ORGANIZATION AND PLAN OF BUSINESS OPERATIONS
|6 Months Ended|
Jun. 30, 2023
|ORGANIZATION AND PLAN OF BUSINESS OPERATIONS|
|ORGANIZATION AND PLAN OF BUSINESS OPERATIONS||
NOTE 1. ORGANIZATION AND PLAN OF BUSINESS OPERATIONS
Journey Medical Corporation (“Journey” or the “Company”) was formed on July 18, 2014. The Company is a commercial-stage pharmaceutical company that primarily focuses on the selling and marketing of FDA-approved prescription pharmaceutical products for the treatment of dermatological conditions. The Company’s current product portfolio includes eight branded and three authorized generic prescription drugs for dermatological conditions that are marketed in the U.S. The Company acquires rights to future products by licensing or otherwise acquiring an ownership interest in, funding the research and development of, and eventually commercializing, the products through its field sales force.
As of June 30, 2023 and December 31, 2022, the Company was a majority-owned subsidiary of Fortress Biotech, Inc. (“Fortress” or “Parent”).
Liquidity and Capital Resources
At June 30, 2023, the Company had $8.2 million in cash and cash equivalents as compared to $32.0 million of cash and cash equivalents at December 31, 2022. Additionally at June 30, 2023, the Company has $8.75 million of restricted cash.
In July 2023, the Company voluntarily repaid the entire $10.0 million outstanding term loan. The repayment satisfied all of the Company’s outstanding debt obligations under the EWB Facility. The Company therefore has no further obligations to EWB. At June 30, 2023, the Company was party to a Loan and Security Agreement, dated March 31, 2021 (as amended, the “EWB Facility”), with East West Bank (“EWB”). On January 12, 2022, the Company entered into an amendment of the loan and security agreement with EWB that increased the borrowing capacity of the Company’s revolving line of credit up to $10.0 million and added a term loan not to exceed $20.0 million which were to mature on January 12, 2026. In January 2022 and August 2022, the Company borrowed $15.0 million and $5.0 million, respectively, against the term loan. On May 16, 2023, the Company entered into an amendment to the EWB Facility (the “2023 Amendment) that effected several changes to the EWB Facility whereby the Company paid down $10.0 million of the term loan upon the closing of the 2023 Amendment. The term loan previously contained an interest-only payment period through January 12, 2024, after which the outstanding balance of the term loan was to have been payable in equal monthly installments of principal, plus all accrued interest, through the term loan maturity date. The 2023 Amendment revised the maturity date of the term loan from January 12, 2026 to July 1, 2024 and provided that the Company was no longer required to make monthly installments of principal of the term loan, and instead, was required to make interest-only payments until the maturity date, at which time all principal and all accrued interest would be due. The Company was permitted to prepay all or any part of the term loan without penalty or premium, but could not re-borrow any amount once repaid. The 2023 Amendment removed the revolving line of credit from the EWB Facility effective as of the date of the 2023 Amendment. In May 2023, the Company paid the remaining balance on its revolving line of credit of $3.0 million. Under the 2023 Amendment, the Company was required to maintain a minimum required cash balance of $8.75 million in deposit accounts with EWB.
On December 30, 2022, the Company filed a shelf registration statement on Form S-3 (File No. 333-269079), which was declared effective by the Securities and Exchange Commission (“SEC”) on January 26, 2023. This shelf registration statement covers the offering, issuance, and sale by the Company of up to an aggregate of $150.0 million of the Company’s common stock, preferred stock, debt securities, warrants, and units (the “2022 Shelf”). At June 30, 2023, $150.0 million remains available under the 2022 Shelf. In connection with the 2022 shelf, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. (“B. Riley”), relating to shares of the Company’s common stock. In accordance with the terms of the Sales Agreement, the Company may offer and sell up to 4,900,000 shares of its common stock, par value $0.0001 per share, from time to time through or to B. Riley acting as the Company’s agent or principal.
As a result of increased losses in the latter part of 2022, during the last quarter of 2022, the Company implemented a cost reduction initiative designed to improve operational efficiencies, optimize expenses and reduce overall costs. The initiative is intended to reduce selling, general, and administrative expenses to better align costs with revenues being generated. In connection with the cost reduction initiative, during the six-month period ended June 30, 2023, the Company executed a headcount reduction to its salesforce and implemented marketing and other cost cuts. As a result of the headcount reduction, the Company recorded a severance obligation of approximately $0.7 million, of which $133,000 remains to be paid at June 30, 2023.
The Company may seek a new borrowing relationship to provide additional working capital, and/or may seek to raise capital through additional debt or equity financing. The Company cannot make any assurances that such additional financing will be available and, if available, the terms may negatively impact the Company’s business and operations. As such, substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary if the Company is unable to continue as a going concern.
The entire disclosure for the nature of an entity's business, major products or services, principal markets including location, and the relative importance of its operations in each business and the basis for the determination, including but not limited to, assets, revenues, or earnings. For an entity that has not commenced principal operations, disclosures about the risks and uncertainties related to the activities in which the entity is currently engaged and an understanding of what those activities are being directed toward.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef