drma_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-40739

DERMATA THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		82-1510982
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

3525 Del Mar Heights Rd., #322, San Diego, CA 92130

(Address of Principal Executive Offices) (Zip Code)

858-800-2543

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, $0.0001 Par Value

DRMA

The Nasdaq Capital Market

Common Stock Purchase Warrants

DRMAW

The Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No.

There were 10,102,214 shares of common stock, par value $0.0001 of Dermata Therapeutics, Inc. issued and outstanding as of August 12, 2022.

DERMATA THERAPEUTICS, INC.

(FORMERLY DERMATA THERAPEUTICS, LLC)

Form 10-Q

Table of Contents

INDEX

		Page No.
Part I	Financial Information

Item 1:	Financial Statements (unaudited)	3

	Balance Sheets	3
	Statements of Operations	4
	Statements of Stockholders’ Equity	5
	Statements of Cash Flows	8
	Notes to Financial Statements	9
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3:	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4:	Controls and Procedures	35

Part II	Other Information

Item 1:	Legal Proceedings	36
Item 1A:	Risk Factors	36
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3:	Defaults Upon Senior Securities	36
Item 4:	Mine Safety Disclosures	36
Item 5:	Other Information	36
Item 6:	Exhibits	37

Signatures		38

Table of Contents

Part I

Item 1: Financial Statements

DERMATA THERAPEUTICS, INC.

(FORMERLY DERMATA THERAPEUTICS, LLC)

Balance Sheets

	June 30, 2022			December 31, 2021
	(unaudited)
Assets:
Cash	$	10,627,895		$	10,798,806
Prepaid expenses and other current assets		398,543			825,134
Total assets	$	11,026,438		$	11,623,940

Liabilities and Stockholders’ Equity:
Liabilities:
Accounts payable	$	608,811		$	515,245
Accrued and other current liabilities		757,657			1,001,591
Total liabilities		1,366,468			1,516,836
Commitments and Contingencies (see Note 10)
Stockholders’ Equity:
Common Stock, par value $0.0001, 90,000,000 shares authorized, 10,102,214 and 8,328,629 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		1,010			833
Additional paid-in capital		51,157,959			46,088,546
Accumulated deficit		(41,498,999	)		(35,982,275	)
Total stockholders’ equity		9,659,970			10,107,104
Total liabilities and stockholders’ equity	$	11,026,438		$	11,623,940

The accompanying notes are an integral part of these financial statements.

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DERMATA THERAPEUTICS, INC.

(FORMERLY DERMATA THERAPEUTICS, LLC)

Statements of Operations

	For the three months ended June 30,						For the six months ended June 30,
	2022			2021			2022			2021
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Operating expenses:
Research and development	$	1,612,552		$	867,197		$	3,208,391		$	1,547,785
General and administrative		1,118,021			462,772			2,308,334			2,043,957
Total operating expenses		2,730,573			1,329,969			5,516,725			3,591,742
Loss from operations		(2,730,573	)		(1,329,969	)		(5,516,725	)		(3,591,742	)
Other income and expenses:
Interest expense, net		-			1,823			-			44,958
Net loss	$	(2,730,573	)	$	(1,331,792	)	$	(5,516,725	)	$	(3,636,700	)

Net loss per share of common stock, basic and diluted	$	(0.24	)	$	(0.70	)	$	(0.56	)	$	(1.90	)

Weighted-average basic and diluted common units/shares		11,194,857			1,911,009			9,781,510			1,911,009

The accompanying notes are an integral part of these financial statements.

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DERMATA THERAPEUTICS, INC.

(FORMERLY DERMATA THERAPEUTICS, LLC)

Statements of Stockholder’s Equity

Unaudited

					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders’
	Shares		Par Value		Capital		Deficit			Equity
Balance at December 31, 2021		8,328,629	$	833	$	46,088,546	$	(35,982,275	)	$	10,107,104
Stock-based compensation		-		-		531,566		-			531,566
Net loss		-		-		-		(2,786,151	)		(2,786,151	)
Balance at March 31, 2022		8,328,629	$	833	$	46,620,112	$	(38,768,426	)	$	7,852,519
Issuance of common stock and warrants, net of issuance costs		898,585		90		4,276,275		-			4,276,365
Issuance of common stock upon exercise of pre-funded warrants		875,000		87		-		-			87
Issuance of restricted stock unit awards		-		-		55,625		-			55,625
Stock-based compensation		-		-		205,947		-			205,947
Net loss		-		-		-		(2,730,573	)		(2,730,573	)
Balance at June 30, 2022		10,102,214	$	1,010	$	51,157,959	$	(41,498,999	)	$	9,659,970

The accompanying notes are an integral part of these financial statements.

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DERMATA THERAPEUTICS, INC.

