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~~September 30, 2022

☐

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

For the transition period from ______ to ______

Commission File Number 001-37411

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~~November 9, 2022
Common Stock, $0.001 par value		~~132,451,180~~2,971,439

Table of Contents

TIMBER PHARMACEUTICALS, INC. & SUBSIDIARIES

Form 10-Q

For the Quarter Ended ~~June~~September 30, 2022

Table of Contents


		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2022 (unaudited) and December 31, 2021	3
	Condensed Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (unaudited)	4
	Condensed Consolidated Statements of Stockholders’ Equity for the three and ~~six~~nine months ended ~~June~~September 30 2022 and 2021 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 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	3134
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4650
Item 4.	Controls and Procedures	4650
PART II. OTHER INFORMATION		4650
Item 1.	Legal Proceedings	4650
Item 1A.	Risk Factors	4651
Item 2.	Recent Sales of Unregistered Securities	4651
Item 3.	Defaults Upon Senior Securities	4651
Item 4.	Mine Safety Disclosures	4751
Item 5.	Other Information	4751
Item 6.	Exhibits	4852
Signatures		4954

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Timber Pharmaceuticals, Inc. & Subsidiaries

Condensed Consolidated Balance Sheets


	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
		(unaudited)				(unaudited)
ASSETS
Current assets
Cash	$	8,273,728	$	16,808,539	$	11,224,197	$	16,808,539
Prepaid research and development		767,650		66,217		722,121		66,217
Other current assets		237,158		244,021		296,038		244,021
Total current assets		9,278,536		17,118,777		12,242,356		17,118,777
Deposits		127,534		127,534		127,534		127,534
Property and equipment, net		20,531		16,377		19,400		16,377
Right of use asset		482,986		638,786		400,918		638,786
Total assets	$	9,909,587	$	17,901,474	$	12,790,208	$	17,901,474

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	420,353	$	953,349	$	953,470	$	953,349
Accrued expenses		1,408,968		850,557		1,960,065		850,557
Lease liability, current portion		341,308		332,817		336,162		332,817
Short-term milestone payable due to Patagonia Pharmaceuticals LLC		2,250,000		—		1,750,000		—
Redeemable Series A preferred stock under redemption (Notes 5 and 9)		2,151,675		2,055,348		—		2,055,348
Total current liabilities		6,572,304		4,192,071		4,999,697		4,192,071
Note payable		—		37,772		—		37,772
Lease liability		163,985		331,152		83,520		331,152
Long-term milestone payable due to Patagonia Pharmaceuticals LLC		1,750,000		—
Other liabilities		73,683		73,683		73,683		73,683
Total liabilities		8,559,972		4,634,678		5,156,900		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
Common stock, par value $0.001; 450,000,000 shares authorized; 2,670,856 shares issued and outstanding as of September 30, 2022, and 1,272,383 shares issued and outstanding as of December 31, 2021						133,543		63,619
Additional paid-in capital		42,739,793		42,087,719		52,140,972		42,087,719
Accumulated deficit		(41,453,932)		(28,884,542)		(44,641,207)		(28,884,542)
Total stockholders' equity		1,349,615		13,266,796		7,633,308		13,266,796
Total liabilities and stockholders' equity	$	9,909,587	$	17,901,474	$	12,790,208	$	17,901,474

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

Table of Contents

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



	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021

Grant revenue	$	—	$	225,128	$	83,177	$	400,789
Milestone revenue		—		41,846		—		295,738
Total revenue		—		266,974		83,177		696,527

Operating costs and expenses
Research and development		1,790,528		1,974,193		7,200,987		4,623,811
Research and Development - Milestone expense for Patagonia Pharmaceuticals LLC		—		—		4,000,000		—
Selling, general and administrative		1,336,668		1,296,641		4,551,406		3,918,042
Total operating expenses		3,127,196		3,270,834		15,752,393		8,541,853
Loss from operations		(3,127,196)		(3,003,860)		(15,669,216)		(7,845,326)
Other income (expense)
Interest expense		(71,203)		—		(167,531)		—
Other income		—		—		75,000		—
Forgiveness of PPP loan		—		—		37,772		—
(Loss) gain on foreign currency exchange		11,124		(1,544)		(32,690)		(541)
Total other income (expense)		(60,079)		(1,544)		(87,449)		(541)
Provision for income taxes		—		—		—		—
Net loss		(3,187,275)		(3,005,404)		(15,756,665)		(7,845,867)
Dividends on Series A preferred stock		—		(36,685)		—		(108,858)
Net loss attributable to common stockholders	$	(3,187,275)	$	(3,042,089)	$	(15,756,665)	$	(7,954,725)
Basic and diluted net loss per share attributable to common stockholders	$	(1.52)	$	(4.15)	$	(10.16)	$	(11.09)
Basic and diluted weighted average number of shares outstanding		2,095,091		733,194		1,550,326		717,476

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

Table of Contents

Timber Pharmaceuticals, Inc. & Subsidiaries

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

For the Three Months Ended ~~June~~September 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


								Total
	Common Stock			Additional		Accumulated		Stockholders'
	Shares	Amount		Paid-in Capital		Deficit		Equity (Deficit)
Balance at July 1, 2022	1,275,077	$	63,754	$	42,739,793	$	(41,453,932)	$	1,349,615
Issuance of common stock and warrants, net of issuance costs	1,333,333		66,667		6,871,817		—		6,938,484
Stock-based compensation	2,250		113		224,434		—		224,547
Exercise of common warrants	24,000		1,200		142,800		—		144,000
Conversion of Redeemable Series A Convertible Preferred Stock	—		—		2,163,937		—		2,163,937
Exercise of TardiMed Warrants	36,196		1,810		(1,810)		—		—
Net loss	—		—		—		(3,187,275)		(3,187,275)
Balance at September 30, 2022	2,670,856	$	133,543	$	52,140,972	$	(44,641,207)	$	7,633,308

For the Three Months Ended ~~June~~September 30, 2021



	Series A Preferred Stock			Common Stock			Additional		Accumulated		Total		Series A Preferred Stock			Common Stock			Additional		Accumulated		Total
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Stockholder's Equity		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
Balance at July 1, 2021													1,819	$	1,981,978	733,194	$	36,660	$	25,852,542	$	(23,085,859)		2,803,343
Accrued dividend Series A preferred stock	—		36,286	—		—		(36,286)		—		(36,286)	—		36,685	—		—		(36,685)		—		(36,685)
Stock-based compensation	—		—	—		—		49,433		—		49,433	—		—	—		—		187,736		—		187,736
Net loss	—		—	—		—		—		(2,966,203)		(2,966,203)	—		—	—		—		—		(3,005,404)		(3,005,404)
Balance at June 30, 2021	1,819	$	1,981,978	36,659,685	$	36,660	$	25,852,542	$	(23,085,859)		2,803,343
Balance at September 30, 2021													1,819	$	2,018,663	733,194	$	36,660	$	26,003,593	$	(26,091,263)		(51,010)

Table of Contents

For the ~~Six~~Nine Months Ended ~~June~~September 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

~~Table of Contents~~


								Total
	Common Stock			Additional		Accumulated		Stockholders'
	Shares	Amount		Paid-in Capital		Deficit		Equity (Deficit)
Balance at January 1, 2022	1,272,383	$	63,619	$	42,087,719	$	(28,884,542)	$	13,266,796
Issuance of common stock and warrants, net of issuance costs	1,333,333		66,667		6,871,817		—		6,938,484
Stock-based compensation	3,750		187		876,569		—		876,756
Exercise of common warrants	24,000		1,200		142,800		—		144,000
Conversion of Redeemable Series A Convertible Preferred Stock	—		—		2,163,937		—		2,163,937
Exercise of TardiMed Warrants	36,196		1,810		(1,810)		—		—
Exercise of VARs	1,194		60		(60)		—		—
Net loss	—		—		—		(15,756,665)		(15,756,665)
Balance at September 30, 2022	2,670,856	$	133,543	$	52,140,972	$	(44,641,207)	$	7,633,308

For the ~~Six~~Nine Months Ended ~~June~~September 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


	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	542,648	$	27,132	$	25,826,295	$	(18,245,396)	$	7,608,031
Accrued dividend Series A preferred stock	—		108,858	—		—		(108,858)		—		(108,858)
Exercise of Series A warrants	—		—	41,192		2,060		(2,060)		—		—
Exercise of Series B warrants	—		—	149,353		7,468		(7,468)		—		—
Issuance of common stock and warrants, net of issuance costs	—		—	—		-		—		—		—
Stock-based compensation	—		—	—		—		295,684		—		295,684
Net loss	—		—	—		—		—		(7,845,867)		(7,845,867)
Balance at September 30, 2021	1,819	$	2,018,663	733,194	$	36,660	$	26,003,593	$	(26,091,263)	$	(51,010)

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

Table of Contents

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

$
—


	Nine months ended September 30,
	2022		2021
Cash flows from operating activities
Net loss	$	(15,756,665)	$	(7,845,867)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		876,756		295,684
Amortization of right of use assets		237,868		197,339
Depreciation		2,925		791
Forgiveness of PPP loan		(37,772)		—
Non-cash interest on redeemable preferred stock		108,591		—
Current milestone payable to Patagonia Pharmaceuticals, LLC		1,750,000		—
Changes in assets and liabilities:
Other receivable		—		—
Prepaid research and development		(655,904)		—
Other current assets		(52,017)		39,090
Deposits		—		(13,000)
Accounts payable		120		647,241
Accrued expenses		1,109,506		(108,796)
Lease liability		(244,287)		(186,236)
Net cash used in operating activities		(12,660,879)		(6,973,754)

Cash flows from investing activities
Purchase of property and equipment		(5,947)		(17,803)
Net cash used in investing activities		(5,947)		(17,803)

Cash flows from financing activities
Proceeds from the issuance of common stock and warrants, net of issuance costs of $1,061,520		6,938,484		—
Proceeds from the exercise of common stock warrants		144,000		—
Net cash provided by financing activities		7,082,484		—

Net decrease in cash		(5,584,342)		(6,991,557)
Cash, beginning of period		16,808,539		10,348,693
Cash, end of period	$	11,224,197	$	3,357,136

Non-cash investing and financing activities:
Conversion of Redeemable Series A convertible preferred stock to prefunded common stock warrants	$	2,163,937	$	—
Current milestone payable to Patagonia Pharmaceuticals LLC	$	1,750,000	$	—
Accrued Series A preferred stock dividend	$	—	$	108,858
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.

Table of Contents

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.

On November 7, 2022, the Company filed a Certificate of Amendment to its Certificate of Incorporation, as amended (the “Certificate of Amendment”), with the Secretary of State of Delaware that effected a 1-for-50 reverse stock split of its common stock, par value $0.001 per share, which became effective at 5:00 PM (EST) on November 8, 2022 (the “2022 Reverse Stock Split”). Pursuant to the Certificate of Amendment, the Company’s issued and outstanding common stock was decreased from 148,571,994 shares to 2,971,439 shares. The 2022 Reverse Stock Split did not affect the Company’s authorized common stock of 450,000,000 shares. The par value of its common stock was unchanged at $0.001 per share, post-split. All shares of common stock, including common stock underlying warrants, stock options, restricted stock units and VARs, as well as conversion ratios, exercise prices, conversion prices and per share information in these consolidated financial statements give retroactive effect to the 2022 Reverse Stock Split.

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~~“2020 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~~236,980 shares of common stock outstanding (after the 2020 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~~12.59 shares of common stock for each Timber Sub unit. In addition, the ~~584~~11.68 VARs that were outstanding immediately prior to Merger became denoted and payable in ~~367,670~~7,353 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

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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).

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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~~82,750 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 167,695 shares of common stock ~~(“Series A Warrants”)~~ and ~~7,042,175~~ Series B Warrants to purchase 140,844 shares of common ~~stock (“Series B Warrants”).~~stock.

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~~8,275 shares of common stock (the “Bridge Warrants”) which ~~originally~~ had an initial exercise price of ~~$2.2362~~$111.81 per share. As a result of the ~~November 2021~~August 2022 Offering (as defined below), the exercise price of the Bridge Warrants was adjusted to ~~$0.31~~$1.00 per share.

Investor Warrants

Series A Warrants

The Series A Warrants have an exercise price of ~~$1.16~~$58.00 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~~September 30, 2022, the Series A Warrants are exercisable for ~~16,701,824~~334,036 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

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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

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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 Series A Warrants in order to allow for one immediate and final reset of the number of shares of common stock underlying the Series A 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 Series A 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~~$58.00 per share and the number of shares underlying all of the Series A Warrants was set at ~~20,178,214.~~403,564.

Series B Warrants

The Series B Warrants had an exercise price of ~~$0.001~~$0.05 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~~455,336 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~~$111.81 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~~8,275 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~~$15.50 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.~~Offering, or $1.00 per share.

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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

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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~~426,500 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~~November 2021 Offering was ~~26,953,125,~~539,063, together with warrants to purchase up to ~~26,953,125~~539,063 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 1 share of common stock was sold together with a November Warrant to purchase 1 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

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of approximately $15.8 million. As a result of the November 2021 Offering, the exercise price of the Bridge Warrants was adjusted to $15.50 per share. Further, as a result of the August 2022 Offering, the exercise price of the Bridge Warrants was adjusted to $1.00 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 $32.00 and $31.95 for each pre-funded warrant and accompanying November Warrant. The pre-funded warrants were immediately exercisable at a price of $0.05 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~~$35.00 per share of common stock and expire five years from the date of issuance. ~~NaN~~No November Warrants have been exercised as of ~~June~~September 30, 2022, or December 31, 2021, respectively.

August 2022 Offering

On March 1, 2022, the Company entered into an engagement agreement, as subsequently amended on June 30, 2022 (the “Engagement Agreement”), with 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.

In August 4, 2022, the Company announced the pricing of the public offering (the “August 2022 Offering”) of (i) 931,667 shares of common stock, (ii) pre-funded warrants to purchase up to an aggregate of 401,667 shares of common stock and (iii) common warrants to purchase up to an aggregate of 1,333,333 shares of common stock (the “August Warrants”). Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with an August 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 of common stock and accompanying August Warrant was $6.00 and $5.995 for each pre-funded warrant and accompanying August Warrant. The pre-funded warrants were immediately exercisable at a price of $0.005 per share of common stock and may be exercised at any time until all of the pre-funded warrants are exercised in full. The August Warrants are immediately exercisable at a price of $6.00 per share of common stock and will expire five years from the date of issuance. The shares of common stock and pre-funded warrants, and the accompanying August 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. On August 8, 2022, 24,000 August Warrants were exercised. As of September 30, 2022, 1,309,333 August Warrants have not been exercised.

In connection with the August 2022 Offering, on August 4, 2022, the Company entered into securities purchase agreements with certain institutional investors in the August 2022 Offering. 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 August Warrants. The Company intends to use the net proceeds from the August 2022 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 August warrants issued in the August 2022 Offering or $1.00 per share.

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~~$44.6 million at ~~June~~September 30, 2022, a net loss of approximately ~~$12.6~~$15.8 million, and approximately ~~$8.5~~

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$12.7 million of net cash used in operating activities for the ~~six~~nine months ended ~~June~~September 30, 2022. As of ~~June~~September 30, 2022, the Company had cash of approximately ~~$8.3~~$11.2 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~~September 30, 2022, were sufficient only to satisfy our operating cash needs into the ~~fourth~~second quarter of ~~2022.~~2023. Thus, the Company’s current cash on hand at ~~June~~September 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~~October 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;

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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;

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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;

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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;

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

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

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

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

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.

Effective at 5:00 PM (EST) on November 8, 2022 the Company effected a 1-for-50 reverse stock split of its common stock, or the 2022 Reverse Stock Split. Pursuant to the Certificate of Amendment, all shares of common stock, including common stock underlying warrants and stock options, as well as the conversion ratios, conversion prices, exercise prices and per share information in these consolidated financial statements give retroactive effect to the 2022 Reverse Stock Split. See Note 5 “Stockholder’s Equity – 2022 Reverse Stock Split” and Note 9 “Subsequent Events - Special Meeting and 2022 Reverse Stock Split”for further details.

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

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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.

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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~~September 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 of the Board of Directors of the Company (the “Board”) 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-~~stock-based compensation costs are recorded in general and

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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 iswas subject to certain limitations under Delaware law. Each share of Series A Preferred Stock iswas 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.~~$902.70. Each share of Series A Preferred Stock iswas 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 ishad accrued on the unredeemed balance at ~~8%.~~8.0% per annum. The Company ~~has~~ asserted that such right to redemption ~~is currently~~was limited under Delaware corporate law. As a result of the request, the Series A Preferred Stock ~~has~~had been reclassified as a liability, Redeemable Series A Preferred Stock under redemption. The Series A Preferred Stock ~~will continue~~continued to accrue dividends but as a liability and dividends ~~will be~~were recorded prospectively as non-cash interest expense in the Consolidated Statement of Operations until such time as the Series A Preferred Stock was redeemed.

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 Series A Preferred Stock plus accrued dividends for a pre-funded warrant (the “TardiMed Warrant”) to purchase 181,083 shares of the Company’s common stock (the “Warrant Exchange”). The number of shares underlying the TardiMed Warrant is ~~redeemed (See~~ ~~Notes 5~~based on the redemption price of the Series A Preferred Stock (which had been demanded by TardiMed) divided by $11.95, the last closing price of the Company’s common stock prior to the date the Letter Agreement was executed.

Twenty percent of the TardiMed Warrant was immediately exercisable upon issuance. Beginning on September 30, 2022, and 9).then at the end of each subsequent calendar quarter upon written request of TardiMed, the Company has agreed to allow an additional 20% of the initial balance of the TardiMed Warrant to become exercisable, provided that only 20% of the initial balance of the TardiMed Warrant will be exercisable in any given quarter. The TardiMed Warrant’s exercise price is $0.0001 and may be exercised on a cashless basis. The TardiMed Warrant will terminate when exercised in full. On August 3, 2022, 20% of the TardiMed Warrant was exercised on a cashless basis and 36,196 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. As of September 30, 2022, the TardiMed Warrant was exercisable for 144,866 shares of common stock.

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.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 Series A Preferred Stock had 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, which occurred in 2021. No dividends accrued on the Company’s Series A Preferred Stock during 2022 prior to the Warrant Exchange.

The basic and diluted net loss amounts are the same for the three and nine months ended September 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 that were issuable upon conversion of the Series A Preferred Stock prior to the Warrant Exchange were calculated using the if-converted method.

