10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2022

OR

☐ 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 001-37411

TIMBER PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware	59-3843182
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

110 Allen Road, Suite 410
Basking Ridge, NJ 07920
(Address of principal executive offices and zip code)
(908) 636-7163
(Registrant’s telephone number, including area code)

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 $0.001 per share	TMBR	The NYSE American, LLC

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, if any, 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 definition 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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class of Common Stock	Outstanding Shares as of August 9, 2022
Common Stock, $0.001 par value	132,451,180

TIMBER PHARMACEUTICALS, INC. & SUBSIDIARIES

Form 10-Q

For the Quarter Ended June 30, 2022

Table of Contents

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 (unaudited)	4
	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of the Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46
Item 4.	Controls and Procedures	46
PART II. OTHER INFORMATION		46
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Recent Sales of Unregistered Securities	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	48
Signatures		49

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Timber Pharmaceuticals, Inc. & Subsidiaries

Condensed Consolidated Balance Sheets

	June 30,		December 31,
	2022		2021
		(unaudited)
ASSETS
Current assets
Cash	$	8,273,728	$	16,808,539
Prepaid research and development		767,650		66,217
Other current assets		237,158		244,021
Total current assets		9,278,536		17,118,777
Deposits		127,534		127,534
Property and equipment, net		20,531		16,377
Right of use asset		482,986		638,786
Total assets	$	9,909,587	$	17,901,474
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	420,353	$	953,349
Accrued expenses		1,408,968		850,557
Lease liability, current portion		341,308		332,817
Short-term milestone payable due to Patagonia Pharmaceuticals LLC		2,250,000		—
Redeemable Series A preferred stock under redemption (Notes 5 and 9)		2,151,675		2,055,348
Total current liabilities		6,572,304		4,192,071
Note payable		—		37,772
Lease liability		163,985		331,152
Long-term milestone payable due to Patagonia Pharmaceuticals LLC		1,750,000		—
Other liabilities		73,683		73,683
Total liabilities		8,559,972		4,634,678
Commitments and contingencies (Note 7)
Stockholders' equity
Common stock, par value $0.001; 450,000,000 shares authorized; 63,753,834 shares issued and outstanding as of June 30, 2022, and 63,619,140 shares issued and outstanding as of December 31, 2021		63,754		63,619
Additional paid-in capital		42,739,793		42,087,719
Accumulated deficit		(41,453,932)		(28,884,542)
Total stockholders' equity		1,349,615		13,266,796
Total liabilities and stockholders' equity	$	9,909,587	$	17,901,474

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

3

Timber Pharmaceuticals, Inc. & Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Grant revenue	$	—	$	134,927	$	83,177	$	175,661
Milestone revenue		—		253,892		—		253,892
Total revenue		—		388,819		83,177		429,553
Operating costs and expenses
Research and development		3,891,500		1,800,100		5,410,459		2,649,618
Research and Development - Milestone expense for Patagonia Pharmaceuticals LLC		4,000,000		—		4,000,000		—
Selling, general and administrative		1,512,343		1,556,012		3,214,738		2,621,401
Total operating expenses		9,403,843		3,356,112		12,625,197		5,271,019
Loss from operations		(9,403,843)		(2,967,293)		(12,542,020)		(4,841,466)
Other income (expense)
Interest expense		(42,077)		—		(96,328)		—
Other income		—		—		75,000		—
Forgiveness of PPP loan		—		—		37,772		—
(Loss) gain on foreign currency exchange		(50,076)		1,090		(43,814)		1,003
Total other income (expense)		(92,153)		1,090		(27,370)		1,003
Provision for income taxes		—		—		—		—
Net loss		(9,495,996)		(2,966,203)		(12,569,390)		(4,840,463)
Dividends on Series A preferred stock		—		(36,286)		—		(72,173)
Net loss attributable to common stockholders	$	(9,495,996)	$	(3,002,489)	$	(12,569,390)	$	(4,912,636)
Basic and diluted net loss per share attributable to common stockholders	$	(0.15)	$	(0.08)	$	(0.20)	$	(0.14)
Basic and diluted weighted average number of shares outstanding		63,731,582		36,659,685		63,684,906		35,872,780

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

4

Timber Pharmaceuticals, Inc. & Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)

For the Three Months Ended June 30, 2022

								Total
	Common Stock			Additional		Accumulated		Stockholders'
	Shares	Amount		Paid-in Capital		Deficit		Equity (Deficit)
Balance at April 1, 2022	63,678,836	$	64,216	$	42,450,622	$	(31,957,936)	$	10,556,901
Stock-based compensation	74,998		75		283,852		—		283,927
Tax effect of net settlement of VARs	—		(537)		5,319		—		4,782
Net loss	—		—		—		(9,495,996)		(9,495,996)
Balance at June 30, 2022	63,753,834	$	63,754	$	42,739,793	$	(41,453,932)	$	1,349,615

For the Three Months Ended June 30, 2021

	Series A Preferred Stock			Common Stock			Additional		Accumulated		Total
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Stockholder's Equity
Balance at April 1, 2021	1,819	$	1,945,692	36,659,685	$	36,660	$	25,839,395	$	(20,119,656)		5,756,399
Accrued dividend Series A preferred stock	—		36,286	—		—		(36,286)		—		(36,286)
Stock-based compensation	—		—	—		—		49,433		—		49,433
Net loss	—		—	—		—		—		(2,966,203)		(2,966,203)
Balance at June 30, 2021	1,819	$	1,981,978	36,659,685	$	36,660	$	25,852,542	$	(23,085,859)		2,803,343

For the Six Months Ended June 30, 2022

								Total
	Common Stock			Additional		Accumulated		Stockholders'
	Shares	Amount		Paid-in Capital		Deficit		Equity (Deficit)
Balance at January 1, 2022	63,619,140	$	63,619	$	42,087,719	$	(28,884,542)	$	13,266,796
Stock-based compensation	74,998		75		652,134		—		652,209
Exercise of VARs	59,696		60		(60)		—		—
Net loss	—		—		—		(12,569,390)		(12,569,390)
Balance at June 30, 2022	63,753,834	$	63,754	$	42,739,793	$	(41,453,932)	$	1,349,615

5

For the Six Months Ended June 30, 2021

	Series A Preferred Stock			Common Stock			Additional		Accumulated		Total
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Stockholder's Equity
Balance at January 1, 2021	1,819	$	1,909,805	27,132,420	$	27,132	$	25,826,295	$	(18,245,396)	$	7,608,031
Accrued dividend Series A preferred stock	—		72,173	—		—		(72,173)		—		(72,173)
Exercise of Series A warrants	—		—	2,059,613		2,060		(2,060)		—		—
Exercise of Series B warrants	—		—	7,467,652		7,468		(7,468)		—		—
Stock-based compensation	—		—	—		—		107,948		—		107,948
Net loss	—		—	—		—		—		(4,840,463)		(4,840,463)
Balance at June 30, 2021	1,819	$	1,981,978	36,659,685	$	36,660	$	25,852,542	$	(23,085,859)	$	2,803,343

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

6

Timber Pharmaceuticals, Inc. & Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended June 30,
	2022		2021
Cash flows from operating activities
Net loss	$	(12,569,390)	$	(4,840,463)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		652,209		107,948
Amortization of right of use assets		155,800		125,567
Depreciation		1,793		175
Forgiveness of PPP loan		(37,772)		—
Non-cash Interest on redeemable preferred stock		96,328		—
Long-term milestone payable due to Patagonia Pharmaceuticals LLC		1,750,000		—
Changes in assets and liabilities:
Other receivable		—		(253,892)
Prepaid research and development		(701,434)		(2,459)
Other current assets		6,864		1,367
Deposits		—		(13,000)
Accounts payable		(532,997)		990,803
Accrued expenses		558,411		(199,929)
Lease liability		(158,676)		(118,872)
Current milestone payable due to Patagonia Pharmaceuticals LLC		2,250,000		—
Net cash used in operating activities		(8,528,864)		(4,202,755)
Cash flows from investing activities
Purchase of property and equipment		(5,947)		(16,903)
Net cash used in investing activities		(5,947)		(16,903)
Cash flows from financing activities
Net cash provided by financing activities		—		—
Net decrease in cash		(8,534,811)		(4,219,658)
Cash, beginning of period		16,808,539		10,348,693
Cash, end of period	$	8,273,728	$	6,129,035
Non-cash investing and financing activities:
Long-term milestone payable to Patagonia Pharmaceuticals LLC	$	1,750,000	$	—
Accrued Series A preferred stock dividend	$	—	$	72,173
Cashless exercise of Series A warrants	$	—	$	2,060
Cashless exercise of Series B warrants	$	—	$	7,468
Cashless exercise of VARs	$	60	$	—

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

7

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Organization and description of business operations

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

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, “Financial Statements and Supplementary Data,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Merger Agreement

On May 18, 2020, BioPharmX Corporation (“BioPharmX”) completed its business combination with Timber Pharmaceuticals LLC, a Delaware limited liability company (“Timber Sub”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of January 28, 2020 (the “Merger Agreement”), by and among BioPharmX, Timber Sub and BITI Merger, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), as amended by Amendment No. 1 thereto made and entered into as of March 24, 2020 (the “First Amendment”) and Amendment No. 2 thereto made and entered into as of April 27, 2020 (the “Second Amendment”) (the Merger Agreement, as amended by the First Amendment and the Second Amendment, the “Amended Merger Agreement”), pursuant to which Merger Sub merged with and into Timber Sub, with Timber Sub surviving as a wholly-owned subsidiary of the Company (the “Merger”). In connection with, and immediately prior to the completion of, the Merger, BioPharmX effected a reverse stock split of the Company’s common stock, par value $0.001 per share, at a ratio of 1-for-12 (the “Reverse Stock Split”). Immediately after completion of the Merger, BioPharmX changed its name to “Timber Pharmaceuticals, Inc.” and the officers and directors of Timber Sub became the officers and directors of the Company.

Under the terms of the Amended Merger Agreement, BioPharmX issued shares of common stock to the holders of common units of Timber Sub. Immediately after the Merger, there were approximately 11,849,031 shares of common stock outstanding (after the Reverse Stock Split). Pursuant to the terms of the Amended Merger Agreement, the former holders of common units of Timber Sub (including the Investors, as defined below, but excluding Value Appreciation Rights of Timber Sub (“VARs”), owned in the aggregate approximately 88.5% of the outstanding common stock, with the Company’s stockholders immediately prior to the Merger owning approximately 11.5% of the outstanding common stock. The number of shares of common stock issued to the holders of common units of Timber Sub for each common unit of Timber Sub outstanding immediately prior to the Merger was calculated using an exchange ratio of approximately 629.57 shares of common stock for each Timber Sub unit. In addition, the 584 VARs that were outstanding immediately prior to Merger became denoted and payable in 367,670 shares of common stock at the Effective Time of the Merger (the “Effective Time”). Further, the holder of the 1,819,289 preferred units of Timber Sub outstanding immediately prior to the Merger received 1,819 shares of the newly created convertible Series A preferred stock (the “Series A Preferred Stock”) at the Effective Time.

Securities Purchase Agreement

On May 18, 2020, Timber and Timber Sub completed a private placement transaction (the “Pre-Merger Financing”) with the Investors pursuant to the Securities Purchase Agreement for an aggregate purchase price of approximately $25.0 million (comprised of (i) approximately $5 million credit with respect to the senior secured notes issued in connection with the bridge loan that certain of the Investors made to Timber Sub at the time of the execution of the Merger Agreement and (ii) approximately $20 million in cash from the Investors).

8

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Pursuant to the Pre-Merger Financing, (i) Timber Sub issued and sold to the Investors common units of Timber Sub which converted pursuant to the exchange ratio in the Merger into an aggregate of approximately 4,137,509 shares (the “Converted Shares”) of common stock; and (ii) the Company agreed to issue to each Investor, on the tenth trading day following the consummation of the Merger, (A) Series A Warrants representing the right to acquire shares of common stock (“Series A Warrants”) equal to 75% of the sum of (a) the number of Converted Shares issued to the Investor, without giving effect to any limitation on delivery contained in the Securities Purchase Agreement, and (b) the number of shares of common stock underlying the Series B Warrants issued to the Investor (the “Series B Warrants”) and (B) the Series B Warrants. On June 2, 2020, pursuant to the terms of the Securities Purchase Agreement, the Company issued 8,384,764 Series A Warrants to purchase shares of common stock (“Series A Warrants”) and 7,042,175 Series B Warrants to purchase shares of common stock (“Series B Warrants”).

In addition, pursuant to the terms of the Securities Purchase Agreement, dated as of January 28, 2020 between Timber Sub and several of the Investors, the Company issued to such purchasers, on May 22, 2020, warrants to purchase 413,751 shares of common stock (the “Bridge Warrants”) which originally had an exercise price of $2.2362 per share.  As a result of the November 2021 Offering (as defined below), the exercise price of the Bridge Warrants was adjusted to $0.31 per share.

Investor Warrants

Series A Warrants

The Series A Warrants have an exercise price of $1.16 per share, were exercisable upon issuance and will expire on the day following the later to occur of (i) June 2, 2025, and (ii) the date on which the Series A Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable thereunder. As of June 30, 2022, the Series A Warrants are exercisable for 16,701,824 shares of common stock in the aggregate.

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

9

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Transaction, or, if the Fundamental Transaction is not publicly announced, the date the Fundamental Transaction is consummated.

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

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

On November 19, 2020, the Company entered into waiver agreements with each of the holders of the Company’s Series A Warrants. Pursuant to the waiver agreements the holders agreed to waive certain provisions in the Warrants in order to allow for one immediate and final reset of the number of shares of common stock underlying the Warrants and the exercise price of the Series A Warrants, and permanently waive the provisions providing for future resets of the number of shares of common stock underlying the Warrants and the exercise price of the Series A Warrants (other than the anti-dilution protection provisions in the Series A Warrants providing for adjustments to the exercise price of the Series A Warrants upon a dilutive issuance). As a result, the exercise price of the Series A Warrants was set at $1.16 per share and the number of shares underlying all of the Series A Warrants was set at 20,178,214.

Series B Warrants

The Series B Warrants had an exercise price of $0.001 per share, were exercisable upon issuance and were exercised in full on March 4, 2021. The Series B Warrants were exercisable for 22,766,776 shares of common stock in the aggregate.

Bridge Warrants

The Bridge Warrants were issued on May 22, 2020, to the Bridge Investors, had an exercise price of $2.2362 per share, were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Bridge Warrants are exercisable for 413,751 shares of common stock in the aggregate.  As a result of the November 2021 Offering (as defined below), the exercise price of the Bridge Warrants was adjusted to $0.31 per share.  Further, the exercise price of the Bridge Warrants was reduced to the offering price per share of the August 2022 Offering (as defined below) less the Black Scholes value of the common warrants issued in the August 2022 Offering.

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

Upon the consummation of a Fundamental Transaction by the Company, upon any exercise of a Bridge Warrant, the holder shall have the right to receive, for each share of common stock that would have been issuable upon such exercise immediately prior to the occurrence of a Fundamental Transaction, at the option of the holder (without regard to any

10

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

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

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

November 2021 Offering

On November 2, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC (“H.C. Wainwright”), as representative of the several underwriters named in Schedule I thereto, relating to the public offering, issuance and sale of 21,325,000 shares of common stock and, to certain investors, pre-funded warrants to purchase shares of common stock and accompanying warrants to purchase shares of common stock (the “November 2021 Offering”). After giving effect to the sale of additional shares pursuant to the exercise of the option by H.C. Wainwright that closed on November 9, 2021, the total number of shares of common stock (or common stock equivalents) sold by the Company in the offering was 26,953,125, together with warrants to purchase up to 26,953,125 shares of common stock (the “November Warrants”) issued at the closing on November 5, 2021, for total gross proceeds of $17.25 million before deducting underwriting discounts and commissions and other offering expenses, and net proceeds of approximately $15.8 million. As a result of the offering, the exercise price of the Bridge Warrants was adjusted to $0.31 per share.

Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a November Warrant to purchase one share of common stock. All of the securities sold in the offering were sold by the Company. The public offering price of each share of common stock and accompanying November Warrant was $0.64 and $0.639 for each pre-funded warrant and accompanying November Warrant. The pre-funded warrants were immediately exercisable at a price of $0.001 per share of common stock and were exercised in full on November 5, 2021. The November

11

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Warrants were immediately exercisable at a price of $0.70 per share of common stock and expire five years from the date of issuance. No November Warrants have been exercised as of June 30, 2022, or December 31, 2021, respectively.

Liquidity and Capital Resources

The Company has no product revenues, incurred operating losses since inception, and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable.  The Company had an accumulated deficit of approximately $41.5 million at June 30, 2022, a net loss of approximately $12.6 million, and approximately $8.5 million of net cash used in operating activities for the six months ended June 30, 2022.  As of June 30, 2022, the Company had cash of approximately $8.3 million.

Going Concern

The Company has evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q.  Based on such evaluation and the Company's current plans, which are subject to change, management believes that the Company's existing cash and cash equivalents as of June 30, 2022, were sufficient only to satisfy our operating cash needs into the fourth quarter of 2022.  Thus, the Company’s current cash on hand at June 30, 2022 was potentially not sufficient to satisfy our operating cash needs for the twelve months from the filing of this Quarterly Report on Form 10-Q.  The Company closed on a stock and warrant offering in August 2022 (see Note 9).  However, with the net proceeds of that offering, the Company’s cash and cash equivalents will be sufficient only to satisfy the Company’s operating cash needs into the second quarter of 2023.

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

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

● its ability to raise additional funds to finance its operations, including its ability to access financing that may be unavailable due to contractual limitations under the Securities Purchase Agreement;

● the outcome, costs and timing of clinical trial results for the Company’s current or future product candidates, including the timing, progress, costs and results of its Phase 3 clinical trial of TMB-001 for the treatment of congenital ichthyosis;

● the outcome, timing and cost of meeting regulatory requirements established by the U.S Food and Drug Administration (“FDA”) and other comparable foreign regulatory authorities;

● the emergence and effect of competing or complementary products, including the ability of the Company’s existing and future products to compete effectively;

● its ability to maintain, expand and defend the scope of its intellectual property portfolio, including the amount and timing of any payments the Company may be required to make, or that it may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

12

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

● the cost and timing of completion of commercial-scale manufacturing activities if any of its products are approved for commercial sale;

● the cost of establishing sales, marketing and distribution capabilities for its products in regions where it chooses to commercialize its products on its own;

● the initiation, progress, timing and results of the commercialization of its product candidates, if approved for commercial sale, if approved for commercial sale;

● its ability to retain its current employees and the need and ability to hire additional management and scientific and medical personnel; and,

● the terms and timing of any collaborative, licensing or other arrangements that it has or may establish.

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

The impact of the worldwide spread of a novel strain of coronavirus (“COVID-19”) has been unprecedented and unpredictable. Clinical trial activities, including patient enrollment can be impacted at any time. The Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world and its assessment of the impact of COVID-19 may change.

Note 2. Significant accounting policies

Basis of Presentation

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

The results for the unaudited condensed consolidated statement of operations are not necessarily indicative of results to be expected for the year ending December 31, 2022, or for any future interim period. The unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s unaudited condensed consolidated financial statements relate to the valuations of warrants, and equity-based awards. These estimates and assumptions are based on current facts, historical experience and various

13

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Reclassifications

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

Research and Development

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

Accrued Outsourcing Costs

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

Fair Value Measurement

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

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

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

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

14

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

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

As of June 30, 2022, and December 31, 2021, the recorded values of prepaid expenses, accounts payable and accrued expenses, approximate the fair values due to the short-term nature of the instruments.

Leases

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

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

Revenue Recognition

The Company has not yet generated any revenue from product sales. The Company’s source of revenue in 2022 and 2021 has been from grants and one milestone payment in 2021. When grant funds are received after costs have been incurred, the Company records grant revenue upon the receipt of cash.

Warrants

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

Stock-Based Compensation

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

15

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

based compensation costs are recorded in general and administrative or research and development costs in the consolidated statements of operations based upon the underlying individual’s role at the Company.

Series A Preferred Stock

The Series A Preferred Stock under redemption is subject to certain limitations under Delaware law. Each share of Series A Preferred Stock is convertible at any time at the holder’s option into a number of shares of common stock (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions as specified in the Certificate of Designations) at a conversion price equal to the stated value of the Series A Preferred Stock of $1,000 (plus any accrued dividends) divided by the conversion price of $18.054. Each share of Series A Preferred Stock is redeemable for cash at the option of the holders, in whole or in part.

On November 23, 2021, the Company received a request for redemption by TardiMed Sciences LLC (“TardiMed”) for the Series A Preferred Stock. The Company’s Series A Preferred Stock, was redeemable at December 31, 2021 subject to certain limitations under Delaware law, and was recorded at the redemption value of $2.1 million.  Interest is accrued on the unredeemed balance at 8%.  The Company has asserted that such right to redemption is currently limited under Delaware corporate law.  As a result of the request, the Series A Preferred Stock has been reclassified as a liability, Redeemable Series A Preferred Stock under redemption.  The Series A Preferred Stock will continue to accrue dividends but as a liability and dividends will be recorded prospectively as non-cash interest expense in the Consolidated Statement of Operations until such time as the Series A Preferred Stock is redeemed (See Notes 5 and 9).

Loss Per Share

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

To calculate the basic EPS numerator, income available to common stockholders must be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not declared) from income from continuing operations and also from net income. If there is a loss from continuing operations or a net loss, the amount of the loss shall be increased by those preferred dividends. The outstanding Series A Preferred Stock has cumulative dividends, whether or not declared.  Accordingly, the Company reduced the numerator for basic EPS by deducting/(increasing) the amount of cumulative preferred dividend from net income/(loss) in each period presented prior to the Company’s Series A Preferred Stock becoming redeemable.

