CorMedix Inc. (CRMD)

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

You should read the following
discussion and analysis together with our audited consolidated financial statements and the accompanying notes contained elsewhere in
this report. This discussion contains forward-looking statements, within the meaning of Section 27A of Securities Act, Section 21E of
the Exchange Act, and the Private Securities Litigation Reform Act of 1995, including statements regarding our expected financial
condition, business and financing plans. These statements involve risks and uncertainties. Our actual results could differ materially
from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed
below and elsewhere in this Annual Report on Form 10-K, particularly under the heading “Risk Factors.”

Overview

The Company is a biopharmaceutical
company focused on developing and commercializing therapeutic products for life-threatening diseases and conditions.

Our primary focus is commercializing
our lead product, DefenCath® (taurolidine and heparin), in the U.S. The name DefenCath is the U.S. proprietary name approved by the
U.S. Food and Drug Administration (“FDA”). CorMedix launched the product commercially in April 2024 in the inpatient setting
and July 2024 in the outpatient hemodialysis setting.

DefenCath
is an FDA approved antimicrobial CLS (a formulation of taurolidine 13.5 mg/mL, and heparin 1000 USP Units/mL) indicated to reduce the
incidence of CRBSI in adult patients with kidney failure receiving chronic hemodialysis through a CVC. It is indicated for use in a limited
and specific population of patients. CRBSIs, a clinically confirmed subset of the epidemiological surveillance term, central line associated
bloodstream infection (“CLABSI”), can lead to treatment delays and increased costs to the healthcare system when they occur
due to extended and often repeat hospitalizations, need for IV antibiotic treatment, long-term anticoagulation therapy, removal/replacement
of the CVC, related treatment costs, as well as increased mortality. We believe DefenCath can address a significant unmet medical need.

Following the submission of
a duplicate NTAP application to CMS, CMS issued the IPPS 2024 proposed rule that includes a NTAP per hospital stay for DefenCath. This
NTAP represents reimbursement to inpatient facilities of 75% of the wholesaler acquisition cost (“WAC”) price per 3 mL vial,
and an average utilization of 19.5 vials per hospital stay. The final IPPS rule amended as of October 1, 2024 to reflect the current WAC
of $249.99 per 3ml vial resulting in a potential maximum NTAP of $3,656.10.

On November 15, 2023, we announced
that the FDA approved the NDA for DefenCath to reduce the incidence of CRBSI in adult patients with kidney failure receiving chronic hemodialysis
through a CVC. DefenCath is the first and only FDA-approved antimicrobial CLS in the U.S. and was shown to reduce the risk of CRBSI by
up to 71% in a Phase 3 clinical study. As a result of the November 2023 FDA approval, CorMedix launched the product commercially in April
2024 in the inpatient setting and July 2024 in the outpatient hemodialysis setting.

DefenCath is listed in the
Orange Book as having NCE exclusivity (5 years) expiring on November 15, 2028, and the GAIN exclusivity extension of the NCE exclusivity
(an additional 5 years) expiring on November 15, 2033. The GAIN exclusivity extension of 5 years is the result of the January 2015 designation
of DefenCath as a QIDP.

On January 25, 2024, CMS determined
that DefenCath should be classified as a renal dialysis service that is subject to the Medicare ESRD PPS. The ESRD PPS provides bundled
payment for renal dialysis services, but also affords a transitional drug add-on payment adjustment, or TDAPA, which provides temporary,
additional payments for certain new drugs and biologicals. We submitted an application for TDAPA on January 26, 2024, and received confirmation
that our application was approved on April 18, 2024 for a July 1, 2024 implementation. We also submitted a HCPCS application for a J-code
to CMS on December 8, 2023, for DefenCath, which is relevant to billing and the TDAPA application. The HCPCS J-code for DefenCath was
published by CMS on April 2, 2024. TDAPA reimbursement is calculated based on 100 percent ASP (or 100 percent of wholesale acquisition
price or manufacturers’ list price, respectively, if such data is unavailable). TDAPA and post-TDAPA add-on payment adjustments
for DefenCath apply for five years (with such add-on payments applying to all ESRD PPS payments for years three through five). CMS confirmed
a July 1, 2024 implementation date for HCPCS and TDAPA.

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We announced on June 6, 2024
that the CMS has determined that DefenCath qualified for pass-through status under the hospital Out-Patient Prospective Payment System
(“OPPS”). Pass-through status provides for separate payment under Medicare Part B for the utilization of DefenCath in the
outpatient ambulatory setting for a period of at least two years, and up to a maximum of three years. While vascular access for hemodialysis
can be initiated in an inpatient setting, ambulatory surgical centers or vascular access centers offer a less-invasive, outpatient-based
alternative for patients. We estimate that up to 100,000 HD-CVC placements occur each year, and pass-through status offers providers
a separate reimbursement mechanism in this setting of care administration of DefenCath.

Subsequent to the launch
of DefenCath in April 2024, we announced U.S.-based multi-year commercial supply agreements consisting of a large and several mid-sized
dialysis organizations. Each provider has customized an implementation plan to provide access to patients based on a variety of clinical
and other factors. We believe the currently contracted customer base represents roughly 60% of the outpatient dialysis centers in the
U.S.

Financial Operations Overview

Revenue

Our ability to continue to generate revenue and become profitable depends
on our ability to continue to successfully commercialize DefenCath and achieve gross profits from DefenCath sales that are greater than
our ongoing operating costs. If we fail to continue to successfully commercialize DefenCath, or any other product lines we advance in
a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial
position, could be adversely affected. Prior to the commercial launch of DefenCath, we have funded our operations primarily through equity
financings.

Cost of Revenues

Cost of revenues include
direct and indirect costs related to the manufacturing and distribution of DefenCath, including product cost, packaging services, freight,
amortization of the license intangible asset and an allocation of overhead costs that are primarily fixed such as salaries, benefits
and insurance.

Research and Development Expense

Research and development,
or R&D, expense consists of: (i) internal costs associated with our development activities; (ii) payments we make to third-party
contract research organizations, contract manufacturers, investigative sites, and consultants; (iii) technology and intellectual property
license costs; (iv) manufacturing development costs; (v) personnel related expenses, including salaries, stock–based compensation
expense, benefits, travel and related costs for the personnel involved in drug development; (vi) activities relating to regulatory filings
and pre-clinical studies and clinical trials; and (vii) manufacturing-related costs, including previously expensed pre-NDA approval inventory
amounting to approximately $6,400,000, through November 15, 2023. All R&D is expensed as incurred.

The process of conducting
pre-clinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. The probability of success
for each product line and clinical trial may be affected by a variety of factors, including, among others, the quality of the product
line’s early clinical data, investment in the program, competition, manufacturing capabilities and commercial viability. As a result
of the uncertainties associated with clinical trial enrollments and the risks inherent in the development process, we are unable to determine
the duration and completion costs of future clinical stages of our product lines or when, or to what extent, we will generate revenues
from the commercialization and sale of any of our future product lines.

Development timelines, probability
of success and development costs vary widely. We are currently focused on the commercialization of DefenCath in the U.S.

Selling and Marketing Expense

Selling and marketing, or
S&M, expense includes the cost of salaries and related costs for personnel in sales and marketing, brand building, advocacy, market
research and consulting costs. Selling and marketing expenses are expensed as incurred.

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General and Administrative Expense

General and administrative,
or G&A, expenses consist principally of salaries and related costs for personnel in executive, finance and administrative functions
including payroll taxes and health insurance, stock-based compensation and travel expenses. Other general and administrative expenses
include facility-related costs, insurance and professional fees for legal, patent review, consulting, and accounting services. General
and administrative expenses are expensed as incurred.

Foreign Currency Exchange Transaction Gain
(Loss)

Foreign currency exchange
transaction gain (loss) is the result of re-measuring transactions denominated in a currency other than our functional currency and is
reported in the consolidated statement of operations as a separate line item within other income (expense). The intercompany loans outstanding
between our New Jersey-based company and our subsidiaries will not be repaid and the nature of the funding advanced was of a long-term
investment nature. As such, unrealized foreign exchange movements related to long-term intercompany loans are recorded in other comprehensive
income (loss).

Interest Income

Interest income consists
of interest earned on our cash and cash equivalents and short-term investments.

Interest Expense

Interest expense consists
of interest incurred on financing of expenditures.

Results of Operations

Comparison of the Years Ended December 31, 2024 and 2023

The following is a tabular
presentation of our consolidated operating results for the years ended December 31, 2024 and 2023 (in thousands):

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Revenue. Revenue for
the year ended December 31, 2024 was $43.5 million as compared to $0 for the same period in 2023. Revenue consists of sales of DefenCath,
which was approved by the FDA in November 2023 and launched in the U.S in April 2024 (inpatient setting) and July 2024 (outpatient setting)
and reflects the shipment of DefenCath to direct customers and specialty distributors, net of estimates for applicable variable consideration,
which consists primarily of distribution service fees, prompt pay and other discounts, product returns, chargebacks, rebates and volume
incentive rebates.

Cost of Revenue. Cost
of revenue for the year ended December 31, 2024 was $3.2 million as compared to $0 for the same period in 2023. Cost of revenues include
direct and indirect costs related to the manufacturing and distribution of DefenCath, including product cost, packaging services, freight,
amortization of the license intangible asset and an allocation of overhead costs that are primarily fixed such as salaries, benefits
and insurance. Direct costs of product sales during the year ended December 31, 2024 were minimal as DefenCath sold to date represented
validation lot units previously expensed as R&D. This only marginally benefited the total gross margin in 2024 and the majority of
validation batch product has been sold as of December 31, 2024. Indirect costs of approximately $3.0 million for the year ended December
31, 2024, represent the proportion of supply chain and quality personnel, benefits and insurance expenses representing excess capacity
in the production of sellable product. As unit sales increase, a greater proportion of these costs will be capitalized as a component
of inventory and expensed at the point-of-sale.

Research and Development
Expense. R&D expense for the year ended December 31, 2024 was $3.9 million, a decrease of $9.2 million, or 70%, from $13.2 million
for the same period in 2023. The decrease was driven by the approval of DefenCath. As a result of the transition to commercial operations,
costs related to medical affairs and certain other personnel that supported R&D efforts prior to the FDA approval of DefenCath of
approximately $6.9 million began supporting non research and development operations and have been recognized in cost of revenue or general
and administrative expense during the year ended December 31, 2024 Also, in 2023, prior to FDA approval, there were $1.5 million of costs
recognized in R&D related to the manufacturing of DefenCath validation batches. These types of costs are now capitalized in inventory
as DefenCath is a commercialized product.

Selling and Marketing Expense.
S&M expense was $28.7 million for the year ended December 31, 2024, an increase of $10.6 million, or 59%, from $18.1 million for
the same period in 2023. The increase was due primarily to increased marketing efforts and new personnel hired in late 2023 or throughout
2024, inclusive of our sales force and support for the commercial launch of DefenCath during 2024. Subsequent to December 31, 2024, we
severed our internal sales force, future costs associated with the Syneos sales force are expected to be similar to those recognized internally
in 2024.

General and Administrative
Expense. G&A expense for the year ended December 31, 2024 was $30.0 million, an increase of $12.3 million, or 69%, from $17.7
million for the same period in 2023. The increase was driven by the approval of DefenCath. As a result of the transition to commercial
operations, certain medical affairs, other personnel and consulting expenses of approximately $6.0 million previously classified in R&D
are included in G&A expense during the year ended December 31, 2024. Additional G&A personnel were also hired throughout 2024
in anticipation of and to support commercial operations, representing an increases of $2.8 million as well as increases in legal and
compliance of $1.7 million and consulting fees of $0.9 million.

Interest Income. Interest
income for the year ended December 31, 2024 was $2.6 million, a decrease of $0.1 million, or 4%, from $2.7 million for the same period
in 2023, due to lower short-term investments during this period as compared to the same period last year.

Foreign Exchange Transaction
Income (Loss). Foreign exchange transaction income (losses) for the years ended December 31, 2024 and 2023 were due to the re-measuring
of transactions denominated in a currency other than our functional currency. Balances and changes were immaterial for all periods presented.

Other Income. Other
income relates to a settlement with a previously utilized vendor, occurring during the year ended December 31, 2024.

Interest Expense.
Interest expense pertains to certain liabilities we chose to finance. Balances and changes were immaterial for all periods presented.

