Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion contains forward-looking statements that involve risks and uncertainties. The following discussion of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this report, and with our consolidated financial statements and related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our 2024 Annual Report. Words such as "expects," "anticipated," "will," "may," "goals," "plans," "believes," "estimates," "concludes," "determines," variations of these words, and similar expressions are intended to identify these forward-looking statements. As a result of the significant changes that have occurred to us and our business as a result of completing the Avenova Asset Divestiture and the PhaseOne Divestiture, the 2025 Preferred Stock Issuance and the sale of the October 2025 Pre-Funded Warrants, the expected additional changes that will occur when we determine and proceed with the future strategic direction of our Company, as well as other factors, including those set forth under the section titled "Risk Factors" in Part I, Item 1A. of this Quarterly Report and the section titled "Risk Factors" in Part I, Item 1A. of our 2024 Annual Report, as well as in other sections in our SEC filings, our actual results may differ materially from those anticipated in these forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions based upon assumptions made that we believed to be reasonable at the time and are subject to risks and uncertainties. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements after the date of this report, even if new information becomes available in the future.

Overview

We were previously focused on the development and sale of eyecare, wound care, and skin care products. The Company may continue to manufacture wound care products domestically in the United States and export finished goods to China.

	●	The Avenova Asset Divestiture closed on January 17, 2025 in which we sold our primary eyecare business (see Note 14, "Avenova Asset Divestiture and Bridge Loan" in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report);
	●	The PhaseOne Divestiture closed on January 8, 2025 in which we sold our PhaseOne trademark (see Note 15, "PhaseOne Divestiture" in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report); and
	●	The DERMAdoctor Divestiture closed on March 12, 2024 in which we sold our primary skin care business (see Note 16, "DERMAdoctor Divestiture" in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report).

Discontinued Operations

Historical financial results related to each of the businesses that we divested above in the Avenova Asset Divestiture, the PhaseOne Divestiture and the DERMAdoctor Divestiture are presented as discontinued operations in the unaudited condensed consolidated financial statements included in this report. See Notes 14, "Avenova Asset Divestiture and Bridge Loan," 15 "PhaseOne Divestiture" and 16, "DERMAdoctor Divestiture" to the Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report for additional details.

Previous Plan of Dissolution and Strategic Direction of the Company

The Company's Board unanimously approved each of the divestitures above and subsequently evaluated additional strategic options available to the Company. During this time, the Board pursued the Dissolution pursuant to Plan of Dissolution which was approved at the 2025 Special Meeting (see Note 1, "Organization" in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report). Although stockholder approval of the Dissolution was received, the Board was authorized to subsequently determine, in its discretion, whether or not to proceed with the Dissolution. The Board ultimately determined not to pursue the Dissolution and simultaneously entered into the 2025 Preferred Stock Purchase Agreement (see Note 8, "Financing Activities" in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report), Series E Preferred Stock Closing (see Note 19, "Subsequent Events" in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report) and October 2025 Pre-Funded Warrants (see Note 19, "Subsequent Events" in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report). As part of its broader capital allocation review, the Company has begun evaluating opportunities within emerging financial infrastructure and network-based markets. These opportunities may include select blockchain-based assets that the Company believes could enhance capital efficiency and long-term stockholder value.

NYSE American Notices

On April 18, 2024, the Company received a notification from the NYSE American LLC Exchange ("NYSE American") stating that the Company is not in compliance with Section 1003(a)(i), 1003(a)(ii) and 1003(a)(iii) of the NYSE American Company Guide (requiring stockholders' equity of (i) $2.0 million or more if the Company has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years; (ii) $4.0 million or more if the Company has reported losses from continuing operations and/or net losses in three of the four most recent fiscal years and (iii) $6.0 million or more if the Company has reported losses from continuing operations and/or net losses in its five most recent fiscal years, respectively.