The basic and diluted net loss amounts are the same for the three and six months ended June 30, 2022, and 2021, respectively, as a result of the net loss and anti-dilutive impact of the potentially dilutive securities. Potentially dilutive shares are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, value appreciation rights, and warrants. Potentially dilutive shares issuable upon conversion of the Series A Preferred Stock are calculated using the if-converted method.

16

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Basic and diluted loss per share:
Net (loss) income	$	(9,495,996)	$	(2,966,203)	$	(12,569,390)	$	(4,840,463)
Cumulative dividends on Series A preferred stock		—		(36,286)		—		(72,173)
Net (loss) income attributable to common stockholders	$	(9,495,996)	$	(3,002,489)	$	(12,569,390)	$	(4,912,636)
Basic and diluted weighted average number of shares outstanding		63,731,582		36,659,685		63,684,906		35,872,780
Basic and Diluted net (loss) per share attributable to common stockholders	$	(0.15)	$	(0.08)	$	(0.20)	$	(0.14)

Securities that could potentially dilute income per share in the future were not included in the computation of diluted loss per share for the three-month and six-month periods ended June 30, 2022, and 2021, respectively, because their inclusion would be anti-dilutive are as follows (unaudited):

	June 30,
	2022	2021
Series A warrants	16,701,824	16,701,824
Bridge warrants	413,751	413,751
Value appreciation rights	227,277	367,671
Options to purchase common stock	2,657,640	184,456
Series A preferred stock (if converted)	116,849	100,753
Legacy stock options	15,781	15,781
Legacy warrants	211,770	219,928
Warrants issued in the November 2021 Financing	26,953,125	—
Restricted Stock Units	375,002	—
	47,673,019	18,004,164

Income taxes

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

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

The Company made state income tax payments of $12,231 and $2,000 during the three-month and six-month periods ended June 30, 2022 and 2021, respectively.

17

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Recent accounting pronouncements

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company adopted ASU 2020-06 as of January 1, 2022, and adoption did not have a material the Company’s financial statements or related disclosures.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2021-04 as of January 1, 2022, and adoption did not have a material impact on the Company’s financial statements or disclosures.

Note 3. Purchases of Assets

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

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

Upon closing of the TMB-001 Acquisition, the Company paid a one-time upfront payment of $50,000 to Patagonia. Patagonia is entitled to up to $27.0 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-001, with the first being $4.0 million for the initiation of a Phase 3 pivotal trial, as agreed with the FDA and defined as the first patient enrolled in such trial for the product. In addition, Patagonia is entitled to net sales earn-out payments ranging from low single digits to mid-double digits. The Company is responsible for all development activities. The first regulatory and commercial milestone was reached in June 2022, and as such the first $4.0 million milestone payment has been accrued at June 30, 2022. There were no milestone payments accrued at December 31, 2021, because the potential regulatory and commercial milestones were not considered probable.

On July 20, 2022, the Company entered into an amendment to the Asset Acquisition Agreement with Patagonia (the “Amendment”). Pursuant to the Amendment, the Company and Patagonia agreed to extend the time for Company’s payment of the first milestone payment, which became payable upon the Company commencing patient enrollment in its Phase 3 ASCEND clinical trial in the second quarter of 2022. The first milestone payment is now payable by the Company

18

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

in two tranches, with $2.25 million due on September 1, 2022 and $1.75million plus an additional $0.315 million for a total of $2.065 million due on September 1, 2023. Further, the Company granted Patagonia a security interest in TMB-001 and certain other assets.

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

Upon closing of the TMB-003 Acquisition, the Company paid a one-time upfront payment of $20,000 to Patagonia. Patagonia is entitled to up to $10.25 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-003, with the first being a one-time payment of $250,000 upon the opening of an IND with the FDA. In addition, Patagonia is entitled to net sales earn-out payments ranging from low to mid-single digits. The Company is responsible for all development activities. The potential regulatory and commercial milestones are not yet considered probable, and therefore no milestone payments have been accrued at June 30, 2022, and December 31, 2021, respectively.  

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

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

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

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

Pursuant to the AFT License Agreement, the Company was obligated to reimburse AFT for previously spent development costs, subject to certain limitations, and to pay a one-time, irrevocable, and non-creditable upfront payment to AFT, payable in scheduled installments which was paid in 2020.

AFT is entitled to up to $25.5 million of cash milestone payments if TMB-002 achieved certain regulatory and commercial milestones, with the first payment of $1.0 million upon the successful completion of a Phase 2b trial defined as the achievement of the trial’s primary clinical endpoints.  In addition, AFT was entitled to net sales royalties ranging from high single digits to low double digits for the program licensed. The potential regulatory and commercial milestones were not considered probable as of June 30, 2022, and therefore no milestone payments have been accrued at June 30, 2022, and December 31, 2021, respectively.    

19

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

On April 4, 2022, Nobelpharma America LLC (“Nobelpharma”) announced that the U.S. Food and Drug Administration (FDA) had approved HYFTOR™ (sirolimus topical gel) 0.2% as the first topical treatment indicated for facial angiofibroma associated with tuberous sclerosis complex in adults and children six (6) years of age or older. Nobelpharma’s formulation has orphan drug status for this indication. As the Company’s product TMB-002, a topical rapamycin cream, is intended for treatment of the same indication, the Company does not intend to proceed with a pivotal Phase 3 clinical trial of TMB-002 in facial angiofibromas at this time, but instead may evaluate potential strategic opportunities for the asset in markets outside of the U.S. and/or other indications.

On July 23, 2022, the Company provided written notice to AFT of its decision to terminate the AFT License Agreement because the Company believes there is no longer a commercially reasonable path to approval and commercialization for TMB-002 in the United States for facial angiofibromas associated with tuberous sclerosis complex. Additionally, following the receipt and analysis of topline data for the Phase II Clinical Trial (as defined in the AFT License Agreement) it was determined that the study failed to meet its primary efficacy endpoint. Under the AFT License Agreement, the Company was required to provide 120 days’ prior written notice of termination to AFT which was waived by AFT on July 25, 2022 (the “Termination Date”). On the Termination Date, the rights and licenses to TMB-002 reverted to AFT, among other things, as set forth in the AFT License Agreement. As the agreement with AFT has been terminated we will no longer receive any royalties or milestones for any transactions under this agreement.

Other

The Company disbursed approximately $2.225 million for a prepaid CRO payment for the start of its Phase 3 ASCEND study evaluating TMB-001 in CI in April 2022. Approximately $617,000 of this payment remains in prepaid research and development at June 30, 2022.

Note 4. Accrued Expenses

As of June 30, 2022 and December 31, 2021, the Company’s accrued expenses consisted of the following:

	June 30,		December 31,
	2022		2021
Research and development	$	637,060	$	77,118
Professional fees		329,566		210,343
Personnel expenses		421,857		502,180
Other		20,485		60,916
Total	$	1,408,968	$	850,557

Note 5. Stockholder’s Equity

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

20

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Series B Warrants

During the six months ended June 30, 2021, the remaining Series B Warrants outstanding totaling 7,474,033 were exercised on a cashless basis, and the Company issued 7,467,652 shares of its common stock.  

	Shares	Weighted		Aggregate
	Underlying	Average		Intrinsic
	Warrants	Exercise Price		Value
Outstanding as of January 1, 2020	7,474,033	$	0.001	$	7,474
Exercised	(7,474,033)	$	0.001		—
Outstanding and exercisable as of June 30, 2021	—	$	—	$	—

Series A Warrants

During the six months ended June 30, 2021, 3,476,390 Series A Warrants were exercised on a cashless basis, and the Company issued 2,059,613 shares of its common stock. The following is a summary of Series A Warrants outstanding as of June 30, 2022:

				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Outstanding as of December 31, 2021	20,178,214	$	1.16	3.4		—
Outstanding and exercisable as of June 30, 2022	20,178,214	$	1.16	2.9	$	—

Bridge Warrants

The following table summarizes the Company’s Bridge Warrants for the six months ended June 30, 2022:

				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Outstanding as of December 31, 2021	413,751	$	0.31	3.4	$	28,963
Outstanding and exercisable as of June 30, 2022	413,751	$	0.31	3.1	$	2,069

November 2021 Warrants

No warrants have been exercised as of June 30, 2022, or December 31, 2021 (See Note 1).

The following table summarizes the Company’s November Warrants for the six months ended June 30, 2022:

				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Outstanding as of December 31, 2021	26,953,125	$	0.70	4.8	$	—

21

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Outstanding and exercisable as of June 30, 2022 26,953,125 $ 0.70 4.4 $ —

Redeemable Series A Preferred Stock

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

Pursuant to the Certificate of Designations, the Company designated 2,500 shares of the Company’s previously undesignated preferred stock as Series A Preferred Stock. The shares of Series A Preferred Stock have no voting rights. The holders of the Series A Preferred Stock are entitled to cumulative dividends from an after the date of issuance at a per annum of eight percent (8.0%) of the stated value. Dividends will be payable as and if declared by the Board out of amounts legally available therefore or upon a liquidation or redemption. Each share of Series A Preferred Stock is convertible at any time at the holder’s option into a number of shares of common stock (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions as specified in the Certificate of Designations) at a conversion price equal to the stated value of the Series A Preferred Stock of $1,000 (plus any accrued dividends) divided by the conversion price, or $18.054. Holders of the Series A Preferred Stock are entitled to a liquidation preference in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company. In addition, upon a Change of Control, the Series A Preferred Stock shall be redeemable for cash at the option of the holders, in whole or in part.

As of May 18, 2020, pursuant to the Merger Agreement, the holder of 1,819,289 preferred units of Timber Sub outstanding immediately prior to the Merger, received 1,819 shares of newly created convertible Series A Preferred Stock. The Company’s Series A Preferred Stock, as to which the holder has demanded redemption, was redeemable at December 31, 2021, subject to certain limitations under Delaware law, and was recorded at the redemption value of approximately $2.2 million at June 30, 2022, and $2.1 million at December 31, 2021, respectively.  Interest is accrued on the unredeemed balance at 8.0% annually.  

On November 23, 2021, the Company received a request for redemption by TardiMed for the Series A Preferred Stock.  The Company has asserted that such right to redemption is currently limited under Delaware corporate law.  As a result of the request, the convertible Series A Preferred Stock was reclassified as a liability, Redeemable Series A Preferred Stock under redemption.  The Series A Preferred Stock will continue to accrue dividends but as a liability, the dividends will be recorded prospectively as non-cash interest expense in the Condensed Consolidated Statement of Operations until such time as the Series A Preferred Stock is redeemed.  The Company recognized non-cash interest expense of $42,077, during the three months ended June 30, 2022, and $96,328 in non-cash interest expense for the six months ended June 30, 2022 and $36,286 and $72,173 of non-cash dividends, for the three months and six months ended June 30, 2021, respectively.  As result of the reclassification interest is now recorded in the Consolidated Statement of Operations rather than additional-paid-in-capital (see Note 9).

22

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 6. Equity-based compensation

On May 18, 2020, the Company’s 2020 Omnibus Equity Incentive Plan (the “2020 Plan”) became effective, and the 2020 Plan reserved a total of 970,833 shares of common stock for issuance. The 2020 Plan provides for options to purchase shares of common stock, stock appreciation rights, restricted stock units, restricted or unrestricted shares of common stock, performance shares, performance units, incentive bonus awards, other stock-based awards and other cash-based awards. Options granted generally vest over a period of three years and have a maximum term of ten years from the date of grant. On April 20, 2021, the Board of Directors of the Company approved an amendment increasing the number of shares available for issuance under the 2020 Plan from 2,056,130 to 4,668,319, which was approved by the Company’s stockholders on July 1, 2021. In accordance with the “evergreen” provision in the 2020 Plan, an additional 2,544,765 shares of common stock were automatically made available for issuance on the first day of 2022, which represents 4% of the number of shares of common stock outstanding on December 31, 2021.  As of June 30, 2022, 7,213,084 shares of common stock were reserved for issuance under the 2020 Plan and there are 2,133,697 shares available for issuance at June 30, 2022.

Furthermore, as a result of the Merger, the Company assumed the TardiMed 2019 Equity Incentive Plan (the “2019 Plan”) from Timber Sub. The 2019 Plan permits the granting of incentive units (the “Incentive Units”). The maximum aggregate Incentive Units that may be subject to awards and issued under the Plan is 699,454. At June 30, 2022, Incentive Units outstanding under the 2019 Plan were 227,275 units and 359,486 units as of December 31, 2021, all comprised of VARs.

During the three and six months ended June 30, 2022 and 2021, respectively, equity-based compensation expenses were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
General and administrative value appreciation right awards	$	5,847	$	12,247	$	(4,906)	$	25,468
Research and development value appreciation right awards		—		549		—		1,092
General and administrative stock options		157,720		36,637		493,499		81,388
Research and development stock options		51,009		—		94,266		—
General and administrative restricted stock units		69,350				69,350
	$	283,926	$	49,433	$	652,209	$	107,948

Value Appreciation Rights

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

23

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

During the three months and six months ended June 30, 2022, there were no grants of VARs, 52,884 VARs were forfeited, and 79,326 VARs were exercised.  There were no grants, forfeitures or VARs exercised during the three and six months ended June 30,, 2021. The following is a summary of VARs outstanding as of June 30, 2022:

						Weighted
						Average
		Weighted				Remaining
		Average		Total Intrinsic		Contractual Life
	Number of Units	Exercise Price		Value		(in years)
Outstanding as of December 31, 2021	359,487	$	0.01	$	136,038	7.6
Exercised	(79,326)	$	0.01			-
Forfeited	(52,884)	$	0.01			-
Outstanding as of June 30, 2022	227,277	$	0.01	$	69,319	7.0
Value appreciation right awards vested and exercisable at June 30, 2022	101,991	$	0.01	$	31,107	7.3

As of June 30, 2022, 2022, the unrecognized compensation costs were approximately $0.02 million, which will be recognized over an estimated weighted-average amortization period of 0.3 years.

Stock Options

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

During the three and six months ended June 30, 2022, the Company granted 1,704,000 stock options to purchase common stock to its executive officers, non-employee directors and employees.  The options vest over a period of two to four years.    

No stock options were granted during the three and six-month periods ended June 30, 2021, respectively.

The following is a summary of the options outstanding as of June 30, 2022:

				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Options	Exercise Price		Term (Years)	Value
Outstanding at December 31, 2021	2,696,473	$	1.09	9.6		—
Granted	1,704,000		0.31
Forfeited	(38,833)		2.87	-
Outstanding at June 30, 2022	4,361,640	$	0.77	9.4	$	13,632
Exercisable at June 30, 2022	574,738	$	1.24	9.0	$	—

24

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

As of June 30, 2022, the unrecognized compensation costs related to stock options were approximately $0.8 million, which will be recognized over an estimated weighted-average amortization period of 1.24 years.

The following was used in determining the fair value of stock options granted during the three and six months ended      June 30, 2021:

	Three and
	Six Months Ended
	June 30,
	2022
Expected life	5-7 years
Expected volatility	73.50%
Risk-free interest rate	2.79% -2.83%
Expected dividend yield	—

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

				Weighted
	Shares			Average
	Underlying	Weighted		Remaining	Aggregate
	Options and	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Legacy BioPharmX options - June 30, 2022	15,781	$	75.27	0.9	$	—
Legacy BioPharmX warrants - December 31, 2021	213,992	$	87.21	1.8	$	—
Expired	(2,222)	$	225.00	—		—
Legacy BioPharmX warrants - June 30, 2022	211,770	$	85.77	1.3	$	—

Restricted Stock Units

During the quarter ended June 30, 2022, the Company issued Restricted Stock Units (RSUs).  The fair value of the grant is the value of the Company’s stock price at the date of grant multiplied by the number of units.  The RSUs vest monthly and are immediately converted into company stock on the vesting dates.  The Company issued 450,000 RSUs in the three-month period ended June 30, 2022.  The following is a summary of the RSUs outstanding at June 30, 2022:

				Weighted
	Shares			Average
	Underlying			Remaining	Aggregate
	Restricted	Grant Date		Contractual	Intrinsic
	Stock Units	Fair Value		Term (Years)	Value
Outstanding at December 31, 2021	—	$	—	—	$	—
Granted	450,000	$	0.31	1.0		139,500
Vested	(74,998)	$	0.31	—	$	—
Unvested at June 30, 2022	375,002	$	0.31	0.8	$	116,251

25

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 7. Commitments and contingencies

Leases

On March 10, 2021, the Company entered into a lease agreement with SIG 110 LLC with respect to a 3,127 square foot office space at 110 Allen Road, Suite 401, Basking Ridge, New Jersey. Pursuant to the terms of the lease agreement, the initial term is for twenty-four (24) months expiring on March 10, 2023. The initial base rent is $4,690.50 per month for the first twelve (12) months and $6,514.58 for the remaining twelve (12) months. During the six months ended June 30, 2021, in connection with the lease, the Company paid a security deposit of $13,000, which is included in deposits on the accompanying condensed consolidated balance sheet as of June 30, 2022.

In connection with the Merger of BioPharmX, the Company acquired a lease and corresponding sublease for the BioPharmX facility in San Jose, California. The sublease is to be used for general office and research laboratory purposes, has an effective date of February 1, 2020, and has a lease term of 4 years which expires on December 30, 2023. The lease expense is significantly reduced by the payments received in connection with the sublease.

The components of lease expense were as follows:

	Three months ended		Six Months Ended
		June 30, 2022
Operating leases:
Operating lease cost	$	99,143	$	198,285
Variable lease cost		23,926		42,351
Operating lease expense	$	123,069	$	240,636
Lease income - sub lease		(106,761)		(213,522)
Net rent expense	$	16,308	$	27,114
	Three months ended		Six Months Ended
		June 30, 2021
Operating leases:
Operating lease cost	$	99,142	$	185,273
Variable lease cost		26,760		52,151
Operating lease expense	$	125,902	$	237,424
Lease income - sub lease		(108,256)		(211,563)
Net rent expense	$	17,646	$	25,861

Other information:

	Six Months Ended
		June 30, 2022			June 30, 2021
Operating cash flows - operating leases	$	201,134		$	178,577
Right-of-use assets obtained in exchange for operating lease liabilities	$	—		$	122,809
Weighted-average remaining lease term – operating leases		1.4			2.4
Weighted-average discount rate – operating leases		14.3	%		14.1	%

26

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

As of June 30, 2022, future minimum payments for the leases are as follows:

	Operating
	Leases
Six Months Ended December 31, 2022	$	205,372
Year Ended December 31, 2023		357,599
Total	$	562,971
Less present value discount		(57,677)
Operating lease liabilities	$	505,294

Litigation

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

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

Note 8. Related Party Transactions

Patagonia

Patagonia is a private, family-owned company founded in 2013 to address the medical needs of people with rare and serious dermatological conditions. On February 28, 2019, and June 26, 2019, the Company acquired the TMB-001 and TMB-003 licenses from Patagonia (see Notes 3 and 9 for the payment terms and more details), respectively. Zachary Rome, a former member of the board of directors as well as the former Chief Operating Officer, Executive Vice-President and Secretary of the Company is also the President of Patagonia. As of June 30, 2022, and December 31, 2021, Patagonia owns 45 shares of the Company’s common stock.

On March 4, 2022, Mr. Rome stepped down from his positions as Chief Operating Officer and Executive Vice-President  of the Company. As a result of his resignation, Mr. Rome (i) was entitled to 79,326 shares of common stock underlying vested VARs, or $22,528, at the Company’s election, and (ii) forfeited 52,884 VARs. On March 4, 2022, Mr. Rome received 59,696 shares of common stock net upon exercise of the VARs after tax withholding.

TardiMed

The former Chairman of the Board of the Company is a Managing Member of TardiMed. Mr. Rome, a former member of the board of directors as well as the former Chief Operating Officer, Executive Vice President and Secretary is a partner at TardiMed.  Our Chief Financial Officer, Treasurer, Secretary, and Executive Vice President of the Company was also a former partner of TardiMed. As of June 30, 2022, TardiMed holds 3,109,067 shares of common stock, which represents approximately 4.9% of the total voting shares outstanding.  The Company had no reimbursements to TardiMed in the three and six-month periods ended June 30, 2022, and reimbursed TardiMed $63,936 for management fees and reimbursed

27

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

expenses in the six-month period ended June 30, 2021.  As of June 30, 2022, TardiMed holds 1,819 shares of Series A Preferred Stock (see Notes 5 and 9).

28

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 9. Subsequent Events

The Company has evaluated its subsequent events from June 30, 2022, through the date these condensed consolidated financial statements were issued and has determined that there are no subsequent events requiring disclosure in these condensed consolidated financial statements other than the items noted below.

On July 20, 2022, the Company entered into the Amendment to the Asset Acquisition Agreement with Patagonia (the “Amendment”). Pursuant to the Amendment, the Company and Patagonia agreed to extend the time for Company’s payment of the first milestone payment, which became payable upon the commencement of patient enrollment in our Phase 3 ASCEND clinical trial in the second quarter of 2022. The Company’s first milestone payment is now payable in two tranches, with $2.25 million due on September 1, 2022 and $1.75 million and $0.315million for a total of $2.065 million due on September 1, 2023. Further, the Company granted Patagonia a security interest in TMB-001 and certain other assets.

On July 27, 2022, the Company, entered into a letter agreement (the “Letter Agreement”) with TardiMed pursuant to which TardiMed agreed to exchange its 1,819 shares of the Company’s Series A Preferred Stock (the “Series A Preferred Stock”) plus accrued dividends for a pre-funded warrant (the “Warrant”) to purchase 9,054,132 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”).  The number of shares underlying the Warrant is based on the redemption price of the Series A Preferred Stock (which had been demanded by TardiMed) divided by $0.239, the last closing price of the Common Stock prior to the date the Letter Agreement was executed.

