Dermata Therapeutics, Inc.: Form 10-Q for the period ended Jun 30, 2026

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 products and our ability to satisfy our capital needs;
• the accuracy of our estimates regarding expenses, future revenues, capital expenditures, our need for additional financing and our anticipated cash runway;
• our dependence on our products, which are still in various stages of development;
• our ability to acquire sufficient quantities of raw material needed to manufacture our products;
• our, or that of our third-party manufacturers, ability to manufacture current Good Manufacturing Practices (“cGMPs”) quantities of our products as required to support commercial quantities of our products;
• the possibility that an over the counter (“OTC”) formulation, dosage, combinations, or indication will fall outside the scope of applicable OTC monographs, will require new drug applications (“NDA”), or are otherwise challenged by the U.S. Food and Drug Administration (“FDA”), state boards, or other regulators, any of which could delay or prevent launch and commercialization or require reformulation, relabeling, additional testing, or other corrective actions;
• the possibility that positive clinical data are not predictive of consumer experience or commercial performance of a product;

24

• our ability to timely secure and scale manufacturing, packaging, and quality systems suitable for commercialization, including meeting lot release, stability, shelf life, and container-closure requirements, and to manage product returns, recalls, or withdrawals if quality issues arise;
• our ability to successfully execute our strategic pivot from Rx to direct-to-consumer (“DTC”), including our capacity to design, formulate, manufacture, package and distribute products that comply with applicable federal, state and international requirements and standards, including FDA OTC monographs, current good manufacturing practices applicable to our products, labeling and Drug Facts requirements, and other enforcement policies;
• our ability to establish and maintain distribution and sales channels, including DTC e-commerce, business-to-business (“B2B”) professional/clinic channels, and any retail partners, and to manage channel economics, chargebacks, returns, and working capital needs;
• our ability to internally develop new inventions and intellectual property;
• interpretations of current laws and the passage of future laws;
• impacts of increased trade tariffs, import quotas or other trade restrictions or measures taken by the United States and other countries, including the recent and potential changes in U.S. trade policies that may be made by the Trump presidential administration;
• acceptance of our business model by investors;
• the accuracy of our estimates regarding expenses and capital requirements; and
• our ability to adequately support organizational and business growth.

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 anticipated in such forward-looking statements. Please see “Part I—Item 1A—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 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 scientific leader in skincare, dedicated to the development and commercialization of products that address common and underserved skin conditions. Dermata initially was founded with a focus on researching and developing prescription products subject to the FDA approval process. In September 2025, after an extensive review of current trends in dermatology, changing consumer preferences, additional non-clinical and clinical development costs, and go-to market costs for a prescription, or Rx, acne product, management, with approval from our board of directors, determined that a strategic shift to developing and distributing DTC and B2B skincare products, that are backed by science, would be a better path to commercialization for the Company with potentially greater financial upside and faster time to market. We believe we can leverage our history and knowledge of Rx dermatology to create skincare products that are effective and safe, and available to consumers without the nuisance of obtaining a prescription. We believe this strategic repositioning will accelerate our path to commercialization, reduce our regulatory burden, and decrease development expenses, all while enabling us to address broad consumer segments in the skincare market.

We believe the skincare market, from a cosmetic, and over-the-counter (“OTC”), and Rx perspective, has seen a substantial shift towards consumers first relying upon multifaceted cosmetics and OTC products that simplify routines. Consumer preferences are changing to favor natural products that do more for their skin. There appears to be a resurgence of interest in traditional remedies to help with skin renewal and general cosmetic appearance. With consumers searching for multifunctional products to simplify their routines while valuing brand loyalty and sustainable practices. We believe there remains a gap in the skincare market for in-office level treatments that are available for home use and believe we have a product to fill this void. We believe that if we can provide consumers with a unique topical skincare product, we have an opportunity to capture a large segment of consumers seeking to simplify their skincare routine without needing to schedule an in-office visit with an aesthetician or a dermatologist. While this is a major shift in strategy for our company, we believe pursuing the commercial sale of unique cosmetic skincare products is the best path forward to meet our mission of providing consumers with efficacious and safe skincare treatment options.

