Valion Bio, Inc.

Previous wording

Bioelectronic medicine is an emerging market. Since our formation in September 2016, we have devoted substantially all of our efforts to the development and marketing of our proprietary technology platform to provide noninvasive, drug-free treatments and treatment candidates for various diseases and conditions. In 2019, we launched ClearUP in the U.S. market. ClearUP is approved by the FDA for sale in the U.S. for the two FDA-approved indications noted above and has a CE Mark (which covers a third indication of sinus pressure and gives us commercial access to European Union Member states and certain other countries). We currently sell ClearUP directly to consumers online through our own website, Amazon, and Walmart in addition to wholesale via major and specialty retailers, such as BestBuy, FSAStore, and others.

Current wording

Bioelectronic medicine is an emerging market. Since our formation in September 2016, we have devoted substantially all of our efforts to the development and marketing of our proprietary technology platform to provide noninvasive, drug-free treatments and treatment candidates for various diseases and conditions. In 2019, we launched ClearUP in the U.S. market. ClearUP is approved by the FDA for sale in the U.S. for the two FDA-approved indications noted above. We currently sell ClearUP directly to consumers online through our own website and to resellers such as McKesson-affiliate Simply Medical, Cardinal Health and AmerisourceBergen. Through our online retailers, ClearUP is available through Amazon, McKesson, Optum Store, Walmart, Target, Best Buy, Cardinal Health and FSA/HSA Store. We have also developed a proprietary approach to precision, non-invasive cervical vagus nerve stimulation based on our experience building evidence-based bioelectronic therapies.

Previous wording

Effective August 23, 2023, the Company implemented a reverse stock split of the Company's issued and outstanding shares of common stock at a ratio of 1-for-100. As a result of the reverse stock split, the total number of shares of Common Stock held by each stockholder of the Company were converted automatically into the number of shares of Common Stock equal to the number of issued and outstanding shares of Common Stock held by each such stockholder immediately prior to completion of the reverse stock split divided by 100. The Company issued one whole share of the post reverse stock split common stock to any stockholder who otherwise would have been entitled to receive a fractional share as a result of the reverse stock split. As a result, no fractional shares were issued in connection with the reverse stock split and no cash or other consideration was paid in connection with any fractional shares that would otherwise have resulted from the reverse stock split. Also, all options, warrants and other convertible securities of the Company outstanding immediately prior to the reverse stock split were adjusted by dividing the number of shares of common stock into which such options, warrants and other convertible securities were exercisable or convertible by 100 and multiplied the exercise or conversion price thereof by 100, all in accordance with the terms of the plans, agreements or arrangements governing such options, warrants and other convertible securities and subject to rounding pursuant to such terms. There was no change to the par value, or authorized shares, of either the common stock or preferred stock, as a result of the reverse stock split. All share and per share amounts for the Company’s common stock, as well as the options and warrants outstanding and exercise prices thereof, from dates prior to completion of the reverse stock split that are included in this Report, including the financial statements and footnotes thereto included herein, have been retroactively restated to give effect to the reverse stock split.

Current wording

Effective August 23, 2023, the Company implemented a reverse stock split of the Company's issued and outstanding shares of common stock at a ratio of 1-for-100. As a result of the reverse stock split, the total number of shares of Common Stock held by each stockholder of the Company were converted automatically into the number of shares of Common Stock equal to the number of issued and outstanding shares of Common Stock held by each such stockholder immediately prior to completion of the reverse stock split divided by 100. The Company issued one whole share of the post reverse stock split common stock to any stockholder who otherwise would have been entitled to receive a fractional share as a result of the reverse stock split. As a result, no fractional shares were issued in connection with the reverse stock split and no cash or other consideration was paid in connection with any fractional shares that would otherwise have resulted from the reverse stock split. Also, all options, warrants and other convertible securities of the Company outstanding immediately prior to the reverse stock split were adjusted by dividing the number of shares of common stock into which such options, warrants and other convertible securities were exercisable or convertible by 100 and multiplied the exercise or conversion price thereof by 100, all in accordance with the terms of the plans, agreements or arrangements governing such options, warrants and other convertible securities and subject to rounding pursuant to such terms. There was no change to the par value, or authorized shares, of either the common stock or preferred stock, as a result of the reverse stock split.

Previous wording

In 2023, we also invested in our product innovation and development programs as follows:

Current wording

In 2024, we invested in our product, innovation and development as follows:

Previous wording

Revenue is generated by the sale of our ClearUP and ancillary products, including accessories and accelerated shipping charges, and is net of return reserves. We currently sell directly to consumers through our own website, Amazon and Walmart. We also sell to major and specialty distributors and online retailers, such as FSAStore and Best Buy. Noninvasive bioelectronic medicine is an emerging market space that provides consumers with non-drug treatments for various diseases and ClearUP is the first FDA-approved bioelectronic treatment for sinus pain and congestion.

Current wording

Revenue is currently generated solely by the sale of our ClearUP and ancillary products, including accessories and accelerated shipping charges, and is net of return reserves. We currently sell ClearUP directly to consumers online through our own website and to resellers such as McKesson-affiliate Simply Medical, Cardinal Health and AmerisourceBergen. Through our online retailers, ClearUP is available through Amazon, McKesson, Optum Store, Walmart, Target, Best Buy, Cardinal Health and FSA/HSA Store.

