# Stablecoin Development Corp: Form 10-Q for the period ended Sep 30, 2022

- Company: [Stablecoin Development Corp](/companies/sdev.md) (CIK 1389545)
- Form: 10-Q
- Filed: 2022-11-14
- Accepted by EDGAR: Nov 14, 2022, 16:15 ET
- Period: 2022-09-30
- Accession: 0001437749-22-027275
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1389545/000143774922027275/nby20220930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1389545/000143774922027275/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $3.8m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $10.8m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $1.5m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $4.7m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $2.4m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $6.0m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $41.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $108.0k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$457.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$5.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$136.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$2.4m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.10 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.15 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | −$5.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $112.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $3.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $10.6m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $22.4m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $3.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $8.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | $13.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,070 characters.

*The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in Part I, Item 1 of this report. This discussion contains forward-looking statements that involve risks and uncertainties, and with our consolidated financial statements and related notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2022. Words such as "expects," "anticipated," "will," "may," "goals," "plans," "believes," "estimates," "concludes," determines," variations of these words, and similar expressions are intended to identify these forward-looking statements. As a result of many factors, including those set forth in our SEC filings, our actual results may differ materially from those anticipated in these forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions based upon assumptions made that we believed to be reasonable at the time and are subject to risks and uncertainties. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements.*

### Overview

At NovaBay Pharmaceuticals, we are passionate about scientifically created and clinically proven eyecare and skincare products. Our company is focused on three major markets: Eyecare, Skincare, and Wound Care.

### Eyecare:

Our leading product, Avenova Antimicrobial Lid and Lash Solution, is proven in laboratory testing to have broad antimicrobial properties as it removes foreign material including microorganisms and debris from the skin around the eye, including the eyelid. Avenova Spray is formulated with our proprietary, stable and pure form of hypochlorous acid and is cleared by the U.S. Food and Drug Administration for sale in the United States. Avenova Spray is available direct to consumers through online distribution channels and is also often prescribed and dispensed by eyecare professionals for blepharitis and dry-eye disease. Other eyecare products offered under the Avenova eyecare brand include Novawipes by Avenova, Avenova Lubricant Eye Drops, Avenova Moist Heating Eye Compress, and the i-Chek eyelid and eyelash mirror.

***Skincare:***

DERMAdoctor offers over 30 dermatologist-developed products targeting common skin concerns, ranging from aging and blemishes to dry skin, perspiration and keratosis pilaris. DERMAdoctor branded products are marketed and sold through the DERMAdoctor website, well-known traditional and digital beauty retailers, and a network of international distributors. We expect to grow commercial sales of DERMAdoctor branded products through an expansion of domestic and international market penetration, with a particular focus on online channels, and the development of new product offerings.

The acquisition of DERMAdoctor, LLC (“DERMAdoctor”) occurred on November 5, 2021, and it now operates as our wholly-owned subsidiary. For additional information regarding the DERMAdoctor Acquisition, see Note 3 “Business Combination” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

The DERMAdoctor Acquisition was funded, in part, through the sale of an aggregate of 15,000 shares of Series B Preferred Stock and the November 2021 Warrants (each as defined in Note 14, “Stockholders’ Equity” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report) for an aggregate purchase price of $15.0 million. For additional information regarding the Series B Preferred Stock and the November 2021 Warrants, see Note 13, “Warrant Liability” and Note 14, “Stockholders’ Equity” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

### Wound Care:

We also manufacture and sell our proprietary form of hypochlorous acid for the wound care market. Consisting of higher concentrations of hypochlorous acid, NeutroPhase and PhaseOne are used for the cleansing and irrigation of intraoperative pocket lavage, before subcutaneous closure, stage I to IV pressure injuries, stasis ulcers, leg ulcers, diabetic foot ulcers, first-degree and second-degree burns, post-surgical wounds, grafted and donor sites, minor burns, superficial abrasions, wounds, and moistening absorbent wound dressings.

Although NeutroPhase and PhaseOne compete in a crowded wound cleanser market, we believe our NeutroPhase and PhaseOne solutions have distinct competitive advantages because they are made without the toxic chemicals found in other products. NeutroPhase and PhaseOne are gentle, non-irritating, and non-sensitizing to skin and new tissue. PhaseOne is distributed through commercial partners in the United States, and NeutroPhase is distributed in China by Pioneer Pharma (Hong Kong) Company Ltd.

### Recent Developments

### 2022 Warrant Reprice Transaction

On September 9, 2022, the Company entered into certain letter agreements and completed warrant reprice transactions with each of the holders of the November 2021 Warrants and certain holders of the July 2020 Warrants (as defined in Note 14, “Stockholders’ Equity” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report)(the “Warrant Reprice Transaction”). The 2022 Warrant Reprice Transaction resulted in gross proceeds of approximately $2.1 million.

Pursuant to the letter agreements, the Company agreed to: (1) reduce the exercise price of all of the November 2021 Warrants and the July 2020 Warrants held by participants in the 2022 Warrant Reprice Transaction to $0.18 per share; (2) amend all of the November 2021 Warrants and the July 2020 Warrants held by participants in the 2022 Warrant Reprice Transaction to provide that such warrants would not be exercisable until the later of (i) March 9, 2023 and (ii) the date on which certain stockholder approvals, including for the Company to complete the Reverse Stock Split (as defined in Note 20, “Subsequent Events” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report), are obtained and become effective; and (3) extend the termination date of all of the November 2021 Warrants to September 11, 2028. Further, in connection with the 2022 Warrant Reprice Transaction, the Company, in a private placement, issued to certain participants in the 2022 Warrant Reprice Transaction that exercised a portion of their November 2021 Warrants, as amended, or their Amended July 2020 Warrants (as defined in Note 14, “Stockholders’ Equity” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report), as applicable, new common stock purchase warrants (the “September 2022 Warrants”) to purchase up to a number of shares of common stock, equal to 100% of the number of shares of common stock underlying the portion of the November 2021 Warrants, as amended, or the Amended July 2020 Warrants, as applicable, exercised. The September 2022 Warrants will become exercisable on March 9, 2023 (or such later date on which the Reverse Stock Split becomes effective as the applicable stockholder approvals were obtained on November 10, 2022), for an aggregate of 11,475,000 shares of common stock. The September 2022 Warrants have an exercise price of $0.18 per share and will expire on September 11, 2028.