Twenty percent of the Warrant is immediately exercisable upon issuance. Beginning on September 30, 2022, and then at the end of each subsequent calendar quarter upon written request of TardiMed, the Company will allow an additional 20% of the initial balance of the Warrant to become exercisable, provided that only 20% of the initial balance of the Warrant will be exercisable in any given quarter. The Warrant’s exercise price is $0.0001 and may be exercised on a cashless basis. The Warrant will terminate when exercised in full. On August 3, 2022, 20% of the Warrant was exercised on a cashless basis and 1,809,280 shares of Common Stock were issued to TardiMed.

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

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

29

Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In August 4, 2022, the Company announced the pricing of the public offering (the “August 2022 Offering”) of (i) 46,583,333 shares (the “Shares”) of Common Stock, (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 20,083,334 shares of Common Stock (the “Pre-Funded Warrant Shares”) and (iii) common warrants (the “Common Warrants”) to purchase up to an aggregate of 66,666,667 shares of Common Stock (the “Common Warrant Shares” and, together with the Pre-Funded Warrant Shares, the “Warrant Shares”). Each Share and Pre-Funded Warrant to purchase one share of Common Stock was sold together with a Common Warrant to purchase one share of Common Stock. All of the securities sold in the August 2022 Offering were sold by the Company. The public offering price of each Share and accompanying Common Warrant was $0.12 and $0.1199 for each Pre-Funded Warrant and accompanying Common Warrant. The Pre-Funded Warrants were immediately exercisable at a price of $0.0001 per share of Common Stock and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. The Common Warrants are immediately exercisable at a price of $0.12 per share of Common Stock and will expire five years from the date of issuance. The Shares and Pre-Funded warrants, and the accompanying Common Warrants, were issued separately and were immediately separable upon issuance. The August 2022 Offering closed on August 8, 2022. All of the Pre-Funded Warrants were exercised, and none remain outstanding.

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

30

Item 2. Financial Information.

Management’s Discussion and Analysis of the 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 and with our audited consolidated financial statements (and notes thereto) for the year ended December 31, 2021

included in our Annual Report on Form 10-K filed with the SEC, particularly those under “Risk Factors.”  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. Additionally, many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the COVID-19 pandemic. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 and history of operating losses;

● our current and future capital requirements and our ability to satisfy our capital needs, including our ability to access financing that may be unavailable due to contractual limitations under the Securities Purchase Agreement (as defined below);

● the dilutive effect of our outstanding convertible securities:

● our ability to successfully complete required clinical trials of our products and obtain approval from the U.S. Food and Drug Administration (“FDA”) or other regulatory agents in different jurisdictions;

● the potential impact of outbreaks of communicable diseases, including the COVID-19 pandemic, and adverse global conditions, including political and economic uncertainty on our business, financial conditions, and results of operations, including on our clinical development plans and timelines;

● the outcome, costs and timing of clinical trial results for our current or future product candidates;

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

● the volatility of the price of our common stock;

● our ability to retain key executives;

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

31

● acceptance of our products in our industry;

● the emergence and effect of competing or complementary products, including the ability of our existing and future products to compete effectively;

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

● our ability to adequately support growth.

Trademarks

This Quarterly Report on Form 10-Q includes trademarks, service marks, and trade names owned by us or other companies. All trademarks, service marks, and trade names included in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

ADDITIONAL NOTES

● Timber Pharmaceuticals, Inc. and its consolidated subsidiaries are referred to herein as “Timber,” the “Company,” “we,” “us,” and “our,” unless the context indicates otherwise.

● Amounts and percentages throughout this Quarterly Report on Form 10-Q may reflect rounding adjustments and consequently totals may not appear to sum.

Overview

Timber Pharmaceuticals, Inc. (“Timber”, the “Company”, “we”, “us”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of treatments for orphan dermatologic diseases. Our investigational therapies have proven mechanisms-of-action backed by decades of clinical experience and well-established CMC (chemistry, manufacturing and control) and safety profiles. We are initially focused on developing non-systemic treatments for rare dermatologic diseases including congenital ichthyosis (“CI”), facial angiofibromas (“FAs”) in tuberous sclerosis complex (“TSC”), and other sclerotic skin diseases. Our lead late-stage program is TMB-001. TMB-003 is our earliest stage program.

TMB-001

TMB-001, a patented topical formulation of isotretinoin using our patented IPEG™ delivery system, completed its Phase 2b clinical trial (the CONTROL study) in the fourth quarter of 2021, for the treatment of moderate to severe subtypes of CI, a group of rare genetic keratinization disorders that lead to dry, thickened, and scaling skin. This study demonstrated a clinically meaningful reduction in targeted and overall severity of CI along with a favorable safety profile.  A prior Phase 1/2 study involving 19 patients with CI demonstrated safety and a signal of preliminary efficacy of TMB-001, as well as minimal systemic absorption.  The U.S. Food and Drug Administration (“FDA”) (through its Orphan Products Grant program) awarded us a $1.5 million grant to support clinical trials evaluating TMB-001.

On October 7, 2021, we announced the completion of our Phase 2b trial in CI. The Phase 2b CONTROL study was a randomized, double-blind, vehicle-controlled study designed to assess the efficacy and safety of two concentrations of TMB-001 (0.05% and 0.1% isotretinoin) for the treatment of two distinct subtypes of moderate-to-severe CI (X-linked recessive and lamellar ichthyosis) in patients (n=33) three years old or older. Subjects applied TMB-001 twice daily for 12 weeks. The primary endpoint was the reduction of targeted ichthyosis severity, determined by a 50 percent or greater reduction in the validated Visual Index for Ichthyosis Severity (“VIIS”) scaling score (or VIIS-50), a clinically meaningful change. Secondary endpoints included reduction in overall ichthyosis severity, as measured by a two-point improvement using the (IGA) scale, also considered to be a clinically relevant improvement. The study was not designed or powered for statistical analysis of the endpoints and was intended to provide information for future development.

32

Top-line results including descriptive statistics are described below:

● In the per protocol (the “PP”) population, 100 percent (nominal p= 0.04) and 40 percent (nominal p= ns) of patients treated with TMB-001 0.05% and 0.1%, respectively, achieved VIIS-50 compared to 40 percent in the vehicle group.

● In the intent to treat (the “ITT”) population, 64 percent (nominal p= 0.17) and 40 percent (nominal p= ns) of patients treated with TMB-001 0.05% and 0.1%, respectively, achieved VIIS-50 compared to 33 percent in the vehicle group.

● In the PP population, 100 percent (nominal p= 0.002) and 60 percent (nominal p=ns) of patients treated with TMB-001 0.05% and 0.1%, respectively, achieved a ≥2 point improvement in the IGA at week 12 compared to 10 percent in the vehicle group.

● In the ITT population, 55 percent (nominal p= 0.02) and 40 percent (nominal p=ns) of patients treated with TMB-001 0.05% and 0.1%, respectively, achieved a ≥2 point improvement in the IGA at week 12 compared to 8 percent in the vehicle group.

● TMB-001 was generally well tolerated with a similar incidence of adverse events (Aes) across treatment groups. The most frequent Aes were local adverse effects common for such topical treatments. There were no treatment-related serious adverse events (SAE).

On February 3, 2022, we announced the successful completion of an End-of-Phase 2 meeting with the FDA that resulted in a clear path to progress to a pivotal Phase 3 study for TMB-001. The clinical development program for TMB-001 includes a Phase 3 study with an efficacy arm and a maximum use pharmacokinetic arm as well as a smaller bridging study required to bridge to the oral reference product. Based on FDA feedback at the End-of-Phase 2 meeting, we  initiated a pivotal Phase 3 study of TMB-001 in the second quarter of 2022.

On March 25, 2022, we announced a late-breaking presentation of a sub-analysis of the Company’s Phase 2b CONTROL study that evaluated TMB-001 was made by a third party at the American Academy of Dermatology 2022 Annual Meeting. The sub-type analysis found that TMB-001 0.05% demonstrated a substantially greater proportion of patients achieving VIIS-50 and ≥2-grade IGA improvement compared with vehicle regardless of subtype.  Among enrolled patients (TMB-001 0.05% [n=11], 0.1% [n=10], and vehicle [n=12]), 55% had autosomal recessive CI lamellar ichthyosis (ARCI-LI) and 45% % X-linked recessive ichthyosis (XLRI) subtypes.

On April 7, 2022, we received a notice of allowance from the Korean Intellectual Property Office for a patent application covering TMB-001 (Application Number: 10-2018-7014948). Additional patents are pending for TMB-001 in several other countries.

On April 28, 2022, we announced the FDA granted Fast Track designation to TMB-001 for the treatment of XLRI and ARCI-LI.

On May 31, 2022, we announced that the U.S. Food and Drug Administration (FDA) has granted Breakthrough Therapy designation to TMB-001, a topical isotretinoin formulated using the Company’s patented IPEG™ delivery system, for the treatment of CI.

On June 2, 2022, we filed a divisional Korean patent application covering claims to additional subject matter in view of the Korean Patent Application Number:  10-2018-7074948 to issue on June 3, 2022.

On June 3, 2022, TMB-001 Korean Patent Application Number:  10-2018-7074948 was issued as Korean Patent Number:  10-2406880.

On June 23, 2022, we announced that the first four patients have been enrolled in the pivotal Phase 3 ASCEND clinical trial.

33

On June 30, 2022, we received a notice of allowance from the United States Patent and Trademark Office for a patent application covering TMB-001 (Application Number: 16/875,710) covering claims to the uses and methods of treating congenital ichthyosis and administering isotretinoin.

On July 13, 2022, we paid the issue fee for the allowed TMB-001 Application Number: 16/875,710 and we filed a US continuation patent application covering claims to additional subject matter.

TMB-002

TMB-002, a proprietary topical formulation of rapamycin, is currently being evaluated in a Phase 2b clinical trial for the treatment of FAs in TSC, a multisystem genetic disorder resulting in the growth of hamartomas in multiple organs. TSC results from dysregulation in the mTOR pathway, and as a topical mTOR inhibitor, TMB-002, marketed under the brand name Pascomer, may address FAs in TSC without the level of systemic absorption of an oral agent.  As of April 30, 2022, recruitment had been finalized on the TMB-002 Phase 2b trial with a total of 114 consented (108 randomized) patients.  

On March 17, 2021, we announced that AFT Pharmaceuticals Limited (“AFT”), our development partner for TMB-002, entered into a license and supply agreement with Desitin Arzneimittel GmbH (“Desitin”) for Pascomer for the treatment of FAs associated with TSC in Europe. Pursuant to our licensing and development agreement, we are entitled to receive 50% of the economics (royalties and milestones) in any licensing transaction that AFT executes outside of North America, Australia, New Zealand, and Southeast Asia.

On April 4, 2022, Nobelpharma America LLC (“Nobelpharma”) announced that the FDA has approved HYFTOR™ (sirolimus topical gel) 0.2% as the first topical treatment indicated for FAs associated with TSC in adults and children six (6) years of age or older.  The approval of this program in the United States and the protection granted under the Orphan Drug Act represent a major shift in the commercial opportunity and environment for TMB-002.  As TMB-002 is intended for treatment of the same indication, we do not intend to proceed with a pivotal Phase 3 clinical trial of TMB-002 in FAs at this time.  

On July 23, 2022, we provided written notice to AFT of our decision to terminate the AFT License Agreement, dated as of July 5, 2019, by and between the Subsidiary and AFT (the “AFT License Agreement”) because we believe there is no longer a commercially reasonable path to approval and commercialization for TMB-002 in the United States for FAs associated with TSC. Additionally, following the receipt and analysis of topline data for the Phase II Clinical Trial (as defined in the AFT License Agreement) it was determined that the study failed to meet its primary efficacy endpoint. Under the AFT License Agreement, we were required to provide 120 days’ prior written notice of termination to AFT which was waived by AFT on July 25, 2022 (the “Termination Date”). On the Termination Date, the rights and licenses to TMB-002 reverted to AFT, among other things, as set forth in the AFT License Agreement.

TMB-003

The earliest stage product in our pipeline is TMB-003, a proprietary formulation of Sitaxsentan, a new chemical entity in the U.S., which is a selective endothelin-A receptor antagonist.  It is currently in preclinical development as a locally applied formulation for the treatment of sclerotic skin diseases.  The two disease areas under consideration include Lichen Sclerosis a rare chronic disease of vulvae and perianal areas, and Localized Scleroderma, a chromic connective tissue disease that also affects other organ systems.

On January 12, 2021, we announced that the FDA has granted orphan drug designation for TMB-003, our locally delivered formulation of Sitaxsentan, for the treatment of Systemic Sclerosis.  We are considering pursuing additional orphan drug designations in other indications in the future.

BPX-01 and BPX-04

In connection with the merger with BioPharmX Corporation (“BioPharmX”) on May 18, 2020, we acquired the BPX-01 and BPX-04 assets. BPX-01 is a Phase 3 ready topical minocycline for the treatment of inflammatory lesions of acne vulgaris. BPX-04 is a Phase 3 ready topical minocycline for the treatment of papulopustular rosacea. On September 15,

34

2020, we announced that we had received a notice of allowance from the U.S. Patent and Trademark Office (USPTO) for a Company patent application covering BPX-01 and BPX-04 (U.S. Patent Application No.: 16/514,459) and the application subsequently issued on January 5, 2021, as US 10,881,672.  We are seeking to monetize these assets through a license, co-development, or sale.

The Merger, Reverse Stock Split, and Name Change

On May 18, 2020, BioPharmX completed its business combination with Timber Pharmaceuticals LLC, a Delaware limited liability company (“Timber Sub”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of January 28, 2020 (the “Merger Agreement”), by and among BioPharmX, Timber Sub and BITI Merger, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), as amended by Amendment No. 1 thereto made and entered into as of March 24, 2020 (the “First Amendment”) and Amendment No. 2 thereto made and entered into as of April 27, 2020 (the “Second Amendment”) (the Merger Agreement, as amended by the First Amendment and the Second Amendment, the “Amended Merger Agreement”), pursuant to which Merger Sub merged with and into Timber Sub, with Timber Sub surviving as a wholly-owned subsidiary of the Company (the “Merger”). In connection with, and immediately prior to the completion of, the Merger, BioPharmX effected a reverse stock split of the Company’s common stock, par value $0.001 per share, at a ratio of 1-for-12 (the “Reverse Stock Split”). Immediately after completion of the Merger, BioPharmX changed its name to “Timber Pharmaceuticals, Inc.” and the officers and directors of Timber Sub became the officers and directors of the Company.

Under the terms of the Amended Merger Agreement, BioPharmX issued shares of common stock to the holders of common units of Timber Sub. Immediately after the Merger, there were approximately 11,849,031 shares of common stock outstanding (after the Reverse Stock Split). Pursuant to the terms of the Amended Merger Agreement, the former holders of common units of Timber Sub (including the Investors, as defined below, but excluding Value Appreciation Rights of Timber Sub (“VARs”), as defined below) owned in the aggregate approximately 88.5% of the outstanding common stock, with the Company’s stockholders immediately prior to the Merger owning approximately 11.5% of the outstanding common stock. The number of shares of common stock issued to the holders of common units of Timber Sub for each common unit of Timber Sub outstanding immediately prior to the Merger was calculated using an exchange ratio of approximately 629.57 shares of common stock for each Timber Sub unit. In addition, the 584 VARs that were outstanding immediately prior to Merger became denoted and payable in 367,670 shares of common stock at the Effective Time of the Merger (the “Effective Time”). Further, the holder of the 1,819,289 preferred units of Timber Sub outstanding immediately prior to the Merger received 1,819 shares of the newly created convertible Series A preferred stock (the “Series A Preferred Stock”) at the Effective Time.

Private Placement of Common Stock and Warrants

In connection with the Merger Agreement, on March 27, 2020, Timber Sub and BioPharmX entered into a securities purchase agreement (the “Securities Purchase Agreement”), with certain accredited investors (the “Investors”) pursuant to which, among other things, Timber Sub issued to the Investors shares of Timber units immediately prior to the Merger and BioPharmX issued to the Investors warrants to purchase shares of BioPharmX common stock on the tenth trading day following the consummation of the Merger (the “Investor Warrants”) in a private placement transaction for an aggregate purchase price of approximately $25 million (which amount is comprised of (x) a $5 million credit with respect to the Bridge Notes and (y) $20 million in cash from the Investors) (the “Purchase Price”). We issued to the Investors 8,384,764 Series A Warrants to purchase shares of common stock (“Series A Warrants”) and 7,042,175 Series B Warrants to purchase shares of common stock (“Series B Warrants”). The Series A Warrants have a 5-year term and an exercise price of $2.7953, subject to the number of shares and exercise price being reset based on our stock price after the Merger. The Series A Warrants were initially exercisable into 8,384,764 shares of common stock issued to the Investors, subject to certain adjustments. The Series B Warrants had an exercise price per share of $0.001, were exercisable upon issuance and were initially convertible into 7,042,175 shares of common stock in the aggregate.

In addition, pursuant to the terms of the Securities Purchase Agreement, on May 22, 2020, we issued to the Investors warrants to purchase 413,751 shares of common stock (the “Bridge Warrants”) which had an exercise price of $2.2362 per share, which was revised to $0.31 per share as a result of the November 2021 offering.

35

On November 19, 2020, we entered into a Warrant Waiver Agreement with each of the warrant holders which modified the terms of the original agreement and eliminated further resets. The aggregate number of Series A Warrants issued was fixed at 20,178,214 and the warrant exercise price was fixed at $1.16. The aggregate number of Series B Warrants was fixed at 22,766,777. The exercise price of the Series B Warrants remained unchanged.

In addition, certain restrictions contained in the Warrant Agreement and Securities Purchase Agreement were modified including restrictions on our ability to issue additional equity securities in connection with a financing and our ability to complete a fundamental transaction. Subject to certain restrictions detailed in the Warrant Waiver Agreement, we are now able to complete an equity financing or a fundamental transaction at any time after April 30, 2021. However, we remain restricted with respect to conducting variable rate transactions until May 18, 2023.

Further, in connection with the Warrant Waiver Agreement we agreed to immediately register 11,383,389 shares of common stock issuable upon exercise of the Series B Warrants. The warrant holders have additional demand registration rights as described in the Warrant Waiver Agreement. As of March 4, 2021, the Series B Warrants were exercised in full. As of June 30, 2022, 16,701,824 shares of common stock remain issuable upon exercise of the Series A Warrants.

November 2021 Offering

On November 2, 2021, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, as representative of the several underwriters named in Schedule I thereto, relating to the public offering, issuance and sale of shares of our common stock and, to certain investors, pre-funded warrants to purchase shares of common stock, and accompanying warrants to purchase shares of our common stock. After giving effect to the sale of additional shares pursuant to the exercise of the option by H.C. Wainwright & Co., LLC that closed on November 9, 2021, the total number of shares of common stock (or common stock equivalents) sold by us in the offering was 26,953,125, together with warrants to purchase up to 26,953,125 shares of common stock issued at the closing on November 5, 2021, for total gross proceeds of $17.25 million before deducting underwriting discounts and commissions and other offering expenses, and net proceeds of approximately $15.8 million. As a result of the offering, the exercise price of the Bridge Warrants was adjusted to $0.31 per share.

Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a warrant to purchase one share of common stock. All the securities sold in the offering were sold by us. The public offering price of each share of common stock and accompanying common warrant was $0.64 and $0.639 for each pre-funded warrant and accompanying common warrant. The pre-funded warrants were immediately exercisable at a price of $0.001 per share of common stock and were exercised in full on November 5, 2021. The warrants were immediately exercisable at a price of $0.70 per share of common stock and expire five years from the date of issuance.

Asset Purchase Agreements with Patagonia Pharmaceuticals LLC (“Patagonia”)

On February 28, 2019, we acquired the intellectual property rights for a topical formulation of isotretinoin for the treatment of CI and identified as TMB-001, formerly PAT-001 including the IPEG^TM brand, from Patagonia (the “TMB-001 Acquisition”) pursuant to an asset acquisition agreement (the “Asset Acquisition Agreement”).  Zachary Rome, our former director, Executive Vice-President and Chief Operating Officer serves as President of Patagonia and also maintains an ownership interest therein.

Under the terms of the TMB-001 Acquisition, we paid a one-time upfront payment of $50,000 to Patagonia.  Patagonia is entitled to up to $27.0 million of cash milestone payments relating to certain regulatory and commercial achievements of the TMB-001 Acquisition, with the first being $4.0 million from the initiation of a Phase 3 pivotal trial, as agreed with the FDA and defined as the first patient enrolled in such trial for the product.  In addition, Patagonia is entitled to net sales earn-out payments ranging from low single digits to mid-double digits for the program licensed. We are responsible for all development activities under the license.  The first regulatory and commercial milestone occurred in June 2022, as the first patient enrolled in the Phase 3 pivotal trial for the product and as such a $4.0 million milestone payment has been accrued at June 30, 2022. There were no milestone payments accrued at December 31, 2021, as the potential regulatory and commercial milestones were not considered probable.

36

On July 20, 2022, we entered into an amendment to the Asset Acquisition Agreement with Patagonia (the “Amendment”). Pursuant to the Amendment, the Company and Patagonia agreed to extend the time for Company’s payment of the first milestone payment, which became payable in the third quarter of 2022 upon the Company commencing patient enrollment in its Phase 3 ASCEND clinical trial in the second quarter of 2022. The first milestone payment is now payable by us in two tranches, with $2.25 million due by September 1, 2022 and $2.065 million due by September 1, 2023. Further, we granted Patagonia a security interest in TMB-001 and certain other assets.