Tax Benefit. Tax benefit
for the year ended December 31, 2024 was $1.4 million, due to the sale of our unused NJ State net operating losses for fiscal year 2023,
which were sold in fiscal year 2024, through the NJEDA Program. There was no tax benefit from the sale of unused net operating losses
for fiscal year 2023.

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Other Comprehensive (Loss)
Income. Unrealized foreign exchange movements related to long-term intercompany loans, the translation of the foreign affiliate financial
statements to U.S. dollars and unrealized movements related to short-term investment are recorded in other comprehensive (loss) income.
Other comprehensive income (loss) is considered immaterial for all periods presented.

Quarterly Results of Operations (Unaudited):

The following table is the
summary of the Company’s unaudited quarterly condensed consolidated results of operations for the year ended December 31, 2024
(amounts in thousands, except for per share amounts):

Liquidity and Capital Resources

Sources of Liquidity

As a result of our R&D,
S&M and G&A expenditures and the lack of substantial product sales revenue, our ongoing operations have not been profitable on
an annual basis since our inception. We achieved profitability in the fourth quarter of 2024, driven by product sales of DefenCath. During
the year ended December 31, 2024, we received net proceeds of $18.9 million from the issuance of 3,049,878 shares of common stock under
our at-the-market-issuance sales agreement, or ATM program, as compared to $12.9 million net proceeds in 2023 from the issuance of 2,977,637
shares of common stock. Also, in 2023, we received net proceeds of $42.9 million from the issuance of 9,000,093 shares of common stock
and pre-funded warrants to purchase 2,500,625 shares of common stock in connection with a public offering. We may continue to be reliant
on external sources of cash until we are able to generate sufficient operating cash flow to fund operations.

In March 2024, we received
$1.4 million, net of expenses, from the sale of our unused New Jersey net operating losses (“NOL”), that were eligible for
sale under the State of New Jersey’s Economic Development Authority’s New Jersey Technology Business Tax Certificate Transfer
program (“NJEDA Program”). The NJEDA Program allowed us to sell our available fiscal 2023 NJ state NOL tax benefits in the
amount of approximately $1.5 million.

Net Cash Used in Operating Activities

Net cash used in operating
activities for the year ended December 31, 2024 was $50.6 million as compared to $38.4 million in 2023, an increase in net cash use of
$12.2 million. The increase in cash use is primarily driven by an increase in trade receivables of $51.8 million and inventories of $3.4
million offset by a net increase in the change of accrued expenses and accounts payable of $15.4 million, primarily attributable to the
gross-to-net-deductions accruals and decreased net loss of $28.4 million.

Net Cash Provided by (Used in) Investing
Activities

Net cash provided by investing
activities for the year ended December 31, 2024, was $21.2 million as compared to $17.1 million of net cash used in investing activities
for the same period in 2023. The net cash provided during the year ended December 31, 2024, was mainly driven by maturing short-term
investments used to help fund operations, and lower purchases of short-term investments in 2024.

Net Cash Provided by Financing Activities

Net cash provided by financing
activities for the year ended December 31, 2024, was $26.3 million as compared to $55.9 million for the same period in 2023, a decrease
of $29.6 million. The decrease was mainly attributable to the net proceeds of $42.9 million from a public offering completed during the
year ended December 31, 2023, offset by increases in proceeds from the exercise of stock options of $7.4 million, and increased ATM net
proceeds of $6.0 million during the year ended December 31, 2024.

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Funding Requirements and Liquidity

Our total cash, cash equivalents
and short-term investments as of December 31, 2024, was $51.7 million, excluding restricted cash of $0.1 million, compared with $76.0
million for the year ended December 31, 2023, excluding restricted cash of $0.2 million. As of December 31, 2024, $30.2 million of the
Company’s common stock remains available for potential sale under the ATM program. Additionally, we have $100.0 million of remaining
capacity available under our 2024 Shelf Registration Statement for the issuance of Company securities.

We expect to continue to
fund operations from cash collections from accounts receivable, plus cash, cash equivalents and short-term investments and through capital
raising sources, which may be dilutive to existing stockholders. In May 2024, we implemented an ATM program, which may be utilized to
support our ongoing funding requirements. We may seek to sell additional equity or debt securities through one or more discrete transactions,
or enter into a strategic alliance arrangement, but can provide no assurances that any such financing or strategic alliance arrangement
will be available on acceptable terms, or at all. Moreover, the incurrence of indebtedness would result in increased fixed obligations
and could contain covenants that would restrict our operations. Raising additional funds through strategic alliance arrangements with
third parties may require significant time to complete and could force us to relinquish valuable rights to our technologies, future revenue
streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us or our stockholders.

Our actual cash requirements
may vary materially from those now planned due to a number of factors, including any material change in commercial operations pertaining
to DefenCath or the focus and direction of our research and development programs, any acquisition or pursuit of development of new product
candidates, competitive and technical advances, the costs of commercializing any of our product candidates, and costs of filing, prosecuting,
defending and enforcing any patent claims and any other intellectual property rights. Because our business has not generated consistent
and sustained positive operating cash flow, we may need to raise additional capital in order to continue to fund our research and development
activities, as well as to fund operations generally and we can provide no assurances that financing or strategic relationships will be
available on acceptable terms, or at all, if additional funds are needed. If we are unable to raise additional funds when needed, we
may be forced to slow or discontinue our commercial operations pertaining to DefenCath. We may also be required to delay, scale back
or eliminate some or all of our anticipated research and development programs. Each of these alternatives would likely have a material
adverse effect on our business.

We currently estimate that
as of December 31, 2024, we have sufficient cash, cash equivalents and short-term investments to fund operations for at least twelve months
from the issuance of these financial statements.

Contractual Obligations

We entered into a seven-year
operating lease agreement in March 2020 for an office space at 300 Connell Drive, Berkeley Heights, New Jersey 07922. The lease agreement,
with a monthly average cost of approximately $17,000, commenced on September 16, 2020.

In December 2024, we entered
into a three-year agreement with Syneos Health Commercial Services, LLC (“Syneos”) where Syneos will provide a dedicated
inpatient field sales force of sales that will exclusively promote DefenCath to hospitals and health systems. We are obligated to an
up-front implementation and a fixed monthly fee.  Upon the twelve-month anniversary of the deployment date, expected to be in the
second quarter of 2025, the agreement is cancelable provided 60 days written notice.  As of December 31, 2024, the minimum amount
committed under this agreement totals $9.6 million.

In 2008, the Company entered
into a License and Assignment Agreement (the ND License Agreement) with ND Partners, LLP (NDP). Pursuant to the ND License Agreement,
NDP granted the Company exclusive, worldwide licenses for certain antimicrobial catheter lock solutions, processes for treating and inhibiting
infections, a biocidal lock system and a taurolidine delivery apparatus, and the corresponding United States and foreign patents and
applications (the NDP Technology). During the year ended December 31, 2024, net sales milestones in the amount of $2 million were achieved
and are accrued in our consolidated balance sheet. The Company anticipates payment will be due in 2025 in accordance with the agreement
terms at the end of the twelve-month period post attainment.

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Critical Accounting Estimates

We prepare our consolidated
financial statements in accordance with U.S. generally accepted accounting principles, which require our management to make estimates
that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates,
as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences
between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates
on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations
for the future based on available information. We evaluate these estimates on an ongoing basis. We consider an accounting estimate to
be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting
estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates
that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of
Directors. In addition, there are other items within our financial statements that require estimation, but are not deemed critical as
defined above. Changes in estimates used in these and other items could have a material impact on our financial statements.

● Litigation contingencies are assessed and judgments are made
to determine if an unfavorable outcome is considered probable or reasonably possible, and when considered reasonably possible but not
probable, the contingency is disclosed along with an estimate of the possible loss or range of loss. If a liability is possible or probable,
but no reasonable estimation of loss can be made, we will disclose the nature of the contingency and state that such an estimate cannot
be made. Such estimates and judgements are based on information obtained through the discovery process, court filings and follow on filings
by the plaintiffs as well as the stage of litigation. There have been no changes in management’s estimates in 2024.

● We account for product
revenue from the sale of our product, DefenCath, in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”)
which entails our estimates and judgments primarily in determining the transaction price and more specifically as it relates to variable
consideration associated with the contracts. Our customers are located in the United States and consist primarily of outpatient service
providers and to a lesser extent specialty wholesale distributors. Variable consideration pertaining to an allowance for product returns
of short-dated or expired product requires estimation as our customers may have differing utilization, storage and distribution methods
and we do not yet have significant historical trends. The Company’s product accrual takes into consideration estimates of product
held by its customers, the distribution channel, the shelf life of the product held by customers, as well as when the product is eligible
for return based on our returns good policy. At December 31, 2024, the Company had $0.7 million in accrued returns allowance. We have
established the estimate for returns based on specific customer circumstances, industry best practices and management experiences. Once
return windows open and we experience actual returns we will further refine our estimate methods.

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

You
should read the following discussion and analysis together with our audited consolidated financial statements and the accompanying notes
contained elsewhere in this report. This discussion contains forward-looking statements, within the meaning of Section 27A of Securities
Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995, including statements regarding our
expected financial condition, business and financing plans. These statements involve risks and uncertainties. Our actual results could
differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including
those discussed below and elsewhere in this Annual Report on Form 10-K, particularly under the heading “Risk Factors.”

Overview

CorMedix
Inc. and our wholly owned subsidiaries (collectively, with our wholly owned subsidiaries, referred to herein as “we,” “us,”
“our” or the “Company”) is a biopharmaceutical company focused on developing and commercializing therapeutic
products for the prevention and treatment of life-threatening diseases and conditions.

Our primary focus is on the
commercialization of our lead product, DefenCath, in the U.S. The name DefenCath is the U.S. proprietary name that was approved by the
FDA.

DefenCath is an antimicrobial
catheter lock solution (“CLS”) (a formulation of taurolidine 13.5 mg/mL, and heparin 1000 USP Units/mL) indicated to reduce
the incidence of catheter-related bloodstream infections (“CRBSI”) in adult patients with kidney failure receiving chronic
hemodialysis through a central venous catheter (“CVC”). It is indicated for use in a limited and specific population of patients.
CRBSIs can lead to treatment delays and increased costs to the healthcare system when they occur due to hospitalizations, need for IV
antibiotic treatment, long-term anticoagulation therapy, removal/replacement of the CVC, related treatment costs, as well as increased
mortality. We believe DefenCath can address a significant unmet medical need.

On November 15, 2023, we announced
that the FDA approved the NDA for DefenCath to reduce the incidence of CRBSI in adult patients with kidney failure receiving chronic hemodialysis
through a CVC. DefenCath is indicated for use in a limited and specific population of patients. DefenCath is the first and only FDA-approved
antimicrobial CLS in the U.S. and was shown to reduce the risk of CRBSI by up to 71% in a Phase 3 clinical study. As a result of
the November 2023 FDA approval, we are currently preparing for the commercial launch of DefenCath.

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DefenCath is listed in the
Orange Book as having NCE exclusivity (5 years) expiring on November 15, 2028, and the Generating Antibiotic Incentives Now or GAIN exclusivity
extension of the NCE exclusivity (an additional 5 years) expiring on November 15, 2033. The GAIN exclusivity extension of 5 years is the
result of the January 2015 designation of DefenCath as a Qualified Infectious Disease Product (“QIDP”).

We announced on April 26,
2023 that following the submission of a duplicate New Technology Add-On Payment (“NTAP”) application in the fourth quarter
of 2022 to CMS, CMS has subsequently issued the Inpatient Prospective Payment System (“IPPS”) 2024 proposed rule that includes
a NTAP of up to $17,111 per hospital stay for DefenCath. This NTAP represents reimbursement to inpatient facilities of 75% of the anticipated
wholesaler acquisition cost price of $1,170 per 3 mL vial, and an average utilization of 19.5 vials per hospital stay. The final IPPS
rule was published in early August 2023 and confirmed this payment amount in that final rule. This NTAP was conditioned upon the DefenCath
NDA obtaining final FDA approval prior to July 1, 2024. As the NTAP was calculated by CMS based upon an anticipated WAC price of $1,170,
and following FDA approval of the DefenCath NDA, an actual WAC of $249.99 per 3ml vial was established, we anticipate that CMS will revise
the amount of the NTAP payment to reflect the actual WAC price in the next IPPS rulemaking, effective October 1, 2024. Upon the listing
in the compendia of the actual WAC price of $249.99 per 3ml vial, the Company notified CMS of the new lower WAC pricing and recommended
that CMS make an off-cycle adjustment to the NTAP to reflect the current lower WAC pricing amount. CMS subsequently communicated to the
Company that they do not intend to update the NTAP reimbursement amount until the next review cycle in October 2024.