For additional information regarding the 2022 Warrant Reprice Transaction, the November 2021 Warrants, as amended, the Amended July 2020 Warrants and the September 2022 Warrants, see Note 13, “Warrant Liability” and Note 14, “Stockholders’ Equity” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report and the Company’s Current Report on Form 8-K filed with the SEC on September 13, 2022.

### 2022 Private Placement

Concurrent with the 2022 Warrant Reprice Transaction on September 9, 2022, the Company entered into a private placement transaction with certain accredited investors to sell, pursuant to the securities purchase agreement, units that will consist of: (1) a newly designated Series C Non-Voting Convertible Preferred Stock, par value $0.01 per share (“Series C Preferred Stock”), (2) a new short-term Series A-1 warrant to purchase common stock that will be exercisable for a period of eighteen (18) months after the date of issuance (“Series A-1 Warrants”), and (3) a new long-term Series A-2 warrant to purchase common stock that will be exercisable for a period of six (6) years after the date of issuance (“Series A-2 Warrants”) (collectively, the “2022 Private Placement”). In the 2022 Private Placement we intend to sell 3,250 shares of Series C Preferred Stock initially convertible into 18,057,000 shares of common stock at a conversion price of $0.18, Series A-1 Warrants exercisable to purchase up to an aggregate of 18,055,557 shares of Company common stock at an exercise price of $0.18 per share and Series A-2 Warrants exercisable to purchase up to an aggregate of 18,055,557 shares of Company common stock at an exercise price of $0.18 per share. The closing of the 2022 Private Placement is subject to receiving certain stockholder approvals (as obtained on November 10, 2022), effecting the Reverse Stock Split, as well as the satisfaction of other customary closing conditions.

Upon the satisfaction of the conditions and the closing of the 2022 Private Placement, we expect to receive gross proceeds of $3.3 million. For additional information regarding the 2022 Private Placements, see the Company’s Current Report on Form 8-K filed with the SEC on September 13, 2022.

### NYSE Notice

On October 3, 2022, the Company received a notification from the NYSE American LLC Exchange (“NYSE American”) stating that the Company is not in compliance with Section 1003(f)(v) of the NYSE American Company Guide because the Company’s shares of common stock were determined by the NYSE American staff to have been selling for a low price per share for a substantial period of time. As set forth in the written notice, the Company’s continued listing is predicated on it effecting a reverse stock split of its common stock or otherwise demonstrating sustained price improvement within a reasonable period of time, which the NYSE American staff determined to be no later than April 3, 2023.

On November 10, 2022, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, to effect the Reverse Stock Split. The Company anticipates that after the Reverse Stock Split is effective that it will result in an increase to its per share market price of its common stock, which the Company believes will satisfy the condition to effect a reverse stock split set forth in the NYSE American’s notification.

### Financial Overview and Outlook

Our net loss attributable to common stockholders was $8.1 million for the nine months ended September 30, 2022, or $0.15 per share, as compared to a net loss attributable to common stockholders of $5.7 million for the nine months ended September 30, 2021, or $0.13 per share. As of September 30, 2022, we had an accumulated deficit of $150 million and net cash used in operating activities of $5.4 million for the nine months ended September 30, 2022.

We have incurred net losses and generated negative cash flows from operations since inception and expect to incur losses in the future as we continue to commercialize our eyecare and skincare products. Additionally, the Company expects to continue incurring operating losses and negative cash flows until revenues reach a level sufficient to support ongoing growth and operations. Based primarily on our cash and cash equivalents at September 30, 2022, we believe that our existing cash and cash equivalents and cash flows generated from product sales will be sufficient to fund our existing operations and meet our planned operating expenses into at least the second quarter of 2023. Accordingly, the Company has determined that its planned operations raise substantial doubt about its ability to continue as a going concern. To address this, the Company has and continues to evaluate different plans and strategic transactions to fund its operations, which recently included completing the 2022 Warrant Reprice Transaction and entering into the 2022 Private Placement to raise up to approximately $5.3 million in aggregate gross proceeds. For additional information regarding the Company’s going concern determination and plans to fund operations, see “Financial Condition, Liquidity and Capital Resources” below.

We expect to grow commercial sales of Avenova and DERMAdoctor branded products through an expansion of domestic and international market penetration, with a particular focus on online channels, and the development of new product offerings under both brand names.

### Critical Accounting Policies and Estimates and Change in Accounting and Revision of Prior Period Financial Statements

Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. In preparing these condensed consolidated financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. On an ongoing basis, we evaluate our estimates and judgments related to revenue recognition, research and development costs, patent costs, stock-based compensation, income taxes, earnout contingency, and common stock warrant liability. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates.

During the three months ended September 30, 2022, the Company made an accounting policy change election related to fulfillment fees paid to third-party online retailers such as Amazon. The Company began expensing these fees as incurred as product cost of goods sold in the Company’s condensed consolidated statements of operations and comprehensive loss. The Company previously recorded revenue net of these fees. While reviewing its accounting policy for fulfillment fees, the Company identified an immaterial error in its previously issued condensed consolidated financial statements whereby the Company has been incorrectly presenting revenue net of selling commissions paid to third-party online retailers. For the three months ended September 30, 2022, the Company began expensing them as incurred as sales and marketing expenses within the Company’s condensed consolidated statements of operations and comprehensive loss. The Company evaluated the error and believes that the impact of this error is immaterial to the previously issued condensed consolidated financial statements. Changes and revisions to prior period amounts presented in this report have been made to conform to the current period presentation. The changes and revisions had no impact on operating loss, net loss and comprehensive loss or net loss per share in the Company’s condensed consolidated statements of operations and comprehensive loss in the periods presented in this report or in previously issued annual and quarterly Company condensed consolidated financial statements. The changes and revisions also did not impact cash or ending cash balances in the Company’s condensed consolidated balance sheets in the periods presented in this report or in previously issued annual and quarterly Company condensed consolidated financial statements.

Additional information regarding the change in accounting, revision of prior period condensed consolidated financial statements and our other significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report, which is incorporated herein by reference. For information regarding recent accounting pronouncements that could affect our business, results of operations, financial condition, and liquidity, see Note 2, “Summary of Significant Accounting Policies” included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 29, 2022. The Company continues to evaluate the potential impact of adopting the new accounting guidance on its consolidated financial position, results of operations and cash flows.

### Results of Operations

### Comparison of the Three Months Ended September 30, 2022 and 2021

*(in thousands)*

| Statement of Operations Sales: | Three Months Ended September 30, 2022 | 2021 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Product revenue, net | $3,816 | $2,259 | $1,557 | 69% |
| Other revenue, net | 10 | 6 | 4 | 67% |
| Total sales, net | 3,826 | 2,265 | 1,561 | 69% |
| Product cost of goods sold | 1,451 | 712 | 739 | 104% |
| Gross profit | 2,375 | 1,553 | 822 | 53% |
| Operating expenses: |  |  |  |  |
| Research and development | 41 | 10 | 31 | 310% |
| Sales and marketing | 1,835 | 2,061 | (226) | (11%) |
| General and administrative | 956 | 1,771 | (815) | (46%) |
| Total operating expenses | 2,832 | 3,842 | (1,010) | (26%) |
| Operating loss | (457) | (2,289) | 1,832 | (80%) |
| Non-cash loss on modification of common stock warrants | (1,922) | — | (1,922) | (100%) |
| Non-cash gain on changes in fair value of warrant liabilities | 2,414 | — | 2,414 | 100% |
| Other expense | (171) | — | (171) | (100%) |
| Loss before provision for income taxes | (136) | (2,289) | 2,153 | (94%) |
| Provision for income taxes | — | — | — | — |
| Net loss and comprehensive loss | $(136) | $(2,289) | $2,153 | (94%) |

### Impact of DERMAdoctor Acquisition

The closing of the DERMAdoctor Acquisition took place on November 5, 2021 (see Note 3, “Business Combination” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report). Accordingly, the above results and those discussed below for the three months ended September 30, 2022 include the financial results of DERMAdoctor, with no comparable results for the three months ended September 30, 2021. For the three months ended September 30, 2022, this includes product revenue, net, of $1.3 million, product cost of goods sold of $0.7 million, $0.6 million in sales and marketing costs and $0.2 million in general and administrative costs.

### Effect of Change in Accounting and Revision of Prior Period Financial Statements

As discussed further in Note 2, “Summary of Significant Accounting Policies” in the Notes to the Unaudited Condensed Consolidated Financial Statement in Part I, Item 1 of this report, during the three months ended September 30, 2022, the Company made an accounting policy change election related to fulfillment fees paid to third-party online retailers such as Amazon. While reviewing its accounting policy for fulfillment fees, the Company identified an immaterial error in its previously issued condensed consolidated financial statements whereby the Company had been incorrectly presenting revenue net of selling commissions paid to third-party online retailers. For the three months ended September 30, 2022, the Company began expensing them as incurred as sales and marketing expenses within the Company’s condensed consolidated statements of operations and comprehensive loss. For the three months ended September 30, 2022, the result of these changes was an increase of $548 thousand in product revenue, net, which was offset by an increase of $283 thousand in product cost of goods sold and $265 thousand in sales and marketing expenses. Changes and revisions to prior period amounts presented in this report have been made to conform to the current period presentations. For the three months ended September 30, 2021, the result of these changes and revisions was an increase of $425 thousand in product revenue, net, which was offset by an increase of $219 thousand in product cost of goods sold and $206 thousand in sales and marketing expenses. These changes and revisions that were applied during the three month periods ended September 30, 2022 and 2021 did not impact operating loss, net loss and comprehensive loss or loss per share in the Company’s condensed consolidated statement of operations and comprehensive loss during either of those periods. The changes and revisions also did not impact cash or ending cash balances in the Company’s condensed consolidated balance sheets as of September 30, 2022, September 30, 2021 or in previously issued annual and quarterly Company financial statements.

### Total Sales, Net, Product Cost of Goods Sold and Gross Profit

Product revenue, net, increased by $1.6 million, or 69%, to $3.8 million for the three months ended September 30, 2022, from $2.3 million for the three months ended September 30, 2021.

The increase in product revenue, net, was primarily the result of $1.3 million from the sale of DERMAdoctor products during the three months ended September 30, 2022 with no comparable revenue from DERMAdoctor products during the three months ended September 30, 2021 as DERMAdoctor was not acquired until November 2021.

Revenue from Avenova Spray decreased by $0.2 million for the three months ended September 30, 2022 from $2.1 million for the three months ended September 30, 2021 to $1.9 million for the three months ended September 30, 2022. The decrease was due to a decrease in physician dispensed Avenova Spray units sold and a decrease in Avenova Spray units sold through the pharmacy channels. This decrease in prescription Avenova Spray units was partially offset by a continued increase in the number of over-the-counter Avenova Spray units sold through online channels. Additionally, the Company recorded an increase of $0.1 million in revenue from other Avenova branded optical products, including the Company’s NovaWipes by Avenova and Avenova Moist Heating Eye Compress Mask.

Additionally, the Company recorded $0.3 million in product revenue, net, from the sale of PhaseOne branded wound care products during the three months ended September 30, 2022 with no comparable result for the three months ended September 30, 2021.

Product cost of goods sold increased by 104%, to $1.5 million for the three months ended September 30, 2022, from $0.7 million for the three months ended September 30, 2021. This increase was primarily due to $0.7 million in product cost of goods sold recognized from the sale of DERMAdoctor products for the three months ended September 30, 2022 with no comparable product cost of goods sold of DERMAdoctor products for the three months ended September 30, 2021 as DERMAdoctor was not acquired until November 2021 and product cost of goods sold associated with the increase in wound care products sold during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Gross profit increased by 53%, to $2.4 million for the three months ended September 30, 2022, from $1.6 million for the three months ended September 30, 2021, which is a result of the increase in total sales, net, offset by the increase in the product cost of goods sold.

### Research and Development

Research and development expenses increased by $31 thousand to $41 thousand for the three months ended September 30, 2022, from $10 thousand for the three months ended September 30, 2021.

### Sales and marketing

Sales and marketing expenses decreased by $0.2 million, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. The decrease was primarily due to lower digital advertising and related consulting costs incurred in the three month period ended September 30, 2022. Additionally, results for the three month period ended September 30, 2021 include marketing costs incurred in conjunction with the Company’s CelleRx Clinical Reset product with no comparable expenditures during the three months ended September 30, 2022. As previously disclosed, going forward, the Company anticipates focusing sales and marketing resources on the DERMAdoctor brand instead of driving growth of CelleRx Clinical Reset. The decreases in digital marketing, consulting and CelleRx costs were partially offset by $0.6 million in sales and marketing costs incurred for DERMAdoctor products during the three months ended September 30, 2022, with no comparable expenditures in the 2021 period as DERMAdoctor was not acquired until November 2021.