Previous wording

Cost of sales consists primarily of the materials and services to manufacture our products, the internal personnel costs to oversee manufacturing and supply chain functions, and the shipment of goods to customers. A significant portion of our cost of sales is currently in fixed and semi-fixed expenses associated with the management of manufacturing and supply chain. Cost of sales is expected to increase on an absolute basis as sales volume increases. Cost of sales is expected to decrease as a proportion of revenue with (i) the continued optimization of our supply chain, and (ii) the allocation of fixed and semi-fixed expenses over increasing unit sales volume over time.

Current wording

Cost of sales consists primarily of the materials and services to manufacture our products, the internal personnel costs to oversee manufacturing and supply chain functions, and the shipment of goods to customers. A significant portion of our cost of sales is currently in fixed and semi-fixed expenses associated with the management of manufacturing and supply chain. Cost of sales is expected to increase on an absolute basis as sales volume increases. Cost of sales is expected to decrease as a proportion of revenue with (i) the continued optimization of our supply chain, and (ii) the allocation of fixed and semi-fixed expenses over increasing unit sales volume over time. Cost of sales also includes inventory adjustments and reserves which may be necessary due to excess or obsolete inventory. Cost of sales is expected to fluctuate as adjustments or additional reserves become necessary.

Previous wording

Sales and marketing expenses include personnel costs and expenses for advertising and other marketing services. Personnel costs consist of salaries, bonuses, benefits and stock-based compensation expense. We expect sales and marketing expenses to increase modestly as we continue to expand our markets and distribution channels.

Current wording

Sales and marketing expenses include personnel costs and expenses for advertising and other marketing services. Personnel costs consist of salaries, bonuses, benefits and stock-based compensation expense.

Previous wording

Revenue (net of returns) decreased $664 thousand, or -36%, to $1.2 million for the year ended December 31, 2023 from $1.8 million for the year ended December 31, 2022, which decrease was primarily attributable to decreased unit sales of -52%. Unit sales were approximately 7,400 for the year ended December 31, 2023 and were approximately 15,400 for the year ended December 31, 2022. Ancillary revenues were less than 1.5% of total revenue for both of the years ended December 31, 2023 and 2022.

Current wording

Revenue (net of returns) decreased $396 thousand, or -34%, to $0.8 million for the year ended December 31, 2024 from $1.2 million for the year ended December 31, 2023, which decrease was primarily attributable to decreased unit sales of -41%. Unit sales were approximately 4,400 for the year ended December 31, 2024 and were approximately 7,400 for the year ended December 31, 2023. Ancillary revenues were less than 1.8% of total revenue for both of the years ended December 31, 2024 and 2023.

Previous wording

Direct-to-consumer product revenue decreased $556 thousand ,or -34%, to $1.1 million for the year ended December 31, 2023 from $1.6 million for the year ended December 31, 2022, which was due to decreased unit sales of -53%, offset by an average direct-to-consumer price increase of 46% over the prior year. Direct-to-consumer unit sales were approximately 5,400 for the year ended December 31, 2023 compared to approximately 11,400 for the year ended December 31, 2022. The decrease in unit sales was due to the price increases in 2023 as well as the reduction of unprofitable marketing spend.

Current wording

Direct-to-consumer product revenue decreased $423 thousand, or -39%, to $0.7 million for the year ended December 31, 2024 from $1.1 million for the year ended December 31, 2023, which was due to decreased unit sales of -43%. Direct-to-consumer unit sales were approximately 3,100 for the year ended December 31, 2024 compared to approximately 5,400 for the year ended December 31, 2023. The decrease in unit sales was primarily due to the reduction of marketing spend.

Previous wording

Reseller channel product revenue decreased $155 thousand, or -37%, to $261 thousand for the year ended December 31, 2023 from $416 thousand for the year ended December 31, 2022, attributable to decreased unit sales of -50%. Reseller channel unit sales were approximately 2,000 for the year ended December 31, 2023 and were approximately 4,000 for the year ended December 31, 2022. Average reseller channel selling prices increased 21% in 2023 compared to 2022. The decrease in unit sales and the increase in average selling price were primarily due to the termination of less profitable reseller channels in 2023.

Current wording

Reseller channel product revenue decreased $55 thousand, or -21%, to $206 thousand for the year ended December 31, 2024 from $261 thousand for the year ended December 31, 2023, attributable to decreased unit sales of -35%. Reseller channel unit sales were approximately 1,300 for the year ended December 31, 2024 and were approximately 2,000 for the year ended December 31, 2023. Average reseller channel selling prices increased 23% in 2024 compared to 2023. The decrease in unit sales was primarily attributed to a reduction in marketing spend. The increase in average selling price was primarily due to the introduction of a more profitable reseller channel in 2024.

Previous wording

Returns as a percentage of product revenue was approximately 12% for the year ended December 31, 2023 and 10% for the year ended December 31, 2022.