On January 25, 2024, CMS determined
that DefenCath should be classified as a renal dialysis service that is subject to the Medicare end-stage renal disease prospective payment
system ( “ESRD PPS”). The ESRD PPS provides bundled payment for renal dialysis services, but also affords a transitional drug
add-on payment adjustment, or TDAPA, which provides temporary, additional payments for certain new drugs and biologicals. We submitted
an application for TDAPA on January 26, 2024, and CMS has confirmed receipt. We also submitted a HCPCS application for a J-code to CMS
on December 8, 2023, for DefenCath, which is relevant to billing and the TDAPA application. CMS has confirmed the coding application is
under review. TDAPA reimbursement is calculated based on 100 percent ASP (or 100 percent of wholesale acquisition price or else manufacturers’
list price, respectively, if such data is unavailable). If CMS grants TDAPA and post-TDAPA add-on payment adjustments for DefenCath, collective
payments would be for five years (with such add-on payments applying to all ESRD PPS payments for years three through five). CMS confirmed
to the Company that, assuming a favorable review, CMS is working towards a July 1, 2024 implementation date for TDAPA.

We may pursue additional indications
for DefenCath use as a CLS in populations with unmet medical needs that may also represent potentially significant market opportunities.
While we are continuing to assess these areas, potential future indications may include use as a CLS to reduce CRBSIs in total parenteral
nutrition patients using a central venous catheter and in certain oncology patients using a central venous catheter. In 2024, the company
anticipates discussing with the FDA potential pathways for expanded indications.

We currently have one FDA
approved source for each of our two key APIs for DefenCath, taurolidine and heparin sodium, respectively. With regards to taurolidine,
we have a DMF filed with the FDA. There is a master commercial supply agreement between a third-party manufacturer and us in place from
August 2018. We are currently in the process of identifying and qualifying an alternate third-party manufacturer for taurolidine under
our existing DMF. With respect to heparin sodium API, we have identified an alternate third party supplier and intend to qualify such
supplier under the DefenCath NDA over the next twelve months.

We received FDA approval of
DefenCath with finished dosage production from our European based CMO Rovi Pharma Industrial Services. We believe this CMO has adequate
capacity to produce the volumes needed to meet near term projected demand for the commercial launch of DefenCath.

We previously announced commercial
arrangements with additional finished dosage CMOs, Alcami Corporation and Siegfried Hameln, that provide for the manufacture of commercial
sterile parenteral drug products. The Company anticipates the submission to the FDA of a supplement adding Siegfreid Hameln as an alternate
manufacturing site in the second fiscal quarter of 2024. The Company will also discontinue its relationship with Alcami as a potential
alternate manufacturing site for DefenCath.

We announced on May 1, 2023
that the USPTO allowed our patent application directed to a locking solution composition for treating and reducing infection and flow
reduction in central venous catheters. This application was granted on August 29, 2023 as U.S. Patent No. 11,738,120.  Our newly
granted U.S. Patent reflects the unique and proprietary formulation of our product, DefenCath, for which we received FDA approval on November
15, 2023. This patent supplements the coverage of our existing licensed U.S. Patent No. 7,696,182, and has the potential to provide an
additional layer of patent protection for DefenCath through 2042.

As part of the DefenCath approval
letter, the FDA communicated the existence of a required pediatric assessment under the Pediatric Research Equity Act, or PREA. PREA requires
sponsors to conduct pediatric studies for, among other things, NDAs for a new active ingredient, such as taurolidine in DefenCath, unless
a waiver or deferral is obtained from the FDA. A deferral acknowledges that a pediatric assessment is required but permits the applicant
to submit the pediatric assessment after the submission of an NDA. FDA deferred submission of the pediatric study for DefenCath because
the product is ready for approval for use in adults and the pediatric study has not been completed. We are obligated to conduct the study
communicated in the approval letter: an open-label, two-arm (DefenCath vs. standard of care) study to assess safety and time to CRBSI
in subjects from birth to less than 18 years of age with kidney failure receiving hemodialysis via a central venous catheter. Because
this is a required post-marketing study, we must make annual reports to the FDA. Pediatric studies for an approved product conducted under
PREA may qualify for pediatric exclusivity, which, if granted, provides an additional six months of exclusivity that attaches to the end
of existing marketing exclusivity and patent periods for DefenCath. Depending on the timing of final report submission, DefenCath could
potentially receive a total marketing exclusivity period of 10.5 years. However, there are factors that could affect whether this exclusivity
is received or the duration of exclusivity, and DefenCath may or may not ultimately be eligible for the additional 0.5 years of exclusivity
associated with this pediatric study.

37

Neutrolin was previously sold
in the EU and other territories where we received CE-Mark approval for the commercial distribution of Neutrolin as a CLS. The Company
has elected to discontinue sales of Neutrolin for lack of commercial viability. The winding down of our operations in the EU is nearly
complete and Neutrolin sales in both the EU and the Middle East have been discontinued since 2022.

In addition to DefenCath,
we have sponsored a pre-clinical research collaboration for the use of taurolidine as a possible treatment for rare pediatric tumors.
In February 2018, the FDA granted orphan drug designation to taurolidine for the treatment of neuroblastoma in children. We may seek one
or more strategic partners or other sources of capital to help us develop and commercialize taurolidine for the treatment of neuroblastoma
in children.

Financial
Operations Overview

Revenue

We
have not generated substantial revenue since our inception. Through December 31, 2023, we have funded our operations primarily through
debt and equity financings.

Research
and Development Expense

Research and development,
or R&D, expense consists of: (i) internal costs associated with our development activities; (ii) payments we make to third party contract
research organizations, contract manufacturers, investigative sites, and consultants; (iii) technology and intellectual property license
costs; (iv) manufacturing development costs; (v) personnel related expenses, including salaries, stock–based compensation expense,
benefits, travel and related costs for the personnel involved in drug development; (vi) activities relating to regulatory filings and
pre-clinical studies and clinical trials; (vii) facilities and other allocated expenses, which include direct and allocated expenses for
rent, facility maintenance, as well as laboratory and other supplies; and (viii) manufacturing-related costs, including previously expensed
pre-NDA approval inventory amounting to approximately $6,400,000. All R&D is expensed as incurred.

The
process of conducting pre-clinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming.
The probability of success for each product candidate and clinical trial may be affected by a variety of factors, including, among others,
the quality of the product candidate’s early clinical data, investment in the program, competition, manufacturing capabilities
and commercial viability. As a result of the uncertainties associated with clinical trial enrollments and the risks inherent in the development
process, we are unable to determine the duration and completion costs of future clinical stages of our product candidates or when, or
to what extent, we will generate revenues from the commercialization and sale of any of our future product candidates.

Development
timelines, probability of success and development costs vary widely. We are currently focused on the commercialization of DefenCath in
the U.S.

Selling,
General and Administrative Expense

Selling,
general and administrative, or SG&A, expense includes costs related to commercial personnel, medical education professionals, marketing
and advertising, salaries and other related costs, including stock-based compensation expense, for persons serving in our executive,
sales, finance and accounting functions. Other SG&A expense includes facility-related costs not included in R&D expense, promotional
expenses, costs associated with industry and trade shows, and professional fees for legal services and accounting services.

Foreign
Currency Exchange Transaction Gain (Loss)

Foreign
currency exchange transaction gain (loss) is the result of re-measuring transactions denominated in a currency other than our functional
currency and is reported in the consolidated statement of operations as a separate line item within other income (expense). The intercompany
loans outstanding between our Company based in New Jersey and our subsidiary based in Germany are not expected to be repaid in the foreseeable
future and the nature of the funding advanced is of a long-term investment nature. As such, unrealized foreign exchange movements related
to long-term intercompany loans are recorded in other comprehensive income (loss).

38

Interest
Income

Interest
income consists of interest earned on our cash equivalents and short-term investments.

Interest
Expense

Interest
expense consists of interest incurred on financing of expenditures.

Results
of Operations

Comparison
of the Years Ended December 31, 2023 and 2022

The
following is a tabular presentation of our consolidated operating results for the years ended December 31, 2023 and 2022 (in thousands):

Revenue.
Revenue for the year ended December 31, 2023 was $0 as compared to $65,000 for the same period in 2022, attributable to the winding
down of our operations in the EU and the discontinuance of Neutrolin sales in both the EU and the Middle East.

Cost
of Sales. Cost of sales for the year ended December 31, 2023 was $0 as compared to $4,000 for the same period in 2022, attributable
to the winding down of our operations in the EU and the discontinuance of Neutrolin sales in both the EU and the Middle East.

Research
and Development Expense. R&D expense for the year ended December 31, 2023 was $13,155,000, an increase of $2,475,000 from $10,680,000
for the same period in 2022. The increase was driven by an increase in personnel expenses of $1,177,000 as a result of higher R&D
headcount in 2023 as compared to 2022, net increases in costs related to medical affairs activities of $941,000, and an increase in costs
related to the technical and quality operations for the manufacturing of DefenCath prior to its marketing approval in November 2023 of
$311,000.

39

Selling, General and Administrative
Expense. SG&A expense for the year ended December 31, 2023 was $35,803,000, an increase of $15,797,000 from $20,006,000 for the
same period in 2022. The increase was primarily attributable to an increase in costs related to market research studies and pre-launch
activities for DefenCath of $12,248,000, and an increase in personnel expenses of $3,693,000 as a result of additional SG&A hires
in 2023 in preparation for the marketing launch of DefenCath. These increases were partially offset, among others of lesser significance,
a decrease in legal fees of $1,120,000.

Interest
Income. Interest income for the year ended December 31, 2023 was $2,682,000, an increase of $2,356,000 from $326,000 for the same
period in 2022. The increase was attributable to higher interest-bearing balances and higher interest rates this year as compared to
the same period last year.

Foreign
Exchange Transaction Income (Loss). Foreign exchange transaction income (losses) for the years ended December 31, 2023 and 2022 were
due to the re-measuring of transactions denominated in a currency other than our functional currency.

Interest Expense. Interest
expense for the year ended December 31, 2023 was $34,000 as compared to $26,000 for the same period in 2022. The increase of $8,000 was
due primarily to higher interest rates on expenses that were financed this year as compared to the same period last year.

Tax Benefit. Tax benefits
for the year ended December 31, 2022 of $586,000, was an income tax benefit due to the sale of our unused NOL for the state fiscal year
2021, which was sold in fiscal year 2022, through the NJEDA Program. There was no tax benefit from the sale of unused net operating losses
for fiscal year 2023.

Other
Comprehensive Income (Loss). Unrealized foreign exchange movements related to long-term loans and the translation of the foreign
affiliate financial statements to U.S. dollars and unrealized movements related to short term investment are recorded in other comprehensive
income (loss) which resulted in a gain of $11,000 and a loss $(4,000) for the years ended December 31, 2023 and 2022, respectively.

Liquidity
and Capital Resources

Sources
of Liquidity

As
a result of our R&D and SG&A expenditures and the lack of substantial product sales revenue, our ongoing operations have not
been profitable since our inception. During the year ended December 31, 2023, we received net proceeds of $42,878,000 from the issuance
of 9,000,093 shares of common stock and pre-funded warrants to purchase 2,500,625 shares of common stock in connection with a public
offering. In addition, during the year ended December 31, 2023, we received net proceeds of $12,949,000 from the issuance of 2,977,637
shares of common stock under our at-the-market-issuance sales agreement, or ATM program, as compared to $17,770,000 net proceeds for
the same period in 2022 from the issuance of 4,704,259 shares of common stock. We may need to raise additional capital through various
potential sources, such as equity and/or debt financings, strategic relationships, potential strategic transactions or out-licensing
of our products until profitability is achieved, if ever.