### General and administrative

General and administrative expenses decreased by $0.8 million, or 46%, to $1.0 million for the three months ended September 30, 2022, from $1.8 million for the three months ended September 30, 2021. This decrease was primarily a result of a lower variable compensation and non-cash stock-based compensation expenses recorded in the 2022 period.

Additionally, during the three months ended September 30, 2021, we incurred legal costs in anticipation of the Company’s acquisition of DERMAdoctor with no comparable cost incurred in the 2022 period. Offsetting the decrease in the 2022 period was $0.2 million in DERMAdoctor general and administrative costs and $0.1 million from the amortization of intangibles related to the DERMAdoctor Acquisition recorded in the three months ended September 30, 2022, with no comparable expenses in the 2021 period as DERMAdoctor was not acquired until November 2021.

### Non-cash loss on modification of common stock warrants

During the three months ended September 30, 2022, the Company recorded a $1.9 million non-cash loss on modification of common stock warrants, which occurred due to amendments to the Amended July 2020 Warrants and the November 2021 Warrants, as amended, in connection with the 2022 Warrant Reprice Transaction with no comparable result in the prior year period. For additional information regarding the 2022 Warrant Reprice Transaction and their valuation, please see Note 13, “Warrant Liability” and Note 14, “Stockholder’s Equity”, in the Notes to Unaudited Condensed Consolidated Financial Statements, in Part I, Item 1 of this report.

### Non-cash gain on changes in fair value of warrant liabilities

The Company recorded a non-cash gain on changes in fair value of warrant liabilities of $2.4 million for the three months ended September 30, 2022 with no comparable result in the prior year period. For additional information regarding the warrant liability and their valuation, please see Note 13, “Warrant Liability”, in the Notes to Unaudited Condensed Consolidated Financial Statements, in Part I, Item 1 of this report.

### Other expense, net

Other expense, net, was $171 thousand for the three months ended September 30, 2022, with no comparable expense in the 2021 period. The expense in 2022 was primarily due to $166 thousand related to the issuance of the September 2022 Warrants. For additional information, please see Note 14, “Stockholder’s Equity”, in the Notes to Unaudited Condensed Consolidated Financial Statements, in Part I, Item 1 of this report.

### Comparison of the Nine Months Ended September 30, 2022 and 2021

*(in thousands)*

| Statement of Operations Sales: | Nine Months Ended September 30, 2022 | 2021 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Product revenue, net | $10,743 | $7,012 | $3,731 | 53% |
| Other revenue, net | 18 | 19 | (1) | (5%) |
| Total sales, net | 10,761 | 7,031 | 3,730 | 53% |
| Product cost of goods sold | 4,735 | 2,194 | 2,541 | 116% |
| Gross profit | 6,026 | 4,837 | 1,189 | 25% |
| Operating Expenses: |  |  |  |  |
| Research and development | 108 | 36 | 72 | 200% |
| Sales and marketing | 5,860 | 5,942 | (82) | (1%) |
| General and administrative | 5,049 | 4,527 | 522 | 12% |
| Total operating expenses | 11,017 | 10,505 | 512 | 5% |
| Operating loss | (4,991) | (5,668) | 677 | (12%) |
| Non-cash loss on modification of common stock warrants | (1,922) | — | (1,922) | (100%) |
| Non-cash gain on changes in fair value of warrant liabilities | 4,470 | — | 4,470 | 100% |
| Non-cash gain on changes in fair value of contingent liability | 219 | — | 219 | 100% |
| Other (expense) income | (178) | 2 | (180) | (9,000%) |
| Loss before provision for income taxes | (2,402) | (5,666) | 3,264 | (58%) |
| Provision for income taxes | — | — | — | — |
| Net loss and comprehensive loss | $(2,402) | $(5,666) | $3,264 | (58%) |

### Impact of DERMAdoctor Acquisition

The closing of the DERMAdoctor Acquisition took place on November 5, 2021 (see Note 3, “Business Combination” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report). Accordingly, the above results and those discussed below for the nine months ended September 30, 2022 include the financial results of DERMAdoctor, with no comparable results for the nine months ended September 30, 2021. For the nine months ended September 30, 2022, this includes product revenue, net, of $3.1 million, product cost of goods sold of $1.9 million, $1.8 million in sales and marketing costs and $0.9 million in general and administrative costs, with no comparable operating results for the nine months ended September 30, 2021.

### Effect of Change in Accounting and Revision of Prior Period Financial Statements

As discussed further in Note 2, “Summary of Significant Accounting Policies” in the Notes to the Unaudited Condensed Consolidated Financial Statement in Part I, Item 1 of this report, during the three months ended September 30, 2022, the Company made an accounting policy change election related to fulfillment fees paid to third-party online retailers such as Amazon. While reviewing its accounting policy for fulfillment fees, the Company identified an immaterial error in its previously issued condensed consolidated financial statements whereby the Company had been incorrectly presenting revenue net of selling commissions paid to third-party online retailers. For the three months ended September 30, 2022, the Company began expensing them as incurred as sales and marketing expenses within the Company’s condensed consolidated statements of operations and comprehensive loss. Changes and revisions to prior period amounts presented in this report have been made to conform to the current period presentations. For the nine months ended September 30, 2022, the result of these changes and revisions was an increase of $1.8 million in product revenue, net, which was offset by an increase of $1.0 million in product cost of goods sold and $0.9 million in sales and marketing expenses. For the nine months ended September 30, 2021, the result of these changes and revisions was an increase of $1.3 million in product revenue, net, which was offset by an increase of $0.6 million in product cost of goods sold and $0.6 million in sales and marketing expenses. These changes and revisions that were applied during the nine month periods ended September 30, 2022 and 2021 did not impact operating loss, net loss and comprehensive loss or net loss per share in the Company’s condensed consolidated statement of operations and comprehensive loss during either of those periods. The changes and revisions also did not impact cash or ending cash balances in the Company’s condensed consolidated balance sheets as of September 30, 2022, September 30, 2021 or in previously issued annual and quarterly Company financial statements.

