Dermata Therapeutics, Inc 10-Q for FY2021 Q3

Dermata Therapeutics, Inc. (DRMA)

10-Q 2021-11-15 For: 2021-09-30

Added on April 10, 2026

About this 10-Q

Dermata Therapeutics, Inc filed this 10-Q on November 15, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).

Headline figures

Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Net loss: $1.71M; compared with a net loss of $597.4K a year earlier

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Delaware		82-1510982
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 Par Value	DRMA	The Nasdaq Capital Market
Common Stock Purchase Warrants	DRMAW	The Nasdaq Capital Market

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

		Page No.
	Special Note Regarding Forward-Looking Statements	3

Part I	Financial Information	4

Item 1:	Financial Statements (unaudited)	4

	Condensed Balance Sheets	4
	Condensed Statements of Operations	5
	Statements of Stockholders’ and Members’ Equity (Deficit)	6
	Condensed Statements of Cash Flows	8
	Notes to Financial Statements	9
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3:	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4:	Controls and Procedures	29

Part II	Other Information	30

Item 1:	Legal Proceedings	30
Item 1A:	Risk Factors	30
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3:	Defaults Upon Senior Securities	30
Item 4:	Mine Safety Disclosures	30
Item 5:	Other Information	30
Item 6:	Exhibits	31

Signatures		32

	·	our plans to research, develop and commercialize our product candidates;

	·	the initiation, progress, success, cost, and timing of our clinical trials and product development activities;

	·	the therapeutic potential of our product candidates, and the disease indications for which we intend to develop our product candidates;

	·	our ability and timing to advance our product candidates into, and to successfully initiate, conduct, enroll and complete, clinical trials;

	·	our ability to manufacture our product candidates for clinical development and, if approved, for commercialization, and the timing and costs of such manufacture;

	·	the performance of third parties in connection with the development and manufacture of our product candidates, including third parties conducting our clinical trials as well as third-party suppliers and manufacturers;

	·	our ability to obtain funding for our operations, including funding necessary to initiate and complete clinical trials of our product candidates;

	·	the size and growth of the potential markets for our product candidates and our ability to serve those markets;

	·	the potential scope, duration, and value of our intellectual property rights;

	·	our ability, and the ability of our licensors, to obtain, maintain, defend, and enforce intellectual property rights protecting our product candidates, and our ability to develop and commercialize our product candidates without infringing the proprietary rights of third parties;

	·	our ability to recruit and retain key personnel;

	·	the effects of the COVID-19 pandemic on our operations; and

	·	other risks and uncertainties, including those described under Part II, Item 1A, “Risk Factors” of this Quarterly Report.

	September 30, 2021			December 31, 2020
	(unaudited)
Assets:
Current assets:
Cash	$	12,603,341		$	530,400
Prepaid expenses and other current assets		1,082,446			75,053
Total current assets		13,685,787			605,453
Fixed assets, net		-			-
Total assets	$	13,685,787		$	605,453

Liabilities and Stockholders’ and Members’ Equity (Deficit):
Liabilities:
Current liabilities:
Accounts payable	$	769,863		$	104,276
Accrued and other current liabilities		425,369			133,477
Convertible subordinated promissory notes, net of discount		-			1,848,495
Related party convertible subordinated promissory notes,
net of discount		-			1,140,984
Current portion of long-term debt, net of debt discount		-			556,160
Total current liabilities		1,195,232			3,783,392
Total liabilities		1,195,232			3,783,392
Commitments and Contingencies (see Note 10)
Stockholders’ and Members’ Equity (Deficit):
Series 1 Preferred Units, 6,906,244 units authorized,
issued and outstanding at December 31, 2020		-			6,833,877
Series 1a Preferred Units, 5,018,750
units authorized, issued and outstanding at December 31, 2020		-			4,380,081
Series 1a Preferred Warrant Units, 1,419,228 units issued and
outstanding at December 31, 2020		-			723,431
Series 1b Preferred Units, 6,500,000 units authorized,
issued and outstanding at December 31, 2020		-			4,119,595
Series 1c Preferred Units, 46,553,188 units
authorized, issued and outstanding at December 31, 2020		-			6,491,592
Class A Common Units, 508,777 units authorized,
issued and outstanding at December 31, 2020		-			10,430
Class B Common Units, 1,767,477 units
authorized, issued and outstanding at December 31, 2020		-			2,342,853
Common Stock, par value $0.0001, 90,000,000 shares authorized,
8,328,629 shares issued and outstanding at September 30, 2021		833			-
Additional paid-in capital		45,919,140			-
Accumulated deficit		(33,429,418	)		(28,079,798	)
Total stockholders’ and members’ equity (deficit)		12,490,555			(3,177,939	)
Total liabilities and stockholders’ and members’ equity (deficit)	$	13,685,787		$	605,453

