UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2025

☐	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 the charter)

Delaware		86-3218736
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

3525 Del Mar Heights Rd., #322, San Diego, CA		92130
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 858-800-2543

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, par value $0.0001 per share	DRMA	The Nasdaq Capital Market
Warrants, exercisable for one share of Common Stock	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 registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards 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 1,026,457 shares of Common Stock, par value $0.0001, of Dermata Therapeutics, Inc. issued and outstanding as of November 12, 2025.

DERMATA THERAPEUTICS, INC.

Form 10-Q

Table of Contents

INDEX

		Page No.
Part I	Financial Information	3

Item 1:	Financial Statements (unaudited)	3

	Balance Sheets	3
	Statements of Operations	4
	Statements of Stockholders’ Equity	5
	Statements of Cash Flows	7
	Notes to Financial Statements	8
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3:	Quantitative and Qualitative Disclosures about Market Risk	34
Item 4:	Controls and Procedures	34

Part II	Other Information	35

Item 1:	Legal Proceedings	35
Item 1A:	Risk Factors	35
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	36

Signatures		37

PART I

ITEM 1: FINANCIAL STATEMENTS

DERMATA THERAPEUTICS, INC.

Balance Sheets

	September 30, 2025			December 31, 2024
	(unaudited)
Assets:
Cash and cash equivalents	$	4,664,127		$	3,161,570
Prepaid expenses and other current assets		407,283			372,318
Total assets	$	5,071,410		$	3,533,888

Liabilities and Stockholders’ Equity:
Liabilities:
Accounts payable (including related party amounts of $185,300 and $0, respectively)	$	453,427		$	808,011
Accrued and other current liabilities (including related party amounts of $28,600 and $0, respectively)		657,881			1,164,783
Total liabilities		1,111,308			1,972,794
Commitments and Contingencies (see Note 6)		-			-
Stockholders’ Equity:
Preferred Stock, par value $0.0001 per share, 10,000,000 shares authorized; no shares issued or outstanding as of September 30, 2025 and December 31, 2024		-			-
Common Stock, par value $0.0001 per share, 250,000,000 shares authorized; 844,457 shares issued and outstanding as of September 30, 2025; 251,725 shares issued and outstanding as of December 31, 2024		84			25
Additional paid-in capital		75,332,026			67,236,408
Accumulated deficit		(71,372,008	)		(65,675,339	)
Total stockholders’ equity		3,960,102			1,561,094
Total liabilities and stockholders’ equity	$	5,071,410		$	3,533,888

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

DERMATA THERAPEUTICS, INC.

Statements of Operations

(unaudited)

	2025			2024			2025			2024
	For the three months ended September 30,						For the nine months ended September 30,
	2025			2024			2025			2024
Operating expenses:
Research and development	$	504,387		$	2,401,359		$	2,403,363		$	6,011,201
Selling, general and administrative (including related party amounts of $334,050, $0, $334,050, and $0, respectively)		1,256,284			824,294			3,469,842			3,301,753
Total operating expenses		1,760,671			3,225,653			5,873,205			9,312,954
Loss from operations		(1,760,671	)		(3,225,653	)		(5,873,205	)		(9,312,954	)
Other income and expenses:
Interest income		68,682			52,497			176,536			176,431
Net loss	$	(1,691,989	)	$	(3,173,156	)	$	(5,696,669	)	$	(9,136,523	)

Net loss per share of Common Stock, basic and diluted	$	(1.65	)	$	(20.41	)	$	(6.64	)	$	(102.18	)

Weighted-average basic and diluted Common Stock		1,026,457			155,465			858,015			89,414

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

DERMATA THERAPEUTICS, INC.

Statements of Stockholders’ Equity

(unaudited)

	Shares		Par Value		Capital			Deficit			Equity
	Common Stock				Additional Paid-in			Accumulated			Total Stockholders’
	Shares		Par Value		Capital			Deficit			Equity
Balance at December 31, 2024		251,725	$	25	$	67,236,408		$	(65,675,339	)	$	1,561,094
Stock-based compensation		-		-		37,189			-			37,189
Issuance of Common Stock and warrants from January 2025 PIPE, net of issuance costs		193,539		19		2,254,702			-			2,254,721
Issuance of Common Stock upon exercise of pre-funded warrants		97,746		10		967			-			977
Issuance of Common Stock and warrants from March 2025 Warrant Inducement, net of issuance costs		60,200		6		5,750,822			-			5,750,828
Net loss		-		-		-			(2,303,587	)		(2,303,587	)
Balance at March 31, 2025		603,210	$	60	$	75,280,088		$	(67,978,926	)	$	7,301,222
Stock-based compensation		-		-		39,234			-			39,234
Issuance of abeyance shares		34,547		4		(4	)		-			-
Issuance costs related to the March 2025 Warrant Inducement		-		-		(25,112	)		-			(25,112	)
Net loss		-		-		-			(1,701,093	)		(1,701,093	)
Balance at June 30, 2025		637,757	$	64	$	75,294,206		$	(69,680,019	)	$	5,614,251
Stock-based compensation		-		-		37,840			-			37,840
Issuance of abeyance shares		206,700		20		(20	)		-			-
Net loss		-		-		-			(1,691,989	)		(1,691,989	)
Balance at September 30, 2025		844,457	$	84	$	75,332,026		$	(71,372,008	)	$	3,960,102

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

DERMATA THERAPEUTICS, INC.

Statements of Stockholders’ Equity

(unaudited)

	Common Stock					Additional Paid-in			Accumulated			Total Stockholders’
	Shares			Par Value		Capital			Deficit			Equity
Balance at December 31, 2023		26,150		$	3	$	59,742,893		$	(53,387,878	)	$	6,355,018
Stock-based compensation		-			-		587,234			-			587,234
Issuance of abeyance shares		18,200			2		(2	)		-			-
Net loss		-			-		-			(3,134,262	)		(3,134,262	)
Balance at March 31, 2024		44,350		$	5	$	60,330,125		$	(56,522,140	)	$	3,807,990
Stock-based compensation		-			-		19,608			-			19,608
Issuance of Common Stock upon exercise of warrants, net of issuance costs		24,933			2		2,320,461			-			2,320,463
Settlement of fractional shares paid in cash		(15	)		-		(828	)		-			(828	)
Net loss		-			-		-			(2,829,106	)		(2,829,106	)
Balance at June 30, 2024		69,268		$	7	$	62,669,366		$	(59,351,246	)	$	3,318,127
Balance		69,268		$	7	$	62,669,366		$	(59,351,246	)	$	3,318,127
Stock-based compensation		-			-		20,992			-			20,992
Issuance of pre-funded warrants and warrants, net of issuance costs		-			-		3,093,038			-			3,093,038
Issuance of Common Stock upon exercise of pre-funded warrants		16,756			2		166			-			168
Issuance of Common Stock from ATM sales, net of issuance costs		55,001			5		1,482,054			-			1,482,059
Issuance of abeyance shares		26,700			3		(3	)		-			-
Net loss		-			-		-			(3,173,156	)		(3,173,156	)
Balance at September 30, 2024		167,725		$	17	$	67,265,613		$	(62,524,402	)	$	4,741,228
Balance		167,725		$	17	$	67,265,613		$	(62,524,402	)	$	4,741,228

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

DERMATA THERAPEUTICS, INC.