### Total Sales, Net, Product Cost of Goods Sold and Gross Profit

Product revenue, net, increased by $3.7 million, or 53%, to $10.7 million for the nine months ended September 30, 2022, from $7.0 million for the nine months ended September 30, 2021.

The increase in product revenue, net, was primarily the result of $3.1 million from the sale of DERMAdoctor products during the nine months ended September 30, 2022 with no comparable revenue from DERMAdoctor products during the nine months ended September 30, 2021.

Revenue from Avenova Spray decreased by $0.6 million for the nine months ended September 30, 2022, from $6.4 million for the nine months ended September 30, 2021 to $5.8 million for the nine months ended September 30, 2022. The decrease reflects an unanticipated increase in expired Avenova Spray units returned from retail pharmacies for product purchased prior to the launch of our over-the-counter Avenova Spray product in 2019 and the beginning of the COVID-19 pandemic in 2020. The decrease was also due to an overall decrease in physician dispensed units sold and units sold through the pharmacy channels. These decreases were partially offset by a continued increase in the number of over-the-counter Avenova Spray units sold through online channels. Additionally, the Company recorded an increase of $0.5 million in revenue from other Avenova branded optical products, including the Company’s NovaWipes by Avenova and Avenova Moist Heating Eye Compress Mask.

Additionally, product revenue, net, from the Company’s NeutroPhase and PhaseOne branded wound care products was $0.8 million higher during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Product cost of goods sold increased by $2.5 million, or 116%, to $4.7 million for the nine months ended September 30, 2022, from $2.2 million for the nine months ended September 30, 2021. This increase was primarily due to $1.9 million in product cost of goods sold recognized from the sales of DERMAdoctor products for the nine months ended September 30, 2022, with no comparable product cost of goods sold for the nine months ended September 30, 2021 and product cost of goods sold associated with the increase in wound care products sold during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

Gross profit increased by $1.2 million, to $6.0 million for the nine months ended September 30, 2022, from $4.8 million for the nine months ended September 30, 2021, which is a result of the increase in total sales, net, offset by the increase in the product cost of goods sold.

### Research and Development

Research and development expenses increased by $72 thousand to $108 thousand for the nine months ended September 30, 2022, from $36 thousand for the nine months ended September 30, 2021.

### Sales and Marketing

Sales and marketing expenses decreased by $0.1 million, or 1%, to $5.8 million for the nine months ended September 30, 2022, from $5.9 million for the nine months ended September 30, 2021. The decrease was due to lower digital advertising and related consulting costs incurred in the nine month period ended September 30, 2022. Additionally, results for the nine month period ended September 30, 2021 include marketing costs incurred in conjunction with the Company’s CelleRx Clinical Reset product with no comparable expenditures during the nine months ended September 30, 2022. As previously disclosed, going forward, the Company anticipates focusing sales and marketing resources on the DERMAdoctor brand instead of driving growth of CelleRx Clinical Reset. These decreases were partially offset by $1.8 million in sales and marketing costs incurred for DERMAdoctor products during the nine months ended September 30, 2022, with no comparable expenditures in the 2021 period.

### General and Administrative

General and administrative expenses increased by $0.5 million, or 12%, to $5.0 million for the nine months ended September 30, 2022, from $4.5 million for the nine months ended September 30, 2021.

Results for the nine months ended September 30, 2022 include $0.9 million in DERMAdoctor general and administrative costs and $0.3 million from the amortization of intangibles related to the DERMAdoctor Acquisition with no comparable expenses in the 2021 period. Additionally, during the nine months ended September 30, 2021, the Company received an insurance reimbursement for costs incurred in conjunction with a dispute with the Company’s former Interim President and Chief Executive Officer and Chief Financial Officer which reduced general and administrative costs in the 2021 period. Partially offsetting these increases was a decrease in variable compensation and non-cash stock-based compensation expenses recorded in the 2022 period as compared to the 2021 period.

### Non-cash loss on modification of common stock warrants

During the nine months ended September 30, 2022, the Company recorded a $1.9 million non-cash loss on modification of common stock warrants, which occurred due to amendments to the Amended July 2020 Warrants and the November 2021 Warrants, as amended, in connection with the 2022 Warrant Reprice Transaction with no comparable result in the prior year period. For additional information regarding the 2022 Warrant Reprice Transaction, please see Note 13, “Warrant Liability” and Note 14, “Stockholder’s Equity”, in the Notes to Unaudited Condensed Consolidated Financial Statements, in Part I, Item 1 of this report.

### Non-cash gain on changes in fair value of warrant liabilities

Adjustments to the fair value of warrant liabilities resulted in a gain of $4.5 million for the nine months ended September 30, 2022. For additional information regarding the warrant liabilities and their valuation, please see Note 13, “Warrant Liability”, in the Notes to Unaudited Condensed Consolidated Financial Statements, in Part I, Item 1 of this report.

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

Adjustments to the fair value of contingent liability resulted in a gain of $0.2 million for the nine months ended September 30, 2022 with no comparable adjustment for the nine months ended September 30, 2021. This contingent liability relates to potential future contingent consideration that may become payable as part of the DERMAdoctor Acquisition if specified milestone events are achieved.

### Other (expense) income, net

The other expense, net, was $178 thousand for the nine months ended September 30, 2022 and other income, net, of $2 thousand for the nine months ended September 30, 2021, respectively. The expense in 2022 was primarily due to $166 thousand related to the issuance of the September 2022 Warrants. For additional information, please see Note 14, “Stockholder’s Equity”, in the Notes to Unaudited Condensed Consolidated Financial Statements, in Part I, Item 1 of this report.

### Financial Condition, Liquidity and Capital Resources

As of September 30, 2022, our cash and cash equivalents were $3.9 million, compared to $7.5 million as of December 31, 2021. Our cash and cash equivalents include approximately $2.1 million in aggregate gross proceeds received from the 2022 Warrant Reprice Transaction (see Note 14, “Stockholders’ Equity” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further information regarding the 2022 Warrant Reprice Transaction) that was completed in September 2022. Based primarily on the funds available on September 30, 2022, the Company believes that the Company’s existing cash and cash equivalents and cash flows generated from product sales will be sufficient to fund its existing operations and meet its planned operating expenses into at least the second quarter of 2023. The Company has sustained operating losses for the majority of its corporate history and expects that its 2022 expenses will exceed its 2022 revenues, as the Company continues to invest in both its Avenova and DERMAdoctor commercialization efforts. Additionally, the Company expects to continue incurring operating losses and negative cash flows until revenues reach a level sufficient to support ongoing growth and operations. Accordingly, the Company has determined that its planned operations raise substantial doubt about its ability to continue as a going concern. Additionally, changing circumstances may cause the Company to expend cash significantly faster than currently anticipated, and the Company may need to spend more cash than currently expected because of circumstances beyond its control that impact the broader economy such as periods of inflation, supply chain issues, the continuation of the COVID-19 pandemic and international conflicts (e.g., the conflict between Russia and Ukraine).