	For the three months ended September 30,						For the nine months ended September 30,
	2021			2020			2021			2020
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Operating expenses:
Research and development	$	799,779		$	120,466		$	2,347,564		$	1,493,520
General and administrative		912,490			419,596			2,956,444			1,187,906
Total operating expenses		1,712,269			540,062			5,304,008			2,681,426
Loss from operations		(1,712,269	)		(540,062	)		(5,304,008	)		(2,681,426	)
Other income and expenses:
Interest expense, net		651			57,333			45,613			158,791
Net loss	$	(1,712,920	)	$	(597,395	)	$	(5,349,621	)	$	(2,840,217	)
Deemed dividend upon the redemption of 5,221,156 shares of Series 1c preferred stock (see Note 6)	$	269,038		$	-		$	269,038		$	-
Deemed dividend upon the amendment of terms of the Series 1d convertible preferred stock (see Note 6)	$	2,293,199		$	-		$	2,293,199		$	-
Net loss attributable to common stockholders	$	(4,275,157	)	$	(597,395	)	$	(7,911,858	)	$	(2,840,217	)

Net loss per share of common stock, basic and diluted	$	(0.86	)	$	(0.31	)	$	(2.69	)	$	(1.49	)
Weighted-average basic and diluted common units/shares		4,980,306			1,911,009			2,945,351			1,911,009

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

Balance at December 31, 2019		508,777		$	10,430			1,761,908		$	2,342,853			6,906,244		$	6,833,877			5,000,000		$	4,361,331			1,437,978		$	723,431			6,500,000		$	4,119,595
Class B Common Units issued								2,439
Net loss
Balance at March 31, 2020		508,777		$	10,430			1,764,347		$	2,342,853			6,906,244		$	6,833,877			5,000,000		$	4,361,331			1,437,978		$	723,431			6,500,000		$	4,119,595
Series 1c Preferred Units issued
Net loss
Balance at June 30, 2020		508,777		$	10,430			1,764,347		$	2,342,853			6,906,244		$	6,833,877			5,000,000		$	4,361,331			1,437,978		$	723,431			6,500,000		$	4,119,595
Exercise of Series 1a Preferred Warrant Units																				18,750		$	18,750			(18,750	)
Net loss
Balance at September 30, 2020		508,777		$	10,430			1,764,347		$	2,342,853			6,906,244		$	6,833,877			5,018,750		$	4,380,081			1,419,228		$	723,431			6,500,000		$	4,119,595
Net loss
Balance at December 31, 2020		508,777		$	10,430			1,767,477		$	2,342,853			6,906,244		$	6,833,877			5,018,750		$	4,380,081			1,419,228		$	723,431			6,500,000		$	4,119,595
Series 1d Preferred Units issued
Class B Common Units forfeited								(22,494	)
Conversion of Common Units to Common Stock		(508,777	)	$	(10,430	)		(1,744,983	)	$	(2,342,853	)
Conversion of Preferred Units to Preferred Stock														(6,906,244	)	$	(6,833,877	)		(5,018,750	)	$	(4,380,081	)								(6,500,000	)	$	(4,119,595	)
Conversion of Warrant Units to Preferred Stock Warrants																										(1,419,228	)	$	(723,431	)
Stock-based compensation
Net loss
Balance at March 31, 2021		-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-
Stock-based compensation
Net loss
Balance at June 30, 2021		-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-
Redemption of Series 1c preferred shares
Conversion of Preferred Stock to Common Stock
Conversion of Preferred Stock Warrants to Common Stock Warrants
Conversion of Convertible Debt to Common Stock
Issuance of Common Stock and warrants, net issuance costs
Stock-based compensation
Net loss
Balance at September 30, 2021		-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-