As a result of the 2022 Reverse Stock Split, the Company has retroactively restated the basic and diluted weighted average number of shares outstanding

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,				Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021		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)	$	(3,187,275)	$	(3,005,404)	$	(15,756,665)	$	(7,845,867)
Cumulative dividends on Series A preferred stock		—		(36,286)		—		(72,173)		—		(36,685)		—		(108,858)
Net (loss) income attributable to common stockholders	$	(9,495,996)	$	(3,002,489)	$	(12,569,390)	$	(4,912,636)	$	(3,187,275)	$	(3,042,089)	$	(15,756,665)	$	(7,954,725)

Basic and diluted weighted average number of shares outstanding		63,731,582		36,659,685		63,684,906		35,872,780		2,095,091		733,194		1,550,326		717,476

Basic and Diluted net (loss) per share attributable to common stockholders	$	(0.15)	$	(0.08)	$	(0.20)	$	(0.14)	$	(1.52)	$	(4.15)	$	(10.16)	$	(11.09)

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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~~nine-month periods ended ~~June~~September 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


	September 30,
	2022	2021
Series A warrants	334,036	334,036
Bridge warrants	8,275	7,275
Value appreciation rights	4,546	7,353
Options to purchase common stock	87,833	53,153
Series A preferred stock (if converted)	—	2,015
Legacy stock options	316	316
Legacy warrants	4,235	4,280
Warrants issued in the November 2021 Financing	539,063	—
Warrants issued in the August 2022 Financing	1,309,333	—
Warrants issued in exchange for Series A preferred stock (unexercised)	144,866	—
Restricted Stock Units	5,250	—
	2,437,752	408,428

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 no state income tax payments during the three-month periods ended September 30, 2022 and 2021, respectively. The Company made state income tax payments of $12,231 and $2,000 during the ~~three-month and six-month~~nine-month periods ended ~~June~~September 30, 2022, and 2021, respectively.

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~~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

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Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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~~was accrued at June 30, 2022. There were 0no milestone payments accrued at December 31, 2021, because the potential regulatory and commercial milestones were not considered probable. No additional milestone payments accrued at September 30, 2022, because the potential regulatory and commercial milestones were not consideredprobable.

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 $1.75 million plus an additional $0.315 million for interest 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. The first milestone payment tranche was made on September 1, 2022. The Company is accreting interest on the second tranche. Non-cash interest of $58,940 was recorded in the Company’s Consolidated Statement of Operations for the three-month period ended September 30, 2022.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

in 2 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 0no milestone payments have been accrued at ~~June~~September 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 iswas 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~~and therefore no milestone payments were accrued at December 31, 2021. No milestones were accrued at September 30, 2022, as a result of the termination of the AFT License Agreement on July 25, 2022 as described below and ~~therefore 0 milestone payments have been accrued at June 30, 2022,~~because no regulatory and ~~December 31, 2021, respectively.~~

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~~Timber Pharmaceuticals, Inc. & Subsidiaries~~

~~Notes~~milestones were yet considered probable prior to ~~Condensed Consolidated Financial Statements~~termination.

~~(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~~angiofibromas associated with tuberous sclerosis complex in adults and children six (6) years of age or older.

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Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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,~~22, 2022, the Company provided written notice to AFT of its decision to terminate the AFT License Agreement because the Company ~~believes~~believed 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 License Agreement has been terminated wethe Company will no longer receive any royalties or milestones for any transactions under ~~this agreement.~~the AFT License Agreement.

Other

The Company disbursed approximately ~~$2.225~~$2.23 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~~$479,000 of this payment remains in prepaid research and development at ~~June~~September 30, 2022.

Note 4. Accrued Expenses

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


	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
Research and development	$	637,060	$	77,118	$	913,455	$	77,118
Professional fees		329,566		210,343		273,081		210,343
Personnel expenses		421,857		502,180		608,294		502,180
Accrued interest on Patagonia milestone payable						58,940		—
Other		20,485		60,916		106,295		60,916
Total	$	1,408,968	$	850,557	$	1,960,065	$	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).

2022 Reverse Stock Split

On November 7, 2022, at a special meeting of stockholders (the “Special Meeting”), the holders of a majority of the Company’s outstanding shares of common stock and Series B Mirroring Preferred Stock approved the reverse stock split proposal and gave the Company’s board of directors discretionary authority to select a ratio for the split from 1-for-25 to 1-for-50. The Company’s board of directors approved the reverse split at a ratio of 1-for-50 on October 27, 2022, subject to stockholder approval.

On November 8, 2022, the Company filed a Certificate of Amendment to its Certificate of Incorporation, as amended , with the Secretary of State of Delaware that effected a 1-for-50 reverse stock split of its common stock, which became effective at 5:00 PM (EST) on November 8, 2022. As a result of the 2022 Reverse Stock Split, the 13,000 shares of Series

2022

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Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

B Mirroring Preferred Stock were automatically cancelled for no consideration and resume the status of authorized but unissued shares of preferred stock of the Company. The 2022 Reverse Stock Split traded on an as-adjusted basis upon market open on November 9, 2022. The purpose of the 2022 Reverse Stock Split was to enable the Company to regain compliance with the requirements of Section 1003(f)(v) of the NYSE American Company Guide.

All shares of common stock, including common stock underlying warrants, stock options, restricted stock units, and VARs, as well as all conversion ratios, exercise prices, conversion prices and per share information in these consolidated financial statements give retroactive effect to the 2022 Reverse Stock Split.

Series B Warrants

During the ~~six~~nine months ended ~~June~~September 30, 2021, the remaining Series B Warrants outstanding totaling ~~7,474,033~~149,481 shares of common stock were exercised on a cashless basis, and the Company issued ~~7,467,652~~149,353 shares of its common stock.




	Shares	Weighted		Aggregate		Shares	Weighted		Aggregate
	Underlying	Average		Intrinsic		Underlying	Average		Intrinsic
	Warrants	Exercise Price		Value		Warrants	Exercise Price		Value
Outstanding as of January 1, 2020	7,474,033	$	0.001	$	7,474	149,481	$	0.05	$	7,474
Exercised	(7,474,033)	$	0.001		—	(149,481)	$	0.05		—
Outstanding and exercisable as of June 30, 2021	—	$	—	$	—
Outstanding and exercisable as of September 30, 2021						—	$	—	$	—

Series A Warrants

During the ~~six~~nine months ended ~~June~~September 30, 2021, ~~3,476,390~~69,528 Series A Warrants were exercised on a cashless basis, and the Company issued ~~2,059,613~~41,192 shares of its common stock. The following is a summary of the Series A Warrants outstanding as of ~~June~~September 30, 2022:


				Weighted						Weighted
				Average						Average
	Shares	Weighted		Remaining	Aggregate		Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic		Underlying	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value		Warrants	Exercise Price		Term (Years)	Value
Outstanding as of December 31, 2021	20,178,214	$	1.16	3.4		—	334,036	$	58.00	3.4		—
Outstanding and exercisable as of June 30, 2022	20,178,214	$	1.16	2.9	$	—
Outstanding and exercisable as of September 30, 2022							334,036	$	58.00	2.7	$	—

Bridge Warrants

The following table summarizes the Company’s Bridge Warrants for the ~~six~~nine months ended ~~June~~September 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~~

~~NaN 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:~~

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~~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 8 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~~).


				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Outstanding as of December 31, 2021	8,275	$	1.00	3.4	$	28,963
Outstanding and exercisable as of September 30, 2022	8,275	$	1.00	2.6	$	41,375

2223

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Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

November 2021 Warrants

The warrants issued by the Company were recorded as equity and recognized at fair value which was approximately $7.1 million. The value of the warrants issued by the Company in connection with November 2021 Offering, were estimated using a Black Scholes option pricing model. The inputs using the Black Scholes model to calculate the fair value of the warrants related to the November 2021 offering included no dividend yield, expected price volatility of 73.1%, a risk-free interest rate of 1.05%-1.08% and an expected term of 5 years.

No November Warrants have been exercised as of September 30, 2022, or December 31, 2021 (See Note 1).

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


				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Outstanding as of December 31, 2021	539,063	$	35.00	4.8	$	7,101,563
Outstanding and exercisable as of September 30, 2022	539,063	$	35.00	4.1	$	7,101,563

Redeemable Series A Preferred Stock

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 had no voting rights. The holders of the Series A Preferred Stock were entitled to cumulative dividends from and after the date of issuance at a per annum of eight percent (8.0%) of the stated value. Dividends were 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 was 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 of $902.70. Holders of the Series A Preferred Stock were 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 (as defined in the Certificate of Designations), the Series A Preferred Stock were 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 Series A Preferred Stock. The Company’s Series A Preferred Stock, as to which the holder had demanded redemption, was redeemable at December 31, 2021, subject to certain limitations under Delaware law, and was recorded at the redemption value of approximately $2.1 million at December 31, 2021. Interest was accrued on the unredeemed balance at 8.0% annually. The shares of Series A Preferred Stock previously held by TardiMed were converted into a pre-funded warrant to purchase 181,083 shares of common stock as described below.

Pre-Funded Warrant for TardiMed

On November 23, 2021, the Company received a request for redemption by TardiMed for the Series A Preferred Stock. The Company asserted that such right to redemption was limited under Delaware corporate law. As a result of the request,

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

the convertible Series A Preferred Stock was reclassified as a liability, Redeemable Series A Preferred Stock under redemption. The previously outstanding shares of Series A Preferred Stock accrued dividends but as a liability and the dividends were recorded prospectively as non-cash interest expense in the Condensed Consolidated Statement of Operations until the Series A Preferred Stock held by TardiMed were redeemed. The Company recognized no non-cash interest expense during the three months ended September 30, 2022, and $108,591 in non-cash interest expense for the nine months ended September 30, 2022, and $36,685 and $108,858 of non-cash dividends, for the three months and nine months ended September 30, 2021, respectively. As result of the reclassification, interest was recorded in the Consolidated Statement of Operations rather than additional-paid-in-capital.

On July 27, 2022, the Company, entered into Letter Agreement with TardiMed pursuant to which TardiMed agreed to exchange its 1,819 shares of Series A Preferred Stock plus accrued dividends for the TardiMed Warrant to purchase 181,083 shares of common stock in the Warrant Exchange. The number of shares underlying the TardiMed Warrant is based on the redemption price of the Series A Preferred Stock (which had been demanded by TardiMed) divided by $11.95, the last closing price of the Company’s common stock prior to the date the Letter Agreement was executed.

Twenty percent of the TardiMed Warrant was 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 has agreed to allow an additional 20% of the initial balance of the TardiMed Warrant to become exercisable, provided that only 20% of the initial balance of the TardiMed Warrant will be exercisable in any given quarter. The TardiMed Warrant’s exercise price is $0.005 and may be exercised on a cashless basis. The TardiMed Warrant will terminate when exercised in full. On August 3, 2022, 20% of the TardiMed Warrant was exercised on a cashless basis and 36,196 shares of common stock were issued to TardiMed.