(FORMERLY DERMATA THERAPEUTICS, LLC)

Statements of Stockholder's Equity

Unaudited

	Class A Common						Class B Common						Series 1 Preferred						Series 1a Preferred						Series 1a Warrants						Series 1b Preferred						Series 1c Preferred
	Units			Amount			Units			Amount			Units			Amount			Units			Amount			Units			Amount			Units			Amount			Units			Amount

Balance at December 31, 2020		508,777		$	10,430			1,767,477		$	2,342,853			6,906,244		$	6,833,877			5,018,750		$	4,380,081			1,419,228		$	723,431			6,500,000		$	4,119,595			46,553,188		$	6,491,592
Series 1d Preferred Units issued		-			-			-			-			-			-			-			-			-			-			-			-			-			-
Class B Common Units forfeited								(22,494	)
Conversion of Common Units to Common Stock		(508,777	)		(10,430	)		(1,744,983	)		(2,342,853	)		-			-			-			-			-			-			-			-			-			-
Conversion of Preferred Units to Preferred Stock		-			-			-			-			(6,906,244	)		(6,833,877	)		(5,018,750	)		(4,380,081	)								(6,500,000	)		(4,119,595	)		(46,553,188	)		(6,491,592	)
Conversion of Warrant Units to Preferred Stock Warrants		-			-			-			-			-			-			-			-			(1,419,228	)		(723,431	)		-			-			-			-
Stock-based Compensation		-			-			-			-			-			-			-			-			-			-			-			-						-
Net loss		-			-			-			-			-			-			-			-			-			-			-			-			-			-

Balance at March 31, 2021		-			-			-			-			-			-			-			-			-			-			-			-			-			-

Stock-based Compensation		-			-			-			-			-			-			-			-			-			-			-			-			-			-
Net loss		-			-			-			-			-			-			-			-			-			-			-			-			-			-

Balance at June 30, 2021		-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-

The accompanying notes are an integral part of these financial statements.

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DERMATA THERAPEUTICS, INC.

(FORMERLY DERMATA THERAPEUTICS, LLC)

Statements of Stockholder's Equity Unaudited - (Continued)

	Series 1d Preferred						Preferred Stock				Preferred Stock Warrants				Common Stock				Additional
	Units			Amount			Shares		Par Value		Shares		Amount		Shares		Par Value		Paid-in Capital		Accumulated Deficit			Total

Balance at December 31, 2020		-		$	-			-	$	-		-	$	-		-	$	-		-	$	(28,079,798	)	$	(3,177,939	)
Series 1d Preferred Units issued		6,065,989			5,034,801			-		-		-		-		-		-		-		-			5,034,801
Conversion of Common Units to Common Stock		-			-			-		-		-		-		1,911,009		191		2,353,092		-			-
Conversion of Preferred Units to Preferred Stock		(6,065,989	)		(5,034,801	)		71,044,171		7,104		-		-		-		-		26,852,842		-			-
Conversion of Warrant Units to Preferred Stock Warrants		-			-			-		-		1,419,228		142		-		-		723,289		-			-
Stock-based Compensation		-			-			-		-		-		-		-		-		1,160,049		-			1,160,049
Net loss		-			-			-		-		-		-		-		-		-		(2,304,908	)		(2,304,908	)

Balance at March 31, 2021		-			-			71,044,171		7,104		1,419,228		142		1,911,009		191		31,089,272		(30,384,706	)		712,003

Stock-based Compensation		-			-			-		-		-		-		-		-		113,987		-			113,987
Net loss		-			-			-		-		-		-		-		-		-		(1,331,792	)		(1,331,792	)

Balance at June 30, 2021		-		$	-			71,044,171	$	7,104		1,419,228	$	142		1,911,009	$	191		31,203,259	$	(31,716,498	)	$	(505,802	)

The accompanying notes are an integral part of these financial statements.

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DERMATA THERAPEUTICS, INC.

(FORMERLY DERMATA THERAPEUTICS, LLC)

Statements of Cash Flows

	For the six months ended June 30,
	2022			2021
	(unaudited)			(unaudited)
Cash flows from operating activities:
Net loss	$	(5,516,725	)	$	(3,636,700	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		474,452			1,274,036
Amortization of debt discount costs		-			13,970
Increase (decrease) in cash resulting from changes in:
Prepaid expenses and other current assets		426,591			(634,609	)
Accounts payable		93,566			777,030
Accrued and other current liabilities		74,753			526,840
Net cash used in operating activities:		(4,447,363	)		(1,679,433	)
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants, net of issuance costs		4,276,365			-
Proceeds from issuance of common stock upon exercise of pre-funded warrants		87			-
Payments on debt		-			(556,482	)
Net proceeds from issuance of convertible subordinated promissory notes		-			1,562,717
Proceeds from issuance of Series 1d preferred units		-			570,000
Net cash provided by financing activities:		4,276,452			1,576,235
Net decrease in cash		(170,911	)		(103,198	)
Cash at beginning of period		10,798,806			530,400
Cash at end of period	$	10,627,895		$	427,202

Supplemental disclosures:
Cash paid for interest	$	-		$	1,420
Cash paid for taxes	$	800		$	1,400

Non-cash financing activities:
Conversion of convertible subordinated promissory notes to Series 1d Preferred Units	$	-		$	4,464,801
Conversion of Common and Preferred Units and Warrants to Common and Preferred Stock and Warrants	$	-		$	29,936,660

The accompanying notes are an integral part of these financial statements.

