DERM US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 Notice 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. 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 primarily focuses on the selling and marketing of U.S. Food and Drug Administration (“FDA”) approved prescription pharmaceutical products for the treatment of dermatological conditions. Our current portfolio includes eight FDA-approved 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 physicians and other licensed medical professionals to provide better care for their patients. We acquire rights to products and product candidates 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. We are a controlled subsidiary of Fortress Biotech, Inc. (“Fortress” or “Parent”).

Recent Corporate Highlights

FDA Approval of Emrosi

On November 1, 2024, the FDA approved EmrosiTM (Minocycline Hydrochloride Extended Release Capsules, 40 mg), formerly referred to as DFD-29 (“Emrosi”) for the treatment of inflammatory lesions of rosacea in adults. Emrosi was developed by Journey in collaboration with Dr. Reddy’s Laboratories, Ltd (“DRL”). Our initial supply became available in March 2025. In addition, the initial distribution of Emrosi to pharmacies is ongoing and the first Emrosi prescriptions have been filled. We anticipate sales promotion of Emrosi beginning in April 2025. We intend to commercialize Emrosi in the U.S. with our existing commercial team.

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.

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.

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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 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.

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, 2024 and 2023

The following table summarizes our results of operations for the years ended December 31, 2024 and 2023:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Year Ended December 31, ​ Change

Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Amortization of acquired intangible assets ​ ​ 3,424 ​ ​ 3,767 ​ ​ (343) ​ (9) %

Selling, general and administrative ​ ​ 40,204 ​ ​ 43,910 ​ ​ (3,706) ​ (8) %

Loss on impairment of intangible assets ​ ​ — ​ ​ 3,143 ​ ​ (3,143) ​ (100) %

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other expense (income) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gain on extinguishment of debt ​ ​ (1,125) ​ ​ — ​ ​ (1,125) ​ 100 %

Foreign exchange transaction losses ​ ​ 116 ​ ​ 183 ​ ​ (67) ​ (37) %

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income tax expense ​ ​ 61 ​ ​ 221 ​ ​ (160) ​ (72) %

​

Revenues

The following table reflects our revenue by product for the years ended December 31, 2024 and 2023:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ For the Years Ended December 31, ​ Change

​

Total net product revenues decreased by $4.5 million, or 8%, to $55.1 million for the year ended December 31, 2024, from $59.7 million for the year ended December 31, 2023. The decrease is primarily due to overall higher rebate costs across our product portfolio and lower unit volumes, mainly from our legacy products Targadox, Ximino and Exelderm, driven specifically by continued generic competition for Targadox. In addition, Amzeeq net product revenues decreased by approximately $1.2 million, due to both higher rebates and decreased unit sales volumes from 2023. Increases in unit sales volumes for Qbrexza, Accutane and Zilxi were offset by higher rebate costs compared to 2023.

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Other revenue

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ For the Years Ended ​ ​

​ ​ December 31, ​ Change

Milestone payment from Cutia ​ $ 1,000 ​ $ — ​ $ 1,000 ​ 100 %

Royalties on sales of Rapifort® Wipes 2.5% ​ $ — ​ $ 519 ​ $ (519) ​ (100) %

​

Other revenue for the year ended December 31, 2024 reflects a $1.0 million milestone payment from Cutia under the Cutia Agreement that became payable to us upon Cutia receiving marketing approval for topical 4% minocycline foam in the People’s Republic of China. Other revenue for the year ended December 31, 2023 reflects a $19.0 million non-refundable upfront payment from Maruho under the New License Agreement and $0.5 million in royalties on the sale of Rapifort Wipes 2.5%.

Gross - to - Net Sales Accruals

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

Gross-to-net sales accruals and the balance in the related allowance accounts for the years ended December 31, 2024, 2023 and 2022 were as follows:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Chargebacks ​ Distributor ​ Prompt ​ ​ ​ ​ ​ ​ Managed ​ ​ ​ ​ ​ ​

​ ​ and other ​ Service Pay ​ ​ ​ ​ Care ​ Gov’t ​ ​ ​

​

Our reserves for gross-to-net sales allowances were $9.3 million at December 31, 2024, compared to $14.1 million at December 31, 2023, a decrease of $4.8 million. The decrease in the returns reserve reflects lower units on hand in the wholesaler channel. The decrease in the coupon and managed care reserves is primarily a result of the timing of credits and invoices received at the end of 2023.

Cost of Goods Sold

Cost of goods sold decreased by $2.0 million, or 9%, to $20.9 million for the year ended December 31, 2024, from $22.9 million for the year ended December 31, 2023, mostly due to lower product royalty payments. Product royalties were lower by $1.7 million compared to the same period in 2023 due to the contractual expiration of our Exelderm product royalty in November 2023, the contractual decrease in our Qbrexza royalty in the second quarter of 2023, and the discontinuation of Ximino in September of 2023. In addition, the discontinuation of Ximino has resulted in lower drug-user fees of $0.8 million. These decreases were offset, in part, by an increase in product-related cost of goods sold of $0.5 million, as a result of product mix, mainly driven by the higher Accutane and Qbrexza unit volumes.

Amortization of acquired intangible assets

Amortization of acquired intangible assets decreased by $0.4 million, or 9%, to $3.4 million for the year ended December 31, 2024, from $3.8 million for the year ended December 31, 2023 as the discontinuation of Ximino in 2023 has resulted in lower amortization.

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Research and Development

Research and development expense increased by $2.3 million, or 31%, to $9.9 million for the year ended December 31, 2024 from $7.5 million for the year ended December 31, 2023. The increase was driven by the $4.1 million filing fee payment to the FDA for Emrosi in January 2024 and a $3.0 million payment for the contractual milestone payment owed to DRL triggered by the FDA’s acceptance of the NDA application for Emrosi in March 2024, partially offset by lower clinical trial expenses to develop Emrosi compared to 2023, as the clinical phase of the project has concluded.

Selling, General and Administrative Expenses (“SG&A”)

SG&A expenses decreased by $3.7 million, or 8%, to $40.2 million for the year ended December 31, 2024, from $43.9 million for the year ended December 31, 2023. The decrease is due to our continued expense management efforts, partially offset by non-cash share-based compensation, the commencement of our launch efforts for Emrosi, and the expansion of our access and coverage platforms. SG&A in the areas subject to our continued expense management efforts, primarily in sales and marketing and other SG&A areas, decreased by $8.7 million compared to 2023. This decrease is partially offset by a $1.7 million increase in SG&A expenses from 2023 due to the commencement of our launch efforts for Emrosi related mainly to market research and access and to a lesser extent, the expansion of our access and coverage platforms for our current product portfolio. In addition, non-cash share-based compensation expense increased by $3.1 million compared to 2023 as a result of an increase in outstanding equity awards from 2023.

