JOURNEY MEDICAL CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

Forward-Looking Statements

You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our consolidated financial
statements and the related notes included elsewhere in this Form 10-K. Our
consolidated financial statements have been prepared in accordance with U.S.
GAAP. The following discussion and analysis contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 (the "Exchange Act"). Please see the
section titled "Special Cautionary Note Regarding Forward-Looking Statements"
elsewhere in this Annual Report on Form 10-K for more information. In evaluating
our business, you should carefully consider the information set forth under the
heading "Risk Factors" herein and in our Annual Report on Form 10-K for the year
ended December 31, 2021. As used below, the words "we," "us" and "our" refer to
Journey Medical Corporation and its consolidated subsidiaries.

Overview

We are a commercial-stage pharmaceutical company founded in October 2014 that
focuses on the development and commercialization of pharmaceutical products for
the treatment of dermatological conditions. Our current portfolio includes eight
branded and three authorized generic prescription drugs for dermatological
conditions that are marketed in the U.S. We are managed by experienced life
science executives with a track record of creating value for their stakeholders
and bringing novel medicines to the market, enabling patients to experience
increased quality of life, and enabling physicians and other licensed medical
professionals to provide better care for their patients. We aim to acquire
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 our field sales organization. Since
inception, we have made significant investments to build out our commercial
product portfolios, which we believe, coupled with our experienced dermatology
sales leadership team and our recently expanded field sales force, will position
our business for growth. We are a majority-owned subsidiary of Fortress.

2022 Highlights and Events

On December 30, 2022, we filed a shelf registration statement on Form S-3 (File
No. 333-269079), which was declared effective by the SEC on January 26, 2023.
This 2022 Shelf covers the offering, issuance and sale by us of up to an
aggregate of $150.0 million of our common stock, preferred stock, debt
securities, warrants, and units (the "2022 Shelf"). At December 31, 2022, $150.0
million remains available under the 2022 Shelf. In connection with the 2022
shelf, we have entered into the Sales Agreement with B. Riley, relating to
shares of our common stock. In accordance with the terms of the Sales Agreement,
we may offer and sell up to 4,900,000 shares of our common stock, par value
$0.0001 per share, from time to time through or to B. Riley acting as our agent
or principal.

On March 14, 2022, we dosed the first patient in our Phase 3 clinical trial
evaluating DFD-29 (Minocycline Modified Release Capsules 40 mg) for the
Treatment of Rosacea. As of January 10, 2023, we achieved 100% enrollment in the
trial, with a top-line data readout expected in the second quarter of 2023. We
plan to submit the NDA for DFD-29 in the second half of 2023 and FDA approval is
anticipated in the second half of 2024. The Phase 2 clinical trials, DFD-29
(40mg) concluded with results indicating improved treatment by the
investigational drug when compared to Oraycea® (European equivalent of Oracea®)
on both co-primary endpoints. For the first co-primary endpoint, IGA treatment
success, Oraycea only had a 33.33% IGA treatment success rate, while DFD-29
achieved a 66.04% IGA treatment success rate. For the second co-primary
endpoint, the change in total inflammatory lesion count, Oraycea only had a 10.5
reduction in inflammatory lesions, while DFD-29 achieved a 19.2 reduction in
inflammatory lesions.

On February 11, 2022, we announced that our exclusive licensing partner in
Japan, Maruho Co., Ltd. ("Maruho"), received marketing and manufacturing
approval for Rapifort® Wipes 2.5% (Qbrexza®), for the treatment of primary
axillary hyperhidrosis, triggering a net $2.5 million milestone payment to us.
The net payment reflects a milestone payment of $10 million to us from our
exclusive licensing partner Maruho, offset by a $7.5 million payment to Dermira,
pursuant to the terms of the Asset Purchase Agreement between us and Dermira. We
acquired global rights to Qbrexza from Dermira in 2021. The period ended
December 31, 2022 also reflects total year-to-date royalties of $174,000 from
Maruho on sales of Rapifort® Wipes 2.5% in Japan.

