 2021, comprehensive loss were equal to the net loss.
Net Loss Per Common Unit/Share
On March 24, 2021, the Company converted from an LLC to a C-corporation. Upon the conversion, each outstanding common unit and preferred unit was converted into one share of common stock and preferred stock, respectively. Common units had similar rights and characteristics of common stock issued upon the conversion. In calculating net loss per share, the Company retrospectively applied the effects of the conversion to the number of common units outstanding prior to the conversion. Net loss per share for periods prior to the conversion to a C-corporation refers to net loss per common unit.
Basic net loss per unit/share is calculated by dividing net loss attributable to common unitholders or shareholders by the weighted-average number of units or shares outstanding during the period, including pre-funded warrants because their exercise requires only nominal consideration for the delivery of shares, without consideration of common unit or share equivalents. Diluted net loss per unit or share is calculated by adjusting weighted-average shares outstanding for the dilutive effect of common unit or share equivalents outstanding for the period. For purposes of the diluted net loss per unit or share calculation, preferred units or shares, profit interests, and warrants to purchase preferred units or shares are considered to be common unit or share equivalents but are excluded from the calculation of diluted net loss per common unit or share if their effect would be anti-dilutive.
As the Company has reported a net loss for the periods presented, diluted net loss per common unit or share is the same as the basic net loss per common unit or share for the periods presented.
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| Three Months Ended June 30, |
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Net loss |
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Weighted-average basic and diluted common units/shares |
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Basic and diluted net loss per common unit/share |
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| $ | ( | ) |
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The common unit or share equivalents that are not included in the calculation of diluted net loss per common unit or share but could potentially dilute basic earnings per share in the future are as follows:
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Series 1 Preferred Units/Shares |
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Series 1a Preferred Units/Shares |
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| - |
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Series 1a Preferred Warrant |
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Series 1b Preferred Units/Shares |
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Series 1c Preferred Units/Shares |
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| - |
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Series 1d Preferred Units/Shares |
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Common Stock Options |
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Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard-setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
| 13 |
| Table of Contents |
3. Balance Sheet Details
The following provides certain balance sheet details:
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4. Subordinated Convertible Promissory Notes
In July and October 2020, the Company issued an aggregate of $
On January 27, 2021, the Company amended the terms of the Notes to increase the maximum amount of convertible promissory notes to be issued from $
In March 2021, the Company further amended the terms of the Notes to allow for the conversion of the Notes into Series 1d Preferred Units at the same price as purchasers of Series 1d Preferred Units. As of March 15, 2021, $
The Company considers the above modification of the Notes in March 2021 to be a substantial modification requiring extinguishment accounting under Accounting Standards Codification (“ASC”) 470-50-40-10. Based upon an independent valuation of the reacquisition price of the Notes, the difference between the reacquisition price and the net carrying amount of the Notes immediately prior to the modification is not material to the financial statements.
| 14 |
| Table of Contents |
In connection with the Company’s IPO in August 2021, the outstanding principal of the Notes and accrued interest totaling $
As of December 31, 2021, and June 30, 2022, the Company had no promissory notes outstanding.
5. Long-Term Debt
In February 2017, the Company entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”) whereas SVB agreed to provide term loans to the Company in two tranches. The first tranche of $
In connection with the Loan and Security Agreement, SVB also received warrant units to purchase, at any time after February 9, 2017 and prior to February 9, 2027,
In June 2019, the Company and SVB entered into a First Amendment to the Loan and Security Agreement whereby if the Company did not achieve certain capital milestones by December 1, 2019, term loan principal payments would be deferred from December 21, 2019 through May 1, 2020 with the deferred principal payments being payable in equal monthly installments, in addition to those principal payments already scheduled to be paid, starting on June 1, 2020 and extending through the February 9, 2021 maturity date of the term loan. In addition, if those principal payments were deferred for that six-month period, a non-refundable amendment fee of $
The non-refundable amendment fee of $
In January and February 2021, the Company paid the final principal payments of $
As of December 31, 2021, and June 30, 2022, the Company had no long-term debt outstanding.
6. Equity Securities
Common Stock and Preferred Stock
On March 24, 2021, the Company entered into a Plan of Conversion (“Conversion”) whereby the Company converted from an LLC under the laws of the State of Delaware to a Delaware C-corporation with the name Dermata Therapeutics, Inc. In connection with the Conversion, each fully paid preferred and common unit in the LLC was converted into a like number of shares of preferred and common stock of the Company with a par value of $
| 15 |
| Table of Contents |
On July 1, 2021, the Company effected a reverse split of shares of the Company’s common stock at a ratio of 1-for-20.5 pursuant to an amendment to the Company’s certificate of incorporation approved by the Company’s board of directors and stockholders. The par value was not adjusted as a result of the reverse split. All issued and outstanding common stock share and per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse split for all periods presented.
On August 17, 2021, the Company completed its IPO, in which it sold
Each of the following occurred in connection with the completion of the IPO in August 2021:
| - | The sale of |
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| - | The conversion of |
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| - | The conversion of $ |
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| - | The conversion of |
After the IPO, there were no shares of preferred stock or preferred stock warrants outstanding. Prior to the IPO, the Company had
On April 25, 2022, the Company closed a private placement (“PIPE”), in which it sold
The Company’s total common stock issued and outstanding was
Series 1 Preferred Units
From the Company’s formation on December 8, 2014 through 2016, the Company issued
| 16 |
| Table of Contents |
Series 1a Preferred Units
In 2016, the Company issued
Series 1b Preferred Units
In 2018, the Company issued
Series 1c Preferred Units
On June 14, 2019, the Company closed participation in a $
In June 2019,
The Company’s Series 1c Preferred Units were converted to preferred stock during the first quarter of 2021. Additionally, in August 2021, the Company converted all preferred stock into common stock. No Series 1c Preferred Units were outstanding as of December 31, 2021 and June 30, 2022.