The Company’s long-term liquidity needs will be largely determined by the success of commercialization efforts. To address the Company’s current liquidity and capital needs, the Company has and continues to evaluate different plans and strategic transactions to fund operations, including: (1) raising additional capital through debt and equity financings or from other sources; (2) reducing spending on operations, including reducing spending on one or more of its sales and marketing programs or restructuring operations to change its overhead structure; (3) out-licensing rights to certain of its products or product candidates, pursuant to which the Company would receive cash milestones or an upfront fee; and/or (4) entering into license agreements to sell new products. The Company may issue securities, including common stock and warrants through additional private placement transactions or registered public offerings, which may require the filing of a Form S-1 or Form S-3 registration statement with the SEC. In the absence of the Company’s completion of the 2022 Private Placement and one or more additional transactions and/or substantial revenue growth from its commercialization efforts, there will be substantial doubt about the Company's ability to continue as a going concern within one year after the date these unaudited financial statements are issued, and the Company will be required to scale back or terminate operations and/or seek protection under applicable bankruptcy laws. The accompanying unaudited financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts of liabilities that may result from uncertainty related to its ability to continue as a going concern.

### Cash Used in Operating Activities

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

Net cash used in operating activities was $4.9 million for the nine months ended September 30, 2021, which consisted primarily of a net loss of $5.7 million, stock-based compensation expenses of $0.7 million, and a net change of $42 thousand in our net operating assets and liabilities.

### Cash Used in Investing Activities

Net cash used in investing activities for the purchase of property and equipment was $112 thousand and $44 thousand, for the nine months ended September 30, 2022 and 2021, respectively.

### Net Cash Provided by Financing Activities

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

Net cash provided by financing activities was $2.0 million for the nine months ended September 30, 2021. The Company received net proceeds of $1.8 million raised from the Company’s 2021 ATM program pursuant to an ATM Agreement, dated May 14, 2021, with Ladenburg.

### Net Operating Losses and Tax Credit Carryforwards

As of December 31, 2021, we had net operating loss carryforwards for federal and state income tax purposes of $125.9 million and $106.8 million, respectively. The federal net operating loss carryforwards consist of $94.9 million generated before January 1, 2018, which will begin to expire in 2024 and $31.0 million that will carryforward indefinitely but are subject to an 80% limitation for years following December 31, 2021. The state net operating loss carryforwards will begin to expire in 2028. As of December 31, 2021, we also had tax credit carryforwards for federal income tax purposes of $1.3 million and $0.3 million for state tax purposes. If not utilized, the federal tax credits will begin expiring in 2026. The state tax credits have an indefinite carryover period.

Current federal and California tax laws include substantial restrictions on the utilization of net operating loss carryforwards in the event of an ownership change of a corporation. Accordingly, our ability to utilize net operating loss carryforwards may be limited as a result of such ownership changes. Such a limitation could result in the expiration of carryforwards before they are utilized.

### Inflation

Our costs are subject to fluctuations, particularly due to changes in the price of raw and packing materials and the cost of labor, transportation and operating supplies. Therefore, our business results depend, in part, on our continued ability to manage these fluctuations through pricing actions, costs savings projects and sourcing decisions, while maintaining and improving margins and market share. Failure to manage these fluctuations could adversely impact our results of operations or cash flows.

### Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of September 30, 2022.

### Seasonality

#### Avenova Branded Products

Consistent with our peers in the United States pharmaceutical industry, prescriptions for Avenova Spray experience seasonality with the first quarter of each year typically being the lowest revenue quarter. This annual phenomenon is due to consumers facing the need to satisfy health insurance deductibles and changes to copays as each new insurance year begins. Sales of Avenova Spray through non-prescription channels, along with the other Avenova branded products, experience less seasonality with demands consistent throughout the year.

#### Dermatology/Skincare Products

Our DERMAdoctor products are sold through third parties such as Costco and others; therefore, we may receive periodic large orders that result in large chunks of revenue that are received in irregular intervals during the year. Historically sales of DERMAdoctor products that contain sunscreen and antiperspirants are higher in the summer seasons and sales of DERMAdoctor products that contain moisturizers are higher in the fall and winter months. In addition, DERMAdoctor products will typically experience an uptick in sales during the fourth quarter around the holidays of each country in which its products are sold, particularly in the United States and China.

### Contractual Obligations

Our contractual cash commitments as of September 30, 2022 were as follows (in thousands):

| Contractual Obligations | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Facility leases | $532 | $1,446 | $412 | $— | $2,390 |
| Equipment leases | 1 | — | — | — | 1 |
| Total | $533 | $1,446 | $412 | $— | $2,391 |

Our commitments as of September 30, 2022 consisted primarily of facility operating leases and an operating lease for two copiers.

The total commitment for the facility leases as of September 30, 2022 was $2.3 million due over the leases’ terms, compared to $0.5 million as of December 31, 2021.

We had an operating lease for two copiers as of September 30, 2022. The total commitment for the lease as of September 30, 2022 was $1 thousand due over the lease terms, compared to $13 thousand as of December 31, 2021. The copier lease term is scheduled to expire in November 2022.

See Note 12, “Commitments and Contingencies” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further information regarding these leases.

## Market risk

As filed, 2,015 characters.

Our market risk consists principally of interest rate risk on our cash and cash equivalents. Our exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in interest rates, particularly because our current liquid assets at September 30, 2022 were held in cash and cash equivalents.