The following table summarizes the TardiMed Warrant for the nine months ended September 30, 2022:


				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	TardiMed Warrant	Exercise Price		Term (Years)	Value
Outstanding as of December 31, 2021	—	$	—	*	$	—
Issued	181,083	$	0.005	*	$	1,085,590
Exercised	(36,217)	$	0.005	*	$	(217,118)
Outstanding and exercisable as of September 30, 2022	144,866	$	0.005	*	$	868,472
* Options expire once fully exercised; until exercised there is no expiration term

August 2022 Common Stock Warrants

In August 4, 2022, the Company announced the pricing of the public offering (the “August 2022 Offering”) of (i) 931,667 shares (the “Shares”) of common stock, (ii) pre-funded warrants to purchase up to an aggregate of 401,667 shares of common stock and (iii) August Warrants to purchase up to an aggregate of 1,333,333 shares of common stock. Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with an August Warrant to purchase one share of common stock. All pre-funded warrants were exercised.

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Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The warrants issued by the Company were recorded as equity and recognized at fair value which was approximately $4.9 million. The value of the warrants issued by the Company in connection with August 2022 Offering, were estimated using a Black Scholes option pricing model. The inputs using the Black Scholes model to calculate the fair value of the warrants related to the August 2022 Offering included no dividend yield, expected price volatility of 97.67%, a risk-free interest rate of 2.91% and an expected term of 5 years.

The following table summarizes the August Warrants for the nine months ended September 30, 2022:


				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Outstanding as of December 31, 2021	—	$	—	—	$	—
Granted	1,333,333	$	6.00	4.9	$	4,933,333
Exercised	(24,000)	$	6.00	—	$	(88,800)
Outstanding and exercisable as of September 30, 2022	1,309,333	$	6.00	4.9	$	4,844,533

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~~19,417 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~~41,123 to ~~4,668,319,~~93,366, 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~~50,895 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~~September 30, 2022, ~~7,213,084~~144,262 shares of common stock were reserved for issuance under the 2020 Plan and there are ~~2,133,697~~42,674 shares available for issuance at ~~June~~September 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.~~13,989. At ~~June~~September 30, 2022, Incentive Units outstanding under the 2019 Plan were ~~227,275~~4,546 units and ~~359,486~~7,190 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.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
General and administrative value appreciation right awards	$	3,402	$	8,621	$	(1,504)	$	34,089
Research and development value appreciation right awards		—		555		—		1,647
General and administrative stock options		145,194		21,650		638,692		21,650
Research and development stock options		35,665		156,910		129,931		238,298
General and administrative restricted stock units		40,288		—		109,637		—
	$	224,549	$	187,736	$	876,756	$	295,684

Value Appreciation Rights

During the three months and ~~six~~nine months ended ~~June~~September 30, 2022, there were 0no grants of ~~VARs, 52,884~~VARs. 1,058 VARs were forfeited, and ~~79,326~~1,587 VARs were ~~exercised.~~exercised during the nine months ended September 30, 2022. There were 0no grants, forfeitures or VARs exercised during the three and ~~six~~nine months ended ~~June~~September 30,, 2021. The following is a summary of VARs outstanding as of ~~June~~September 30, 2022:


						Weighted						Weighted
						Average						Average
		Weighted				Remaining		Weighted				Remaining
		Average		Total Intrinsic		Contractual Life		Average		Total Intrinsic		Contractual Life
	Number of Units	Exercise Price		Value		(in years)	Number of Units	Exercise Price		Value		(in years)
Outstanding as of December 31, 2021	359,487	$	0.01	$	136,038	7.6	7,190	$	0.50	$	136,038	7.6
Exercised	(79,326)	$	0.01			-	(1,587)	$	0.50			-
Forfeited	(52,884)	$	0.01			-	(1,058)	$	0.50			-
Outstanding as of June 30, 2022	227,277	$	0.01	$	69,319	7.0
Outstanding as of September 30, 2022							4,546	$	0.50	$	25,000	6.8

Value appreciation right awards vested and exercisable at June 30, 2022	101,991	$	0.01	$	31,107	7.3
Value appreciation right awards vested and exercisable at September 30, 2022							2,883	$	0.50	$	15,859	6.8

As of ~~June~~September 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~~0.2 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

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Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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~~September 30, 2022, the Company granted ~~1,704,000~~ stock options to purchase 600 shares of common stock to one employee. During the nine months ended September 30, 2022, the Company granted stock options to purchase 34,680 shares of common stock to its executive officers, non-employee directors and employees. The options vest over a period of two to four years.

~~NaN~~The Company granted stock options ~~were granted~~to purchase 49,464 shares of common stock to its executive officers, non-employee directors and employees during the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2021, respectively.

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


				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Options	Exercise Price		Term (Years)	Value
Outstanding at December 31, 2021	53,929	$	54.50	9.6		—
Granted	34,680		15.00
Forfeited	(777)		143.50	-
Outstanding at September 30, 2022	87,833	$	38.00	9.1	$	300
Exercisable at September 30, 2022	18,652	$	58.5	8.8	$	—

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 September 30, 2022, the unrecognized compensation costs related to stock options were approximately $0.6 million, which will be recognized over an estimated weighted-average amortization period of 1.04 years.

The following was used in determining the fair value of stock options granted during the three and nine months ended September 30, 2022:


		Three and
		Nine Months Ended
		September 30,
		2022
Expected life		5-7 years
Expected volatility		73.5%-77.38%
Risk-free interest rate		2.79% -2.83%
Expected dividend yield		—

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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

$
—


				Weighted
	Shares			Average
	Underlying	Weighted		Remaining	Aggregate
	Options and	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Legacy BioPharmX options - September 30, 2022	316	$	3,763.55	0.6	$	—

Legacy BioPharmX warrants - December 31, 2021	4,280	$	4,360.50	1.8	$	—
Expired	(44)	$	11,250.00	—		—
Legacy BioPharmX warrants - September 30, 2022	4,235	$	4,288.50	1.04	$	—

Restricted Stock Units

During the ~~quarter~~nine months ended ~~June~~September 30, 2022, the Company issued 9,000 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~~no RSUs in the three-month period ended ~~June~~September 30, 2022. The following is a summary of the RSUs outstanding at ~~June~~September 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


				Weighted
	Shares			Average
	Underlying			Remaining	Aggregate
	Restricted	Grant Date		Contractual	Intrinsic
	Stock Units	Fair Value		Term (Years)	Value
Outstanding at December 31, 2021	—	$	—	—	$	—
Granted	9,000	$	15.50	1.0		139,500
Vested	(3,750)	$	15.50	—	$	—
Unvested at September 30, 2022	5,250	$	15.50	0.6	$	81,376

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~~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~~nine months ended ~~June~~September 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~~September 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
%

2629

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The components of lease expense were as follows:


	Three months ended		Nine Months Ended

		September 30, 2022
Operating leases:
Operating lease cost	$	99,142	$	297,247
Variable lease cost		16,672		59,023
Operating lease expense	$	115,814	$	356,270
Lease income - sub lease		(115,281)		(328,803)
Net rent expense	$	533	$	27,467

	Three months ended		Nine Months Ended

		September 30, 2021
Operating leases:
Operating lease cost	$	99,142	$	284,415
Variable lease cost		24,948		77,099
Operating lease expense	$	124,090	$	361,514
Lease income - sub lease		(106,435)		(317,998)
Net rent expense	$	17,655	$	43,516

Other information:


		Nine months Ended			Nine Months Ended
		September 30, 2022			September 30, 2021
Operating cash flows - operating leases	$	303,820		$	273,313
Right-of-use assets obtained in exchange for operating lease liabilities	$	—		$	122,809
Weighted-average remaining lease term – operating leases		1.2			2.1
Weighted-average discount rate – operating leases		14.4	%		14.1	%

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


	Operating		Operating
	Leases		Leases
Six Months Ended December 31, 2022	$	205,372
Remaining Months in Year Ended December 31, 2022			$	102,686
Year Ended December 31, 2023		357,599		357,599
Total	$	562,971	$	460,285
Less present value discount		(57,677)		(40,603)
Operating lease liabilities	$	505,294	$	419,682

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.

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Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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~~Note 3 ~~and~~ 9 for the payment terms and more details), respectively. Zachary Rome, a former member of the ~~board of directors~~Board 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~~September 30, 2022, and December 31, 2021, Patagonia owns ~~45 shares~~1 share 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~~1,587 shares of common stock underlying vested VARs, or $22,528, at the Company’s election, and (ii) forfeited ~~52,884~~1,058 VARs. On March 4, 2022, Mr. Rome received ~~59,696~~1,194 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~~Board 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~~September 30, 2022, TardiMed holds ~~3,109,067~~94,028 shares of common stock, which represents ~~approximately 4.9%~~less than 4.99% of the total voting shares outstanding. The Company had 0no reimbursements to TardiMed in the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2022, and reimbursed TardiMed ~~$63,936~~$80,066 for management fees and reimbursed expenses in the nine-month period ended September 30, 2021.

On July 27, 2022, the Company, entered into the Letter Agreement with TardiMed pursuant to which TardiMed agreed to exchange its 1,819 shares of Series A Preferred Stock plus accrued dividends for a pre-funded warrant to purchase 181,083 shares of common stock, or the TardiMed Warrant. The number of shares underlying the TardiMed Warrant is based on the redemption price of the Series A Preferred Stock (which had been demanded by TardiMed) divided by $11.95, the last closing price of the common stock prior to the date the Letter Agreement was executed.