Series 1d Preferred Units
In March 2021, the Company issued
Class A Common Units
During 2014 and 2015, the Company issued
| 17 |
| Table of Contents |
Class B Common Units
The Company had
Liquidation Preference
Prior to the Company’s IPO in August 2021, the Company’s preferred units were subject to liquidation preferences contained herein. So long as there were no Series A Preferred Units outstanding at the time of a liquidity event, any liquidity event proceeds would have been distributed as follows: First, the Series 1d Preferred Units had a two times preference in liquidation over the Series 1c Preferred Units and then participated with the Series 1c, 1b and 1a Preferred Units once the Series 1c Preferred Unit preferences had been satisfied. Second, proceeds to Series 1c Preferred Unit holders sufficient to cover two times their Series 1c investment; third, proceeds to Series 1, Series 1a, Series 1b, Series 1c, and Series 1d Preferred Unit holders sufficient to cover interest at the rate of
Conversion Rights
Prior to the Company’s IPO in August 2021, the Company’s preferred units were subject to conversion rights contained herein. Upon the first issuance by the Company of any Series A Preferred Units, each Series 1 Preferred Unit and each Series 1a Preferred Unit and each Series 1b Preferred Unit and each Series 1c Preferred Unit and each Series 1d Preferred Unit would have automatically been converted into the number of Series A Preferred Units equal to the sum of the Unit Value with respect to such Series 1 Preferred Unit or Series 1a Preferred Unit or Series 1b Preferred Unit or Series 1c Preferred Unit or Series 1d Preferred Unit as of the conversion date divided by the product of
| 18 |
| Table of Contents |
Stockholders’ Agreements
On March 24, 2021, in connection with the conversion of Dermata Therapeutics, LLC into a Delaware corporation, the Company entered into a Stockholders’ Agreement (as amended, the Stockholders’ Agreement) with all of its then-existing stockholders, including Proehl Investment Ventures, LLC and Hale Biopharma Ventures, LLC. The Stockholders’ Agreement among other things, provided for certain restrictions on transfer of the Company’s shares of capital stock, set forth agreements and understandings with respect to how shares of its capital stock held by the stockholders party thereto will have been voted on, or tendered in connection with, an acquisition of the Company and provided for certain voting rights with respect to the election of directors. In addition, pursuant to the Stockholders’ Agreement, holders of the Company’s Series 1a Preferred Stock were entitled to purchase, at any time prior to March 14, 2026, such number of shares of the Company’s Series 1a Preferred Stock as such Series 1a Stockholder shall request, up to an aggregate number of shares of Series 1a Preferred Stock not to exceed the product of 25% and the aggregate number of shares Series 1a Preferred Stock then held by such Series 1a Stockholder (or the Series 1a Preferred Warrant Rights). The shares of Series 1a Preferred Stock purchased pursuant to any Series 1a Preferred Warrant Right had a per share purchase price of $
On June 29, 2021, with effectiveness on July 1, 2021, the Company’s board of directors amended its Certificate of Incorporation to adjust the conversion price and certain conversion mechanics of the Company’s issued and outstanding Series 1d Preferred Stock, whereby each share of Series 1d Preferred stock would convert into such number of Common Stock as determined by dividing (i) the product of (a) the Original Issue Price for the Series 1d Preferred Stock, multiplied by (b) 1.2, rounded to the nearest whole cent, by (ii) the
On June 29, 2021, with effectiveness on July 1, 2021, the Company’s board of directors approved an amendment to the 2021 Plan to increase the number of shares of Common Stock available for issuances from
On June 29, 2021, the Company’s board of directors approved a
On July 12, 2021, the Company’s board of directors amended its Certificate of Incorporation to further adjust the conversion price and certain conversion mechanics of the Company’s issued and outstanding Series 1d Preferred Stock. The two amendments to the Series 1d Preferred Stock conversion terms were combined for purposes of accounting for the amendments. In order to determine if these amendments resulted in a modification or extinguishment of the Series 1d Preferred Stock, pursuant to the related authoritative guidance, the Company engaged an independent third-party valuation firm to assist with determining the fair value of the Series 1d Preferred Stock immediately before the change in conversion terms, as well as immediately after the change in conversion terms. This resulted in a substantive increase in fair value, and as such, the Company determined the amendments resulted in extinguishment accounting. Accordingly, the Company applied ASC 260, Earnings per Share, and ASC 470, Debt, by analogy to determine the appropriate measurement and presentation.
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| Table of Contents |
On July 30, 2021, the Company entered into a Second Amendment to the License and Settlement Agreement (or, the Second License Amendment), whereby, for the settlement of certain disputes arising under the License Agreement, the Company agreed to exchange the shares of Series 1c Preferred Stock owned by Villani, Inc. (“Villani”) for an increase of milestone payments and royalty rates due to Villani under the License Agreement. On July 30, 2021, Villani surrendered
On August 14, 2021, the Company’s board of directors approved an amendment to the Company’s Certificate of Incorporation to increase the number of shares of Common Stock authorized to
Warrants
Warrants issued at IPO
On August 17, 2021, the Company completed its IPO, in which it sold 2,571,428 shares of its common stock together with 2,571,428 warrants to purchase one share of common stock with an exercise price of $
The Company evaluated the terms of the warrants issued at the IPO and determined that they should be classified as equity instruments based upon accounting guidance provided in ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. Since the Company determined that the warrants were equity classified, the Company recorded the proceeds from the IPO, net of issuance costs, within common stock at par value and the balance of proceeds to additional paid in capital. The fair value of each warrant on August 17, 2021 was $
As of June 30, 2022, the Company had
Underwriter IPO Warrants
Upon the closing of the Company's IPO in August 2021, the Company issued to the underwriters warrants to purchase
Warrants issued with Class B Common Units
In March 2021, the Company granted Class B Common Units Profits interests to certain former employees and consultants. In connection with the conversion from an LLC to a C-Corporation, the Company converted
As of June 30, 2022, the Company had
| 20 |
| Table of Contents |
Warrants issued with Series 1a Preferred Units
In connection with the issuance of 5,000,000 Series 1a Preferred Units in November 2016, each Series 1a Preferred Member received Warrant Units to purchase from the Company, at any time after November 15, 2016 and on or prior to November 15, 2021, such number of Series 1a Preferred Units as such Series 1a Preferred Member shall request,
