Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Organization and description of business operations

Timber Pharmaceuticals, Inc., formerly known as BioPharmX Corporation (together with its subsidiaries Timber Pharmaceuticals Australia Pty Ltd., BioPharmX Inc. and Timber Pharmaceuticals LLC, the “Company” or “Timber”) is incorporated under the laws of the state of Delaware. Timber was founded in 2019 to develop treatments for unmet needs in medical dermatology. Timber has a particular focus on rare diseases or conditions of the skin for which there are no current treatments. Timber is initially targeting multiple indications in rare/orphan dermatology with no approved treatments.

On November 7, 2022, the Company filed a Certificate of Amendment to its Certificate of Incorporation, as amended (the “Certificate of Amendment”), with the Secretary of State of Delaware that effected a 1-for-50 reverse stock split of its common stock, par value $0.001 per share, which became effective at 5:00 PM (EST) on November 8, 2022 (the “2022 Reverse Stock Split”). Pursuant to the Certificate of Amendment, the Company’s issued and outstanding common stock was decreased from 148,571,994 shares to 2,971,439 shares. The 2022 Reverse Stock Split did not affect the Company’s authorized common stock of 450,000,000 shares. The par value of its common stock was unchanged at $0.001 per share, post-split. All shares of common stock, including common stock underlying warrants, stock options, restricted stock units and VARs, as well as conversion ratios, exercise prices, conversion prices and per share information in these consolidated financial statements give retroactive effect to the 2022 Reverse Stock Split.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, “Financial Statements and Supplementary Data,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Merger Agreement

On May 18, 2020, BioPharmX Corporation (“BioPharmX”) completed its business combination with Timber Pharmaceuticals LLC, a Delaware limited liability company (“Timber Sub”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of January 28, 2020 by and among BioPharmX, Timber Sub and BITI Merger, Inc., a Delaware corporation and wholly-owned subsidiary of BioPharmX (“Merger Sub”), as amended on March 24, 2020 and subsequently amended on April 27, 2020 as amended (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Timber Sub, with Timber Sub surviving as a wholly-owned subsidiary of the Company (the “Merger”). In connection with, and immediately prior to the completion of, the Merger, BioPharmX effected a reverse stock split of the shares of common stock at a ratio of 1-for-12 (the “2020 Reverse Stock Split”). Following the completion of the Merger, BioPharmX changed its name to “Timber Pharmaceuticals, Inc.” and the officers and directors of Timber Sub became the officers and directors of the Company.

In connection with the Merger, the 11.68 VARs of Timber Sub that were outstanding immediately prior to Merger became denoted and payable in 7,353 shares of common stock at the effective time of the Merger (the “Effective Time”). Further, the holder of the 1,819,289 preferred units of Timber Sub outstanding immediately prior to the Merger received 1,819 shares of the Series A preferred stock (the “Series A Preferred Stock”) at the Effective Time. As part of the Merger, the Company assumed 4,401 legacy BioPharmX warrants with a weighted average exercise price of $8,208.50 per share, and 1,957 legacy BioPharmX stock options with a weighted average exercise price of $2,290.50 per share. In connection with the Merger Agreement, BioPharmX entered into a Credit Agreement with Timber Sub, pursuant to which Timber Sub made a bridge loan to the Company (the “Bridge Loan”), in an aggregate amount of $2.25 million with $250,000 original issue discount.

In connection with the Merger Agreement, on March 27, 2022, Timber Sub and BioPharmX entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain accredited investors (the “Investors”) pursuant to which Timber Sub issued to the Investors shares of Timber units immediately prior to the Merger and we issued to the Investors warrants to purchase shares of common stock on the tenth trading day following the consummation of the Merger (the “Investor Warrants”) in a private placement transaction for an aggregate purchase price of approximately $25 million.  We issued to the Investors 167,695 Series A Warrants to purchase shares of common stock (“Series A Warrants”) and 140,844 Series B Warrants to purchase shares of common stock (“Series B Warrants”).  The Series A Warrants have a 5-year term and an exercise price of $2.7953, subject to the number of shares and exercise price being reset based on our stock price after the Merger. The Series A Warrants were initially exercisable into 167,695 shares of common stock, subject to certain adjustments.  The Series B Warrants had an exercise price per share of $0.05, were exercisable upon issuance and were initially convertible into 140,844 shares of common stock in the aggregate.

In addition, pursuant to the terms of the Securities Purchase Agreement, the Company issued to the Investors, on May 22, 2020, warrants to purchase 8,275 shares of common stock (the “Bridge Warrants”) which originally had an exercise price of $111.81 per share.  

Investor Warrants

Series A Warrants

The Series A Warrants have an exercise price of $58.00 per share, were exercisable upon issuance and will expire on the day following the later to occur of (i)  June 2, 2025, and (ii) the date on which the Series A Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable thereunder. As of March 31, 2023, the Series A Warrants are exercisable for 334,036 shares of common stock in the aggregate.

Pursuant to the Series A Warrants, the Company agreed not to enter into, allow or be party to certain fundamental transactions, generally including any merger with or into another entity, sale of all or substantially all of the Company’s assets, tender offer or exchange offer, or reclassification of the common stock (a “Fundamental Transaction”) until May 1, 2021. Thereafter, upon any exercise of a Series A Warrant, the holder shall have the right to receive, for each share of common stock that would have been issuable upon such exercise immediately prior to the occurrence of a Fundamental Transaction, at the option of the holder (without regard to any limitation on the exercise of the Series A Warrant), the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of common stock for which the Series A Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation on the exercise of the Series A Warrant). For purposes of any such exercise, the determination of the exercise price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of common stock in such Fundamental Transaction, and the Company shall apportion the exercise price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of common stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of the Series A Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under the Series A Warrants, upon which the Series A Warrants shall become exercisable for shares of common stock, shares of the common stock of the Successor Entity or the consideration that would have been issuable to the holders had they exercised the Series A Warrants prior to such Fundamental Transaction, at the holders’ election. Additionally, at the request of a holder delivered before the 90th day after the consummation of a Fundamental Transaction, the Company must purchase such holder’s warrant for the value calculated using the Black-Scholes option pricing model as of the day immediately following the public announcement of the applicable Fundamental Transaction, or, if the Fundamental Transaction is not publicly announced, the date the Fundamental Transaction is consummated.

If the Company fails to issue to a holder of Series A Warrants the number of shares of common stock to which such holder is entitled upon such holder’s exercise of the Series A Warrants, then the Company shall be obligated to pay the holder on each day while such failure is continuing an amount equal to 1.5% of the market value of the undelivered shares determined using a trading price of common stock selected by the holder while the failure is continuing and if the holder purchases shares of common stock in connection with such failure (“Series A Buy-In Shares”), then the Company must, at the holder’s discretion, reimburse the holder for the cost of such Series A Buy-In Shares or deliver the owed shares and reimburse the holder for the difference between the price such holder paid for the Series A Buy-In Shares and the market price of such shares, measured at any time of the holder’s choosing while the delivery failure was continuing.