Our investment policy restricts our investments to high-quality investments and limits the amounts invested with any one issuer, industry, or geographic area. The goals of our investment policy are as follows: preservation of capital, assurance of liquidity needs, best available return on invested capital, and minimization of capital taxation. Some of the securities in which we invest may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with an interest rate fixed at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. To minimize this risk, in accordance with our investment policy, we maintain our cash and cash equivalents in short-term marketable securities, including money market mutual funds, Treasury bills, Treasury notes, certificates of deposit, commercial paper, and corporate and municipal bonds. The risk associated with fluctuating interest rates is limited to our investment portfolio. Due to the short-term nature of our investment portfolio, we believe we have minimal interest rate risk arising from our investments. As of September 30, 2022 and December 31, 2021, a 10% change in interest rates would have had an immaterial effect on the value of our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We do not hold any instruments for trading purposes.

With most of our focus on the domestic U.S. market, we have not had any material exposure to foreign currency rate fluctuations.

## Controls and procedures

As filed, 2,148 characters.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Assessing the costs and benefits of such controls and procedures necessarily involves the exercise of judgment by management. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Controls Over Financial Reporting

There was no change in our internal controls over financial reporting during the quarter ended September 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 16,959 characters.

While, as a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, we are not required to provide updated quarterly information under this Item, we are providing the below disclosure as additional material risks we face.

For additional information regarding factors that could affect our business, results of operations, financial condition and liquidity, see the risk factors discussed under Part I, Item 1A included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 29, 2022.

### Risks Relating to Owning Our Common Stock

### There is uncertainty about our ability to continue as a going concern.

We have sustained operating losses for the majority of our corporate history and expect that our 2022 expenses will exceed our 2022 revenues, as we continue to invest in our Avenova and DERMAdoctor commercialization efforts. Our operating cash flow is not sufficient to support our ongoing operations, and we expect to continue incurring operating losses and negative cash flows until revenues reach a level sufficient to support ongoing growth and operations. We expect that the net proceeds from the 2022 Warrant Reprice Transaction may only provide adequate working capital into at least the second quarter of 2023, or into at least the fourth quarter of 2023, assuming the completion of the 2022 Private Placement. As such, additional funding or substantial revenue growth will be needed in both the short- and long-term in order to pursue our business plan. These circumstances raise doubt about our ability to continue as a going concern, which depends on our ability to raise capital to fund our current operations.

***If we are unable to comply with the continued listing requirements of the NYSE American and satisfy the obligations set forth in the Deficiency Letter, then our common stock would be delisted from the NYSE American, which would limit investors’ ability to effect transactions in our common stock and subject us to additional trading restrictions.***

Our common stock is currently listed on the NYSE American. In order to maintain our listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of stockholders’ equity and a minimum number of public stockholders. In addition to these objective standards, NYSE American may delist the securities of any issuer for other reasons involving the judgment of NYSE American. For example, the NYSE American Company Guide (the “Company Guide”) provides that the NYSE American may suspend or remove from listing any common stock selling for a substantial period of time at a low price per share, if the issuer shall fail to effect a reverse split of such shares within a reasonable time after being notified that NYSE American deems such action to be appropriate under all the circumstances.

On October 3, 2022, we received a notification (“Deficiency Letter”) from the NYSE American stating that we are not in compliance with certain NYSE American continued listing standards. Specifically, the Deficiency Letter indicated that the Company is not in compliance with Section 1003(f)(v) of the Company Guide because the NYSE American staff determined that our common stock has been selling for a low price per share for a substantial period of time. Pursuant to Section 1003(f)(v) of the Company Guide and as provided in the Deficiency Letter, the Company’s continued listing is predicated on it effecting the Reverse Stock Split of its common stock or otherwise demonstrating sustained price improvement within a reasonable period of time, which the NYSE American staff determined to be no later than April 3, 2023. The Deficiency Letter further stated that as a result of the foregoing, the Company has become subject to the procedures and requirements of Section 1009 of the Company Guide, which could, among other things, result in the initiation of delisting proceedings, unless we cure the deficiency in a timely manner.

Our Board of Directors has unanimously approved, and has recommended that our stockholders approve, an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, to effect the Reverse Stock Split, which stockholders subsequently approved on November 10, 2022. However, we cannot assure you that the Reverse Stock Split will be sufficient to enable the Company to maintain its listing on the NYSE American. Therefore, there is a continued risk that our common stock will be delisted if action is not taken to the satisfaction of the NYSE American.

If the NYSE American delists our common stock from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect the common stock would qualify to be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:

- a limited availability of market quotations for our securities;
- reduced liquidity for our securities;
- substantially impair our ability to raise additional funds;
- result in a loss of institutional investor interest and a decreased ability to issue additional securities or obtain additional financing in the future;
- a determination that our common stock is a “penny stock,” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
- a limited amount of news and analyst coverage; and
- potential breaches of representations or covenants of our agreements pursuant to which we made representations or covenants relating to our compliance with applicable listing requirements, which, regardless of merit, could result in costly litigation, significant liabilities and diversion of our management’s time and attention and could have a material adverse effect on our financial condition, business and results of operations.

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our common stock is listed on the NYSE American, our common stock qualifies as a covered securities under such statute. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. If we were no longer listed on the NYSE American, our common stock would not be a covered security and we would be subject to regulation in each state in which we offer our securities.

### Risks Related to the 2022 Warrant Reprice Transaction and 2022 Private Placement

***As a result of the warrants that we issued in connection with the 2022 Warrant Reprice Transaction and the securities we expect to issue in the 2022 Private Placement, our stockholders will experience significant dilution as a result of the issuance of shares of our common stock upon future exercise of the related warrants, and if issued, the conversion of the Series C Preferred Stock.***

When exercisable, the November 2021 Warrants, as amended, and the Amended July 2020 Warrants, will be exercisable for 30,825,000 underlying shares of common stock and the September 2022 Warrants will be exercisable for 11,475,000 underlying shares of common stock. In addition, upon completion of the 2022 Private Placement, 3,250 shares of Series C Preferred Stock will be issued and will be immediately convertible into 18,057,000 shares of common stock (subject to potential increase or other adjustment in the number of shares due to applicable anti-dilution adjustments), the Series A-1 Warrants will be exercisable for 18,055,557 underlying shares of common stock and the Series A-2 Warrants will be exercisable for 18,055,557 underlying shares of common stock. Accordingly, as a result of the 2022 Warrant Reprice Transaction and, if completed, the 2022 Private Placement, an aggregate of 96,468,114 shares of common stock could become issuable, subject to potential increase in the number of shares due to applicable anti-dilution adjustments. Also, an additional 35,510,720 shares of common stock became issuable upon conversion of the Series B Preferred Stock as a result of the automatic anti-dilution adjustment that occurred pursuant to of the Certificate of Designation for the Series B Preferred Stock. Accordingly, upon the conversion or exercise (as applicable) of some or all of the securities issued in the 2022 Warrant Reprice Transaction, or to be issued in the 2022 Private Placement, the percentage ownership and voting power held by our existing stockholders will be significantly reduced and our stockholders will experience significant dilution.