On January 12, 2022, we acquired Amzeeq® (minocycline) topical foam, 4%, and
Zilxi® (minocycline) topical foam, 1.5%, two FDA-approved topical minocycline
products and Molecule Stabilizing Technology (MST)™ from VYNE Therapeutics Inc.,
which expanded our product portfolio to eight actively marketed branded
dermatology products.

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These proprietary foam-based products optimize the topical delivery of
minocycline, an active pharmaceutical ingredient that was previously available
only in oral form. Approved by the FDA nearly 50 years ago, minocycline is a
well-established molecule that has been prescribed, in oral formulation, over 30
million times in the past decade.

Amzeeq (minocycline) topical foam, 4%, is the first and only topical formulation
of minocycline to be approved by the FDA for the treatment of inflammatory
lesions of non-nodular moderate to severe acne vulgaris in adults and children 9
years and older. According to the American Academy of Dermatology ("AAD"), acne
is the most common skin condition in the United States, affecting up to 50
million Americans annually.

Approved by the FDA in May 2020, Zilxi (minocycline) topical foam, 1.5%, is the
first and only topical minocycline treatment for inflammatory lesions due to
rosacea in adults. Rosacea is a common skin disease that affects 16 million
Americans, according to AAD. Market research shows that over 70% of patients
with rosacea are seeking better alternatives to current treatments.

On January 12, 2022, we entered into a third amendment of the loan and security
agreement with EWB (the "Amendment"), which increased the borrowing capacity of
our revolving line of credit to $10.0 million, $2.9 million of which was
outstanding at December 31, 2022, and added a term loan not to exceed $20.0
million. Both the revolving line of credit and the term loan 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. The term loans bear
interest at a floating rate equal to 1.73% above the prime rate and are payable
monthly. The term loans contain an interest-only payment period through January
12, 2024, with an extension through July 12, 2024 if certain covenants are met,
after which the outstanding balance of each term loan is payable in equal
monthly installments of principal, plus all accrued interest, through the term
loan maturity date. We may elect to prepay all or any part of the term loan
without penalty or premium, but we may not re-borrow any amount, once repaid.
Any outstanding borrowing against the revolving line of credit bears interest at
a floating rate equal to 0.70% above the prime rate. The Amendment includes
customary financial covenants such as collateral ratios and minimum liquidity
provisions. We are in compliance with all applicable financial covenants under
the Amendment. The remaining $7.1 million revolving line of credit is fully
available to us without any restrictions, other than certain customary and
ordinary closing conditions.

In September 2021, we were the victim of a cybersecurity incident that affected
our accounts payable function and led to approximately $9.5 million in wire
transfers being misdirected to fraudulent accounts. The matter was reported to
the FBI and remains under their investigation. The cybersecurity incidenct does
not appear to have compromised any personally identifiable information or
protected health information. Fortress, as our controlling stockholder and
supporting partner in our back-office functions, provided us with $9.5 million
to ensure our accounts payable operations continued to function smoothly. The
$9.5 million of support was in the form of a related party note which the boards
of both companies have agreed and converted into 1,476,044 shares of our common
stock upon the consummation of our IPO in November 2021 at the IPO price. The
federal government has been able to trace and seize the fraudulently transferred
cryptocurrency assets associated with the breach. The seized cryptocurrency has
been transferred into U.S. government-controlled custodial wallets.
Subsequently, the forfeiture process will be initiated by the U.S. Attorney's
Office. The process includes mandatory waiting periods for filing of claims.
Once the cryptocurrency has been converted back into U.S. dollars, we expect to
receive a notification letter to initiate the return of the cash to the Company.
This process could take several months to a year or possibly longer to complete
before funds can be returned. Given the recent market declines, volatility, and
liquidity issues with cryptocurrency, there is no certainty as to the amount we
will ultimately recover. See "Risk Factors - Risks Related to our Platform and
Data - Our business and operations would suffer in the event of computer system
failures, cyber-attacks, or deficiencies in our or third parties'
cybersecurity."

Critical Accounting Policies and Uses of Estimates

Our consolidated financial statements have been prepared in accordance with U.S.
GAAP. The preparation of these consolidated financial statements requires us to
make difficult, subjective or complex judgments, often as a result of the need
to make estimates and assumptions about the effect of matters that are
inherently uncertain in the reported amounts of assets and liabilities, and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported expenses incurred during the reporting
periods. Our estimates are based on our 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 readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.

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While our significant accounting policies are described in greater detail in
Note 2, "Basis of Presentation and Summary of Significant Accounting Policies"
in our consolidated financial statements, appearing under Part II, Item 8 and
beginning at page F-1 of this Annual Report on Form 10-K, we believe that the
following accounting policies and estimates are those most critical to the
judgments and estimates used in the preparation of our consolidated financial
statements in understanding our historical and future performance. These
policies relate to the more significant areas involving management's judgments
and estimates.

Revenue Recognition

Our gross product revenues are subject to a variety of deductions, which
generally are estimated and recorded in the same period that the revenues are
recognized. Such variable consideration represents chargebacks, coupons,
discounts, other sales allowances, governmental rebate programs and sales
returns. These deductions represent estimates of the related obligations and, as
such, knowledge and judgment are required when estimating the impact of these
revenue deductions on gross sales for a reporting period. Historically,
adjustments to these estimates to reflect actual results or updated expectations
have not been material to our overall business. Coupons, however, can have a
significant impact on year-over-year individual product revenue growth trends.
If any of our ratios, factors, assessments, experiences, or judgments are not
indicative or accurate estimates of our future experience, our results could be
materially affected. The potential of our estimates to vary differs by program,
product, type of customer and geographic location. In addition, estimates
associated with U.S. Medicare and Medicaid governmental rebate programs are at
risk for material adjustment because of the extensive time delay.

Recent Accounting Pronouncements

See Note 2, "Basis of Presentation and Summary of Significant Accounting
Policies" in our consolidated financial statements, appearing under Part II,
Item 8 and beginning at page F-1 of this Annual Report on Form 10-K for
information about recent accounting pronouncements, the timing of their
adoption, if applicable, and our assessment, if any, of their potential impact
on our financial condition and results of operations.

Emerging Growth Company and Smaller Reporting Company Status

We are an emerging growth company, as defined in the Jumpstart Our Business
Startups Act of 2012 ("JOBS Act"). Under the JOBS Act, emerging growth companies
can delay the adoption of new or revised accounting standards issued subsequent
to the enactment of the JOBS Act until such time as those standards apply to
private companies. Other exemptions and reduced reporting requirements under the
JOBS Act for emerging growth companies include presentation of only two years of
audited financial statements in our annual reports on Form 10-K, an exemption
from the requirement to provide an auditor's report on internal controls over
financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002,
as amended, an exemption from any requirement that may be adopted by the Public
Company Accounting Oversight Board regarding mandatory audit firm rotation and
less extensive disclosure about our executive compensation arrangements. We have
elected to use the extended transition period for complying with new or revised
accounting standards that have different effective dates for public and private
companies until the earlier of the date that (i) we are no longer an emerging
growth company or (ii) we affirmatively and irrevocably opt out of the extended
transition period provided in the JOBS Act.

We are also a "smaller reporting company," meaning that either (i) the market
value of our shares held by non-affiliates is less than $250 million or (ii) the
market value of our shares held by non-affiliates is less than $700 million and
our annual revenue was less than $100 million during the most recently completed
fiscal year. We may continue to be a smaller reporting company if either (i) the
market value of our shares held by non-affiliates is less than $250 million or
(ii) our annual revenue was less than $100 million during the most recently
completed fiscal year and the market value of our shares held by non-affiliates
is less than $700 million. As a smaller reporting company, we may choose to
present only the two most recent fiscal years of audited financial statements in
our Annual Report on Form 10-K, have reduced disclosure obligations regarding
executive compensation, and smaller reporting companies are permitted to delay
adoption of certain recent accounting pronouncements discussed in Note 2 See
Note 2, "Basis of Presentation and Summary of Significant Accounting Policies"
in our consolidated financial statements, appearing under Part II, Item 8 and
beginning at page F-1 of this Annual Report on Form 10-K.