In connection with the Loan and Security Agreement, SVB also received Warrant Units to purchase, at any time after February 9, 2017 and prior to February 9, 2027,
In July 2021, the Company effected a reverse split of shares of the Company’s common stock at a ratio of 1-for-20.5, and the conversion ratio of the preferred stock was adjusted accordingly. In August 2021, in connection with the Company’s IPO, the outstanding Series 1a preferred warrants were converted into
As of June 30, 2022, the Company had
Common and Pre-Funded Warrants issued with PIPE
In April 2022, the Company completed the PIPE, in which it sold
As of June 30, 2022, the Company had
7. Equity Incentive Plan
Under the Company’s 2021 Omnibus Equity Incentive Plan (the “2021 Plan”), the Company may grant options to purchase common stock, restricted stock awards, performance stock awards, incentive bonus awards, other cash-based awards or directly issue shares of common stock to employees, directors, and consultants of the Company. Effective January 1, 2022, an evergreen provision contained in the Company’s 2021 Plan increased its common shares outstanding by one percent of the common shares outstanding as of December 31, 2021. This evergreen provision resulted in an additional
As of June 30, 2022, there remain an additional
| 21 |
| Table of Contents |
Fair Value Measurement
The Company uses the Black-Scholes option valuation model, which requires the use of highly subjective assumptions, to determine the fair value of stock-based awards. The fair value of each employee stock option is estimated on the grant date under the fair value method using the Black-Scholes model. The estimated fair value of each stock option is then expensed over the requisite service period, which is generally the vesting period. The assumptions and estimates that the Company uses in the Black-Scholes model are as follows:
| · | Fair Value of Common Stock. The estimated fair value of the common stock underlying the Company’s stock option plan was determined by management by considering various factors as discussed below. All options to purchase shares of the Company’s common stock are intended to be exercisable at a price per share not less than the per-share fair value of the Company’s common stock underlying those options on the date of grant. In the absence of a public trading market for the Company’s common stock, before the initial public offering, on each grant date, the Company developed an estimate of the fair value of its common stock based on the information known to the Company on the date of grant, upon a review of any recent events and their potential impact on the estimated fair value per share of the common stock and in part on input from an independent third-party valuation firm. After the Company’s initial public offering, the fair value of common stock is measured as the Company’s closing price of common stock on the date of grant. |
|
|
|
| · | Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes valuation model on the implied yield available on U.S. Treasury zero-coupon issues with a term equivalent to that of the expected term of the options. |
|
|
|
| · | Expected Term. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. Because of the limitations on the sale or transfer of the Company’s common stock as a privately held company, the Company does not believe its historical exercise pattern is indicative of the pattern it will experience as a publicly traded company. The Company plans to continue to use the SAB 110 simplified method until it has sufficient trading history as a publicly traded company. |
| · | Volatility. The Company determines the price volatility based on the historical volatilities of industry peers as it has limited trading history for its common stock price. Industry peers consist of several public companies in the biotechnology industry with comparable characteristics, including clinical trials progress and therapeutic indications. |
|
|
|
| · | Dividend Yield. The expected dividend assumption is based on the Company’s current expectations about its anticipated dividend policy. To date, the Company has not declared any dividends to common shareholders, and therefore the Company has used an expected dividend yield of zero. |
The following table presents the weighted-average assumptions used for the stock option grants:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Grant date fair value |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Risk-free rate |
|
| % |
|
| % |
|
| % |
|
| % | ||||
Dividend yield |
|
| % |
|
| % |
|
| % |
|
| % | ||||
Expected life in years |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expected volatility |
|
| % |
|
| % |
|
| % |
|
| % | ||||
| 22 |
| Table of Contents |
Stock-based Compensation Expense
In general, stock-based compensation is allocated to research and development expense or general and administrative expense according to the classification of cash compensation paid to the employee, director, or consultant to whom the stock award was granted.
On March 24, 2021, in connection with the conversion from an LLC to a C-Corporation, the Company converted
In December 2021, the Company’s board of directors authorized a stock option grant in lieu of a cash bonus for the Company’s Chairman and Chief Executive Officer. The stock-based compensation expense of $
The following table summarizes the total stock-based compensation expense related to stock options and RSUs included in the Company’s statements of operations:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Research and development |
| $ |
|
| $ |
|
| $ | 108,510 |
|
| $ |
| |||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Stock Option Award Activity
A summary of the Company’s Equity Plan stock option activity is as follows:
|
| Number of Options Outstanding |
|
| Weighted- Average Exercise Price |
|
| Weighted- Average Remaining Contractual Term (in Years) |
| |||
Balance at December 31, 2021 |
|
|
|
| $ |
|
|
|
| |||
Options granted |
|
|
|
|
|
|
|
| - |
| ||
Options exercised |
|
| - |
|
|
|
|
|
| - |
| |
Options cancelled |
|
| - |
|
|
|
|
|
| - |
| |
Balance at June 30, 2022 |
|
|
|
| $ |
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2022 |
|
|
|
| $ |
|
|
|
| |||
The aggregate intrinsic value of options exercisable as of June 30, 2022 is calculated as the difference between the exercise price of the underlying options and the closing market price of the Company’s common stock on that date, which was $
As of June 30, 2022, total unrecognized compensation cost related to stock options was approximately $
| 23 |
| Table of Contents |
Restricted Stock Unit Award Activity
A summary of the Company’s Equity Plan restricted stock unit, or RSU, award activity is as follows:
|
| Number of RSU’s outstanding |
| |
Balance at December 31, 2021 |
|
| - |
|
RSUs granted |
|
|
| |
RSUs settled |
|
| - |
|
RSUs cancelled |
|
| - |
|
Balance at June 30, 2022 |
|
|
| |
During the three and six months ended June 30, 2022, the Company issued to certain of the Company’s directors
8. 401(k) Plan
The Company sponsors a 401(k) savings plan for all eligible employees. The Company may make discretionary matching contributions to the plan to be allocated to employee accounts based upon employee deferrals and compensation. To date, the Company has not made any matching contributions into the savings plan.