On October 20, 2025, the Company was notified by NYSE American that the Company had regained compliance with the minimum stockholders' equity requirements of Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii) of the Company Guide.

Financial Overview and Outlook

Based on our funds available on September 30, 2025, together with net proceeds from the issuance of the Series E Preferred Stock and October 2025 Pre-Funded Warrants (see Note 19, "Subsequent Events" in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report), management believes that the Company's existing cash and cash equivalents will be sufficient to enable the Company to meet its planned operating expenses at least through November 7, 2026; however, as referenced above, the Company is considering adjustments to its strategic direction. As a result of any changes in the Company's strategic direction, there may be circumstances that cause the Company to adjust its anticipated spending in the near term.

Critical Accounting Estimates

Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. In preparing these unaudited condensed consolidated financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates.

While our significant accounting policies are more fully described in Note 2, "Summary of Significant Accounting Policies" in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report, we believe that the following accounting estimates are most critical to fully understanding and evaluating our reported financial results as discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations, particularly taking into account the significant changes that occurred to our business as a result of the closing of the Avenova Asset Divestiture and the PhaseOne Divestiture in January 2025.

Impairment of Assets

We review long-lived assets for impairment at least annually or whenever events or changes in business circumstances indicate that any such asset may be impaired, that the carrying amount of any such asset may not be fully recoverable or that the useful life of the asset, if applicable, is no longer appropriate. Management uses judgement in making critical assumptions and estimates in determining when an impairment assessment should be recorded, if more frequent than annually, or in the completion of any such assessment. This includes cash flow projections that look several years into the future and assumptions on variables such as economic conditions, probability of success, and discount rates. Changes in judgments with respect to these assumptions and estimates could impact any such impairments recorded such as those recorded in the first and third quarter of 2025 as further described in Notes 2, "Summary of Significant Accounting Policies;" 5, "Property and Equipment;" and 7, "Commitments and Contingencies" in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report.

Common Stock Warrant Liabilities

For warrants that are classified as liabilities, the Company records the fair value of the warrants upon issuance and at each balance sheet date with changes in the estimated fair value recorded as a non-cash gain or loss in the unaudited condensed consolidated statements of operations. The fair values of these warrants are determined using the Black Scholes option pricing model. These values are subject to a significant degree of management's judgment.

Results of Operations

Comparison of the Three Months Ended September 30, 2025 and 2024 (dollars in thousands)

		Three Months Ended September 30,								Dollar				Percent
		2025				2024				Change				Change
Statement of Operations
Sales:
Product revenue, net		$	521				-			$	521				100	%
Cost of goods sold			479				-				479				100	%
Gross profit			42				-				42				100	%
Operating expenses
General and administrative			1,211				1,703				(492	)			(29	)%
Impairment of long-lived assets			87				-				87				100	%
Total operating expenses			1,298				1,703				(405	)			(24	)%
Operating loss			(1,256	)			(1,703	)			447				(26	)%
Extinguishment of Secured Convertible Note			-				(13	)			13				(100	)%
Accretion of interest and amortization of discounts on convertible notes			-				(138	)			138				(100	)%
Other expense, net			(77	)			-				(77	)			100	%
Net loss from continuing operations			(1,333	)			(1,854	)			521				(28	)%
Net income from discontinued operations, net of taxes			40				642				(602	)			(94	)%
Net loss		$	(1,293	)		$	(1,212	)		$	(121	)			(7	)%

Impact of Divestitures

Financial results related to divested assets from the Avenova Asset Divestiture and the PhaseOne Divestiture for the three months ended September 30, 2025 and 2024 have been aggregated and reported for each of these periods in the line item titled "Net income from discontinued operations, net of taxes" in the table above. See additional information in Notes 14, "Avenova Asset Divestiture and Bridge Loan;" and 15, "PhaseOne Divestiture;" in Notes to the Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report for additional details regarding these financial results for the periods presented. The discussions below and throughout this section apply only to results from our continuing operations except as otherwise noted.