Statements of Cash Flows

(unaudited)

	2025			2024
	For the nine months ended September 30,
	2025			2024
Cash flows from operating activities:
Net loss	$	(5,696,669	)	$	(9,136,523	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		114,263			627,834
Increase (decrease) in cash resulting from changes in:
Prepaid expenses and other current assets		(34,965	)		(3,095	)
Accounts payable		(304,089	)		(10,324	)
Accrued and other current liabilities		(506,902	)		272,774
Total adjustments to reconcile net loss to net cash used in operations		(731,693	)		887,189
Net cash used in operating activities		(6,428,362	)		(8,249,334	)
Cash flows from financing activities:
Proceeds from issuance of Common Stock and warrants, net of issuance costs		7,980,804			6,955,611
Payment of prior period issuance costs		(50,495	)		-
Proceeds from exercise of pre-funded warrants		977			168
Payment for fractional shares in reverse stock split		(367	)		(828	)
Net cash provided by financing activities		7,930,919			6,954,951
Net increase (decrease) in cash and cash equivalents		1,502,557			(1,294,383	)
Cash and cash equivalents at beginning of period		3,161,570			7,438,135
Cash and cash equivalents at end of period	$	4,664,127		$	6,143,752
Non-cash financing activities:
Issuance of abeyance shares	$	(24	)	$	(5	)
Issuance costs in accounts payable or accrued expenses		-		$	60,051
Supplemental disclosure:
Cash paid for taxes	$	950		$	950

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

DERMATA THERAPEUTICS, INC.

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. The Company is a development stage biotechnology company focused on the treatment of medical and aesthetic skin conditions and diseases.

Reverse Stock Splits

On July 15, 2025, the Company held its annual meeting of stockholders at which time the stockholders approved the adoption of an amendment to its Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split of its issued and outstanding shares of Common Stock, at a specific ratio, ranging from one-for-two to one-for-thirty, with the exact ratio determined by the Company’s board of directors without further approval or authorization of its stockholders. On August 1, 2025, the Company effected the reverse split of its shares of Common Stock at a ratio of 1-for-10, as approved by the Company’s board of directors (the “2025 Reverse Stock Split”). The par value was not adjusted as a result of the 2025 Reverse Stock Split. All issued and outstanding shares of Common Stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented.

On May 7, 2024, the Company held its annual meeting of stockholders at which time the stockholders approved the adoption of an amendment to its Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split of its issued and outstanding shares of Common Stock, at a specific ratio, ranging from one-for-five to one-for-thirty, with the exact ratio determined by the Company’s board of directors without further approval or authorization of its stockholders. On May 16, 2024, the Company effected the reverse split of its shares of Common Stock at a ratio of 1-for-15, as approved by the Company’s board of directors. The par value was not adjusted as a result of the May 2024 reverse stock split. All issued and outstanding shares of Common Stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented.

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 September 30, 2025, cash and cash equivalents totaled $4.7 million and the Company had an accumulated deficit of $71.4 million. For the nine months ended September 30, 2025, and the year ended December 31, 2024, the Company used cash of $6.4 million and approximately $11.1 million, respectively, in operations. The Company’s cash and cash equivalents are expected to fund operations into the second quarter of 2026.

The Company anticipates that it will continue to incur net losses for at least the next twelve months from the date of this filing. While the Company plans to launch its first product candidate in mid-2026, it is uncertain when the Company will generate operating income to sustain operations. 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 equity securities and debt. The Company’s principal use of cash has been for operations, and the Company expects that the principal uses of cash in the future will be for continuing operations, marketing and commercialization activities for current and future product candidates, funding of research and development, conducting preclinical studies and clinical trials, and general working capital requirements. The Company expects that as marketing expenses continue to grow, it will need to raise additional capital to sustain operations.

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, generating product revenue from sales of over the counter (“OTC”) products, 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. The Company’s ability to raise additional capital may be adversely impacted by potential worsening of global economic conditions, tariffs, potential future global pandemics or health crises, and the disruptions to, and volatility in, the credit and financial markets in the United States. Because of historical and expected operating losses and net operating cash flow deficits, there is substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements, which is not alleviated by management’s plans. 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.

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. The unaudited financial statements included in this Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with Securities and Exchange Commission (the “SEC”) on March 17, 2025, which includes a broader discussion of the Company’s business and the risks inherent therein.

2. Summary of Significant Accounting Policies

Use of Estimates

The Company’s financial statements are prepared in accordance with GAAP. The preparation of the Company’s financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, and expenses and disclosure of contingent assets and liabilities in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates and judgments, including those related to accrued research and development expenses, stock-based compensation, and equity instruments. The Company bases its estimates on various assumptions that it believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company and the Company’s chief operating decision maker view the Company’s operations and manage its business in one operating segment.

Cash and Cash Equivalents

The Company deposits its cash and cash equivalents with accredited financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”), which are held in checking and cash sweep accounts. At times, deposits held may exceed the amount of insurance provided by the FDIC. The Company maintains an insured cash sweep account in which cash from its main operating checking account is invested overnight in highly liquid, short-term investments. The Company considers all highly liquid investments with a maturity date of 90 days or less at the date of purchase to be cash equivalents.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents. The Company is exposed to credit risk in the event of a default by the financial institutions holding the Company’s cash and cash equivalents to the extent of the amounts held in excess of FDIC limits. The Company limits its credit risk by placing its cash and cash equivalents with financial institutions it believes are of high quality. To date, the Company has not experienced any losses on its deposits of cash and cash equivalents.

Fair Value Measurement

The Company uses a three-tier fair value hierarchy to prioritize the inputs used in the Company’s fair value measurements. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company believes the carrying amount of cash and cash equivalents, accounts payable and accrued expenses approximate their estimated fair values due to the short-term nature of these assets and liabilities. Additionally, the Company’s warrants are equity classified and thereby Level 1 when determining fair value. See further discussion in Note 4 – Equity Securities.

Interest Income

Interest income consists of interest income earned on cash and cash equivalents from interest bearing demand accounts.

Patent Costs

Patent costs related to obtaining and maintaining patent protection in both the United States and other countries are expensed as incurred. Patents costs are classified as selling, general and administrative expenses.

Research and Development Costs

Research and development costs are expensed in the period incurred. Research and development costs primarily consist of salaries and related expenses for personnel, stock-based compensation expense, external research and development costs incurred under agreements with contract research organizations, investigative sites and consultants to conduct clinical studies, costs related to compliance with regulatory requirements, costs related to manufacturing the Company’s product candidates for clinical trials, and other allocated expenses.

Payments for research and development activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying balance sheets as prepaid expenses. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. The Company uses judgments and estimates to determine the prepaid or accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates.