9. License Agreements
On March 31, 2017, the Company entered into a license agreement, as amended (“The License Agreement”) with Villani, Inc. whereby Villani has granted the Company an exclusive, sub-licensable, royalty-bearing license (“The License”) under the Licensed Patents (as defined in the License Agreement), to formulate, develop, seek regulatory approval for, make or sell products that contain Spongilla lacustris (alone or in combination with other active or inactive ingredients) for the treatment of diseases, disorders and conditions of the skin, including but not limited to acne, rosacea, psoriasis, atopic dermatitis, seborrheic dermatitis, actinic keratosis and eczema that were developed using certain licensed know-how (“Licensed Products”). The Company is responsible for the development (including manufacturing, packaging, non-clinical studies, clinical trials and obtaining regulatory approval and commercialization (including marketing, promotion, distribution, etc.)) for all Licensed Products. In partial consideration of the License, the Company forgave a previous outstanding loan to Villani in the amount of $
The original License Agreement was amended in 2019 and, in consideration of the receipt of certain know-how and patents, the Company issued to Villani
On July 30, 2021, the Company further amended the license agreement with Villani in the Second Amendment to the License and Settlement Agreement (“Second Amendment”). In consideration of the Second Amendment, Villani exchanged the
| 24 |
| Table of Contents |
10. Commitments and Contingencies
Clinical Trials
During 2021, the Company initiated a clinical trial which completed patient enrollment in June 2022; however, had not completed patient treatment by June 30, 2022. Accordingly, the Company anticipates additional research and development expense of $
Coronavirus Pandemic
On March 11, 2020, the World Health Organization declared the outbreak of a coronavirus (COVID-19) pandemic. Significant uncertainties may arise with respect to potential shutdowns of operations or government orders to cease activities due to emergency declarations, inability to operate, employee shortages, or claims for business interruption insurance, etc. Each of these matters may have a significant impact on the future results of the Company.
Supplier Agreement
As a result of Russia’s invasion of Ukraine, the United States, the United Kingdom and the European Union governments, among others, have developed coordinated sanctions and export-control measure packages against Russian individuals and entities. The Company is currently a party to an exclusive supply agreement for the supply of the Spongilla raw material used in DMT310 and DMT410. The counterparty to this supply agreement is a Russian entity. The imposition of enhanced export controls and economic sanctions on transactions with Russia and Russian entities by the United States, the United Kingdom, and/or the European Union could prevent the Company from performing under this existing contract or any future contract it may enter or may prevent the Company from remitting payment for raw material purchased from the Company’s supplier. The Company recently received a shipment of raw material from its supplier containing additional quantities of Spongilla raw material which will provide the Company with sufficient quantities of Spongilla to initiate and complete two Phase 3 studies in moderate-to-severe acne and support filing a new drug application for DMT310 in acne upon the successful completion of two Phase 3 studies. Depending on the extent and breadth of new sanctions or export controls that may be imposed against Russia, otherwise or as a result of the impact of the war in Ukraine, it is possible that the Company’s ability to obtain additional supply of the Spongilla raw material used in DMT310 and DMT410 could be negatively impacted, which could adversely affect its business, results of operations, and financial condition.
Legal Proceedings
In the normal course of business, the Company may be involved in legal proceedings or threatened legal proceedings. The Company is not a party to any legal proceedings or aware of any threatened legal proceedings which are expected to have a material adverse effect on its financial condition, results of operations or liquidity.
11. Related Parties
Prior to the Company converting from an LLC to a C-corporation in March 2021, the Company had two Managing Members. One of the Managing Members remained the Company’s majority stockholder upon the close of the Company’s IPO and serves as the Company’s President, Chief Executive Officer, and Chairman of the Board of Directors. The other Managing Member remained a beneficial owner upon the close of the Company’s IPO and serves as the Company’s Lead Director of the Board of Directors. Hereinafter these two Managing Members, and their affiliates, are referred to collectively as the Principal Stockholders after the completion of the IPO.
During 2020, the Managing Members and other related parties loaned the Company $
During the third quarter of 2021, the Company amended the conversion terms of its Series 1d preferred stock, as described in Note 6 – Equity Securities. As a result of the Series 1d preferred stock amendments, the Company presented a deemed dividend of approximately $
12. Subsequent Event
In July 2022, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) with the Secretary of State of the State of Delaware to increase the number of authorized shares of the Company’s common stock from
| 25 |
| Table of Contents |
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, particularly those under “Risk Factors.”
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties, and other factors, which may be beyond our control, and which may cause our actual results, performance, or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.
There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:
| · | our lack of operating history; |
|
|
|
| · | the expectation that we will incur significant operating losses for the foreseeable future and will need significant additional capital; |
|
|
|
| · | our current and future capital requirements to support our development and commercialization efforts for our product candidates and our ability to satisfy our capital needs; |
|
|
|
| · | our dependence on our product candidates, which are still in various stages of clinical development; |
|
|
|
| · | our ability to acquire sufficient quantities of raw material needed to manufacture our drug product; |
|
|
|
| · | our, or that of our third-party manufacturers, ability to manufacture cGMP quantities of our product candidates as required for pre-clinical and clinical trials and, subsequently, our ability to manufacture commercial quantities of our product candidates; |
|
|
|
| · | our ability to complete required clinical trials for our product candidates and obtain approval from the FDA or other regulatory agencies in different jurisdictions; |
|
|
|
| · | our lack of a sales and marketing organization and our ability to commercialize our product candidates if we obtain regulatory approval; |
|
|
|
| · | our dependence on third parties to manufacture our product candidates; |
|
|
|
| · | our reliance on third-party CROs to conduct our clinical trials; |
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| Table of Contents |
| · | our ability to maintain or protect the validity of our intellectual property; |
|
|
|
| · | our ability to internally develop new inventions and intellectual property; |
|
|
|
| · | interpretations of current laws and the passages of future laws; |
|
|
|
| · | acceptance of our business model by investors; |
|
|
|
| · | the accuracy of our estimates regarding expenses and capital requirements; |
|
|
|
| · | our ability to adequately support organizational and business growth; and |
|
|
|
| · | the continued spread of COVID-19 and the resulting global pandemic and its impact on our preclinical studies and clinical studies. |
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipate in our forward-looking statements. Please see “Risk Factors” for additional risks which could adversely impact our business and financial performance.
