
PART I FINANCIAL INFORMATION Financial Statements The company presents its unaudited condensed consolidated financial statements for the period ending March 31, 2021 Condensed Consolidated Balance Sheets Total assets decreased to $14.07 million, driven by a reduction in cash and an increase in total liabilities Condensed Consolidated Balance Sheets (in thousands) | | March 31, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $13,146 | $14,242 | | Total Assets | $14,072 | $15,238 | | Total Current Liabilities | $3,080 | $2,833 | | Total Liabilities | $3,089 | $2,920 | | Total Stockholders' Equity | $10,983 | $12,318 | | Total Liabilities and Stockholders' Equity | $14,072 | $15,238 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net sales decreased by 4% to $1.81 million, while the net loss slightly improved to $1.52 million for the quarter Condensed Consolidated Statements of Operations (in thousands) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Total sales, net | $1,807 | $1,892 | | Gross profit | $1,352 | $1,311 | | Total operating expenses | $2,872 | $2,846 | | Operating loss | ($1,520) | ($1,535) | | Net loss and comprehensive loss | ($1,518) | ($1,582) | | Net loss per share (basic and diluted) | ($0.04) | ($0.06) | Condensed Consolidated Statements of Stockholders' Equity (Deficit) Total stockholders' equity decreased by $1.34 million during Q1 2021, primarily due to the period's net loss - The company's total stockholders' equity decreased by $1.34 million during the first quarter of 2021, mainly driven by the net loss for the period16 Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $1.42 million, leading to a $1.44 million decrease in total cash Condensed Consolidated Statements of Cash Flows (in thousands) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,419) | ($865) | | Net cash used in investing activities | ($25) | $0 | | Net cash used in financing activities | $0 | ($364) | | Net decrease in cash, cash equivalents, and restricted cash | ($1,444) | ($1,229) | | Cash, cash equivalents and restricted cash, end of period | $10,983 | $6,183 | Notes to Condensed Consolidated Financial Statements (unaudited) Notes detail accounting policies, the focus on Avenova, and confirm cash sufficiency through May 2022 - The company is primarily focused on its eye care product, Avenova®, which is sold through multiple channels including direct-to-consumer online, retail pharmacies, and physician offices2021 - Management believes existing cash and cash equivalents will be sufficient to meet planned operating expenses at least through May 6, 202229 - The company received a $0.9 million PPP loan on May 6, 2020, which it expects to be forgiven in whole163 Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes a 4% decrease in net sales, a 3% increase in gross profit, and confirms sufficient liquidity - The company's primary focus is on its eye care product, Avenova, which is distributed through four main channels: direct-to-consumer, retail pharmacies, a Partner Pharmacy Program, and physician dispensing167168 - The company has shifted its focus back to its core eyecare business and does not expect significant future revenue from PPE sales, which were a factor in 2020176 Results of Operations Comparison (in thousands) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Dollar Change | Percent Change | | :--- | :--- | :--- | :--- | :--- | | Total sales, net | $1,807 | $1,892 | ($85) | (4%) | | Gross profit | $1,352 | $1,311 | $41 | 3% | | Operating loss | ($1,520) | ($1,535) | $15 | (1%) | | Net loss | ($1,518) | ($1,582) | $64 | (4%) | - Avenova revenue increased by 2% to $1.6 million in Q1 2021, driven by higher over-the-counter unit sales, though this was partially offset by a lower average net selling price201 - Sales and marketing expenses increased by 8% to $1.7 million due to increased digital advertising for Avenova and CelleRx204 - As of March 31, 2021, the company had $10.5 million in cash and cash equivalents and believes this is sufficient to fund operations at least through May 6, 2022209 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on cash equivalents, with no material foreign currency exposure - The company's main market risk is interest rate risk on its cash and cash equivalents225 - There is no material exposure to foreign currency rate fluctuations as the primary focus is on the U.S. domestic market225 Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period228 - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2021, that materially affected, or are reasonably likely to materially affect, internal controls229 PART II OTHER INFORMATION Legal Proceedings An arbitration with a former officer was settled, resulting in a $0.3 million insurance reimbursement in Q1 2021 - An arbitration with the company's former Interim President & CEO was settled in December 202085 - In Q1 2021, the company's insurance carrier determined it was entitled to a $0.3 million reimbursement for litigation costs related to the settled arbitration86 Risk Factors This section refers to the risk factors disclosed in the company's 2020 Annual Report on Form 10-K - For information on risk factors, the report refers to the company's Annual Report on Form 10-K for the year ended December 31, 2020232 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None234 Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None235 Mine Safety Disclosure This section is not applicable to the company's operations - Not Applicable236 Other Information The Compensation Committee approved increases to executive and director compensation, including salaries, bonuses, and RSU grants - Based on a compensation survey, the Compensation Committee approved increases to executive compensation to better align with peer group medians238239 Executive Compensation Adjustments (Effective May 1, 2021) | Executive | Previous Base Salary | New Base Salary | Previous Target Bonus | New Target Bonus | | :--- | :--- | :--- | :--- | :--- | | Justin Hall (CEO) | $286,000 | $350,000 | 40% | 50% | | Andrew Jones (CFO) | $275,000 | $300,000 | 30% | 35% | - The CEO and CFO were granted 500,000 and 250,000 Performance RSUs, respectively, which vest over a three-year period based on revenue, cash flow, and market capitalization goals241242243 - The 2021 Non-Employee Director Compensation Plan was revised (effective July 1, 2021) to increase annual cash retainers and to grant 30,000 restricted stock units instead of stock options246 Exhibits This section lists exhibits filed with the report, including compensation agreements and SEC certifications - The report includes exhibits such as Performance RSU Award Agreements for the CEO and CFO, the 2021 Non-Employee Director Compensation Plan, and officer certifications251