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

Upon closing of the TMB-003 Acquisition, we paid a one-time upfront payment of $20,000 to Patagonia. Patagonia is entitled to up to $10.25 million of cash milestone payments subject to adjustments relating to certain regulatory and commercial achievements of TMB-003, with the first being a one-time payment of $250,000 upon the opening of investigational new drug application (“IND”) with the FDA. In addition, Patagonia is entitled to net sales earn-out payments ranging from low to mid-single digits for the program licensed. We are responsible for all development activities under the license. The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at June 30, 2022, and December 31, 2021.

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

On July 5, 2019, we entered into a license agreement with AFT which provides us with (i) an exclusive license to certain licensed patents, licensed know-how and AFT trademarks to commercialize Pascomer in the United States, Canada and Mexico and (ii) a co-exclusive license to develop Pascomer in this territory. Concurrently, we granted to AFT an exclusive license to commercialize Pascomer outside of its territory and co-exclusive sublicense to develop and manufacture the licensed product for commercialization outside of its territory (the “AFT License Agreement”).

The development of Pascomer had been conducted pursuant to a written development plan, written by AFT and approved by the joint steering committee, which had been reviewed on at least an annual basis. Aft agreed to perform clinical trials of Pascomer in the specified territory and perform all CMC (chemistry, manufacturing and controls) and related activities to support regulatory approval. We were responsible for all expenses incurred by AFT during the term of the AFT License Agreement and equally shared all costs and expenses with AFT, incurred by AFT for development and marketing work performed in furtherance of regulatory approval and commercialization worldwide, outside of the specified territory. We were also entitled to receive 50% of the economics (royalties and milestones) in any licensing transaction that AFT executes outside of North America, Australia, New Zealand, and Southeast Asia.

Upon closing of the AFT License Agreement, we were obligated to reimburse AFT for previously spent development costs, subject to certain limitations and were obligated to pay a one-time, irrevocable and non-creditable upfront payment to AFT, payable in scheduled installments. AFT was entitled to up to $25.5 million of cash milestone payments if TMB-002 achieved certain regulatory and commercial milestones, with the first payment of $1.0 million upon the successful completion of a Phase 2b trial defined as the achievement of the trial’s primary clinical endpoints. In addition, AFT was entitled to net sales royalties ranging from high single digits to low double digits for the program licensed. The potential regulatory and commercial milestones were not yet considered probable, and no milestone payments have been accrued at June 30, 2022, and December 31, 2021.

On July 22, 2022, we provided written notice to AFT of our decision to terminate the AFT License Agreement because we believe there is no longer a commercially reasonable path to approval and commercialization for TMB-002 in the United States for FAs associated with TSC. Additionally, following the receipt and analysis of topline data for the Phase II Clinical Trial (as defined in the AFT License Agreement) it was determined that the study failed to meet its primary efficacy endpoint. Under the AFT License Agreement, we were required to provide 120 days’ prior written notice of termination to AFT which was waived by AFT on July 25, 2022, or the Termination Date. On the Termination Date, the rights and licenses to TMB-002 reverted to AFT, among other things, as set forth in the AFT License Agreement.

37

August 2022 Offering

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

On August 4, 2022, we  announced the pricing of the public offering (the “August 2022 Offering”) of (i) 46,583,333 shares (the “Shares”) of Common Stock, (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 20,083,334 shares of Common Stock (the “Pre-Funded Warrant Shares”) and (iii) common warrants (the “Common Warrants”) to purchase up to an aggregate of 66,666,667 shares of Common Stock (the “Common Warrant Shares” and, together with the Pre-Funded Warrant Shares, the “Warrant Shares”). Each Share and Pre-Funded Warrant to purchase one share of Common Stock was sold together with a Common Warrant to purchase one share of Common Stock. All of the securities sold in the August 2022 Offering were sold by the Company. The public offering price of each Share and accompanying Common Warrant was $0.12 and $0.1199 for each Pre-Funded Warrant and accompanying Common Warrant. The Pre-Funded Warrants were immediately exercisable at a price of $0.0001 per share of Common Stock and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. The Common Warrants are immediately exercisable at a price of $0.12 per share of Common Stock and will expire five years from the date of issuance. The Shares and Pre-Funded warrants, and the accompanying Common Warrants, were issued separately and were immediately separable upon issuance. The August 2022 Offering closed on August 8, 2022. All of the Pre-Funded Warrants were exercised, and none remain outstanding.

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

Corporate History

We have a limited operating history as the Company was formed on February 26, 2019. Since inception, our operations have focused on establishing its intellectual property portfolio, including acquiring rights to the proprietary formulations of isotretinoin, rapamycin and Sitaxsentan, as described above, organizing and staffing the Company, business planning, raising capital, and conducting clinical trials. Over the past two years. We have financed our operations with gross proceeds totaling $42.3 million through capital contributions.

Since inception, we have incurred significant operating losses. For the six months ended June 30, 2022, our net loss was approximately $12.6 million.  As of June 30, 2022, we had an accumulated deficit of approximately $41.5 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we continue to develop the pipeline of programs.

38

Results of Operations

Comparison of the Three Months Ended June 30, 2022, and 2021

	Three Months Ended June 30,
	2022		2021		Change $		Change %
Grant revenue	$	—	$	134,927	$	(134,927)	NA	%
Milestone revenue		—		253,892		(253,892)	NA
Total revenue		—		388,819		(388,819)	(100)	%
Research and development		3,891,500		1,800,100		2,091,400	116	%
Research and Development milestone expense for Patagonia Pharmaceuticals LLC		4,000,000		—		4,000,000	NA
Selling, general and administrative		1,512,343		1,556,012		(43,669)	(3)	%
Loss from operations		(9,403,843)		(2,967,293)		(6,436,550)	217	%
Interest expense		(42,077)		—		(42,077)	NA
Gain (loss) on foreign currency exchange		(50,076)		1,090		(51,166)	(4,694)	%
Net (loss) income before provision for income taxes		(9,495,996)		(2,966,203)		(6,529,793)	220	%
Provision for income taxes		—		—		—	NA
Net (loss) income		(9,495,996)		(2,966,203)		(6,529,793)	220	%
Cumulative dividends on Series A preferred stock		—		(36,286)		36,286	NA	%
Net (loss) income attributable to common stockholders	$	(9,495,996)	$	(3,002,489)	$	(6,493,507)	216	%

Grant and Milestone Revenue

In September 2018, Patagonia was awarded a $1.5 million grant (the “Grant”) from the FDA as part of the Orphan Products Clinical Trials Grants Program of the Office of Orphan Products Development. The Grant funds were made available in three annual installments of $500,000 per year, which commenced in September 2018. The Grant was transferred to us pursuant to the TMB-001 Acquisition Agreement with Patagonia in February 2019.  In March 2020 and March 2021, the FDA awarded us the second and third tranches of the grant, respectively.

During the three months ended June 30, 2022, and 2021, we recognized no revenues and revenue of $134,927 respectively, from the Grant.

Pursuant to the AFT Licensing and Development Agreement, we are entitled to receive a significant percentage of the economics (royalties and milestones) in any licensing transaction that AFT executes outside of North America, Australia, New Zealand, and Southeast Asia. The transaction with Desitin is included in the scope of this provision. The Company was entitled to €213,750 related to an upfront milestone payment paid to AFT by Desitin and recorded approximately $0.3 million during the three months ended June 30, 2021. No revenues were recorded as there were no milestone payments during the three months ended June 30, 2022.  As the agreement with AFT has been terminated we will no longer receive any royalties or milestones for any transactions under this agreement.

Operating Costs and Expenses

Research and Development Expense

During the three months ended June 30, 2022, and 2021, research and development expenses were $7.9 and $1.8 million, respectively.  The increase in research and development expenses of approximately $6.1 million are primarily related to costs incurred related to our Phase 3 clinical trial of TMB-001 such as CRO direct and pass-through expenses, and the accrual of the approximately $4.0 million milestone payment due to Patagonia as the first regulatory and commercial milestone occurred in June 2022, as the first patient enrolled in the Phase 3 pivotal trial for the product.  Research and development expenses are expected to continue to significantly increase in 2022 as a result of the Phase 3 trial for TMB-001.

39

Research and development costs are expensed as incurred. Costs for certain activities, such as preclinical studies and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and collaborators.

General and Administrative Expense

During the three months ended June 30, 2022, general and administrative expenses were $1.5 million compared to $1.6 million for the three months ended June 30, 2021.  The decrease in general and administrative expenses of approximately $0.1 million was due to a slight decrease in professional fees during the quarter.  

Other Income (Expense)

During the three months ended June 30, 2022, other income (expense) included interest expense of $0.04 million related to the Redeemable Series A Preferred Stock under redemption, a loss on foreign currency n of approximately $0.05 million due to the strength of the US$ versus the AUD$.  There was de-minimis other income (expense) for the three months ended June 30, 2021.

Income Taxes

We did not record tax expense for the three-months ended June 30, 2022 and 2021, respectively, due to our loss position and full valuation allowance.

Comparison of the Six Months Ended June 30, 2022 and 2021

	Six Months Ended June 30,
	2022		2021		Change $		Change %
Grant revenue	$	83,177	$	175,661	$	(92,484)	(53)	%
Milestone revenue		—		253,892		(253,892)	NA	%
Total revenue		83,177		429,553		(346,376)	(81)	%
Research and development		5,410,459		2,649,618		2,760,841	104	%
Research and development milestone expense for Patagonia Pharmaceuticals LLC		4,000,000		—		4,000,000	NA	%
Selling, general and administrative		3,214,738		2,621,401		593,337	23	%
Loss from operations		(12,542,020)		(4,841,466)		(7,700,554)	159	%
Interest expense		(96,328)		—		(96,328)	NA	%
Other income		75,000		—		75,000	NA	%
Forgiveness of PPP loan		37,772		—		37,772	NA	%
Gain (loss) on foreign currency exchange		(43,814)		1,003		(44,817)	(4,468)	%
Net loss before provision for income taxes		(12,569,390)		(4,840,463)		(7,728,927)	160	%
(Benefit) provision for income taxes		—		—		—	NA	%
Net loss		(12,569,390)		(4,840,463)		(7,728,927)	160	%
Cumulative dividends on Series A preferred stock		—		(72,173)		72,173	(100)	%
Net loss attributable to common stockholders	$	(12,569,390)	$	(4,912,636)	$	(7,656,754)	156	%

Grant and Milestone Revenue

During the six months ended June 30, 2022, and 2021, we recognized revenues of $83,177 and $175,661 respectively, from the $1.5 million Grant to Patagonia from the FDA as part of the Orphan Products Clinical Trials Grants Program of the Office of Orphan Products Development.

Pursuant to the AFT Licensing and Development Agreement, the Company was entitled to €213,750 related to an upfront milestone payment paid to AFT by Desitin and recorded approximately $0.3 million during the six months ended June 30, 2021. No revenues were recorded for milestone payments during the six months ended June 30, 2022.  As the agreement

40

with AFT has been terminated we will no longer receive any royalties or milestones for any transactions under this agreement.

Operating Costs and Expenses

Research and Development Expense

During the six months ended June 30, 2022, and 2021, research and development expenses were $9.4 and $2.6 million, respectively.  The increase in research and development expenses of $6.8 million are primarily related to costs incurred related to our Phase 3 clinical trial of TMB-001 such as CRO direct and pass-through expenses, and the accrual of the approximately $4.0 million milestone payment due to Patagonia as the first regulatory and commercial milestone occurred in June 2022, as the first patient enrolled in the Phase 3 pivotal trial for the product.  Research and development expenses are expected to continue to significantly increase in 2022 as a result of the Phase 3 trial for TMB-001.

Research and development costs are expensed as incurred. Costs for certain activities, such as preclinical studies and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and collaborators.

General and Administrative Expense

During the six months ended June 30, 2022, general and administrative expenses were approximately $3.2 million compared to $2.6 million for the six months ended June 30, 2021.  The increase in general and administrative expenses of approximately $0.6 million was due to an increase in stock-based compensation costs of $0.4 million due to grants issued in the last six months of 2021 and the second quarter of 2022 and increased professional and legal fees of $0.2 million during the six month period.

Other Income (Expense)

During the six months ended June 30, 2022, other income (expense) included interest expense of approximately $0.1 million related to the Redeemable Series A Preferred Stock under redemption, a gain on the forgiveness of our PPP loan of approximately $0.04 million and other income of approximately $0.08 million for fees received from a third party for their access to review certain agreements related to BPX-01 and BPX-04 and a loss on foreign currency of approximately $0.04 million due to the strength of the US$ versus the AUD$.  There was de-minimis other income (expense) for the six months ended June 30, 2021.

Income Taxes

We did not record tax expense for the six months ended June 30, 2022, and 2021, respectively, due to our loss position and full valuation allowance.

Liquidity and Capital Resources

Since inception, we have not generated revenue from product sales and has incurred net losses and negative cash flows from its operations. At June 30, 2022, we had working capital of approximately $2.7 million, which included cash of approximately $8.3 million. We reported a net loss of approximately $12.6 million during the six months ended June 30, 2022.

41

Cash Flows for the Six Months Ended June 30, 2022 and 2021

	Six Months Ended June 30,
	2022		2021
Cash provided by (used in) continuing operations:
Operating activities	$	(8,528,864)	$	(4,202,755)
Investing activities		(5,947)		(16,903)
Financing activities		—		—
Net decrease in cash and cash equivalents	$	(8,534,811)	$	(4,219,658)

Operating Activities

For the six  months ended June 30 2022, net cash used in operating activities was $8.5 million, which primarily consisted of our net loss of $12.6 million, adjusted for non-cash expenses of approximately $0.7 million of stock-based compensation expense offset by the change in assets and liabilities of $3.2 million, which is primarily due an decrease in prepaid expenses of $0.7 related to research and development, a decrease in accounts payable of $0.5 million as payments were made,  and an increase in accrued expenses of approximately $062 million related to research and development expenses, a decrease in the lease liability of $0.2 million and the recording of the milestone payable due to Patagonia of approximately  $4.0 million.

Investing Activities

For the six months ended June 30, 2022, and 2021, net cash used in investing activities was $0.006 million for purchases of equipment and $0.02 million for furniture and equipment, respectively.  

Financing Activities

For the six months ended June 30, 2022, and 2021, respectively, net cash provided by financing activities was zero.

Funding Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of our pipeline of programs and begin a Phase 3 trial.  As a result, we expect to continue to incur significant expenses and increasing operating losses and negative cash flows for the foreseeable future. Furthermore, we expect to continue to incur costs as a public company.  Accordingly, we will need to obtain additional funding. If we are unable to raise capital or otherwise obtain funding when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

On July 17, 2020, we entered into an Amended and Restated Registration Rights Agreement (as amended, the “Registration Rights Agreement”) with the Investors. Pursuant to the Registration Rights Agreement, we agreed to provide certain demand registration rights to the Investors relating to the registration of the shares underlying the Investor Warrants and the Bridge Warrants.  In connection with the entry into the Registration Rights Agreement and pursuant to the Securities Purchase Agreement, we were restricted from various financing activities until August 16, 2022. On November 19, 2020, we entered into waiver agreements with the investors revising the restriction date to April 30, 2021, except with respect to variable rate transactions. We remain restricted with respect to conducting variable rate transactions until May 18, 2023.

On July 5, 2019, we entered into the AFT License Agreement which provided us with (i) an exclusive license to certain licensed patents, licensed know-how and AFT trademarks to commercialize Pascomer in the United States, Canada and Mexico and (ii) a co-exclusive license to develop Pascomer in this territory.  Concurrently, we granted to AFT an exclusive license to commercialize Pascomer outside of its territory and co-exclusive sublicense to develop and manufacture the licensed product for commercialization outside of its territory.

42

Upon closing of the AFT License Agreement, we were obligated to reimburse AFT for previously spent development costs, subject to certain limitations and were obligated to pay a one-time, irrevocable and non-creditable upfront payment to AFT, payable in scheduled installments. AFT was entitled to up to $25.5 million of cash milestone payments if TMB-002 achieved certain regulatory and commercial milestones, with the first payment of $1.0 million upon the successful completion of a Phase 2b trial defined as the achievement of the trial’s primary clinical endpoints.  In addition, AFT was entitled to net sales royalties ranging from high single digits to low double digits for the program licensed.  The potential regulatory and commercial milestones were not yet considered probable, and no milestone payments have been accrued at June 30, 2022, or December 31, 2021, respectively.  

On July 23, 2022, we provided written notice to AFT of our decision to terminate the AFT License Agreement because we believe there is no longer a commercially reasonable path to approval and commercialization for TMB-002 in the United States for FAs associated with TSC. Additionally, following the receipt and analysis of topline data for the Phase II Clinical Trial (as defined in the AFT License Agreement) it was determined that the study failed to meet its primary efficacy endpoint. Under the AFT License Agreement, we were required to provide 120 days’ prior written notice of termination to AFT which was waived by AFT on July 25, 2022, or the Termination Date. On the Termination Date, the rights and licenses to TMB-002 reverted to AFT, among other things, as set forth in the AFT License Agreement.

We have a class of Series A Preferred Stock as to which the holder TardiMed has demanded redemption.  The redemption price is equal to approximately $2.2 million in the aggregate, at June 30, 2022, and $2.1 million at December 31, 2021, respectively including accumulated and unpaid interest which accrues compounded at the rate of 8% per annum.  Redemption is subject to certain limitations under Delaware corporate law due to our current financial condition.  As a result of the call for redemption, the Series A Preferred Stock was reclassified as a liability at December 31, 2021.  Dividends continue to accrue and will be recorded as non-cash interest expense in the Statement of Operations rather than to additional-paid-in-capital in fiscal 2022.

On July 27, 2022, we entered into a letter agreement (the “Letter Agreement”) with TardiMed, pursuant to which TardiMed agreed to exchange its 1,819 shares of the Company’s Series A Preferred Stock (the “Series A Preferred Stock”) plus accrued dividends for a pre-funded warrant (the “Warrant”) to purchase 9,054,132 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”).  The number of shares underlying the Warrant is based on the redemption price of the Series A Preferred Stock (which had been demanded by TardiMed) divided by $0.239, the last closing price of the Common Stock prior to the date the Letter Agreement was executed.

Twenty percent of the Warrant is immediately exercisable upon issuance. Beginning on September 30, 2022, and then at the end of each subsequent calendar quarter upon written request of TardiMed, the Company will allow an additional 20% of the initial balance of the Warrant to become exercisable, provided that only 20% of the initial balance of the Warrant will be exercisable in any given quarter. The Warrant’s exercise price is $0.0001 and may be exercised on a cashless basis. The Warrant will terminate when exercised in full. On August 3, 2022, 20% of the Warrant was exercised on a cashless basis and 1,809,280 shares of Common Stock were issued to TardiMed.

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

In addition, under the terms of the TMB-001 Acquisition, we paid a one-time upfront payment of $50,000 to Patagonia. Patagonia is entitled to up to $27.0 million of cash milestone payments relating to certain regulatory and commercial achievements of the TMB-001 Acquisition, with the first being $4.0 million from the initiation of a Phase 3 pivotal trial, as agreed with the FDA, and defined as the first patient enrolled in such trial for the product.  In addition, Patagonia is entitled to net sales earn-out payments ranging from low single digits to mid-double digits for the program licensed.  We are responsible for all development activities under the license. The first regulatory and commercial milestone occurred in June 2022, and as such the first $4.0 million milestone payment has been accrued at June 30, 2022. There were no milestone payments accrued at December 31, 2021. as the potential regulatory and commercial milestones were not considered probable.

43

On July 20, 2022, we entered into the Amendment to the Asset Acquisition Agreement with Patagonia. Pursuant to the

Amendment, we and Patagonia agreed to extend the time for our payment of the first milestone payment, which became

payable in the third quarter of 2022 upon completion of patient enrollment in our Phase 3 ASCEND clinical trial. The first

milestone payment is now payable by us in two tranches, with $2.25 million due by September 1, 2022 and $2.065 million

due by September 1, 2023. Further, we granted Patagonia a security interest in TMB-001 and certain other assets.

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

On August 4, 2022, the Company announced the pricing of the public offering (the “August 2022 Offering”) of (i) 46,583,333 shares (the “Shares”) of Common Stock, (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 20,083,334 shares of Common Stock (the “Pre-Funded Warrant Shares”) and (iii) common warrants (the “Common Warrants”) to purchase up to an aggregate of 66,666,667 shares of Common Stock (the “Common Warrant Shares” and, together with the Pre-Funded Warrant Shares, the “Warrant Shares”). Each Share and Pre-Funded Warrant to purchase one share of Common Stock was sold together with a Common Warrant to purchase one share of Common Stock. All of the securities sold in the August 2022 Offering were sold by the Company. The public offering price of each Share and accompanying Common Warrant was $0.12 and $0.1199 for each Pre-Funded Warrant and accompanying Common Warrant. The Pre-Funded Warrants were immediately exercisable at a price of $0.0001 per share of Common Stock and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. The Common Warrants are immediately exercisable at a price of $0.12 per share of Common Stock and will expire five years from the date of issuance. The Shares and Pre-Funded warrants, and the accompanying Common Warrants, were issued separately and were immediately separable upon issuance. The August 2022 Offering closed on August 8, 2022. All of the Pre-Funded Warrants were exercised, and none remain outstanding.

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

We have evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q. Based on such evaluation and our current plans, which are subject to change, management believes that our existing cash and cash equivalents as of June 30, 2022 only are sufficient to satisfy our operating cash needs into the fourth quarter of 2022.  The Company closed on the August 2022 Offering on August 8, 2022.  As a result, management believes the Company’s cash and cash equivalents will be sufficient only to satisfy our operating cash needs into the second quarter of 2023.

Our future liquidity and capital funding requirements will depend on numerous factors, including:

● our ability to raise additional funds to finance our operations,

● the outcome, costs and timing of clinical trial results for our current or future product candidates, including the timing, progress, costs and results of our Phase 3 clinical trial of TMB-001 for the treatment of CI;

● the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities;

44

● the emergence and effect of competing or complementary products including the ability of our existing and future products to compete effectively;

● our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

● the cost and timing of completion of commercial-scale manufacturing activities if any of our products are approved for commercial sale,

● the cost of establishing sales, marketing and distribution capabilities for our products in regions where we choose to commercialize our products on our own if approved for commercial sale

● the initiation, progress, timing and results of the commercialization of our product candidates, if approved for commercial sale;

● our ability to retain our current employees and the need and ability to hire additional management and scientific and medical personnel; and

● the terms and timing of any collaborative, licensing or other arrangements that we have or may establish.

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

The impact of the worldwide spread of COVID-19 has been unprecedented and unpredictable. Clinical trial activities, including patient enrollment can be impacted at any time. We are continuing to assess the effect on our operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world and our assessment of the impact of COVID-19 may change.

Critical Accounting Policies and Significant Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financials statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the reporting periods. On an ongoing basis, we evaluate our estimates and adjustments, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our latest Annual Report on Form 10-K.

Recently Used and Adopted Accounting Pronouncements

See Note 2 to our financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for discussion of recent accounting pronouncements.

45

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15 (e) or 15d-15(e) of the Exchange Act) that are designed to ensure that information required to be disclosed in periodic reports filed with the SEC under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13(a)-15(e) under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2022.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal periods ended June 30, 2022, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings.

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

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

Item 1A. Risk Factors.

As a smaller reporting company, we are not required to provide the information required by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the period covered by this report, we have not issued any unregistered securities. We have not furnished information under this item as such information previously has been included in our Annual Report on Form 10-K.

Item 3. Defaults Upon Senior Securities.

None.

46

Item 4. Mine Safety Disclosure.

Not applicable.

Item 5. Other Information.

None.

47

Item 6. Exhibits

Exhibit No.	Description
10.1#	Amendment No. 1 to the Asset Acquisition Agreement, dated July 20, 2022, by and among Timber Pharmaceuticals, Inc., Patagonia Pharmaceuticals LLC, Jonathan Rome and Zachary Rome (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on July 26, 2022).#
31.1*	Certification of Chief Executive Officer of Timber Pharmaceuticals, Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 11, 2022.
31.2*	Certification of Chief Financial Officer of Timber Pharmaceuticals, Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 11, 2022.
32.1**	Certification of Chief Executive Officer of Timber Pharmaceuticals, Inc. pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 11, 2022.
32.2**	Certification of Chief Financial Officer of Timber Pharmaceuticals, Inc. pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 11, 2022.
101.INS*	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document.
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101).

*Filed herewith.

**The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

# Certain identified information has been excluded from this exhibit because it is both (i) not material and (ii) would be

competitively harmful if publicly disclosed.

48

SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Timber Pharmaceuticals, Inc.
Date: August 11, 2022	By:	/s/ John Koconis
	John Koconis
	Chief Executive Officer and Chairman of the Board of Directors
	(Principal Executive Officer)
Date: August 11, 2022	By:/s/ Joseph Lucchese
	Joseph Lucchese
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

49

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULES 13A-14(A) AND 15D-14(A) UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES
OXLEY ACT OF 2002

I, John Koconis, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Timber Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ John Koconis

John Koconis

Chief Executive Officer and Chairman of the Board of Directors

(Principal Executive Officer)

August 11, 2022

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULES 13A-14(A)
AND 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph Lucchese, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Timber Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Joseph Lucchese

Joseph Lucchese

Chief Financial Officer

(Principal Financial and Accounting Officer)

August 11, 2022

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, John Koconis, Chief Executive Officer of Timber Pharmaceuticals, Inc. (the “Company”), in compliance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that, to the best of my knowledge, the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022 (the “Report”) filed with the Securities and Exchange Commission:

·Fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

· The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John Koconis

John Koconis

Chief Executive Officer and Chairman of the Board of Directors

(Principal Executive Officer)

August 11, 2022

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph Lucchese, Chief Financial Officer of Timber Pharmaceuticals, Inc. (the “Company”), in compliance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that, to the best of my knowledge, the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022 (the “Report”) filed with the Securities and Exchange Commission:

·Fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

· The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Joseph Lucchese

Joseph Lucchese

Chief Financial Officer

(Principal Financial and Accounting Officer)

August 11, 2022

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2022	Aug. 09, 2022
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Current Fiscal Year End Date	--12-31
Document Period End Date	Jun. 30, 2022
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q2
Entity File Number	001-37411
Entity Registrant Name	TIMBER PHARMACEUTICALS, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	59-3843182
Entity Address, Address Line One	110 Allen Road, Suite 410
Entity Address, City or Town	Basking Ridge
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	07920
City Area Code	908
Local Phone Number	636-7163
Title of 12(b) Security	Common Stock, par value $0.001 per share
Trading Symbol	TMBR
Security Exchange Name	NYSEAMER
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		132,451,180
Entity Central Index Key	0001504167
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets - USD ($)	Jun. 30, 2022	Dec. 31, 2021
Current assets
Cash	$ 8,273,728	$ 16,808,539
Prepaid research and development	767,650	66,217
Other current assets	237,158	244,021
Total current assets	9,278,536	17,118,777
Deposits	127,534	127,534
Property and equipment, net	20,531	16,377
Right of use asset	482,986	638,786
Total assets	9,909,587	17,901,474
Current liabilities
Accounts payable	420,353	953,349
Accrued expenses	1,408,968	850,557
Lease liability, current portion	341,308	332,817
Short-term milestone payable due to Patagonia Pharmaceuticals, LLC	2,250,000
Redeemable Series A preferred stock under redemption (Note 5)	2,151,675	2,055,348
Total current liabilities	6,572,304	4,192,071
Note payable		37,772
Lease liability	163,985	331,152
Long-term milestone payable due to Patagonia Pharmaceuticals, LLC	1,750,000
Other liabilities	73,683	73,683
Total liabilities	8,559,972	4,634,678
Commitments and contingencies (Note 7)
Stockholders' equity
Common stock, par value $0.001; 450,000,000 shares authorized; 63,753,834 shares issued and outstanding as of June 30, 2022, and 63,619,140 shares issued and outstanding as of December 31, 2021	63,754	63,619
Additional paid-in capital	42,739,793	42,087,719
Accumulated deficit	(41,453,932)	(28,884,542)
Total stockholders' equity	1,349,615	13,266,796
Total liabilities and stockholders' equity	$ 9,909,587	$ 17,901,474

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2022	Dec. 31, 2021
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	450,000,000	450,000,000
Common stock, shares issued	63,753,834	63,619,140
Common stock, shares outstanding	63,753,834	63,619,140

XML

Condensed Consolidated Statements of Operations - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Total revenue		$ 388,819	$ 83,177	$ 429,553
Operating costs and expenses
Research and development	$ 3,891,500	1,800,100	5,410,459	2,649,618
Research and Development - Milestone expense for Patagonia Pharmaceuticals LLC	4,000,000		4,000,000
Selling, general and administrative	1,512,343	1,556,012	3,214,738	2,621,401
Total operating expenses	9,403,843	3,356,112	12,625,197	5,271,019
Loss from operations	(9,403,843)	(2,967,293)	(12,542,020)	(4,841,466)
Other income (expense)
Interest expense	(42,077)		(96,328)
Other income			75,000
Forgiveness of PPP loan			37,772
(Loss) gain on foreign currency exchange	(50,076)	1,090	(43,814)	1,003
Total other income (expense)	(92,153)	1,090	(27,370)	1,003
Net loss	(9,495,996)	(2,966,203)	(12,569,390)	(4,840,463)
Dividends on Series A preferred stock		(36,286)		(72,173)
Net loss attributable to common stockholders	$ (9,495,996)	$ (3,002,489)	$ (12,569,390)	$ (4,912,636)
Basic net loss per share attributable to common stockholders	$ (0.15)	$ (0.08)	$ (0.20)	$ (0.14)
Diluted net loss per share attributable to common stockholders	$ (0.15)	$ (0.08)	$ (0.20)	$ (0.14)
Basic weighted average number of shares outstanding	63,731,582	36,659,685	63,684,906	35,872,780
Diluted weighted average number of shares outstanding	63,731,582	36,659,685	63,684,906	35,872,780
Grant revenue
Total revenue		$ 134,927	$ 83,177	$ 175,661
Milestone revenue
Total revenue		$ 253,892		$ 253,892

XML

Condensed Consolidated Statements of Stockholders' Equity (Deficit) - USD ($)	Series A preferred stock (if converted) Preferred Stock	Series A Warrants Common Stock	Series A Warrants Additional Paid-in Capital	Series B Warrants Common Stock	Series B Warrants Additional Paid-in Capital	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Total
Beginning Balance at Dec. 31, 2020	$ 1,909,805					$ 27,132	$ 25,826,295	$ (18,245,396)	$ 7,608,031
Beginning Balance (in shares) at Dec. 31, 2020	1,819					27,132,420
Increase (decrease) in stockholders' equity
Accrued dividend series A preferred stock	$ 72,173						(72,173)		(72,173)
Exercise of warrants		$ 2,060	$ (2,060)	$ 7,468	$ (7,468)
Exercise of warrants (in shares)		2,059,613		7,467,652
Stock-based compensation							107,948		107,948
Net loss								(4,840,463)	(4,840,463)
Ending Balance at Jun. 30, 2021	$ 1,981,978					$ 36,660	25,852,542	(23,085,859)	2,803,343
Ending Balance (in shares) at Jun. 30, 2021	1,819					36,659,685
Beginning Balance at Mar. 31, 2021	$ 1,945,692					$ 36,660	25,839,395	(20,119,656)	5,756,399
Beginning Balance (in shares) at Mar. 31, 2021	1,819					36,659,685
Increase (decrease) in stockholders' equity
Accrued dividend series A preferred stock	$ 36,286						(36,286)		(36,286)
Stock-based compensation							49,433		49,433
Net loss								(2,966,203)	(2,966,203)
Ending Balance at Jun. 30, 2021	$ 1,981,978					$ 36,660	25,852,542	(23,085,859)	2,803,343
Ending Balance (in shares) at Jun. 30, 2021	1,819					36,659,685
Beginning Balance at Dec. 31, 2021						$ 63,619	42,087,719	(28,884,542)	13,266,796
Beginning Balance (in shares) at Dec. 31, 2021						63,619,140
Increase (decrease) in stockholders' equity
Exercise of VARs						$ 60	(60)
Exercise of VARs (in shares)						59,696
Stock-based compensation						$ 75	652,134		652,209
Stock-based compensation (in shares)						74,998
Net loss								(12,569,390)	(12,569,390)
Ending Balance at Jun. 30, 2022						$ 63,754	42,739,793	(41,453,932)	1,349,615
Ending Balance (in shares) at Jun. 30, 2022						63,753,834
Beginning Balance at Mar. 31, 2022						$ 64,216	42,450,622	(31,957,936)	10,556,901
Beginning Balance (in shares) at Mar. 31, 2022						63,678,836
Increase (decrease) in stockholders' equity
Stock-based compensation						$ 75	283,852		283,927
Stock-based compensation (in shares)						74,998
Tax effect of net settlement of VARs						$ (537)	5,319		4,782
Net loss								(9,495,996)	(9,495,996)
Ending Balance at Jun. 30, 2022						$ 63,754	$ 42,739,793	$ (41,453,932)	$ 1,349,615
Ending Balance (in shares) at Jun. 30, 2022						63,753,834

XML

Condensed Consolidated Statements of Cash Flows - USD ($)	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
Cash flows from operating activities
Net loss	$ (12,569,390)	$ (4,840,463)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	652,209	107,948
Amortization of right of use assets	155,800	125,567
Depreciation	1,793	175
Forgiveness of PPP loan	(37,772)
Non-cash Interest on redeemable preferred stock	96,328
Long-term milestone payable due to Patagonia Pharmaceuticals LLC	1,750,000
Changes in assets and liabilities:
Other receivable		(253,892)
Prepaid research and development	(701,434)	(2,459)
Other current assets	6,864	1,367
Deposits		(13,000)
Accounts payable	(532,997)	990,803
Accrued expenses	558,411	(199,929)
Lease liability	(158,676)	(118,872)
Current milestone payable due to Patagonia Pharmaceuticals, LLC	2,250,000
Net cash used in operating activities	(8,528,864)	(4,202,755)
Cash flows from investing activities
Purchase of property and equipment	(5,947)	(16,903)
Net cash used in investing activities	(5,947)	(16,903)
Net decrease in cash	(8,534,811)	(4,219,658)
Cash, beginning of period	16,808,539	10,348,693
Cash, end of period	8,273,728	6,129,035
Non-cash investing and financing activities:
Long-term milestone payable to Patagonia Pharmaceuticals LLC	1,750,000
Accrued Series A preferred stock dividend		72,173
Cashless exercise of VARs	$ 60
Series A Warrants
Non-cash investing and financing activities:
Cashless exercise of warrants		2,060
Series B Warrants
Non-cash investing and financing activities:
Cashless exercise of warrants		$ 7,468

XML

Organization and description of business operations

6 Months Ended

Jun. 30, 2022

Organization and description of business operations

Organization and description of business operations

Note 1. Organization and description of business operations

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

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, “Financial Statements and Supplementary Data,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Merger Agreement

On May 18, 2020, BioPharmX Corporation (“BioPharmX”) completed its business combination with Timber Pharmaceuticals LLC, a Delaware limited liability company (“Timber Sub”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of January 28, 2020 (the “Merger Agreement”), by and among BioPharmX, Timber Sub and BITI Merger, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), as amended by Amendment No. 1 thereto made and entered into as of March 24, 2020 (the “First Amendment”) and Amendment No. 2 thereto made and entered into as of April 27, 2020 (the “Second Amendment”) (the Merger Agreement, as amended by the First Amendment and the Second Amendment, the “Amended Merger Agreement”), pursuant to which Merger Sub merged with and into Timber Sub, with Timber Sub surviving as a wholly-owned subsidiary of the Company (the “Merger”). In connection with, and immediately prior to the completion of, the Merger, BioPharmX effected a reverse stock split of the Company’s common stock, par value $0.001 per share, at a ratio of 1-for-12 (the “Reverse Stock Split”). Immediately after completion of the Merger, BioPharmX changed its name to “Timber Pharmaceuticals, Inc.” and the officers and directors of Timber Sub became the officers and directors of the Company.

Under the terms of the Amended Merger Agreement, BioPharmX issued shares of common stock to the holders of common units of Timber Sub. Immediately after the Merger, there were approximately 11,849,031 shares of common stock outstanding (after the Reverse Stock Split). Pursuant to the terms of the Amended Merger Agreement, the former holders of common units of Timber Sub (including the Investors, as defined below, but excluding Value Appreciation Rights of Timber Sub (“VARs”), owned in the aggregate approximately 88.5% of the outstanding common stock, with the Company’s stockholders immediately prior to the Merger owning approximately 11.5% of the outstanding common stock. The number of shares of common stock issued to the holders of common units of Timber Sub for each common unit of Timber Sub outstanding immediately prior to the Merger was calculated using an exchange ratio of approximately 629.57 shares of common stock for each Timber Sub unit. In addition, the 584 VARs that were outstanding immediately prior to Merger became denoted and payable in 367,670 shares of common stock at the Effective Time of the Merger (the “Effective Time”). Further, the holder of the 1,819,289 preferred units of Timber Sub outstanding immediately prior to the Merger received 1,819 shares of the newly created convertible Series A preferred stock (the “Series A Preferred Stock”) at the Effective Time.

Securities Purchase Agreement

On May 18, 2020, Timber and Timber Sub completed a private placement transaction (the “Pre-Merger Financing”) with the Investors pursuant to the Securities Purchase Agreement for an aggregate purchase price of approximately $25.0 million (comprised of (i) approximately $5 million credit with respect to the senior secured notes issued in connection with the bridge loan that certain of the Investors made to Timber Sub at the time of the execution of the Merger Agreement and (ii) approximately $20 million in cash from the Investors).

Pursuant to the Pre-Merger Financing, (i) Timber Sub issued and sold to the Investors common units of Timber Sub which converted pursuant to the exchange ratio in the Merger into an aggregate of approximately 4,137,509 shares (the “Converted Shares”) of common stock; and (ii) the Company agreed to issue to each Investor, on the tenth trading day following the consummation of the Merger, (A) Series A Warrants representing the right to acquire shares of common stock (“Series A Warrants”) equal to 75% of the sum of (a) the number of Converted Shares issued to the Investor, without giving effect to any limitation on delivery contained in the Securities Purchase Agreement, and (b) the number of shares of common stock underlying the Series B Warrants issued to the Investor (the “Series B Warrants”) and (B) the Series B Warrants. On June 2, 2020, pursuant to the terms of the Securities Purchase Agreement, the Company issued 8,384,764 Series A Warrants to purchase shares of common stock (“Series A Warrants”) and 7,042,175 Series B Warrants to purchase shares of common stock (“Series B Warrants”).

In addition, pursuant to the terms of the Securities Purchase Agreement, dated as of January 28, 2020 between Timber Sub and several of the Investors, the Company issued to such purchasers, on May 22, 2020, warrants to purchase 413,751 shares of common stock (the “Bridge Warrants”) which originally had an exercise price of $2.2362 per share.  As a result of the November 2021 Offering (as defined below), the exercise price of the Bridge Warrants was adjusted to $0.31 per share.

Investor Warrants

Series A Warrants

The Series A Warrants have an exercise price of $1.16 per share, were exercisable upon issuance and will expire on the day following the later to occur of (i) June 2, 2025, and (ii) the date on which the Series A Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable thereunder. As of June 30, 2022, the Series A Warrants are exercisable for 16,701,824 shares of common stock in the aggregate.

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

Transaction, or, if the Fundamental Transaction is not publicly announced, the date the Fundamental Transaction is consummated.

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

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

On November 19, 2020, the Company entered into waiver agreements with each of the holders of the Company’s Series A Warrants. Pursuant to the waiver agreements the holders agreed to waive certain provisions in the Warrants in order to allow for one immediate and final reset of the number of shares of common stock underlying the Warrants and the exercise price of the Series A Warrants, and permanently waive the provisions providing for future resets of the number of shares of common stock underlying the Warrants and the exercise price of the Series A Warrants (other than the anti-dilution protection provisions in the Series A Warrants providing for adjustments to the exercise price of the Series A Warrants upon a dilutive issuance). As a result, the exercise price of the Series A Warrants was set at $1.16 per share and the number of shares underlying all of the Series A Warrants was set at 20,178,214.

Series B Warrants

The Series B Warrants had an exercise price of $0.001 per share, were exercisable upon issuance and were exercised in full on March 4, 2021. The Series B Warrants were exercisable for 22,766,776 shares of common stock in the aggregate.

Bridge Warrants

The Bridge Warrants were issued on May 22, 2020, to the Bridge Investors, had an exercise price of $2.2362 per share, were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Bridge Warrants are exercisable for 413,751 shares of common stock in the aggregate.  As a result of the November 2021 Offering (as defined below), the exercise price of the Bridge Warrants was adjusted to $0.31 per share.  Further, the exercise price of the Bridge Warrants was reduced to the offering price per share of the August 2022 Offering (as defined below) less the Black Scholes value of the common warrants issued in the August 2022 Offering.

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

Upon the consummation of a Fundamental Transaction by the Company, upon any exercise of a Bridge Warrant, the holder shall have the right to receive, for each share of common stock that would have been issuable upon such exercise immediately prior to the occurrence of a Fundamental Transaction, at the option of the holder (without regard to any

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

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

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

November 2021 Offering

On November 2, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC (“H.C. Wainwright”), as representative of the several underwriters named in Schedule I thereto, relating to the public offering, issuance and sale of 21,325,000 shares of common stock and, to certain investors, pre-funded warrants to purchase shares of common stock and accompanying warrants to purchase shares of common stock (the “November 2021 Offering”). After giving effect to the sale of additional shares pursuant to the exercise of the option by H.C. Wainwright that closed on November 9, 2021, the total number of shares of common stock (or common stock equivalents) sold by the Company in the offering was 26,953,125, together with warrants to purchase up to 26,953,125 shares of common stock (the “November Warrants”) issued at the closing on November 5, 2021, for total gross proceeds of $17.25 million before deducting underwriting discounts and commissions and other offering expenses, and net proceeds of approximately $15.8 million. As a result of the offering, the exercise price of the Bridge Warrants was adjusted to $0.31 per share.

Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a November Warrant to purchase one share of common stock. All of the securities sold in the offering were sold by the Company. The public offering price of each share of common stock and accompanying November Warrant was $0.64 and $0.639 for each pre-funded warrant and accompanying November Warrant. The pre-funded warrants were immediately exercisable at a price of $0.001 per share of common stock and were exercised in full on November 5, 2021. The November

Warrants were immediately exercisable at a price of $0.70 per share of common stock and expire five years from the date of issuance. No November Warrants have been exercised as of June 30, 2022, or December 31, 2021, respectively.

Liquidity and Capital Resources

The Company has no product revenues, incurred operating losses since inception, and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable.  The Company had an accumulated deficit of approximately $41.5 million at June 30, 2022, a net loss of approximately $12.6 million, and approximately $8.5 million of net cash used in operating activities for the six months ended June 30, 2022.  As of June 30, 2022, the Company had cash of approximately $8.3 million.