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Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

The following table summarizes our results of operations for the years ended
December 31, 2022 and 2021:

                                             For the Years Ended December 31,               Change
($ in thousands, except per share
data)                                           2022                   2021               $           %
Revenue:
Product revenue, net                      $          70,995      $          63,134    $    7,861       12 %
Other revenue                                         2,674                      -         2,674      100 %
Total revenue                                        73,669                 63,134        10,535       17 %

Operating expenses

Cost of goods sold - product revenue                 30,775                 32,084       (1,309)      (4) %
Research and development                             10,943                  2,739         8,204      300 %
Research and development - licenses
acquired                                                  -                 13,819      (13,819)    (100) %
Selling, general and administrative                  59,468                 39,833        19,635       49 %
Wire transfer fraud loss                                  -                  9,540       (9,540)    (100) %
Total operating expenses                            101,186                 98,015         3,171        3 %
Loss from operations                               (27,517)               (34,881)         7,364     (21) %

Other expense
Interest income                                        (60)                    (2)          (58)    2,900 %
Interest expense                                      2,019                  7,034       (5,015)     (71) %

Foreign exchange transaction losses                      89                      -            89      100 %
Change in fair value of derivative
liability                                                 -                    447         (447)    (100) %
Total other expense                                   2,048                  7,479       (5,431)     (73) %
Loss before income taxes                           (29,565)               (42,360)        12,795     (30) %

Income tax expense                                       63                  1,634       (1,571)     (96) %
Net Loss                                  $        (29,628)      $        (43,994)    $   14,366     (33) %


Revenues

The following table reflects our revenue by product for the years ended December
31, 2022 and 2021:

                                              For the Years Ended December 31,               Change
($in thousands)                                 2022                    2021               $           %
Qbrexza®                                  $          26,715       $          17,056    $    9,659       57 %
Accutane®                                            18,373                  10,053         8,320       83 %
Targadox®                                             7,972                  22,378      (14,406)     (64) %
Amzeeq®                                               7,242                       -         7,242      100 %
Ximino®                                               4,957                   8,247       (3,290)     (40) %
Zilxi®                                                2,273                       -         2,273      100 %
Exelderm®                                             3,463                   5,363       (1,900)     (35) %
Other branded revenue                                     -                      37          (37)    (100) %
Total net product revenue                 $          70,995       $          63,134    $    7,861       12 %
Other revenue                                         2,674                       -         2,674      100 %
Total revenue                             $          73,669       $          63,134    $   10,535       17 %


Total revenues increased $10.5 million, or 17%, to $73.7 million for the year
ended December 31, 2022, from $63.1 million for the year ended December 31,
2021. Total net product revenue increased $7.9 million, or 12%, to $71.0 million
for the year ended December 31, 2022, from $63.1 million for the year ended
December 31, 2021. The increase is primarily due to revenue growth from our
newly acquired products, Qbrexza and Accutane, acquired and launched in the
second quarter of 2021, as well as incremental growth from

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Amzeeq and Zilxi (acquired in January 2022). Qbrexza, Accutane, Amzeeq and Zilxi
reflected approximately 77% of our total net product revenues for the year ended
December 31, 2022. Offsetting the increases is a decrease in the net product
revenue of Targadox and its authorized generic as a result of continued generic
competition. Additionally, net product revenues of Ximino and Exelderm and their
authorized generics were negatively impacted by contract manufacturer product
shortages earlier in the year. These shortages were resolved in the third
quarter of 2022 and sales continue to normalize although they are not back to
pre-shortage levels. We expect sales of Ximino and Exelderm to reach
pre-shortage levels through 2023. The above table includes the authorized
generic product within the line items for Targadox, Ximino and Exelderm.

Other revenue

The year ended December 31, 2022 includes a net $2.5 million milestone payment
from Maruho. In January 2022, Maruho received manufacturing and marketing
approval in Japan for Rapifort® Wipes 2.5%, triggering the net payment. The net
payment reflects a milestone payment of $10.0 million to the Company from
Maruho, offset by a $7.5 million payment to Dermira. The year ended December 31,
2022 also reflects total year-to-date royalties of $174,000 from Maruho on sales
of Rapifort® Wipes 2.5% in Japan.

We record gross-to-net sales accruals for chargebacks, distributor service fees,
prompt pay discounts, sales returns, coupons, managed care rebates, government
rebates, and other allowances customary to the pharmaceutical industry.

Gross-to-net sales accruals and the balance in the related allowance accounts for the years ended December 31, 2022, 2021 and 2020 were as follows:

                                   Chargebacks      Distrubutor       Prompt                                   Managed
                                    and other         Service          Pay                                       Care         Gov't
($'s in thousands)                 allowances          Fees         Discounts      Returns       Coupons       Rebates       Rebates        Total
Balance as of
December 31, 2020                 $           -    $           -    $      

- $ 2,580 $ 12,769 $ 100 $ - $ 15,449 Current provision related to sales in the current period

                 622              791           

197 3,564 140,871 9,025 690 155,760 Checks/credits issued to third parties

                                       -                -             -      (2,589)      (148,963)       (5,633)            -      (157,185)
Reclassifications between
liability accounts                            -                -             -        (315)            315             -            -              -
Balance as of
December 31, 2021                 $         622    $         791    $     

197 $ 3,240 $ 4,992 $ 3,492 $ 690 $ 14,024 Current provision related to sales in the current period

               2,663            5,868         1,104        5,387        117,883        22,654        3,651        159,210
Checks/credits issued to third
parties                                 (3,032)          (5,730)       (1,094)      (4,938)      (121,179)      (22,552)      (3,331)      (161,856)
Balance as of
December 31, 2022                 $         253    $         929    $      207    $   3,689    $     1,696    $    3,594    $   1,010    $    11,378


The change in our reserve from period-to-period is driven by the decrease in our
reserve for coupons. The provision for coupons was $1.7 million at December 31,
2022 compared to $5.0 million at December 31, 2021. The change in the coupon
reserve is primarily due to a decrease in sales of Minocycline as well as an
increase primarily associated with initial program prefunding payments for
Amzeeq and Zilxi.

Cost of Goods Sold

Cost of goods sold decreased by $1.3 million, or 4%, to $30.8 million for the
year ended December 31, 2022, from $32.1 million for the year ended December 31,
2021. The decrease is primarily due to a $5.9 million decrease in inventory
step-up costs. Approximately $6.5 million of inventory step-up costs were
charged against operations through cost of goods sold for the year ended
December 31, 2021 as a result of the Qbrexza product acquisition in the second
quarter of 2021, compared to $0.6 million of inventory step-up costs for the
year ended December 31, 2022, as a result of the Amzeeq and Zilxi product
acquisitions in January 2022. In addition, royalty expenses decreased by $1.7
million, or 12%, mainly due to the decrease in Targadox sales from
period-to-period. The above decreases are offset in part by higher product costs
of $1.8 million driven by sales volumes, increased license amortization of $1.8
million and increased Prescription Drug User Fee Act fees of $0.6 million driven
by the acquisition of Amzeeq and Zilxi. The decreases are also offset by
increased costs of approximately $2.1 million related to freight, destruction,
product validation, stability testing costs, and the establishment of expired
product and other inventory reserves for the year ended December 31, 2022.

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Research and Development

Research and Development expense increased to $10.9 million for the year ended
December 31, 2022 from $2.7 million for the year ended December 31, 2021 due to
clinical trial expenses to develop our DFD-29 product, for which our Phase 3
clinical trial is 100% enrolled as of January 10th, 2023. We expect these
expenses to increase through 2023 as the now fully enrolled two Phase 3 trials
are completed and we incur other associated cost of the development program.

Research and Development - licenses acquired

Research and development expenses - licenses acquired decreased $13.8 million,
or 100%, from the year ended December 31, 2021. The year ended December 31, 2021
reflects the acquisition of our development stage asset from DRL, DFD-29, for
$10.0 million and the fair value of the contingent payment due DRL of $3.8
million. We did not have any research and development license acquisition costs
for the year ended December 31, 2022.

Selling, General and Administrative Expenses ("SG&A")

Selling, general and administrative expenses increased by $19.6 million, or 49%,
to $59.5 million for the year ended December 31, 2022, from $39.8 million for
the year ended December 31, 2021. The increase is primarily attributable to the
expansion of our salesforce and marketing expenses related to expanding our
product portfolio by four products, additional headcount costs (including
non-cash stock compensation expenses), legal expenses associated with patent
litigation, and compliance and other professional fees associated with being a
public company that we did not incur as a privately held company prior to our
IPO in November 2021.

Wire Transfer Fraud Loss

In September 2021, wire fraud-related costs totaled approximately $9.5 million.
These costs were attributable to funds erroneously wired to fraudulent accounts
as a result of a sophisticated business email compromise fraud scheme. Please
see "Risk Factors - Our business and operations would suffer in the event of
computer system failures, cyber-attacks, or deficiencies in our or third
parties' cybersecurity" for more information.

Interest Expense

Interest expense decreased $5.0 million to $2.0 million for the year ended
December 31, 2022, from $7.0 million for the year ended December 31, 2021. The
year ended December 31, 2021 includes dividends and interest on our convertible
preferred stock that converted in full, into shares of our common stock upon the
closing of our IPO in November 2021. Interest expense for the year ended
December 31, 2022 reflects interest and fees related to our EWB term loan and
installment licenses.

Change in Fair Value of Derivative Liabilities

The change in fair value of derivative liabilities reflects the derivative
mark-to-market accounting to mark to fair value the contingent payment liability
to Dr. Reddy, the liability classified warrants and the placement agent warrants
issued as partial compensation to the placement agent in our 2021 private
financing as a result of the settlement and conversion of these warrant
liabilities to our common stock. In connection with the our IPO we issued
111,567 shares of common stock for settlement of all of the placement agent
warrants. In addition, we issued 545,131 shares of common stock to Dr. Reddy in
a transaction exempt from registration under the Securities Act in settlement of
the contingent payment. We have no derivative liabilities outstanding at
December 31, 2022.

Income tax expense

Our effective tax rate for 2022 and 2021 was (0.21%) and (3.86)%, respectively.
The negative effective tax rate of 0.21% for the year ended December 31, 2022
varies from the statutory rate principally due to our full valuation allowance
position. The increase in the effective tax rate from 2021 to 2022 is primarily
due to change in valuation allowance and state taxes. Our tax rate is affected
by valuation allowances, recurring items, such as the U.S. federal and state
statutory tax rates and the relative amounts of income we earn in those
jurisdictions. It is also affected by discrete items that may occur in any given
year but are not consistent from year to year.

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Liquidity and Capital Resources

At December 31, 2022, we had $32.0 million in cash and cash equivalents as compared to $49.1 million at December 31, 2021.

On December 30, 2022, we filed a shelf registration statement on Form S-3 (File
No. 333-269079), which was declared effective by the SEC on January 23, 2023.
This shelf registration statement covers the offering, issuance and sale by us
of up to an aggregate of $150.0 million of our common stock, preferred stock,
debt securities, warrants, and units (the "2022 Shelf"). At December 31, 2022,
$150.0 million remains available under the 2022 Shelf. In connection with the
2022 shelf, we have entered into the Sales Agreement with B. Riley, relating to
shares of our common stock. In accordance with the terms of the Sales Agreement,
we may offer and sell up to 4,900,000 shares of our common stock, par value
$0.0001 per share, from time-to-time through B. Riley acting as our agent or
principal.

We are party to a Loan and Security Agreement, dated March 31, 2021, with EWB
(as amended, the "EWB Facility"), under which EWB made a $7.5 million line of
credit available to us. On January 12, 2022, we entered into a third amendment
of the loan and security agreement with EWB, which increased the borrowing
capacity of our revolving line of credit to $10.0 million, of which $2.9 million
was outstanding at December 31, 2022, and added a term loan not to exceed $20.0
million. Both the revolving line of credit and the term loan mature on January
12, 2026. In January 2022 and August 2022, we borrowed $15.0 million (to
facilitate the Vyne Product Acquisition Agreement) and $5.0 million,
respectively, against the term loan. The term loans bear interest at a floating
rate equal to 1.73% above the prime rate and are payable monthly. The term loans
contain an interest-only payment period through January 12, 2024, with an
extension through July 12, 2024, if certain covenants are met, after which the
outstanding balance of each term loan is payable in equal monthly installments
of principal, plus all accrued interest, through the term loan maturity date. We
may elect to prepay all or any part of the term loan without penalty or premium,
but we may not re-borrow any amount, once repaid. Any outstanding borrowing
against the revolving line of credit bears interest at a floating rate equal to
0.70% above the prime rate. The EWB Facility includes customary financial
covenants such as collateral ratios and minimum liquidity provisions. We are in
compliance with all applicable financial covenants under the EWB Facility. The
remaining $7.1 million revolving line of credit is fully available to us without
any restrictions, other than certain customary and ordinary closing conditions.

We expect that our expenses will increase substantially for the foreseeable
future as we pursue business development opportunities, commercialize and market
new products and incur additional costs associated with operating as a public
company. To date, our business has not been materially impacted by COVID-19;
however, depending on the extent of the ongoing pandemic, it is possible that
our business, financial condition and results of operations could be materially
and adversely affected by COVID-19 in the future. Additionally, the Federal
Reserve has raised and is expected to continue to raise the federal funds
interest rate throughout 2023 in its effort to take action against domestic
inflation. Because our borrowings under the facility with EWB bear interest at a
floating rate, rising interest rates affect the amount of the regular payments
we are required to make to EWB. Accordingly, we may experience materially higher
borrowing costs in future fiscal quarters than we historically have to date. We
may require additional financing to pursue both development stage and commercial
opportunities. In addition, we anticipate increased commercialization expenses
related to the launch of newly acquired products, as well as increased costs
related to development and regulatory approval of potential development stage
product acquisitions, including DFD-29. As we continue to expand our product
portfolio, we may need to fund possible future operating losses, and, if deemed
appropriate, establish or secure through additional third-party manufacturing
for our products, and expanded sales and marketing capabilities related to
recent product acquisitions.

For the next twelve months from the issuance of these financial statements, we
will be able to fund our operations through a combination of existing cash and
cash equivalents generated from operations, and the EWB borrowing facility. In
addition, we may seek to raise capital through additional debt or equity
financing, which may include sales of securities under our 2022 Shelf or under a
new registration statement. If such funding is not available or not available on
terms acceptable to us, our current plans for expansion of our product portfolio
may be scaled back, limited or curtailed. We regularly evaluate market
conditions, our liquidity profile, and various financing alternatives for
opportunities to enhance our capital structure.

Cash Flows for the Years Ended December 31, 2022 and 2021

                                                For the Years ended December 31,          Increase
($'s in thousands)                                 2022                   2021           (Decrease)
Net cash used in operating activities        $        (13,534)      $         (2,181)    $    11,353
Net cash used in investing activities                 (20,000)               (10,000)         10,000
Net cash provided by financing activities               16,456                 53,016       (36,560)
Net change in cash and cash equivalents      $        (17,078)      $      

   40,835    $    57,913


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Operating Activities

Net cash used in operating activities increased by $11.4 million, to $13.5
million for the year ended December 31, 2022, from $2.2 million for the year
ended December 31, 2021. The increase was driven primarily by vendor, supplier,
and other payments in the ordinary course of business, which were generally
higher as a result of additional headcount costs, inventory purchases and
marketing expenses related to our expanded product portfolio, legal expenses and
compliance and other costs associated with being a public company that were not
present in the prior year, pre-IPO, offset by accounts receivable cash
collections.