All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs, or projections will result or be achieved or accomplished.
Overview
We are a clinical stage medical dermatology company focused on identifying, developing, and commercializing innovative pharmaceutical product candidates for the treatment of medical and aesthetic skin conditions and diseases we believe have significant unmet needs.
Dermatological diseases such as acne vulgaris (or acne), psoriasis vulgaris (or psoriasis), papulopustular rosacea (or rosacea), hyperhidrosis, and various aesthetic indications affect millions of people worldwide each year and may negatively impact their quality of life and emotional well-being. While there are multiple current treatment options for these indications on the market, we believe that most have significant drawbacks, including underwhelming treatment results, cumbersome application regimens and varying negative side effects leading to a lack of patient compliance. While a majority of these indications are first treated with topical products, many patients frequently switch treatments or discontinue treatment altogether due to patient dissatisfaction with slow and modest response rates, early onset of negative side effects, onerous application schedules and typically long duration of therapy. Given the limitations with current topical therapies and the restricted usability of systemic therapies, we believe there is a significant opportunity to address the needs of frustrated patients searching for effective topical products that satisfy their dermatological and lifestyle needs.
Our two product candidates, DMT310 and DMT410, incorporate our proprietary, multifaceted, Spongilla technology to topically treat a variety of dermatological conditions. Our Spongilla technology is a multifactorial, naturally derived product that is processed from a wholly naturally grown freshwater sponge, Spongilla lacustris or Spongilla, which is processed into a powder and is mixed with a fluidizing agent immediately prior to application by the patient to form an easily applicable paste. Spongilla is a unique freshwater sponge that only grows in commercial quantities in select regions of the world and under specific environmental conditions, all of which give it its distinctive anti-microbial, anti-inflammatory, and mechanical properties. The combination of these ideal environmental conditions, the proprietary harvesting protocols developed with our supplier, and our post-harvest processing procedures optimize the mechanical component as well as the chemical components of Spongilla for product candidates with multiple mechanisms of action for the treatment of inflammatory skin conditions.
| 27 |
| Table of Contents |
Our lead product candidate DMT310, utilizes our Spongilla technology for a once-weekly treatment of a variety of skin diseases. Our initial focus is the treatment of acne vulgaris. However, due to the multiple mechanisms of action and anti-inflammatory effect seen with DMT310, we have moved into clinical trials of two additional indications, psoriasis and rosacea. In October 2021, we completed a Phase 1b proof of concept, or POC, trial in psoriasis and in November 2021 we initiated a Phase 2 clinical trial of DMT310 for the treatment of rosacea with results expected in the second half of 2022.
Our second product candidate utilizing our Spongilla technology is our combination treatment, DMT410. DMT410 consists of one treatment of our proprietary sponge powder followed by topical application of botulinum toxin for delivery into the dermis. We first tested this program in a Phase 1 POC trial of axillary hyperhidrosis patients, which was completed in July 2019. We reported that 80% of patients achieved a reduction in gravimetric sweat production greater than 50%, four weeks after treatment. Based on the results of this trial, we initiated a Phase 1 POC trial of DMT410 for the intradermal treatment of multiple aesthetic skin conditions. In November 2021, we announced top-line results from this trial where we obtained data that we believe warrants further investigation of this program. We believe these two DMT410 trials indicate we have been able to topically deliver botulinum toxin into the dermis after the application of our Spongilla technology.
We believe our Spongilla technology platform will enable us to develop and formulate singular and combination products that are able to target topical delivery of chemical compounds into the dermis for maximum treatment effect for a variety of inflammatory skin diseases. One mechanism of our technology is its mechanical ability to allow for the intradermal delivery of a variety of large and small molecules through microchannels to a targeted treatment site via topical application. In addition to its mechanical components, the Spongilla technology also utilizes multiple naturally occurring chemical compounds that we believe have demonstrated in-vitro anti-microbial, and anti-inflammatory properties. We believe the combination of these mechanical and chemical components make our platform versatile for the treatment of a wide variety of medical and aesthetic skin conditions and diseases.
We have a limited operating history. Since our inception, our operations have focused on developing DMT310 and DMT410, organizing and staffing our company, raising capital, establishing our supply chain and manufacturing processes, further characterizing the multiple mechanisms of action of our Spongilla technology, building an intellectual property portfolio, and conducting non-clinical and clinical trials. We do not have any product candidates approved for marketing and have not generated any revenue from product sales. We have funded our operations primarily through the sale of our equity securities and debt securities. Since inception, we have raised an aggregate of approximately $51.9 million of gross proceeds from the sale of our debt and equity securities, including the securities sold in our IPO.
We have not generated any revenue to date and have incurred significant operating losses. Our net losses were $2.7 million and $5.5 million for the three and six months ended June 30, 2022, respectively, and as of June 30, 2022, we had an accumulated deficit of $41.5 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:
| · | complete development of DMT310 for the treatment of acne, including non-clinical studies and Phase 3 clinical trials; |
|
|
|
| · | prepare and file for regulatory approval of DMT310 for the treatment of moderate-to-severe acne; |
|
|
|
| · | continue development of DMT310 for the treatment of rosacea, including a Phase 2 clinical trial and Phase 3 clinical trials; |
|
|
|
| · | continue development of DMT310 for the treatment of psoriasis, including a Phase 2 clinical trial and Phase 3 clinical trials; |
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| Table of Contents |
| · | identify a botulinum toxin partner for DMT410 for the treatment of aesthetic and medical skin conditions; |
|
|
|
| · | prepare for commercialization of DMT310, if approved, including the hiring of sales and marketing personnel; |
|
|
|
| · | begin to manufacture our product candidates for Phase 2 and Phase 3 trials and commercial sale; |
|
|
|
| · | hire additional research and development and selling, general and administrative personnel; |
|
|
|
| · | maintain, expand, and protect our intellectual property portfolio; and |
|
|
|
| · | incur additional costs associated with operating as a public company. |
We will need additional financing to support our operations. We may seek to fund our operations through public or private equity or debt financings or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital when needed or on favorable terms would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so.
COVID-19 Update
The COVID-19 pandemic continues to have a major impact in the US and around the world. The availability of vaccines holds promise for the future, though new variants of the virus and potential waning immunity from vaccines may result in continued impact from this pandemic in the future, which could adversely impact our operations. To date, we have managed delays and disruptions without significant impact in planned and ongoing preclinical trials, manufacturing or shipping. Potential impacts to our business include delays in planned and ongoing preclinical and clinical trials including enrollment of patients, disruptions in time and resources provided by independent clinical investigators, CROs, and other third-party service providers, temporary closures of our facilities, disruptions or restrictions on our employees’ ability to travel, and delays in manufacturing and/or shipments to and from third-party suppliers and contract manufacturers for APIs and drug product, including Spongilla.
We have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, including having all of our employees to work remotely, suspending all non-essential travel worldwide for our employees and discouraging employee attendance at industry events and in-person work-related meetings, which could negatively affect our business. We cannot presently predict the scope and severity of the planned and potential shutdowns or disruptions of businesses and government agencies, such as the Securities and Exchange Commission, or the SEC, or FDA.
Critical Accounting Policies and Use of Estimates
We have based our management’s discussion and analysis of financial condition and results of operations on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to clinical development expenses, stock-based compensation expense, and the fair value of equity instruments which result in deemed dividends. We base our estimates on historical experience and on various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
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| Table of Contents |
While our significant accounting policies are more fully discussed in Note 2 - Summary of Significant Accounting Policies to our unaudited financial statements contained within this Form 10-Q, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements.
Research and Development Expenses
We rely on third parties to conduct our clinical studies and to provide services, including data management, statistical analysis, and electronic compilation. Once our clinical trials begin, at the end of each reporting period, we will compare the payments made to each service provider to the estimated progress towards completion of the related project. Factors that we will consider in preparing these estimates include the number of patients enrolled in studies, milestones achieved, and other criteria related to the efforts of our vendors. These estimates will be subject to change as additional information becomes available. Depending on the timing of payments to vendors and estimated services provided, we will record net prepaid or accrued expenses related to these costs.
Fair Value of Common Stock and Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period. The Company’s policy permits the valuation of stock-based awards granted to non-employees to be measured at fair value at the grant date.
Determining the appropriate fair value of share-based awards requires the use of subjective assumptions, including the fair value of our common shares for awards prior to our IPO, and for options, the expected life of the option and expected share price volatility. We use the Black-Scholes option pricing model to value our option awards. The assumptions used in calculating the fair value of share-based awards represents our best estimates and involve inherent uncertainties and the application of judgment. As a result, if factors change and management uses different assumptions, share-based compensation expense could be materially different for future awards.
Fluctuations in Operating Results
Our results of operations have fluctuated significantly from period to period in the past and are likely to continue to do so in the future. We anticipate that our quarterly and annual results of operations will be impacted for the foreseeable future by several factors, including the progress and timing of expenditures related to the development of our product candidates. We cannot predict with certainty what the full impact of the COVID-19 pandemic may have on our business, results of operations, financial condition, and prospects. Due to these fluctuations, we believe that the period-to-period comparisons of our operating results are not a good indication of our future performance.
Results of Operations
Three Months Ended June 30, 2022 and 2021
The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021:
|
| Three Months Ended June 30, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| Difference |
| |||
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
Research and development |
| $ | 1,612,552 |
|
| $ | 867,197 |
|
| $ | 745,355 |
|
General and administrative |
|
| 1,118,021 |
|
|
| 462,772 |
|
|
| 655,249 |
|
Total operating expenses |
|
| 2,730,573 |
|
|
| 1,329,969 |
|
|
| 1,400,604 |
|
Losses from operations |
|
| (2,730,573 | ) |
|
| (1,329,969 | ) |
|
| (1,400,604 | ) |
Other income and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| - |
|
|
| 1,823 |
|
|
| (1,823 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (2,730,573 | ) |
| $ | (1,331,792 | ) |
| $ | (1,398,781 | ) |
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| Table of Contents |
Research and Development Expenses
Research and development expenses increased by $0.7 million from $0.9 million for the three months ended June 30, 2021, compared $1.6 million for the three months ended June 30, 2022. The increase in research and development expense was the result of $0.4 million of increased clinical trial expenses from the ongoing DMT310 rosacea study, an increase of $0.1 million related to non-clinical activities, as well as increased employee and personnel expenses and stock-based compensation of $0.2 million.
General and Administrative Expenses
General and administrative expenses increased by approximately $0.7 million from $0.5 million for the three months ended June 30, 2021, compared to $1.1 million for the three months ended June 30, 2022. The increase in general and administrative expenses was the result of increased insurance and public company costs of $0.5 million as well as increased employee and personnel and stock-based compensation expenses of $0.2 million.
Six Months Ended June 30, 2022, and 2021
The following table summarizes our results of operations for the six months ended June 30, 2022, and 2021:
|
| Six Months Ended June 30, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| Difference |
| |||
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
Research and development |
| $ | 3,208,391 |
|
| $ | 1,547,785 |
|
| $ | 1,660,606 |
|
General and administrative |
|
| 2,308,334 |
|
|
| 2,043,957 |
|
|
| 264,377 |
|
Total operating expenses |
|
| 5,516,725 |
|
|
| 3,591,742 |
|
|
| 1,924,983 |
|
Loss from operations |
|
| (5,516,725 | ) |
|
| (3,591,742 | ) |
|
| (1,924,983 | ) |
Other income and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| - |
|
|
| 44,958 |
|
|
| (44,958 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (5,516,725 | ) |
| $ | (3,636,700 | ) |
| $ | (1,880,025 | ) |
Research and Development Expenses
Research and development expenses increased by $1.7 million from $1.5 million for the six months ended June 30, 2021, compared to $3.2 million for the six months ended June 30, 2022. The increase in research and development expense was the result of $1.1 million of increased clinical trial expenses from the ongoing DMT310 rosacea study, $0.2 million in increased non-clinical expenses, $0.1 million in increased chemistry, manufacturing, and controls, or CMC, expenses, as well as increased employee and personnel and stock-based compensation expense of $0.3 million.
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General and Administrative Expenses
General and administrative expenses increased by $0.3 million from $2.0 million for the six months ended June 30, 2021, compared to $2.3 million for the six months ended June 30, 2022. The increase in general and administrative expenses was the result of increased insurance and public company costs of $1.0 million as well as increased employee and personnel expenses of $0.2 million, offset by decreased stock-based compensation expense of $0.6 million and decreased legal costs of $0.3 million.
Cash Flows
The following table summarizes our cash flows from operating and financing activities:
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Statements of cash flows data: |
|
|
|
|
|
| ||
Total net cash provided by (used in): |
|
|
|
|
|
| ||
Operating activities |
| $ | (4,447,363 | ) |
| $ | (1,679,433 | ) |
Financing activities |
| $ | 4,276,452 |
|
| $ | 1,576,235 |
|
Decrease in cash |
| $ | (170,911 | ) |
| $ | (103,198 | ) |
Operating activities
Cash used in operations of $4.4 million for the six months ended June 30, 2022, was the result of the net loss of $5.5 million, offset by non-cash stock-based compensation of $0.5 million, as well as an increase in accounts payable and accrued and other current liabilities of $0.2 million and a decrease in prepaid expenses and other current assets of $0.4 million.
Cash used in operations of $1.7 million for the six months ended June 30, 2021, was the result of the net loss of $3.6 million and an increase in prepaid expenses and other current assets of $0.6 million, offset by non-cash stock-based compensation of $1.3 million, as well as an increase in accounts payable and accrued and other current liabilities of $1.3 million.
Financing activities
Cash provided by financing activities of $4.3 million for the six months ended June 30, 2022, was the result of the net proceeds received from the issuance of common stock and warrants issued in April 2022 from a private placement of the Company’s securities.
Cash provided by financing activities of $1.6 million for the six months ended June 30, 2021, was the result of proceeds of $1.6 million from the issuance of convertible subordinated promissory notes and proceeds of $0.6 million from the issuance of Series 1d Preferred Units, offset by $0.6 million of principal and final payments on debt.
Liquidity and Capital Resources
Since our inception, we have not generated any revenue or commercialized any products. As of June 30, 2022, our cash totaled $10.6 million, and we had an accumulated deficit of $41.5 million. For the six months ended June 30, 2022, and the year ended December 31, 2021, we used cash of $4.4 million and $5.7 million, respectively, in operations. As a result of our initial public offering of common stock and warrants to purchase common stock in August 2021 for net proceeds of $15.4 million, as well as our private placement of common stock and warrants to purchase common stock in April 2022 for net proceeds of $4.3 million, our cash balances are expected to fund operations into the third quarter of 2023. We anticipate that we will continue to incur net losses for the foreseeable future.
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Historically, our principal sources of cash have included proceeds from the issuance of common and preferred equity and proceeds from the issuance of debt. Our principal uses of cash have included cash used in operations (including clinical development of our product candidates and general and administrative expenses) and payments for license rights. We expect that the principal uses of cash in the future will be for continuing operations, funding of research and development, and general working capital requirements. We expect that as research and development expenses continue to grow, we will need to raise additional capital to sustain operations and research and development activities.
Funding Requirements
We plan to focus in the near term on the development, regulatory approval, and potential commercialization of DMT310 for the treatment of acne, psoriasis, and rosacea. We anticipate we will incur net losses for the next several years as we complete clinical development of DMT310 for the treatment of acne, psoriasis and rosacea and continue research and development of DMT410 for the treatment of aesthetic and medical skin conditions. In addition, we plan to seek opportunities to identify, acquire or in license and develop additional drug candidates, potentially build commercial capabilities, and expand our corporate infrastructure. We may not be able to complete the development and initiate commercialization of these programs if, among other things, our clinical trials are not successful or if the FDA does not approve our drug candidate arising out of our current clinical trials when we expect, or at all.
Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical costs, external research and development services, legal and other regulatory expenses, and administrative and overhead costs. Our future funding requirements will be heavily determined by the resources needed to support development of our drug candidates.
As a publicly traded company, we will incur significant legal, accounting, and other expenses that we were not required to incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules adopted by the Securities and Exchange Commission, or SEC, and Nasdaq, requires public companies to implement specified corporate governance practices that were not applicable to us as a private company. We expect these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
We believe that our existing cash, along with the proceeds from a private placement of our securities which closed in April 2022 (the “Private Placement”), will be sufficient to fund our operating expenses and capital expenditure requirements into the third quarter of 2023. We have based this estimate of cash runway on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We anticipate that we will continue to incur net losses for the foreseeable future. These factors raise substantial doubt about our ability to continue as a going concern for the one-year period following the date that these financial statements were issued. We will require additional capital to conduct Phase 3 studies for DMT310 for the treatment of acne, continue development of DMT310, and to pursue in licenses or acquisitions of other drug candidates. Additional funds may not be available on a timely basis, on favorable terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to implement our long-term business strategy. If we are unable to raise sufficient additional capital, we may need to substantially curtail our planned operations and the pursuit of our growth strategy.
We may raise additional capital through the sale of equity or convertible debt securities. In such an event, the terms of these securities may include liquidation or other preferences that adversely affect the rights of a holder of our common stock.