Going Concern

The Company has evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q.  Based on such evaluation and the Company's current plans, which are subject to change, management believes that the Company's existing cash and cash equivalents as of June 30, 2022, were sufficient only to satisfy our operating cash needs into the fourth quarter of 2022.  Thus, the Company’s current cash on hand at June 30, 2022 was potentially not sufficient to satisfy our operating cash needs for the twelve months from the filing of this Quarterly Report on Form 10-Q.  The Company closed on a stock and warrant offering in August 2022 (see Note 9).  However, with the net proceeds of that offering, the Company’s cash and cash equivalents will be sufficient only to satisfy the Company’s operating cash needs into the second quarter of 2023.

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

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

● its ability to raise additional funds to finance its operations, including its ability to access financing that may be unavailable due to contractual limitations under the Securities Purchase Agreement;

● the outcome, costs and timing of clinical trial results for the Company’s current or future product candidates, including the timing, progress, costs and results of its Phase 3 clinical trial of TMB-001 for the treatment of congenital ichthyosis;

● the outcome, timing and cost of meeting regulatory requirements established by the U.S Food and Drug Administration (“FDA”) and other comparable foreign regulatory authorities;

● the emergence and effect of competing or complementary products, including the ability of the Company’s existing and future products to compete effectively;

● its ability to maintain, expand and defend the scope of its intellectual property portfolio, including the amount and timing of any payments the Company may be required to make, or that it may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

● the cost and timing of completion of commercial-scale manufacturing activities if any of its products are approved for commercial sale;

● the cost of establishing sales, marketing and distribution capabilities for its products in regions where it chooses to commercialize its products on its own;

● the initiation, progress, timing and results of the commercialization of its product candidates, if approved for commercial sale, if approved for commercial sale;

● its ability to retain its current employees and the need and ability to hire additional management and scientific and medical personnel; and,

● the terms and timing of any collaborative, licensing or other arrangements that it has or may establish.

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

The impact of the worldwide spread of a novel strain of coronavirus (“COVID-19”) has been unprecedented and unpredictable. Clinical trial activities, including patient enrollment can be impacted at any time. The Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world and its assessment of the impact of COVID-19 may change.

XML

Significant accounting policies

6 Months Ended

Jun. 30, 2022

Significant accounting policies

Significant Accounting Policies

Note 2. Significant accounting policies

Basis of Presentation

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

The results for the unaudited condensed consolidated statement of operations are not necessarily indicative of results to be expected for the year ending December 31, 2022, or for any future interim period. The unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s unaudited condensed consolidated financial statements relate to the valuations of warrants, and equity-based awards. These estimates and assumptions are based on current facts, historical experience and various

other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Reclassifications

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

Research and Development

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

Accrued Outsourcing Costs

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

Fair Value Measurement

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

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

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

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

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

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

As of June 30, 2022, and December 31, 2021, the recorded values of prepaid expenses, accounts payable and accrued expenses, approximate the fair values due to the short-term nature of the instruments.

Leases

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

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

Revenue Recognition

The Company has not yet generated any revenue from product sales. The Company’s source of revenue in 2022 and 2021 has been from grants and one milestone payment in 2021. When grant funds are received after costs have been incurred, the Company records grant revenue upon the receipt of cash.

Warrants

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

Stock-Based Compensation

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

based compensation costs are recorded in general and administrative or research and development costs in the consolidated statements of operations based upon the underlying individual’s role at the Company.

Series A Preferred Stock

The Series A Preferred Stock under redemption is subject to certain limitations under Delaware law. Each share of Series A Preferred Stock is convertible at any time at the holder’s option into a number of shares of common stock (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions as specified in the Certificate of Designations) at a conversion price equal to the stated value of the Series A Preferred Stock of $1,000 (plus any accrued dividends) divided by the conversion price of $18.054. Each share of Series A Preferred Stock is redeemable for cash at the option of the holders, in whole or in part.

On November 23, 2021, the Company received a request for redemption by TardiMed Sciences LLC (“TardiMed”) for the Series A Preferred Stock. The Company’s Series A Preferred Stock, was redeemable at December 31, 2021 subject to certain limitations under Delaware law, and was recorded at the redemption value of $2.1 million.  Interest is accrued on the unredeemed balance at 8%.  The Company has asserted that such right to redemption is currently limited under Delaware corporate law.  As a result of the request, the Series A Preferred Stock has been reclassified as a liability, Redeemable Series A Preferred Stock under redemption.  The Series A Preferred Stock will continue to accrue dividends but as a liability and dividends will be recorded prospectively as non-cash interest expense in the Consolidated Statement of Operations until such time as the Series A Preferred Stock is redeemed (See Notes 5 and 9).

Loss Per Share

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

To calculate the basic EPS numerator, income available to common stockholders must be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not declared) from income from continuing operations and also from net income. If there is a loss from continuing operations or a net loss, the amount of the loss shall be increased by those preferred dividends. The outstanding Series A Preferred Stock has cumulative dividends, whether or not declared.  Accordingly, the Company reduced the numerator for basic EPS by deducting/(increasing) the amount of cumulative preferred dividend from net income/(loss) in each period presented prior to the Company’s Series A Preferred Stock becoming redeemable.

The basic and diluted net loss amounts are the same for the three and six months ended June 30, 2022, and 2021, respectively, as a result of the net loss and anti-dilutive impact of the potentially dilutive securities. Potentially dilutive shares are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, value appreciation rights, and warrants. Potentially dilutive shares issuable upon conversion of the Series A Preferred Stock are calculated using the if-converted method.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Basic and diluted loss per share:
Net (loss) income	$	(9,495,996)	$	(2,966,203)	$	(12,569,390)	$	(4,840,463)
Cumulative dividends on Series A preferred stock		—		(36,286)		—		(72,173)
Net (loss) income attributable to common stockholders	$	(9,495,996)	$	(3,002,489)	$	(12,569,390)	$	(4,912,636)
Basic and diluted weighted average number of shares outstanding		63,731,582		36,659,685		63,684,906		35,872,780
Basic and Diluted net (loss) per share attributable to common stockholders	$	(0.15)	$	(0.08)	$	(0.20)	$	(0.14)

Securities that could potentially dilute income per share in the future were not included in the computation of diluted loss per share for the three-month and six-month periods ended June 30, 2022, and 2021, respectively, because their inclusion would be anti-dilutive are as follows (unaudited):

	June 30,
	2022	2021
Series A warrants	16,701,824	16,701,824
Bridge warrants	413,751	413,751
Value appreciation rights	227,277	367,671
Options to purchase common stock	2,657,640	184,456
Series A preferred stock (if converted)	116,849	100,753
Legacy stock options	15,781	15,781
Legacy warrants	211,770	219,928
Warrants issued in the November 2021 Financing	26,953,125	—
Restricted Stock Units	375,002	—
	47,673,019	18,004,164

Income taxes

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

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

The Company made state income tax payments of $12,231 and $2,000 during the three-month and six-month periods ended June 30, 2022 and 2021, respectively.

Recent accounting pronouncements

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company adopted ASU 2020-06 as of January 1, 2022, and adoption did not have a material the Company’s financial statements or related disclosures.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2021-04 as of January 1, 2022, and adoption did not have a material impact on the Company’s financial statements or disclosures.

XML

Purchases of Assets

6 Months Ended

Jun. 30, 2022

Purchases of Assets

Purchases of Assets

Note 3. Purchases of Assets

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

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

Upon closing of the TMB-001 Acquisition, the Company paid a one-time upfront payment of $50,000 to Patagonia. Patagonia is entitled to up to $27.0 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-001, with the first being $4.0 million for the initiation of a Phase 3 pivotal trial, as agreed with the FDA and defined as the first patient enrolled in such trial for the product. In addition, Patagonia is entitled to net sales earn-out payments ranging from low single digits to mid-double digits. The Company is responsible for all development activities. The first regulatory and commercial milestone was reached in June 2022, and as such the first $4.0 million milestone payment has been accrued at June 30, 2022. There were no milestone payments accrued at December 31, 2021, because the potential regulatory and commercial milestones were not considered probable.

On July 20, 2022, the Company entered into an amendment to the Asset Acquisition Agreement with Patagonia (the “Amendment”). Pursuant to the Amendment, the Company and Patagonia agreed to extend the time for Company’s payment of the first milestone payment, which became payable upon the Company commencing patient enrollment in its Phase 3 ASCEND clinical trial in the second quarter of 2022. The first milestone payment is now payable by the Company

in two tranches, with $2.25 million due on September 1, 2022 and $1.75million plus an additional $0.315 million for a total of $2.065 million due on September 1, 2023. Further, the Company granted Patagonia a security interest in TMB-001 and certain other assets.

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

Upon closing of the TMB-003 Acquisition, the Company paid a one-time upfront payment of $20,000 to Patagonia. Patagonia is entitled to up to $10.25 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-003, with the first being a one-time payment of $250,000 upon the opening of an IND with the FDA. In addition, Patagonia is entitled to net sales earn-out payments ranging from low to mid-single digits. The Company is responsible for all development activities. The potential regulatory and commercial milestones are not yet considered probable, and therefore no milestone payments have been accrued at June 30, 2022, and December 31, 2021, respectively.  

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

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

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

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

Pursuant to the AFT License Agreement, the Company was obligated to reimburse AFT for previously spent development costs, subject to certain limitations, and to pay a one-time, irrevocable, and non-creditable upfront payment to AFT, payable in scheduled installments which was paid in 2020.

AFT is entitled to up to $25.5 million of cash milestone payments if TMB-002 achieved certain regulatory and commercial milestones, with the first payment of $1.0 million upon the successful completion of a Phase 2b trial defined as the achievement of the trial’s primary clinical endpoints.  In addition, AFT was entitled to net sales royalties ranging from high single digits to low double digits for the program licensed. The potential regulatory and commercial milestones were not considered probable as of June 30, 2022, and therefore no milestone payments have been accrued at June 30, 2022, and December 31, 2021, respectively.    

On April 4, 2022, Nobelpharma America LLC (“Nobelpharma”) announced that the U.S. Food and Drug Administration (FDA) had approved HYFTOR™ (sirolimus topical gel) 0.2% as the first topical treatment indicated for facial angiofibroma associated with tuberous sclerosis complex in adults and children six (6) years of age or older. Nobelpharma’s formulation has orphan drug status for this indication. As the Company’s product TMB-002, a topical rapamycin cream, is intended for treatment of the same indication, the Company does not intend to proceed with a pivotal Phase 3 clinical trial of TMB-002 in facial angiofibromas at this time, but instead may evaluate potential strategic opportunities for the asset in markets outside of the U.S. and/or other indications.

On July 23, 2022, the Company provided written notice to AFT of its decision to terminate the AFT License Agreement because the Company believes there is no longer a commercially reasonable path to approval and commercialization for TMB-002 in the United States for facial angiofibromas associated with tuberous sclerosis complex. Additionally, following the receipt and analysis of topline data for the Phase II Clinical Trial (as defined in the AFT License Agreement) it was determined that the study failed to meet its primary efficacy endpoint. Under the AFT License Agreement, the Company was required to provide 120 days’ prior written notice of termination to AFT which was waived by AFT on July 25, 2022 (the “Termination Date”). On the Termination Date, the rights and licenses to TMB-002 reverted to AFT, among other things, as set forth in the AFT License Agreement. As the agreement with AFT has been terminated we will no longer receive any royalties or milestones for any transactions under this agreement.

Other

The Company disbursed approximately $2.225 million for a prepaid CRO payment for the start of its Phase 3 ASCEND study evaluating TMB-001 in CI in April 2022. Approximately $617,000 of this payment remains in prepaid research and development at June 30, 2022.

XML

Accrued Expenses

6 Months Ended

Jun. 30, 2022

Accrued Expenses

Accrued Expenses

Note 4. Accrued Expenses

As of June 30, 2022 and December 31, 2021, the Company’s accrued expenses consisted of the following:

	June 30,		December 31,
	2022		2021
Research and development	$	637,060	$	77,118
Professional fees		329,566		210,343
Personnel expenses		421,857		502,180
Other		20,485		60,916
Total	$	1,408,968	$	850,557

XML

Stockholder's Equity

6 Months Ended

Jun. 30, 2022

Stockholder's Equity

Stockholder's Equity

Note 5. Stockholder’s Equity

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

Series B Warrants

During the six months ended June 30, 2021, the remaining Series B Warrants outstanding totaling 7,474,033 were exercised on a cashless basis, and the Company issued 7,467,652 shares of its common stock.  

	Shares	Weighted		Aggregate
	Underlying	Average		Intrinsic
	Warrants	Exercise Price		Value
Outstanding as of January 1, 2020	7,474,033	$	0.001	$	7,474
Exercised	(7,474,033)	$	0.001		—
Outstanding and exercisable as of June 30, 2021	—	$	—	$	—

Series A Warrants

During the six months ended June 30, 2021, 3,476,390 Series A Warrants were exercised on a cashless basis, and the Company issued 2,059,613 shares of its common stock. The following is a summary of Series A Warrants outstanding as of June 30, 2022:

				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Outstanding as of December 31, 2021	20,178,214	$	1.16	3.4		—
Outstanding and exercisable as of June 30, 2022	20,178,214	$	1.16	2.9	$	—

Bridge Warrants

The following table summarizes the Company’s Bridge Warrants for the six months ended June 30, 2022:

				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Outstanding as of December 31, 2021	413,751	$	0.31	3.4	$	28,963
Outstanding and exercisable as of June 30, 2022	413,751	$	0.31	3.1	$	2,069

November 2021 Warrants

No warrants have been exercised as of June 30, 2022, or December 31, 2021 (See Note 1).

The following table summarizes the Company’s November Warrants for the six months ended June 30, 2022:

				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Outstanding as of December 31, 2021	26,953,125	$	0.70	4.8	$	—

Outstanding and exercisable as of June 30, 2022 26,953,125 $ 0.70 4.4 $ —

Redeemable Series A Preferred Stock

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

Pursuant to the Certificate of Designations, the Company designated 2,500 shares of the Company’s previously undesignated preferred stock as Series A Preferred Stock. The shares of Series A Preferred Stock have no voting rights. The holders of the Series A Preferred Stock are entitled to cumulative dividends from an after the date of issuance at a per annum of eight percent (8.0%) of the stated value. Dividends will be payable as and if declared by the Board out of amounts legally available therefore or upon a liquidation or redemption. Each share of Series A Preferred Stock is convertible at any time at the holder’s option into a number of shares of common stock (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions as specified in the Certificate of Designations) at a conversion price equal to the stated value of the Series A Preferred Stock of $1,000 (plus any accrued dividends) divided by the conversion price, or $18.054. Holders of the Series A Preferred Stock are entitled to a liquidation preference in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company. In addition, upon a Change of Control, the Series A Preferred Stock shall be redeemable for cash at the option of the holders, in whole or in part.

As of May 18, 2020, pursuant to the Merger Agreement, the holder of 1,819,289 preferred units of Timber Sub outstanding immediately prior to the Merger, received 1,819 shares of newly created convertible Series A Preferred Stock. The Company’s Series A Preferred Stock, as to which the holder has demanded redemption, was redeemable at December 31, 2021, subject to certain limitations under Delaware law, and was recorded at the redemption value of approximately $2.2 million at June 30, 2022, and $2.1 million at December 31, 2021, respectively.  Interest is accrued on the unredeemed balance at 8.0% annually.  

On November 23, 2021, the Company received a request for redemption by TardiMed for the Series A Preferred Stock.  The Company has asserted that such right to redemption is currently limited under Delaware corporate law.  As a result of the request, the convertible Series A Preferred Stock was reclassified as a liability, Redeemable Series A Preferred Stock under redemption.  The Series A Preferred Stock will continue to accrue dividends but as a liability, the dividends will be recorded prospectively as non-cash interest expense in the Condensed Consolidated Statement of Operations until such time as the Series A Preferred Stock is redeemed.  The Company recognized non-cash interest expense of $42,077, during the three months ended June 30, 2022, and $96,328 in non-cash interest expense for the six months ended June 30, 2022 and $36,286 and $72,173 of non-cash dividends, for the three months and six months ended June 30, 2021, respectively.  As result of the reclassification interest is now recorded in the Consolidated Statement of Operations rather than additional-paid-in-capital (see Note 9).

XML

Equity-based compensation

6 Months Ended

Jun. 30, 2022

Equity-based compensation

Equity-based compensation

Note 6. Equity-based compensation

On May 18, 2020, the Company’s 2020 Omnibus Equity Incentive Plan (the “2020 Plan”) became effective, and the 2020 Plan reserved a total of 970,833 shares of common stock for issuance. The 2020 Plan provides for options to purchase shares of common stock, stock appreciation rights, restricted stock units, restricted or unrestricted shares of common stock, performance shares, performance units, incentive bonus awards, other stock-based awards and other cash-based awards. Options granted generally vest over a period of three years and have a maximum term of ten years from the date of grant. On April 20, 2021, the Board of Directors of the Company approved an amendment increasing the number of shares available for issuance under the 2020 Plan from 2,056,130 to 4,668,319, which was approved by the Company’s stockholders on July 1, 2021. In accordance with the “evergreen” provision in the 2020 Plan, an additional 2,544,765 shares of common stock were automatically made available for issuance on the first day of 2022, which represents 4% of the number of shares of common stock outstanding on December 31, 2021.  As of June 30, 2022, 7,213,084 shares of common stock were reserved for issuance under the 2020 Plan and there are 2,133,697 shares available for issuance at June 30, 2022.

Furthermore, as a result of the Merger, the Company assumed the TardiMed 2019 Equity Incentive Plan (the “2019 Plan”) from Timber Sub. The 2019 Plan permits the granting of incentive units (the “Incentive Units”). The maximum aggregate Incentive Units that may be subject to awards and issued under the Plan is 699,454. At June 30, 2022, Incentive Units outstanding under the 2019 Plan were 227,275 units and 359,486 units as of December 31, 2021, all comprised of VARs.

During the three and six months ended June 30, 2022 and 2021, respectively, equity-based compensation expenses were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
General and administrative value appreciation right awards	$	5,847	$	12,247	$	(4,906)	$	25,468
Research and development value appreciation right awards		—		549		—		1,092
General and administrative stock options		157,720		36,637		493,499		81,388
Research and development stock options		51,009		—		94,266		—
General and administrative restricted stock units		69,350				69,350
	$	283,926	$	49,433	$	652,209	$	107,948

Value Appreciation Rights

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

During the three months and six months ended June 30, 2022, there were no grants of VARs, 52,884 VARs were forfeited, and 79,326 VARs were exercised.  There were no grants, forfeitures or VARs exercised during the three and six months ended June 30,, 2021. The following is a summary of VARs outstanding as of June 30, 2022:

						Weighted
						Average
		Weighted				Remaining
		Average		Total Intrinsic		Contractual Life
	Number of Units	Exercise Price		Value		(in years)
Outstanding as of December 31, 2021	359,487	$	0.01	$	136,038	7.6
Exercised	(79,326)	$	0.01			-
Forfeited	(52,884)	$	0.01			-
Outstanding as of June 30, 2022	227,277	$	0.01	$	69,319	7.0
Value appreciation right awards vested and exercisable at June 30, 2022	101,991	$	0.01	$	31,107	7.3

As of June 30, 2022, 2022, the unrecognized compensation costs were approximately $0.02 million, which will be recognized over an estimated weighted-average amortization period of 0.3 years.

Stock Options

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

During the three and six months ended June 30, 2022, the Company granted 1,704,000 stock options to purchase common stock to its executive officers, non-employee directors and employees.  The options vest over a period of two to four years.    

No stock options were granted during the three and six-month periods ended June 30, 2021, respectively.

The following is a summary of the options outstanding as of June 30, 2022:

				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Options	Exercise Price		Term (Years)	Value
Outstanding at December 31, 2021	2,696,473	$	1.09	9.6		—
Granted	1,704,000		0.31
Forfeited	(38,833)		2.87	-
Outstanding at June 30, 2022	4,361,640	$	0.77	9.4	$	13,632
Exercisable at June 30, 2022	574,738	$	1.24	9.0	$	—

As of June 30, 2022, the unrecognized compensation costs related to stock options were approximately $0.8 million, which will be recognized over an estimated weighted-average amortization period of 1.24 years.

The following was used in determining the fair value of stock options granted during the three and six months ended      June 30, 2021:

	Three and
	Six Months Ended
	June 30,
	2022
Expected life	5-7 years
Expected volatility	73.50%
Risk-free interest rate	2.79% -2.83%
Expected dividend yield	—

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

				Weighted
	Shares			Average
	Underlying	Weighted		Remaining	Aggregate
	Options and	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Legacy BioPharmX options - June 30, 2022	15,781	$	75.27	0.9	$	—
Legacy BioPharmX warrants - December 31, 2021	213,992	$	87.21	1.8	$	—
Expired	(2,222)	$	225.00	—		—
Legacy BioPharmX warrants - June 30, 2022	211,770	$	85.77	1.3	$	—

Restricted Stock Units

During the quarter ended June 30, 2022, the Company issued Restricted Stock Units (RSUs).  The fair value of the grant is the value of the Company’s stock price at the date of grant multiplied by the number of units.  The RSUs vest monthly and are immediately converted into company stock on the vesting dates.  The Company issued 450,000 RSUs in the three-month period ended June 30, 2022.  The following is a summary of the RSUs outstanding at June 30, 2022:

				Weighted
	Shares			Average
	Underlying			Remaining	Aggregate
	Restricted	Grant Date		Contractual	Intrinsic
	Stock Units	Fair Value		Term (Years)	Value
Outstanding at December 31, 2021	—	$	—	—	$	—
Granted	450,000	$	0.31	1.0		139,500
Vested	(74,998)	$	0.31	—	$	—
Unvested at June 30, 2022	375,002	$	0.31	0.8	$	116,251

XML

Commitments and contingencies

6 Months Ended

Jun. 30, 2022

Commitments and contingencies

Commitments and contingencies

Note 7. Commitments and contingencies

Leases

On March 10, 2021, the Company entered into a lease agreement with SIG 110 LLC with respect to a 3,127 square foot office space at 110 Allen Road, Suite 401, Basking Ridge, New Jersey. Pursuant to the terms of the lease agreement, the initial term is for twenty-four (24) months expiring on March 10, 2023. The initial base rent is $4,690.50 per month for the first twelve (12) months and $6,514.58 for the remaining twelve (12) months. During the six months ended June 30, 2021, in connection with the lease, the Company paid a security deposit of $13,000, which is included in deposits on the accompanying condensed consolidated balance sheet as of June 30, 2022.