Loss on impairment of intangible assets

We recorded a loss on the impairment of intangible assets of $3.1 million during 2023, related to the impairment of the Ximino intangible asset, as a result of lower net product revenues and gross profit levels for the Ximino products. We discontinued selling Ximino on September 29, 2023. We recorded no losses related to the impairment of assets in the year ended December 31, 2024.

Loss Recovery

We recorded a loss recovery benefit to income of $4.6 million in connection with the recovery of funds related to the previously disclosed September 2021 cybersecurity incident. We received the $4.6 million cash in December of 2024. See Note 17 to our consolidated financial statements for further details.

Interest Income

Interest income increased $0.5 million to $0.8 million for the year ended December 31, 2024, from $0.3 million for the year ended December 31, 2023. Interest income reflects the income earned on our high yield money market account. The increase is due to a higher invested balance compared to the prior year resulting from cash received upon entering into the SWK Credit Facility in December 2023, and to a lesser extent, a slight increase in investment yield.

Interest Expense

Interest expense increased $1.0 million to $2.7 million for the year ended December 31, 2024, from $1.7 million for the year ended December 31, 2023 as a result of interest payments we made under the SWK Credit Facility. In July 2023, we satisfied all of our outstanding debt obligations with East West Bank (“EWB”) by voluntarily repaying the outstanding balance on our term loan under the Loan and Security Agreement with EWB. As such, we had no additional debt or borrowing of funds until entering into the Credit Facility with SWK in December of 2023.

Gain on Extinguishment of Debt

We recorded a gain of $1.1 million in August 2024 upon the execution of a settlement agreement (the “Settlement Agreement”) to settle amounts owed by the Company to Sun Pharmaceutical Industries, Inc. (“Sun”) pursuant to the Ximino Asset Purchase Agreement. See Note 9 to our consolidated financial statements for further details.

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Liquidity and Capital Resources

At December 31, 2024, we had cash and cash equivalents on hand of approximately $20.3 million as compared to $27.4 million of cash and cash equivalents at December 31, 2023, and working capital of $13.0 million at December 31, 2024, compared to $14.6 million at December 31, 2023.

We rely primarily on cash on hand generated from the sales of our pharmaceutical products to our customers to fund our core operations. In addition, we have relied on the proceeds from our term loan Credit Facility (as defined below) with SWK and our at-the-market sales program with B. Riley to meet additional capital and liquidity needs, specifically to fund the research and development and commercialization of Emrosi, formerly referred to as DFD-29, which received marketing approval by the FDA on November 1, 2024.

We also actively pursue licensing opportunities to raise non-dilutive capital. On August 31, 2023, we entered into the New License Agreement with Maruho, whereby we granted an exclusive license to Maruho to develop and commercialize Qbrexza® for the treatment of primary axillary hyperhidrosis in South Korea, Taiwan, Hong Kong, Macau, Thailand, Indonesia, Malaysia, Philippines, Singapore, Vietnam, Brunei, Cambodia, Myanmar and Laos (the “Territory”). Under the terms of the New License Agreement, in exchange for the exclusive rights to Qbrexza® in the Territory, Maruho paid us $19.0 million as a non-refundable upfront payment.

In December 2024 we received additional cash of $4.6 million as a result of the recovery of funds from the previously disclosed cybersecurity incident that impacted us in September of 2021 prior to our IPO.

We regularly evaluate market conditions, our liquidity profile, and financing alternatives, including out-licensing arrangements for our products, to enhance our capital structure. We may seek to raise capital through debt or equity financings, to expand our product portfolio, and for other strategic initiatives, which may include sales of securities under either our 2022 Shelf or a new registration statement. Additionally, as a result of recurring losses, primarily a result of the research and development of Emrosi, substantial doubt exists about our ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements.

Sources of Liquidity

SWK Credit Facility

On December 27, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”) with SWK. The Credit Agreement provides for a term loan facility (the “Credit Facility”) in the original principal amount of up to $20.0 million. On the closing date, the Company drew $15.0 million. On June 26, 2024, the Company drew the remaining $5.0 million under the Credit Facility. Loans under the Credit Facility (the “Term Loans”) mature on December 27, 2027, and bear interest at a rate per annum equal to the three-month term Secured Overnight Financing Rate (“SOFR”) (subject to a SOFR floor of 5%) plus 7.75%. The interest rate resets quarterly. Interest payments began in February 2024 and are paid quarterly. Beginning in February 2026, the Company is required to repay a portion of the outstanding principal of the Term Loans quarterly in an amount equal to 7.5% of the principal amount of funded Term Loans.

On July 9, 2024, the Company entered into an amendment (the “Amendment”) to the Credit Agreement. The Amendment increased the original principal amount of the Credit Facility from $20.0 million to $25.0 million. The $5.0 million of additional principal added in the Amendment is contractually required to be drawn upon FDA approval of Emrosi, subject to the Company receiving approval on or before June 30, 2025. The FDA approved Emrosi on November 1, 2024, and we subsequently drew the remaining $5.0 million.

At-the-Market Offering

On December 30, 2022, the Company filed the 2022 Shelf, which was declared effective by the Securities and Exchange Commission 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. In connection with the 2022 Shelf, the Company entered into the Sales Agreement relating to shares of the Company’s common stock with B. Riley. The Company may offer and sell up to 4,900,000 shares of its common stock, from time to time, under the Sales Agreement. During the fiscal year ended December 31, 2024, the Company issued and sold 1,564,310 shares of common stock under the 2022 Shelf, generating net proceeds of $7.9 million. At December 31, 2024, 2,586,987 shares remain available for issuance under the Sales Agreement.

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Cash Flows for the Years Ended December 31, 2024 and 2023

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years ended December 31, ​ Increase

Net cash provided by (used in) financing activities ​ 16,993 ​ (4,804) ​ 21,797

Net change in cash and cash equivalents ​ ​ (7,134) ​ ​ (4,564) ​ ​ 2,570

​

Operating Activities

Net cash flows used in operating activities for the year ended December 31, 2024 were $9.1 million compared to $5.2 million of net cash flows provided by operating activities for the year ended December 31, 2023, reflecting a change of $14.4 million from period-to-period. Cash provided by operating activities for the year ended December 31, 2023 includes cash received pursuant to the New License Agreement, where Maruho paid us $19.0 million as a non-refundable upfront payment. In 2024, we made cash payments of $4.1 million related to the filing fee paid to the FDA for Emrosi in January 2024, and $3.0 million for the contractual milestone payment owed to DRL triggered by the FDA’s acceptance of the NDA for Emrosi in March 2024. The remainder was driven primarily by the changes in net working capital, which includes a one-time loss recovery payment of $4.6 million from the previously disclosed September 2021 cybersecurity incident.

Investing Activities

Net cash flows used in investing activities for the year ended December 31, 2024 were $15.0 million compared to $5.0 million for the year ended December 31, 2023, reflecting a change of $10.0 million from period-to-period. The year ended December 31, 2024 reflects a $15.0 million milestone payment made to DRL, which was triggered upon our receipt of FDA approval for Emrosi in November 2024. The year ended December 31, 2023 reflects the $5.0 million deferred cash payment paid in January 2023 related to the VYNE Product Acquisition.

Financing Activities

Net cash flows provided by financing activities for the year ended December 31, 2024 were $17.0 million compared to $4.8 million of net cash flows used in financing activities for the year ended December 31, 2024, reflecting a change of $21.8 million from period-to-period. Cash provided by financing activities for the year ended December 31, 2024 reflects the draw of an additional $10.0 million under the SWK Credit Facility, as well as the net proceeds from issuances of common stock under the Sales Agreement of $7.9 million. Net cash used in financing activities for the year ended December 31, 2023 reflects the voluntary repayment of the outstanding balance on our term loan under the Loan and Security Agreement with EWB.

Material Cash Requirements

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Payments by Period

​ ​ ($’s in thousands)

​

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Item 7A. Quantitative and Qualitative Disclosures About Market Risks

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

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Item 8. Financial Statements and Supplementary Data.

The information required by this Item is set forth in the financial statements and notes thereto beginning at page F-1 of this Annual Report on Form 10-K.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

​

None.

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Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation as of the end of the period covered by this Annual Report on Form 10-K under the supervision, and with the participation, of our management, including our Chief Executive Officer (who serves as our principal executive officer) and our Chief Financial Officer (who serves as our principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures.

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Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K in providing reasonable assurance of achieving the desired control objectives.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making the assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on the results of this assessment, management (including our Chief Executive Officer and our Chief Financial Officer) has concluded that, as of December 31, 2024, our internal control over financial reporting was effective.

This Annual Report does not include an attestation report on internal control over financial reporting from our independent registered public accounting firm due to our status as an emerging growth company under the JOBS Act.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter ended December 31, 2024 to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Item 9B. Other Information

None.

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Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

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None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2025 Annual Meeting of Stockholders.

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Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2025 Annual Meeting of Stockholders.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

​

The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2025 Annual Meeting of Stockholders.

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Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2025 Annual Meeting of Stockholders.

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Item 14. Principal Accounting Fees and Services

​

The information required by this Item is incorporated by reference from our Proxy Statement for our 2025 Annual Meeting of Stockholders.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Financial Statements.

The following financial statements are filed as part of this report:

​

Consolidated Balance Sheets as of December 31, 2024 and 2023 F-3

Notes to Consolidated Financial Statements F-7

​

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(b) Exhibits.

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Exhibit Number Description

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19.1 ​ Fortress Biotech, Inc. and Subsidiaries Insider Trading Policy.*

21.1 ​ List of Subsidiaries of Journey Medical Corporation.*

23.1 ​ Consent of KPMG LLP.*

* Filed herewith.

**Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K.

***Furnished herewith.

# Management Compensation Arrangement.

​

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Item 16. Form 10-K Summary

​

The Company has elected not to provide summary information.

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INDEX TO FINANCIAL STATEMENTS

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Consolidated Balance Sheets as of December 31, 2024 and 2023 F-3

Notes to Consolidated Financial Statements F-7

​

​

F-1

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Journey Medical Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Journey Medical Corporation and subsidiary (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, and as a result has concluded that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 2021.

Short Hills, New Jersey

March 26, 2025

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JOURNEY MEDICAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

​

​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

ASSETS ​ ​

Current assets ​ ​

Accounts receivable, net of reserves ​ 10,231 ​ 15,222

Prepaid expenses and other current assets ​ 3,212 ​ 3,588

​ ​ ​ ​ ​ ​ ​

Operating lease right-of-use asset, net ​ 199 ​ 101

Other assets ​ — ​ 6

​ ​ ​ ​ ​ ​ ​

LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​

Current liabilities ​ ​

Due to related party ​ 528 ​ 195

Accrued interest ​ 404 ​ 22

Income taxes payable ​ ​ 60 ​ ​ 53

Installment payments – licenses, short-term ​ 625 ​ 3,000

Operating lease liability, short-term ​ 83 ​ 99

​ ​ ​ ​ ​ ​ ​

Installment payments – licenses, long-term ​ — ​ —

Operating lease liability, long-term ​ 118 ​ 9

​ ​ ​ ​ ​ ​ ​

Commitments and contingencies (Note 13) ​ ​

​ ​ ​ ​ ​ ​ ​

Stockholders’ equity ​ ​

Total liabilities and stockholders’ equity ​ $ 80,241 ​ $ 76,849

​

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

​

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JOURNEY MEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

​

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Revenue: ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

Operating expenses ​ ​ ​ ​

Amortization of acquired intangible assets ​ ​ 3,424 ​ ​ 3,767

Selling, general and administrative ​ 40,204 ​ 43,910

Loss on impairment of intangible assets ​ — ​ 3,143

Loss recovery ​ ​ (4,553) ​ ​ —

​ ​ ​ ​ ​ ​ ​

Other expense (income) ​ ​

Interest income ​ (757) ​ (322)

Gain on extinguishment of debt ​ ​ (1,125) ​ ​ —

Foreign exchange transaction losses ​ ​ 116 ​ ​ 183

​ ​ ​ ​ ​ ​ ​

Income tax expense ​ 61 ​ 221

​ ​ ​ ​ ​ ​ ​

Net loss per common share: ​ ​ ​ ​ ​ ​

Basic and diluted ​ $ (0.72) ​ $ (0.21)

​ ​ ​ ​ ​ ​ ​

Weighted average number of common shares: ​ ​ ​ ​

​

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

​

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JOURNEY MEDICAL CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ Additional ​ ​ ​ Total

​ Common Stock Common Stock A ​ Paid-in ​ (Accumulated ​ Shareholders’

​ Shares Amount Shares Amount Capital Deficit) Equity

Share-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 2,606 ​ ​ — ​ ​ 2,606

Net loss ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (3,853) ​ ​ (3,853)