Investing Activities

Net cash used in investing activities increased by $10.0 million, to $20.0
million for the year ended December 31, 2022, from $10.0 million for the year
ended December 31, 2021. The increase is primarily due to the $20.0 million in
consideration paid for the products acquired in the Vyne Product Acquisition
Agreement in January 2022, compared to payments of $10.0 million for the year
ended December 31, 2021 for research and development licenses.

Financing Activities

Net cash provided by financing activities decreased by $36.6 million, to $16.5
million for the year ended December 31, 2022, from $53.0 million for the year
ended December 31, 2021. The decrease is primarily related to $30.6 million and
$17.0 million of net proceeds received from the completion of our IPO in
November 2021 and the issuance of our convertible preferred stock, respectively.
In addition, we received proceeds of $9.5 million from the Fortress note for the
year ended December 31, 2021. This is compared to borrowings under the EWB term
loan of $20 million and net borrowings under the EWB revolving line of credit of
$2.1 million during the year ended December 31, 2022.

Material Cash Requirements

In the normal course of business, we enter into contractual obligations that contain cash requirements of which the most significant to date include the following:

We are required to make regular payments under the EWB Facility, which was

recently amended to increase the borrowing capacity of our revolving line of

credit to $10.0 million, $2.9 million of which was outstanding at December 31,

? 2022, and to add a term loan not to exceed $20.0 million. Based on the amount

currently outstanding under the EWB facility and current interest rates, and

   assuming we do not make further draws under the EWB Facility, we expect to make
   the following payments:


                              Payments by Period
              Total       2023       2024        2025        2026

                              ($'s in thousands)
Interest     $  4,448    $ 1,877    $ 1,790    $    777    $     4
Principal      22,948      2,948      5,556      13,333      1,111
Total        $ 27,396    $ 4,825    $ 7,346    $ 14,110    $ 1,115

Should we elect to make further borrowings under the EWB facility, we would expect to repay additional amounts each year until maturity.

Pursuant to the Vyne Product Acquisition Agreement, we agreed to pay to Vyne an

additional $5.0 million upon the one-year anniversary of the closing, January

12, 2023, completing our obligation to pay the full purchase price. Upon the

achievement of net sales milestones with respect to the products purchased in

the Vyne Product Acquisition, we are also required to pay contingent

? consideration consisting of a one-time payment, per product, of $10 million,

$20 million, $30 million, $40 million and $50 million upon each product

reaching annual net sales of $100 million, $200 million, $300 million, $400

million and $500 million, respectively. Each required payment must only be paid

   one time following the first achievement of the applicable annual net sales
   milestone amount.


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Pursuant to the DFD-29 Agreement with DRL, we paid an upfront payment of $10.0

million. Additional contingent regulatory and commercial milestone payments

totaling up to $158.0 million may also be payable. Royalties ranging from ten

? percent to twenty percent are payable on net sales of the product.

Additionally, we are required to fund and oversee the Phase 3 clinical trials,

which we anticipate will cost approximately $24.0 million, based upon the

current development plan and budget.

? We are contractually obligated to make installment milestone payments on our

acquired licenses as follows:

                 Payments by Period

Product Total 2023 2024

                  ($'s in thousands)
Ximino      $ 3,000    $ 1,500    $ 1,500
Accutane      1,000      1,000          -
Total       $ 4,000    $ 2,500    $ 1,500

We are contractually obligated to make sales-based royalty payments to Dermira

? (for Qbrexza), Sun Pharmaceutical Industries (for Exelderm and Ximino) and

PuraCap Caribe (for Targadox). Due to the contingent nature of these

obligations, the amounts of these payments cannot be reasonably predicted.

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