Selling, General and Administrative Costs

Selling, general and administrative costs are expensed in the period incurred. Selling, general and administrative costs primarily consist of marketing-related expenses, salaries and related expenses for personnel, including stock-based compensation, as well as legal fees incurred relating to corporate and patent matters, professional fees incurred for accounting, auditing, tax, and other consulting services, and insurance costs.

Income Taxes

The Company is a C-corporation and accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability.

Stock-Based Compensation

The Company measures and recognizes compensation expense for all stock-based awards made to employees, directors, and non-employees, based on estimated fair values recognized using the straight-line method over the requisite service period. The fair value of options to purchase Common Stock granted to employees is estimated on the grant date using the Black-Scholes valuation model. The calculation of stock-based compensation expense requires that the Company make certain assumptions and judgments about variables used in the Black-Scholes model, including the expected term of the stock-based award, expected volatility of the underlying Common Stock, dividend yield, and the risk-free interest rate. Forfeitures are accounted for in the period they occur.

Warrants

The Company performs an assessment of warrants upon issuance to determine their proper classification in the financial statements based upon the warrant’s specific terms, in accordance with the authoritative guidance provided in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”), and ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity (“ASC 815-40”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480 and whether the warrants meet all of the requirements for equity classification under ASC 815-40, including whether the warrants are indexed in the Company’s own Common Stock and whether the warrant holders could potentially require cash settlement of the warrants.

For issued or modified warrants that meet all the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be liability-classified and recorded at their initial fair value on the date of issuance and remeasured at fair value at each balance sheet date thereafter. The Company has performed an assessment of all warrants issued and modified and determined that the Company’s warrants are equity-classified.

Comprehensive Loss

Comprehensive loss includes net loss and other comprehensive income (loss) for the periods presented. The Company did not have other comprehensive income (loss) items such as unrealized gains and losses and so for the periods presented, comprehensive loss was equal to the net loss.

Net Loss Per Share of Common Stock

Basic net loss per share is calculated by dividing net loss attributable to common shareholders by the weighted-average number of shares outstanding during the period. The weighted-average number of shares of Common Stock outstanding includes (i) pre-funded warrants because their exercise requires only nominal consideration for the delivery of shares, and (ii) shares held in abeyance because there is no consideration required for delivery of the shares, (collectively, “basic shares”), without consideration of common stock equivalents. Diluted net loss per share is calculated by adjusting basic shares outstanding for the dilutive effect of common stock equivalents outstanding for the period. For purposes of the diluted net loss per share calculation, stock options and warrants are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per common stock if their effect would be anti-dilutive.

The common share equivalents that are not included in the calculation of diluted net loss per share of Common Stock but could potentially dilute basic earnings per share in the future are as follows:

	2025		2024
	As of September 30,
	2025		2024
Common Stock options outstanding		20,477		5,227
Common Stock warrants outstanding		1,238,949		506,822
Total potentially dilutive securities		1,259,426		512,049

Recent Accounting Pronouncements

For the nine months ended September 30, 2025, the Company has reviewed recent accounting standards and identified the following as relevant to the Company.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for public entities with annual periods beginning after December 15, 2024, with early adoption permitted. The Company adopted ASU 2023-09 as of January 1, 2025; however, there was no impact on its financial statements and income tax footnote.

In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (“ASU 2024-03”). ASU 2024-03 requires additional disclosures and disaggregation of certain costs and expenses presented on the face of the income statement. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its financial statements.

3. Balance Sheet Details

The following provides certain balance sheet details:

Schedule of Balance Sheet Details

	September 30,		December 31,
	2025		2024
Prepaid expenses and other current assets:
Prepaid insurance	$	356,090	$	349,824
Prepaid research and development costs		5,367		12,600
Prepaid other and other current assets		45,826		9,894
Total prepaid expenses and other current assets	$	407,283	$	372,318

Accrued and other current liabilities:
Accrued research and development costs	$	6,420	$	295,392
Accrued compensation and benefits		594,144		731,632
Accrued other		57,317		137,759
Total accrued and other current liabilities	$	657,881	$	1,164,783

4. Equity Securities

A summary of the Company’s equity securities as of September 30, 2025, is as follows:

Schedule of Equity Securities

Description	Authorized		Issued		Abeyance		Reserved		Outstanding
Common Stock, par value $0.0001		250,000,000		844,457		182,000		-		844,457
Preferred Stock		10,000,000		-		-		-		-
Warrants		-		1,238,949		-		-		1,238,949
2021 Omnibus Equity Incentive Plan		-		20,568		-		13		20,477
Total equity securities		260,000,000		2,103,974		182,000		13		2,103,883

Common Stock

On March 27, 2025, the Company entered into an inducement offer letter agreement (the “March 2025 Inducement Letter”) with a holder (the “Holder”) of certain of its existing warrants to purchase an aggregate of 483,447 shares of the Company’s Common Stock. Such existing warrants were made up of (i) certain of the May 17, 2024 warrants (the “May 2024 Warrants”), which were issued in two separate series, having an exercise price of $49.10 per share, and (ii) the September 16, 2024 warrants, which were issued in two separate series, having an exercise price of $15.80 per share (the “September 2024 Warrants” and together with the May 2024 Warrants, the “Existing Warrants”). Pursuant to the March 2025 Inducement Letter, the Holder agreed to exercise for cash its Existing Warrants at a reduced exercise price of $12.84 per share in consideration for the Company’s agreement to issue in a private placement (i) new Series A common stock purchase warrants (the “New Series A Warrants”) to purchase up to 498,080 shares of Common Stock (the “New Series A Warrant Shares”) and (ii) new Series B common stock purchase warrants (the “New Series B Warrants” and together with the New Series A Warrants, the “New Warrants”) to purchase up to 468,813 shares of Common Stock (the “New Series B Warrant Shares” and together with the New Series A Warrant Shares, the “New Warrant Shares”). The New Warrants were exercisable subject to stockholder approval, which the Company received at a stockholder meeting on July 15, 2025. The Company received net proceeds of approximately $5.7 million from the exercise of the Existing Warrants by the Holder, after deducting financial advisor fees and other offering expenses payable by the Company. As of September 30, 2025, the Holder has received 301,447 Common Shares, with the balance of 182,000 shares held in abeyance, to be released to the Holder at the Holder’s request.

On January 21, 2025, the Company closed a private placement (the “January 2025 PIPE”) priced at the market under Nasdaq rules, in which it sold 193,539 shares of Common Stock, pre-funded warrants to purchase an aggregate of 7,246 shares of Common Stock with an exercise price of $0.01 per share (“January 2025 Pre-Funded Warrants”), and 200,785 warrants (the “January 2025 PIPE Warrants”) to purchase up to an aggregate of 200,785 shares of Common Stock. The January 2025 PIPE Warrants have an exercise price of $12.70. Certain Company insiders, including the Company’s Chief Executive Officer, Chief Financial Officer and certain members of the Company’s board of directors, participated in the January 2025 PIPE. These Company insiders purchased an aggregate of 122,047 shares of Common Stock and January 2025 PIPE Warrants to purchase up to an aggregate of 122,047 shares of Common Stock, for an aggregate purchase price of approximately $1,550,000. The purchase price per share of Common Stock and accompanying January 2025 PIPE Warrant for these Company insiders was the same as paid by other investors in the January 2025 PIPE. The January 2025 Warrants were exercisable subject to stockholder approval, which the Company received at a stockholder meeting on July 15, 2025. In connection with the January 2025 PIPE, the Company entered into a registration rights agreement with the investors, pursuant to which the Company agreed to prepare and file a registration statement with the SEC registering the resale of the shares of Common Stock underlying the securities sold in the January 2025 PIPE financing. The Company filed a Form S-3 on January 30, 2025, which was declared effective by the SEC on February 5, 2025. The Company received net cash proceeds of approximately $2.2 million from the January 2025 PIPE after deducting underwriters’ discounts and offering expenses of approximately $0.4 million. During the first quarter of 2025, all of the January 2025 Pre-Funded Warrants were exercised. As of September 30, 2025, no January 2025 Pre-Funded Warrants remained outstanding.

On September 17, 2024, the Company closed a private placement (the “September 2024 PIPE”) priced at the market under Nasdaq rules, in which it sold 191,256 pre-funded warrants to purchase up to an aggregate of 191,256 shares of Common Stock with an exercise price of $0.01 per share (the “September 2024 Pre-Funded Warrants”), and 191,256 series A warrants (the “September 2024 PIPE Series A Common Warrants”) to purchase up to an aggregate of 191,256 shares of Common Stock and 191,256 series B warrants (the “September 2024 PIPE Series B Common Warrants” and together with the September 2024 PIPE Series A Warrants, the “September 2024 PIPE Warrants”) to purchase up to an aggregate of 191,256 shares of Common Stock. The September 2024 PIPE Warrants have an exercise price of $15.80. In connection with the September 2024 PIPE, the Company entered into a registration rights agreement with the investor, pursuant to which the Company agreed to prepare and file a registration statement with the SEC registering the resale of the shares of Common Stock underlying the securities sold in the September 2024 PIPE financing. The Company filed a Form S-3 on September 19, 2024, which was declared effective by the SEC on September 24, 2024. The Company received net cash proceeds of approximately $3.1 million from the September 2024 PIPE after deducting underwriters’ discounts and offering expenses of approximately $0.4 million. As of December 31, 2024, 90,500 September 2024 Pre-Funded Warrants remained outstanding, which were exercised during the first quarter of 2025. As of September 30, 2025, no September 2024 Pre-Funded Warrants remained outstanding.

In June 2024, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with a sales agent (the “Sales Agent”), providing for the sale of up to $1,157,761 of its shares of Common Stock as set forth in the ATM Agreement. The Sales Agent will be entitled to compensation at a fixed commission rate of 3.0% of the gross sales price of the shares of Common Stock sold pursuant to the ATM Agreement, as well as other transactional fees. During July 2024, the Company issued 35,580 shares of Common Stock under the ATM Agreement resulting in gross proceeds of $1,157,248 before deducting issuance costs. After issuance of the 35,580 shares during July 2024, $513 remained registered under the ATM Agreement. On August 2, 2024, the Company increased the maximum aggregate offering amount of Common Stock issuable under the ATM Agreement by $505,000, from $1,157,761 to $1,662,761. During September 2024, the Company issued 19,421 shares of Common Stock under the ATM Agreement resulting in additional gross proceeds of $504,894 before deducting issuance costs. During 2024, the Company issued a total of 55,001 shares from its ATM resulting in net proceeds of $1.5 million after deducting issuer costs and other expenses related to setting up and issuing shares from the Company’s ATM.

On November 7, 2025, the Company filed a prospectus supplement, pursuant to which the Company may offer and sell, from time to time through Sales Agent, shares of its Common Stock for aggregate proceeds of an additional $1,792,315 (upon the terms and subject to the conditions and limitations set forth in the ATM Agreement). As of the date of this filing, the Company has not sold any additional shares under the ATM Agreement.

On May 21, 2024, the Company closed on inducement agreements (the “May 2024 Inducement”) with certain holders (the “May 2024 Holders”) of certain of the Company’s existing warrants to purchase up to an aggregate of 51,632 shares of the Company’s Common Stock, issued to the May 2024 Holders on (i) May 26, 2023 (the “May 2023 Warrants”), having an exercise price of $324.00 per share, and (ii) November 20, 2023, which were issued in two separate series, each having an exercise price of $97.67 per share (together with the May 2023 Warrants, the “May 2024 Existing Warrants”). Pursuant to the May 2024 Inducement, the May 2024 Holders agreed to exercise for cash their May 2024 Existing Warrants at a reduced exercise price of $51.60 per share in consideration for the Company’s agreement to issue in a private placement (i) new Series A Common Stock purchase warrants (the “New May 2024 Series A Warrants”) to purchase up to 60,117 shares of Common Stock, and (ii) new Series B Common Stock purchase warrants (the “New May 2024 Series B Warrants” and together with the New May 2024 Series A Warrants, the “New May 2024 Warrants”) to purchase up to 43,149 shares of Common Stock. The Company received net proceeds of approximately $2.3 million from the exercise of the May 2024 Existing Warrants by the Holders, after deducting placement agent fees and other offering expenses payable by the Company.

Related to the May 2024 Inducement, during July 2024, the balance of 26,700 abeyance shares related to the May 2024 Warrant Inducement were released to the investor, leaving no further abeyance shares outstanding as of December 31, 2024.

Preferred Stock

While the Company has 10,000,000 shares of preferred stock authorized with a par value of $0.0001, no shares of preferred stock are issued or outstanding as of September 30, 2025, or December 31, 2024.

Warrants

Summary of Warrants Outstanding

The warrants outstanding as of September 30, 2025, are exercisable into 1,238,949 shares of Common Stock which had a fair value of $5.02 per share, based on the closing trading price on September 30, 2025. The aggregate intrinsic value of warrants outstanding as of September 30, 2025, is calculated as the difference between the exercise price of the warrants and the closing market price of the Company’s Common Stock on that date. The intrinsic value of warrants outstanding as of September 30, 2025, was zero.