Net
Cash Used in Operating Activities

Net cash used in operating
activities for the year ended December 31, 2023 was $38,409,000 as compared to $24,357,000 in 2022, an increase in net cash use of $14,052,000.
The increase is primarily driven by an increase in net loss of $16,637,000, attributable to a net increase in operating expenses of $18,272,000,
primarily due to increased pre-launch commercial activities for DefenCath.

Net Cash Used in Investing Activities

Cash
used in investing activities for the year ended December 31, 2023 was $17,062,000 as compared to $3,709,000 of cash provided in the same
period in 2022. The net cash used during the year ended December 31, 2023, was mainly driven by the higher amount invested in short-term
investments as compared to the same period in 2022.

40

Net
Cash Provided by Financing Activities

Net
cash provided by financing activities for the year ended December 31, 2023 was $55,917,000 as compared to $17,898,000 for the same period
in 2022, an increase of $38,019,000, primarily attributable to net proceeds we received from the sale of our common stock and pre-funded
warrants in the public offering during 2023. Additionally, during the year ended December 31, 2023, we generated net proceeds of $12,949,000
from the sale of our common stock in our ATM program, as compared to $17,770,000 in the same period last year.

Funding
Requirements and Liquidity

Our total cash and cash equivalents and short-term
investments as of December 31, 2023 and 2022, excluding restricted cash of $181,000 and $226,000, respectively, was $76,031,000 and $58,792,000,
respectively. During the year ended December 31, 2023, we realized net proceeds of $42,878,000 of net proceeds from the public offering
and exercise of the underwriters’ option and an aggregate of $12,949,000 of net proceeds from the issuance of 2,977,637 shares of
common stock under our ATM program. As of December 31, 2023, we have $104,400,000 available under our shelf registration statement filed
in August 2021 for the issuance of equity, debt or equity-linked securities.

Because
our business has not generated positive operating cash flow and if we do not raise significant revenue, we may need to raise additional
capital in order to continue to fund our research and development activities, as well as to fund operations generally. Our continued
operations are focused on the commercial launch of DefenCath and we can provide no assurances that financing or strategic relationships
will be available on acceptable terms, or at all, if additional funds are needed.

We expect to continue to fund
operations from cash on hand and through capital raising sources as previously described, which may be dilutive to existing stockholders,
through revenues from the licensing of our products, or through strategic alliances. We may seek to sell additional equity or debt securities
through one or more discrete transactions, or enter into a strategic alliance arrangement, but can provide no assurances that any such
financing or strategic alliance arrangement will be available on acceptable terms, or at all. Moreover, the incurrence of indebtedness
would result in increased fixed obligations and could contain covenants that would restrict our operations. Raising additional funds through
strategic alliance arrangements with third parties may require significant time to complete and could force us to relinquish valuable
rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not
be favorable to us or our stockholders. Our actual cash requirements may vary materially from those now planned due to a number of factors,
including any change in the timing of the commercial launch of DefenCath or the focus and direction of our research and development programs,
any acquisition or pursuit of development of new product candidates, competitive and technical advances, the costs of commercializing
any of our product candidates, and costs of filing, prosecuting, defending and enforcing any patent claims and any other intellectual
property rights.

We
expect to generate product sales for DefenCath in the U.S. In the absence of significant revenue, we are likely to continue generating
operating cash flow deficits. We will continue to use cash as we increase other activities leading to the commercialization of DefenCath,
pursue business development activities, and incur additional legal costs to defend our intellectual property.

We currently estimate that
as of December 31, 2023, we have sufficient cash, cash equivalents and short-term investments to fund operations for at least twelve months
from the issuance of this Annual Report on Form 10-K, and will enable us to fund the launch of DefenCath through to anticipated profitability.
These estimates are based upon the assumption of commercial launch in the second quarter of 2024, and other base case assumptions for
market penetration, average selling price, R&D expense and commercial infrastructure cost. Additional financing may be needed to build
out our commercial infrastructure and to continue our operations. If we are unable to raise additional funds when needed, we may be forced
to slow or discontinue the commercial launch of DefenCath. We may also be required to delay, scale back or eliminate some or all of our
research and development programs. Each of these alternatives would likely have a material adverse effect on our business.

41

Contractual
Obligations

We
entered into a seven-year operating lease agreement in March 2020 for an office space at 300 Connell Drive, Berkeley Heights, New Jersey
07922. The lease agreement, with a monthly average cost of approximately $17,000, commenced on September 16, 2020.

Critical
Accounting Estimates

Our management’s discussion and analysis of our financial condition
and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and
judgments. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under
the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. Our significant
accounting policies are more fully described in Note 3 to our financial statements included with this report.

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

You
should read the following discussion and analysis together with our audited consolidated financial statements and the accompanying notes
contained elsewhere in this report. This discussion contains forward-looking statements, within the meaning of Section 27A of Securities
Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995, including statements regarding our
expected financial condition, business and financing plans. These statements involve risks and uncertainties. Our actual results could
differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including
those discussed below and elsewhere in this report, particularly under the heading “Risk Factors.”

Overview

CorMedix
Inc. and our wholly owned German subsidiaries, CorMedix Europe GmbH and CorMedix Spain, S.L.U. (collectively referred to herein as “we,”
“us,” “our” and the “Company”), is a biopharmaceutical company focused on developing and commercializing
therapeutic products for the prevention and treatment of life-threatening diseases and conditions.

Our
primary focus is on the development of our lead product candidate, DefenCath™, for potential commercialization in the United States,
or U.S., and other key markets as a catheter lock solution, or CLS. We have in-licensed the worldwide rights to develop and commercialize
DefenCath and Neutrolin®. The name DefenCath is the U.S. proprietary name that was conditionally approved by the U.S.
Food and Drug Administration, or FDA, while the name Neutrolin was used in the European Union, or EU, and other territories where we
received CE-Mark approval for the commercial distribution of Neutrolin as a CLS regulated as a medical device. DefenCath/Neutrolin is
a novel anti-infective solution (a formulation of taurolidine 13.5 mg/mL and heparin 1000 USP Units/mL) intended for the reduction and
prevention of catheter-related infections and thrombosis in patients requiring central venous catheters in clinical settings such as
hemodialysis, total parenteral nutrition, and oncology. Infection and thrombosis represent key complications among hemodialysis, total
parenteral nutrition and oncology patients with central venous catheters. These complications can lead to treatment delays and increased
costs to the healthcare system when they occur due to hospitalizations, need for intravenous, or IV antibiotic treatment, long-term anticoagulation
therapy, removal/replacement of the central venous catheter, related treatment costs and increased mortality. We believe DefenCath addresses
a significant unmet medical need and a potential large market opportunity.

In
January 2015, the FDA designated DefenCath as a Qualified Infectious Disease Product, or QIDP, for prevention of catheter-related blood
stream infections in patients with end stage renal disease receiving hemodialysis through a central venous catheter. Catheter-related
blood stream infections and clotting can be life-threatening. The QIDP designation provides five years of market exclusivity in addition
to the five years granted for a New Chemical Entity upon approval of a New Drug Application, or NDA. In addition, in January 2015, the
FDA granted Fast Track designation to DefenCath Catheter Lock Solution, a designation intended to facilitate development and expedite
review of drugs that treat serious and life-threatening conditions so that the approved drug can reach the market expeditiously. The
Fast Track designation of DefenCath provides us with the opportunity to meet with the FDA on a more frequent basis during the development
process, and also ensures eligibility to request priority review of the marketing application.

In
December 2015, we launched our Phase 3 Prospective, Multicenter, Double-blind, Randomized, Active Control Study to Demonstrate Safety
& Effectiveness of DefenCath/Neutrolin in Preventing Catheter-related Bloodstream Infection in Subjects on Hemodialysis for End Stage
Renal Disease, or LOCK-IT-100, in patients with hemodialysis catheters in the U.S. The clinical trial was designed to demonstrate the
safety and effectiveness of DefenCath compared to the standard of care CLS, Heparin, in preventing CRBSIs. The primary endpoint for the
trial assessed the incidence of CRBSI and time to CRBSI for each study subject. Secondary endpoints were catheter patency, which was
defined as required use of tPA, or removal of catheter due to dysfunction, and removal of catheter for any reason.

As
previously agreed with the FDA, an interim efficacy analysis was performed when the first 28 potential CRBSI cases were identified in
our LOCK-IT-100 study that occurred through early December 2017. Based on these first 28 cases, there was a highly statistically significant
72% reduction in CRBSI by DefenCath relative to the active control of heparin (p=0.0034). Because the pre-specified level of statistical
significance was reached for the primary endpoint and efficacy had been demonstrated with no safety concerns, the LOCK-IT-100 study was
terminated early. The study continued enrolling and treating subjects until study termination, and the final analysis was based on a
total of 795 subjects with a total of 41 cases. There was a 71% reduction in CRBSI by DefenCath relative to heparin, which was highly
statistically significant (p=0.0006), with a good safety profile.

46

The
FDA granted our request for a rolling submission and review of the NDA, which is designed to expedite the approval process for products
being developed to address an unmet medical need. Although the FDA usually requires two pivotal clinical trials to provide substantial
evidence of safety and effectiveness for approval of an NDA, the FDA will in some cases accept one adequate and well-controlled trial,
where it is a large multicenter trial with a broad range of subjects and study sites that has demonstrated a clinically meaningful and
statistically very persuasive effect on a disease with potentially serious outcome.

In
March 2020, we began the modular submission process for the NDA for DefenCath for the prevention of CRBSI in hemodialysis patients, and
in August 2020, the FDA accepted for filing the DefenCath NDA. The FDA also granted our request for priority review, which provides for
a six-month review period instead of the standard ten-month review period. As we announced in March 2021, the FDA informed us in its
Complete Response Letter, or CRL, that it could not approve the NDA for DefenCath in its present form. The FDA noted concerns at the
third-party manufacturing facility after a review of records requested by the FDA and provided by the contract manufacturing organization,
or CMO. Additionally, the FDA required a manual extraction study to demonstrate that the labeled volume can be consistently withdrawn
from the vials despite an existing in-process control to demonstrate fill volume within specifications.

In
April 2021, we and the CMO met with the FDA to discuss proposed resolutions for the deficiencies identified in the CRL to us and the
Post-Application Action Letter, or PAAL, received by the CMO from the FDA for the NDA for DefenCath. There was an agreed upon protocol
for the manual extraction study identified in the CRL, which has been successfully completed. Addressing the FDA’s concerns regarding
the qualification of the filling operation necessitated adjustments in the process and generation of additional data on operating parameters
for manufacture of DefenCath. We and the CMO determined that additional process qualification was needed with subsequent validation to
address these issues. The FDA did not request additional clinical data and did not identify any deficiencies related to the data submitted
on the efficacy or safety of DefenCath from LOCK-IT-100. In draft labeling discussed with the FDA, the FDA added that the initial approval
will be for the limited population of patients with kidney failure receiving chronic hemodialysis through a central venous catheter.
This is consistent with our request for approval pursuant to the Limited Population Pathway for Antibacterial and Antifungal Drugs, or
LPAD. LPAD, passed as part of the 21st Century Cures Act, is a new program intended to expedite the development and approval of certain
antibacterial and antifungal drugs to treat serious or life-threatening infections in limited populations of patients with unmet needs.
LPAD provides for a streamlined clinical development program involving smaller, shorter, or fewer clinical trials and is intended to
encourage the development of safe and effective products that address unmet medical needs of patients with serious bacterial and fungal
infections. We believe that LPAD will provide additional flexibility for the FDA to approve DefenCath to reduce CRBSIs in the limited
population of patients with kidney failure receiving hemodialysis through a central venous catheter.

On
February 28, 2022, we resubmitted the NDA for DefenCath to address the CRL issued by the FDA. In parallel, our third-party manufacturer
submitted responses to the deficiencies identified at the manufacturing facility in the PAAL issued by the FDA concurrently with the
CRL. On March 28, 2022, we announced that the resubmission of the NDA for DefenCath had been accepted for filing by the FDA. The FDA
considered the resubmission as a complete, Class 2 response with a six-month review cycle. The CMO notified us that an onsite inspection
by the FDA was conducted that resulted in FORM FDA 483 observations that are being addressed. The CMO submitted responses to the inspectional
observations along with a corrective action plan and requested a meeting with the FDA to discuss. We were also notified by our supplier
of heparin, an active pharmaceutical ingredient, or API, for DefenCath, that an inspection by the FDA for an unrelated API resulted in
a Warning Letter due to deviations from good manufacturing practices for the unrelated API.