We view this shift in consumer preferences as a significant benefit for our strategic repositioning. We have gained substantial clinical knowledge of various dermatology diseases and skin conditions or our years of developing prescription products. We plan to leverage this knowledge to create a diversified product line of skincare treatments that consumers can access directly for each of their skincare needs. While our background is in prescription products, we plan to leverage the unique attributes of our hero ingredient, Spongilla lacustris, to develop multiple skincare treatments for a variety of consumer and professional needs. We expect to launch our first cosmetic product, our Tome Foundational Treatment, on August 25, 2026, with those on our waitlist being able to preorder early. In the future, we plan to offer additional products that target specific needs of consumers. For example, for consumers who have more sensitive skin, we may plan to commercialize a milder version of our Foundational Treatment that could be used more often.

Our core products, like our Foundational Treatment, will utilize our Bioneedle, which is 100% Spongilla lacustris powder, to provide a once-weekly, skin renewal routine that is a simple addition to skincare routines. This once weekly routine will contain our Bioneedle which will be combined with a fluidizing agent for easy application. Our Bioneedle is derived from a wild harvested freshwater sponge, Spongilla lacustris or Spongilla, which is processed into a fine, purified powder and packaged with no additives. Spongilla is a unique freshwater sponge that only grows in commercial quantities in select regions of the world, which gives our Bioneedle its distinctive properties. The combination of a proprietary harvesting protocol, developed by our exclusive supplier over 20 plus years of harvesting, and the post-harvest processing procedures we developed, produces a cosmetic ingredient that we believe optimizes the Bioneedle for a unique and simple skin renewal routine, unlike most skincare on the market.

We also plan to sell directly to skincare professionals, like aestheticians and dermatologists, as we believe many consumers are still seeking professional expertise for their skincare. We believe our Foundational Treatment is safe enough to be used at home but also powerful enough for the office. This dual distribution channel will allow consumers to have the product applied in the manner they are most comfortable, while allowing skincare professionals to provide additional services to their clients. The unique once weekly application schedule provides flexibility to skincare professionals to tailor the treatment for each individual patient, whether that patient comes back weekly or once a month while completing weekly applications at home. We believe our Foundational Treatment will provide skincare professionals will a treatment option for patients that may be less intense than microneedling, lasers, or chemical peels, but offers patients the skin renewal results they seek.

In addition to in-office application for skin renewal, based on the mechanism of Bioneedle, we also believe there is a market for our technology to aid in the intradermal delivery of macromolecules, like botulinum toxin, that must be applied by certified professionals. Currently botulinum toxins are only approved for intramuscular injections of the face to reduce forehead, lateral canthal, and glabella deep lines. However, we believe there is an untapped aesthetic market seeking needle free, topical applications of botulinum toxin for superficial aesthetic conditions, like reducing fine lines, pore size, and sebum product or improving luminosity, brightness and overall aesthetic appearance. Therefore, we believe developing a less painful, less time-consuming topical delivery of botulinum toxin into the dermis for various aesthetic conditions, would provide physicians with an attractive alternative to intradermal injections of botulinum toxins. While we have no current timeline for the launch of this program we plan to continue to explore additional uses for this platform and look forward to getting our technology in the hands of aestheticians and dermatologists so they may better serve the medical and aesthetic needs of their patients.

We have taken steps to secure inventory of Spongilla raw material in advance of the planned launch of our Tome skincare products. We believe we have sufficient quantities of processed Spongilla raw material inventory on hand to support the expected August 25, 2026, commercial launch and initial commercialization activities thereafter, based on our current operating plans, expected production volumes and internal assumptions. We continue to evaluate additional inventory procurement opportunities and manufacturing planning activities to support future commercial demand.