	Quantity of Warrants Outstanding as of
Description	September 30, 2025		December 31, 2024		Exercise Price		Expiration Date
Pre-IPO Series 1a Warrants		19		19	$	49,200.00	11/15/2026
IPO Warrants		1,230		1,230		16,800.00	8/17/2026
IPO Underwriter Warrants		53		53		19,320.00	8/17/2026
March 2023 Offering Placement Agent Warrants		753		753		579.38	3/16/2028
May 2023 PIPE Placement Agent Warrants		371		371		428.45	5/23/2028
November 2023 Placement Agent Warrants		1,619		1,619		122.09	11/21/2028
May 2024 Series A Common Warrants		2,334		60,117		49.10	11/21/2029
May 2024 Series B Common Warrants		-		43,149		49.10	5/21/2026
May 2024 Placement Agent Warrants		3,613		3,613		64.50	11/21/2029
September 2024 PIPE Series A Common Warrants		-		191,256		15.80	3/18/2030
September 2024 PIPE Series B Common Warrants		-		191,256		15.80	3/17/2026
September 2024 PIPE Placement Agent Warrants		13,386		13,386		22.88	3/18/2030
January 2025 PIPE Warrants		200,785		-		12.70	7/15/2030
January 2025 PIPE Placement Agent Warrants		14,053		-		15.88	7/15/2030
March 2025 Warrant Inducement Series A Warrants		498,080		-		12.84	7/15/2030
March 2025 Warrant Inducement Series B Warrants		468,813		-		12.84	1/15/2027
March 2025 Warrant Inducement Placement Agent Warrants		33,840		-		16.05	7/15/2030
Total warrants outstanding		1,238,949		506,822

Warrant Inducements

In March 2025, the Company entered into the March 2025 Inducement Letter with a Holder who agreed to exercise 483,447 warrants to purchase Common Stock at a reduced exercise price of $12.84 per share in exchange for 498,080 New Series A Warrants and 468,813 New Series B Warrants with an exercise price of $12.84 per share. The March 2025 Inducement Letter, which resulted in the lowering of the exercise price of the Existing Warrants and the issuance of the New Warrants, is considered a modification of the Existing Warrants under the guidance ASC 815-40. The modification is consistent with the equity issuance classification under that guidance as the reason for the modification was to induce the holders of the Existing Warrants to cash exercise their warrants, which raised equity capital and generated net proceeds of approximately $5.7 million. As the Existing Warrants and the New Warrants were classified as equity instruments before and after the exchange, and as the exchange is directly attributable to an equity offering, the Company recognized the effect of the modification of approximately $4.9 million as an equity issuance cost.

In May 2024, the Company completed the May 2024 Inducement with the May 2024 Holders who agreed to exercise 51,632 warrants to purchase Common Stock at a reduced exercise price of $51.60 per share in exchange for 60,117 New May 2024 Series A Warrants and 43,149 New May 2024 Series B Warrants with an exercise price of $49.10 per share. The May 2024 Inducement, which resulted in the lowering of the exercise price of the May 2024 Existing Warrants and the issuance of the May 2024 New Warrants, is considered a modification of the May 2024 Existing Warrants under the guidance ASC 815-40. The modification is consistent with the equity issuance classification under that guidance as the reason for the modification was to induce the holders of the May 2024 Existing Warrants to cash exercise their warrants, which raised equity capital and generated net proceeds of approximately $2.3 million. As the May 2024 Existing Warrants and the May 2024 New Warrants were classified as equity instruments before and after the exchange, and as the exchange is directly attributable to an equity offering, the Company recognized the effect of the modification of approximately $1.5 million as an equity issuance cost.

Placement Agent Warrants

The Company works with H.C. Wainwright & Co., LLC (the “Placement Agent”) to act as its investment bank for certain financing transactions. Per the terms of the Company’s engagement letter with the Placement Agent, the Placement Agent receives compensation in the form of fees and reimbursed expenses, as well as the issuance to the Placement Agent, or its designees, warrants to purchase Common Stock of the Company equal to 7.0% of aggregate number of Common Stock issued in a related to the financing at an exercise price equal to 125% of the financing price.

5. Equity Incentive Plan

Under the Company’s Omnibus Equity Incentive Plan (the “2021 Plan”) as amended, the Company may grant options to purchase shares of Common Stock, restricted stock awards, performance stock awards, incentive bonus awards, other cash-based awards or directly issue shares of Common Stock to employees, directors, and consultants of the Company. At the Company’s 2024 Annual Meeting of Stockholders held on May 7, 2024, the Company’s stockholders approved an amendment to the Company’s 2021 Plan to increase the number of shares of Common Stock authorized for issuance thereunder from 4,193 shares to 7,993 shares. Further at the Company’s 2024 Annual Meeting of Stockholders, the Company’s stockholders approved an amendment to the Company’s 2021 Plan, to increase the evergreen provision from one percent to five percent of the total number of the Company’s Common Stock outstanding starting on January 1, 2025. The five percent evergreen provision resulted in an additional 12,588 shares of Common Stock issuable pursuant to the 2021 Plan as of January 1, 2025.

Stock awards may be granted at an exercise price per share of not less than 100% of the fair market value at the date of grant. Stock awards granted are exercisable over a maximum term of 10 years from the date of grant and generally vest over a period of four years for employees and one year for directors of the Company’s Board and consultants.

As of September 30, 2025, there remain 13 shares reserved for issuance under the 2021 Plan, as amended.

Stock Option Award Activity

A summary of the Company’s 2021 Plan stock option activity is as follows:

Schedule of Stock Option Activity

	Number of Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in Years)
Balance at December 31, 2024		5,227	$	58.72		9.3
Options granted		15,250		13.80		-
Options exercised		-		-		-
Options cancelled		-		-		-
Balance at September 30, 2025		20,477	$	25.27		9.1

Options exercisable at September 30, 2025		6,235	$	34.97		8.9

In January 2024, the Board unanimously approved to provide employees and directors of the Company the opportunity to cancel outstanding, out-of-the-money, stock options without consideration, in accordance with an option cancellation agreement. Accordingly, 674 of the 675 stock options outstanding as of December 31, 2023, were cancelled in February 2024.

In accordance with accounting guidance provided in ASC 718, since the stock option cancellations were not accompanied by a concurrent grant, or offer to grant, a replacement award, any unrecognized compensation cost was recognized at the cancellation date. Accordingly, the Company recognized stock-based compensation expense of $568,372 resulting from the stock option cancellation during the first quarter of 2024.

The aggregate intrinsic value of options outstanding and exercisable as of September 30, 2025, is calculated as the difference between the exercise price of the underlying options and the closing market price of the Company’s Common Stock on September 30, 2025, which was $5.02 per share. The intrinsic value of options outstanding and exercisable as of September 30, 2025, was zero.

As of September 30, 2025, the total unrecognized compensation cost related to stock options was approximately $0.2 million and the weighted average period over which this cost is expected to be recognized is 2.7 years.

Stock-based Compensation Expense

In general, stock-based compensation is allocated to research and development expense or selling, general and administrative expense according to the classification of cash compensation paid to the employee, director, or consultant to whom the stock award was granted.

The following table summarizes the total stock-based compensation expense related to stock options included in the Company’s statements of operations:

	2025		2024		2025		2024
	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Research and development	$	7,951	$	4,677	$	23,672	$	246,637
Selling, general and administrative		29,889		16,315		90,591		381,197
Total	$	37,840	$	20,992	$	114,263	$	627,834
Stock-based compensation expense	$	37,840	$	20,992	$	114,263	$	627,834

Fair Value Measurement

The Company uses the Black-Scholes option valuation model, which requires the use of highly subjective assumptions, to determine the fair value of stock-based awards. The fair value of each employee stock option is estimated on the grant date under the fair value method using the Black-Scholes model. The estimated fair value of each stock option is then expensed over the requisite service period, which is generally the vesting period. The assumptions and estimates that the Company uses in the Black-Scholes model are as follows:

	●	Fair Value of Common Stock. The fair value of Common Stock is measured as the Company’s closing price of Common Stock on the date of grant.