On
August 8, 2022, we announced receipt of a second CRL from the FDA regarding our DefenCath NDA. The FDA stated that the DefenCath NDA
cannot be approved until deficiencies conveyed to the CMO and the heparin API supplier are resolved to the satisfaction of the FDA. There
were no other requirements identified by the FDA for us prior to resubmission of the NDA. The FDA has acknowledged the progress reports
submitted by the CMO on implementation of the ongoing corrective actions. Validation of manufacturing with heparin from an alternative
supplier is underway to prepare for resubmission of the NDA in the event that the Warning Letter at our current API supplier remains
unresolved. Corrective actions have been implemented to address the inspectional observations at the CMO and are under review by the
FDA.

47

As part of the NDA review process, the FDA notified
us that although the tradename DefenCath was conditionally approved, the FDA now has identified potential confusion with another pending
product name that is also under review. The ultimate acceptability of our proposed tradename is dependent upon which application is approved
first. As a precaution, we are preparing to submit an alternative proprietary name to the FDA which will undergo review.

We
previously announced an agreement with Alcami Corporation, or Alcami, a U.S. based contract manufacturer with proven capabilities for
manufacturing commercial sterile parenteral drug products. Alcami may function as an alternate manufacturing site for DefenCath for the
U.S. market. As part of the technology transfer and validation of the manufacturing process at Alcami, we would also expect to qualify
an alternate source of heparin API sourced from a major U.S. supplier.

We
intend to pursue additional indications for DefenCath use as a CLS in populations with unmet medical needs that may also represent potentially
significant market opportunities. While we are continuing to assess these areas, potential future indications may include use as a CLS
to reduce CRBSIs in total parenteral nutrition patients using a central venous catheter and in oncology patients using a central venous
catheter.

In
addition to DefenCath, we are sponsoring a pre-clinical research collaboration for the use of taurolidine as a possible treatment for
rare orphan pediatric tumors. In February 2018, the FDA granted orphan drug designation to taurolidine for the treatment of neuroblastoma
in children. We may seek one or more strategic partners or other sources of capital to help us develop and commercialize taurolidine
for the treatment of neuroblastoma in children. We are also evaluating opportunities for the possible expansion of taurolidine as a platform
compound for use in certain medical devices. Patent applications have been filed in several indications, including wound closure, surgical
meshes, and wound management. Based on initial feasibility work, we are advancing pre-clinical studies for taurolidine-infused surgical
meshes, suture materials and hydrogels. We will seek to establish development/commercial partnerships as these programs advance.

We
were granted a deferral by the FDA under the Pediatric Research Equity Act, or PREA, that requires sponsors to conduct pediatric studies
for NDAs for a new active ingredient, such as taurolidine in DefenCath, unless a waiver or deferral is obtained from the FDA. A deferral
acknowledges that a pediatric assessment is required but permits the applicant to submit the pediatric assessment after the submission
of an NDA. We have made a commitment to conduct the pediatric study after approval of the NDA for use in adult hemodialysis patients.
Pediatric studies for an approved product conducted under PREA may qualify for pediatric exclusivity, which, if granted, would provide
an additional six months of marketing exclusivity. DefenCath would then have the potential to receive a total marketing exclusivity period
of 10.5 years, including exclusivity pursuant to NCE and QIDP.

The
FDA regards taurolidine as a new chemical entity and therefore an unapproved new drug. Consequently, there is no appropriate predicate
medical device currently marketed in the U.S. on which a 510(k) approval process could be based. As a result, we will be required to
submit a premarket approval application, or PMA, for marketing authorization for any medical device indications that we may pursue. In
the event that an NDA for DefenCath is approved by the FDA, the regulatory pathway for these medical device product candidates may be
revisited with the FDA. Although there may be no appropriate predicate, de novo Class II designation can be proposed, based on a risk
assessment and a reasonable assurance of safety and effectiveness.

In
the European Union, or EU, Neutrolin is regulated as a Class 3 medical device. In July 2013, we received CE Mark approval for Neutrolin.
In December 2013, we commercially launched Neutrolin in Germany for the prevention of CRBSI, and maintenance of catheter patency in hemodialysis
patients using a tunneled, cuffed central venous catheter for vascular access.

In
September 2014, the TUV-SUD and The Medicines Evaluation Board of the Netherlands, or MEB, granted a label expansion for Neutrolin to
include use in oncology patients receiving chemotherapy, intravenous, or IV, hydration and IV medications via CVC for the EU. In December
2014, we received approval from the Hessian District President in Germany to expand the label for these same expanded indications. The
expansion also adds patients receiving medication and IV fluids via CVC in intensive or critical care units (cardiac care unit, surgical
care unit, neonatal critical care unit, and urgent care centers). An indication for use in total parenteral nutrition was also approved.

48

In
September 2019, our registration with the Saudi Arabia Food and Drug Administration, or the SFDA, expired. As a result, we cannot sell
Neutrolin in Saudi Arabia and we do not intend to pursue renewal of our registration with the SFDA.

As
announced in May 2022, we began the process of winding down our operations in the EU and discontinued Neutrolin sales in both the EU
and the Middle East at the end of 2022.

Since
our inception, our operations have been primarily limited to conducting clinical trials and establishing manufacturing for our product
candidates, licensing product candidates, business and financial planning, research and development, seeking regulatory approval for
our products, initial commercialization activities for DefenCath in the U.S. and Neutrolin in the EU and other foreign markets, and maintaining
and improving our patent portfolio.  We have funded our operations primarily through debt and equity financings.  We
have generated significant losses to date, and we expect to use substantial amounts of cash for our operations as we prepare our pre-launch
commercial activities for DefenCath for the U.S. market and commercialize Neutrolin in the EU and other foreign markets, pursue business
development activities, and incur additional legal costs to defend our intellectual property. As of December 31, 2022, we had an
accumulated deficit of approximately $275.4 million.  We are unable to predict the extent of any future losses or when we will
become profitable, if ever.

Financial
Operations Overview

Revenue

We
have not generated substantial revenue since our inception. Through December 31, 2022, we have funded our operations primarily through
debt and equity financings.

Research
and Development Expense

Research
and development, or R&D, expense consists of: (i) internal costs associated with our development activities; (ii) payments we make
to third party contract research organizations, contract manufacturers, investigative sites, and consultants; (iii) technology and intellectual
property license costs; (iv) manufacturing development costs; (v) personnel related expenses, including salaries, stock–based compensation
expense, benefits, travel and related costs for the personnel involved in drug development; (vi) activities relating to regulatory filings
and the advancement of our product candidates through pre-clinical studies and clinical trials; (vii) facilities and other allocated
expenses, which include direct and allocated expenses for rent, facility maintenance, as well as laboratory and other supplies; and (viii)
costs related to the manufacturing of the product that could potentially be available to support the commercial launch prior to marketing
approval. All R&D is expensed as incurred.

Conducting
a significant amount of development is central to our business model. Product candidates in later-stage clinical development generally
have higher development costs than those in earlier stages of development, primarily due to the significantly increased size and duration
of the clinical trials.

The
process of conducting pre-clinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming.
The probability of success for each product candidate and clinical trial may be affected by a variety of factors, including, among others,
the quality of the product candidate’s early clinical data, investment in the program, competition, manufacturing capabilities
and commercial viability. As a result of the uncertainties associated with clinical trial enrollments and the risks inherent in the development
process, we are unable to determine the duration and completion costs of current or future clinical stages of our product candidates
or when, or to what extent, we will generate revenues from the commercialization and sale of any of our product candidates.

Development
timelines, probability of success and development costs vary widely. We are currently focused on securing the marketing approval for
DefenCath in the U.S. In December 2015, we signed an agreement with a clinical research organization, or CRO, to help us conduct our
LOCK-IT-100 Phase 3 clinical trial in hemodialysis patients with central venous catheters to demonstrate the efficacy and safety of DefenCath
in preventing catheter-related bloodstream infections and blood clotting in subjects receiving hemodialysis therapy as treatment for
end stage renal disease. Our LOCK-IT-100 study was completed and all costs related to the agreement with the CRO has been paid.

49

We
are pursuing additional opportunities to generate value from taurolidine, an active component of DefenCath. Based on initial feasibility
work, we have completed an initial round of pre-clinical studies for taurolidine-infused surgical meshes, suture materials, and hydrogels,
which require a PMA regulatory pathway for approval. We are also involved in a pre-clinical research collaboration for the use of taurolidine
as a possible treatment for rare orphan pediatric tumors. In February 2018, the FDA granted orphan drug designation to taurolidine for
the treatment of neuroblastoma in children. We may seek one or more strategic partners or other sources of capital to help us develop
and commercialize taurolidine for the treatment of neuroblastoma in children.

Selling,
General and Administrative Expense

Selling,
general and administrative, or SG&A, expense includes costs related to commercial personnel, medical education professionals, marketing
and advertising, salaries and other related costs, including stock-based compensation expense, for persons serving in our executive,
sales, finance and accounting functions. Other SG&A expense includes facility-related costs not included in R&D expense, promotional
expenses, costs associated with industry and trade shows, and professional fees for legal services and accounting services.

Foreign
Currency Exchange Transaction Gain (Loss)

Foreign
currency exchange transaction gain (loss) is the result of re-measuring transactions denominated in a currency other than our functional
currency and is reported in the consolidated statement of operations as a separate line item within other income (expense). The intercompany
loans outstanding between our Company based in New Jersey and our subsidiary based in Germany are not expected to be repaid in the foreseeable
future and the nature of the funding advanced is of a long-term investment nature. As such, unrealized foreign exchange movements related
to long-term intercompany loans are recorded in other comprehensive income (loss).

Interest
Income

Interest
income consists of interest earned on our cash equivalents and short-term investments.

Interest
Expense

Interest
expense consists of interest incurred on financing of expenditures.

Results
of Operations

Comparison
of the Years Ended December 31, 2022 and 2021

The
following is a tabular presentation of our consolidated operating results for the years ended December 31, 2022 and 2021 (in thousands):

50

Revenue.
Revenue for the year ended December 31, 2022 was $65,000 as compared to $191,000 for the same period in 2021, a decrease of $126,000.
The decrease was attributable to lower sales in 2022 as compared to the same period in 2021, as a result of the winding down of our operations
in the EU and the discontinuance of Neutrolin sales in both the EU and the Middle East.

Cost
of Sales. Cost of sales for the year ended December 31, 2022 was $4,000 as compared to $149,000 for the same period in 2021, a decrease
of $145,000. The decrease was primarily attributable to the net decrease in cost of materials due to lower sales in 2022 as compared
to the same period in 2021, as a result of the winding down of our operations in the EU and the discontinuance of Neutrolin sales in
both the EU and the Middle East.

Research
and Development Expense. R&D expense for the year ended December 31, 2022 was $10,680,000, a decrease of $2,453,000 from $13,133,000
for the same period in 2021. The decrease was driven by a decrease in personnel expenses of $731,000, as a result of lower R&D headcount
in 2022 as compared to 2021, net decreases in costs related to the manufacturing of DefenCath prior to its potential marketing approval
of $617,000, and a decrease in consulting fees of $591,000, attributable to lower costs related to the resubmission of the DefenCath
NDA to the FDA. Additionally, there was also a decrease of $352,000 in non-cash charges for stock-based compensation.

Selling,
General and Administrative Expense. SG&A expense for the year ended December 31, 2022 was $20,006,000, an increase of $3,660,000
from $16,346,000 for the same period in 2021. The increase was primarily attributable to an increase in costs related to market research
studies and pre-launch activities in preparation for the potential marketing approval of DefenCath of $2,982,000 and an increase in legal
fees of $1,175,000, mainly due to securities litigation. There was also an increase in personnel expenses of $382,000, as a result of
additional SG&A hires in 2022 as compared to 2021. These increases were partially offset, among others of lesser significance, a
decrease in non-cash charges for stock-based compensation of $622,000, a decrease in consulting fees of $412,000.

Interest
Income. Interest income for the year ended December 31, 2022 was $326,000, an increase of $312,000 from $14,000 for the same period
in 2021. The increase was attributable to higher interest rates this year as compared to the same period last year.