Recent Developments

On August 5, 2026, we announced the planned commercial launch date of our first direct-to-consumer skincare product, Foundational Treatment. We expect to start selling the Foundational Treatment on August 25, 2026, with people on the waitlist getting early access to preorder. The Foundational Treatment will contain 4 weekly treatments and will be priced at $178.00 USD retail, or about $45 per treatment.

Critical Accounting 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, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements as well as the reported expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments that are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management considers an accounting estimate to be critical if it requires a significant level of estimation uncertainty, and changes in the estimate are reasonably likely to have a material effect on our financial condition or results of operations. There are items within our financial statements that require estimation but are not deemed critical, as defined above. For a detailed discussion of our significant accounting policies and related judgments, see Note 2 - Summary of Significant Accounting Policies to our unaudited financial statements contained within this Form 10-Q.

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 marketing expenses associated with the launch of our first Tome skincare products and resulting revenues, if any, in the second half of 2026. 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, 2026, and 2025

The following table summarizes our results of operations for the periods presented:

27

Research and Development Expenses

Research and development expenses decreased by $0.4 million from $0.6 million for the three months ended June 30, 2025, to $0.2 million for the three months ended June 30, 2026. The decrease in research and development expenses resulted primarily from the Company’s decision to prioritize the commercial launch of its first product, resulting in a decrease in research and development efforts during the three months ended June 30, 2026. While we continue to focus on designing, packaging, and manufacturing of our first commercial products, as well as product development, we anticipate that research and development expenses will continue to decrease as we prepare for launching our first commercial product, expected on August 25, 2026.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by approximately $1.6 million from $1.2 million for the three months ended June 30, 2025, to $2.8 million for the three months ended June 30, 2026. The increase in selling, general and administrative expenses was primarily attributable to the Company’s decision to prioritize the commercial launch of its first product, resulting in significant pre-launch commercialization activities during the three months ended June 30, 2026. This resulted in an increase of $0.6 million of marketing and other commercialization expenses and an increase of $0.3 million of compensation expense primarily due to a reallocation of employee duties from research and development to selling, general and administrative expense, as a result of the shift in business focus towards commercialization. In addition, legal fees increased by $0.7 million during the three months ended June 30, 2026, due to ongoing litigation and other legal matters. We anticipate that selling, general and administrative expenses will continue to increase related to marketing, branding, advertising, and personnel expenses as we continue to prepare for our first product launch in the third quarter of 2026.

Other Income and Expenses

We earn interest income via overnight deposits on our cash and cash equivalents. Interest income was $47,000 for the second quarter of 2026 compared to $72,000 for the second quarter of 2025. The decrease in interest income resulted from decreased cash balances.

Six Months Ended June 30, 2026, and 2025

The following table summarizes our results of operations for the periods presented:

Research and Development Expenses

Research and development expenses decreased by $1.3 million from $1.9 million for the six months ended June 30, 2025, to $0.6 million for the six months ended June 30, 2026. The decrease in research and development expenses resulted from $0.6 million of decreased clinical expenses from the XYNGARI™ STAR-1 acne study, which was completed during the second quarter of 2025. Additionally, research and development expenses decreased another $0.7 million, as a result of the Company’s decision to prioritize the commercial launch of its first product, resulting in a decrease in research and development efforts during the six months ended June 30, 2026.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $2.1 million from $2.2 million for the six months ended June 30, 2025, to $4.3 million for the six months ended June 30, 2026. The increase in selling, general and administrative expenses was primarily attributable to the Company’s decision to prioritize the commercial launch of its first product, resulting in significant pre-launch commercialization activities during the six months ended June 30, 2026. This resulted in an increase of $0.9 million of marketing and other commercialization expenses and an increase of $0.3 million of compensation expense primarily due to a reallocation of employee duties from research and development to selling, general and administrative expense, as a result of the shift in business focus towards commercialization. In addition, legal fees increased by $0.8 million during the six months ended June 30, 2026, due to ongoing litigation and other legal matters, and audit fees increased by $0.1 million.