Share-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 6,098 ​ ​ — ​ ​ 6,098

Net loss ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ (14,672) ​ ​ (14,672)

​

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

​

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JOURNEY MEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

​

​ ​ ​ ​ ​ ​ ​

​ Year Ended

​ ​ December 31,

Cash flows from operating activities ​ ​ ​ ​ ​ ​

Gain on extinguishment of debt ​ ​ (1,125) ​ ​ —

Non-cash interest expense ​ — ​ 353

Amortization of debt discount ​ 307 ​ 356

Amortization of acquired intangible assets ​ 3,424 ​ 3,767

Non-cash lease expense ​ 91 ​ 88

Loss on impairment of intangible assets ​ — ​ 3,143

Changes in operating assets and liabilities: ​ ​ ​ ​

Prepaid expenses and other current assets ​ 376 ​ (279)

Other assets ​ 6 ​ —

Related party expenses ​ 333 ​ (218)

Income tax payable ​ 7 ​ 18

Lease liabilities ​ (96) ​ (83)

Net cash (used in) provided by operating activities ​ (9,127) ​ 5,240

​ ​ ​ ​ ​

Cash flows from investing activities ​ ​ ​ ​

Acquired intangible assets ​ ​ (15,000) ​ ​ (5,000)

Net cash (used in) investing activities ​ (15,000) ​ (5,000)

​ ​ ​ ​ ​

Cash flows from financing activities ​ ​ ​ ​

Proceeds from the exercise of stock options ​ 207 ​ 121

Issuance of common stock under ESPP ​ 209 ​ —

Payment of debt issuance costs ​ ​ (50) ​ ​ (471)

Payment of license installment note payable ​ (1,250) ​ (1,000)

Proceeds from line of credit ​ — ​ 28,000

Repayment of line of credit ​ — ​ (30,948)

Repayment of EWB term-loan ​ — ​ (20,000)

Net cash provided by (used in) financing activities ​ 16,993 ​ (4,804)

​ ​ ​ ​ ​ ​ ​

Cash at the beginning of the period ​ 27,439 ​ 32,003

Cash at the end of the period ​ $ 20,305 ​ $ 27,439

​ ​ ​ ​ ​ ​

Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​

Cash paid for interest ​ $ 2,011 ​ $ 1,127

Cash paid for income taxes ​ $ 125 ​ $ 181

​ ​ ​ ​ ​ ​ ​

ROU assets obtained in exchange for lease liabilities ​ $ 188 ​ $ 188

​

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

​

​

​

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JOURNEY MEDICAL CORPORATION

Notes to Financial Statements

​

NOTE 1. ORGANIZATION AND PLAN OF BUSINESS OPERATIONS

Journey Medical Corporation (collectively “Journey” or the “Company”) is a commercial-stage pharmaceutical company that focuses on the selling and marketing of U.S. Food and Drug Administration (“FDA”) approved prescription pharmaceutical products for the treatment of dermatological conditions. The Company’s current product portfolio includes eight FDA-approved prescription drugs for dermatological conditions that are marketed in the U.S. The Company acquires rights to products and product candidates by licensing or otherwise acquiring an ownership interest in, funding the research and development of, and eventually commercializing the products through its field sales organization.

As of December 31, 2024 and 2023, the Company is a majority-owned subsidiary of Fortress Biotech, Inc. (“Fortress” or “Parent”).

Liquidity and Capital Resources

At December 31, 2024, the Company had $20.3 million in cash and cash equivalents as compared to $27.4 million at December 31, 2023, and working capital of $13.0 million at December 31, 2024, as compared to $14.6 million at December 31, 2023.

The Company relies primarily on cash on hand generated from sales of its pharmaceutical products to customers to fund its core operations. In addition, the Company has relied on the proceeds from its term loan Credit Facility (as defined below) with SWK Funding LLC (“SWK”), and it’s at-the-market sales program with B. Riley to meet additional capital and liquidity needs, specifically to fund the research and development and commercialization of Emrosi, formerly referred to as DFD-29, which received marketing approval by the FDA on November 1, 2024.

The Company also actively pursues licensing opportunities to raise non-dilutive capital. On August 31, 2023, the Company entered into the New License Agreement (as defined below) with Maruho (as defined below), whereby it granted an exclusive license to Maruho to develop and commercialize Qbrexza® for the treatment of primary axillary hyperhidrosis in South Korea, Taiwan, Hong Kong, Macau, Thailand, Indonesia, Malaysia, Philippines, Singapore, Vietnam, Brunei, Cambodia, Myanmar and Laos (the “Territory”). Under the terms of the New License Agreement, in exchange for the exclusive rights to Qbrexza® in the Territory, Maruho paid the Company $19.0 million as a non-refundable upfront payment.

In December 2024, the Company received additional cash of $4.6 million as a result of the recovery of funds from the previously disclosed cybersecurity incident in September of 2021.

The Company regularly evaluates market conditions, its liquidity profile, and financing alternatives, including out-licensing arrangements for its products, to enhance its capital structure. The Company may seek to raise capital through debt or equity financings to expand its product portfolio and for other strategic initiatives, which may include sales of securities under either the shelf registration statement on Form S-3 (File No. 333 - 269079), which was declared effective by the SEC on January 26, 2023 and 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”) or a new registration statement. In addition, the Company expects to generate positive cash flows from the sale of Emrosi in 2025 and beyond.

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. However, as a result of recurring losses, primarily a result of the research and development of Emrosi, 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 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.

​

NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company’s consolidated financial statements include the accounts of the Company and

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JOURNEY MEDICAL CORPORATION

Notes to Financial Statements

the accounts of the Company’s wholly-owned subsidiary, JG Pharma, Inc. (“JG” or “JG Pharma”). All intercompany balances and transactions have been eliminated.

Reclassification

Certain prior period amounts have been reclassified to conform to the current period classification. The Company has historically included amortization of acquired intangible assets within cost of goods sold on the consolidated statement of operations. For the years ended December 31, 2024 and 2023, “Costs of goods sold – product revenue” as presented in the consolidated statement of operations was disaggregated into “Costs of goods sold – (excluding amortization of acquired intangible assets)” and “Amortization of acquired intangible assets”. This presentation has been conformed for all previous periods presented and has no impact on previously reported financial results.