Further, the Series A Warrants provide that, in the event that the Company does not have sufficient authorized shares to deliver in satisfaction of an exercise of a Series A Warrant, then unless the holder elects to void such attempted exercise, the holder may require the Company to pay an amount equal to the product of (i) the number of shares that the Company is unable to deliver and (ii) the highest volume-weighted average price of a share of common stock as quoted on the NYSE American during the period beginning on the date of such attempted exercise and ending on the date that the Company makes the applicable payment.

On November 19, 2020, the Company entered into waiver agreements with each of the holders of the Company’s Series A Warrants. Pursuant to the waiver agreements the holders agreed to waive certain provisions in the Series A Warrants in order to allow for one immediate and final reset of the number of shares of common stock underlying the Series A Warrants and the exercise price of the Series A Warrants, and permanently waive the provisions providing for future resets of the number of shares of common stock underlying the Series A Warrants and the exercise price of the Series A Warrants (other than the anti-dilution protection provisions in the Series A Warrants providing for adjustments to the exercise price of the Series A Warrants upon a dilutive issuance). As a result, the exercise price of the Series A Warrants was set at $58.00 per share and the number of shares underlying all of the Series A Warrants was set at 403,564.

Series B Warrants

The Series B Warrants had an exercise price of $0.05 per share, were exercisable upon issuance and were exercised in full on March 4, 2021. The Series B Warrants were exercisable for 455,336 shares of common stock in the aggregate.

On November 19, 2020 the Company entered into waiver agreements with each of the holders of the Company’s Series B Warrants. Pursuant to the waiver agreements the holders agreed to waive certain provisions in the Warrants in order to allow for one immediate and final reset of the number of shares of common stock underlying the Series B Warrants. As a result, the number of shares underlying all of the Series B Warrants was set at 455,336 and the exercise price remains at $0.05 per share. During the year ended December 31, 2020, 305,855 Series B warrants were exercised for 305,700 shares of the Company’s common stock.

The number of shares underlying a holder’s Series B Warrants was calculated using the existing formula set forth in the Series B Warrants and was reached by dividing the initial purchase price paid by the holder under the Purchase Agreement by a “Reset Price”, equal to the arithmetic average of the five (5) lowest Weighted Average Prices (as defined in the Warrants) of the common stock during the applicable “Reset Period,” in this case being the nine Trading Day (as defined in the Warrants) period ending on the Effective Date (but not less than the Reset Floor Price), and subtracting from such quotient the number of shares of common stock issued (or that were issuable) under the Purchase Agreement to the holder.

Bridge Warrants

The Bridge Warrants were issued on May 22, 2020, to the Bridge Investors, had an exercise price of $111.81 per share, were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Bridge Warrants are exercisable for 8,275 shares of common stock in the aggregate.  As a result of the November 2021 Offering (as defined below), the exercise price of the Bridge Warrants was adjusted to $15.50 per share.  Further, the exercise price of the Bridge Warrants was reduced to the offering price per share of the August 2022 Offering (as defined below) less the Black Scholes value of the common warrants issued in the August 2022 Offering, or $1.00 per share.  As of March 31, 2023 and December 31, 2022, the Bridge Warrants are excerciseable for 8,275 shares of common stock in the aggregate.

The Bridge Warrants provide that if Timber issues or sells or in accordance with the terms of the Bridge Warrants, is deemed to have issued or sold any shares of common stock for a price per share lower than the exercise price then in effect subject to certain limited exceptions, then the exercise price of the Bridge Warrants shall be reduced to such lower price per share.

Upon the consummation of a Fundamental Transaction by the Company, upon any exercise of a Bridge Warrant, the holder shall have the right to receive, for each share of common stock that would have been issuable upon such exercise immediately prior to the occurrence of a Fundamental Transaction, at the option of the holder (without regard to any limitation on the exercise of the Bridge Warrant), the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of common stock for which the Bridge Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation on the exercise of the Bridge Warrant). For purposes of any such exercise, the determination of the exercise price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of common stock in such Fundamental Transaction, and the Company shall apportion the exercise price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of common stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of the Bridge Warrant following such Fundamental Transaction. The Company shall cause any Successor Entity to assume in writing all of the obligations of the Company under the Bridge Warrants, upon which the Bridge Warrants shall become exercisable for shares of common stock, shares of the common stock of the Successor Entity or the consideration that would have been issuable to the holders had they exercised the Bridge Warrants prior to such Fundamental Transaction, at the holders’ election.

Additionally, at the request of a holder of a Bridge Warrant delivered before the 90th day after the consummation of a Fundamental Transaction, Timber or the successor entity must purchase such holder’s warrant for the value calculated using the Black-Scholes option pricing model as of the day immediately following the public announcement of the applicable Fundamental Transaction, or, if the Fundamental Transaction is not publicly announced, the date the Fundamental Transaction is consummated.

The Bridge Warrants also contain a “cashless exercise” feature that allows the holders to exercise the Bridge Warrants without making a cash payment in the event that there is no effective registration statement registering the shares issuable upon exercise of the Bridge Warrants. The Bridge Warrants are subject to a blocker provision which restricts the exercise of the Bridge Warrants if, as a result of such exercise, the holder, together with its affiliates and any other person whose beneficial ownership of common stock would be aggregated with the holder’s for purposes of Section 13(d) of the Exchange Act would beneficially own in excess of 4.99% or 9.99% of the outstanding shares of common stock (including the shares of common stock issuable upon such exercise), as such percentage ownership is determined in accordance with the terms of the Bridge Warrants.

November 2021 Offering

On November 2, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), as representative of the several underwriters named in Schedule I thereto, relating to the public offering, issuance and sale of 426,500 shares of common stock and, to certain investors, pre-funded warrants to purchase shares of common stock and accompanying warrants to purchase shares of common stock (the “November 2021 Offering”). After giving effect to the sale of additional shares pursuant to the exercise of the option by Wainwright that closed on November 9, 2021, the total number of shares of common stock (or common stock equivalents) sold by the Company in the November 2021 Offering was 539,063, together with warrants to purchase up to 539,063 shares of common stock (the “November Warrants”) issued at the closing on November 5, 2021, for total gross proceeds of $17.25 million before deducting underwriting discounts and commissions and other offering expenses, and net proceeds of approximately $15.8 million. As a result of the November 2021 Offering, the exercise price of the Bridge Warrants was adjusted to $15.50 per share. Further, as a result of the August 2022 Offering, the exercise price of the Bridge Warrants was adjusted to $1.00 per share.

Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a November Warrant to purchase one share of common stock. All of the securities sold in the offering were sold by the Company. The public offering price of each share of common stock and accompanying November Warrant was $32.00 and $31.95 for each pre-funded warrant and accompanying November Warrant. The pre-funded warrants were immediately exercisable at a price of $0.05 per share of common stock and were exercised in full on November 5, 2021. The November Warrants were immediately exercisable at a price of $35.00 per share of common stock and expire five years from the date of issuance. No November Warrants have been exercised as of March 31, 2023, or December 31, 2022, respectively.

 ​

August 2022 Offering

 ​

On March 1, 2022, the Company entered into an engagement agreement, as subsequently amended on June 30, 2022 (the “Engagement Agreement”), with Wainwright, pursuant to which Wainwright agreed to act as the Company’s exclusive placement agent on a reasonable best efforts basis in connection with a public offering  of the Company’s common stock, par value $0.001 per share.