Other Income and Expenses

We earn interest income via overnight deposits on our cash and cash equivalents. Interest income was $125,000 for the six months ended June 30, 2026 compared to $108,000 for the six months June 30, 2025. The increase of $17,000 in interest income resulted primarily from interest received related to the Employee Retention Tax Credit payments received during the first quarter of 2026.

Cash Flows

The following table summarizes our cash flows from operating and financing activities:

Operating activities

Cash used in operations of approximately $4.9 million for the six months ended June 30, 2026, was the result of the net loss of $4.8 million as well as increases in prepaid and other current assets of $0.3 million and increased inventories of $0.1 million, as well as a decrease accrued and other current liabilities of approximately $0.5 million, partially offset by an increase in accounts payable of $0.7 million and non-cash stock-based compensation of $0.1 million.

Cash used in operations of $4.6 million for the six months ended June 30, 2025, was the result of the net loss of $4.0 million and decreases in accounts payable and accrued and other current liabilities of approximately $0.9 million, partially offset by the decrease of prepaid expenses and other current assets of approximately $0.2 million and non-cash stock-based compensation of $0.1 million.

Investing activities

Cash used in investing activities of $0.1 million for the six months ended June 30, 2026 consisted of the purchases of property and equipment.

Financing activities

Cash provided by financing activities of $1.9 million for the six months ended June 30, 2026, was the result of approximately $2.0 million in net proceeds from ATM sales during the first quarter of 2026, partially offset by approximately $0.1 million of payments for issuance-related costs from the December 2025 PIPE financing.

Cash provided by financing activities of $7.9 million for the six months ended June 30, 2025, was the result of the January 2025 PIPE financing which raised net proceeds of $2.2 million, and the March 2025 Inducement financing which raised net proceeds of $5.7 million.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue or commercialized any products. As of June 30, 2026, our cash and cash equivalents totaled $4.4 million, and we had an accumulated deficit of $78.0 million. For the six months ended June 30, 2026, and the year ended December 31, 2025, we used cash of $4.9 million and approximately $7.8 million, respectively, in operations. We expect our current cash resources to fund operations into the fourth quarter of 2026.

We anticipate that we will continue to incur net losses for at least the next twelve months from the date of this filing. While we plan to launch our first DTC product, expected on August 25, 2026, it is uncertain when we will generate operating income to sustain operations, if ever. 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.

Historically, our principal sources of cash have included proceeds from the issuance of equity securities. Our principal uses of cash have been for operations, and we expect that the principal uses of cash in the future will be for continuing operations, including various marketing expenditures, including, but not limited to, branding, paid media, marketing use studies, advertising, software subscriptions, and launch events and tradeshows, as well as non-marketing expenses including funding of research and development, and general working capital requirements. We expect that as marketing expenses continue to grow, we may need to raise additional capital to sustain operations.

Future Capital Requirements

We plan to focus our efforts in the near term on the development and commercialization of our Tome skincare product, our Foundational Treatment. We anticipate we will continue to incur net losses for the foreseeable future as we complete the launch of our Tome Foundational Treatment and ramp up marketing activities. We also plan to invest in developing additional skincare products to add to our portfolio that complement our Foundational Treatment. In addition, we plan to seek opportunities to identify, acquire or in license and develop additional skincare candidates, potentially expand commercial capabilities, and expand our corporate infrastructure. We may not be able to complete the development and initiate commercialization of these programs without raising additional capital.

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, marketing and advertising expenses, external research, development and manufacturing costs, legal and other regulatory expenses, and administrative and overhead costs. Our future funding requirements will be heavily dependent upon any product revenues generated from our first product launch, of which we cannot estimate at this time, as well as the resources needed to support additional development of future products.