Current wording

Returns as a percentage of product revenue was approximately 9.5% for the year ended December 31, 2024 and 12% for the year ended December 31, 2023.

Previous wording

Variable cost of goods sold includes product costs, fulfillment, shipping and purchase price variances and other inventory adjustments. Variable cost of goods sold was $641 thousand, or $86.61 per unit, for the year ended December 31, 2023, as compared to $1.3 million, or $87.04 per unit, for the year ended December 31, 2022. The decrease in variable costs of goods sold was primarily due to reduction in variable costs associated with new supply chain partners, offset by inventory obsolescence associated with the transition in sales to ClearUP 2.0 at year-end.

Current wording

Variable cost of goods sold includes product costs, fulfillment, shipping and purchase price variances and other inventory adjustments. Variable cost of goods sold was $0.7 million, or $156.83 per unit, for the year ended December 31, 2024, as compared to $0.6 million, or $86.61 per unit, for the year ended December 31, 2023. The increase in variable costs of goods sold was primarily due to the inventory reserves and disposal costs recorded in 2024. Excluding inventory reserves recorded in 2024 and 2023, the per unit variable costs of goods sold was $79.77 and $82.29, respectively. The reduction in variable costs, exclusive of the inventory reserves, was associated with the change in the logistics provider in August 2024. We expect reduced variable costs going forward.

Previous wording

Fixed cost of goods sold includes third-party product support and logistic fees and allocated overhead costs. Fixed cost of goods sold increased to $248 thousand for the year ended December 31, 2023, as compared to $203 thousand for the year ended December 31, 2022, primarily due to increased product support costs in 2023, which in turn was primarily associated with certain hourly service charges and periodic minimum spend obligations included Tivic's contracts with its supply chain partners.

Current wording

Fixed cost of goods sold includes third-party product support and logistic fees and allocated overhead costs. Fixed cost of goods sold decreased to $91 thousand for the year ended December 31, 2024, as compared to $248 thousand for the year ended December 31, 2023, primarily due to decreased product support costs in 2024 due to the move to a new logistics provider. Additionally, allocated overhead costs were lower in 2024, as internal staffing costs related to supply chain were reduced.

Previous wording

Gross profit for the year ended December 31, 2023 was $287 thousand compared to a gross profit of $299 thousand for the year ended December 31, 2022.

Current wording

Gross profit for the year ended December 31, 2024 was $2 thousand compared to a gross profit of $287 thousand for the year ended December 31, 2023. The reduction in gross profit for 2024 was primarily due to $354 thousand of inventory reserves recorded for the year ended December 31, 2024, compared to $32 thousand for the year ended December 31, 2023.

Previous wording

Research and development expenses decreased by $75 thousand to $1.7 million for the year ended December 31, 2023 from $1.7 million for the year ended December 31, 2022. The decrease was primarily due to reduced compensation costs related to decreased headcount. The emphasis of research and development activities in 2023 was primarily related to our work with The Feinstein Institutes. Activities in 2022 were primarily focused on product research and design in the migraine therapeutic area, initiation of a double-blind randomized controlled trial for post-operative pain relief following sinus surgery, and enhancement of our intellectual property protection.

Current wording

Research and development expenses decreased by $342 thousand to $1.3 million for the year ended December 31, 2024 from $1.7 million for the year ended December 31, 2023. The decrease was primarily due to reduced compensation costs related to decreased headcount and certain expenses in 2023 which did not recur in 2024. The emphasis of research and development activities in 2024 was primarily related to our work with Feinstein on vagus nerve stimulation and intellectual property protection.

Previous wording

General and administrative expenses decreased to $4.8 million for the year ended December 31, 2023, compared to $5.9 million for the year ended December 31, 2022, primarily due to decreased legal and professional fees of $919 thousand and a net decrease in other corporate expenses of $221 thousand as a result of the Company’s efforts to reduce costs.

Current wording

General and administrative expenses decreased to $3.2 million for the year ended December 31, 2024, compared to $4.8 million for the year ended December 31, 2023, primarily due to reduced headcount, resulting in savings of approximately $730 thousand, reduced lease expenses of $117 thousand, lower consulting and professional fee expenses of $262 thousand, reduced insurance costs of $291 thousand, and a reduction of Delaware franchise taxes of $175 thousand.

Previous wording

Since our formation in September 2016, we have devoted substantially all of our efforts to research and development, to regulatory clearance and to early market development and testing for our first product, released September 2019 in the United States. We are not profitable and have incurred net losses and negative cash flows from our operations in each year since our inception. During the years ended December 31, 2023 and 2022, we generated revenue of $1.2 million and $1.8 million, respectively. Additionally, during the years ended December 31, 2023 and 2022, we incurred net losses of $8.2 million and $10.1 million, respectively, and used $8.5 million and $8.9 million of cash for operations, respectively. As of December 31, 2023, we had cash and cash equivalents of $3.4 million, working capital of $3.3 million and an accumulated deficit of $37.9 million.