On August 4, 2022, the Company announced the pricing of the public offering (the “August 2022 Offering”) of (i) 931,667 shares of common stock, (ii) pre-funded warrants to purchase up to an aggregate of 401,667 shares of common stock and (iii) common warrants to purchase up to an aggregate of 1,333,333 shares of common stock (the “August Warrants”). Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with an August Warrant to purchase one share of common stock. All of the securities sold in the August 2022 Offering were sold by the Company. The public offering price of each share of common stock and accompanying August Warrant was $6.00 and $5.995 for each pre-funded warrant and accompanying August Warrant. The pre-funded warrants were immediately exercisable at a price of $0.005 per share of common stock and may be exercised at any time until all of the pre-funded warrants are exercised in full. The August Warrants are immediately exercisable at a price of $6.00 per share of common stock and will expire five years from the date of issuance. The shares of common stock and pre-funded warrants, and the accompanying August Warrants, were issued separately and were immediately separable upon issuance. The August 2022 Offering closed on August 8, 2022. All of the pre-funded warrants were exercised, and none remain outstanding. On August 8, 2022, 24,000 August Warrants were exercised. As of March 31, 2023, 1,309,333 August Warrants have not been exercised.

In connection with the August 2022 Offering, on August 4, 2022, the Company entered into securities purchase agreements with certain institutional investors in the August 2022 Offering. The net proceeds to the Company from the August 2022 Offering were approximately $6.9 million, after deducting placement agent fees and expenses and estimated offering expenses payable by the Company, excluding the proceeds, if any, from the exercise of the August Warrants. The Company intends to use the net proceeds from the August 2022 Offering for research and development, including clinical trials, working capital and general corporate purposes. Further, the exercise price of the Bridge Warrants was reduced to the offering price per share of the August 2022 Offering less the Black Scholes value of the August warrants issued in the August 2022 Offering or $1.00 per share.

October 2022 Offering

On October 3, 2022, the Company entered into a Securities Purchase Agreement (the “October Purchase Agreement”) with several institutional accredited investors (the “October Investors”) to sell, in a registered direct offering (the “Registered Offering”) (i) 260,000 shares of common stock, and (ii) Series 1 common warrants (the “Series 1 Warrants”) to purchase up to an aggregate of 260,000 shares of common stock. The Series 1 Warrants are immediately exercisable at an exercise price of $5.00 per share and will expire two and one-half years following the initial exercise date. The October Purchase Agreement contains customary representations and warranties and agreements of the Company and the October Investors, and customary indemnification rights and obligations of the parties. Total gross proceeds from the Registered Offering, before deducting the placement agent's fees and other estimated offering expenses, was $1.3 million. The Registered Offering closed on October 3, 2022.

The Company filed a prospectus supplement (the “Prospectus Supplement”) on October 3, 2022, with the Securities and Exchange Commission (the “SEC”) in connection with the Registered Offering. The shares of common stock and Series 1 Warrant Shares were offered pursuant to a “shelf” registration statement on Form S-3 (Registration No.333-255743) (the “Registration Statement”), which was declared effective by the SEC on May 11, 2021, the accompanying base prospectus dated May 11, 2021 contained within the Registration Statement, and the Prospectus Supplement.

In a concurrent private placement (the “Concurrent Private Placement Offering” and, together with the Registered Offering, the “October 2022 Offerings”) the Company has also agreed to issue (i) Series 2 common warrants (the “Series 2 Warrants, “and together with the Series 1 Warrants, the “Warrants”) to purchase up to an aggregate of 260,000 shares of underlying common stock (the “Series 2 Warrant Shares”), and (ii) 13,000 shares of Series B Mirroring Preferred Stock (the “Series B Preferred Stock”).

Each share of Series B Preferred Stock has a stated value of $0.001 per share. The Series B Preferred Stock had super voting rights on the approval of the 2022 Reverse Stock Split (as defined below) equal to 10,000,000 votes per share of Series B Preferred Stock. The voting rights of the Series B Preferred Stock were established in order to maintain the Company’s NYSE American listing by raising the average minimum bid price of the common stock to over $0.20 for 30 consecutive trading days. Upon the effectiveness of the Certificate of Amendment, the outstanding shares of Series B Preferred Stock were automatically transferred to the Company and cancelled for no consideration with no action on behalf of the holders thereof and such shares resumed the status of authorized but unissued shares of preferred stock and were no longer designated as shares of Series B Stock.

The Series 2 Warrants are exercisable on the date six (6) months following the date of issuance at an exercise price of $6.00 per share and will expire two and one-half years following the initial exercise date. The Series B Preferred Stock, was not, and the Series 2 Warrants and Series 2 Warrant Shares issuable upon exercise of the Series 2 Warrants have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder.

As compensation to Wainwright, as the exclusive placement agent in connection with the Registered Offering, the Company paid Wainwright a cash fee of 6% of the aggregate gross proceeds raised in the Registered Offering and reimbursed Wainwright for legal fees and expenses up to $40,000, non-accountable expenses of $25,000 and $15,950 for clearing expenses. In connection with the October 2022 Offerings, the Company received net proceeds of $1.0 million.

Special Meeting and 2022 Reverse Stock Split

On November 7, 2022, the Special Meeting, the stockholders approved a proposal to amend the Company’s certificate of incorporation to effect a reverse split of the common stock at a specific ratio, ranging from one-for-twenty-five to one-for-fifty, at any time prior to the first anniversary date of the Special Meeting (the “2022 Reverse Stock Split”), with the exact ratio to be determined by the Board of Directors of the Company (the “Board”). The Board had previously approved the reverse split at a ratio of one-for-fifty on October 27, 2022, subject to obtaining stockholder approval.

On November 7, 2022, the Company filed the Certificate of Amendment with the Secretary of State of the State of Delaware, which effected, at 5:00 p.m. Eastern Time on November 8, 2022, the 2022 Reverse Stock Split of the Company’s issued and outstanding shares common stock at a ratio of one-for-fifty. In connection with the 2022 Reverse Stock Split, the CUSIP number for the common stock changed to 887080208.

As a result of the 2022 Reverse Stock Split, every 50 shares of common stock issued and outstanding was converted into one share of common stock. As a result of the 2022 Reverse Stock Split, the 13,000 shares of Series B Preferred Stock were automatically cancelled for no consideration and resumed the status of authorized but unissued shares of preferred stock of the Company. The 2022 Reverse Stock Split affected all common stockholders uniformly and did not alter any stockholder’s percentage interest in the Company’s equity, except to the extent that the 2022 Reverse Stock Split would have resulted in some stockholders owning a fractional share. No fractional shares were issued in connection with the 2022 Reverse Stock Split. Stockholders who would otherwise be entitled to a fractional share of common stock were instead entitled to receive a proportional cash payment. The common stock began trading on a post-split as-adjusted basis on November 9, 2022. There can be no assurance that the Company will be able to maintain compliance with the NYSE American continued listing standards, even after the implementation of the 2022 Reverse Stock Split.

Liquidity and Capital Resources

The Company has no product revenues, incurred operating losses since inception, and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable.  The Company had an accumulated deficit of approximately $52.3 million at March 31, 2023, a net loss of approximately $4.1 million, and approximately $3.9 million of net cash used in operating activities for the three months ended March 31, 2023.  As of March 31, 2023, the Company had cash of approximately $5.2 million.

Going Concern

The Company has evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q.  Based on such evaluation and the Company's current plans, which are subject to change, management believes there is substantial doubt about the Company's ability to continue as a going concern. The Company's existing cash and cash equivalents as of March 31, 2023, were sufficient only to satisfy our operating cash needs through the second quarter of 2023.  Thus, the Company’s current cash on hand at March 31, 2023, was potentially not sufficient to satisfy our operating cash needs for the twelve months from the filing of this Quarterly Report on Form 10-Q.  

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.

The Company’s future liquidity and capital funding requirements will depend on numerous factors, including:

The Company will need to raise substantial additional funds through one or more of the following: issuance of additional debt or equity and/or the completion of a licensing or other commercial transaction for one or more of the Company's product candidates. If the Company is unable to maintain sufficient financial resources, its business, financial condition and results of operations will be materially and adversely affected. This could affect future development and business activities and potential future clinical studies and/or other future ventures. There can be no assurance that the Company will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or convertible debt financings will likely have a dilutive effect on the holdings of the Company's existing stockholders.

Note 2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such interim results.

The results for the unaudited condensed consolidated statement of operations are not necessarily indicative of results to be expected for the year ending December 31, 2023, or for any future interim period. The unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements.

Effective at 5:00 PM (EST) on November 8, 2022 the Company effected a 1-for-50 reverse stock split of its common stock, or the 2022 Reverse Stock Split. Pursuant to the Certificate of Amendment, all shares of common stock, including common stock underlying warrants and stock options, as well as the  conversion ratios, conversion prices, exercise prices and per share information in these consolidated financial statements give retroactive effect to the 2022 Reverse Stock Split.  

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s unaudited condensed consolidated financial statements relate to the valuations of warrants, and equity-based awards. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Reclassifications

Certain reclassifications have been made to the condensed consolidated financial statements of prior years to conform to the current year presentation.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents. Cash and cash equivalents include cash held in banks and money market mutual funds. The Company had no cash equivalents as of  March 31, 2023 and December 31, 2022, respectively.

Property and Equipment

Property and equipment are recorded at cost and depreciated over their estimated useful life on a straight-line basis as follows:

Furniture - 7 years

Computer Equipment - 3 years

Research and Development

Research and development costs, including in-process research and development acquired as part of an asset acquisition for which there is no alternative future use, are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Accrued Outsourcing Costs

Substantial portions of the Company’s preclinical studies and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors (collectively “CROs”). These CROs generally bill monthly or quarterly for services performed, or bill based upon milestone achievement. For preclinical studies, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. The Company outsources a substantial portion of its clinical trial activities, utilizing external entities such as CROs, independent clinical investigators, and other third-party service providers to assist the Company with the execution of its clinical studies. For each clinical trial that the Company conducts, certain clinical trial costs are expensed immediately, while others are expensed over time based on the number of patients in the trial, the attrition rate at which patients leave the trial, and/or the period over which clinical investigators or CROs are expected to provide services. The Company’s estimates depend on the timeliness and accuracy of the data provided by the CROs regarding the status of each program and total program spending. The Company periodically evaluates the estimates to determine if adjustments are necessary or appropriate based on information it receives.

Fair Value Measurement

The Company follows the accounting guidance in ASC 820 for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

As of March 31, 2023, and December 31, 2022, the recorded values of prepaid expenses, accounts payable and accrued expenses, approximate the fair values due to the short-term nature of the instruments.

Leases

The Company accounts for its leases under the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term.

In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components as permitted under ASC 842. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.

Revenue Recognition

The Company has not yet generated any revenue from product sales. The Company’s source of revenue in 2022 had been from a grant. When grant funds are received after costs have been incurred, the Company records grant revenue upon the receipt of cash.

Warrants

The Company estimates the fair value of certain common stock warrants using a Black-Scholes option pricing model, and the assumptions used in calculating the fair value of such warrants represented management’s best estimates and involve inherent uncertainties and the application of management’s judgment. The fair value of common stock warrants has been recorded in equity as additional paid-in-capital.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation,” which requires the measurement and recognition of compensation expense based on estimated fair market values for all share-based awards made to employees and directors, including stock options. The Company expenses stock-based compensation to employees, non-employees and members of the Board over the requisite service period based on the estimated grant-date fair value of the awards and actual forfeitures. The Company accounts for forfeitures as they occur. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. All stock-based compensation costs are recorded in general and administrative or research and development costs in the consolidated statements of operations based upon the underlying individual’s role at the Company.

Series A Preferred Stock Under Redemption

The Series A Preferred Stock under redemption was subject to certain limitations under Delaware law. Each share of Series A Preferred Stock was convertible at any time at the holder’s option into a number of shares of common stock (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions as specified in the Certificate of Designations) at a conversion price $902.70. Each share of Series A Preferred Stock was redeemable for cash at the option of the holders, in whole or in part.

On November 23, 2021, the Company received a request for redemption by TardiMed Sciences LLC (“TardiMed”) for the Series A Preferred Stock. The Company’s Series A Preferred Stock, was redeemable at December 31, 2021 subject to certain limitations under Delaware law, and was recorded at the redemption value of $2.1 million.  Interest had accrued on the unredeemed balance at 8.0% per annum.  The Company asserted that such right to redemption was limited under Delaware corporate law.  As a result of the request, the Series A Preferred Stock had been reclassified as a liability, Redeemable Series A Preferred Stock under redemption.  The Series A Preferred Stock continued to accrue dividends but as a liability and dividends were recorded prospectively as non-cash interest expense in the Consolidated Statement of Operations until such time as the Series A Preferred Stock was redeemed.

On July 27, 2022, the Company, entered into a letter agreement (the “Letter Agreement”) with TardiMed pursuant to which TardiMed agreed to exchange its 1,819 shares of the Series A Preferred Stock plus accrued dividends for a pre-funded warrant (the “TardiMed Warrant”) to purchase 181,083 shares of the Company’s common stock (the “Warrant Exchange”).  The number of shares underlying the TardiMed Warrant is based on the redemption price of the Series A Preferred Stock (which had been demanded by TardiMed) divided by $11.95, the last closing price of the Company’s common stock prior to the date the Letter Agreement was executed.

Twenty percent of the TardiMed Warrant was immediately exercisable upon issuance. Beginning on September 30, 2022, and then at the end of each subsequent calendar quarter upon written request of TardiMed, the Company has agreed to  allow an additional 20% of the initial balance of the TardiMed Warrant to become exercisable, provided that only 20% of the initial balance of the TardiMed Warrant will be exercisable in any given quarter. The TardiMed Warrant’s exercise price is $0.0001 and may be exercised on a cashless basis. The TardiMed Warrant will terminate when exercised in full. On August 3, 2022, 20% of the TardiMed Warrant was exercised on a cashless basis and 36,196 shares of common stock were issued to TardiMed. On October 26, 2022, 20% of the TardiMed Warrant was exercised on a cashless basis and 36,166 shares of common stock were issued to TardiMed.  On January 3, 2023, 20% of the TardiMed Warrant was exercised on a cashless basis and 36,110 shares of common stock were issued to TardiMed.  