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

Balance at December 31, 2019		44,767,474		$	6,241,592																											$	(24,843,268	)	$	(210,159	)
Class B Common Units issued
Net loss																																$	(1,421,173	)	$	(1,421,173	)
Balance at March 31, 2020		44,767,474		$	6,241,592																											$	(26,264,441	)	$	(1,631,332	)
Series 1c Preferred Units issued		1,785,714		$	250,000																														$	250,000
Net loss																																$	(821,649	)	$	(821,649	)
Balance at June 30, 2020		46,553,188		$	6,491,592																											$	(27,086,090	)	$	(2,202,981	)
Exercise of Series 1a Preferred Warrant Units																																			$	18,750
Net loss																																$	(597,395	)	$	(597,395	)
Balance at September 30, 2020		46,553,188		$	6,491,592																											$	(27,683,485	)	$	(2,781,626	)
Net loss																																$	(396,313	)	$	(396,313	)
Balance at December 31, 2020		46,553,188		$	6,491,592																											$	(28,079,798	)	$	(3,177,939	)
Series 1d Preferred Units issued								6,065,989		$	5,034,801																								$	5,034,801
Class B Common Units forfeited																																			$	-
Conversion of Common Units to Common Stock																										1,911,009	$	191		2,353,092					$	-
Conversion of Preferred Units to Preferred Stock		(46,553,188	)	$	(6,491,592	)		(6,065,989	)	$	(5,034,801	)		71,044,171		$	7,104													26,852,842					$	-
Conversion of Warrant Units to Preferred Stock Warrants																				1,419,228		$	142							723,289					$	-
Stock-based compensation																														1,160,049					$	1,160,049
Net loss																																$	(2,304,908	)	$	(2,304,908	)
Balance at March 31, 2021		-		$	-			-		$	-			71,044,171		$	7,104			1,419,228		$	142			1,911,009	$	191		31,089,272		$	(30,384,706	)	$	712,003
Stock-based compensation																														113,987					$	113,987
Net loss																																$	(1,331,792	)	$	(1,331,792	)
Balance at June 30, 2021		-		$	-			-		$	-			71,044,171		$	7,104			1,419,228		$	142			1,911,009	$	191		31,203,259		$	(31,716,498	)	$	(505,802	)
Redemption of Series 1c preferred shares														(5,221,156	)	$	(522	)												(999,478	)				$	(1,000,000	)
Conversion of Preferred Stock to Common Stock														(65,823,015	)	$	(6,582	)								3,813,973	$	381		6,200					$	-
Conversion of Preferred Stock Warrants to Common Stock Warrants																				(1,419,228	)	$	(142	)						142					$	-
Conversion of Convertible Debt to Common Stock																										32,219	$	3		180,430					$	180,434
Issuance of Common Stock and warrants, net issuance costs																										2,571,428	$	257		15,385,932					$	15,386,189
Stock-based compensation																														142,655					$	142,655
Net loss																																$	(1,712,920	)	$	(1,712,920	)
Balance at September 30, 2021		-		$	-			-		$	-			-		$	-			-		$	-			8,328,629	$	833		45,919,140		$	(33,429,418	)	$	12,490,555

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

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

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

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020

Net loss	$	(1,712,920	)	$	(597,395	)	$	(5,349,621	)	$	(2,840,217	)
Deemed dividend upon redemption of 5,221,156 shares of Series 1c convertible preferred stock	$	269,038		$	-		$	269,038		$	-
Deemed dividend upon amendment of the terms to the Series 1d convertible preferred stock	$	2,293,199		$	-		$	2,293,199		$	-

Net loss attributable to common stockholders	$	(4,275,157	)	$	(597,395	)	$	(7,911,858	)	$	(2,840,217	)

Basic and diluted net loss per common unit/share	$	(0.86	)	$	(0.31	)	$	(2.69	)	$	(1.49	)
Weighted-average basic and diluted common units/shares		4,980,306			1,911,009			2,945,351			1,911,009

	As of
	September 30, 2021		September 30, 2020

Series 1 Preferred Units/Shares		-		336,882
Series 1a Preferred Units/Shares		-		244,811
Series 1a Preferred Warrant		-		69,212
Series 1b Preferred Units/Shares		-		317,058
Series 1c Preferred Units/Shares		-		2,270,866
Series 1d Preferred Units/Shares		-		-
Class B Common Units Profits Interests		-		365,245
Common Stock Options		523,199		-
Common Stock Warrants		3,091,657		-
Total potentially dilutive securities		3,614,856		3,604,074

	September 30,			December 31,
	2021			2020

Prepaid expenses and other current assets
Prepaid insurance	$	1,082,446		$	68,003
Prepaid research and development costs		-			7,050
Total prepaid expenses and other current assets	$	1,082,446		$	75,053

Fixed assets
Furniture and office equipment	$	59,382		$	59,382
Computer equipment		17,225			17,225
		76,607			76,607
Less: accumulated depreciation and amortization		(76,607	)		(76,607	)
Total fixed assets, net	$	-		$	-

Accrued and other current liabilities
Accrued interest payable	$	-		$	49,169
Accrued compensation and benefits		424,569			84,308
Accrued research and development costs		800			-
Total accrued and other current liabilities	$	425,369		$	133,477

	Number of Options Outstanding		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in Years)
Balance at December 31, 2020		-	$	-		-
Options granted		523,199		5.84		9.0
Options exercised		-		-		-
Options cancelled		-		-		-
Balance at September 30, 2021		523,199	$	5.84		9.0