Emerging Growth Company

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s audited consolidated financial statements upon adoption. Under the Jumpstart Our Business Startups Act of 2012, as amended, the Company meets the definition of an emerging growth company and elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates made by management include provisions for coupons, chargebacks, wholesaler fees, specialty pharmacy discounts, managed care rebates, product returns, and other allowances customary to the pharmaceutical industry. Significant estimates made by management also include inventory realization, valuation of intangible assets, useful lives of amortizable intangible assets and share-based compensation. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Segment Reporting

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment, which reflects products for the treatment of dermatological conditions. The dermatological segment derives revenues from the sale of branded and authorized general prescription products that treat certain dermatological conditions. The Company’s chief operating decision maker (“CODM”) is its chief executive officer.

The CODM assesses performance for the dermatological segment and allocates resources based on consolidated net loss. The CODM uses net loss to monitor budget vs. actual results, which are presented quarterly, as well as evaluate performance and income generated in deciding how to reinvest profits. The accounting policies of the segment are the same as those described in this Note 2. See Note 20 for segment information.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash. Periodically, the Company may maintain deposits in financial institutions in excess of government insured limits. Management believes that the Company is not exposed to significant credit risk as the Company’s deposits are held at financial institutions that management believes to be of high credit quality. The Company has not experienced any losses on these deposits.

The Company’s accounts receivable primarily represent amounts due from drug wholesalers and specialty pharmacies in the United States. The Company performs periodic credit evaluations of customers and does not require collateral. An allowance for doubtful

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JOURNEY MEDICAL CORPORATION

Notes to Financial Statements

accounts is maintained for potential credit losses based on the aging of accounts receivable, historical bad debts experience, and the customer’s current ability to pay its obligations to the Company. Accounts receivables balances are written off against the allowance when it is probable that the receivable will not be collected. See Note 16 for significant customers.

Cash and Cash Equivalents

The Company considers highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents at December 31, 2024 and 2023 consisted entirely of cash and cash equivalents in institutions within the United States. Balances at certain institutions have exceeded Federal Deposit Insurance Corporation insured limits.

Accounts Receivable, Net

The Company’s accounts receivable consists of amounts due from customers related to product sales and have payment terms, that range from 30 to 75 days. For certain customers, the accounts receivable for the customer are net of prompt payment or specialty pharmacy discounts. The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in their credit profile. The Company reserves against accounts receivable for estimated losses that may arise from a customer’s inability to pay, and any amounts determined to be uncollectible are written off against the reserve when it is probable that the receivable will not be collected. The Company has historically not experienced significant credit losses. The allowance for doubtful accounts was $0.6 million and $0.5 million at December 31, 2024 and 2023, respectively.

Inventories

Inventories are recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The Company periodically reviews the composition of inventory in order to identify excess, obsolete, slow-moving or otherwise non-saleable items taking into account anticipated future sales compared with quantities on hand, and the remaining shelf life of goods on hand. If non-saleable items are observed and there are no alternate uses for the inventory, the Company records a write-down to net realizable value in the period that the decline in value is first recognized. The Company’s inventory reserves were $0.5 million and $0.3 million at December 31, 2024 and 2023, respectively.

Leases

Arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. Variable lease expenses are recorded when incurred.

In calculating the right-of-use asset and lease liability, the Company elects to combine lease and non-lease components.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs primarily consist of personnel related expenses, payments made to third parties for license and milestone costs related to in-licensed products and technology, and payments made to third party contract research organizations.

The Company’s research and development expense includes costs associated with the research and development of the Company’s EMROSITM product prior to regulatory approval. Prior to the regulatory approval of EMROSITM, manufacturing costs associated with third-party contractors for validation and commercial batch production, process technology transfer, quality control and stability testing, raw material purchases, overhead expenses and facilities costs were recorded as research and development and expensed as incurred as future use could not be determined, and there is uncertainty surrounding regulatory approval. Following regulatory approval of EMROSITM by the FDA, the Company capitalizes certain manufacturing costs as inventory.

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JOURNEY MEDICAL CORPORATION

Notes to Financial Statements

Clinical trial costs for EMROSITM have been a significant component of research and development expenses for the Company. The Company’s clinical studies were performed by third-party contract research organizations (“CROs”). These expenses are based on patient enrollment and include costs relating to the administration of the clinical trials including s CRO services, clinical sites, investigators, testing facilities and patients for participating in the Company’s clinical trials.

Contingencies

The Company records accruals for contingencies and legal proceedings expected to be incurred in connection with a loss contingency when it is probable that a liability has been incurred and the amount can be reasonably estimated.

If a loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

Fair Value Measurement

The Company follows accounting guidance on fair value measurements for financial assets and liabilities measured at fair value on a recurring basis. Under the accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:

Level 1: Quoted prices in active markets for identical assets or liabilities.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

Certain of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as accounts payable, accrued expenses and other current liabilities.

Intangible Assets

Intangible assets are reported at cost, less accumulated amortization and impairments. Intangible assets with finite lives are amortized over their estimated useful lives, which represents the estimated life of the product. Amortization is calculated using the straight-line method.

During the ordinary course of business, the Company has entered into certain licenses and asset purchase agreements. Potential milestone payments for achieving sales targets or regulatory development milestones are recorded when it is probable of achievement. Upon a milestone payment being achieved, the milestone payment will be capitalized and amortized over the remaining useful life for approved products and expensed for milestones prior to FDA approval. Royalty payments for approved products are recorded as cost of goods sold as sales are recognized.

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JOURNEY MEDICAL CORPORATION

Notes to Financial Statements

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including intangible assets with finite useful lives, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable (a “triggering event”). Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the long-lived asset in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows. During the year ended December 31, 2023, the Company recorded an impairment loss associated with its intangible asset balance. See Note 4 for further details.

Share-based Compensation

The Company has a share-based compensation plan in place and records the associated share-based compensation expense over the requisite service period. The share-based compensation plan and related compensation expense are discussed more fully in Note 15 to the Company’s consolidated financial statements.

Compensation expense for service-based stock options is charged against operations on a straight-line basis over the vesting period, which is generally four years. Forfeitures are recorded as they occur. Share-based compensation costs are recorded in both research and development and selling, general and administrative expense in the Company’s consolidated statements of operations. Options granted have a term of 10 years from the grant date.

The Company estimates the fair value of all service-based stock option awards as of the grant date by applying the Black-Scholes option pricing valuation model. The application of this valuation model involves assumptions, including the fair value of the common stock, expected volatility, risk-free interest rate, expected dividends and the expected term of the option. The assumptions used in calculating the fair value of share-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. The following inputs are used in the Black-Scholes calculation.

Expected term—The Company has elected to use the “simplified method” for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option (generally 10 years).

Expected volatility—As the Company has limited trading history for its common shares, the expected volatility was estimated based on the average volatility for comparable guideline publicly traded biotechnology companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty.