Pursuant to the Letter Agreement, TardiMed released and discharged the Company and its affiliates from any and all claims, rights, demands, actions, suits, causes of action, liabilities, obligations, damages and costs of any nature whatsoever that TardiMed has, had or may have against the Company or related parties in any way arising from or related to the Series A Preferred Stock. As of March 31, 2023, the TardiMed Warrant was exercisable for 72,435 shares of common stock.

Loss Per Share

Basic net income (loss) per share (“EPS”) of common stock is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

To calculate the basic EPS numerator, income available to common stockholders must be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not declared) from income from continuing operations and also from net income.

If there is a loss from continuing operations or a net loss, the amount of the loss shall be increased by those preferred dividends. The Series A Preferred Stock had cumulative dividends, whether or not declared.  Accordingly, the Company reduced the numerator for basic EPS by deducting/(increasing) the amount of cumulative preferred dividend from net income/(loss) in each period presented prior to the Company’s Series A Preferred Stock becoming redeemable, which occurred in 2021.  No dividends accrued on the Company’s Series A Preferred Stock during 2022 prior to the Warrant Exchange.

 ​

The basic and diluted net loss amounts are the same for the three months ended March 31, 2023 and 2022, respectively, as a result of the net loss and anti-dilutive impact of the potentially dilutive securities. Potentially dilutive shares are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, value appreciation rights, and warrants. Potentially dilutive shares that were issuable upon conversion of the Series A Preferred Stock prior to the Warrant Exchange were calculated using the if-converted method.

 ​

As a result of the 2022 Reverse Stock Split, the Company has retroactively restated the basic and diluted weighted average number of shares outstanding.

 ​

The following is a reconciliation of the numerator and denominator of the diluted net income (loss) per share computations for the periods presented below:

 ​

 ​

Securities that could potentially dilute income per share in the future were not included in the computation of diluted loss per share for the three-month periods ended March 31, 2023, and 2022, respectively, because their inclusion would be anti-dilutive are as follows (unaudited):

 ​

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more-likely than not that some or all of the deferred tax assets will not be realized. The Company also follows the provisions of accounting for uncertainty in income taxes which prescribes a model for the recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure and transition. In accordance with this guidance, tax positions must meet a more likely than not recognition threshold and measurement attribute for the financial statement recognition and measurement of tax position.

The Company’s policy is to account for income tax related interest and penalties in income tax expense in the accompanying consolidated statements of operations.

The Company made no state income tax payments during the three-month periods ended March 31, 2023 and 2022, respectively. 

Recent accounting pronouncements

The Company did  adopt any new Accounting Standard Updates during the quarter ended  March 31, 2023.

Note 3. Purchases of Assets

Acquisition of Intellectual Property Rights from Patagonia Pharmaceuticals LLC (“Patagonia”)

On February 28, 2019, the Company acquired the intellectual property rights to a topical formulation of isotretinoin for the treatment of congenital ichthyosis and identified as TMB-001, formerly PAT-001, from Patagonia (the “TMB-001 Acquisition”) pursuant to an asset acquisition agreement (the “Asset Acquisition Agreement”).

Upon closing of the TMB-001 Acquisition, the Company paid a one-time upfront payment of $50,000 to Patagonia. Patagonia is entitled to up to $27.0 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-001, with the first being $4.0 million for the initiation of a Phase 3 pivotal trial, as agreed with the FDA and defined as the first patient enrolled in such trial for the product. In addition, Patagonia is entitled to net sales earn-out payments ranging from low single digits to mid-double digits. The Company is responsible for all development activities. The first regulatory and commercial milestone was reached in June 2022, and as such the first $4.0 million milestone payment was accrued at June 30, 2022. There were no milestone payments accrued at December 31, 2022, because the potential regulatory and commercial milestones were not considered probable.  No additional milestone payments were accrued at March 31, 2023, because the potential regulatory and commercial milestones were not considered probable.

On July 20, 2022, the Company entered into an amendment to the Asset Acquisition Agreement with Patagonia (the “Amendment”). Pursuant to the Amendment, the Company and Patagonia extended the time for the Company’s payment of the first milestone payment, which became payable upon the Company commencing patient enrollment in its Phase 3 ASCEND clinical trial in the second quarter of 2022. The first milestone payment became payable by the Company in two tranches, with $2.25 million due on September 1, 2022, and $1.75 million plus an additional $0.315 million for interest for a total of $2.065 million due on September 1, 2023. Further, the Company granted Patagonia a security interest in TMB-001 and certain other assets.  The first milestone payment tranche was made on September 1, 2022.  The Company is accreting interest on the second tranche.  Interest of $62,977 was recorded in the Company’s Consolidated Statement of Operations and Comprehensive Loss for the three-month period ended March 31, 2023.

On June 26, 2019, the Company acquired the intellectual property rights to a locally administered formulation of Sitaxsentan for the treatment of cutaneous fibrosis and/or pigmentation disorders, and identified as TMB-003, formerly PAT-S03, from Patagonia (the “TMB-003 Acquisition”).

Upon closing of the TMB-003 Acquisition, the Company paid a one-time upfront payment of $20,000 to Patagonia. Patagonia is entitled to up to $10.25 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-003, with the first being a one-time payment of $250,000 upon the opening of an IND with the FDA. In addition, Patagonia is entitled to net sales earn-out payments ranging from low to mid-single digits. The Company is responsible for all development activities. The potential regulatory and commercial milestones are not yet considered probable, and therefore no milestone payments have been accrued at March 31, 2023 and December 31, 2022, respectively.  

On January 12, 2021, the Company announced that the FDA had granted orphan drug designation to TMB-003.

Acquisition and Termination of License from AFT Pharmaceuticals Limited (“AFT”)

On July 5, 2019, the Company and AFT entered into a license agreement which provides the Company with (i) an exclusive license to certain licensed patents, licensed know-how and AFT trademarks to commercialize a proprietary topical formulation of rapamycin marketed under the brand name Pascomer (“Pascomer”) in the United States, Canada and Mexico and (2) a co-exclusive license to develop Pascomer in this territory. Concurrently, the Company granted to AFT an exclusive license to commercialize Pascomer outside of the Company’s territory and co-exclusive sublicense to develop and manufacture the licensed product for commercialization outside of the Company’s territory (the "AFT License Agreement").

The development of Pascomer  had been conducted pursuant to a written development plan, written by AFT and approved by the joint steering committee, which is reviewed on at least an annual basis. AFT agreed to  perform clinical trials of Pascomer in the specified territory and perform all CMC (chemistry, manufacturing and controls) and related activities to support regulatory approval. The Company was responsible for all expenses incurred by AFT during the term of the AFT License Agreement and equally shared all costs and expenses with AFT, incurred by AFT for development and marketing work performed in furtherance of regulatory approval and commercialization worldwide, outside of the specified territory. The Company was entitled to receive 50% of the economics (royalties and milestones) in any licensing transaction that AFT executed outside of North America, Australia, New Zealand, and Southeast Asia. In March 2021 the Company announced that AFT had signed an exclusive license and supply agreement with Desitin Arzneimittel GmbH (“Desitin”) for Pascomer for the treatment of facial angiofibromas associated with tuberous sclerosis complex (TSC) in Europe. The Company received an upfront milestone payment paid to AFT by Desitin and recorded approximately $0.3 million in milestone revenue for the year ended December 31, 2021.