In connection with the Merger of BioPharmX, the Company acquired a lease and corresponding sublease for the BioPharmX facility in San Jose, California. The sublease is to be used for general office and research laboratory purposes, has an effective date of February 1, 2020, and has a lease term of 4 years which expires on December 30, 2023. The lease expense is significantly reduced by the payments received in connection with the sublease.

The components of lease expense were as follows:

	Three months ended		Six Months Ended
		June 30, 2022
Operating leases:
Operating lease cost	$	99,143	$	198,285
Variable lease cost		23,926		42,351
Operating lease expense	$	123,069	$	240,636
Lease income - sub lease		(106,761)		(213,522)
Net rent expense	$	16,308	$	27,114
	Three months ended		Six Months Ended
		June 30, 2021
Operating leases:
Operating lease cost	$	99,142	$	185,273
Variable lease cost		26,760		52,151
Operating lease expense	$	125,902	$	237,424
Lease income - sub lease		(108,256)		(211,563)
Net rent expense	$	17,646	$	25,861

Other information:

	Six Months Ended
		June 30, 2022			June 30, 2021
Operating cash flows - operating leases	$	201,134		$	178,577
Right-of-use assets obtained in exchange for operating lease liabilities	$	—		$	122,809
Weighted-average remaining lease term – operating leases		1.4			2.4
Weighted-average discount rate – operating leases		14.3	%		14.1	%

As of June 30, 2022, future minimum payments for the leases are as follows:

	Operating
	Leases
Six Months Ended December 31, 2022	$	205,372
Year Ended December 31, 2023		357,599
Total	$	562,971
Less present value discount		(57,677)
Operating lease liabilities	$	505,294

Litigation

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

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

XML

Related Party Transactions

6 Months Ended

Jun. 30, 2022

Related Party Transactions

Related Party Transactions

Note 8. Related Party Transactions

Patagonia

Patagonia is a private, family-owned company founded in 2013 to address the medical needs of people with rare and serious dermatological conditions. On February 28, 2019, and June 26, 2019, the Company acquired the TMB-001 and TMB-003 licenses from Patagonia (see Notes 3 and 9 for the payment terms and more details), respectively. Zachary Rome, a former member of the board of directors as well as the former Chief Operating Officer, Executive Vice-President and Secretary of the Company is also the President of Patagonia. As of June 30, 2022, and December 31, 2021, Patagonia owns 45 shares of the Company’s common stock.

On March 4, 2022, Mr. Rome stepped down from his positions as Chief Operating Officer and Executive Vice-President  of the Company. As a result of his resignation, Mr. Rome (i) was entitled to 79,326 shares of common stock underlying vested VARs, or $22,528, at the Company’s election, and (ii) forfeited 52,884 VARs. On March 4, 2022, Mr. Rome received 59,696 shares of common stock net upon exercise of the VARs after tax withholding.

TardiMed

The former Chairman of the Board of the Company is a Managing Member of TardiMed. Mr. Rome, a former member of the board of directors as well as the former Chief Operating Officer, Executive Vice President and Secretary is a partner at TardiMed.  Our Chief Financial Officer, Treasurer, Secretary, and Executive Vice President of the Company was also a former partner of TardiMed. As of June 30, 2022, TardiMed holds 3,109,067 shares of common stock, which represents approximately 4.9% of the total voting shares outstanding.  The Company had no reimbursements to TardiMed in the three and six-month periods ended June 30, 2022, and reimbursed TardiMed $63,936 for management fees and reimbursed

expenses in the six-month period ended June 30, 2021.  As of June 30, 2022, TardiMed holds 1,819 shares of Series A Preferred Stock (see Notes 5 and 9).

XML

Subsequent Events

6 Months Ended

Jun. 30, 2022

Subsequent Events

Subsequent Events

Note 9. Subsequent Events

The Company has evaluated its subsequent events from June 30, 2022, through the date these condensed consolidated financial statements were issued and has determined that there are no subsequent events requiring disclosure in these condensed consolidated financial statements other than the items noted below.

On July 20, 2022, the Company entered into the Amendment to the Asset Acquisition Agreement with Patagonia (the “Amendment”). Pursuant to the Amendment, the Company and Patagonia agreed to extend the time for Company’s payment of the first milestone payment, which became payable upon the commencement of patient enrollment in our Phase 3 ASCEND clinical trial in the second quarter of 2022. The Company’s first milestone payment is now payable in two tranches, with $2.25 million due on September 1, 2022 and $1.75 million and $0.315million for a total of $2.065 million due on September 1, 2023. Further, the Company granted Patagonia a security interest in TMB-001 and certain other assets.

On July 27, 2022, the Company, entered into a letter agreement (the “Letter Agreement”) with TardiMed pursuant to which TardiMed agreed to exchange its 1,819 shares of the Company’s Series A Preferred Stock (the “Series A Preferred Stock”) plus accrued dividends for a pre-funded warrant (the “Warrant”) to purchase 9,054,132 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”).  The number of shares underlying the Warrant is based on the redemption price of the Series A Preferred Stock (which had been demanded by TardiMed) divided by $0.239, the last closing price of the Common Stock prior to the date the Letter Agreement was executed.

Twenty percent of the Warrant is immediately exercisable upon issuance. Beginning on September 30, 2022, and then at the end of each subsequent calendar quarter upon written request of TardiMed, the Company will allow an additional 20% of the initial balance of the Warrant to become exercisable, provided that only 20% of the initial balance of the Warrant will be exercisable in any given quarter. The Warrant’s exercise price is $0.0001 and may be exercised on a cashless basis. The Warrant will terminate when exercised in full. On August 3, 2022, 20% of the Warrant was exercised on a cashless basis and 1,809,280 shares of Common Stock were issued to TardiMed.

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

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

In August 4, 2022, the Company announced the pricing of the public offering (the “August 2022 Offering”) of (i) 46,583,333 shares (the “Shares”) of Common Stock, (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 20,083,334 shares of Common Stock (the “Pre-Funded Warrant Shares”) and (iii) common warrants (the “Common Warrants”) to purchase up to an aggregate of 66,666,667 shares of Common Stock (the “Common Warrant Shares” and, together with the Pre-Funded Warrant Shares, the “Warrant Shares”). Each Share and Pre-Funded Warrant to purchase one share of Common Stock was sold together with a Common Warrant to purchase one share of Common Stock. All of the securities sold in the August 2022 Offering were sold by the Company. The public offering price of each Share and accompanying Common Warrant was $0.12 and $0.1199 for each Pre-Funded Warrant and accompanying Common Warrant. The Pre-Funded Warrants were immediately exercisable at a price of $0.0001 per share of Common Stock and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. The Common Warrants are immediately exercisable at a price of $0.12 per share of Common Stock and will expire five years from the date of issuance. The Shares and Pre-Funded warrants, and the accompanying Common Warrants, were issued separately and were immediately separable upon issuance. The August 2022 Offering closed on August 8, 2022. All of the Pre-Funded Warrants were exercised, and none remain outstanding.

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

XML

Significant accounting policies (Policies)

6 Months Ended

Jun. 30, 2022

Significant accounting policies

Basis of Presentation

Basis of Presentation

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

The results for the unaudited condensed consolidated statement of operations are not necessarily indicative of results to be expected for the year ending December 31, 2022, or for any future interim period. The unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s unaudited condensed consolidated financial statements relate to the valuations of warrants, and equity-based awards. These estimates and assumptions are based on current facts, historical experience and various

other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Reclassifications

Reclassifications

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

Research and Development

Research and Development

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

Accrued Outsourcing Costs

Accrued Outsourcing Costs

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

Fair Value Measurement

Fair Value Measurement

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

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

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

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

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

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

As of June 30, 2022, and December 31, 2021, the recorded values of prepaid expenses, accounts payable and accrued expenses, approximate the fair values due to the short-term nature of the instruments.

Leases

Leases

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

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

Revenue Recognition

Revenue Recognition

The Company has not yet generated any revenue from product sales. The Company’s source of revenue in 2022 and 2021 has been from grants and one milestone payment in 2021. When grant funds are received after costs have been incurred, the Company records grant revenue upon the receipt of cash.

Warrants

Warrants

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

Stock-Based Compensation

Stock-Based Compensation

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

based compensation costs are recorded in general and administrative or research and development costs in the consolidated statements of operations based upon the underlying individual’s role at the Company.

Series A Preferred Stock

Series A Preferred Stock

The Series A Preferred Stock under redemption is subject to certain limitations under Delaware law. Each share of Series A Preferred Stock is convertible at any time at the holder’s option into a number of shares of common stock (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions as specified in the Certificate of Designations) at a conversion price equal to the stated value of the Series A Preferred Stock of $1,000 (plus any accrued dividends) divided by the conversion price of $18.054. Each share of Series A Preferred Stock is redeemable for cash at the option of the holders, in whole or in part.

On November 23, 2021, the Company received a request for redemption by TardiMed Sciences LLC (“TardiMed”) for the Series A Preferred Stock. The Company’s Series A Preferred Stock, was redeemable at December 31, 2021 subject to certain limitations under Delaware law, and was recorded at the redemption value of $2.1 million.  Interest is accrued on the unredeemed balance at 8%.  The Company has asserted that such right to redemption is currently limited under Delaware corporate law.  As a result of the request, the Series A Preferred Stock has been reclassified as a liability, Redeemable Series A Preferred Stock under redemption.  The Series A Preferred Stock will continue to accrue dividends but as a liability and dividends will be recorded prospectively as non-cash interest expense in the Consolidated Statement of Operations until such time as the Series A Preferred Stock is redeemed (See Notes 5 and 9).

Loss Per Share

Loss Per Share

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

To calculate the basic EPS numerator, income available to common stockholders must be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not declared) from income from continuing operations and also from net income. If there is a loss from continuing operations or a net loss, the amount of the loss shall be increased by those preferred dividends. The outstanding Series A Preferred Stock has cumulative dividends, whether or not declared.  Accordingly, the Company reduced the numerator for basic EPS by deducting/(increasing) the amount of cumulative preferred dividend from net income/(loss) in each period presented prior to the Company’s Series A Preferred Stock becoming redeemable.

The basic and diluted net loss amounts are the same for the three and six months ended June 30, 2022, and 2021, respectively, as a result of the net loss and anti-dilutive impact of the potentially dilutive securities. Potentially dilutive shares are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, value appreciation rights, and warrants. Potentially dilutive shares issuable upon conversion of the Series A Preferred Stock are calculated using the if-converted method.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Basic and diluted loss per share:
Net (loss) income	$	(9,495,996)	$	(2,966,203)	$	(12,569,390)	$	(4,840,463)
Cumulative dividends on Series A preferred stock		—		(36,286)		—		(72,173)
Net (loss) income attributable to common stockholders	$	(9,495,996)	$	(3,002,489)	$	(12,569,390)	$	(4,912,636)
Basic and diluted weighted average number of shares outstanding		63,731,582		36,659,685		63,684,906		35,872,780
Basic and Diluted net (loss) per share attributable to common stockholders	$	(0.15)	$	(0.08)	$	(0.20)	$	(0.14)

Securities that could potentially dilute income per share in the future were not included in the computation of diluted loss per share for the three-month and six-month periods ended June 30, 2022, and 2021, respectively, because their inclusion would be anti-dilutive are as follows (unaudited):

	June 30,
	2022	2021
Series A warrants	16,701,824	16,701,824
Bridge warrants	413,751	413,751
Value appreciation rights	227,277	367,671
Options to purchase common stock	2,657,640	184,456
Series A preferred stock (if converted)	116,849	100,753
Legacy stock options	15,781	15,781
Legacy warrants	211,770	219,928
Warrants issued in the November 2021 Financing	26,953,125	—
Restricted Stock Units	375,002	—
	47,673,019	18,004,164

Income taxes

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

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

The Company made state income tax payments of $12,231 and $2,000 during the three-month and six-month periods ended June 30, 2022 and 2021, respectively.

Income taxes

	June 30,
	2022	2021
Series A warrants	16,701,824	16,701,824
Bridge warrants	413,751	413,751
Value appreciation rights	227,277	367,671
Options to purchase common stock	2,657,640	184,456
Series A preferred stock (if converted)	116,849	100,753
Legacy stock options	15,781	15,781
Legacy warrants	211,770	219,928
Warrants issued in the November 2021 Financing	26,953,125	—
Restricted Stock Units	375,002	—
	47,673,019	18,004,164

Recent accounting pronouncements

Recent accounting pronouncements

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company adopted ASU 2020-06 as of January 1, 2022, and adoption did not have a material the Company’s financial statements or related disclosures.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2021-04 as of January 1, 2022, and adoption did not have a material impact on the Company’s financial statements or disclosures.

XML

Significant accounting policies (Tables)

6 Months Ended

Jun. 30, 2022

Significant accounting policies

Summary of reconciliation of numerator and denominator of diluted net loss per share

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Basic and diluted loss per share:
Net (loss) income	$	(9,495,996)	$	(2,966,203)	$	(12,569,390)	$	(4,840,463)
Cumulative dividends on Series A preferred stock		—		(36,286)		—		(72,173)
Net (loss) income attributable to common stockholders	$	(9,495,996)	$	(3,002,489)	$	(12,569,390)	$	(4,912,636)
Basic and diluted weighted average number of shares outstanding		63,731,582		36,659,685		63,684,906		35,872,780
Basic and Diluted net (loss) per share attributable to common stockholders	$	(0.15)	$	(0.08)	$	(0.20)	$	(0.14)

Schedule of anti dilutive securities excluded in the computation of diluted loss per share

	June 30,
	2022	2021
Series A warrants	16,701,824	16,701,824
Bridge warrants	413,751	413,751
Value appreciation rights	227,277	367,671
Options to purchase common stock	2,657,640	184,456
Series A preferred stock (if converted)	116,849	100,753
Legacy stock options	15,781	15,781
Legacy warrants	211,770	219,928
Warrants issued in the November 2021 Financing	26,953,125	—
Restricted Stock Units	375,002	—
	47,673,019	18,004,164

XML

Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2022

Accrued Expenses

Schedule of accrued expenses

As of June 30, 2022 and December 31, 2021, the Company’s accrued expenses consisted of the following:

	June 30,		December 31,
	2022		2021
Research and development	$	637,060	$	77,118
Professional fees		329,566		210,343
Personnel expenses		421,857		502,180
Other		20,485		60,916
Total	$	1,408,968	$	850,557

XML

Stockholder's Equity (Tables)

6 Months Ended

Jun. 30, 2022

Series A Warrants

STOCKHOLDERS' DEFICIT

Schedule of warrants outstanding

				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Outstanding as of December 31, 2021	20,178,214	$	1.16	3.4		—
Outstanding and exercisable as of June 30, 2022	20,178,214	$	1.16	2.9	$	—

Series B Warrants

STOCKHOLDERS' DEFICIT

Schedule of warrants outstanding

	Shares	Weighted		Aggregate
	Underlying	Average		Intrinsic
	Warrants	Exercise Price		Value
Outstanding as of January 1, 2020	7,474,033	$	0.001	$	7,474
Exercised	(7,474,033)	$	0.001		—
Outstanding and exercisable as of June 30, 2021	—	$	—	$	—

Bridge warrants

STOCKHOLDERS' DEFICIT

Schedule of warrants outstanding

				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Outstanding as of December 31, 2021	413,751	$	0.31	3.4	$	28,963
Outstanding and exercisable as of June 30, 2022	413,751	$	0.31	3.1	$	2,069

November 2021

STOCKHOLDERS' DEFICIT

Schedule of warrants outstanding

				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Outstanding as of December 31, 2021	26,953,125	$	0.70	4.8	$	—

Outstanding and exercisable as of June 30, 2022 26,953,125 $ 0.70 4.4 $ —

XML

Equity-based compensation (Tables)

6 Months Ended

Jun. 30, 2022

Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]

Summary of stock based compensation expense

During the three and six months ended June 30, 2022 and 2021, respectively, equity-based compensation expenses were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
General and administrative value appreciation right awards	$	5,847	$	12,247	$	(4,906)	$	25,468
Research and development value appreciation right awards		—		549		—		1,092
General and administrative stock options		157,720		36,637		493,499		81,388
Research and development stock options		51,009		—		94,266		—
General and administrative restricted stock units		69,350				69,350
	$	283,926	$	49,433	$	652,209	$	107,948

Summary of VARs issued and outstanding

						Weighted
						Average
		Weighted				Remaining
		Average		Total Intrinsic		Contractual Life
	Number of Units	Exercise Price		Value		(in years)
Outstanding as of December 31, 2021	359,487	$	0.01	$	136,038	7.6
Exercised	(79,326)	$	0.01			-
Forfeited	(52,884)	$	0.01			-
Outstanding as of June 30, 2022	227,277	$	0.01	$	69,319	7.0
Value appreciation right awards vested and exercisable at June 30, 2022	101,991	$	0.01	$	31,107	7.3

Summary of stock options outstanding

The following is a summary of the options outstanding as of June 30, 2022:

				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Options	Exercise Price		Term (Years)	Value
Outstanding at December 31, 2021	2,696,473	$	1.09	9.6		—
Granted	1,704,000		0.31
Forfeited	(38,833)		2.87	-
Outstanding at June 30, 2022	4,361,640	$	0.77	9.4	$	13,632
Exercisable at June 30, 2022	574,738	$	1.24	9.0	$	—

Summary of valuation assumptions were used to calculate the estimated fair value of awards granted

The following was used in determining the fair value of stock options granted during the three and six months ended      June 30, 2021:

	Three and
	Six Months Ended
	June 30,
	2022
Expected life	5-7 years
Expected volatility	73.50%
Risk-free interest rate	2.79% -2.83%
Expected dividend yield	—

Stock options and warrants

Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]

Summary of stock options outstanding

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

				Weighted
	Shares			Average
	Underlying	Weighted		Remaining	Aggregate
	Options and	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Legacy BioPharmX options - June 30, 2022	15,781	$	75.27	0.9	$	—
Legacy BioPharmX warrants - December 31, 2021	213,992	$	87.21	1.8	$	—
Expired	(2,222)	$	225.00	—		—
Legacy BioPharmX warrants - June 30, 2022	211,770	$	85.77	1.3	$	—

Restricted Stock Units

Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]

Summary of stock options outstanding

				Weighted
	Shares			Average
	Underlying			Remaining	Aggregate
	Restricted	Grant Date		Contractual	Intrinsic
	Stock Units	Fair Value		Term (Years)	Value
Outstanding at December 31, 2021	—	$	—	—	$	—
Granted	450,000	$	0.31	1.0		139,500
Vested	(74,998)	$	0.31	—	$	—
Unvested at June 30, 2022	375,002	$	0.31	0.8	$	116,251

XML

Commitments and contingencies (Tables)

6 Months Ended

Jun. 30, 2022

Commitments and contingencies

Schedule of components of lease expense

	Three months ended		Six Months Ended
		June 30, 2022
Operating leases:
Operating lease cost	$	99,143	$	198,285
Variable lease cost		23,926		42,351
Operating lease expense	$	123,069	$	240,636
Lease income - sub lease		(106,761)		(213,522)
Net rent expense	$	16,308	$	27,114
	Three months ended		Six Months Ended
		June 30, 2021
Operating leases:
Operating lease cost	$	99,142	$	185,273
Variable lease cost		26,760		52,151
Operating lease expense	$	125,902	$	237,424
Lease income - sub lease		(108,256)		(211,563)
Net rent expense	$	17,646	$	25,861

Schedule of Other Information

	Six Months Ended
		June 30, 2022			June 30, 2021
Operating cash flows - operating leases	$	201,134		$	178,577
Right-of-use assets obtained in exchange for operating lease liabilities	$	—		$	122,809
Weighted-average remaining lease term – operating leases		1.4			2.4
Weighted-average discount rate – operating leases		14.3	%		14.1	%

Schedule of future minimum payments

	Operating
	Leases
Six Months Ended December 31, 2022	$	205,372
Year Ended December 31, 2023		357,599
Total	$	562,971
Less present value discount		(57,677)
Operating lease liabilities	$	505,294

XML

Organization and description of business operations - Merger Agreement (Details)	May 18, 2020 $ / shares shares	Jun. 30, 2022 $ / shares shares	Dec. 31, 2021 $ / shares shares
Merger Agreement
Common stock, par value (in dollars per share) | $ / shares		$ 0.001	$ 0.001
Common shares outstanding		63,753,834	63,619,140
VARs
Merger Agreement
Outstanding at the ending (in shares)		227,277	359,487
Merger Agreement
Merger Agreement
Common stock, par value (in dollars per share) | $ / shares	$ 0.001
Conversion reverse stock split ratio	0.0833
Common shares outstanding	11,849,031
Merger Agreement | BioPharmX
Merger Agreement
Outstanding common stock owned	88.50%
Merger Agreement | Timber Sub
Merger Agreement
Ownership held by stockholders	11.50%
Common stock issued per unit	629.57
Common stock issued for VARs	367,670
Preferred units before merger	1,819,289
Merger Agreement | Timber Sub | VARs
Merger Agreement
Outstanding at the ending (in shares)	584
Merger Agreement | Timber Sub | Series A preferred stock (if converted)
Merger Agreement
Common stock on conversion of units	1,819