	●	Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes valuation model on the implied yield available on U.S. Treasury zero-coupon issues with a term equivalent to that of the expected term of the options.

	●	Expected Term. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding, which is calculated using the simplified method for stock-based awards granted to employees, as the Company has insufficient historical information to provide a basis for an estimate. The simplified method calculates the expected term as the average of the vesting term plus the contractual life of the options. As permitted under ASC 718, the Company has elected to use the contractual term as the expected term for certain non-employee awards, on an award-by-award basis.

	●	Volatility. The Company determines the price volatility based on the historical volatilities of industry peers as it has limited trading history for its Common Stock price. Industry peers consist of several public companies in the biotechnology industry with comparable characteristics, including clinical trials progress and therapeutic indications.

	●	Dividend Yield. The expected dividend assumption is based on the Company’s current expectations about its anticipated dividend policy. To date, the Company has not declared any dividends to common shareholders and, therefore, the Company has used an expected dividend yield of zero.

The Company granted stock options in January 2025 and 2024. There were no stock option grants during the second or third quarters of 2025 or 2024. The following table presents the weighted-average assumptions used for stock options granted during the following periods:

	2025			2024
	Nine Months Ended September 30,
	2025			2024
Grant date fair value	$	11.59		$	91.50
Risk-free interest rate		4.65	%		4.0	%
Dividend yield		0.00	%		0.00	%
Expected life in years		5.9			5.9
Expected volatility		110	%		110	%

6. Commitments and Contingencies

Clinical Trials

In March 2025, the Company announced positive topline results for its XYNGARI™ Phase 3 STAR-1 clinical trial. The total contract amount with the clinical research organization was approximately $7.2 million, which extended from the fourth quarter of 2023 into the second quarter of 2025. During the nine months ended September 30, 2025, the Company recognized $0.7 million in research and development expense for the STAR-1 clinical trial. During the three and nine months ended September 30, 2024, the Company recognized $1.8 million and $4.2 million, respectively, in research and development expense for the STAR-1 clinical trial. The STAR-1 clinical trial was completed in the second quarter of 2025, and no further expenses are expected to be incurred.

Supplier Agreement

As a result of Russia’s invasion of Ukraine, the United States has developed coordinated sanctions and export-control measure packages against Russian individuals and entities. The Company is currently a party to an exclusive supply agreement for the supply of the Spongilla raw material used in product candidates. The counterparty to this supply agreement is a Russian entity. The imposition of enhanced export controls and economic sanctions on transactions with Russia and Russian entities by the United States could prevent the Company from performing under this existing contract or any future contract it may enter or may prevent the Company from remitting payment for raw material purchased from the Company’s supplier. The Company has received multiple shipments of raw material from its supplier subsequent to the implementation of export controls and sanctions. Depending on the extent and breadth of new sanctions, export controls, or tariffs that may be imposed against Russia, otherwise or as a result of the impact of the war in Ukraine, it is possible that the Company’s ability to obtain additional supply of the Spongilla raw material could be negatively impacted, which could adversely affect its business, results of operations, and financial condition.

License Agreements

On March 31, 2017, the Company entered into a license agreement, as amended (the “License Agreement”) with Villani, Inc. (“Villani”) whereby Villani has granted the Company an exclusive, sub-licensable, royalty-bearing license (the “License”) under the Licensed Patents (as defined in the License Agreement), to formulate, develop, seek regulatory approval for, make or sell pharmaceutical products that contain Spongilla lacustris (alone or in combination with other active or inactive ingredients) for the treatment of diseases, disorders and conditions of the skin, including but not limited to acne, rosacea, psoriasis, atopic dermatitis, seborrheic dermatitis, actinic keratosis and eczema that were developed using certain licensed know-how (“Licensed Products”). The Company is responsible for the development (including manufacturing, packaging, non-clinical studies, clinical trials and obtaining regulatory approval and commercialization (including marketing, promotion, distribution, etc.)) for all Licensed Products. The original License Agreement was amended in 2019, and pursuant to the amended License Agreement, the Company has agreed to make future milestone payments to Villani in an aggregate amount of up to $20.25 million upon the achievement of specified development and sales milestones, payable in cash or in equity, at the option of Villani, as well as single-digit royalty payments on net sales. On July 30, 2021, the Company further amended the License Agreement in the Second Amendment to the License and Settlement Agreement (the “Second Amendment”). Pursuant to the Second Amendment, the Company agreed to make future milestone payments to Villani in an aggregate amount of up to $40.5 million upon the achievement of specified development and sales milestones, payable in cash or in equity, at the option of Villani, as well as single-digit royalty payments on net sales. The Second Amendment includes customary terms relating to, among others, indemnification, intellectual property protection, confidentiality, remedies, and warranties. As of September 30, 2025, the Company evaluated the likelihood of the Company achieving the specified milestones and determined that the likelihood is not yet probable and as such no accrual of these payments is required as of September 30, 2025. On November 10, 2025, the Company received a notice of material breach and demand for cure (the “Notice”) from Villani alleging that the Company breached the License Agreement as a result of the Company’s recent strategic shift to focus on over-the-counter pharmaceutical products. The Notice alleges that the Company (i) failed to use Commercially Reasonable Efforts (as defined in the License Agreement) to pursue a prescription product business, (ii) failed to provide Villani with advance notice of certain submissions to regulatory authorities, (iii) used Licensed Know-How (as defined in the License Agreement) outside of the Field (as defined in the License Agreement) and (iv) the Company’s anticipated OTC kits do not qualify as Licensed Products (as defined in the License Agreement). On November 11, 2025, Villani delivered an additional notice to the Company (the “Additional Notice”) whereby Villani requested (i) the reversion and assignment of all assets regarding Spongilla-based products back to Villani, (ii) that the Company preserve all Spongilla inventory, and (iii) the Company preserve all documents, data, and tangible materials related to Spongilla. The Company disputes the allegations contained in the Notice and the Additional Notice and is engaged in discussions with Villani to resolve such disputes. If the parties are unable to reach a resolution, then either party, pursuant to the License Agreement, may file for arbitration or termination of the License Agreement. To date, the License Agreement has not been terminated and continues in full force. At this point in time, the Company is unable to predict the final outcome of this dispute.