Current wording

Since our formation in September 2016, we have devoted substantially all of our efforts to research and development, to regulatory clearance and to early market development and testing for our first product, released September 2019 in the United States, and product candidates deriving from such product. We are not profitable and have incurred net losses and negative cash flows from our operations in each year since our inception. During the years ended December 31, 2024 and 2023, we generated revenue of $0.8 million and $1.2 million, respectively. Additionally, during the years ended December 31, 2024 and 2023, we incurred net losses of $5.7 million and $8.2 million, respectively, and used $5.7 million and $8.5 million of cash for operations, respectively. As of December 31, 2024, we had cash and cash equivalents of $2.0 million, working capital of $2.4 million and an accumulated deficit of $43.5 million.

Previous wording

We have financed our operations to date primarily through issuances of SAFE instruments, convertible notes and convertible preferred stock and the proceeds from registered offerings of our securities. In 2021, we completed our IPO, generating net proceeds to the Company of approximately $14.9 million, and we borrowed $2.6 million by issuing convertible notes payable, the outstanding balance of all of which converted into shares of our common stock in connection with our IPO. On February 13, 2023, we completed the sale of 200,000 shares of our common stock in a firm commitment, fully underwritten registered public offering, resulting in net proceeds to the Company of approximately $3.6 million. From July 11, 2023 to August 9, 2023, we sold an aggregate of 1,169,230 shares of our common stock to certain investors in a series of registered public offerings, resulting in aggregate net proceeds to the Company of approximately $4.3 million.

Current wording

We have financed our operations to date primarily through issuances of SAFE instruments, convertible notes and convertible preferred stock and the proceeds from registered offerings of our securities. In 2021, we completed our IPO, generating net proceeds to the Company of approximately $14.9 million, and we borrowed $2.6 million by issuing convertible notes payable, the outstanding balance of all of which converted into shares of our common stock in connection with our IPO. On February 13, 2023, we completed the sale of 11,765 shares of our common stock in a firm commitment, fully underwritten registered public offering, resulting in net proceeds to the Company of approximately $3.6 million. From July 11, 2023 to August 9, 2023, we sold an aggregate of 68,779 shares of our common stock to certain investors in a series of registered public offerings, resulting in aggregate net proceeds to the Company of approximately $4.3 million. Additionally, in May 2024, we sold an aggregate of 277,059 shares of our common stock, together with Series A warrants to purchase an aggregate of 277,059 shares of common stock and Series B warrants to purchase an aggregate of 415,589 shares of common stock, to certain investors in a registered public offering, resulting in net proceeds to the company of approximately $3.3 million.

Previous wording

We have used our capital resources primarily, to date, to fund marketing and advertising for ClearUP, development of both our trigeminal and our vagus nerve platforms and product candidates, evaluating and diligencing potential licensing and acquisition candidates, and the establishment of public company operating infrastructure and general operations. Although we have taken measures to decrease our operating expenses, we expect that our operating expenses may increase as we advance our vagus nerve platform, as well as discover, acquire, validate or develop additional product candidates; seek regulatory approval and, if approved, proceed to commercialization of new products; obtain, maintain, protect and enforce our intellectual property portfolio; hire additional personnel; and maintain compliance with material government (in addition to environmental) regulations. We plan to increase our research and development investments in our vagus nerve platform and clinical applications thereof in 2024. Furthermore, we have incurred, and will continue to incur, costs associated with operating as a public company that we did not experience as a private company. We expect to continue to incur losses for the foreseeable future. At this time, due to the inherently unpredictable nature of research and new product adoption as well as other macroeconomic factors, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize future product candidates, if at all. For the same reasons, we are also unable to predict how quickly we will generate significant revenue from ClearUP product sales or whether, or when, if ever, we may achieve profitability from the sales of one or more products. Clinical and preclinical development timelines, the probability of success, and costs can differ materially from expectations. In addition, we cannot forecast which product candidates may be best developed and/or monetized through future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

Current wording

We have used our capital resources primarily, to date, to fund marketing and advertising for ClearUP, development of both our trigeminal and our vagus nerve platforms and product candidates, evaluating and conducting diligence on potential licensing and acquisition candidates, and the establishment of public company operating infrastructure and general operations. Although we have taken measures to decrease our operating expenses, we expect that our operating expenses may increase as we advance our vagus nerve platform, as well as discover, acquire, validate or develop additional product candidates; seek regulatory approval and, if approved, proceed to commercialization of new products; obtain, maintain, protect and enforce our intellectual property portfolio; hire additional personnel; and maintain compliance with material government (in addition to environmental) regulations. We plan to increase our research and development investments in our vagus nerve platform and clinical applications thereof in 2025. We also plan to advance the development of our licensed TLR5 agonist programs, known as Entolimod and Entolasta. Furthermore, we have incurred, and will continue to incur, costs associated with operating as a public company that we did not experience as a private company. We expect to continue to incur losses for the foreseeable future. At this time, due to the inherently unpredictable nature of research and new product adoption as well as other macroeconomic factors, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize future product candidates, if at all. For the same reasons, we are also unable to predict how quickly we will generate significant revenue from ClearUP product sales or whether, or when, if ever, we may achieve profitability from the sales of one or more products. Clinical and preclinical development timelines, the probability of success, and costs can differ materially from expectations. In addition, we cannot forecast which product candidates may be best developed and/or monetized through future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

Previous wording

As previously disclosed, we encountered disruptions in our supply of various materials and components in 2022 due to the well-documented shortages and constraints in the global supply chain. Although we currently do not anticipate a supply shortage, unforeseen shortages may continue to pose a material risk for the Company in the near term or future. We regularly evaluate alternative and secondary source suppliers in order to ensure that we are able to source sufficient components and materials to manufacture our products. Global supply chain shortages (especially when coupled with the increase in inflation and other economic factors) could result in an increase in the cost of the components used in our products, which could result in a decrease of our gross margins or in us having to increase the price at which we sell our products until supply chain constraints are resolved. Additionally, in the event that we are unable to source sufficient components and materials from our current suppliers, or to develop relationships with additional suppliers, to manufacture enough of our products to satisfy demand, we may have to cease or slow down production and our business operations and financial condition may be materially harmed and we may need to alter our plan of operation.

Current wording

As previously disclosed, we encountered disruptions in our supply of various materials and components in 2022 due to the well-documented shortages and constraints in the global supply chain. Although we currently do not anticipate a supply shortage, unforeseen shortages may continue to pose a material risk for the Company in the near term or future. Additionally, high levels of safety stock can (and did in Q4 2024) result in the Company holding significant reserves against future obsolescence. We regularly evaluate alternative and secondary source suppliers in order to ensure that we are able to source sufficient components and materials to manufacture our products. Global supply chain shortages (especially when coupled with the increase in tariffs, inflation and other economic factors) could result in an increase in the cost of the components used in our products, which could result in a decrease of our gross margins or in us having to increase the price at which we sell our products until supply chain constraints are resolved. Additionally, in the event that we are unable to source sufficient components and materials from our current suppliers, or to develop relationships with additional suppliers, to manufacture enough of our products to satisfy demand, we may have to cease or slow down production and our business operations and financial condition may be materially harmed and we may need to alter our plan of operation.

Previous wording

In addition to the foregoing, we may, from time to time, consider opportunities for strategic acquisitions that we believe will align with our growth plan, complement our product offerings and be in the best interest of the Company and our shareholders. If an acquisition is identified and pursued, a substantial portion of our cash reserves may be required to complete such acquisition. If we identify an attractive acquisition that would require more cash to complete than we are willing or able to use from our cash reserves, we will consider financing options to complete the acquisition, including through equity and/or debt financings.

Current wording

In addition to the foregoing, we may, from time to time, consider opportunities for strategic acquisitions, licensing or business combinations that we believe will align with our growth plan, complement our product offerings and be in the best interest of the Company and our shareholders. If any such strategic transactions are identified and pursued, a substantial portion of our cash reserves may be required to complete such transactions. If we identify an attractive opportunity that would require more cash to complete than we are willing or able to use from our cash reserves, we will consider financing options to complete the acquisition, including through equity and/or debt financings.

Previous wording

We have generated operating losses in each period since inception. We have incurred an accumulated deficit of $37.9 million through December 31, 2023. We expect to incur additional losses in the future as we expand both our research and development activities. Based on our current cash levels and burn rate, amongst other things, we believe our cash and financial resources may be insufficient to meet our anticipated needs for the next twelve months. As a result, we expect that we will need to raise additional capital to continue operating our business and fund our planned operations, including research and development, clinical trials and, if regulatory approval is obtained, commercialization of future product candidates.

Current wording

We have generated operating losses in each period since inception. We have incurred an accumulated deficit of $43.5 million through December 31, 2024. We expect to incur additional losses in the future as we expand both our research and development activities. Based on our current cash levels and burn rate, amongst other things, we believe our cash and financial resources may be insufficient to meet our anticipated needs for the next twelve months. As a result, we expect that we will need to raise additional capital to continue operating our business and fund our planned operations, including research and development, clinical trials and, if regulatory approval is obtained, commercialization of future product candidates.

Previous wording

We currently generate sales revenue direct-to-consumer though our own websites, Amazon.com and Walmart.com. We also sell to major and specialty U.S. online retailers such as BestBuy and FSAStore and through distributors including McKesson's affiliate Simply Medical, Cardinal Health and Amerisource Bergen. Our ability to grow sales revenue will depend on successfully executing a comprehensive marketing campaign to drive additional sales through existing and new channels. Long-term growth will be commensurate with our ability to successfully identify, develop, and secure regulatory approval of one or more additional product candidates beyond ClearUP. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through private or public equity or debt financings, collaborative or other arrangements with corporate, foundation or government funding sources, or through other sources of financing. We do not know whether additional financing will be available on commercially acceptable terms, or at all, when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to fund our operations, support the growth of our business or otherwise respond to competitive pressures could be significantly delayed or limited, which could materially adversely affect our business, financial conditions or results of operations, and we may have to significantly delay, scale back or discontinue the development and commercialization of our products and/or future product candidates.