Foreign
Exchange Transaction Income (Loss). Foreign exchange transaction income (losses) for the year ended December 31, 2022 and 2021 were
due to the re-measuring of transactions denominated in a currency other than our functional currency.

Interest
Expense. Interest expense for the year ended December 31, 2022 was $26,000 as compared to $16,000 for the same period in 2021. The
increase of $10,000 was due primarily to higher interest rates on expenses that were financed this year as compared to the same period
last year.

Tax
Benefit. Tax benefits for the years ended December 31, 2022 and 2021 of $586,000 and $1,250,000, respectively, was an income tax
benefit due to the sale of our unused NOL for the state fiscal years 2021 and 2020, respectively, through the NJEDA Program.

Other
Comprehensive Income (Loss). Unrealized foreign exchange movements related to long-term loans and the translation of the foreign
affiliate financial statements to U.S. dollars and unrealized movements related to short term investment are recorded in other comprehensive
income (loss) which resulted in a loss of $4,000 and $15,000 for the years ended December 31, 2022 and 2021, respectively.

51

Liquidity
and Capital Resources

Sources
of Liquidity

As
a result of our cost of sales, R&D and SG&A expenditures and the lack of substantial product sales revenue, our ongoing operations
have not been profitable since our inception. During the year ended December 31, 2022, we received net proceeds of $17,770,000 from the
issuance of 4,704,259 shares of common stock under our at-the-market-issuance sales agreement as compared to $41,456,000 of net proceeds
for the same period in 2021 from the issuance of 3,737,862 shares of common stock. Additionally, we also received $129,000 and $165,000
from the exercise of warrants during the years ended December 31, 2022 and 2021, respectively. We will continue to be reliant on external
sources of cash for the foreseeable future until we are able to generate revenue.

Net
Cash Used in Operating Activities

Net
cash used in operating activities for the year ended December 31, 2022 was $24,357,000 as compared to $21,155,000 in 2021, an increase
in net cash use of $3,202,000. The increase is primarily driven by an increase in net loss of $1,492,000, attributable to a net increase
in operating expenses of $1,206,000, and lower net proceeds from tax benefits of $586,000 as compared to $1,250,000 for the same period
in 2021. Additionally, the increase in net cash used in operating activities for the twelve months ended December 31, 2022 was due to
a decrease in accounts payable of $7,000 as compared to an increase of $1,082,000 for the same period in 2021, and a decrease in prepaid
expense and other current assets of $187,000 as compared to $667,000 last year, offset by an increase in accrued expenses of $962,000
compared to $94,000 for the same period in 2021.

Net
Cash (Used in) Provided by Investing Activities

Cash
used in investing activities for the year ended December 31, 2022 was $3,709,000 as compared to $9,135,000 of cash provided in the same
period in 2021. The net cash used during the year ended December 31, 2022, was mainly driven by the higher amount invested in short-term
investments, offset by the higher amount of matured investments and lower purchases of equipment as compared to the same period in 2021.

Net
Cash Provided by Financing Activities

Net
cash provided by financing activities for the year ended December 31, 2022 was $17,898,000 as compared to $41,758,000 for the same period
in 2021. During the year ended December 31, 2022, we generated net proceeds of $17,770,000 from the sale of our common stock in our at-the-market,
or ATM program, and $129,000 from the exercise of warrants. In the same period in 2021, we generated net proceeds of $41,456,000 from
the sale of our common stock in our ATM program, $165,000 from the exercise of warrants and $137,000 from the exercise of stock options.

Funding
Requirements and Liquidity

Our
total cash and cash equivalents and short-term investments as of December 31, 2022 and 2021, excluding restricted cash of $226,000 and
$234,000, respectively, was $58,792,000 and $65,466,000, respectively. During the year ended December 31, 2022, we realized net proceeds
of $17,770,000 from the sale of 4,704,259 shares of common stock under our ATM program. At December 31, 2022, we have $150,000,000 available
under our shelf registration statement filed on August 12, 2021 for the issuance of equity, debt or equity-linked securities and $31,640,000
under our ATM program, filed in November 2020.

Because
our business has not generated positive operating cash flow, we will likely need to raise additional capital in order to continue to
fund our research and development activities, as well as to fund operations generally. Our continued operations are focused
primarily in activities leading to the pre-launch and commercialization for DefenCath and will depend on our ability to raise
sufficient funds through various potential sources, such as equity, debt financings, and/or strategic relationships and potential
strategic transactions. We can provide no assurances that financing or strategic relationships will be available on acceptable
terms, or at all.

52

We
expect to continue to fund operations from cash on hand and through capital raising sources as previously described, which may be dilutive
to existing stockholders, through revenues from the licensing of our products, or through strategic alliances. We expect to continue
to utilize our ATM program, if conditions allow, to support our ongoing funding requirements. Additionally, we may seek to sell additional
equity or debt securities through one or more discrete transactions, or enter into a strategic alliance arrangement, but can provide
no assurances that any such financing or strategic alliance arrangement will be available on acceptable terms, or at all. Moreover, the
incurrence of indebtedness would result in increased fixed obligations and could contain covenants that would restrict our operations.
Raising additional funds through strategic alliance arrangements with third parties may require significant time to complete and could
force us to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant
licenses on terms that may not be favorable to us or our stockholders. Our actual cash requirements may vary materially from those now
planned due to a number of factors, any change in the focus and direction of our research and development programs, any acquisition or
pursuit of development of new product candidates, competitive and technical advances, the costs of commercializing any of our product
candidates, and costs of filing, prosecuting, defending and enforcing any patent claims and any other intellectual property rights.

Sales
of Neutrolin outside the U.S. are not expected to generate significant product revenues for the foreseeable future, and we expect to
grow product sales for DefenCath in the U.S., should we receive FDA approval. In the absence of significant revenue, we are likely to
continue generating operating cash flow deficits. We will continue to use cash as we increase other activities leading to the commercialization
of DefenCath upon approval, pursue business development activities, and incur additional legal costs to defend our intellectual property.

We
currently estimate that as of December 31, 2022, we have sufficient cash to fund operations for at least twelve months from the issuance
of this Annual Report on Form 10-K, after taking into consideration the costs for resubmission of the NDA and initial preparations for
the commercial launch for DefenCath. Additional financing will likely be needed to build out our commercial infrastructure following
FDA approval and to continue our operations should we decide to market and sell DefenCath in the U.S. on our own. If we are unable to
raise additional funds when needed, we may be forced to slow or discontinue our preparations for the commercial launch of DefenCath.
We may also be required to delay, scale back or eliminate some or all of our research and development programs. Each of these alternatives
would likely have a material adverse effect on our business.

Contractual
Obligations

We
entered into a seven-year operating lease agreement in March 2020 for an office space at 300 Connell Drive, Berkeley Heights, New Jersey
07922. The lease agreement, with a monthly average cost of approximately $17,000, commenced on September 16, 2020.

Critical
Accounting Estimates

Our
management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation
of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities
and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates
on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates
and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results and experiences may differ materially from these estimates.

While
our significant accounting policies are more fully described in Note 3 to our financial statements included with this report, we believe
that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial
results and affect the more significant judgments and estimates that we use in the preparation of our financial statements.

Stock-Based
Compensation

We
account for stock options according to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) No. 718, “Compensation — Stock Compensation” (“ASC 718”).  Share-based compensation
cost is measured at grant date, based on the estimated fair value of the award using a Black-Scholes option pricing model for options
with service or performance-based conditions. Stock-based compensation cost is recognized as expense, over the requisite service period
on a straight-line basis.

53

Valuations
incorporate several variables, including expected term, expected volatility, expected dividend yield and a risk-free interest rate.  We
estimate the expected term of the options granted based on anticipated exercises in future periods. The expected stock price volatility
for the Company’s stock options is calculated based on the historical volatility of the Company’s common stock. The expected
dividend yield reflects our current and expected future policy for dividends on our common stock.  To determine the risk-free interest
rate, we utilize the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of our awards
which is 5 years for employees and 10 years for non-employees.

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

You should read the following
discussion and analysis together with our audited consolidated financial statements and the accompanying notes contained elsewhere in
this report. This discussion contains forward-looking statements, within the meaning of Section 27A of Securities Act, Section 21E of
the Exchange Act, and the Private Securities Litigation Reform Act of 1995, including statements regarding our expected financial
condition, business and financing plans. These statements involve risks and uncertainties. Our actual results could differ materially
from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed
below and elsewhere in this report, particularly under the heading “Risk Factors.”

Overview

CorMedix Inc., together with our wholly owned
subsidiaries, (collectively referred to herein as “we,” “us,” “our” and the “Company”),
is a biopharmaceutical company focused on developing and commercializing therapeutic products for the prevention and treatment of infectious
and inflammatory diseases. In May 2020, we formed a wholly-owned Spanish subsidiary, CorMedix Spain, S.L.U.

Our primary focus is on the development of our lead product candidate,
DefenCath™, for potential commercialization in the United States, or U.S., and other key markets as a catheter lock solution, or
CLS. We have in-licensed the worldwide rights to develop and commercialize DefenCath and Neutrolin®. The name DefenCath is the U.S.
proprietary name conditionally approved by the U.S. Food and Drug Administration, or FDA, while the name Neutrolin® is currently used
in the European Union, or EU, and other territories where we received CE-Mark approval for the commercial distribution of Neutrolin as
a CLS regulated as a medical device. DefenCath/Neutrolin is a novel anti-infective solution (a formulation of taurolidine 13.5 mg/mL and
heparin 1000 USP Units/mL) intended for the reduction and prevention of catheter-related infections and thrombosis in patients requiring
central venous catheters in clinical settings such as hemodialysis, total parenteral nutrition, and oncology. Infection and thrombosis
represent key complications among hemodialysis, total parenteral nutrition and oncology patients with central venous catheters. These
complications can lead to treatment delays and increased costs to the healthcare system when they occur due to hospitalizations, need
for intravenous, or IV antibiotic treatment, long-term anticoagulation therapy, removal/replacement of the central venous catheter, related
treatment costs and increased mortality. We believe DefenCath addresses a significant unmet medical need and a potential large market
opportunity.

In January 2015, the FDA designated DefenCath
as a Qualified Infectious Disease Product, or QIDP, for prevention of catheter-related blood stream infections in patients with end stage
renal disease receiving hemodialysis through a central venous catheter. Catheter-related blood stream infections and clotting can be
life-threatening. The QIDP designation provides five years of market exclusivity in addition to the five years granted for a New Chemical
Entity upon approval of a New Drug Application, or NDA. In addition, in January 2015, the FDA granted Fast Track designation to DefenCath
Catheter Lock Solution, a designation intended to facilitate development and expedite review of drugs that treat serious and life-threatening
conditions so that the approved drug can reach the market expeditiously. The Fast Track designation of DefenCath provides us with the
opportunity to meet with the FDA on a more frequent basis during the development process, and also ensures eligibility to request priority
review of the marketing application.

In December 2015, we launched our Phase 3 Prospective,
Multicenter, Double-blind, Randomized, Active Control Study to Demonstrate Safety & Effectiveness of DefenCath/Neutrolin in Preventing
Catheter-related Bloodstream Infection in Subjects on Hemodialysis for End Stage Renal Disease, or LOCK-IT-100, in patients with hemodialysis
catheters in the U.S. The clinical trial was designed to demonstrate the safety and effectiveness of DefenCath compared to the standard
of care CLS, Heparin, in preventing CRBSIs. The primary endpoint for the trial assessed the incidence of CRBSI and time to CRBSI for
each study subject. Secondary endpoints were catheter patency, which was defined as required use of tPA, or removal of catheter due to
dysfunction, and removal of catheter for any reason.

As previously agreed with the FDA, an interim
efficacy analysis was performed when the first 28 potential CRBSI cases were identified in our LOCK-IT-100 study that occurred through
early December 2017. Based on these first 28 cases, there was a highly statistically significant 72% reduction in CRBSI by DefenCath
relative to the active control of heparin (p=0.0034). Because the pre-specified level of statistical significance was reached for the
primary endpoint and efficacy had been demonstrated with no safety concerns, the LOCK-IT-100 study was terminated early. The study continued
enrolling and treating subjects until study termination, and the final analysis was based on a total of 795 subjects. In a total of 41
cases, there was a 71% reduction in CRBSI by DefenCath relative to heparin, which was highly statistically significant (p=0.0006), with
a good safety profile.