Pursuant to the AFT License Agreement, the Company was obligated to reimburse AFT for previously spent development costs, subject to certain limitations, and to pay a one-time, irrevocable and non-creditable upfront payment to AFT, payable in scheduled installments which was paid in 2020. AFT was entitled to up to $25.5 million of cash milestone payments relating to certain regulatory and commercial achievements, with the first payment of $1.0 million upon the successful completion of a Phase 2b trial defined as the achievement of the trial’s primary clinical endpoints. In addition, AFT was entitled to net sales royalties ranging from high single digits to low double digits for the program licensed. The potential regulatory and commercial milestones are not considered probable, and therefore no milestone payments have been accrued at December 31, 2021. No milestones were accrued at December 31, 2022, as a result of the termination of the AFT License Agreement on July 25, 2022 as described below and because no regulatory and milestones were yet considered probable prior to termination.

On April 4, 2022, Nobelpharma America LLC (“Nobelpharma”) announced that the FDA had approved HYFTOR™ (sirolimus topical gel) 0.2% as the first topical treatment indicated for facial angiofibromas associated with tuberous sclerosis complex in adults and children six (6) years of age or older. Nobelpharma’s formulation has orphan drug status for this indication. As Pascomer was intended for treatment of the same indication, the Company determined not to proceed with a pivotal Phase 3 clinical trial of Pascomer in facial angiofibromas at this time, but instead may evaluate potential strategic opportunities for the asset in markets outside of the U.S. and/or other indications.

On July 22, 2022, the Company provided written notice to AFT of its decision to terminate the AFT License Agreement because the Company believed there is no longer a commercially reasonable path to approval and commercialization for TMB-002 in the United States for facial angiofibromas associated with tuberous sclerosis complex. Additionally, following the receipt and analysis of topline data for the Phase II Clinical Trial (as defined in the AFT License Agreement) it was determined that the study failed to meet its primary efficacy endpoint. Under the AFT License Agreement, the Company was required to provide 120 days’ prior written notice of termination to AFT which was waived by AFT on July 25, 2022 (the “Termination Date”). On the Termination Date, the rights and licenses to TMB-002 reverted to AFT, among other things, as set forth in the AFT License Agreement. As the AFT License Agreement has been terminated the Company will no longer receive any royalties or milestones for any transactions under the AFT License  Agreement.

Other

The Company disbursed approximately $2.23 million for a prepaid CRO payment for the start of its Phase 3 ASCEND study evaluating TMB-001 in congenital ichthyosis in April 2022. Approximately $116,000 of this payment remains in prepaid research and development at  March 31, 2023.

Note 5. Stockholder’s Equity

The Company entered into a Merger Agreement with BioPharmX and effective May 18, 2020, the Company converted its common and preferred units into shares of common and preferred stock (see Note 1).

2022 Reverse Stock Split

On November 7, 2022, at a special meeting of stockholders (the “Special Meeting”), the holders of a majority of the Company’s outstanding shares of common stock and Series B Mirroring Preferred Stock approved the reverse stock split proposal and gave the Board discretionary authority to select a ratio for the split from 1-for-25 to 1-for-50. The Board approved the reverse split at a ratio of 1-for-50 on October 27, 2022, subject to stockholder approval.

On November 7, 2022, the Company filed a Certificate of Amendment to its Certificate of Incorporation, as amended , with the Secretary of State of Delaware that effected a 1-for-50 reverse stock split of its common stock, which became effective at 5:00 PM (EST) on November 8, 2022.  As a result of the 2022 Reverse Stock Split, the 13,000 shares of Series B Mirroring Preferred Stock were automatically cancelled for no consideration and resume the status of authorized but unissued shares of preferred stock of the Company.  The 2022 Reverse Stock Split traded on an as-adjusted basis upon market open on November 9, 2022.  The purpose of the 2022 Reverse Stock Split was to enable the Company to regain compliance with the requirements of Section 1003(f)(v) of the NYSE American Company Guide.

All shares of common stock, including common stock underlying warrants, stock options, restricted stock units, and VARs, as well as all conversion ratios, exercise prices, conversion prices and per share information in these consolidated financial statements give retroactive effect to the 2022 Reverse Stock Split.

Common Stock

On May 18, 2020, immediately prior to the Merger, the Company filed an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a Reverse Stock Split. As a result of the Reverse Stock Split, the number of issued and outstanding shares of common stock immediately prior to the Reverse Stock Split was reduced into a smaller number of shares, such that every 12 shares of common stock held by a stockholder of the Company immediately prior to the Reverse Stock Split were combined and reclassified into one share of common stock after the Reverse Stock Split. All outstanding and unexercised warrants to purchase shares of common stock otherwise remain in effect pursuant to their terms, subject to adjustment to account for the Reverse Stock Split. Immediately following the Reverse Stock Split there were approximately 27,347 shares of common stock outstanding prior to the Merger. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who otherwise would be entitled to receive fractional shares instead received cash in lieu of their fractional shares.

Under the terms of the Amended Merger Agreement, the Company issued shares of common stock to the holders of common units. The 180 common units issued to TardiMed have been converted into 113,323 shares of common stock, and the 20 common units issued to Patagonia have been converted into 12,591 shares of common stock. 

On May 18, 2020, pursuant to the Merger Agreement (see Note 1), 27,347 shares of common stock were issued for the acquisition of BioPharmX (see Note 4), with a fair value of approximately $8.4 million or $6.12 per share.

On May 18, 2020, pursuant to the Merger Agreement, 83,733 shares of common stock were issued to the investors of the $20 million private placement financing (See Note 1), with aggregate net proceeds received totaled $17.5 million and to settle the $5 million Bridge Notes.

On November 2, 2021, the Company entered into an underwriting agreement with Wainwright as representative of the several underwriters named in Schedule I thereto, relating to the public offering, issuance and sale of 426,500 shares of our common stock and, to certain investors, pre-funded warrants to purchase 42,250 shares of common stock, and accompanying warrants to purchase up to an aggregate of 468,750 shares of our common stock. Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a warrant to purchase one share of common stock. The public offering price of each share of common stock and accompanying common warrant was $32.00 and $31.95 for each pre-funded warrant and accompanying common warrant. The pre-funded warrants were immediately exercisable and were exercised in full on November 5, 2021. The warrants were immediately exercisable at a price of $35.00 per share of common stock and expire five years from the date of issuance.  

Wainwright also exercised its over-allotment option, pursuant to the underwriting agreement, to purchase an additional 70,313 shares of common stock and 70,313 warrants to purchase common stock at the public offering price per share and per warrant less the underwriters’ discounts and commissions. After giving effect to the sale of 70,313 additional shares pursuant to the exercise of the option that closed on November 9, 2021, the total number of shares of common stock (or common stock equivalents) sold by us in the offering increased to 539,063, together with warrants to purchase up to 539,063 shares of common stock issued at the closing on November 5, 2021. No warrants have been exercised as of March 31, 2023 or December 31, 2022, respectively.