Risk-free interest rate— The risk-free interest rate is selected based upon yields of United States Treasury issues with a term equal to the expected life of the option being valued.

Expected dividend yield—The Company has not issued any dividends in our history and do not expect to issue dividends over the life of the options; therefore, the Company has estimated the dividend yield to be zero.

Restricted stock units (“RSU’s”) that are service based are amortized into compensation expense on a straight-line basis over the vesting period, which ranges from three to four years in duration. Compensation cost for service based RSU’s is based on the grant date fair value of the award, which is the closing market price of the Company’s common stock on the grant date multiplied by the number of shares awarded.

Net (Loss) Income Per Share

Basic net (loss) income per share of common stock is calculated by dividing net (loss) income by the weighted-average number of shares of common stock outstanding during the reporting period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of shares of common stock outstanding during the reporting period after giving effect to dilutive potential

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JOURNEY MEDICAL CORPORATION

Notes to Financial Statements

common shares for stock options and restricted stock units, determined using the treasury stock method. The Company has two classes of stock (Common Stock and Class A Common Stock), however, the terms of each class are substantially similar, and therefore the application of the two-class method does not impact the computation of the reported net (loss) income per share. See Note 19 below.

Revenue Recognition

The Company records and recognizes revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company’s revenues primarily result from contracts with customers, which are generally short-term and have a single performance obligation – the delivery of product. The Company’s performance obligation to deliver products is satisfied at the point in time that the goods are received by the customer, which is when the customer obtains title to and has the risks and rewards of ownership of the products. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.

Many of the Company’s products sold are subject to a variety of deductions. Revenues are recorded net of provisions for variable consideration, including coupons, chargebacks, wholesaler fees, specialty pharmacy discounts, managed care rebates, product returns, and other deductions customary to the pharmaceutical industry. Accruals for these provisions are presented in the consolidated financial statements as reductions to gross sales in determining net sales and as a contra asset within accounts receivable, net (if settled via credit) and other current liabilities (if paid in cash). Amounts recorded for revenue deductions can result from a series of judgements about future events and uncertainties and can rely on estimates and assumptions. The following section briefly describes the nature of the Company’s provisions for variable consideration and how such provisions are estimated:

Coupons — The Company offers coupons on products for qualified commercially-insured parties with prescription drug co-payments. Such product sales flow through both traditional wholesaler and specialty pharmacy channels. Coupons are processed and redeemed at the time of prescription fulfilment by the pharmacy. The majority of the coupon reserve accrual at the end of the period reflects expected redemptions for product in the distribution channel. The expected accrual reserve requires us to estimate the distribution channel inventory at period end, the expected redemption rates, and the cost per coupon claim that the Company expects to receive. The estimate of product remaining in the distribution channel is comprised of estimated inventory at the wholesaler as well as an estimate at the specialty pharmacies, which the Company estimates based upon historical ordering patterns. The estimated redemption rate is based on historical redemptions as a percentage of units sold. The cost per coupon is based on the coupon rate.

Chargebacks and Government Chargebacks —The Company sells a portion of its products indirectly through wholesaler distributors to contracted indirect customers and qualified government healthcare providers. The Company enters into specific agreements with or provides discounts to these indirect customers and entities to establish pricing for the Company’s products, and in-turn, the indirect customers and entities independently purchase these products. The Company’s provision for chargebacks is based on expected sell-through levels by the Company’s wholesale customers to the indirect customers and estimated wholesaler inventory levels as well as historical chargeback rates. The Company continually monitors its reserve for chargebacks and adjusts the reserve accordingly when expected chargebacks differ from actual experience.

Wholesaler fees — The Company provides allowances to its wholesale customers for sales order management, data, and distribution services. The Company also pays administrative and other fees to certain wholesale customers consistent with pharmaceutical industry practices. The Company records a provision for these fees based on contracted rates. Assumptions used to establish the provision include contract sales volumes and average contract pricing. The Company regularly reviews the information related to these estimates and adjusts the provision accordingly.

Specialty Pharmacy Discounts— The Company has in place contractual arrangements with specialty pharmacies and provides for contractually agreed upon discounts. These discounts are recorded at the time of sale based on the customer’s contracted rate and recorded as a reduction of revenue.

Managed Care Rebates — The Company is subject to rebates in connection with its agreements with certain contracted commercial payers. The Company estimates its managed care rebates based on the Company’s estimated payer mix and the applicable contractual rebate rate. The Company’s accrual for managed care rebates is based on an estimate of future claims that the Company expects to

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JOURNEY MEDICAL CORPORATION

Notes to Financial Statements

receive, which considers an estimate for inventory in the distribution channel. The accrual is recognized at the time of sale, resulting in a reduction of gross product revenue.

Product Returns — Consistent with industry practice, the Company offers customers a right to return any unused product. The customer’s right of return commences six months prior to product expiration date and ends one year after product expiration date. Products returned for expiration are reimbursed at current wholesale acquisition cost or indirect contract price. The Company estimates the amount of its product sales that may be returned by the Company’s customers and accrues this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company estimates products returns as a percentage of sales to its customers.

Income Taxes

As of December 31, 2024, the Company was 44.51% owned by Fortress Biotech, Inc. (“Fortress”). Upon the completion of the Company’s initial public offering on November 12, 2021, it deconsolidated from the Fortress consolidated group for federal income and state income tax purposes and has since filed all tax returns as a standalone taxpayer.

The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company establishes a valuation allowance if it believes it is more likely than not that the deferred tax assets will not be recovered based on an evaluation of objective verifiable evidence. The Company has considered its history of cumulative tax and book income/loss incurred since inception, and the other positive and negative evidence, and has concluded that it is not more likely than not that it will realize the benefits of the net deferred tax assets as of December 31, 2024 and 2023 and therefore a full valuation allowance on all of the deferred tax assets is required.

For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit that is greater than 50% likely of being realized. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit. For the years ended December 31, 2024 and 2023, the Company had no unrecognized tax benefits and does not anticipate any significant change to the unrecognized tax benefit balance. The Company classifies interest and penalties related to uncertain tax positions as income tax expense, if applicable. There was no interest expense or penalties related to unrecognized tax benefits recorded through December 31, 2024 and 2023.

Comprehensive Income

The Company has no components of other comprehensive income, and therefore, comprehensive income equals net income.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires that an entity report segment information in accordance with Topic 280, Segment Reporting. The amendment in the ASU is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company adopted this ASU in the year ended December 31, 2024. The Company’s adoption of this guidance resulted in increased disclosures in the notes to the financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statement disclosures.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which is intended to improve the disclosures about specified categories of expenses including purchases of inventory, employee compensation, depreciation and amortization, included in certain expense captions presented in the consolidated statement of operations. This update will be effective for annual periods beginning

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JOURNEY MEDICAL CORPORATION

Notes to Financial Statements

after December 15, 2026. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and disclosures.

NOTE 3. INVENTORY

The Company’s inventory consisted of the following at December 31, 2024 and 2023:

​

​ ​ ​ ​ ​ ​ ​

​ December 31,

​ ​ ​ ​ ​ ​ ​

Inventory reserves ​ ​ (513) ​ ​ (305)

​

​

NOTE 4. INTANGIBLES

The table below provides a summary of the Company’s intangible assets at December 31, 2024 and 2023, respectively:

​

​ ​ ​ ​ ​ ​ ​ ​ ​

​ Estimated December 31,

($’s in thousands) ​ Useful Lives (Years) ​ 2024 2023

Accumulated impairment loss ​ (3,143) ​ (3,143)

​

The Company’s amortization expense for the years ended December 31, 2024 and 2023 was approximately $3.4 million and $3.8 million, respectively. Amortization expense is recorded as a component of cost of goods sold in the Company’s consolidated statements of operations.

The Company’s finite-lived intangible assets consist of acquired intangible assets. On November 1, 2024, the FDA approved the Company’s drug candidate for the treatment of inflammatory lesions of rosacea in adults, EmrosiTM. The approval triggered a $15.0 million milestone payment, which the Company capitalized as an acquired intangible asset. During the year ended December 31, 2023, the Company experienced lower net product revenues and gross profit levels for its Ximino products. Based on these results, the Company revised the financial outlook and plans for its Ximino products. The Company assessed the revised forecast for Ximino and determined that this constituted a triggering event, and the results of the analysis indicated the carrying amount was not expected to be recovered. The Company recorded an intangible asset impairment charge of $3.1 million during the year ended December 31, 2023. This non-cash charge was recorded to loss on impairment of intangible assets in the consolidated statements of operations.

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JOURNEY MEDICAL CORPORATION

Notes to Financial Statements

Future amortization of the Company’s intangible assets is as follows:

​

​ ​ ​ ​

​ Total

For the years ended Amortization

Asset not yet placed in service ​ 3,942

​

​

NOTE 5. LICENSES

Assets and Licenses Acquired:

EmrosiTM

On June 29, 2021, the Company entered into a license, collaboration, and assignment agreement with Dr. Reddy’s Laboratories, Ltd. (“DRL”) to obtain the global rights for the development and commercialization of EmrosiTM (“Emrosi”), a late-stage development modified release oral minocycline that is being evaluated for the treatment of inflammatory lesions of rosacea (the “Emrosi Agreement”). The Company acquired global rights to Emrosi, including in the U.S. and Europe, except that DRL has retained certain rights to the program in select markets including Brazil, Russia, India, China and the Commonwealth of Independent States (“CIS”) countries. Pursuant to the Emrosi Agreement, the Company agreed to make an upfront payment of $10.0 million, comprised of a $2.0 million payment upon execution and $8.0 million which was paid on September 29, 2021, 90 days following execution. In addition, the Company paid two developmental milestones in 2024. In April 2024 the Company paid a $3.0 milestone to DRL, based on FDA acceptance of the Company’s NDA application for Emrosi, and in December of 2024 the Company paid a $15.0 million milestone payment to DRL, which was triggered by the November 1, 2024 FDA marketing approval of Emrosi. Upon the $15.0 million milestone payment, the assets related to Emrosi, including the NDA, regulatory documentation and intellectual property, transferred to the Company. Pursuant to the Emrosi Agreement, the Company may be required to pay additional contingent regulatory, commercial, and corporate-based milestone payments, totaling up to $150.0 million. Royalties ranging from ten percent to fourteen percent are payable on net sales of the product. Royalties are payable in each country until the last-to-expire patent in such country expires. Royalties are subject to a 50% reduction in the event that a generic competitor launches in an applicable country where the Company markets and sells the product.

Qbrexza

In March 2021, the Company executed an Asset Purchase Agreement (the “Qbrexza APA”) with Dermira, Inc., a subsidiary of Eli Lilly and Company (“Dermira”). Pursuant to the terms of the Qbrexza APA, the Company acquired the rights to Qbrexza® (glycopyrronium), a prescription cloth towelette to treat primary axillary hyperhidrosis in patients nine years of age or older. The Company paid the upfront fee of $12.5 million to Dermira. In addition, the Company is obligated to pay Dermira up to $144.0 million in the aggregate upon the achievement of certain sales milestones. The royalty structure for the agreement is tiered with royalties for the first two years ranging from approximately 40% to 30%. Thereafter for a period of eight years royalties are approximately 12.0% to 19.0%. Royalty amounts are subject to certain reductions in the event there is a loss of exclusivity.

Accutane

In July 2020, the Company entered into an exclusive license and supply agreement for Accutane (the “Accutane Agreement”) with DRL. Pursuant to the Accutane Agreement, the Company paid $5.0 million. Three additional milestone payments totaling $17.0 million are contingent upon the achievement of certain net sales milestones. The Company is required to pay royalties in an amount equal to a low-double digit percentage of net sales. The term of the Accutane Agreement is ten years and renewable upon mutual agreement. Each

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Notes to Financial Statements

party may terminate the Accutane Agreement for an uncured material breach by the other party or for certain bankruptcy or insolvency related events. The Company may also terminate the Accutane Agreement without cause upon 180 days written notice to DRL.

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Other License Agreements:

Maruho License Agreement

On August 31, 2023, the Company entered into a license agreement (the “New License Agreement”) with Maruho Ltd., the Company’s exclusive licensing partner in Japan (“Maruho”). Under the terms of the New License Agreement, the Company granted an exclusive license to develop and commercialize Qbrexza for the treatment of primary axillary hyperhidrosis in the Territory. Prior to the date of the New License Agreement, the Company and Maruho were party to an existing exclusive amended and restated license agreement (the “First A&R License Agreement”), under which Maruho acquired exclusive license rights to Qbrexza in Japan.

In connection with Journey’s entry into the New License Agreement, Journey and Maruho also entered into the Second Amended and Restated Exclusive License Agreement (the “Second A&R License Agreement”), which supersedes the First A&R License Agreement. The Second A&R License Agreement contains modifications that remove Maruho’s obligation to pay Journey royalties on its net sales of Rapifort (the Japanese equivalent of Qbrexza) in Japan for sales occurring after October 1, 2023 and removes Maruho’s obligation to pay $10.0 million to Journey in the event that Maruho achieves net sales of at least ¥4 billion (yen) of Rapifort during a single fiscal year. All other remaining potential milestone payment obligations, which aggregate to $45.0 million, remain in full force and effect.