Collaboration Agreement

On January 17, 2025, the Company entered into a Clinical Trial Collaboration Agreement (the “Clinical Trial Agreement”) with Revance Therapeutics, Inc. (“Revance”), pursuant to which the Company and Revance intend to conduct a multi-center clinical trial (the “Trial”) to evaluate the topical application of XYNGARI^TM, the Company’s topical Spongilla powder (formerly referred to as DMT310), with DAXXIFY® (daxibotulinumtoxinA-lanm), Revance’s botulinum toxin type A. Pursuant to the terms of the Clinical Trial Agreement, Revance has granted the Company a non-exclusive, worldwide, non-transferable, royalty-free license, with a right to sublicense (subject to limitations), to use certain Revance intellectual property, solely as necessary or useful for the Company to conduct the trial under the Clinical Trial Agreement. The Company has granted Revance a similar license to use XYNGARI^TMand other compound(s) under the Clinical Trial Agreement. The Clinical Trial Agreement will terminate upon completion of the Trial, the delivery of the data resulting from the Trial and the completion of any statistical analyses of the data resulting from the Trial. Either party may terminate the Clinical Trial Agreement upon a material breach by the other party that remains uncured following 30 days after the date of written notice of such breach. In addition, either party may terminate the Clinical Trial Agreement immediately upon written notice if such party reasonably deems it necessary in order to protect the safety, health or welfare of subjects enrolled in the Trial. The Company has agreed to sponsor, conduct, and fund the Phase 2a clinical trial; however, no activities have been initiated by either party. As of September 30, 2025, the Company has not incurred any expenses related to the Revance Clinical Trial Agreement.

Registration Rights Agreement

In connection with the January 2025 PIPE (see Note 4), the Company entered into a Registration Rights Agreement with the purchasers, dated as of January 21, 2025 (the “Registration Rights Agreement”). The Registration Rights Agreement provides that the Company shall file a registration statement covering the resale of all the registrable securities (as defined in the Registration Rights Agreement) with the SEC. The registration statement on Form S-3 required under the Registration Rights Agreement was filed with the SEC on January 30, 2025, and became effective on February 5, 2025.

Upon the occurrence of any Event (as defined in the Registration Rights Agreement), which, among others, prohibits the purchasers from reselling the securities for more than ten consecutive calendar days or more than an aggregate of fifteen calendar days during any 12-month period, and should the registration statement cease to remain continuously effective, the Company would be obligated to pay to each purchaser, on each monthly anniversary of each such Event, an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 2.0% multiplied by the aggregate subscription amount paid by such purchaser in the Private Placement, up to a maximum of 12% of the aggregate subscription amount. As of September 30, 2025, the Company determined that the likelihood of the Company incurring liquidated damages pursuant to the Registration Rights Agreement is remote, and as such, no accrual of these payments is required as of September 30, 2025.

Legal Proceedings

In the normal course of business, the Company may be involved in legal proceedings or threatened legal proceedings. The Company is not a party to any legal proceedings or aware of any threatened legal proceedings which are expected to have a material adverse effect on its financial condition, results of operations or liquidity.

7. Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance. The Company and the Company’s chief operating decision maker view the Company’s operations and manage its business in one operating segment, which is the business of identifying, developing, and commercializing pharmaceutical products for the treatment of medical and aesthetic skin conditions and diseases.

The CODM, who is the Chief Executive Officer (“CEO”), President, and Chairman of the Board, manages and allocates resources to the operations of the Company on an entity-wide basis. The Company’s measure of segment profit or loss is net loss. Managing and allocating resources on an entity-wide basis enables the CEO to assess the overall level of resources available and how to best deploy these resources across functions and research and development projects that are in line with the Company’s long-term company-wide strategic goals. Consistent with this decision-making process, the CEO uses financial information for purposes of evaluating performance, forecasting future period financial results, allocating resources, and setting incentive targets. Operating expenses are used to monitor budget versus actual results. The CODM does not review assets in evaluating the results of the Company, and therefore, such information is not presented.

Given the Company’s September 2025 strategic pivot to prioritize the development and distribution of OTC products, the segment information disclosure has been recast for all periods presented to reflect this change. The following table summarizes the segment’s financial information including the Company’s significant segment expenses:

	2025			2024			2025			2024
	Three Months Ended September 30,						Nine Months Ended September 30,
	2025			2024			2025			2024
Research and development
Clinical	$	-		$	1,920,092		$	705,645		$	4,359,819
Chemistry, manufacturing and controls		36,274			127,781			320,104			346,273
Personnel related		468,113			353,486			1,377,614			1,305,109
Total research and development		504,387			2,401,359			2,403,363			6,011,201
Selling, general and administrative
Public company compliance		475,503			562,777			1,991,676			2,147,927
Marketing		472,940			-			472,940			-
Personnel related		307,841			261,517			1,005,226			1,153,826
Total selling, general and administrative		1,256,284			824,294			3,469,842			3,301,753
Interest income		68,682			52,497			176,536			176,431
Net loss	$	(1,691,989	)	$	(3,173,156	)	$	(5,696,669	)	$	(9,136,523	)

8. Related Party Transactions

In September 2025, the Company entered into a Master Services Agreement (the “MSA”) with Wilder & Partners, LLC (“Wilder”), an agency that assists the Company in branding, marketing, and product design for the Company’s first product launch, expected in mid-2026. The founding partner of Wilder is the CEO’s son-in-law and as such, falls in accordance with the Company’s Policy and Procedures for Related Party Transactions. Accordingly, the Board of Directors, inclusive of the Audit Committee, considered, reviewed, and unanimously approved the retention of Wilder as the branding agency, authorizing management to negotiate and execute an agreement on terms substantially consistent with the proposal reviewed. For the three and nine months ended September 30, 2025, the Company incurred approximately $0.5 million of marketing expenses related to Wilder, of which approximately $0.2 million was outstanding and included in accounts payable and other accrued expenses as of September 30, 2025.

In connection with the January 2025 PIPE financing, certain Company insiders, including the Company’s CEO, Chief Financial Officer and certain members of the Company’s board of directors, participated in the offering. These Company insiders purchased an aggregate of 122,047 shares of Common Stock and Warrants to purchase up to an aggregate of 122,047 shares of Common Stock, for an aggregate purchase price of $1.55 million. The purchase price per share and accompanying Warrant for these Company insiders was the same as paid by other investors in the January 2025 PIPE.

9. Subsequent Event

Subsequent to September 30, 2025, at the Holder’s request, the Company delivered the remaining balance of 182,000 shares of Common Stock which were held in abeyance related to the March 2025 Warrant Inducement. Accordingly, no further shares are held in abeyance.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, particularly those under “Risk Factors.”

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties, and other factors, which may be beyond our control, and which may cause our actual results, performance, or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.