Total Net Sales and Cost of Goods Sold

Product revenue, net, increased $0.5 million, or 100%, to $0.5 million for the three months ended September 30, 2025.

Revenue and cost of goods sold recorded during the three months ended September 30, 2025 was from the Company's wound care business sold to our Chinese distributor with no comparable order in the three months ended September 30, 2024.

General and administrative

General and administrative expenses decreased $0.5 million, or 29%, to $1.2 million for the three months ended September 30, 2025, from $1.7 million for the three months ended September 30, 2024, due primarily to a decrease in outside services costs related to non-recurring strategic initiatives, including the Avenova Asset Divestiture, the PhaseOne Divestiture, and evaluating and pursuing various strategic options for our Company.

Impairment of Long-Lived Assets

During the three months ended September 30, 2025, the Company recorded an impairment for right-of-use assets associated with leases of $84 thousand and $3 thousand for fixed assets including leasehold improvements.

Extinguishment of Secured Convertible Notes

Extinguishment of Secured Convertible Notes was $13 thousand for the three months ended September 30, 2024, with no comparable activity for the three months ended September 30, 2025.

Accretion of interest and amortization of discounts on convertible notes

Accretion of interest and amortization of discounts on convertible notes was $0.1 million for the three months ended September 30,

2024, with no comparable activity for the three months ended September 20, 2025.

Other expense, net

Other expense, net was $77 thousand for the three months ended September 30, 2025, with no comparable activity for the three months ended September 30, 2024.

Comparison of the Nine Months Ended September 30, 2025 and 2024 (dollars in thousands)

		Nine Months Ended September 30,								Dollar				Percent
		2025				2024				Change				Change
Statement of Operations
Sales:
Product revenue, net		$	521				-			$	521				100	%
Cost of goods sold			479				-				479				100	%
Gross profit			42				-				42				100	%
Operating expenses
General and administrative			5,803				5,611				192				3	%
Impairment of long-lived assets			676				-				676				100	%
Total operating expenses			6,479				5,611				868				15	%
Operating loss			(6,437	)			(5,611	)			(826	)			15	%
Non-cash gain on changes in fair value of warrant liabilities			-				114				(114	)			(100	)%
Non-cash (loss) gain on change in fair value of embedded derivative liability			-				(18	)			18				(100	)%
Extinguishment of Secured Convertible Note			-				(13	)			13				(100	)%
Accretion of interest and amortization of discounts on convertible notes			-				(871	)			871				(100	)%
Other expense, net			(190	)			(453	)			263				(58	)%
Net loss from continuing operations			(6,627	)			(6,852	)			225				(3	)%
Net income from discontinued operations, net of taxes			11,082				841				10,201				1,213	%
Net income (loss)		$	4,455			$	(6,011	)		$	10,466				(174	)%

Impact of Divestitures

Financial results related to divested assets from the Avenova Asset Divestiture and the PhaseOne Divestiture for the nine months ended September 30, 2025 and from the DERMAdoctor Divestiture for the nine months ended September 30, 2024 have been aggregated and reported for each of these periods in the line item titled "Net income from discontinued operations, net of taxes" in the table above. See additional information in Notes 14, "Avenova Asset Divestiture and Bridge Loan;" 15, "PhaseOne Divestiture;" and 16, "DERMAdoctor Divestiture" in Notes to the Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report for additional details regarding these financial results for the periods presented. The discussions below and throughout this section apply only to results from our continuing operations except as otherwise noted.

Total Net Sales and Cost of Goods Sold

Product revenue, net, increased $0.5 million, or 100%, to $0.5 million for the nine months ended September 30, 2025.

Revenue and cost of goods sold recorded during the nine months ended September 30, 2025 was from the Company's wound care business sold to our Chinese distributor with no comparable order in the nine months ended September 30, 2024.