Under the terms of the New License Agreement, in exchange for the exclusive rights to Qbrexza in the Territory, Maruho paid the Company a $19.0 million non-refundable upfront payment. (“the payment”). The Company accounted for the payment as “point-in-time” revenue as all performance obligations were satisfied at the time of the payment. The payment is reflected as other revenue within the Company’s Consolidated Statements of Operations. Maruho is also obligated to pay royalties to the Company related to sales of the product in the Territory equal to the corresponding rate payable by the Company to Dermira under the asset purchase agreement between Journey and Dermira.

The New License Agreement may be terminated by Maruho in its entirety or on a region-by-region basis for convenience upon 30 days’ notice to the Company.

The Company does not have any obligation to assist in the regulatory approval efforts of Maruho under the New License Agreement in the Territory. The arrangement with Maruho provides for the transfer of the following: (i) an exclusive license of Qbrexza from Journey to Maruho, including all related patents and know-how, and (ii) a non-exclusive license from Journey to Maruho to manufacture or have manufactured drug substance and products outside of the Territory, but exclusively for the sale of products in the Territory.

Cutia License Agreement

In January 2022, as a part of the Vyne APA, the Company assumed a license agreement with Cutia Therapeutics (HK) Limited, a Hong Kong biopharmaceutical company with experience in developing pharmaceutical products in the greater China region (the “Cutia Agreement”). Pursuant to the agreement, Cutia was granted an exclusive license to obtain regulatory approval of and commercialize Amzeeq (topical 4% minocycline foam) and Zilxi (topical 1.5% minocycline foam) in mainland China, Taiwan, Hong Kong and Macau. The Company has agreed to supply the finished Licensed Products to Cutia for clinical and commercial use at an agreed price. On November 11, 2024, Cutia received marketing approval for topical 4% minocycline foam from the National Medical Products Administration (the “NMPA”) of the People’s Republic of China (the “PRC”). The approval triggered a $1.0 million dollar milestone payment to the Company. The $1.0 million dollar milestone payment was recorded as a component of other revenue in the Company’s December 31, 2024 Consolidated Statements of Operations on the approval date of November 11, 2024. See Note 16 below. The Company received the cash payment from Cutia of $1.0 million on January 2, 2025.

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Notes to Financial Statements

NOTE 6: FAIR VALUE MEASUREMENTS

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

($’s in thousands) Level 1 Level 2 Level 3 Total

Assets ​ ​ ​ ​ ​ ​ ​ ​

Cash and cash equivalents ​ $ 20,305 ​ ​ — ​ ​ — ​ $ 20,305

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

($’s in thousands) Level 1 Level 2 Level 3 Total

Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash and cash equivalents ​ $ 27,439 ​ $ — ​ $ — ​ $ 27,439

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The Company did not carry any level 2 or level 3 assets or liabilities at December 31, 2024 or December 31, 2023. No transfers occurred between level 1, level 2, and level 3 instruments during December 31, 2024 and 2023.

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NOTE 7. RELATED PARTY AGREEMENTS

Shared Services Agreement with Fortress

On November 12, 2021, the Company and Fortress entered into an arrangement to share the cost of certain legal, finance, regulatory, and research and development employees (the “Shared Services Agreement”). Fortress’ Executive Chairman and Chief Executive Officer is the Executive Chairman of the Company. Under the terms of the Shared Services Agreement, the Company will reimburse Fortress for the salary and benefit costs associated with these employees based upon actual hours worked on Journey-related projects following the completion of the Company’s initial public offering, which occurred in November 2021. In addition, the Company reimburses Fortress for various payroll-related costs and selling, general and administrative costs incurred by Fortress for the benefit of the Company.

For the year ended December 31, 2024 and 2023, the Company recorded related party expenses to Fortress of less than $0.1 million and $0.1 million, respectively. The due to related party liability at December 31, 2024 and 2023, was $0.5 million and $0.2 million, respectively, and primarily relate to reimbursable expenses incurred by Fortress on behalf of the Company. The Company would have incurred these costs irrespective of the relationship with Fortress.

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NOTE 8. ACCRUED EXPENSES

Accrued expenses for the years ended December 31, 2024 and 2023 consisted of the following:

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​ ​ ​ ​ ​ ​ ​

​ December 31,

Accrued expenses and other short-term liabilities: ​ ​

Accrued coupons and rebates $ 6,200 $ 9,987

Accrued royalties payable ​ 1,374 ​ 2,015

Accrued inventory in-transit and other costs ​ 1,303 ​ 352

Accrued marketing and market access ​ 1,185 ​ —

Accrued legal, accounting and tax ​ ​ 413 ​ ​ 185

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Notes to Financial Statements

NOTE 9. INSTALLMENT PAYMENTS

Ximino Settlement

In August 2024, the Company executed a settlement agreement (the “Settlement Agreement”) to settle amounts owed by the Company to Sun Pharmaceutical Industries, Inc. (“Sun”) pursuant to the Ximino Asset Purchase Agreement. The Company owed $3.0 million of license installment payments to Sun associated with the license of Ximino. Pursuant to the Settlement Agreement, the Company agreed to settle the total outstanding obligation owed to Sun for a total of $1.9 million, payable in three installments: 1) $625.0 thousand upon execution of the Settlement Agreement, 2) $625.0 thousand on December 1, 2024, and 3) $625.0 thousand on January 15, 2025. The Company accounted for the settlement of the license installment payment as a gain of $1.1 million for the difference between the carrying value of the license installment payments of $3.0 million and the settlement amount of $1.9 million. The Company recorded the difference of $1.1 million as a Gain on extinguishment of debt in the Condensed Consolidated Statements of Operations.

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NOTE 10. OPERATING LEASE OBLIGATIONS

The Company leases 3,801 square feet of office space in Scottsdale, Arizona. In July 2024, the Company amended the lease to extend the lease term for an additional 25 months at an annual rate of approximately $0.1 million. The amended lease commenced on February 1, 2025 and expires on February 28, 2027.

The Company recorded rent expense as follows (dollars in thousands):

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​ ​ ​ ​ ​ ​ ​

​ For the Years Ended December 31,

Operating lease cost ​ $ 98 ​ $ 97

Variable lease cost ​ ​ 5 ​ ​ 5

Total lease cost ​ $ 103 ​ $ 102

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