Twenty percent of the TardiMed 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 TardiMed Warrant to become exercisable, provided that only 20% of the initial balance of the TardiMed Warrant will be exercisable in any given quarter. The TardiMed Warrant’s exercise price is $0.005 and may be exercised on a cashless basis. The TardiMed Warrant will terminate when exercised in full. On August 3, 2022, 20% of the TardiMed Warrant was exercised on a cashless basis and 36,196 shares of common stock were issued to TardiMed.

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Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~expenses~~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 ~~six-month period ended June 30, 2021.~~Series Stock. As of ~~June~~September 30, 2022, the TardiMed ~~holds 1,819~~Warrant was exercisable for 144,866 shares of ~~Series A Preferred Stock (see~~common stock(see ~~Notes~~Note 5~~and~~ 9).

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~~Timber Pharmaceuticals, Inc. & Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Note 9. Subsequent Events

The Company has evaluated its subsequent events from ~~June~~September 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,~~October 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 2 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.Offering

On ~~July 27,~~October 3, 2022, the Company entered into a ~~letter agreement~~Securities Purchase Agreement (the ~~“Letter~~“October Purchase Agreement”) with ~~TardiMed~~several institutional accredited investors (the “Investors”) to sell, in a registered direct offering (the “Registered Offering”) (i) 260,000 shares of common stock, and (ii) Series 1 common warrants (the “Series 1 Warrants”) to purchase up to an aggregate of 260,000 shares of common stock. The Series 1 Warrants are immediately exercisable at an exercise price of $5.00 per share and will expire two and one-half years following the initial exercise date. The October Purchase Agreement contains customary representations and warranties and agreements of the Company and the Investors, and customary indemnification rights and obligations of the parties. Total gross proceeds from the Registered Offering, before deducting the placement agent's fees and other estimated offering expenses, was $1.3 million. The Registered Offering closed on October 3, 2022.

The Company filed a prospectus supplement (the “Prospectus Supplement”) on October 3, 2022, with the Securities and Exchange Commission (the “SEC”) in connection with the Registered Offering. The shares of common stock and Series 1 Warrant Shares were offered pursuant to a “shelf” registration statement on Form S-3 (Registration No.333-255743) (the “Registration Statement”), which ~~TardiMed~~was declared effective by the SEC on May 11, 2021, the accompanying base prospectus dated May 11, 2021 contained within the Registration Statement, and the Prospectus Supplement.

In a concurrent private placement (the “Concurrent Private Placement Offering” and, together with the Registered Offering, the “October 2022 Offerings”) the Company has also agreed to ~~exchange its 1,819~~issue (i) Series 2 common warrants (the “Series 2 Warrants, “and together with the Series 1 Warrants, the “Warrants”) to purchase up to an aggregate of 260,000 shares of ~~the Company’s~~underlying common stock (the “Series 2 Warrant Shares”), and (ii) 13,000 shares of Series AB Mirroring Preferred Stock (the “Series AB Preferred Stock”) ~~plus accrued dividends for~~.

Each share of Series B Preferred Stock has a ~~pre-funded warrant (the “Warrant”) to purchase 9,054,132 shares~~stated value of $0.001 per share. The Series B Preferred Stock had super voting rights on the approval of the ~~Company’s common stock, par value $0.001~~2022 Reverse Stock Split (as defined below) equal to 10,000,000 votes per share ~~(the “Common Stock”).~~of Series B Preferred Stock. The ~~number~~voting rights of ~~shares underlying~~ the ~~Warrant is based on~~Series B Preferred Stock were established in order to maintain the ~~redemption~~Company’s NYSE American listing by raising the average minimum bid price of the common stock to over $0.20 for 30 consecutive trading days. Upon the effectiveness of the Certificate of Amendment, the outstanding shares of Series AB Preferred Stock ~~(which had been demanded by TardiMed) divided by $0.239, the last closing price of the Common Stock prior~~were automatically transferred to ~~the date the Letter Agreement was executed.~~

NaN 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~~cancelled for no consideration with no action on behalf of the holders thereof and ~~all claims, rights, demands, actions, suits, causes~~such shares resumed the status of ~~action, liabilities, obligations, damages~~authorized but unissued shares of preferred stock and ~~costs~~were no longer designated as shares of ~~any nature whatsoever that TardiMed has, had or may~~Series B Stock.

The Series 2 Warrants are exercisable on the date six (6) months following the date of issuance at an exercise price of $6.00 per share and will expire two and one-half years following the initial exercise date. The Series B Preferred Stock, was not, and the Series 2 Warrants and Series 2 Warrant Shares issuable upon exercise of the Series 2 Warrants have ~~against~~not been registered under the ~~Company or related parties in any way arising from or related~~Securities Act of 1933, as amended (the “Securities Act”), and were offered pursuant to the ~~Series A Preferred Stock.~~

~~On March 1, 2022,~~exemption provided in Section 4(a)(2) under 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”).Securities Act and Rule 506(b) promulgated thereunder.

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Timber Pharmaceuticals, Inc. & Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~In August 4, 2022,~~As compensation to Wainwright, as the exclusive placement agent in connection with the Registered Offering, the Company ~~announced the pricing~~paid Wainwright a cash fee of 6% 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~~aggregate gross proceeds raised in the Registered Offering and reimbursed Wainwright for legal fees and expenses up to ~~an aggregate~~$40,000, non-accountable expenses of ~~20,083,334 shares of Common Stock (the “Pre-Funded Warrant Shares”)~~$25,000 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$15,950 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.

clearing expenses. In connection with the ~~Offering,~~October 2022 Offerings, the Company received net proceeds of $1.0 million.

TardiMed Warrant Exercise

On October 26, 2022, 20% of the TardiMed Warrant was exercised on ~~August 4,~~a cashless basis and 36,166 shares of common stock were issued to TardiMed. As of November 9, 2022, the TardiMed Warrant is exercisable for 108,700 shares of common stock, subject to the ownership percentage limitations set forth in the TardiMed Warrant (see Note 5).

Special Meeting and 2022 Reverse Stock Split

On November 7, 2022, the Special Meeting, the stockholders approved a proposal to amend the Company’s certificate of incorporation to effect a reverse split of the common stock at a specific ratio, ranging from one-for-twenty-five to one-for-fifty, at any time prior to the first anniversary date of the Special Meeting (the “2022 Reverse Stock Split”), with the exact ratio to be determined by the Board. The Board had previously approved the reverse split at a ratio of one-for-fifty on October 27, 2022, subject to obtaining stockholder approval.

On November 7, 2022, the Company ~~entered~~filed the Certificate of Amendment with the Secretary of State of the State of Delaware , which effected, at 5:00 p.m. Eastern Time on November 8, 2022, the 2022 Reverse Stock Split of the Company’s issued and outstanding shares common stock at a ratio of one-for-fifty. In connection with the 2022 Reverse Stock Split, the CUSIP number for the common stock changed to 887080208.

As a result of the 2022 Reverse Stock Split, every 50 shares of common stock issued and outstanding was converted into ~~securities purchase agreements (the “Purchase Agreements”) with certain institutional investors~~one share of common stock. As a result of the 2022 Reverse Stock Split, the 13,000 shares of Series B Mirroring Preferred Stock were automatically cancelled for no consideration and resumed the status of authorized but unissued shares of preferred stock of the Company. The 2022 Reverse Stock Split affected all common stockholders uniformly and did not alter any stockholder’s percentage interest in the ~~August 2022 Offering (the “Signatories”). The net proceeds~~Company’s equity, except to the ~~Company from~~extent that the ~~August~~ 2022 ~~Offering~~Reverse Stock Split would have resulted in some stockholders owning a fractional share. No fractional shares were ~~approximately $6.9 million, after deducting placement agent fees and expenses and estimated offering expenses payable by~~issued in connection with the 2022 Reverse Stock Split. Stockholders who would otherwise be entitled to a fractional share of common stock were instead entitled to receive a proportional cash payment. The common stock began trading on a post-split as-adjusted basis on November 9, 2022. There can be no assurance that the Company ~~excluding~~will be able to regain or maintain compliance with the ~~proceeds, if any, from~~NYSE American continued listing standards, even after the ~~exercise~~implementation 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.~~

Reverse Stock Split.

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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;~~stock,par value $0.001 per share (the “Common Stock”);

●

our ability to retain key executives;

●

our ability to internally develop new inventions and intellectual property;

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●

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.

●

All shares of Common Stock, including Common Stock underlying warrants, stock options, restricted stock units and VARs, as well as all conversion ratios, exercise prices, conversion prices and per share information in this Quarterly Report on Form 10-Q give retroactive effect to the 2022 Reverse Stock Split (as defined below).

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

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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.

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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 that 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~~FDA 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 2,3, 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,~~Intellectual Property Office issued a patent covering TMB-001 Korean Patent ~~Application Number: 10-2018-7074948 was issued as Korean Patent~~ Number: 10-2406880. Additional patents are pending for TMB-001 in several other countries.

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

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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.

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

On October 25, 2022, we announced that the European Commission has granted orphan designation for TMB-001 for the treatment of ARCI. The European Medicines Agency (“EMA”) Pediatric Committee also provided positive comments on the Pediatric Investigation Plan for the treatment of ARCI and XLRI, setting the basis for a final discussion in mid-November, which is a prerequisite for filing a Marketing Authorization Application with the EMA.

TMB-002

TMB-002, a proprietary topical formulation of rapamycin, ~~is currently being~~was evaluated in a Phase 2b clinical trial for the treatment of ~~FAs~~facial angiofibromas (“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 dodetermined not ~~intend~~ to proceed with a pivotal Phase 3 clinical trial of TMB-002 in ~~FAs at this time.~~ FAs.

On July ~~23,~~22, 2022, we provided written notice to AFT Pharmaceuticals Ltd. (“AFT”) of our decision to terminate ~~the~~tour 2019 agreement with AFT ~~License Agreement, dated as of July 5, 2019, by and between the Subsidiary and AFT (the “AFT License Agreement”)~~to develop TMB-002 because we believe there iswas 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~~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,

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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.