Current wording

We currently sell ClearUP directly to consumers online through our own website and to resellers such as McKesson-affiliate Simply Medical, Cardinal Health and AmerisourceBergen. Through our online retailers, ClearUP is available through Amazon, McKesson, Optum Store, Walmart, Target, Best Buy, Cardinal Health and FSA/HSA Store. Our ability to grow sales revenue will depend on successfully executing a comprehensive marketing campaign to drive additional sales through existing and new channels. Long-term growth will be commensurate with our ability to successfully identify, develop, and secure regulatory approval of one or more additional product candidates beyond ClearUP. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through private or public equity or debt financings, collaborative or other arrangements with corporate, foundation or government funding sources, or through other sources of financing. We do not know whether additional financing will be available on commercially acceptable terms, or at all, when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to fund our operations, support the growth of our business or otherwise respond to competitive pressures could be significantly delayed or limited, which could materially adversely affect our business, financial conditions or results of operations, and we may have to significantly delay, scale back or discontinue the development and commercialization of our products and/or future product candidates.

Previous wording

the availability of electronic parts and other components for our products, as well as our ability to source such parts and components at favorable prices;

Current wording

the availability of electronic parts, other components and materials for our products and product candidates, as well as our ability to source such parts, components and materials at favorable prices;

Previous wording

the timing and amount of milestone payments we may receive under any future collaboration agreements;

Current wording

the timing and amount of milestone payments we may receive or be required to pay under any future collaboration agreements;

Previous wording

whether we close potential future strategic acquisition opportunities, and if we do, our ability to successfully integrate acquired assets and/or businesses with our own;

Current wording

whether we close potential future strategic opportunities, and if we do, our ability to successfully integrate acquired assets and/or businesses with our own;

Previous wording

Net cash used in operating activities for the year ended December 31, 2022 was $8.9 million, which consisted primarily of net loss of $10.1 million decreased by non-cash charges of $572 thousand and further decreased by a net change of $605 thousand in our net operating assets and liabilities. The non-cash charges primarily consisted of stock-based compensation of $398 thousand and amortization of right-of-use assets of $164 thousand. The change in our net operating assets and liabilities was primarily due to an increase in accounts payable of $534 thousand and a decrease in prepaid and other current assets of $558 thousand, offset by an increase in inventory of $434 thousand and a decrease in lease liabilities of $178 thousand.

Current wording

Net cash used in operating activities for the year ended December 31, 2024 was $5.7 million, which consisted primarily of net loss of $5.7 million decreased by non-cash charges of $935 thousand and increased by a net change of $1 million in our net operating assets and liabilities. The non-cash charges primarily consisted of stock-based compensation of $229 thousand, amortization of right-of-use assets of $349 thousand, and reserves for inventory obsolescence of $354 thousand. The change in our net operating assets and liabilities was primarily due to a decrease in accounts payable of $588 thousand, a decrease in lease liabilities of $369 thousand and a decrease in accrued expenses of $348 thousand, offset by decreases in our operating assets.

Previous wording

Net cash used in investing activities during the years ended December 31, 2023 and 2022 was related to the purchases of equipment and product development.

Current wording

There was no cash used in investing activities for the year ended December 31, 2024. Net cash used in investing activities during the year ended December 31, 2023 was related to the purchases of property and equipment.

Previous wording

Our financing activities provided $8.5 million of cash during the year ended December 31, 2023, which consisted primarily of proceeds from the sale of an aggregate of 1,369,230 shares of our common stock, net of offering discounts and other costs.

Current wording

Our financing activities provided $8.5 million of cash during the year ended December 31, 2023, which consisted primarily of proceeds from the sale of an aggregate of 80,543 shares of our common stock, net of offering discounts and other costs.

Previous wording

As discussed elsewhere in this Report, the world has continued to be been affected by the lingering effects of the COVID-19 pandemic, the ongoing conflict between Russia and Ukraine and the more recent conflict between Israel and Hamas, economic uncertainty in human capital management (“HCM”) and certain other macroeconomic factors. Inflation has risen, Federal Reserve interest rates have increased over the last year, and the general consensus among economists continues to suggest that we should expect a higher recession risk to continue for the near term. Climate change continues to be an intense topic of public discussion and is adding additional challenges and financial burden due to impending preparations and changes in the customer mindset. These factors, amongst other things, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations. Effects of the pandemic and recent economic volatility have negatively impacted our business in various ways over the last three years, including as a result of global supply chain constraints at least partially attributable to the pandemic. We will continue to monitor material impacts on our HCM strategies, including potential of employee attrition, amongst other things.

Current wording

As discussed elsewhere in this Report, the world has continued to be affected by the ongoing conflict between Russia and Ukraine and the more recent conflict between Israel and Hamas, economic uncertainty in human capital management (“HCM”) and certain other macroeconomic factors. The general consensus among economists continues to suggest that we should expect a higher recession risk to continue for the near term. Climate change continues to be an intense topic of public discussion and is adding additional challenges and financial burden due to impending preparations and changes in the customer mindset. These factors, amongst other things, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations. Effects of the pandemic and recent economic volatility have negatively impacted our business in various ways over the last three years, including as a result of global supply chain constraints at least partially attributable to the pandemic. We will continue to monitor material impacts on our HCM strategies, including the potential of employee attrition, amongst other things.

Previous wording

We encountered disruptions in our supply of various materials and components in 2022 due to the well-documented shortages and constraints in the global supply chain. We experienced increased pricing, longer lead-times, unavailability of product and limited supplies, protracted delivery dates, and shortages of certain parts and supplies that were necessary components for our products. As a result, we carried increased inventory balances in 2023 to ensure availability of necessary products and to secure pricing. Although we currently do not anticipate a supply shortage will continue to pose a material risk for the Company in the near term, we are continuing to evaluate alternative and secondary source suppliers in order to ensure that we are able to source sufficient components and materials to manufacture our products. Global supply chain shortages (especially when coupled with the increase in inflation and other economic factors) could result in an increase in the cost of the components used in our products, which could result in a decrease of our gross margins or in us having to increase the price at which we sell our products until supply chain constraints are resolved. Additionally, in the event that the price of our components increases significantly or we are unable to source sufficient components and materials from our current suppliers, or to develop relationships with additional suppliers, to manufacture enough of our products to satisfy demand, we may have to cease or slow down production and our business operations and financial condition may be materially harmed and we may need to alter our plan of operation.

Current wording

We encountered disruptions in our supply of various materials and components in 2022 due to the well-documented shortages and constraints in the global supply chain. We experienced increased pricing, longer lead-times, unavailability of product and limited supplies, protracted delivery dates, and shortages of certain parts and supplies that were necessary components for our products. As a result, we carried increased inventory balances in 2023 and 2024 to ensure availability of necessary products and to secure pricing. Although we currently do not anticipate a supply shortage will continue to pose a material risk for the Company in the near term, as a matter of business, we evaluate alternative and secondary source suppliers in order to ensure that we are able to source sufficient components and materials to manufacture our products. Global supply chain shortages (especially when coupled with inflation, tariffs, and other economic factors) could result in an increase in the cost of the components and other materials used in our products and product candidates, which could result in a decrease of our gross margins or in us having to increase the price at which we sell our products until supply chain constraints are resolved. Additionally, in the event that the price of our components or other materials increases significantly or we are unable to source sufficient components and materials from our current suppliers, or to develop relationships with additional suppliers, to manufacture enough of our products to satisfy demand, we may have to cease or slow down production and our business operations and financial condition may be materially harmed and we may need to alter our plan of operation.

Previous wording

The United States has recently implemented tariffs on certain imported goods, including on certain items imported from China. In addition, China has imposed tariffs on a wide range of American products and placed restrictions on the export of certain items, including gallium and germanium, in retaliation for these American tariffs. As a result, there is a concern that the imposition of additional tariffs by the United States could result in the adoption of additional tariffs or export restrictions by China and/or other countries. Any resulting trade war could negatively impact our business. The imposition of tariffs on items imported by us from China or other countries could increase our costs and could result in lowering our gross margin on products sold.

Current wording

The United States has recently implemented or threatened to implement tariffs on certain imported goods, including on certain items imported from China, Canada and and other countries. In addition, China, Canada and other countries have imposed, or threatened to impose, tariffs on a wide range of American products and placed restrictions on the export of certain items in retaliation for these American tariffs. As a result, there is a concern that the imposition of additional tariffs by the United States could result in the adoption of additional tariffs or export restrictions by China, Canada and/or other countries. This has recently led to significant volatility in the capital markets and increased economic uncertainty. Additionally, any resulting trade war could negatively impact our business. The imposition of tariffs on items imported by us from China, Canada or other countries could increase our costs and could result in lowering our gross margin on products sold.

Previous wording

Additionally, U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the ongoing military conflict between Russia and Ukraine and more recent conflict between Israel and Hamas. Although the length and impact of the ongoing military conflicts is highly unpredictable, the conflicts in Ukraine and Israel/Palestine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as further supply chain interruptions. Additionally, the recent military conflict in Ukraine has led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds.

Current wording

Additionally, U.S. and global markets are continuing to experience volatility and disruption as a result of geopolitical tensions, including the ongoing military conflicts between Russia and Ukraine and Israel and Hamas. Although the length and impact of the ongoing military conflicts is highly unpredictable, the conflicts in Ukraine and Israel/Palestine could continue to lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as further supply chain interruptions. Additionally, the recent military conflict in Ukraine has led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds.

Previous wording

Although our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine or the conflict between to date, it is impossible to predict the extent to which our operations, or those of our suppliers and manufacturers, will be impacted in the short and long term, or the ways in which the conflict may impact our business. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. We are continuing to monitor the situation in Ukraine and globally and assessing its potential impact on our business.

Current wording

Although our business has not been materially impacted by the ongoing military conflict between Russia and Ukraine or the conflict between Hamas and Israel to date, it is impossible to predict the extent to which our operations, including the newly in-licensed TLR5 assets, or those of our suppliers and manufacturers, will be impacted in the short and long term, or the ways in which the conflict may impact our business. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. We are continuing to monitor the situation in Ukraine and globally and assessing its potential impact on our business.