In addition, if the Reverse Stock Split is effected, there will be a significant number of additional authorized shares of common stock that we may issue in the future, which our Board of Directors will have discretion to issue in the future, including, without limitation, in connection with future capital raise transactions and financings, except to the extent prohibited or limited for a period of time by the terms of the 2022 Private Placement. Stockholders will not have a right to approve any such issuances or transactions, unless required by our governing documents or applicable law, and any such issuance of our common stock in the future may be dilutive to stockholders.

***If we offer common stock or other securities in the future and the price that we sell those securities for is less than the current conversion price of our Series B Preferred Stock that was recently adjusted or, when and if issued, the Series C Preferred Stock, then we will be required to issue additional shares of common stock to the holders of the Series B Preferred Stock and/or Series C Preferred Stock, as the case may be, upon conversion, which will be dilutive to all of our other stockholders.***

The Certificate of Designation for the Series B Preferred Stock contains, and the Certificate of Designation for the Series C Preferred Stock is expected to contain, anti-dilution provisions that require the lowering of the conversion price, as then in effect, to the purchase price of equity or equity-linked securities issued by us in subsequent offerings, if lower than the current conversion price. A reduction in the conversion price of either series of preferred stock will result in a greater number of shares of common stock being issuable upon conversion of such preferred stock for no additional consideration, causing greater dilution to our stockholders. For example, as described above, the consummation of the 2022 Warrant Reprice Transactions triggered the anti-dilution protection in the Series B Certificate of Designation, and as a result there are now an additional 35,510,720 shares of common stock that are issuable upon conversion of the shares of Series B Preferred Stock outstanding as of the date of this prospectus. Furthermore, as there is no floor on the conversion price, we cannot determine the total number of shares issuable upon conversion. In addition, it is possible that when the Reverse Stock Split becomes effective, we may not have a sufficient number of authorized and available shares to satisfy the conversion of the Series B Preferred Stock and/or Series C Preferred Stock, as the case may be, if we enter into a future transaction that reduces the applicable conversion price.

### Risks Relating to the Proposed Reverse Stock Split

***The proposed Reverse Stock Split, if effected, may not increase our stock price, and could lead to a decrease in our overall market capitalization.***

We expect that the Reverse Stock Split, if effected, will increase the per share trading price of our common stock. However, the market price per share of our common stock after the Reverse Stock Split may not rise (or remain constant) in proportion to the reduction in the number of shares of common stock outstanding before the Reverse Stock Split. We cannot predict the effect of the Reverse Stock Split on the per share trading price of our common stock, and the history of reverse stock splits for other companies is varied, particularly since some investors may view a reverse stock split negatively. In many cases, the market price of a company’s shares declines after a reverse stock split, or the market price of a company’s shares immediately after a reverse stock split does not reflect a proportionate or mathematical adjustment to the market price based on the ratio of the reverse stock split. Accordingly, our total market capitalization after the Reverse Stock Split, if approved and effective, may be lower than our total market capitalization before the Reverse Stock Split, and it is possible that the Reverse Stock Split may not result in a per share trading price that would attract investors who do not trade in lower priced stocks.

Even if the Reverse Stock Split is implemented, the per share trading price of our common stock may decrease due to factors unrelated to the Reverse Stock Split. Other factors, such as our financial results, market conditions and the market perception of our business, may adversely affect the per share trading price of our common stock. As a result, we cannot assure you that the Reverse Stock Split, if completed, will result in the benefits that we anticipate, that the per share trading price of our common stock will increase following the Reverse Stock Split or that the per share trading price of our common stock will not decrease in the future.

***The proposed Reverse Stock Split, if approved by stockholders and effected, may decrease the liquidity of our common stock.***

The liquidity of our common stock may be harmed by the proposed Reverse Stock Split, given the reduced number of shares that would be outstanding after the Reverse Stock Split, particularly if the per share trading price does not increase proportionately as a result of the Reverse Stock Split. While our Board of Directors believes that a higher stock price may help generate the interest of new investors, the Reverse Stock Split may not result in a per-share price that will attract certain types of investors, such as institutional investors or investment funds, and such share price may not satisfy the investing guidelines of institutional investors or investment funds. As a result, the trading liquidity of our common stock may not improve as a result of a Reverse Stock Split and could be adversely affect by a higher per share price. Accordingly, the Reverse Stock Split may not increase marketability of our common stock. In addition, investors might consider the increased proportion of unissued authorized shares to issued shares to have an anti-takeover effect under certain circumstances, because the proportion allows for dilutive issuances that could prevent certain stockholders from changing the composition of the Board of Directors or render tender offers for a combination with another entity more difficult.

***The proposed Reverse Stock Split, if effected, may result in some stockholders owning “odd lots” that may be more difficult to sell or require greater transaction costs per share to sell.***

If the proposed Reverse Stock Split is implemented, it will increase the number of stockholders who own “odd lots” of less than 100 shares of common stock. A purchase or sale of less than 100 shares of common stock may result in incrementally higher trading costs through certain brokers, particularly “full service” brokers. Therefore, those stockholders who own less than 100 shares of our common stock following the Reverse Stock Split may be required to pay higher transaction costs if they sell their shares of common stock.

***The proposed Reverse Stock Split, if effected, will result in a significant increase in our authorized common stock and may result in future dilution to our stockholders.***

The Reverse Stock Split will reduce the number of outstanding shares of our common stock without a proportionate reduction in the number of shares of authorized but unissued common stock in the Company’s Amended and Restated Certificate of Incorporation, as amended,, which will give the Company a significantly larger number of authorized shares, as a percentage of total outstanding shares, available for future issuance without further stockholder action, except as may be required by applicable laws or the rules of any stock exchange on which our common stock is listed. The issuance of additional shares of common stock may have a dilutive effect on the ownership of existing stockholders.

Filed Nov 14, 2022.
Source: SEC EDGAR, the filing index for accession 0001437749-22-027275. Last ingested by Listed: Nov 5, 2026, 22:16 ET. No prices; not investment advice.