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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,~~Common Stock, at a ratio of 1-for-12 (the ~~“Reverse~~“2020 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~~Common Stock to the holders of common units of Timber Sub. Immediately after the Merger, there were approximately ~~11,849,031~~236,980 shares of ~~common stock~~Common Stock outstanding (after the 2020 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,~~Common Stock, with the Company’s stockholders immediately prior to the Merger owning approximately 11.5% of the outstanding ~~common stock.~~Common Stock. The number of shares of ~~common stock~~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~~12.59 shares of ~~common stock~~Common Stock for each Timber Sub unit. In addition, the ~~584~~11.68 VARs that were outstanding immediately prior to Merger became denoted and payable in ~~367,670~~7,353 shares of ~~common stock~~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~~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~~167,695 Series A Warrants to purchase shares of ~~common stock~~Common Stock (“Series A Warrants”) and ~~7,042,175~~140,844 Series B Warrants to purchase shares of ~~common stock~~Common Stock (“Series B Warrants”). The Series A Warrants have a 5-year term and an exercise price of ~~$2.7953,~~$139.77, 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~~167,695 shares of ~~common stock~~Common Stock issued to the Investors, subject to certain adjustments. The Series B Warrants had an exercise price per share of ~~$0.001,~~$0.05, were exercisable upon issuance and were initially convertible into ~~7,042,175~~140,844 shares of ~~common stock~~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~~8,275 shares of ~~common stock~~Common Stock (the “Bridge Warrants”) which had an exercise price of ~~$2.2362~~$111.81 per share, which was revised to ~~$0.31~~$1.00 per share as a result of the ~~November 2021~~August 2022 offering.

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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~~403,564 and the warrant exercise price was fixed at ~~$1.16.~~$58.00. The aggregate number of Series B Warrants was fixed at ~~22,766,777.~~455,336. The exercise price of the Series B Warrants remained unchanged.

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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~~227,628 shares of ~~common stock~~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~~September 30, 2022, ~~16,701,824~~334,036 shares of ~~common stock~~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, (“Wainwright”) 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~~Common Stock and, to certain investors, pre-funded warrants to purchase shares of ~~common stock,~~Common Stock, and accompanying warrants to purchase shares of our ~~common stock.~~Common Stock (the “November Warrants”). 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~~Common Stock (or ~~common stock~~Common Stock equivalents) sold by us in the offering was ~~26,953,125,~~539,063, together with warrants to purchase up to ~~26,953,125~~539,063 shares of ~~common stock~~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 November 2021 offering, the exercise price of the Bridge Warrants was adjusted to ~~$0.31~~$15.50 per share. Further, as a result of the August 2022 Offering, the exercise price of the Bridge Warrants was adjusted to $1.00 per share.

Each share of ~~common stock~~Common Stock and pre-funded warrant to purchase one share of ~~common stock~~Common Stock was sold together with a warrant to purchase one share of ~~common stock.~~Common Stock. All the securities sold in the November 2021 offering were sold by us. The public offering price of each share of ~~common stock~~Common Stock and accompanying common warrant was ~~$0.64~~$32.00 and ~~$0.639~~$31.95 for each pre-funded warrant and accompanying common warrant. The pre-funded warrants were immediately exercisable at a price of ~~$0.001~~$0.05 per share of ~~common stock~~Common Stock and were exercised in full on November 5, 2021. The warrants were immediately exercisable at a price of ~~$0.70~~$35.00 per share of ~~common stock~~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~~was 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.

No additional milestone payments accrued at September 30, 2022, because the potential regulatory and commercial milestones were not considered probable36.

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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

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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. The first milestone payment was made on September 1, 2022. The Company is accreting interest on the second tranche. The non-cash interest is recorded in the Company’s Consolidated Statement of Operations. 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~~September 30, 2022, and December 31, ~~2021.~~2021, respectively.

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~~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~~December 31, 2021. No milestones were accrued at September 30 2022 as a result of the termination of the AFT License Agreement on July 25, 2022 and ~~December 31, 2021.~~because no regulatory and milestones were yet considered probable prior to termination.

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.

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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”).~~Common Stock.

On August 4, 2022, we announced the pricing of the public offering (the “August 2022 Offering”) of (i) ~~46,583,333~~931,667 shares ~~(the “Shares”)~~ of Common Stock, (ii) pre-funded warrants ~~(the “Pre-Funded Warrants”)~~ to purchase up to an aggregate of ~~20,083,334~~401,667 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~~1,333,333 shares of Common Stock (the ~~“Common Warrant Shares” and, together with the Pre-Funded Warrant Shares, the “Warrant Shares”~~“August Warrants”). Each ~~Share~~share of Common Stock and ~~Pre-Funded Warrant~~pre-funded warrant to purchase one share of Common Stock was sold together with ~~a Common~~an August 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~~share of Common Stock and accompanying ~~Common~~August Warrant was ~~$0.12~~$6.00 and ~~$0.1199~~$5.995 for each ~~Pre-Funded Warrant~~pre-funded warrant and accompanying ~~Common~~August Warrant. The ~~Pre-Funded Warrants~~pre-funded warrants were immediately exercisable at a price of ~~$0.0001~~$0.005 per share of Common Stock and ~~may be exercised~~were exercisable at any time until all of the ~~Pre-Funded Warrants are~~pre-funded warrants were exercised in full. The ~~Common~~August Warrants are immediately exercisable at a price of ~~$0.12~~$6.00 per share of Common Stock and will expire five years from the date of issuance. The ~~Shares~~shares of Common Stock and ~~Pre-Funded~~pre-funded warrants, and the accompanying ~~Common~~August Warrants, were issued separately and were immediately separable upon issuance. The August 2022 Offering closed on August 8, 2022. All of the ~~Pre-Funded~~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~~“August Purchase Agreements”) with certain institutional investors in the ~~Offering (the “Signatories”).~~August 2022 Offering. The net proceeds to us from the August 2022 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~~August Warrants. We ~~intends~~intend to use the net proceeds from the ~~offering~~August 2022 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~~August Warrants issued in the August 2022 ~~Offering.~~Offering which was $1.00.

October 2022 Offering

On October 3, 2022, we entered into a Securities Purchase Agreement (the “October Purchase Agreement”) with several institutional accredited investors (the “Investors”) to sell, in a registered direct offering (the “Registered Offering”) (i) 260,000 shares of Common Stock, and (ii) Series 1 common warrants (the “Series 1 Warrants”) to purchase up to an aggregate of 260,000 shares of Common Stock (the “Series 1 Warrant Shares”). The Series 1 Warrants are immediately exercisable at an exercise price of $5.00 per share and will expire two and one-half years following the initial exercise date. The October Purchase Agreement contains customary representations and warranties and agreements of the Company and the Investors, and customary indemnification rights and obligations of the parties. Total gross proceeds from the Registered Offering, before deducting the placement agent’s fees and other estimated offering expenses, was $1.3 million. The Registered Offering closed on October 3, 2022.

We filed a prospectus supplement (the “Prospectus Supplement”) on October 3, 2022, with the Securities and Exchange Commission (the “SEC”) in connection with the Registered Offering. The shares of Common Stock and Series 1 Warrant Shares were offered pursuant to a “shelf” registration statement on Form S-3 (Registration No.333-255743) (the “Registration Statement”), which was declared effective by the SEC on May 11, 2021, the accompanying base prospectus dated May 11, 2021 contained within the Registration Statement, and the Prospectus Supplement.

In a concurrent private placement (the “Concurrent Private Placement Offering” and, together with the Registered Offering, the “October 2022 Offerings”) we also agreed to issue (i) Series 2 common warrants (the “Series 2 Warrants”) to purchase up to an aggregate of 260,000 shares of underlying Common Stock (the “Series 2 Warrant Shares”), and (ii) 13,000 shares of Series B Mirroring Preferred Stock (the “Series B Preferred Stock”).

Each share of Series B Preferred Stock had a stated value of $0.001 per share. The Series B Preferred Stock had super voting rights on the approval of the 2022 Reverse Stock Split (as defined below) equal to 10,000,000 votes per share of Series B Preferred Stock. The voting rights of the Series B Preferred Stock were established in order to maintain our NYSE

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American listing by raising the average minimum bid price of the Common Stock to over $0.20 for 30 consecutive trading days. Upon the effectiveness of the Certificate of Amendment (as defined below), the outstanding shares of Series B Preferred Stock were automatically transferred to the Company and cancelled for no consideration with no action on behalf of the holders thereof and such shares resumed the status of authorized but unissued shares of preferred stock and were no longer designated as shares of Series B Stock.

The Series 2 Warrants are exercisable on the date six (6) months following the date of issuance at an exercise price of $6.00 per share and will expire two and one-half years following the initial exercise date. The Series B Preferred Stock was not, and the Series 2 Warrants and Series 2 Warrant Shares issuable upon exercise of the Series 2 Warrants have not been, registered under the Securities Act of 1933, as amended (the “Securities Act”), and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder.

As compensation to Wainwright, as the exclusive placement agent in connection with the Registered Offering, we paid Wainwright a cash fee of 6% of the aggregate gross proceeds raised in the Registered Offering and reimbursed Wainwright for legal fees and expenses up to $40,000, non-accountable expenses of $25,000 and $15,950 for clearing expenses. In connection with the October 2022 Offerings, the Company received net proceeds of approximately $1.0 million.

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~~$51.6 million through capital contributions.

Since inception, we have incurred significant operating losses. For the ~~six~~nine months ended ~~June~~September 30, 2022, our net loss was approximately ~~$12.6~~$15.8 million. As of ~~June~~September 30, 2022, we had an accumulated deficit of approximately ~~$41.5~~$44.6 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.