XML

Organization and description of business operations - Securities Purchase Agreement (Details) - USD ($) $ / shares in Units, $ in Millions	May 22, 2020	May 18, 2020	Jun. 30, 2022	Jun. 02, 2020
Bridge warrants
Securities Purchase Agreement
Warrant exercise price	$ 0.31
Series A Warrants
Securities Purchase Agreement
Warrants to purchase shares			16,701,824
Warrants exercise price (in dollars per share)			$ 1.16
Securities Purchase Agreement
Securities Purchase Agreement
Number of shares issued upon conversion		4,137,509
Securities Purchase Agreement | Bridge warrants
Securities Purchase Agreement
Warrants to purchase shares	413,751
Warrants exercise price (in dollars per share)	$ 2.2362
Securities Purchase Agreement | Series A Warrants
Securities Purchase Agreement
Percentage of right to acquire shares		75.00%
Warrants to purchase shares				8,384,764
Securities Purchase Agreement | Series B Warrants
Securities Purchase Agreement
Warrants to purchase shares				7,042,175
Securities Purchase Agreement | Timber Sub
Securities Purchase Agreement
Cash proceeds from issuance of common units		$ 20.0
Private Placement | Securities Purchase Agreement
Securities Purchase Agreement
Aggregate purchase price		25.0
Private Placement | Securities Purchase Agreement | Bridge Loan
Securities Purchase Agreement
Aggregate purchase price		$ 5.0

XML

Organization and description of business operations - Series A Warrants, Series B Warrants, Bridge Warrants (Details) - $ / shares		6 Months Ended
	May 22, 2020	Jun. 30, 2022	Mar. 04, 2021	Nov. 19, 2020
Series A Warrants
Warrants
Warrants exercise price (in dollars per share)				$ 1.16
Warrants to purchase shares				20,178,214
Percentage of market trading price to be paid for undeliverable shares		1.50%
Series B Warrants
Warrants
Warrants exercise price (in dollars per share)			$ 0.001
Warrants to purchase shares			22,766,776
Bridge warrants
Warrants
Warrants exercise price (in dollars per share)	$ 2.2362
Term of warrants	5 years
Warrants to purchase shares	413,751
Warrant exercise price	$ 0.31
Bridge warrants | Minimum
Warrants
Percentage of exercise price on reset price	4.99%
Bridge warrants | Maximum
Warrants
Percentage of exercise price on reset price	9.99%

XML

Organization and description of business operations - November 2021 Offering (Details) - USD ($) $ / shares in Units, $ in Thousands				6 Months Ended	12 Months Ended
	Nov. 09, 2021	Nov. 05, 2021	Nov. 02, 2021	Jun. 30, 2022	Dec. 31, 2021
Class of Warrant or Right [Line Items]
Common shares outstanding				63,753,834	63,619,140
November 2021
Class of Warrant or Right [Line Items]
Number of warrants exercised				0	0
Underwriting Agreement
Class of Warrant or Right [Line Items]
Share issue price			$ 0.64
Initial exercise price	$ 0.31
Issuance of common stock and warrants, net of issuance costs (in shares)			21,325,000
Common shares outstanding	26,953,125
Proceeds from the issuance of common stock and warrants, gross	$ 17,250
Proceeds from the issuance of common stock and warrants, net of issuance costs	$ 15,800
Underwriting Agreement | Maximum
Class of Warrant or Right [Line Items]
Warrants to purchase shares	26,953,125
Underwriting Agreement | November 2021
Class of Warrant or Right [Line Items]
Warrant exercise price		$ 0.70
Number of warrants exercised				0	0
Term of warrants		5 years
Underwriting Agreement | Prefunded warrants
Class of Warrant or Right [Line Items]
Initial exercise price			$ 0.639
Warrants to purchase shares			1
Shares per warrant			1
Warrant exercise price		$ 0.001

XML

Organization and description of business operations - Liquidity and Capital Resources (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
Organization and description of business operations
Accumulated deficit	$ 41,453,932		$ 41,453,932		$ 28,884,542
Net loss	9,495,996	$ 2,966,203	12,569,390	$ 4,840,463
Net cash used in operating activities			8,528,864	$ 4,202,755
Cash	$ 8,273,728		$ 8,273,728		$ 16,808,539

XML

Significant accounting policies - Additional information (Details) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021	May 18, 2020
Class of Stock [Line Items]
Cumulative dividends percentage	8.00%		8.00%		8.00%
State income tax payments made	$ 12,231	$ 2,000	$ 12,231	$ 2,000
Series A preferred stock (if converted)
Class of Stock [Line Items]
Minimum Conversion Price						$ 1,000
Per share of final price						$ 18.054
Cumulative dividends percentage						8.00%
Timber Sub | Redeemable Series A Convertible Preferred Stock
Class of Stock [Line Items]
Temporary Equity, Accretion to Redemption Value			$ 2,200,000		$ 2,100,000

XML

Significant accounting policies - Summary of reconciliation of numerator and denominator of diluted net loss per share (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Significant accounting policies
Net (loss) income	$ (9,495,996)	$ (2,966,203)	$ (12,569,390)	$ (4,840,463)
Cumulative dividends on Series A preferred stock		(36,286)		(72,173)
Net loss attributable to common stockholders	$ (9,495,996)	$ (3,002,489)	$ (12,569,390)	$ (4,912,636)
Basic weighted average number of shares outstanding	63,731,582	36,659,685	63,684,906	35,872,780
Diluted weighted average number of shares outstanding	63,731,582	36,659,685	63,684,906	35,872,780
Basic net loss per share attributable to common stockholders	$ (0.15)	$ (0.08)	$ (0.20)	$ (0.14)
Diluted net loss per share attributable to common stockholders	$ (0.15)	$ (0.08)	$ (0.20)	$ (0.14)

XML

Significant accounting policies - Anti-dilutive loss per share (Details) - shares	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted loss per share	47,673,019	18,004,164
Series A Warrants
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted loss per share	16,701,824	16,701,824
Bridge Warrants
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted loss per share	413,751	413,751
Variable appreciation rights
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted loss per share	227,277	367,671
Options to purchase common stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted loss per share	2,657,640	184,456
Series A preferred stock (if converted)
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted loss per share	116,849	100,753
Legacy stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted loss per share	15,781	15,781
Legacy warrants
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted loss per share	211,770	219,928
Warrants issued in the November 2021 Financing
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted loss per share	26,953,125
Restricted Stock Units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted loss per share	375,002

XML

Purchases of Assets (Details)		6 Months Ended
	Apr. 30, 2022 USD ($)	Jun. 30, 2022 USD ($)	Jul. 20, 2022 USD ($) tranche	Dec. 31, 2021 USD ($)
Finite-Lived Intangible Assets [Line Items]
Payment of milestone current		$ 2,250,000
Payment of milestone non current		1,750,000
Prepaid research and development		767,650		$ 66,217
TMB-001 License
Finite-Lived Intangible Assets [Line Items]
Milestone payments made	$ 2,225,000
Prepaid research and development		617,000
Patagonia license agreement | TMB-001 License
Finite-Lived Intangible Assets [Line Items]
Upfront fee		50,000
Cash milestone payments		27,000,000.0
Initial cash milestone		4,000,000.0
Accrued milestone payments		4,000,000.0		0
Patagonia license agreement | TMB-003 License
Finite-Lived Intangible Assets [Line Items]
Upfront fee		20,000
Cash milestone payments		10,250,000
Initial cash milestone		250,000
Accrued milestone payments		0		0
Patagonia license agreement | Subsequent event | TMB-001 License
Finite-Lived Intangible Assets [Line Items]
Number of tranches | tranche			2
Payment of milestone current			$ 2,250,000
Payment of milestone non current			1,750,000
Additional to second milestone payment			315,000
Total of second milestone payment			$ 2,065,000.000
AFT license agreement | TMB-002 License
Finite-Lived Intangible Assets [Line Items]
Cash milestone payments		25,500,000
Initial cash milestone		1,000,000.0
Accrued milestone payments		$ 0		$ 0

XML

Accrued Expenses (Details) - USD ($)	Jun. 30, 2022	Dec. 31, 2021
Accrued Expenses
Research and development	$ 637,060	$ 77,118
Professional fees	329,566	210,343
Personnel expenses	421,857	502,180
Other	20,485	60,916
Total	$ 1,408,968	$ 850,557

XML

Stockholder's Equity - Series A & B Warrants (Details) - USD ($)	6 Months Ended		12 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021	Dec. 31, 2020
Series A Warrants
Class of Stock [Line Items]
Outstanding, beginning of period	20,178,214
Exercised		(3,476,390)
Outstanding and exercisable, end of period	20,178,214		20,178,214
Weighted Average Exercise Price Rollforward
Weighted Average Exercise Price	$ 1.16		$ 1.16
Weighted Average Remaining Contractual Term (Years) rollforward
Weighted average remaining contractual term ( in years)	2 years 10 months 24 days		3 years 4 months 24 days
Issuance of common stock in warrant exchange (in shares)		2,059,613
Series B Warrants
Class of Stock [Line Items]
Outstanding, beginning of period		7,474,033	7,474,033
Exercised		(7,474,033)
Outstanding and exercisable, end of period				7,474,033
Weighted Average Exercise Price Rollforward
Weighted Average Exercise Price				$ 0.001
Weighted Average Price, Exercised		$ 0.001
Weighted Average Remaining Contractual Term (Years) rollforward
Aggregate Intrinsic Value				$ 7,474
Issuance of common stock in warrant exchange (in shares)		7,467,652
Bridge warrants
Class of Stock [Line Items]
Outstanding, beginning of period	413,751
Outstanding and exercisable, end of period	413,751		413,751
Weighted Average Exercise Price Rollforward
Weighted Average Exercise Price	$ 0.31		$ 0.31
Weighted Average Remaining Contractual Term (Years) rollforward
Weighted average remaining contractual term ( in years)	3 years 1 month 6 days		3 years 4 months 24 days
Aggregate Intrinsic Value	$ 2,069		$ 28,963
November 2021
Class of Stock [Line Items]
Outstanding, beginning of period	26,953,125
Outstanding and exercisable, end of period	26,953,125		26,953,125
Weighted Average Exercise Price Rollforward
Weighted Average Exercise Price	$ 0.70		$ 0.70
Weighted Average Remaining Contractual Term (Years) rollforward
Weighted average remaining contractual term ( in years)	4 years 4 months 24 days		4 years 9 months 18 days
Number of warrants exercised	0		0

XML

Stockholder's Equity - Redeemable Series A Preferred Stock (Details) - USD ($)		3 Months Ended		6 Months Ended		12 Months Ended
	May 18, 2020	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
Class of Stock [Line Items]
Cumulative dividends percentage		8.00%		8.00%		8.00%
Non-cash interest expense				$ 96,328
Series A preferred stock (if converted)
Class of Stock [Line Items]
Preferred stock designated	2,500
Cumulative dividends percentage	8.00%
Minimum conversion price	$ 1,000
Per share of final price	$ 18.054
Redeemable Series A Convertible Preferred Stock
Class of Stock [Line Items]
Non-cash interest expense		$ 42,077	$ 36,286	96,328	$ 72,173
Timber Sub | Redeemable Series A Convertible Preferred Stock
Class of Stock [Line Items]
Preferred units before merger	1,819,289
Common stock on conversion of units	1,819
Temporary Equity, Accretion to Redemption Value				$ 2,200,000		$ 2,100,000

XML

Equity-based compensation (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense	$ 283,926	$ 49,433	$ 652,209	$ 107,948
Employee value appreciation right awards | General and administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense	5,847	12,247	(4,906)	25,468
Employee value appreciation right awards | Research and development
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense		549		1,092
Stock Options | General and administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense	157,720	$ 36,637	493,499	$ 81,388
Stock Options | Research and development
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense	51,009		94,266
Restricted Stock Units | General and administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense	$ 69,350		$ 69,350

XML

Equity-based compensation - Value Appreciation Rights (Details) - VARs - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Number of Units
Outstanding, beginning of period (in shares)	359,487
Exercised (in shares)	(79,326)
Forfeited (in shares)	(52,884)
Outstanding, end of period (in shares)	227,277	359,487
Value appreciation right awards vested and expected to vest (in shares)	101,991
Weighted Average Exercise Price
Outstanding, beginning of period (in dollars per shares)	$ 0.01
Exercised (in dollar per share)	0.01
Forfeited (in dollars per share)	0.01
Outstanding, end of period (in dollars per shares)	0.01	$ 0.01
Value appreciation right awards vested and expected to vest (in dollars per shares)	$ 0.01
Total Intrinsic Value
Outstanding, beginning of period, intrinsic value	$ 136,038
Outstanding, end of period, intrinsic value	69,319	$ 136,038
Value appreciation right awards vested and expected to vest	$ 31,107
Weighted Average Remaining Contractual Life (in years)
Outstanding (in years)	7 years	7 years 7 months 6 days
Value appreciation right awards vested and expected to vest (in years)	7 years 3 months 18 days

XML

Equity-based compensation - Stock Options and Restricted Stock Units (Details) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
Stock Options
Shares Underlying Options
Outstanding, beginning of period (in shares)			2,696,473
Granted	1,704,000	0	1,704,000	0
Forfeited			(38,833)
Outstanding, end of period (in shares)	4,361,640		4,361,640		2,696,473
Exercisable, end of period (in shares)	574,738		574,738
Weighted Average Exercise Price
Outstanding, beginning of period (in dollars per share)			$ 1.09
Granted			0.31
Forfeited			2.87
Outstanding, end of period (in dollars per share)	$ 0.77		0.77		$ 1.09
Exercisable, end of period	$ 1.24		$ 1.24
Weighted Average Remaining Contractual Term (Years)
Outstanding, end of period (in years)			9 years 4 months 24 days		9 years 7 months 6 days
Exercisable, end of period (in years)			9 years
Aggregate intrinsic value	$ 13,632		$ 13,632
Restricted Stock Units
Shares Underlying Options
Granted	450,000		450,000
Vested			(74,998)
Outstanding, end of period (in shares)	375,002		375,002
Weighted Average Exercise Price
Granted			$ 0.31
Vested			0.31
Outstanding, end of period (in dollars per share)	$ 0.31		$ 0.31
Weighted Average Remaining Contractual Term (Years)
Outstanding, end of period (in years)			9 months 18 days
Granted (in years)			1 year
Aggregate intrinsic value	$ 116,251		$ 116,251
Aggregate intrinsic value, Granted	$ 139,500		$ 139,500

XML

Equity-based compensation - Key Assumptions (Details) - Stock Options	3 Months Ended	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2022
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility	73.50%	73.50%
Risk-free interest rate, minimum	2.79%	2.79%
Risk-free interest rate, maximum	2.83%	2.83%
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life	5 years	5 years
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life	7 years	7 years

XML

Equity-based compensation - Legacy Stock Options Warrants (Details) - Stock options and warrants - $ / shares	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Legacy BioPharmXOptions
Shares Underlying Options
Outstanding, end of period (in shares)	15,781
Weighted Average Exercise Price
Outstanding, end of period (in dollars per share)	$ 75.27
Weighted Average Remaining Contractual Term (Years)
Weighted Average Remaining Contractual Life (in Years)	10 months 24 days
Legacy BioPharmXWarrants
Shares Underlying Options
Outstanding, beginning of period (in shares)	213,992
Shares Underlying Options and Warrants, Expired	(2,222)
Outstanding, end of period (in shares)	211,770	213,992
Weighted Average Exercise Price
Outstanding, beginning of period (in dollars per share)	$ 87.21
Weighted Average Exercise Prices, Expired	225.00
Outstanding, end of period (in dollars per share)	$ 85.77	$ 87.21
Weighted Average Remaining Contractual Term (Years)
Weighted Average Remaining Contractual Life (in Years)	1 year 3 months 18 days	1 year 9 months 18 days

XML

Equity-based compensation - Additional information (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended		12 Months Ended
	May 18, 2020	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021	Jan. 01, 2022	Jul. 01, 2021	Apr. 20, 2021
2020 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance	970,833	7,213,084		7,213,084			2,544,765	4,668,319	2,056,130
Shares available for issuance		2,133,697		2,133,697
Percentage of number of shares of common stock outstanding						4.00%
Vesting period	3 years
Expiration term	10 years
Incentive Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Incentive units outstanding		227,275		227,275		359,486
Incentive Units | 2019 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum aggregate Units that may be subject to awards and issued under the Plan				699,454
VARs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Incentive units outstanding		227,277		227,277		359,487
Unrecognized compensation cost		$ 20		$ 20
Estimated weighted-average amortization period				3 months 18 days
Number of options granted		0	0	0	0
Forfeited		52,884	0	52,884	0
Stock options exercised		79,326	0	79,326	0
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost		$ 800		$ 800
Estimated weighted-average amortization period				1 year 2 months 26 days
Number of options granted		1,704,000	0	1,704,000	0
Forfeited				38,833
Stock Options | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period				2 years
Stock Options | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period				4 years

XML

Commitments and contingencies (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2022 USD ($)	Jun. 30, 2021 USD ($)	Jun. 30, 2022 USD ($)	Jun. 30, 2021 USD ($)	Mar. 10, 2021 ft²	Feb. 01, 2020
Operating leases:
Operating lease cost	$ 99,143	$ 99,142	$ 198,285	$ 185,273
Variable lease cost	23,926	26,760	42,351	52,151
Operating lease expense	123,069	125,902	240,636	237,424
Lease income - sub lease	(106,761)	(108,256)	(213,522)	(211,563)
Net rent expense	$ 16,308	$ 17,646	27,114	25,861
Operating cash flows - operating leases			$ 201,134	178,577
Right-of-use assets obtained in exchange for operating lease liabilities				$ 122,809
Weighted-average remaining lease term - operating leases	1 year 4 months 24 days	2 years 4 months 24 days	1 year 4 months 24 days	2 years 4 months 24 days
Weighted-average discount rate - operating leases	14.30%	14.10%	14.30%	14.10%
Office spare leased | ft²					3,127
Lease term					24 months	4 years
Security deposit	$ 13,000		$ 13,000
First 12 months
Operating leases:
Base rent per month			4,690.50
Remaining 12 months
Operating leases:
Base rent per month			$ 6,514.58

XML

Commitments and contingencies - Future minimum payments (Details)	Jun. 30, 2022 USD ($)
Future minimum payments
Six Months Ended December 31, 2022	$ 205,372
Year Ended December 31, 2023	357,599
Total	562,971
Less present value discount	(57,677)
Operating lease liabilities	$ 505,294

XML

Related Party Transactions (Details) - USD ($)		3 Months Ended	6 Months Ended		12 Months Ended
	Mar. 04, 2022	Jun. 30, 2022	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
VARs
Related party transactions
Vested (shares)			79,326
Forfeited (in shares)			52,884
Patagonia
Related party transactions
Number of founder common units issued			45		45
Patagonia | Rome | VARs
Related party transactions
Vested (shares)	79,326
Vested	$ 22,528
Forfeited (in shares)	52,884
Exercised (in shares)	59,696
TardiMed
Related party transactions
Number of common shares on conversion of units			3,109,067
Percentage in total voting shares outstanding		4.90%	4.90%
Management fees		$ 0	$ 0	$ 63,936
TardiMed | Series A preferred stock (if converted)
Related party transactions
Temporary equity, shares outstanding		1,819	1,819

XML

Subsequent Events (Details)				6 Months Ended
	Sep. 30, 2022	Aug. 04, 2022 USD ($) $ / shares shares	Jul. 27, 2022 $ / shares shares	Jun. 30, 2022 USD ($) $ / shares shares	Jul. 20, 2022 USD ($) tranche	Dec. 31, 2021 $ / shares shares	May 18, 2020 $ / shares
Subsequent Event [Line Items]
Payment of milestone current | $				$ 2,250,000
Payment of milestone non current | $				$ 1,750,000
Common stock, par value (in dollars per share)				$ 0.001		$ 0.001
Common shares outstanding | shares				63,753,834		63,619,140
Engagement agreement
Subsequent Event [Line Items]
Common stock, par value (in dollars per share)				$ 0.001
Series A preferred stock (if converted)
Subsequent Event [Line Items]
Closing price							$ 18.054
TardiMed
Subsequent Event [Line Items]
Number of common shares on conversion of units | shares				3,109,067
Subsequent event
Subsequent Event [Line Items]
New issues | shares		66,666,667
Subsequent event | Prefunded warrants
Subsequent Event [Line Items]
New issues | shares		20,083,334
Percent of warrant becomes exercisable	20.00%		20.00%
Share issue price		$ 0.1199
Warrants exercise price (in dollars per share)		$ 0.0001	$ 0.0001
Subsequent event | Common warrants
Subsequent Event [Line Items]
New issues | shares		46,583,333
Share issue price		$ 0.12
Warrants exercise price (in dollars per share)		$ 0.12
Subsequent event | Patagonia
Subsequent Event [Line Items]
Number of tranches | tranche					2
Payment of milestone current | $					$ 2,250,000
Payment of milestone non current | $					1,750,000
Additional to second milestone payment | $					315,000
Total of second milestone payment | $					$ 2,065,000.000
Subsequent event | Forecast [Member]
Subsequent Event [Line Items]
Proceeds from issuance of stock | $		$ 6,900,000
Subsequent event | Forecast [Member] | TardiMed | Prefunded warrants
Subsequent Event [Line Items]
Warrants to purchase shares | shares			9,054,132
Common stock, par value (in dollars per share)			$ 0.001
Closing price			$ 0.239
Subsequent event | Forecast [Member] | TardiMed | Series A preferred stock (if converted)
Subsequent Event [Line Items]
Number of common shares on conversion of units | shares			1,819