We believe that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2026. 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 may require additional capital to continue to commercialize our Tome skincare products, and to pursue in-licenses or acquisitions of other drug candidates. Accordingly, beyond our current cash and any proceeds from the sales of our common stock pursuant to the ATM Agreement, if any, we will require substantial additional financing to support our operations. We expect our expenses and capital requirements to increase in connection with our ongoing activities, including the commercial launch of our first Tome skincare products.

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.

Because of the numerous risks and uncertainties associated with launching our first products, as well as any revenues generated from those products, 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 skincare products we pursue;
• the scope, progress, results, and costs of developing our products, and marketing such products if commercialized;
• the timing of, and the costs involved in, launching our products;
• the cost of manufacturing our products and any products we successfully commercialize;
• our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;
• the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims, including litigation costs and the outcome of such litigation; and
• the timing, receipt and amount of revenues, if any, or milestone payments related to or royalties on, our current or future products, if any.

We continue to refocus our business on skincare products 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 to add to our Tome skincare brand. 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. Accordingly, we expect to continue to opportunistically seek access to additional capital to license or acquire additional products or companies to expand our Tome skincare brand and 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.

If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or products or to grant licenses on terms that may not be favorable to us.

We cannot be certain that additional funding will be available on acceptable terms, or at all. In addition, future debt financing into which we enter may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions.

If we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue the development and commercialization of one or more of our products, restrict our operations or obtain funds by entering into agreements on unattractive terms, which would likely have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business relationships, at least until additional funding is obtained. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all of their investment in us. In addition, our ability to achieve profitability or to respond to competitive pressures would be significantly limited.

Going Concern

Since inception, we have devoted substantially all of our resources to research and development activities, and during 2026, on marketing and other pre-launch commercial activities in preparation of its first product launch. In September 2025, we made a strategic pivot from research and developing prescription products to becoming a science-driven leader in dermatologic solutions, anticipating our first DTC product launch from our Tome skincare brand, expected on August 25, 2026. We have not generated revenues and have not yet achieved profitable operations, nor have we ever generated positive cash flow from operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. In addition, we operate in an environment of rapid technological change, and we are largely dependent on the services of our employees and consultants. Further, our future operations are dependent on the success of our efforts to raise additional capital. These uncertainties raise substantial doubt about our ability to continue as a going concern for 12 months after the issuance date of our financial statements. The accompanying financial statements have been prepared on a going concern basis. 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, which contemplates the continuation of operations, realization of assets and liquidation of liabilities in the ordinary course of business. We incurred a net loss of $4.8 million for the six months ended June 30, 2026, and had an accumulated deficit of $78.0 million as of June 30, 2026. We anticipate incurring additional losses until such time, if ever, we can generate sufficient revenue from our products currently in development, or products we are in the process commercializing. Our primary source of capital has been the issuance of equity and equity-linked securities.

JOBS Act Accounting Election

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company”. As an “emerging growth company,” we elected not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision not to take advantage of the extended transition period is irrevocable.

Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. These exemptions will apply until the fifth anniversary of the completion of our initial public offering, which would be August 2026, or until we no longer meet the requirements for being an “emerging growth company,” whichever occurs first.

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.

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, 2026. 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, 2026, 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 most recent quarter 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.

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 26, 2026. No material changes to such risk factors have occurred during the six months ended June 30, 2026, except as described below:

We are involved in litigation with Villani, Inc. relating to our Spongilla-based products and commercialization activities, which could adversely affect our business, operations, financial condition and ability to commercialize our products.

On April 23, 2026, Villani, Inc. (“Villani”) filed a complaint against us in the U.S. District Court for the Central District of California asserting claims for false advertising under the Lanham Act, breach of contract, and conversion, and seeking injunctive relief (the “Lawsuit”). On June 5, 2026, Villani filed a Statement of Claims with the American Arbitration Association, commencing arbitration based on the same conduct alleged in the Lawsuit (“Arbitration”). Villani alleges breach of contract, breach of the duty of good faith and fair dealing, false advertising under the Lanham Act 15 USC § 1125, violation of California Business and Professions Code §§ 17200, et seq., and conversion. Villani seeks money damages in the Arbitration.