 ​

 ​

November 2021 Warrants

The warrants issued by the Company were recorded as equity and recognized at fair value which was approximately $8.1 million.  The value of the warrants issued by the Company in connection with November 2021 Offering, were estimated using a Black Scholes option pricing model. The inputs using the Black Scholes model to calculate the fair value of the warrants related to the November 2021 offering included no dividend yield, expected price volatility of 73.1%, a risk-free interest rate of 1.05%-1.08% and an expected term of 5 years.

No November Warrants have been exercised as of March 31, 2023, or December 31, 2022 (See Note 1).

The following table summarizes the Company’s November Warrants for the three months ended March 31, 2023:

 ​

Redeemable Series A Preferred Stock

In connection with the Merger, on May 18, 2020, the Company filed a Certificate of Designation of Preferences, Rights and Limitations (the “Certificate of Designations”) with the Secretary of State of the State of Delaware that became effective immediately.

Pursuant to the Certificate of Designations, the Company designated 2,500 shares of the Company’s previously undesignated preferred stock as Series A Preferred Stock. The shares of Series A Preferred Stock have no voting rights. The holders of the Series A Preferred Stock were entitled to cumulative dividends after the date of issuance at a per annum of eight percent (8.0%) of the stated value. Dividends were payable as and if declared by the Board out of amounts legally available therefore or upon a liquidation or redemption. Each share of Series A Preferred Stock was convertible at any time at the holder’s option into a number of shares of common stock (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions as specified in the Certificate of Designations) at a conversion price equal to the stated value of the Series A Preferred Stock of $1,000 (plus any accrued dividends) divided by the conversion price, or $902.70. Holders of the Series A Preferred Stock were entitled to a liquidation preference in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company. In addition, upon a Change of Control (as defined in the Certificate of Designations), the Series A Preferred Stock were redeemable for cash at the option of the holders, in whole or in part. For the year ended December 31, 2021, the Company accrued preferred dividends of 129,992 as a component of stockholder’s equity.

On November 23, 2021, the Company received a request for redemption by TardiMed for the Series A Preferred Stock.  The Company asserted that such right to redemption was limited under Delaware corporate law.  As a result of the request, the convertible Series A Preferred Stock was reclassified as a liability, Redeemable Series A Preferred Stock under redemption.  The previously outstanding shares of Series A Preferred Stock accrued dividends but as a liability and the dividends were recorded prospectively as non-cash interest expense in the Condensed Consolidated Statement of Operations until the Series A Preferred Stock held by TardiMed were redeemed.  The Company recognized no non-cash interest expense during the three months ended March 31, 2023, and $52,452 in non-cash interest expense for the three months ended March 31, 2022.  As result of the reclassification, interest was recorded in the Consolidated Statement of Operations rather than additional-paid-in-capital.

 ​

On July 27, 2022, the Company, entered into Letter Agreement with TardiMed pursuant to which TardiMed agreed to exchange its 1,819 shares of  Series A Preferred Stock  plus accrued dividends for the TardiMed Warrant to purchase 181,083 shares of  common stock in the Warrant Exchange.  The number of shares underlying the TardiMed Warrant is based on the redemption price of the Series A Preferred Stock (which had been demanded by TardiMed) divided by $11.95, the last closing price of the Company’s common stock prior to the date the Letter Agreement was executed.

Twenty percent of the TardiMed Warrant was immediately exercisable upon issuance. Beginning on September 30, 2022, and then at the end of each subsequent calendar quarter upon written request of TardiMed, the Company has agreed to  allow an additional 20% of the initial balance of the TardiMed Warrant to become exercisable, provided that only 20% of the initial balance of the TardiMed Warrant will be exercisable in any given quarter. The TardiMed Warrant’s exercise price is $0.005 and may be exercised on a cashless basis. The TardiMed Warrant will terminate when exercised in full. On August 3, 2022, 20% of the TardiMed Warrant was exercised on a cashless basis and 36,196 shares of common stock were issued to TardiMed. On October 26, 2022, 20% of the TardiMed Warrant was exercised on a cashless basis and 36,166 shares of common stock were issued to TardiMed. On January 4, 2023, 20% of the Tardimed Warrant was exercised on a cashless basis and 36,113 shares of common stock were issued to TardiMed. Subsequent to March 31, 2023, 20% of the TardiMed Warrant was exercised on a cashless basis and 36,110 shares of common stock were issued to TardiMed.

Pursuant to the Letter Agreement, TardiMed released and discharged the Company and its affiliates from any and all claims, rights, demands, actions, suits, causes of action, liabilities, obligations, damages and costs of any nature whatsoever that TardiMed has, had or may have against the Company or related parties in any way arising from or related to the Series A Preferred Stock.

The following table summarizes the TardiMed Warrant for the three months ended March 31, 2023:

* Options expire once fully exercised; until exercised there is no expiration term

 ​

August 2022 Common Stock Warrants

On August 4, 2022, the Company announced the pricing of the public offering (the “August 2022 Offering”) of (i) 931,667 shares (the “Shares”) of common stock, (ii) pre-funded warrants to purchase up to an aggregate of 401,667 shares of common stock and (iii) August Warrants  to purchase up to an aggregate of  1,333,333 shares of common stock.  Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with an August Warrant to purchase one share of common stock. All pre-funded warrants were exercised.

The warrants issued by the Company were recorded as equity and recognized at fair value which was approximately $4.9 million.   The value of the warrants issued by the Company in connection with August 2022 Offering, were estimated using a Black Scholes option pricing model.  The inputs using the Black Scholes model to calculate the fair value of the warrants related to the August 2022 Offering included no dividend yield, expected price volatility of 97.67%, a risk-free interest rate of 2.91% and an expected term of 5 years.

The following table summarizes the August Warrants for the three months ended March 31, 2023:

October 2022 Common Stock Warrants

On October 3, 2022, the Company entered into the October Securities Purchase Agreement (with the “October Investors”) to sell, in the “Registered Offering”) (i) 260,000 shares of common stock, and (ii) Series 1 Warrants to purchase up to an aggregate of 260,000 shares of common stock. The Series 1 Warrants are immediately exercisable at an exercise price of $5.00 per share and will expire two and one-half years following the initial exercise date. The October Purchase Agreement contains customary representations and warranties and agreements of the Company and the October Investors, and customary indemnification rights and obligations of the parties. Total gross proceeds from the Registered Offering, before deducting the placement agent's fees and other estimated offering expenses, was $1.3 million. The Registered Offering closed on October 3, 2022. 

In the “Concurrent Private Placement Offering” the Company issued (i) Series 2 Warrants to purchase up to an aggregate of 260,000 shares of “Series 2 Warrant Shares”, and (ii) 13,000 shares of Series B Preferred Stock.

Each share of Series B Preferred Stock has a stated value of $0.001 per share. The Series B Preferred Stock had super voting rights on the approval of the 2022 Reverse Stock Split (as defined herein) equal to 10,000,000 votes per share of Series B Preferred Stock. The voting rights of the Series B Preferred Stock were established in order to maintain the Company’s NYSE American listing by raising the average minimum bid price of the common stock to over $0.20 for 30 consecutive trading days. Upon the effectiveness of the Certificate of Amendment, the outstanding shares of Series B Preferred Stock were automatically transferred to the Company and cancelled for no consideration with no action on behalf of the holders thereof and such shares resumed the status of authorized but unissued shares of preferred stock and were no longer designated as shares of Series B Stock. 