On November 8, 2022, we filed a Certificate of Amendment to the Company’s Certificate of Incorporation, as amended (the “Certificate of Amendment”), with the Secretary of State of the State of Delaware, which effected, at 5:00 p.m. Eastern Time on November 8, 2022, the 2022 Reverse Stock Split of the Company’s issued and outstanding shares of Common Stock at a ratio of one-for-fifty (the “2022 Reverse Stock Split”). All per share amounts and number of shares of Common Stock in this Current Report on Form 10-Q reflect the 2022 Reverse Stock Split. The 2022 Reverse Stock Split did not affect our authorized preferred stock of 450,000,000 shares. Proportionate adjustments were made to the conversion rate, the per share exercise price and the number of shares issuable upon the vesting, exercise or conversion of the Company’s outstanding derivative securities in accordance with the 2022 Reverse Stock Split ratio.

As a result of the 2022 Reverse Stock Split, every fifty shares of Common Stock issued and outstanding was converted into one share of Common Stock. The 2022 Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in the Company’s equity, except to the extent that the 2022 Reverse Stock Split would have resulted in some stockholders owning a fractional share. No fractional shares were issued in connection with the 2022 Reverse Stock Split. Stockholders who would otherwise have been entitled to a fractional share of Common Stock were instead entitled to receive a proportional cash payment. The Common Stock began trading on a post-split as-adjusted basis on November 9, 2022. There can be no assurance that we will be able to regain or maintain compliance with the NYSE American continued listing standards, even after the implementation of the 2022 Reverse Stock Split.

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Results of Operations

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


	Three Months Ended June 30,								Three Months Ended September 30,
	2022		2021		Change $		Change %		2022		2021		Change $		Change %

Grant revenue	$	—	$	134,927	$	(134,927)	NA	%	$	—	$	225,128	$	(225,128)	NA	%
Milestone revenue		—		253,892		(253,892)	NA			—		41,846		(41,846)	NA
Total revenue		—		388,819		(388,819)	(100)	%		—		266,974		(266,974)	(100)	%
Research and development		3,891,500		1,800,100		2,091,400	116	%		1,790,528		1,974,193		(183,665)	(9)	%
Research and Development milestone expense for Patagonia Pharmaceuticals LLC		4,000,000		—		4,000,000	NA			—		—		—	NA
Selling, general and administrative		1,512,343		1,556,012		(43,669)	(3)	%		1,336,668		1,296,641		40,027	3	%
Loss from operations		(9,403,843)		(2,967,293)		(6,436,550)	217	%		(3,127,196)		(3,003,860)		(123,336)	4	%
Interest expense		(42,077)		—		(42,077)	NA			(71,203)		—		(71,203)	NA
Gain (loss) on foreign currency exchange		(50,076)		1,090		(51,166)	(4,694)	%		11,124		(1,544)		12,668	(820)	%
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	%		(3,187,275)		(3,005,404)		(181,871)	6	%
Cumulative dividends on Series A preferred stock		—		(36,286)		36,286	NA	%		—		(36,685)		36,685	NA	%
Net (loss) income attributable to common stockholders	$	(9,495,996)	$	(3,002,489)	$	(6,493,507)	216	%	$	(3,187,275)	$	(3,042,089)	$	(145,186)	5	%

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~~September 30, 2022, and 2021, we recognized no revenues and revenue of ~~$134,927~~approximately $0.2 million respectively, from the Grant.

Pursuant to the AFT Licensing and Development Agreement, we ~~are~~were 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 iswas 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~~$0.04 million during the three months ended ~~June~~September 30, 2021. No revenues were recorded as there were no milestone payments during the three months ended ~~June~~September 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~~September 30, 2022, and 2021, research and development expenses were ~~$7.9~~approximately $1.8 and ~~$1.8~~$2.0 million, respectively. The ~~increase~~decrease in research and development expenses of approximately ~~$6.1~~$0.2 million are primarily related to a slight reduction in costs incurred related to our Phase 2 clinical trial of TMB-002 offset by an increase in expenses associated with the 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.expenses. Research and development expenses are expected ~~to continue~~ to significantly increase in 2022 as a result of the Phase 3 trial for TMB-001.

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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.

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General and Administrative Expense

During the three months ended ~~June~~September 30, 2022, general and administrative expenses were ~~$1.5~~approximately $1.3 million compared to ~~$1.6~~$1.3 million for the three months ended ~~June~~September 30, 2021. ~~The decrease in general~~General and administrative expenses ~~of approximately $0.1 million was~~increased slightly due to ~~a slight decrease in professional fees during the quarter.~~increased costs associated with investor relations.

Other Income (Expense)

During the three months ended ~~June~~September 30, 2022, other income (expense) of approximately $0.6 million included interest expense of ~~$0.04~~approximately $0.01 million related to the Redeemable Series A Preferred Stock ~~under redemption,~~that was converted, interest expense of $0.06 million related to accretion for the second tranche of the Patagonia milestone payment, a ~~loss~~de-minimis gain on foreign currency n of approximately ~~$0.05~~$0.01 million due to the strength of the US$ versus the AUD$. There was de-minimis other ~~income~~ (expense) for the three months ended ~~June~~September 30, 2021.

Income Taxes

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

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


	Six Months Ended June 30,								Nine Months Ended September 30,
	2022		2021		Change $		Change %		2022		2021		Change $		Change %

Grant revenue	$	83,177	$	175,661	$	(92,484)	(53)	%	$	83,177	$	400,789	$	(317,612)	(79)	%
Milestone revenue		—		253,892		(253,892)	NA	%		—		295,738		(295,738)	NA	%
Total revenue		83,177		429,553		(346,376)	(81)	%		83,177		696,527		(613,350)	(88)	%
Research and development		5,410,459		2,649,618		2,760,841	104	%		7,200,987		4,623,811		2,577,176	56	%
Research and development milestone expense for Patagonia Pharmaceuticals LLC		4,000,000		—		4,000,000	NA	%		4,000,000		—		4,000,000	NA	%
Selling, general and administrative		3,214,738		2,621,401		593,337	23	%		4,551,406		3,918,042		633,364	16	%
Loss from operations		(12,542,020)		(4,841,466)		(7,700,554)	159	%		(15,669,216)		(7,845,326)		(7,823,890)	100	%
Interest expense		(96,328)		—		(96,328)	NA	%		(167,531)		—		(167,531)	NA	%
Other income		75,000		—		75,000	NA	%		75,000		—		75,000	NA	%
Forgiveness of PPP loan		37,772		—		37,772	NA	%		37,772		—		37,772	NA	%
Gain (loss) on foreign currency exchange		(43,814)		1,003		(44,817)	(4,468)	%		(32,690)		(541)		(32,149)	5,943	%
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	%		(15,756,665)		(7,845,867)		(7,910,798)	101	%
Cumulative dividends on Series A preferred stock		—		(72,173)		72,173	(100)	%		—		(108,858)		108,858	NA	%
Net loss attributable to common stockholders	$	(12,569,390)	$	(4,912,636)	$	(7,656,754)	156	%	$	(15,756,665)	$	(7,954,725)	$	(7,801,940)	98	%

Grant and Milestone Revenue

During the ~~six~~nine months ended ~~June~~September 30, 2022, and 2021, we recognized revenues of ~~$83,177~~approximately $0.08 million and ~~$175,661~~$0.4 million respectively, from the $1.5 million ~~Grant~~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~~nine months ended ~~June~~September 30, 2021. No revenues were recorded for milestone payments during the ~~six~~nine months ended ~~June~~September 30, 2022. As the agreement

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

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Operating Costs and Expenses

Research and Development Expense

During the ~~six~~nine months ended ~~June~~September 30, 2022, and 2021, research and development expenses were ~~$9.4~~approximately $11.2 and ~~$2.6~~$4.6 million, respectively. The increase in research and development expenses of ~~$6.8~~approximately $6.6 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.

General and Administrative Expense

During the ~~six~~nine months ended ~~June~~September 30, 2022, general and administrative expenses were approximately ~~$3.2~~$4.6 million compared to ~~$2.6~~approximately $3.9 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The increase in general and administrative expenses of approximately ~~$0.6~~$0.7 million was due to an increase in stock-based compensation costs of ~~$0.4~~approximately $0.7 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~~an increase in costs associated with investor relations during the ~~six month period.~~period..

Other Income (Expense)

During the ~~six~~nine months ended ~~June~~September 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~~$0.03 million due to the ~~strength~~currency fluctuation of the US$ versus the AUD$. as exchange rates were unfavorable earlier in 2022. There was de-minimis other income (expense) for the ~~six~~nine months ended ~~June~~September 30, 2021.

Income Taxes

We did not record tax expense for the ~~six~~nine months ended ~~June~~September 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~~have incurred net losses and negative cash flows from ~~its~~our operations. At ~~June~~September 30, 2022, we had working capital of approximately ~~$2.7~~$7.2 million, which included cash of approximately ~~$8.3~~$11.2 million. We reported a net loss of approximately ~~$12.6~~$15.8 million during the ~~six~~nine months ended ~~June~~September 30, 2022.

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


	Six Months Ended June 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Cash provided by (used in) continuing operations:
Operating activities	$	(8,528,864)	$	(4,202,755)	$	(12,660,879)	$	(6,973,754)
Investing activities		(5,947)		(16,903)		(5,947)		(17,803)
Financing activities		—		—		7,082,484		—
Net decrease in cash and cash equivalents	$	(8,534,811)	$	(4,219,658)	$	(5,584,342)	$	(6,991,557)

Operating Activities

For the ~~six~~nine months ended June 30 2022, net cash used in operating activities was ~~$8.5~~approximately $12.7 million, which primarily consisted of our net loss of ~~$12.6~~$15.8 million, adjusted for non-cash expenses of approximately ~~$0.7~~$0.9 million of stock-based compensation expense, amortization of our right of use assets of $0.2 million, non-cash interest of approximately $0.1 million, the $1.75 million milestone payable to Patagonia Pharmaceuticals, LLC, offset by the change in assets and liabilities of ~~$3.2~~approximately $0.2 million, which is primarily due an decrease in prepaid expenses of approximately $0.7 million 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~~$1.1 million related to research and development expenses and accrued interest payable related to the milestone payable to Patagonia Pharmaceuticals, LLC and 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~~nine months ended ~~June~~September 30, 2022, and 2021, net cash used in investing activities was $0.006 million for purchases of equipment and ~~$0.02~~$0.018 million for furniture and equipment, respectively.