Options exercisable at September 30, 2021		233,686	$	5.80		9.3

	·	Fair Value of Common Stock. The estimated fair value of the common stock underlying the Company’s stock option plan was determined by management by considering various factors as discussed below. All options to purchase shares of the Company’s common stock are intended to be exercisable at a price per share not less than the per-share fair value of the Company’s common stock underlying those options on the date of grant. In the absence of a public trading market for the Company’s common stock, before the initial public offering, on each grant date, the Company developed an estimate of the fair value of its common stock based on the information known to the Company on the date of grant, upon a review of any recent events and their potential impact on the estimated fair value per share of the common stock and in part on input from an independent third-party valuation firm. After the Company’s initial public offering, the fair value of common stock is measured as the Company’s closing price of common stock on the date of grant.

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

	·	Expected Term. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. Because of the limitations on the sale or transfer of the Company’s common stock as a privately held company, the Company does not believe its historical exercise pattern is indicative of the pattern it will experience as a publicly traded company. The Company plans to continue to use the SAB 110 simplified method until it has sufficient trading history as a publicly traded company.

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

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

	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021
Grant date fair value	$	4.54		$	4.87
Risk-free interest rate		0.98	%		0.92	%
Dividend yield		0.00	%		0.00	%
Expected life in years		5.8			5.7
Expected volatility		125	%		122	%

	Three Months Ended
	September 30, 2021			September 30, 2020			Difference
Operating expenses:
Research and development	$	799,779		$	120,466		$	679,313
General and administrative		912,490			419,596			492,894
Total operating expenses		1,712,269			540,062			1,172,207
Losses from operations		(1,712,269	)		(540,062	)		(1,172,207	)
Other income and expenses:
Interest expense, net		651			57,333			56,682

Net loss	$	(1,712,920	)	$	(597,395	)	$	(1,115,525	)

	Nine Months Ended
	September 30, 2021			September 30, 2020			Difference
Operating expenses:
Research and development	$	2,347,564		$	1,493,520		$	854,044
General and administrative		2,956,444			1,187,906			1,768,538
Total operating expenses		5,304,008			2,681,426			2,622,582
Loss from operations		(5,304,008	)		(2,681,426	)		(2,622,582	)
Other income and expenses:
Interest expense, net		45,613			158,791			(113,178	)

Net loss	$	(5,349,621	)	$	(2,840,217	)	$	(2,509,404	)

	Nine Months Ended September 30,
	2021			2020
Statements of cash flows data:
Total net cash provided by (used in):
Operating activities	$	(3,889,483	)	$	(3,492,567	)
Financing activities	$	15,962,424		$	2,253,811
Increase (decrease) in cash	$	12,072,941		$	(1,238,756	)

	·	the number and characteristics of the drug candidates we pursue;

	·	the scope, progress, results, and costs of researching and developing our drug candidates, and conducting preclinical studies and clinical trials;

	·	the timing of, and the costs involved in, obtaining regulatory approvals for our drug candidates;

	·	the cost of manufacturing our drug candidates and any drugs we successfully commercialize;

	·	our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

	·	the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims, including litigation costs and the outcome of such litigation; and

	·	the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future drug candidates, if any.

Exhibit No.		Description
10.1		Consulting Agreement, dated September 1, 2021, between the Company and Thomas Insley (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on September 1, 2021).

31.1		Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a).

31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a).

32.1**		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b).

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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
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101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*		Cover Page Interactive Data File––the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

	Dermata Therapeutics, Inc.

Date: November 15, 2021	By:	/s/ Gerald T. Proehl
		Gerald T. Proehl
		President and Chief Executive Officer
		(Principal Executive Officer)

		/s/ Kyri K. Van Hoose
		Kyri K. Van Hoose
		Senior Vice President, Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

CONSULTANT		DERMATA THERAPEUTICS, INC.

By:		By:
Name:	Thomas Insley	Name:	Gerry Proehl
		Title:	President and CEO

Consultant’s Address for Notice:


*Please attached completed W-9 form*.

	■	Facilitate and support the transition of the incoming Chief Financial Officer

	■	Assist the Dermata finance and accounting department with financing and account matters

	■	Provide support for the drafting and review of SEC documents

	■	Provide assistance in completing audits

	■	Provide other support and assistance as typically provide by a financial advisor

1.	I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2021 of Dermata Therapeutics, Inc. (the “Registrant”);

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

	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.

Date: November 15, 2021		/s/ Gerald T. Proehl
		Gerald T. Proehl
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: November 15, 2021		/s/ Kyri K. Van Hoose
		Kyri K. Van Hoose
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

	(1)	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

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