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Because of the numerous risks and uncertainties associated with research, development, and commercialization of pharmaceutical drugs, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on many factors, including:
| · | the number and characteristics of the drug candidates we pursue; |
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|
|
| · | the scope, progress, results, and costs of researching and developing our drug candidates, and conducting preclinical studies and clinical trials; |
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| · | the timing of, and the costs involved in, obtaining regulatory approvals for our drug candidates; |
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|
| · | the cost of manufacturing our drug candidates and any drugs we successfully commercialize; |
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|
| · | our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements; |
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|
| · | the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims, including litigation costs and the outcome of such litigation; and |
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|
| · | the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future drug candidates, if any. |
To continue to grow our business over the longer term, we plan to commit substantial resources to research and development, clinical trials of our product candidates, and other operations and potential product acquisitions and in licensing. We have evaluated and expect to continue to evaluate a wide array of strategic transactions as part of our plan to acquire or in license and develop additional products and product candidates to augment our internal development pipeline. Strategic transaction opportunities that we may pursue could materially affect our liquidity and capital resources and may require us to incur additional indebtedness, seek equity capital or both. In addition, we may pursue development, acquisition or in licensing of approved or development products in new or existing therapeutic areas or continue the expansion of our existing operations. Accordingly, we expect to continue to opportunistically seek access to additional capital to license or acquire additional products, product candidates or companies to expand our operations, or for general corporate purposes. Strategic transactions may require us to raise additional capital through one or more public or private debt or equity financings or could be structured as a collaboration or partnering arrangement. We have no arrangements, agreements, or understandings in place at the present time to enter into any acquisition, in licensing or similar strategic business transaction.
Contractual Obligations and Commitments
We do not currently lease any office space.
We enter into contracts in the normal course of business with contract research organizations for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts generally provide for termination upon notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“the JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Recent Accounting Pronouncements
See Item 1 of Part I, “Notes to Financial Statements — Note 2 — Summary of Significant Accounting Policies” for a discussion of recent accounting pronouncements.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of June 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Evaluation of Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. From time to time, we make changes to our internal control over financial reporting that are intended to enhance its effectiveness and which do not have a material effect on our overall internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None.
ITEM 1A: RISK FACTORS
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission, or SEC, on March 28, 2022. Any of these factors could result in a significant or material adverse effect on our result of operations or financial conditions. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) On April 20, 2022, we entered into a Securities Purchase Agreement (“Purchase Agreement”) with an institutional investor (the “Purchaser”) pursuant to which we issued to the Purchaser in a private placement, an aggregate of 898,585 shares (“Shares”) of our common stock, pre-funded warrants to purchase up to 2,875,000 shares of our common stock (the “Pre Funded Warrants”) and warrants (the “Common Stock Warrants” and together with the Pre Funded Warrants, the “Warrants”) to purchase up to 3,773,585 shares of our common stock (the “Private Placement”). The purchase price per share of common stock and associated Common Stock Warrant was $1.325 and the purchase price per Pre Funded Warrant and associated Common Stock Warrant was $1.3249. Each Common Stock Warrant entitles the holder to purchase one share of common stock at an exercise price of $1.325 per share. Each Pre Funded Warrant entitles the holder to purchase one share of common stock at an exercise price of $0.0001 per share.
The Common Stock Warrants are exercisable for a period of five years commencing on the issuance date and the Pre Funded Warrants are exercisable until exercised. The Warrants also contain customary beneficial ownership limitations that may be waived at the option of each holder upon 61 days’ notice to us. The Private Placement closed on April 25, 2022. The gross proceeds to us, before deducting placement agent fees and other offering expenses, are approximately $5.0 million.
The shares of common stock, the Warrants and the shares of common stock underlying the Warrants were not registered under the Securities Act of 1933, as amended (the “Securities Act”), and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder.
On April 20, 2022, in connection with the Private Placement, we entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchaser, pursuant to which we filed a registration statement on Form S-1 with the Securities and Exchange Commission (the “SEC”) registering for resale the Shares and any shares of our common stock issuable upon exercise of the Warrants within 15 days of the closing of the Private Placement. This resale registration statement was declared effective by the SEC on May 13, 2022.
Pursuant to a placement agent agreement (the “Placement Agent Agreement”), Maxim Group, LLC (the “Placement Agent’) was engaged by us to act as our placement agent for the Private Placement. We paid the Placement Agent a cash fee equal to 7.0% of the gross proceeds received in the Private Placement, in addition to the reimbursement of certain expenses.
The foregoing descriptions of the Purchase Agreement, the Common Stock Warrants, the Pre Funded Warrants, the Registration Rights Agreement and the Placement Agent Agreement do not purport to be complete and are qualified by reference to the full text of such agreements, which are attached to this Quarterly Report on Form 10-Q, and are incorporated herein by reference.
(b) On August 12, 2021, our registration statement on Form S-1 (Registration No. 333-256997) and the related registration statement (File No. 333-258772) was declared effective by the SEC for our initial public offering pursuant to which we sold an aggregate of 2,571,428 shares of its common stock and accompanying warrants to purchase up to 2,571,428 shares of common stock. Each share of common stock was sold together with one warrant to purchase one share of common stock with an exercise price of $7.00 per share at a combined offering price of $7.00, for gross proceeds of approximately $18.0 million, before deducting expenses. Maxim Group LLC acted as the sole book-running manager for the offering. On August 17, 2021, we closed the sale of the shares of Common Stock and warrants to purchase shares of Common Stock, resulting in net proceeds to us of approximately $15.4 million after deducting underwriting discounts and commissions and other offering expenses. No payments were made by us to directors, officers or persons owning ten percent or more of our Common Stock or to their associates, or to our affiliates. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC on August 16, 2021 pursuant to Rule 424(b).
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None noted.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5: OTHER INFORMATION
None.
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| Table of Contents |
ITEM 6: EXHIBITS
Exhibit No. |
| Description |
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| Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a). | |
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| Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a). | |
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101.INS* |
| XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document |
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101) |
* Filed herewith.
** Furnished, not filed.
† Indicates a management contract or compensation plan, contract or arrangement.
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| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dermata Therapeutics, Inc. |
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Date: August 15, 2022 | By: | /s/ Gerald T. Proehl |
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| Gerald T. Proehl |
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| President and Chief Executive Officer |
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| (Principal Executive Officer) |
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| By: | /s/ Kyri K. Van Hoose |
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| Kyri K. Van Hoose |
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| Senior Vice President, Chief Financial Officer |
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| (Principal Financial Officer and Principal Accounting Officer) |
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