In connection with the litigation, Villani sought a temporary restraining order (“TRO”) and preliminary injunction in the Lawsuit. On May 6, 2026, the Court denied the TRO in part related to the breach of contract and conversion claims and granted the TRO in part on the false or misleading advertising statements, which imposed certain temporary restrictions on specific statements the Company could make pending further proceedings. On August 5, 2026, the Court denied Villani’s motion for a preliminary injunction and vacated the injunctive relief granted in the TRO, and the company is not currently subject to any injunctive restrictions. In denying the motion, the Court found that questions exist going to the merits of Villani’s breach of contract claim, but that Villani had not established a likelihood of immediate irreparable harm and that the balance of equities favored the Company. Villani continues to seek permanent injunctive relief in the Lawsuit and money damages in the Arbitration. We are vigorously defending ourselves against these claims; however, litigation and arbitration proceedings are inherently uncertain, costly, and time-consuming.

While we are not currently restrained from manufacturing, promoting, advertising, using, selling, offering for sale, distributing, or delivering in commerce any product or regimen containing Spongilla, if Villani were to obtain injunctive relief at a later stage of the Lawsuit, an arbitration award, or otherwise, we could be restricted or delayed in our ability to market, manufacture, distribute, advertise, sell, or commercialize certain of our current or planned products, including products containing our Spongilla. Such restrictions could disrupt our planned product launches, impair relationships with suppliers, manufacturers, distributors, marketing partners, or customers, require us to modify our products, branding, formulations, or marketing claims, or otherwise adversely affect our commercialization strategy. In addition, defending this matter may require significant management attention and financial resources, result in substantial legal expenses, divert resources from our business operations and strategic initiatives, and expose us to reputational harm.

Our failure to maintain compliance with Nasdaq’s continued listing requirements could result in the delisting of our common stock.

Our common stock is currently listed on the Nasdaq Capital Market. Continued listing of a security on Nasdaq Capital Market is conditioned upon compliance with various continued listing standards. In the past, we have received notices from Nasdaq’s Listing Qualifications Department indicating that we had not complied with certain of the Nasdaq Capital Market’s continued listing standards. While we have regained compliance for each instance, there can be no assurance that we will continue to maintain compliance with the Nasdaq listing requirements.

Upon approval of the Securities and Exchange Commission, Nasdaq amended its listing rules on July 22, 2026, to provide that where a listed company fails to meet the continued listing requirement for market value of listed securities of at least $5 million for 30 consecutive business days, such deficiency will result in immediate suspension and delisting, bypassing typical grace periods and restricting appeal rights (the “MVLS Requirement”). On July 29, 2026, the SEC’s Division of Trading and Markets confirmed that it had received notices of intention to petition the full SEC for review of the approval, which automatically stayed the order implementing the rule pending further action from the SEC. This process is pending as of the filing date of this Quarterly Report on Form 10-Q with no prescribed timeline for SEC action. As of the time of this filing, our market value of listed securities is currently below $5 million. Because we are currently below the $5 million threshold, if and when the MVLS Requirement becomes effective, we may become subject to immediate suspension and delisting, without any opportunity to cure, if our market value of listed securities remains below $5 million for 30 consecutive business days.

A delisting could substantially decrease trading in our common stock, adversely affect the market liquidity of our common stock as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption of state securities laws, adversely affect our ability to obtain financing on acceptable terms, if at all, and may result in the potential loss of confidence by investors, suppliers, and employees and lead to fewer business development opportunities. Additionally, the market price of our common stock may decline further, and stockholders may lose some or all of their investment.

In the event of a delisting, we anticipate that we would take actions to restore our compliance with the Nasdaq Capital Market or another national exchange’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to remain listed on the Nasdaq Capital Market, stabilize our market price, improve the liquidity of our common stock, or prevent future non-compliance with the Nasdaq Capital Market or another national exchange’s listing requirements.