General and administrative

General and administrative expenses increased $0.2 million, or 3%, to $5.8 million for the nine months ended September 30, 2025, from $5.6 million for the nine months ended September 30, 2024, due primarily to an increase in outside services costs related to non-recurring strategic initiatives, including evaluating and pursuing various strategic options for our Company.

Impairment of Long-Lived Assets

During the nine months ended September 30, 2025, the Company recorded an impairment for right-of-use assets associated with leases of $643 thousand and $33 thousand for fixed assets including leasehold improvements.

Non-cash gain on changes in fair value of warrant liability

Adjustments to the fair value of warrant liabilities resulted in a gain of $0.1 million for the nine months ended September 30, 2024 with no comparable adjustment for the nine months ended September 30, 2025. For additional information regarding warrant liabilities and their valuation, please see Note 3, "Fair Value Measurements" and Note 10, "Common Stock Warrants" in the Notes to Unaudited Condensed Consolidated Financial Statements, (unaudited) in Part I, Item 1 of this report.

Non-cash loss on changes in fair value of embedded derivative liability

Adjustments to the fair value of embedded derivative liability resulted in a loss of $18 thousand for the nine months ended September 30, 2024 with no comparable adjustment for the nine months ended September 30, 2025. For additional information regarding the embedded derivative liability and its valuation, please see Note 3, "Fair Value Measurements" and Note 9, "Convertible Notes" in the Notes to the Condensed Consolidated Financial Statements (unaudited), in Part I, Item 1 of this report.

Accretion of interest and amortization of discounts on convertible notes

Accretion of interest and amortization of discounts on convertible notes was $0.9 million for the nine months ended September 30, 2024 with no comparable result for the nine months ended September 30, 2025. The 2024 result was primarily from the amortization of discount and issuance cost related to the Secured Convertible Notes issued in May 2023 which were fully repaid in the third quarter of 2024. See Note 3, "Fair Value Measurements" and Note 9, "Convertible Notes" in the Notes to the Condensed Consolidated Financial Statements (unaudited), in Part I, Item 1 of this report.

Other expense, net

Other expense, net was $190 thousand for the nine months ended September 30, 2025 and $0.5 million for the nine months ended September 30, 2024. The higher result in the 2024 period was due to issuance costs incurred for the March 2024 Warrant and the Unsecured Convertible Notes issued in March 2024. See Note 9, "Convertible Notes" and Note 10, "Common Stock Warrants" in the Notes to the Condensed Consolidated Financial Statements (unaudited), in Part I, Item 1 of this report.

Financial Condition, Liquidity and Capital Resources

We have largely incurred net losses and generated negative cash flows from operations since inception and may incur losses as we pursue our new strategic direction. As of September 30, 2025, our cash and cash equivalents were $2.3 million, compared to $430 thousand as of December 31, 2024. Based on our funds available on September 30, 2025, together with net proceeds from the issuance of the Series E Preferred Stock and October 2025 Pre-Funded Warrants (see Note 19, "Subsequent Events" in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report), management believes that the Company's existing cash and cash equivalents will be sufficient to enable the Company to meet its planned operating expenses at least through November 7, 2026; however, as referenced above, the Company is considering adjustments to its strategic direction. As a result of any changes in the Company's strategic direction, there may be circumstances that cause the Company to adjust its anticipated spending in the near term.

Net Cash Used in Operating Activities, Continuing Operations

Net cash used in operating activities from continuing operations was $6.2 million for the nine months ended September 30, 2025, which consisted primarily of a net loss from continuing operations of $6.6 million, adjusted by depreciation and amortization expenses of $5 thousand, stock-based compensation expenses related to employee and director stock awards of $6 thousand, non-cash right-of-use asset amortization of $0.1 million, non-cash impairment of long-lived assets of $0.7 million, accretion of interest and amortization of debt discounts on convertibles notes of $84 thousand, and a net increase of $0.4 million in our net operating assets and liabilities of continuing operations.