47

The FDA granted our request for a rolling submission
and review of the NDA, which is designed to expedite the approval process for products being developed to address an unmet medical need.
Although the FDA usually requires two pivotal clinical trials to provide substantial evidence of safety and effectiveness for approval
of an NDA, the FDA will in some cases accept one adequate and well-controlled trial, where it is a large multicenter trial with a broad
range of subjects and study sites that has demonstrated a clinically meaningful and statistically very persuasive effect on a disease
with potentially serious outcome.

In March 2020, we began the modular submission
process for the NDA for DefenCath for the prevention of CRBSI in hemodialysis patients, and in August 2020, the FDA accepted for filing
the DefenCath NDA. The FDA also granted our request for priority review, which provides for a six-month review period instead of the
standard ten-month review period. As we announced in March 2021, the FDA informed in its Complete Response Letter, or CRL, to us that
it cannot approve the NDA for DefenCath in its present form. The FDA noted concerns at the third-party manufacturing facility after a
review of records requested by the FDA and provided by the contract manufacturing organization, or CMO. Additionally, the FDA is requiring
a manual extraction study to demonstrate that the labeled volume can be consistently withdrawn from the vials despite an existing in-process
control to demonstrate fill volume within specifications.

In April 2021, we and the CMO met with the FDA
to discuss proposed resolutions for the deficiencies identified in the CRL to us and the Post-Application Action Letter, or PAAL, received
by the CMO from the FDA for the NDA for DefenCath. There was an agreed upon protocol for the manual extraction study identified in the
CRL, which now has been successfully completed. Addressing the FDA’s concerns regarding the qualification of the filling operation
necessitated adjustments in the process and generation of additional data on operating parameters for manufacture of DefenCath. We and
the CMO determined that additional process qualification is needed with subsequent validation to address these issues. The FDA did not
request additional clinical data and did not identify any deficiencies related to the data submitted on the efficacy or safety of DefenCath
from LOCK-IT-100. In draft labeling discussed with the FDA, the FDA added that the initial approval will be for the limited population
of patients with kidney failure receiving chronic hemodialysis through a central venous catheter. This is consistent with our request
for approval pursuant to the Limited Population Pathway for Antibacterial and Antifungal Drugs, or LPAD. LPAD, passed as part of the
21st Century Cures Act, is a new program intended to expedite the development and approval of certain antibacterial and antifungal drugs
to treat serious or life-threatening infections in limited populations of patients with unmet needs. LPAD provides for a streamlined
clinical development program involving smaller, shorter, or fewer clinical trials and is intended to encourage the development of safe
and effective products that address unmet medical needs of patients with serious bacterial and fungal infections. We believe that LPAD
will provide additional flexibility for the FDA to approve DefenCath to prevent CRBSIs in the limited population of patients with kidney
failure receiving hemodialysis through a central venous catheter.

On February 28, 2022, we announced that we resubmitted
the NDA for DefenCath to address the CRL issued by the FDA. In parallel, our third-party manufacturer submitted responses to the deficiencies
identified at the manufacturing facility in the PAAL issued by the FDA concurrently with the CRL. FDA will evaluate the submission to
accept for filing and determine the review timeline. FDA has stated that it expected all corrections to facility deficiencies to be complete
at the time of resubmission so that all corrective actions may be verified during an onsite evaluation of the manufacturing facility
in the next review cycle, if the FDA determines it will do an onsite evaluation. If an onsite inspection is required, we may encounter
delays in obtaining FDA approval because the FDA is currently facing a backlog due to the COVID-19 pandemic. The FDA issued a guidance
document on its plan to use voluntary remote interactive evaluations at facilities, including for a pre-approval inspection to assess
a marketing application. The FDA will request the manufacturing facility to participate in a voluntary remote interactive evaluation,
if the FDA believes it is appropriate. A manufacturing facility cannot request the remote interaction. The FDA expects the use of remote
interactive evaluations should help the FDA operate within normal timeframes in spite of the COVID-19 pandemic.

We intend to pursue additional indications for
DefenCath use as a CLS in populations with an unmet medical need that also represent potentially significant market opportunities. While
we are continuing to assess these areas, potential future indications may include use as a CLS to reduce CRBSIs in total parenteral nutrition
patients using a central venous catheter and in oncology patients using a central venous catheter.

48

In addition to DefenCath, we are sponsoring a
pre-clinical research collaboration for the use of taurolidine as a possible treatment for rare orphan pediatric tumors. In February
2018, the FDA granted orphan drug designation to taurolidine for the treatment of neuroblastoma in children. We may seek one or more
strategic partners or other sources of capital to help us develop and commercialize taurolidine for the treatment of neuroblastoma in
children. We are also evaluating opportunities for the possible expansion of taurolidine as a platform compound for use in certain medical
devices. Patent applications have been filed in several indications, including wound closure, surgical meshes, and wound management.
Based on initial feasibility work, we are advancing pre-clinical studies for taurolidine-infused surgical meshes, suture materials and
hydrogels. We will seek to establish development/commercial partnerships as these programs advance.

We were granted a deferral by the FDA under the
Pediatric Research Equity Act, or PREA, that requires sponsors to conduct pediatric studies for NDAs for a new active ingredient, such
as taurolidine in DefenCath, unless a waiver or deferral is obtained from the FDA. A deferral acknowledges that a pediatric assessment
is required but permits the applicant to submit the pediatric assessment after the submission of an NDA. We have made a commitment to
conduct the pediatric study after approval of the NDA for use in adult hemodialysis patients. Pediatric studies for an approved product
conducted under PREA may qualify for pediatric exclusivity, which if granted would provide an additional six months of marketing exclusivity.
DefenCath would then have the potential to receive a total marketing exclusivity period of 10.5 years, including exclusivity pursuant
to NCE and QIDP.

The FDA regards taurolidine as a new chemical
entity and therefore an unapproved new drug. Consequently, there is no appropriate predicate medical device currently marketed in the
U.S. on which a 510(k) approval process could be based. As a result, we will be required to submit a premarket approval application,
or PMA, for marketing authorization for any medical device indications that we may pursue. In the event that an NDA for DefenCath is
approved by the FDA, the regulatory pathway for these medical device product candidates may be revisited with the FDA. Although there
may be no appropriate predicate, de novo Class II designation can be proposed, based on a risk assessment and a reasonable assurance
of safety and effectiveness.

In the European Union, or EU, Neutrolin is regulated
as a Class 3 medical device. In July 2013, we received CE Mark approval for Neutrolin. In December 2013, we commercially launched Neutrolin
in Germany for the prevention of CRBSI, and maintenance of catheter patency in hemodialysis patients using a tunneled, cuffed central
venous catheter for vascular access. To date, Neutrolin is registered and may be sold in certain European Union countries for such treatment.

In September 2014, the TUV-SUD and The Medicines
Evaluation Board of the Netherlands, or MEB, granted a label expansion for Neutrolin to include use in oncology patients receiving chemotherapy,
intravenous, or IV, hydration and IV medications via CVC for the EU. In December 2014, we received approval from the Hessian District
President in Germany to expand the label for these same expanded indications. The expansion also adds patients receiving medication and
IV fluids via CVC in intensive or critical care units (cardiac care unit, surgical care unit, neonatal critical care unit, and urgent
care centers). An indication for use in total parenteral nutrition was also approved.

In September 2019, our registration with the Saudi
Arabia Food and Drug Administration, or the SFDA, expired. As a result, we cannot sell Neutrolin in Saudi Arabia. We intend to complete
the documentation required to renew our registration with the SFDA, however, we cannot predict how long the renewal process will take.
There is no assurance that the registration will be renewed by the SFDA.

The novel coronavirus has been declared a pandemic
and has spread to multiple global regions. The outbreak and government measures taken in response have also had a significant impact,
both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities
and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while
demand for other goods and services, such as travel, has fallen. In response to the COVID-19 outbreak, “shelter in place”
orders and other public health guidance measures have been implemented across much of the United States, Europe and Asia, including in
the locations of our offices, clinical trial sites, key vendors and partners. Such “shelter in place” orders were previously
lifted, at least partially, in many locations. However, an increase in the spread of COVID-19 and variants, including the Delta variant,
which may affect the spread or severity of one or more successive waves of the virus, has led, and may continue to lead, to the re-imposition
by many nations and U.S. of quarantine requirements for travelers from other regions and may lead to the re-imposition of “shelter-in-place”
or other similar orders. Our program timelines may be negatively affected by COVID-19, which could materially and adversely affect its
business, financial conditions and results of operations.

49

Since our inception, our operations have been
primarily limited to conducting clinical trials and establishing manufacturing for our product candidates, licensing product candidates,
business and financial planning, research and development, seeking regulatory approval for our products, initial commercialization activities
for DefenCath in the U.S. and Neutrolin in the EU and other foreign markets, and maintaining and improving our patent portfolio.  We
have funded our operations primarily through debt and equity financings.  We have generated significant losses to date, and
we expect to use substantial amounts of cash for our operations as we prepare our pre-launch commercial activities for DefenCath for
the U.S. market and commercialize Neutrolin in the EU and other foreign markets, pursue business development activities, and incur additional
legal costs to defend our intellectual property.  As of December 31, 2021, we had an accumulated deficit of approximately $245.7
million.  We are unable to predict the extent of any future losses or when we will become profitable, if ever.

Financial Operations Overview

Revenue

We have not generated substantial
revenue since our inception. Through December 31, 2021, we have funded our operations primarily through debt and equity financings.

Research and Development
Expense

Research and development, or R&D, expense
consists of: (i) internal costs associated with our development activities; (ii) payments we make to third party contract research organizations,
contract manufacturers, investigative sites, and consultants; (iii) technology and intellectual property license costs; (iv) manufacturing
development costs; (v) personnel related expenses, including salaries, stock–based compensation expense, benefits, travel and related
costs for the personnel involved in drug development; (vi) activities relating to regulatory filings and the advancement of our product
candidates through pre-clinical studies and clinical trials; (vii) facilities and other allocated expenses, which include direct and
allocated expenses for rent, facility maintenance, as well as laboratory and other supplies; and (viii) costs related to the manufacturing
of the product that could potentially be available to support the commercial launch prior to marketing approval. All R&D is expensed
as incurred.

Conducting a significant amount of development
is central to our business model. Product candidates in later-stage clinical development generally have higher development costs than
those in earlier stages of development, primarily due to the significantly increased size and duration of the clinical trials.

The process of conducting pre-clinical studies
and clinical trials necessary to obtain regulatory approval is costly and time consuming. The probability of success for each product
candidate and clinical trial may be affected by a variety of factors, including, among others, the quality of the product candidate’s
early clinical data, investment in the program, competition, manufacturing capabilities and commercial viability. As a result of the
uncertainties associated with clinical trial enrollments and the risks inherent in the development process, we are unable to determine
the duration and completion costs of current or future clinical stages of our product candidates or when, or to what extent, we will
generate revenues from the commercialization and sale of any of our product candidates.

Development timelines, probability of success
and development costs vary widely. We are currently focused on securing the marketing approval for DefenCath in the U.S. as well as on
continuing sales in foreign markets where Neutrolin is approved. In December 2015, we signed an agreement with a clinical research organization,
or CRO, to help us conduct our LOCK-IT-100 Phase 3 clinical trial in hemodialysis patients with central venous catheters to demonstrate
the efficacy and safety of DefenCath in preventing catheter-related bloodstream infections and blood clotting in subjects receiving hemodialysis
therapy as treatment for end stage renal disease. Our LOCK-IT-100 study was completed and all costs related to the agreement with the
CRO has been paid.

We are pursuing additional opportunities to generate
value from taurolidine, an active component of DefenCath. Based on initial feasibility work, we have completed an initial round of pre-clinical
studies for taurolidine-infused surgical meshes, suture materials, and hydrogels, which require a PMA regulatory pathway for approval.
We are also involved in a pre-clinical research collaboration for the use of taurolidine as a possible treatment for rare orphan pediatric
tumors. In February 2018, the FDA granted orphan drug designation to taurolidine for the treatment of neuroblastoma in children. We may
seek one or more strategic partners or other sources of capital to help us develop and commercialize taurolidine for the treatment of
neuroblastoma in children.