There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

	●	our lack of operating history;

	●	the expectation that we will incur significant operating losses for the foreseeable future and will need significant additional capital;

	●	the expectation that any planned OTC formulation, dosage, combination, or indications fall inside the scope of an applicable OTC monograph, will not require a new drug application, and are otherwise not challenged by FDA, state boards, or other regulators, any of which could delay or prevent launch or require reformulation, relabeling, additional testing, or other corrective actions;

	●	the possibility that positive clinical data generated in the Rx setting are not predictive of consumer experience or commercial performance in the OTC context, and the limits such data may impose on the scope of permissible OTC claims;

	●	our ability to timely secure and scale manufacturing, packaging, and quality systems suitable for OTC commercialization, including meeting lot release, stability, shelf life, and container-closure requirements, and to manage product returns, recalls, or withdrawals if quality issues arise;

	●	our ability to successfully execute our strategic pivot from Rx to OTC, including our capacity to design, formulate, manufacture, package and distribute products that comply with applicable federal, state and international OTC requirements and standards, including FDA OTC monographs, current good manufacturing practices applicable to OTC products, labeling and Drug Facts requirements, and other enforcement policies;

	●	our ability to establish and maintain distribution and sales channels, including direct-to-consumer e-commerce, professional/clinic channels, and any retail partners, and to manage channel economics, chargebacks, returns, and working capital needs;

	●	our current and future capital requirements to support our development and commercialization efforts for our product candidates and our ability to satisfy our capital needs;

	●	our dependence on our product candidates, which are not yet available for commercial sale;

	●	our ability to acquire sufficient quantities of raw material needed to manufacture our product candidates;

	●	our, or that of our third-party manufacturers, ability to manufacture cGMP quantities of our product candidates as required for clinical trials and, subsequently, our ability to manufacture commercial quantities of our product candidates for commercial sale;

	●	our lack of a sales and marketing organization and our ability to effectively commercialize our product candidates, including in connection with our recent pivot to the OTC market;

	●	our dependence on third parties to manufacture our product candidates;

	●	our ability to maintain or protect the validity of our intellectual property;

	●	our ability to internally develop new inventions and intellectual property;

	●	interpretations of current laws and the passages of future laws;

	●	impacts of increased trade tariffs, import quotas or other trade restrictions or measures taken by the United States and other countries, including the recent and potential changes in U.S. trade policies that have been and may be made by the Trump presidential administration;

	●	acceptance of our business model by investors;

	●	the accuracy of our estimates regarding expenses and capital requirements;

	●	the accuracy of our estimate forecast for future commercial sales of our product candidates;

	●	our ability to adequately support organizational and business growth; and

	●	other factors discussed in our most recent Annual Report on Form 10-K.

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Please see “Risk Factors” for additional risks which could adversely impact our business and financial performance.

All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report, or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith, and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs, or projections will result or be achieved or accomplished.

Overview

We are a scientific leader in dermatology dedicated to the development and commercialization of products that address common and underserved skin conditions. In March 2025, we announced that we achieved statistically significant results from our Phase 3 STAR-1 clinical trial of XYNGARI™, formerly our lead prescription (“Rx”) candidate incorporating our Spongilla technology for moderate-to-severe acne. XYNGARI™ demonstrated statistically significant results across all three co-primary endpoints at weeks 4, 8, and 12 when compared with placebo. Following the successful completion of the STAR-1 trial, we conducted a full assessment of the Rx landscape and the continued Rx development pathway for XYNGARI™. In September 2025, after an extensive review of current trends in dermatology, changing patient preferences, and go-to market costs, management, with support from the our board of directors, determined that a strategic shift to developing and distributing OTC pharmaceutical dermatology products that are backed by science would be a better path to commercialization with potentially greater financial upside. We believe we can leverage the data generated with our Spongilla technology to create OTC pharmaceutical products that are effective and that patients want to use. This repositioning should accelerate our path to commercialization, reduce our regulatory burden, and decrease company expenses, all while being able to address broader consumer segments in the dermatology space.

We believe the dermatology market, from both an OTC and Rx perspective, has seen a substantial shift over the last few years, with an increasing trend of consumers first relying on OTC treatments for common dermatological diseases and conditions such as acne vulgaris (or “acne”), psoriasis vulgaris (or “psoriasis”), and acne rosacea (or “rosacea”), among others. Common dermatology issues, like acne with over 50 million patients in the U.S., are well known by patients with extensive publicly available information and thus patients are more willing to treat these diseases with OTC offerings prior to seeing a dermatologist. Over 70% of patients with acne first choose to try OTC products and wait at least one year before scheduling a visit with a dermatologist. Additionally, due to the lower price point for OTC products, a desire for self-administration, difficulty getting appointments with dermatologists, and enhanced convenience, many consumers are first relying on OTC products to fill their treatment needs. We believe that we can apply the clinical knowledge we’ve gained over the last ten years to design products that incorporate OTC pharmaceutical ingredients with our Spongilla technology to offer patients easy access to affordable and effective OTC treatments for acne, psoriasis, seborrheic dermatitis and other skin diseases and conditions. While this is a major shift in strategy for our company, we believe it is the best path forward to meet our mission of providing patients with efficacious and safe treatment options.

We are currently working with a branding agency to build a new brand identity for our OTC treatments, that represents our core values of providing patients skin care products that are natural but scientifically proven to work. We believe this new brand identity will bridge the gap between Rx therapies and OTC pharmaceutical products, allowing patients to take control of their skin care needs and feel confident about the treatment outcomes of the products we plan to offer. As part of this new brand identity, we will be developing visual and verbal identities that bring to life the core essence of the new brand, which incorporates scientifically backed technology that targets the underlying causes of skin diseases with a consumer-friendly approach. We want customers to experience the efficacy and safety we saw in our previous clinical studies and to feel proud of their skin after using our products. We plan to develop and distribute a variety of OTC products that are backed by science but are easily accessible by patients who are more comfortable treating their skin problems independently with readily available OTC therapies. Our core values will remain unchanged during this strategic shift as we strive to provide patients with affordable, safe, and effective treatment options, but now they can directly order our products rather than having to see a physician to be prescribed treatment. We believe patients are seeking greater flexibility and freedom in treating their skin as a majority of patients first turn to OTC products before seeing a dermatologist. With the continued regulatory oversight of the OTC marketplace, patients should maintain confidence in the OTC therapies they can purchase without a prescription.

We view this shift in consumer preferences as a significant benefit for the research we have completed to date. Over the past several years we have gained substantial knowledge of various dermatology diseases and what seems to work in treating these diseases. We plan to leverage this knowledge in creating a whole product line of skin care treatments that patients can access directly. We plan to launch our first product in the middle of 2026 which will consist of a once-weekly, topical acne kit that can be used by patients with mild, moderate, or severe acne. We have gained tremendous understanding of our Spongilla technology over the past 8 years and deeply understand the benefits of it being combined with OTC monograph active ingredients to topically treat a variety of dermatological conditions. Our Spongilla technology is derived from a naturally grown freshwater sponge, Spongilla lacustris or Spongilla, which is processed into a fine, purified powder and mixed with a fluidizing agent immediately prior to application by the patient. Spongilla is a unique freshwater sponge that only grows in commercial quantities in select regions of the world and under specific environmental conditions, all of which give our Spongilla technology its distinctive anti-microbial, anti-inflammatory, and mechanical properties. The combination of these environmental conditions, the proprietary harvesting protocols developed with our exclusive supplier, and our post-harvest processing procedures produce an ingredient that optimizes the mechanical components as well as the organic components, while eliminating any harmful bacteria that could be found in a freshwater sponge. We believe these unique components used in tandem with an OTC monograph active ingredient could produce a superior OTC product candidate unlike anything currently on the market. We plan for our product candidates to have multiple mechanisms of action for the treatment of skin diseases and conditions.

Prior to our strategic switch to develop and distribute OTC pharmaceutical products, our U.S. Food and Drug Administration (“FDA”) investigational new drug applicant, XYNGARI™, was intended to utilize our

SEC Form 10-Q filed by Dermata Therapeutics Inc.