The Series 2 Warrants are exercisable on the date six (6) months following the date of issuance at an exercise price of $6.00 per share and will expire two and one-half years following the initial exercise date. The Series B Preferred Stock, was not, and the Series 2 Warrants and Series 2 Warrant Shares issuable upon exercise of the Series 2 Warrants have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder.

The following tables summarizes the October Warrants for the three months ended March 31, 2023:

Note 6. Equity-based compensation

On May 18, 2020, the Company’s 2020 Omnibus Equity Incentive Plan (the “2020 Plan”) became effective, and the 2020 Plan reserved a total of 19,417 shares of common stock for issuance. The 2020 Plan provides for options to purchase shares of common stock, stock appreciation rights, restricted stock units, restricted or unrestricted shares of common stock, performance shares, performance units, incentive bonus awards, other stock-based awards and other cash-based awards. Options granted generally vest over a period of three years and have a maximum term of ten years from the date of grant. On April 20, 2021, the Board approved an amendment increasing the number of shares available for issuance under the 2020 Plan from 41,123 to 93,366, which was approved by the Company’s stockholders on July 1, 2021. In accordance with the “evergreen” provision in the 2020 Plan, an additional 50,895 shares of common stock were automatically made available for issuance on the first day of 2022, which represents 4% of the number of shares of common stock outstanding on December 31, 2021.  As of March 31, 2023, 144,262 shares of common stock were reserved for issuance under the 2020 Plan and there are 42,674 shares available for issuance at March 31, 2023.

Furthermore, the Company maintains its 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan permits the granting of incentive units (the “Incentive Units”), including Value Appreciation Rights ("VARs"). The maximum aggregate Incentive Units that may be subject to awards and issued under the Plan is 13,989. At March 31, 2023 4,546 Incentive Units were outstanding under the 2019 Plan, all comprised of VARs.

During the three months ended March 31, 2023 and 2022, respectively, equity-based compensation expenses were as follows:

 ​

Value Appreciation Rights

In 2019 the Company granted equity-based awards similar to stock options under the 2019 Plan as VARs. The VARs have an exercise price, a vesting period and an expiration date, in addition to other terms similar to typical equity option grant terms.

During the three months ended March 31, 2023, and 2022, respectively, there were no grants of VARs. There were no forfeitures or VARs exercised during the three months ended March 31, 2023.  1,058 VARs were forfeited, and 1,587 VARs were exercised during the three months ended March 31, 2022. The following is a summary of VARs outstanding as of March 31, 2023:

 ​

As of March 31, 2023, the unrecognized compensation costs were approximately $0.01 million, which will be recognized over an estimated weighted-average amortization period of 0.1 years.

Stock Options

The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option-pricing model. The Company was historically a private company and lacked company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. Additionally, due to an insufficient history with respect to stock option activity and post-vesting cancellations, the expected term assumption for employee grants is based on a permitted simplified method, which is based on the vesting period and contractual term for each tranche of awards. The mid-point between the weighted-average vesting term and the expiration date is used as the expected term under this method. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

No stock option grants were made during the three months ended March 31, 2023, and 2022, respectively.

The following is a summary of the options outstanding as of March 31, 2023:

 ​

As of March 31, 2023, the unrecognized compensation costs related to stock options were approximately $0.4 million, which will be recognized over an estimated weighted-average amortization period of approximately 1.3 years.

 ​

As part of the Merger, the Company assumed the following legacy stock options and warrants:

 ​

Note 7. Commitments and contingencies

Leases

On February 8, 2023, the Company entered into a lease for a 5,281 square foot office space at 3 Mountainview Road, Warren, New Jersey. This lease expires on February 28, 2028. The current monthly rent at this location is $8,801.67. Pursuant to the terms of the lease, the Company has an option to terminate the lease effective as of the completion of the thirty-seventh full calendar month of the lease term, provided that certain conditions are met.

On March 10, 2021, the Company entered into a lease agreement with SIG 110 LLC with respect to a 3,127 square foot office space at 110 Allen Road, Suite 401, Basking Ridge, New Jersey. Pursuant to the terms of the lease agreement, the term was for twenty-four (24) months and expired on March 31, 2023. During the three months ended March 31, 2022, in connection with the lease, the Company paid a security deposit of $13,000, which is included in deposits on the accompanying condensed consolidated balance sheet as of March 31, 2023.

In connection with the Merger of BioPharmX, the Company acquired a lease and corresponding sublease for the BioPharmX facility in San Jose, California. The sublease is to be used for general office and research laboratory purposes, has an effective date of February 1, 2020, and has a lease term of 4 years which expires on December 30, 2023. The lease expense significantly reduced by the payments received in connection with the sublease. The lessee defaulted on their lease obligation in the fourth quarter of 2022 due to significant financial difficulties. The Company is working with the landlord to attempt to resolve the situation, but during the three months period ended  March 31, 2023 no payments were made by the sublessee.  

The components of lease expense were as follows:

 ​

Other information:

 ​

 ​

As of March 31, 2023, future minimum payments for the leases are as follows:

 ​

 ​

Litigation

The Company is not currently a party to any legal or governmental regulatory proceedings, nor is management aware of any pending or threatened legal or government regulatory proceedings proposed to be initiated against the Company that would have a material adverse effect on the Company’s business, financial condition or operating results.

From time to time, the Company could become involved in disputes and various litigation matters that arise in the normal course of business.  These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters. Periodically, the Company reviews the status of significant matters, if any exist, and assess its potential financial exposure.  If the potential loss from any claim or legal claim is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict; therefore, accruals are based on the best information available at the time.  As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation.

Note 8. Related Party Transactions

Patagonia

Patagonia is a private, family-owned company founded in 2013 to address the medical needs of people with rare and serious dermatological conditions. On February 28, 2019, and June 26, 2019, the Company acquired the TMB-001 and TMB-003 licenses from Patagonia (see Note 3 for the payment terms and more details), respectively. The former Chief Operating Officer, Executive Vice-President and Secretary of the Company is also the President of Patagonia. As of March 31, 2023, and December 31, 2022, Patagonia owns no shares of the Company’s common stock.

TardiMed

The former Chairman of the Board of the Company is a Managing Member of TardiMed. Our former Chief Operating Officer, Executive Vice President and Secretary is a partner at TardiMed.  Our Chief Financial Officer, Treasurer, Secretary, and Executive Vice President of the Company was also a former partner of TardiMed. As of March 31, 2023, TardiMed holds no shares of the Company's common stock.  The Company had no reimbursements to TardiMed in the three month periods ended March 31, 2023, and 2022, respectively.  

On March 4, 2022, Mr. Rome stepped down from his positions as Chief Operating Officer and Executive Vice-President of the Company. As a result of his resignation, Mr. Rome (i) was entitled to 1,587 shares of common stock underlying vested VARs, or $22,528, at the Company’s election, and (ii) forfeited 1,058 VARs. On March 4, 2022, Mr. Rome received 1,194 shares of common stock net upon exercise of the VARs after tax withholding.