Financing Activities

For the ~~six~~nine months ended ~~June~~September 30, 2022, ~~and 2021, respectively,~~ net cash provided by financing activities was ~~zero.~~approximately $7.1 million, consisting of $6.9 million from the August 2022 Offering and $0.2 million from the proceeds from the exercise of Common Stock warrants. There was no cash provided by financing activities in the nine months ended September 30, 2021.

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.

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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~~had demanded redemption. The redemption price iswas 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%8.0% per annum.

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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~~continued to accrue and ~~will be~~were 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”~~“TardiMed Warrant”) to purchase ~~9,054,132~~181,083 shares of ~~the Company’s common stock, par value $0.001 per share (the “Common Stock”).~~our Common Stock. The number of shares underlying the TardiMed Warrant is based on the redemption price of the Series A Preferred Stock (which had been demanded by TardiMed) divided by ~~$0.239,~~$11.95, the last closing price of the Common Stock prior to the date the Letter Agreement was executed.

Twenty percent of the TardiMed Warrant iswas 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~~has agreed to allow an additional 20% of the initial balance of the TardiMed Warrant to become exercisable, provided that only 20% of the initial balance of the TardiMed Warrant will be exercisable in any given quarter. The TardiMed Warrant’s exercise price is ~~$0.0001~~$0.005 and may be exercised on a cashless basis. The TardiMed Warrant will terminate when exercised in full. On August 3, 2022, 20% of the TardiMed Warrant was exercised on a cashless basis and ~~1,809,280~~36,196 shares of Common Stock were issued to TardiMed. Further, on October 26, 2022, 20% of the TardiMed Warrant was exercised on a cashless basis and 36,166 shares of Common Stock were issued to TardiMed. As of November 9, 2022, the TardiMed Warrant is exercisable for 108,700 shares of Common Stock, subject to the ownership percentage limitations set forth in the TardiMed Warrant.

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~~was accrued at June 30, 2022. There were no milestone payments accrued at December 31, ~~2021.~~2021, as the potential regulatory and commercial milestones were not considered probable.

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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. The first milestone payment was made on September 1, 2022. The Company is accreting interest on the second tranche. The interest is recorded in the Company’s Consolidated Statement of Operations. 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”).~~

Common Stock.

On August 4, 2022, ~~the Company~~we announced the pricing of the ~~public offering (the “August~~August 2022 ~~Offering”)~~Offering of (i) ~~46,583,333 shares (the “Shares”)~~931,667 of Common Stock, (ii) pre-funded warrants ~~(the “Pre-Funded Warrants”)~~ to purchase up to an aggregate of ~~20,083,334~~401,667 shares of Common Stock ~~(the “Pre-Funded Warrant Shares”)~~ and (iii) ~~common warrants (the “Common Warrants”)~~the August Warrants to purchase up to an aggregate of ~~66,666,667~~1,333,333 shares of Common Stock. Each share of Common Stock ~~(the “Common Warrant Shares”~~ and ~~together with the Pre-Funded Warrant Shares, the “Warrant Shares”). Each Share and Pre-Funded Warrant~~pre-funded warrant to purchase one share of Common Stock was sold together with ~~a Common~~an August Warrant to purchase one share of Common

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Stock. All of the securities sold in the August 2022 Offering were sold by the Company. The public offering price of each ~~Share~~share of Common Stock and accompanying ~~Common~~August Warrant was ~~$0.12~~$6.00 and ~~$0.1199~~$5.995 for each ~~Pre-Funded Warrant~~pre-funded warrant and accompanying ~~Common~~August Warrant. The ~~Pre-Funded Warrants~~pre-funded warrants were immediately exercisable at a price of ~~$0.0001~~$0.005 per share of Common Stock and ~~may be exercised~~were exercisable at any time until all of the ~~Pre-Funded Warrants~~pre-funded warrants are exercised in full. The ~~Common~~August Warrants are immediately exercisable at a price of ~~$0.12~~$6.00 per share of Common Stock and will expire five years from the date of issuance. The ~~Shares~~shares of Common Stock and ~~Pre-Funded~~pre-funded warrants, and the accompanying ~~Common~~August 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~~pre-funded warrants were exercised, and none remain outstanding.

In connection with the August 2022 Offering, on August 4, 2022, ~~the Company~~we entered into ~~securities purchase agreements (the “Purchase Agreements”)~~the August Purchase Agreements with certain institutional investors in the ~~Offering (the “Signatories”).~~August 2022 Offering. The net proceeds to ~~the Company~~us 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,~~us, excluding the proceeds, if any, from the exercise of the ~~Common~~August Warrants. ~~The Company intends~~We intend to use the net proceeds from the August 2022 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~~August Warrants issued in the August 2022 ~~Offering.~~Offering which was $1.00.

On October 3, 2022, we entered into the October Purchase Agreement with the Investors to sell, in the Registered Offering (i) 260,000 shares of Common Stock, and (ii) Series 1 Warrants to purchase up to an aggregate of 260,000 shares of Common Stock. The Series 1 Warrants are immediately exercisable at an exercise price of $5.00 per share and will expire two and one-half years following the initial exercise date. The October Purchase Agreement contains customary representations and warranties and agreements of the Company and the Investors, and customary indemnification rights and obligations of the parties. Total gross proceeds from the Registered Offering, before deducting the placement agent’s fees and other estimated offering expenses, was $1.3 million. The Registered Offering closed on October 3, 2022.

We filed the Prospectus Supplement on October 3, 2022, with the SEC in connection with the Registered Offering. The shares of Common Stock and Series 1 Warrant Shares were offered pursuant to a “shelf” registration statement on Form S-3 (Registration No.333-255743), or the Registration Statement, which was declared effective by the SEC on May 11, 2021, the accompanying base prospectus dated May 11, 2021 contained within the Registration Statement, and the Prospectus Supplement.

IntheConcurrentPrivatePlacementOfferingwealsoagreedtoissue(i)Series2Warrantstopurchaseuptoanaggregate of 260,000shares of underlyingCommonStock, and(ii) 13,000shares of Series B Preferred Stock.

Each share of Series B Preferred Stock had a stated value of $0.001 per share. The Series B Preferred Stock had super voting rights on the approval of the 2022 Reverse Stock Split equal to 10,000,000 votes per share of Series B Preferred Stock. The voting rights of the Series B Preferred Stock were established in order to maintain our NYSE American listing by raising the average minimum bid price of the Common Stock to over $0.20 for 30 consecutive trading days. Upon the effectiveness of the Certificate of Amendment (as defined below), the outstanding shares of Series B Preferred Stock were automatically transferred to the Company and cancelled for no consideration with no action on behalf of the holders thereof and such shares resumed the status of authorized but unissued shares of preferred stock and were no longer designated as shares of Series B Stock.

The Series 2 Warrants are exercisable on the date six (6) months following the date of issuance at an exercise price of $6.00 per share and will expire two and one-half years following the initial exercise date. The Series B Preferred Stock was not, and the Series 2 Warrants and Series 2 Warrant Shares issuable upon exercise of the Series 2 Warrants have not been, registered under the Securities Act, and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder.

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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~~September 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;

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●

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

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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.

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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~~September 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~~September 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

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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 asto the extent that such information previously has been included under Item 3.02 in ~~our Annual~~a Current Report on Form ~~10-K.~~

8-K.

Item 3. Defaults Upon Senior Securities.

None.

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Item 4. Mine Safety Disclosure.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits


Exhibit No.		Description
3.1		Certificate of Designation of Preferences, Rights and Limitations of Series B Mirroring Preferred Stock filed with the Secretary of State of the State of Delaware on October 3, 2022 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on October 3, 2022)

~~10.1#~~3.2		Form of Series B Mirroring Preferred Stock Certificate (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed with the SEC on October 3, 2022).

3.3		Certificate of Amendment of Certificate of Incorporation, as amended, of Timber Pharmaceuticals, Inc., dated November 7, 2022 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on November 9, 2022).

4.1		Form of Pre-Funded TardiMed Warrant (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed with the SEC on August 1, 2022).

4.2		Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed with the SEC on August 8, 2022).

4.3		Form of Common Warrant (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed with the SEC on August 8, 2022).

4.4		Form of Series 1 Warrant (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed with the SEC on October 3, 2022).

4.5		Form of Series 2 Warrant (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed with the SEC on October 3, 2022).

10.1		Letter Agreement, dated July 27, 2022 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on August 1, 2022).

10.2#		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).#

10.3		Form of Securities Purchase Agreement, dated August 4, 2022 (incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on August 8, 2022).

10.4		Form of Securities Purchase Agreement, dated October 3, 2022, by and among Timber Pharmaceuticals, Inc. and the purchaser signatories thereto (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on October 3, 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,~~November 14, 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,~~November 14, 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,~~November 14, 2022.

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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,~~November 14, 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.

4853

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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,~~November 14, 2022	By:	/s/ John Koconis
		John Koconis
		Chief Executive Officer and Chairman of the Board of Directors
		(Principal Executive Officer)


Date: ~~August 11,~~November 14, 2022	By:	/s/ Joseph Lucchese

	Joseph Lucchese
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

4954


	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