Financial Overview and Outlook

The company has incurred net losses and generated negative cash flows from operations since inception and expects to continue incurring losses as it pursues its strategic initiatives, including the potential dissolution of the company. The company’s net losses from continuing operations were $7.2 million and $6.1 million for the years ending December 31, 2024 and 2023, respectively. As of December 31, 2024, the company had an accumulated deficit of $183.5 million, total current assets of $1.9 million, and total assets of $3.4 million.

However, the company has recently completed several transactions that have improved its financial position:

• On January 17, 2025, the company completed the Avenova Asset Sale for net proceeds of approximately $10.5 million.
• On January 8, 2025, the company completed the Wound Care Divestiture for net proceeds of $0.5 million.

Based on the company’s funds available as of December 31, 2024, as well as the net proceeds from these recent transactions, management believes the company’s existing cash and cash equivalents will be sufficient to enable it to meet its planned operating expenses at least through April 2, 2026.

Critical Accounting Estimates

The company’s consolidated financial statements require management to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. The most critical accounting estimates include:

1. Impairment of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets: The company reviews these assets for impairment at least annually or whenever events or changes in business circumstances indicate potential impairment. This involves making assumptions and estimates about future cash flows, sales and operating margin growth rates, economic conditions, probability of success, market competition, inflation, and discount rates.

2. Estimates of Future Product Returns: The company records revenue net of estimated future product returns, which are based on historical data. Actual future returns could differ significantly from historical experience.

3. Common Stock Warrant Liabilities: The fair values of common stock warrants classified as liabilities are determined using the Black-Scholes option pricing model, which involves significant management judgment.

Results of Operations

Comparison of Years Ended December 31, 2024 and 2023:

• Total Net Sales and Cost of Goods Sold: Product revenue, net, decreased by 7% to $9.7 million in 2024 from $10.5 million in 2023, primarily due to a $1.4 million decrease in NeutroPhase sales, partially offset by a $0.6 million increase in Avenova Spray sales. Cost of goods sold decreased 25% to $3.3 million in 2024 from $4.4 million in 2023, mainly due to the decrease in lower margin NeutroPhase sales.

• Sales and Marketing Expenses: Decreased 14% to $4.0 million in 2024 from $4.7 million in 2023, due to lower digital advertising costs, marketing sample costs, and marketing consulting expenses.

• General and Administrative Expenses: Increased 35% to $7.4 million in 2024 from $5.4 million in 2023, primarily due to higher legal costs related to strategic initiatives.

• Loss on Divestiture of Subsidiary: The company incurred a $0.9 million loss in 2024 related to the divestiture of its DERMAdoctor subsidiary.

• Non-Cash Gains and Losses: The company recorded various non-cash gains and losses related to changes in the fair value of warrant and embedded derivative liabilities, as well as a loss on modification of common stock warrants.

Financial Condition, Liquidity and Capital Resources

• As of December 31, 2024, the company had $430,000 in cash and cash equivalents, compared to $2.9 million as of December 31, 2023.
• The company issued $525,000 in unsecured convertible notes in March 2024.
• Based on funds available as of December 31, 2024 and the net proceeds from the Avenova Asset Sale and Wound Care Divestiture, management believes the company’s existing cash will be sufficient to fund operations through at least April 2, 2026.
• The company had net operating loss carryforwards of $153.7 million for federal and $128.6 million for state income tax purposes as of December 31, 2024.

Outlook

The company is currently pursuing the dissolution of the company pursuant to a Plan of Dissolution, which may result in distributions to stockholders of the remaining asset value, if any. Concurrently, the company is also evaluating other strategic alternatives that may be available. However, there is uncertainty around the company’s strategic direction, and the dissolution or pursuit of other alternatives may result in unknown or potential future claims and liabilities that could cause the company to expend cash faster than currently anticipated.