Net cash used in operating activities from continuing operations was $5.8 million for the nine months ended September 30, 2024, which consisted primarily of a net loss from continuing operations of $6.0 million, adjusted by depreciation and amortization expenses of $24 thousand, stock-based compensation expenses related to employee and director stock awards of $0.1 million, non-cash expense incurred to obtain consent of Secured Convertible Note holders in connection with the DERMAdoctor Divestiture of $0.4 million, non-cash gain on changes in fair value of warrant liability of $0.1 million, non-cash loss on changes in fair value of embedded derivative liability of $18 thousand, non-cash loss on modification of warrants of $69 thousand, non-cash right-of-use asset amortization of $254 thousand, accretion of interest and amortization of debt discounts on convertibles notes of $0.9 million, and a net increase of $0.6 million in our net operating assets and liabilities of continuing operations.

Cash Used in Investing Activities, Continuing Operations

Net cash used in investing activities from continuing operations was $2 thousand for the nine months ended September 30, 2024, which consisted of purchases of property and equipment. There was no cash used in, or provided by, investing activities from continuing operations during the nine months ended September 30, 2025.

Cash Used in Financing Activities, Continuing Operations

Net cash used in financing activities from continuing operations was $3.2 million for the nine months ended September 30, 2025, which consisted primarily of $2.0 million in cash payments to repurchase outstanding warrants, a $0.5 million repayment of the Bridge Note, and dividend paid of $4.8 million. Offsetting these payments were $0.9 million in proceeds from warrant exercises and $3.8 million in proceeds from the Lazar Purchase Agreement.

Net cash provided by financing activities from continuing operations was $1.0 million for the nine months ended September 30, 2024,

which included repayment of $2.0 million for the Secured Convertible Notes through September 30, 2024, net proceeds of $2.9 million from the 2024 Public Offering transaction, and the net proceeds of $0.2 million from the 2024 Warrant Repice transaction.

Net Operating Losses and Tax Credit Carryforwards

As of December 31, 2024, we had net operating loss carryforwards for federal and state income tax purposes of $153.7 million and $128.6 million, respectively. The federal net operating loss carryforwards consist of $94.9 million generated before January 1, 2018, which will begin to expire in 2025 and $59.6 million generated after December 31, 2017, that will carry forward indefinitely but are subject to an 80% limitation for years following December 31, 2021. The state net operating loss carryforwards will begin to expire in 2028. As of December 31, 2024, we also had tax credit carryforwards of $0.5 million for federal income tax purposes and $0.1 million for state tax purposes. If not utilized, the federal tax credits will begin expiring in 2031. The state tax credits have an indefinite carryover period.

Current federal and California tax laws include substantial restrictions on the utilization of net operating loss carryforwards in the event of an ownership change of a corporation. Accordingly, our ability to utilize net operating loss carryforwards may be limited as a result of such ownership changes. Such a limitation could result in the expiration of carryforwards before they are utilized.

Inflation

Our costs and operating expenses are subject to fluctuations, particularly historically due to changes in the cost of labor and service providers. As a result of our recent changes to our business and reduced operations, our future business results will depend, in part, on our continued ability to manage these fluctuations through cost savings projects and sourcing decisions. Failure to manage these fluctuations could adversely impact our results of operations or cash flows.

Off-Balance Sheet Arrangements

We did not have any "off-balance sheet arrangements" as defined in Item 303(b)(1)(ii)(B) of Regulation S-K at September 30, 2025 or December 31, 2024.

Seasonality

Our NeutroPhase branded product is sold through our distribution partner in China; therefore, we receive periodic large orders that result in large chunks of revenue that are received in irregular intervals.

Contractual Obligations

In the normal course of business, we have historically entered into contracts and commitments that obligate us to make payments in the future and we expect to enter into contracts and commitments on behalf of the Company in connection with our evolving strategic direction. Information regarding our obligations under lease and convertible note arrangements are provided in Notes 7 and 9, respectively, in the Notes to the Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report.