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DERMATA THERAPEUTICS, INC.

(FORMERLY DERMATA THERAPEUTICS, LLC)

Notes to Financial Statements

(unaudited)

1. Organization and Basis of Presentation

Dermata Therapeutics, Inc., (the “Company”), was formed in December 2014 as a Delaware limited liability company (“LLC”) under the name Dermata Therapeutics, LLC. On March 24, 2021, the Company converted from an LLC to a Delaware C-corporation and changed its name to Dermata Therapeutics, Inc. Any references in these Notes to Financial Statements to equity securities as “units” refer to pre-conversion equity securities and any references to “shares” or “stock” in these Notes to Financial Statements refer to post-conversion equity securities. The Company is a clinical-stage biotechnology company focused on the treatment of medical and aesthetic skin conditions and diseases.

Initial Public Offering

On August 17, 2021, the Company completed its initial public offering (“IPO”), in which it sold 2,571,428 shares of its common stock together with 2,571,428 warrants to purchase one share of common stock with an exercise price of $7.00 per share at a combined offering price of $7.00. Additionally, the underwriters exercised their option to purchase an additional 385,714 warrants to purchase common stock with an exercise price of $7.00 per share. The Company received net cash proceeds of approximately $15.4 million from the IPO after deducting underwriters’ discounts and offering expenses of approximately $2.6 million.

Each of the following occurred in connection with the completion of the IPO in August 2021:

	-	The sale of 2,571,428 shares of common stock along with 2,957,142 warrants to purchase common stock.

	-	The conversion of 65,823,015 shares of convertible preferred stock into an aggregate of 3,813,973 shares of common stock.

	-	The conversion of $175,000 principal amount of outstanding convertible promissory notes and accrued interest of $5,434 into 32,219 shares of common stock.

	-	The conversion of 1,419,228 Series 1a preferred warrants into 69,212 warrants exercisable into common stock.

Each purchaser in the IPO received one share of common stock and one warrant to purchase one share of common stock at a combined offering price of $7.00. Each warrant to purchase common stock entitles the holder to purchase one share of common stock, are immediately exercisable, and expire five years from the date of issuance. The Company evaluated the terms of the warrants issued and determined that they should be classified as equity instruments.

The Company’s shares of common stock and warrants are listed on the Nasdaq Stock Market LLC under the symbols “DRMA,” and “DRMAW,” respectively, and both began trading in August 2021.

After the IPO, there were no shares of preferred stock or preferred stock warrants outstanding. Prior to the IPO, the Company had 1,911,009 shares of common stock outstanding after giving effect for the Company’s reverse stock split in July 2021.

Reverse Stock Split

On July 1, 2021, the Company effected a reverse split of shares of the Company’s common stock at a ratio of 1-for-20.5 pursuant to an amendment to the Company’s certificate of incorporation approved by the Company’s board of directors and stockholders. The par value was not adjusted as a result of the reverse split. All issued and outstanding common stock shares and per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented, and the conversion ratios for the Company’s outstanding preferred stock was adjusted accordingly. See Note 6 – Equity Securities for additional information.

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Liquidity and Going Concern Uncertainty

Since its inception, the Company has devoted substantially all of its resources to research and development activities and has not generated any revenue or commercialized any product candidates. As of June 30, 2022, cash totaled $10.6 million and the Company had an accumulated deficit of $41.5 million. For the six months ended June 30, 2022 and the year ended December 31, 2021, the Company used cash of $4.4 million and $5.7 million, respectively, in operations. The Company’s cash balances are expected to fund operations into the third quarter of 2023. The Company anticipates that it will continue to incur net losses for the foreseeable future. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one-year period following the date that these financial statements were issued.

Historically, the Company’s principal sources of cash have included proceeds from the issuance of common and preferred equity units and proceeds from the issuance of debt. The Company’s principal uses of cash have included cash used in operations and payments for license rights. The Company expects that the principal uses of cash in the future will be for continuing operations, funding of research and development, conducting preclinical studies and clinical trials, and general working capital requirements. The Company expects that as research and development expenses continue to grow, it will need to raise additional capital to sustain operations and research and development. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

Management’s Plan to Continue as a Going Concern

To continue as a going concern, the Company will need, among other things, to raise additional capital resources. Until the Company can generate significant cash from operations, management’s plans to obtain such resources for the Company include proceeds from offerings of the Company’s equity securities or debt, or transactions involving product development, technology licensing or collaboration. Management can provide no assurance that any sources of a sufficient amount of financing or collaboration agreements will be available to the Company on favorable terms, if at all. Additionally, the COVID-19 pandemic continues to evolve and has already disrupted global financial markets. The Company’s ability to raise additional capital may be adversely impacted by potential worsening of global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the pandemic. If the disruption persists or deepens, the Company could experience an inability to access additional capital.

The Company has raised additional capital through the initial public offering of its common stock and warrants and through a private placement financing; however, management’s current plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair statement of the financial position, results of operations, cash flows, and stockholders’ equity for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ materially from those estimates.

SEC Form 10-Q filed by Dermata Therapeutics Inc.