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Selling, General and Administrative Expense

Selling, general and administrative, or SG&A,
expense includes costs related to commercial personnel, medical education professionals, marketing and advertising, salaries and other
related costs, including stock-based compensation expense, for persons serving in our executive, sales, finance and accounting functions.
Other SG&A expense includes facility-related costs not included in R&D expense, promotional expenses, costs associated with industry
and trade shows, and professional fees for legal services and accounting services.

Foreign Currency Exchange Transaction Gain (Loss)

Foreign currency exchange transaction gain (loss) is the result of
re-measuring transactions denominated in a currency other than our functional currency and is reported in the consolidated statement of
operations as a separate line item within other income (expense). The intercompany loans outstanding between our Company based in New
Jersey and our subsidiary based in Germany are not expected to be repaid in the foreseeable future and the nature of the funding advanced
is of a long-term investment nature. As such, unrealized foreign exchange movements related to long-term intercompany loans are recorded
in other comprehensive income (loss).

Interest Income

Interest income consists of interest earned on
our cash equivalents and short-term investments.

Interest Expense

Interest expense consists of interest incurred
on our convertible debt, amortization of debt discount and on financing of expenditures.

Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

The following is a tabular
presentation of our consolidated operating results for the years ended December 31, 2021 and 2020 (in thousands):

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Revenue. Revenue for the year ended December
31, 2021 was $191,000 as compared to $239,000 for the same period in 2020, a decrease of $48,000. The decrease was attributable to lower
sales in the Middle East and European Union countries in 2021 as compared to the same period in 2020.

Cost of Sales. Cost of sales for the year
ended December 31, 2021 was $149,000 as compared to $205,000 for the same period in 2020, a decrease of $56,000. The decrease was primarily
attributable to the net decrease in cost of materials as a result of lower sales in 2021 as compared to the same period in 2020.

Research and Development Expense. R&D
expense for the year ended December 31, 2021 was $13,133,000, a decrease of $244,000 from $13,377,000 for the same period in 2020. The
decrease was driven by net decreases in costs related to the manufacturing of DefenCath prior to its potential marketing approval of $1,489,000
and a reduction in clinical trial expenses of $444,000, attributable to the closing of our LOCK-IT clinical trial. These decreases were
partially offset, among others of lesser significance, by increases in non-cash charges for stock-based compensation of $704,000, an increase
in consulting fees of $554,000, driven by fees related to the resubmission of the DefenCath NDA to the FDA, and an increase in personnel
expenses of $487,000, as a result of additional hires during the fourth quarter of 2020 through the first half of 2021.

Selling, General and Administrative Expense.
SG&A expense for the year ended December 31, 2021 was $16,346,000, an increase of $2,468,000 from $13,878,000 for the same period
in 2020. The increase was primarily attributable to an increase in non-cash charges for stock-based compensation of $1,839,000, and an
increase in personnel expenses of $1,237,000, as a result of additional hires during the fourth quarter of 2020 through the first half
of 2021. These increases were partially offset, among others of lesser significance, by a decrease in consulting fees of $730,000, and
reduced costs related to marketing research studies in preparation for the potential marketing approval of DefenCath of $202,000.

Interest Income. Interest income for the
year ended December 31, 2021 was $14,000, a decrease of $102,000 from $116,000 for the same period in 2020. The decrease was attributable
to lower interest rates this year as compared to the same period last year.

Foreign Exchange Transaction Loss. Foreign
exchange transaction losses for the year ended December 31, 2021 and 2020 were due to the re-measuring of transactions denominated in
a currency other than our functional currency.

Interest Expense. Interest expense for
the year ended December 31, 2021 was $16,000 as compared to $33,000 for the same period in 2020. The decrease of $17,000 was due primarily
to lower interest rates on expenses that were financed this year as compared to the same period last year.

Tax Benefit. Tax benefit for the years
ended December 31, 2021 of $1,250,000 and December 31, 2020 of $5,169,000, represents income tax benefits due to the sale of our unused
NOL for state fiscal year 2021 and 2020, respectively, through the NJEDA Technology Business Tax Certificate Transfer program.

Other Comprehensive Income (Loss). Unrealized
foreign exchange movements related to long-term loans and the translation of the foreign affiliate financial statements to U.S. dollars
and unrealized movements related to short term investment are recorded in other comprehensive income (loss) which resulted in a loss
of $15,000 and a gain of $5,000 for the years ended December 31, 2021 and 2020, respectively.

Liquidity and Capital Resources

Sources of Liquidity

As a result of our cost of sales, R&D and SG&A
expenditures and the lack of substantial product sales revenue, our ongoing operations have not been profitable since our inception. During
the year ended December 31, 2021, we received net proceeds of $41,456,000 from the issuance of 3,737,862 shares of common stock under
our at-the-market-issuance sales agreement as compared to $18,433,000 of net proceeds for the same period in 2020 from the issuance of
2,687,646 shares of common stock. Additionally, we also received $165,000 and $412,000 from the exercise of warrants during the years
ended December 31, 2021 and 2020, respectively. We will continue to be reliant on external sources of cash for the foreseeable future
until we are able to generate revenue.

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In June 2021, we received approximately $1,250,000,
net of expenses, from the sale of our unused New Jersey NOL eligible for sale under the NJEDA Program. The NJEDA Program allowed us to
sell approximately $1,250,000 of our total $1,337,000 in available NOL tax benefits for the state fiscal year 2020.

The NJEDA has approved our application to participate
in the NJEDA Program for the state fiscal year 2021. The approval will allow us to sell approximately $0.6 million of the total $0.6
million in available tax benefits to an unrelated, profitable New Jersey corporation in return for approximately $0.6 million in cash.
Closing is subject to NJEDA’s typical closing conditions, which are in process of completion.

Net Cash Used in Operating Activities

Net cash used in operating activities for the
year ended December 31, 2021 was $21,155,000 as compared to $21,968,000 in 2020, a decrease in net cash use of $813,000. The decrease
was driven by an increase in accounts payable of $1,082,000 as compared to $103,000 for the same period in 2020, partially offset by
an increase in net loss of $6,182,000 mainly attributable to lower cash received from the NOL sale of $1,250,000 as compared to $5,169,000
for the same period in 2020. In addition, the decrease was also offset by a decrease in prepaid expenses and other current assets for
the year ended December 31, 2021 of $667,000, primarily due to a deposit on the equipment, compared to a $992,000 increase for the same
period in 2020.

Net Cash (Used in) Provided by Investing Activities

Cash used in investing activities for the year
ended December 31, 2021 was $9,135,000 as compared to $7,426,000 of cash provided in the same period in 2020. The net cash used during
the year ended December 31, 2021 was mainly driven by the higher amount invested in short-term investments in addition to an increase
in purchases of equipment offset by the lower amount of matured investments as compared to the same period in 2020.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for
the year ended December 31, 2021 was $41,758,000 as compared to $40,100,000 for the same period in 2020. During the year ended December
31, 2021, we generated net proceeds of $41,456,000 from the sale of our common stock in our at-the-market, or ATM program, $165,000 from
the exercise of warrants and $137,000 from the exercise of stock options. In the same period in 2020, we generated net proceeds of $21,255,000
from the underwritten public offering of our common stock, $18,433,000 from the sale of our common stock in our ATM program, and $412,000
from the exercise of warrants.

Funding Requirements and Liquidity

Our total cash and cash equivalents and short-term
investments as of December 31, 2021 and 2020, excluding restricted cash of $234,000 and $191,000, respectively, was $65,466,000 and $46,350,000,
respectively. During the year ended December 31, 2021, we realized net proceeds of $41,456,000 from the sale of 3,737,862 shares of common
stock under our ATM program. At December 31, 2021, we have $150,000,000 available under our shelf registration statement filed on August
12, 2021 for the issuance of equity, debt or equity-linked securities and $50,000,000 under our ATM program, filed on August 12, 2021.

Because our business has not generated positive
operating cash flow, we will need to raise additional capital in order to continue to fund our research and development activities, as
well as to fund operations generally. Our continued operations are focused primarily in activities leading to the pre-launch and commercialization
for DefenCath and will depend on our ability to raise sufficient funds through various potential sources, such as equity, debt financings,
and/or strategic relationships and potential strategic transactions. We can provide no assurances that financing or strategic relationships
will be available on acceptable terms, or at all.

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We expect to continue to fund operations from
cash on hand and through capital raising sources as previously described, which may be dilutive to existing stockholders, through revenues
from the licensing of our products, or through strategic alliances. We expect to continue to utilize our ATM program, if conditions allow,
to support our ongoing funding requirements. Additionally, we may seek to sell additional equity or debt securities through one or more
discrete transactions, or enter into a strategic alliance arrangement, but can provide no assurances that any such financing or strategic
alliance arrangement will be available on acceptable terms, or at all. Moreover, the incurrence of indebtedness would result in increased
fixed obligations and could contain covenants that would restrict our operations. Raising additional funds through strategic alliance
arrangements with third parties may require significant time to complete and could force us to relinquish valuable rights to our technologies,
future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us or our
stockholders. Our actual cash requirements may vary materially from those now planned due to a number of factors, any change in the focus
and direction of our research and development programs, any acquisition or pursuit of development of new product candidates, competitive
and technical advances, the costs of commercializing any of our product candidates, and costs of filing, prosecuting, defending and enforcing
any patent claims and any other intellectual property rights.

Sales of Neutrolin outside the U.S. are not expected
to generate significant product revenues for the foreseeable future, and we expect to grow product sales for DefenCath in the U.S., should
we receive FDA approval. In the absence of significant revenue, we are likely to continue generating operating cash flow deficits. We
will continue to use cash as we increase other activities leading to the commercialization of DefenCath upon approval, pursue business
development activities, and incur additional legal costs to defend our intellectual property.

We currently estimate that as of December 31, 2021,
we have sufficient cash on hand to fund operations at least through the first half of 2023, after taking into consideration the costs
for resubmission of the NDA and initial preparations for the commercial launch for DefenCath. Additional financing may be required to
build out our commercial infrastructure following FDA approval and to continue our operations should we decide to market and sell DefenCath
in the U.S. on our own. If we are unable to raise additional funds when needed, we may be forced to slow or discontinue our preparations
for the commercial launch of DefenCath. We may also be required to delay, scale back or eliminate some or all of our research and development
programs. Each of these alternatives would likely have a material adverse effect on our business.

Contractual Obligations

We entered into a seven-year operating lease agreement
in March 2020 for an office space at 300 Connell Drive, Berkeley Heights, New Jersey 07922. The lease agreement, with a monthly average
cost of approximately $17,000, commenced on September 16, 2020. Our sublease on our previous premises at 400 Connell Drive, Berkeley
Heights, New Jersey 07922 terminated on November 30, 2020.

Critical Accounting Estimates

Our management’s discussion
and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated
financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses.
On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on our historical
experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions
form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results and experiences may differ materially from these estimates.

While our significant accounting
policies are more fully described in Note 3 to our financial statements included with this report, we believe that the following accounting
policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant
judgments and estimates that we use in the preparation of our financial statements.

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Stock-Based Compensation

We account for stock options according to the
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 718, “Compensation
— Stock Compensation” (“ASC 718”).  Share-based compensation cost is measured at grant date, based on the
estimated fair value of the award using a Black-Scholes option pricing model for options with service or performance-based conditions.
Stock-based compensation cost is recognized as expense, over the requisite service period on a straight-line basis.

Valuations incorporate several variables, including
expected term, expected volatility, expected dividend yield and a risk-free interest rate.  We estimate the expected term of the
options granted based on anticipated exercises in future periods. The expected stock price volatility for the Company’s stock options
is calculated based on the historical volatility of the Company’s common stock. The expected dividend yield reflects our current
and expected future policy for dividends on our common stock.  To determine the risk-free interest rate, we utilize the U.S. Treasury
yield curve in effect at the time of grant with a term consistent with the expected term of our awards which is 5 years for employees
and 10 years for non-employees.

Recently Adopted Authoritative Pronouncements:

In December 2019, the FASB
issued ASU 2019-12 which removes certain exceptions to the general principles of the accounting for income taxes and also improves consistent
application of and simplification of other areas when accounting for income taxes. The guidance was effective for us beginning in the
first quarter of fiscal year 2021. Early adoption was permitted. This adoption on January 1, 2021 did not have a material impact on our
consolidated financial statements.