Previous wording

As a result of these global issues and other macroeconomic factors, it has been difficult to accurately forecast our revenues or financial results, especially given the near and long term impact of the pandemic, and geopolitical issues, inflation, the Federal Reserve interest rate increases and the potential for a recession. In addition, while the potential impact and duration of these issues on the economy and our business may be difficult to assess or predict, these world events have resulted in, and may continue to result in, significant disruption of global financial markets, and may reduce our ability to access additional capital, which could negatively affect our liquidity in the future. Our results of operations could be materially below our forecasts as well, which could adversely affect our results of operations, disappoint analysts and investors, or cause our stock price to decline. Furthermore, a decrease in orders in a given period could negatively affect our revenues in future periods.

Current wording

As a result of these global issues and other macroeconomic factors, it has been difficult to accurately forecast our revenues or financial results, especially given the geopolitical issues, recent change in administration, inflation, changes in the Federal Reserve interest rate and the potential for a recession. In addition, while the potential impact and duration of these issues on the economy and our business may be difficult to assess or predict, these world events have resulted in, and may continue to result in, significant disruption of global financial markets, and may reduce our ability to access additional capital, which could negatively affect our liquidity in the future. Our results of operations could be materially below our forecasts as well, which could adversely affect our results of operations, disappoint analysts and investors, or cause our stock price to decline. Furthermore, a decrease in orders in a given period could negatively affect our revenues in future periods.

Previous wording

Inflation has increased recently and future rates are unknown. Inflationary factors, such as increases in the cost of our products (and components thereof), interest rates, overhead costs and transportation costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the near future (especially if inflation rates continue to rise) due to supply chain constraints, consequences associated with the ongoing conflicts between Russia and Ukraine, employee availability and wage increases, trade tariffs imposed on certain products from China and increased component and services pricing.

Current wording

Inflation increased significantly in 2024; although it has decreased recently, future rates are unknown. Inflationary factors, such as increases in the cost of our products (and components thereof), interest rates, overhead costs and transportation costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the near future (especially if inflation rates continue to rise) due to supply chain constraints, consequences associated with the ongoing conflicts between Russia and Ukraine, employee availability and wage increases, trade tariffs imposed on certain products from China and increased component and services pricing.

Previous wording

The Company executed a noncancelable operating lease for approximately 9,091 square feet of office space in Hayward, California in November 2021 as its headquarters. There lease expires in October 2025 and there is no option to renew for an additional term. The Company is obligated to pay, on a pro-rata basis, real estate taxes and operating costs related to the premises.

Current wording

The Company previously entered into a noncancelable operating lease for approximately 9,091 square feet of office space in Hayward, California as its headquarters. The lease was set to expire in October 2025 and there was no option to renew for an additional term. The Company was obligated to pay, on a pro-rata basis, real estate taxes and operating costs related to the premises. The lease was terminated on May 31, 2024 and the Company has no further obligations with regard to the lease.

Previous wording

Lease costs recorded during the years ended December 31, 2023 and 2022 were $222 thousand and $223 thousand, respectively.

Current wording

Lease costs recorded during the years ended December 31, 2024 and 2023 were $118 thousand and $222 thousand, respectively.

Previous wording

Fair Value of Common Stock—Prior to our initial public offering (“IPO”), the fair value of the shares of common stock underlying the stock-based awards was determined by our board of directors with input from management. Because there was no public market for our common stock, our board of directors determined the fair value of our common stock at the time of grant of the stock-based award by considering a number of objective and subjective factors, including having valuations of the common stock performed by a third-party valuation specialist, as further described below.

Current wording

Fair Value of Common Stock—Prior to our IPO, the fair value of the shares of common stock underlying the stock-based awards was determined by our Board with input from management. Because there was no public market for our common stock, our board of directors determined the fair value of our common stock at the time of grant of the stock-based award by considering a number of objective and subjective factors, including having valuations of the common stock performed by a third-party valuation specialist, as further described below.

Previous wording

As of December 31, 2023, the total compensation cost related to nonvested service-based awards not yet recognized is $440 thousand. The weighted-average period over which the nonvested awards is expected to be recognized is 2.04 years. The aggregate intrinsic value of stock options outstanding as of December 31, 2023 was zero for both vested and unvested options.

Current wording

As of December 31, 2024, the total compensation cost related to nonvested service-based stock option awards not yet recognized is $220 thousand. The weighted-average period over which the nonvested stock option awards is expected to be recognized is 1.13 years. The aggregate intrinsic value of stock options outstanding as of December 31, 2024 was $2 thousand and $8 thousand for vested and unvested options, respectively.

Previous wording

The fair value of the shares of common stock underlying our stock-based awards prior to our IPO was determined by our board of directors with input from management and contemporaneous third-party valuations. We believe that our board of directors had the relevant experience and expertise to determine the fair value of our common stock prior to our IPO. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous and subjective factors to determine the best estimate of the fair value of our common stock at each grant date. These factors include:

Current wording

The fair value of the shares of common stock underlying our stock-based awards prior to our IPO was determined by our Board with input from management and contemporaneous third-party valuations. We believe that our Board had the relevant experience and expertise to determine the fair value of our common stock prior to our IPO. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our Board exercised reasonable judgment and considered numerous and subjective factors to determine the best estimate of the fair value of our common stock at each grant date. These factors include: