What changed in this filing

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Item 1. Financial Statements

2021-11-10 compared with 2021-08-16 · 207 added, 85 removed, 598 unchanged (33% of the section changed)

1 unchanged sentence

CONDENSED BALANCE SHEETS

AS OF JUNE 30, 2021 AND DECEMBER 31, 2020

AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

(in thousands, except share and per share data)

September 30,

Current Assets:

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Common Stock, par value $ 0.001 per share, 750,000,000 shares authorized;

104,277,112 and 99,331,279 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

104,277,112 and 99,331,279 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

4 unchanged sentences

CONDENSED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED June 30, 2021 AND 2020

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(in thousands, except share and per share data)

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Revenues, net

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CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(in thousands, except share data)

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Balance, June 30, 2021

Stock-based compensation

Restricted stock vesting

Beneficial conversion and warrant features of convertible debt

Balance, September 30, 2021

Stockholders'

7 unchanged sentences

Balance, June 30, 2020

Stock compensation

Issuance of common stock for acquisition

Balance, September 30, 2020

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

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating Activities

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Loss on extinguishment of debt

Change in ROU asset and operating lease liability

Forgiveness of debt

Beneficial conversion feature in excess of face value

Change in ROU asset and operating lease liability

Changes in operating assets and liabilities:

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Proceeds from notes payable

Principle payment of notes payable

Proceeds from notes payable (PPP)

Proceeds from convertible notes

Payment of financing costs

Principal payment on convertible notes

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Warrants issued for debt and equity financing costs

Operating lease, ROU assets and liabilities

Common shares issued for acquisition

7 unchanged sentences

(the “Company” or “NexGel”) manufactures high water content, electron beam cross-linked, aqueous polymer hydrogels, or gels, used for wound care, medical diagnostics, transdermal drug delivery and cosmetics.

The Company specializes in custom gels by capitalizing on proprietary manufacturing technologies.

The Company has historically served as a contract manufacturer supplying its gels to third parties who incorporate them into their own products.

NexGel specializes in custom gels by capitalizing on proprietary manufacturing technologies.

The Company has historically served as a contract manufacturer, supplying our gels to third parties who incorporate them into their own products and have recently began producing our own consumer products using the Company’s gels focused on proprietary branded products and white label opportunities.

Both the Company’s gels and consumer products are manufactured using proprietary and non-proprietary mixing, coating and cross-linking technologies.

Together, these technologies enable NexGel to produce gels that can satisfy rigid tolerance specifications with respect to a wide range of physical characteristics (e.g., thickness, water content, adherence, absorption, moisture vapor transmission rate (a measure of the passage of water vapor through a substance) and release rate) while maintaining product integrity.

Additionally, the Company has the manufacturing ability to offer broad choices in the selection of liners onto which the gels are coated.

Consequently, NexGel and our customers are able to determine tolerances in moisture vapor transmission rate and active ingredient release rates while personalizing color and texture.

NexGel was previously known as AquaMed Technologies, Inc.

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on November 14, 2019.

The Company is implementing a new strategy to become a consumer products business focused on proprietary branded products and white label opportunities.

On June 21, 2019, NexGel became an independent company through the pro rata distribution (“Spin-Off”) by Adynxx, Inc.

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The terms and conditions of the Spin-Off provided that each record holder of Parent stock as of April 22, 2019, received one share of NexGel common stock in book-entry form and resulted in the distribution of 5,005,211 shares of common stock of NexGel.

Following the distribution (“Capitalization”), all existing operations were distributed to NexGel with the exception of a corporate lease for property in Yardley, Pennsylvania which was retained by Adynxx, Inc.

Following the distribution, all existing operations were distributed to NexGel with the exception of a corporate lease for property in Yardley, Pennsylvania which was retained by Adynxx, Inc.

Pursuant to the Spin-Off and in exchange for the 5,005,211 shares of common stock,NexGel assumed the following net assets and liabilities from Parent as of June 21, 2019 ($ in thousands):

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Basis of Presentation

The balance sheet as of June 30, 2021 and December 31, 2020 and the statements of operations, stockholders’ equity, and cash flows for the six months ended June 30, 2021 consists of the balances of NexGel as prepared on a stand-alone basis.

The balance sheet as of September 30, 2021 and December 31, 2020 and the statements of operations, stockholders’ equity, and cash flows for the nine months ended September 30, 2021 consists of the balances of NexGel as prepared on a stand-alone basis.

Prior to the separation, these financial statements were derived from the consolidated financial statements and accounting records of Adynxx, Inc.

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These interim condensed financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"), which permit reduced disclosure for interim periods.

The condensed balance sheet as of June 30, 2021 was derived from audited financial statements for the fiscal year then ended, but does not include all necessary disclosures required by generally accepted accounting principles in the United States of America ("GAAP") with respect to annual financial statements.

In the opinion of management, the condensed financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly the Company’s financial position as of June 30, 2021 and results of operations and cash flows for the three months ended June 30, 2021 and 2020.

These unaudited condensed financial statements should be read in conjunction with the audited financial statements and the notes thereto in the Company’s year-end financial statements for the years ended December 31, 2020 and 2019, which are included in the Company’s Form 10-K filed with SEC on June 30, 2021.

The condensed balance sheet as of December 31, 2020 was derived from audited financial statements for the fiscal year then ended, but does not include all necessary disclosures required by generally accepted accounting principles in the United States of America ("GAAP") with respect to annual financial statements.

In the opinion of management, the condensed financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly the Company’s financial position as of September 30, 2021 and results of operations and cash flows for the nine months ended September 30, 2021 and 2020.

Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period.

Reclassifications

Certain Statements of Operations reclassifications have been made in the presentation of our prior financial statements and accompanying notes to conform to the presentation as of and for the three months and nine months ended September 30, 2021.

Significant Accounting Policies and Estimates

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Account balances are charged off against the allowance when it is probable that the receivable will not be recovered.

The allowance for doubtful accounts was $ 4 thousand as of June 30, 2021 and $ 1 thousand as of December 31, 2020.

The allowance for doubtful accounts was $ 4 thousand as of September 30, 2021 and $ 1 thousand as of December 31, 2020.

Inventory is stated at the lower of cost, the value determined by the first-in, first-out method, or net realizable value.

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These factors determine when, and if, the Company adjusts the carrying value of inventory to estimated net realizable value.

The balance is made up of raw materials of $ 189 thousand and $ 190 thousand, work-in-progress of $ 23 thousand and $ 22 thousand, and finished goods of $ 14 thousand and $ 21 thousand on June 30, 2021 and December 31, 2020, respectively.

The balance is made up of raw materials of $ 231 thousand and $ 190 thousand, work-in-progress of $ 0 thousand and $ 22 thousand, and finished goods of $ 30 thousand and $ 21 thousand on September 30, 2021 and December 31, 2020, respectively.

Property and equipment, net

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Prepaid expenses and other current assets

Prepaid expenses and other current assets is recorded at historical cost and is primarily made up of $ 26 thousand and $ 16 thousand of prepaid insurance, and $ 56 thousand and $ 9 thousand general prepaid expenses and other current assets in the period ended June 30, 2021 and December 31, 2020, respectively.

Other Assets is recorded at historical costs, and as of June 30, 2021 and December 31, 2020, the balance is entirely made up of spare parts for manufacturing equipment.

Prepaid expenses and other current assets is recorded at historical cost and is primarily made up of $ 37 thousand and $ 16 thousand of prepaid insurance, and $ 64 thousand and $ 9 thousand general prepaid expenses and other current assets in the period ended September 30, 2021 and December 31, 2020, respectively.

Other Assets is recorded at historical costs, and as of September 30, 2021 and December 31, 2020, the balance is entirely made up of spare parts for manufacturing equipment.

Other assets are stated at cost and are not subject to depreciation, until such time that they are placed into service and the part that is being replaced is disposed.

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Warrant Liability

Warrants to purchase common stock were issued in connection with equity financing raises, which occurred on March 11, 2021, February 3, 2021, December 24, 2020, March 18, 2020, September 10, 2019 and November 6, 2019.

Warrants to purchase common stock were issued in connection with equity financing raises, which occurred on September 2, 2021, March 11, 2021, February 3, 2021, December 24, 2020, March 18, 2020, September 10, 2019 and November 6, 2019.

The fair values of the warrants are estimated as of the date of issuance and again at each period end using a Black-Scholes option valuation model.

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Disaggregated revenue by sales type:

Six Months Ended

Nine Months Ended

September 30,

Contract manufacturing

1 unchanged sentence

Nexgel branded consumer products

As of June 30, 2021, the Company did not have any contract assets or contract liabilities from contracts with customers.

As of June 30, 2021, there were no remaining performance obligations that the Company had not satisfied.

As of September 30, 2021, the Company did not have any contract assets or contract liabilities from contracts with customers.

As of September 30, 2021, there were no remaining performance obligations that the Company had not satisfied.

Share-based compensation

46 unchanged sentences

Going Concern

As of June 30, 2021, the Company had a cash balance of $ 382,000 .

For the six months ended June 30, 2021, the Company incurred a net loss of $ 1,529,000 and had a net usage of cash in operating activities of $ 1.03 million.

In addition, the Company had a working capital deficit of $ 860,000 as of June 30, 2021.

As of September 30, 2021, the Company had a cash balance of $ 1,255,000 .

For the nine months ended September 30, 2021, the Company incurred a net loss of $ 2,671,000 and had a net usage of cash in operating activities of $ 1,556,000 .

In addition, the Company had a working capital deficit of $ 599,000 as of September 30, 2021.

The Company expects to continue incurring losses for the foreseeable future and will need to raise additional capital to support ongoing operations.

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Dilutive common-equivalent shares consist of shares that would be issued upon the exercise of stock options and other common stock equivalents, computed using the treasury stock method.

The number of shares that may be issued for share-based payment awards under the Company’s 2019 Long-Term Incentive Plan are excluded from the calculation of weighted average dilutive common shares for the three months ended June 30, 2021 and 2020, to the extent they are issued and outstanding, because their effect would be anti-dilutive.

The number of shares that may be issued for share-based payment awards under the Company’s 2019 Long-Term Incentive Plan are excluded from the calculation of weighted average dilutive common shares for the nine months ended September 30, 2021 and 2020, to the extent they are issued and outstanding, because their effect would be anti-dilutive.

On May 29, 2020, the Company entered into a Membership Interest Purchase Agreement (the "Purchase Agreement") whereby the Company purchased all of the outstanding equity securities of Sport Defense LLC, a Delaware limited liability company ("Sports Defense"), from the members of Sport Defense (the "Sellers").

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as such term is defined by Rule 144 promulgated under the Securities Act of 1933, as amended.

Adam Levy, the Company's Chief Executive Officer and Chief Financial Officer, and Nachum Stein, a member of the Company's Board of Directors (the "Board"), were each members of Sport Defense and part of the Sellers.

Adam Levy, the Company's Chief Executive Officer, and Nachum Stein, a member of the Company's Board of Directors (the "Board"), were each members of Sport Defense and part of the Sellers.

Levy received 1,546,875 of the Shares and Mr.

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Stein recused himself from the vote of the Board regarding the approval to purchase Sport Defense.

The Purchase Agreement and the Sport Defense acquisition were not subject to approval by the shareholders of the Company.

The Purchase Agreement contained minimal representations and warranties regarding Sport Defense and certain limited representations and warranties regarding the Company and the Sellers.

The provisional fair value of the purchase consideration issued to the Seller was allocated to the net tangible assets acquired.

The fair value of the purchase consideration issued to the Seller was allocated to the net tangible assets acquired.

The Company accounted for the Sports Defense acquisition as the purchase of a business under GAAP under the acquisition method of accounting, and the assets and liabilities acquired were recorded as of the acquisition date, at their respective fair values and consolidated with those of the Company.

The fair value of the net assets acquired was approximately $ 375 thousand.

The fair value of the net assets acquired was approximately $ 375,000 .

The excess of the aggregate fair value of the net tangible assets has been allocated to goodwill.

1 unchanged sentence

The final purchase price allocation for Sports Defense's will be included in the Company's financial statements in future periods.

The table below shows preliminary analysis for the Sports Defense acquisition:

The table below shows analysis for the Sports Defense acquisition ($in thousands):

Provisional Purchase Consideration at preliminary fair value:

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Consideration paid

Preliminary goodwill

The unaudited pro-forma results of operations are presented for information purposes only.

The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the Sports Defense acquisition been completed as of January 1, 2019 or to project potential operating results as of any future date or for any future periods.

For the Six Months Ended

For the Nine Months Ended

September 30,

Revenues, net

5 unchanged sentences

The right-of-use asset and lease liability from this operating lease were recognized in the opening balance sheet as of January 1, 2019 and are based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rate.

The following table presents information about the amount and timing of the liability arising from the Company’s operating lease as of June 30, 2021 ($ in thousands):

The following table presents information about the amount and timing of the liability arising from the Company’s operating lease as of September 30, 2021 ($ in thousands):

Maturity of Lease Liability

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Weighted average discount rate

Total operating lease expense for the three months ended June 30, 2021 and 2020 was $ 103 thousand and $ 6 thousand related to the lease extension, and is recorded in cost of goods sold and selling, general and administrative expenses on the statement of operations under Accounting Standards Codification Topic 840, Leases.

Total operating lease expense for the nine months ended September 30, 2021 and 2020 was $ 192 thousand and $ 156 thousand related to the lease extension, and is recorded in cost of goods sold and selling, general and administrative expenses on the statement of operations under Accounting Standards Codification Topic 840, Leases.

Supplemental cash flows information related to leases was as follows ($ in thousands):

September 30,

Cash paid for amounts included in the measurement of lease liability:

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Inventory consists of the following ($ in thousands):

September 30,

Raw materials

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Property and equipment consist of the following ($ in thousands):

September 30,

Machinery and equipment

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Property and equipment, net

Depreciation and amortization expense for the six months ended June 30, 2021 and 2020 was $ 49 thousand and $ 21 thousand, respectively.

Depreciation and amortization expense for the nine months ended September 30, 2021 and 2020 was $ 75 thousand and $ 31 thousand, respectively.

Intangible Assets

The following provides a breakdown of identifiable intangible assets as of June 30, 2021 and December 31, 2020:

The following provides a breakdown of identifiable intangible assets as of September 30, 2021 and December 31, 2020 ($ in thousands:

September 30,

Product/Technology Related

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In connection with the acquisitions of Sports Defense, the Company identified intangible assets of $ 55 thousand representing technology related and customer related intangibles.

These assets are being amortized on a straight-line basis over their weighted average estimated useful life of 4.7 years and amortization expense amounted to $ 7 thousand for the six months ended June 30, 2021.

As of June 30, 2021, the estimated annual amortization expense for each of the next five fiscal years is as follows:

These assets are being amortized on a straight-line basis over their weighted average estimated useful life of 4.7 years and amortization expense amounted to $ 10 thousand for the nine months ended September 30, 2021.

As of September 30, 2021, the estimated annual amortization expense for each of the next five fiscal years is as follows:

2021 (remainder of year)

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Accrued expenses and other current liabilities consist of the following ($ in thousands):

September 30,

Salaries, benefits and incentive compensation

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The warrants are exercisable for 3 years at an exercise price equal to $ 0.04 .

As of June 30, 2021, the Company has reserved common stock for issuance in relation to the following:

As of September 30, 2021, the Company has reserved common stock for issuance in relation to the following:

Share-based compensation plan

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The Company’s revenues are concentrated in a small group of customers with some individually having more than 10 %of total revenues.

Revenues from three customers that exceeded 10 % of total revenues for the period ended June 30, 2021 were 28 %, 24 %, and 16 %.

The accounts receivable from the top three customers were 13 %, 0 %, and 44 % as well as 25 % from one other customer of the total accounts receivable as of June 30, 2021.

Revenues from three customers that exceeded 10 % of total revenues for the period ended June 30, 2020 were 23 %, 27 % and 39 %.

The accounts receivable from the four customers were 59 %, 13 %, 12 %, and 11 % as of June 30, 2020.

Revenues from three customers that exceeded 10 % of total revenues for the period ended September 30, 2021 were 33 %, 38 %, and 24 %.

The accounts receivable from the top three customers were 16 %, 17 %, and 0 % as well as 18 % from one other customer of the total accounts receivable as of September 30, 2021.

Revenues from three customers that exceeded 10 % of total revenues for the period ended September 30, 2020 were 13 %, 26 % and 45 %.

The accounts receivable from the same three customers were 0 %, 42 %, and 37 % of the total accounts receivable as of September 30, 2020.

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash.

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Incentive stock options

On September 9, 2021, the Company granted Yaakov Spinrad, Miranda J.

Toledano and Adam Levy, members of the Company Board, an option to purchase up to 500,000 each of the Company’s common stock at a per share exercise price of $ 0.15 under the Company’s 2019 under the Company’s 2019 Long-Term Incentive Plan.

This option awards vest in four equal calendar quarterly installments beginning on October 1, 2021.

In consideration for their appointment to the Board, each of the Board Appointees received a non-qualified stock option to purchase 500,000 shares of the Company’s common stock, par value $ 0.001 , pursuant to the NexGel Inc.

2019 Long-Term Incentive Plan with a per share exercise price of $ 0.15 which will vest in four equal calendar quarterly installments beginning on October 1, 2021.

Additionally, in anticipation to Ms.

Toledano acting as the Chairperson of to-be-formed Audit Committee and, in consideration for acting as the Chairperson, the Board has agreed to pay Ms.

Toledano a calendar quarter cash retainer of $ 10,000 ;

provided, however, such cash retainer shall not be payable unless and until the Company’s common stock becomes listed on a national securities exchange.

On March 8, 2021, the Company granted Dr.

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each of Messrs.

Stefansky and Stein received two annual awards of stock options equal to $ 40,000 of the Company's common stock, granted under the Company 2019 Long-Term Incentive Plan (the "Incentive Plan"), with (i) the first grant being the right to purchase up to 2,857,141 shares of the Company's common stock at a per share exercise price of $ 0.014 with one-half of such option vesting on March 31, 2020 and the remaining one-half vesting in equal installments on June 30, 2020 and September 30, 2020, respectively, and with an acceleration of any unvested options upon the departure of applicable Board member from the Board for any reason and (ii) the second grant being the right to purchase up to a number of shares of the Company's common stock equal to $ 40,000 divided by the Fair Market Value (as defined in the Incentive Plan) of the Company's common stock as of October 10, 2020 at a per share exercise price equal to Fair Market Value of the Company's common stock as of October 10, 2020, which the Board determined to be $ 0.06 and equates to 666,667 shares underlying each of the second grants, with one-fourth of such option vesting on each of December 31, 2020, March 31, 2021, June 30, 2021 and September 30, 2021, respectively, and with an acceleration of any unvested options upon the departure of applicable Board member from the Board for any reason.

The following table contains information about the 2019 Plan as of June 30, 2021:

Stefansky and Stein received two annual awards of stock options equal to $ 40,000 of the Company's common stock, granted under the Company 2019 Long-Term Incentive Plan (the "Incentive Plan"), with (i) the first grant being the right to purchase up to 2,857,141 shares of the Company's common stock at a per share exercise price of $ 0.014 with one-half of such option vesting on March 31, 2020 and the remaining one-half vesting in equal installments on June 30, 2020 and September 30, 2020, respectively, and with an acceleration of any unvested options upon the departure of applicable Board member from the Board for any reason and (ii) the second grant being the right to purchase up to a number of shares of the Company's common stock equal to $ 40,000 divided by the Fair Market Value (as defined in the Incentive Plan) of the Company's common stock as of October 10, 2020 at a per share exercise price equal to Fair Market Value of the Company's common stock as of October 10, 2020, which the Board determined to be $ 0.06 and equates to 666,667 shares underlying each of the second grants, with all of these options having vested as of September 30, 2021.

The following table contains information about the 2019 Plan as of September 30, 2021:

Available for

Awards Issued

The following table summarizes the Company’s incentive stock option activity and related information for the period ended December 31, 2020 and for the period ended June 30, 2021:

The following table summarizes the Company’s incentive stock option activity and related information for the period ended December 31, 2020 and for the period ended September 30, 2021:

Term in Years

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Outstanding at December 31, 2020

Outstanding at June 30, 2021

Exercisable at June 30, 2021

As of June 30, 2021, vested outstanding stock options had $ 988 thousand intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock.

As of June 30, 2021, there was approximately $ 75 thousand of total unrecognized share-based compensation related to unvested stock options, which the Company expects to recognize over the next 12 months .

( 1,000,000 )

Outstanding at September 30, 2021

Exercisable at September 30, 2021

As of September 30, 2021, vested outstanding stock options had $ 988 thousand intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock.

As of September 30, 2021, there was approximately $ 247 thousand of total unrecognized share-based compensation related to unvested stock options, which the Company expects to recognize over the next 12 months .

The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award.

The service period is generally the vesting period.

The following assumptions were used to calculate share-based compensation expense for six months ended June 30, 2021:

The following assumptions were used to calculate share-based compensation expense for six months ended September 30, 2021:

171.12 %- 183.48

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( 1,383,333 )

Outstanding at June 30, 2021

Exercisable at June 30,2021

Outstanding at September 30, 2021

Exercisable at September 30,2021

Under ASC 718, Compensation-Stock Compensation (“ASC 718”), the Company has measured the value of its February 2020 award as if it were vested and issued on the grant date with a value of $ 83 thousand based on the closing price of the Company's stock at the grant date of the RSU Grant ($ 0.014 per share).

An additional issuance of 1,383,333 shares was granted based on a closing price of the closing price of the Company’s stock at the grant date of the RSU Grant ($ 0.06 per share).

As of June 30, 2021, there was approximately $ 21 thousand of total unrecognized share-based compensation related to restricted stock awards, which the Company expects to recognize over the next 6 months.

Compensation expense will be recognized ratably over the total vesting schedule.

The Company will periodically adjust the cumulative compensation expense for forfeited awards.

Stock based compensation of $ 143 thousand and $ 104 thousand has been recorded for the six months ended June 30, 2021 and 2020, respectively.

The following table shows a summary of common stock warrants through June 30, 2021:

Stock based compensation of $ 167 thousand and $ 187 thousand has been recorded for the nine months ended September 30, 2021 and 2020, respectively.

The following table shows a summary of common stock warrants through September 30, 2021:

Term in Years

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Outstanding at December 31, 2020

Outstanding at June 30, 2021

Exercisable at June 30, 2021

As of June 30, 2021, vested outstanding warrants had $ 561 thousand intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock.

Outstanding at September 30, 2021

Exercisable at September 30, 2021

As of September 30, 2021, vested outstanding warrants had $ 561 thousand intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock.

On April 22, 2020, the Company, entered into a promissory note (the “Promissory Note”) with PNC Bank, N.A.

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The Company used the proceeds from the PPP Loan for qualifying expenses and plans to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act.

However, the Company cannot completely assure at this time that such forgiveness of the PPP Loan will occur.

However, the Company cannot completely assure at this time that such forgiveness of the PPP Loan, under Phase II, will occur.

On June 2, 2021, the Company received notice from PNC Bank that its initial loan of $ 147,300 had been forgiven in its entirety by the SBA.

The balance of the PPP loan as of June 30, 2021 and December 31, 2020 amounts to $ 127,400 and $ 147,300 , respectively.

The balance of the PPP loan as of September 30, 2021 and December 31, 2020 amounts to $ 127,400 and $ 147,300 , respectively.

Economic Injury Disaster Loan

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Installment payments, including principal and interest, are due monthly beginning May 28, 2021 (twelve months from the date of the SBA Note) in the amount of $ 1,270 .

The SBA has deferred the initial installment payments until May 28, 2022.

The balance of principal and interest is payable thirty years from the date of the SBA Note.

In connection therewith, the Company received an $ 8,000 advance, which does not have to be repaid.

The balance of the EIDL Loan as of June 30, 2021 and December 31, 2020 amounts to $ 271,163 and $ 266,279 , respectively.

The balance of the EIDL Loan as of September 30, 2021 and December 31, 2020 amounts to $ 273,606 , including accrued interest of $ 13,106 , and $ 266,279 , including accrued interest of $ 5,780 , respectively.

Convertible Notes Payable

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Auctus Fund Financing

On March 11, 2021 (the “Issuance Date”), the Company entered into a securities purchase agreement (the “Auctus Purchase Agreement”) with Auctus Fund, LLC, a Delaware limited liability company (“Auctus”), pursuant to which the Company issued to Auctus a senior secured convertible promissory note in the principal amount of $ 1,500,000 (the “Auctus Note”).

The net proceeds received by the Company were $ 1,337,000 (after deducting fees and expenses related to the transaction, including a payment to Alere (as defined and discussed below).

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The Auctus Amendment is attached to this Form 10-Q as Exhibit 10.1 and is incorporated herein by reference.

On October 28, 2021, the Company and Auctus Fund, LLC entered a Second Amendment to the Senior Secured Promissory Note, Warrants and Securities Purchase Agreement dated March 11, 2011 (the “Auctus Second Amendment”).

The Auctus Second Amendment is fully described in a Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on November 3, 2021 and is attached to this Form 10-Q as Exhibit 10.1 and is incorporated herein by reference.

The Auctus Note has a maturity date of one year from the Issuance Date.

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provided, however, that Auctus may not convert any portion of the Auctus Note that would cause it to beneficially own in excess of 4.99 % of the Company’s common stock.

The conversion price and number of shares of the Company’s common stock issuable upon conversion of the Auctus Note will be subject to adjustment from time to time for any subdivision or consolidation of shares and other standard dilutive events.

The Auctus Note (as amended by the Auctus Amendment) contains a number of events of default, including but not limited to the following:

(i) the Company’s failure to be quoted or listed (as applicable) on the OTCQB, OTCQX, any tier of the NASDAQ Stock Market, the New York Stock Exchange, or the NYSE American by October 31, 2021 (the “Trading Date”) and (ii) the Company’s failure to file a registration statement covering the Auctus’ resale at prevailing market prices (and not fixed prices) of all of the common stock underlying the Auctus Note and the Auctus Warrants (as defined below) within 30 calendar days following the Issuance Date, (ii) cause the registration statement to become effective by the Trading Date.

The conversion price and number of shares of

the Company’s common stock issuable upon conversion of the Auctus Note will be subject to adjustment from time to time for any subdivision or consolidation of shares and other standard dilutive events.

The Auctus Note (as amended by the Auctus Amendment and Auctus Second Amendment) contains a number of events of default, including but not limited to the following:

(i) the Company’s failure to be quoted or listed (as applicable) on the OTCQB, OTCQX, any tier of the NASDAQ Stock Market, the New York Stock Exchange, or the NYSE American by December 15, 2021 (the “Trading Date”) and (ii) the Company’s failure to file a registration statement covering the Auctus’ resale at prevailing market prices (and not fixed prices) of all of the common stock underlying the Auctus Note and the Auctus Warrants (as defined below) within 30 calendar days following the Issuance Date, (ii) cause the registration statement to become effective by the Trading Date.

An event of default is subject to a confession of judgement against the Company in the favor of Auctus.

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Alere’s warrants are in a customary form reasonably acceptable to Alere and exercisable for 3 years .

Levy, the Company’s Chief Executive Officer and Chief Financial Officer, is affiliated with Alere but has waived any portion of such fee received by Alere to which he is entitled as an affiliate of Alere.

As of June 30, 2021, the note outstanding was $ 510,904 , which consisted of unamortized balance of $ 852,288 of a beneficial conversion and warrant features, unamortized original issue discount of $ 125,260 and unamortized debt issuance costs of $ 191,547 .

Levy, the Company’s Chief Executive Officer, is affiliated with Alere but has waived any portion of such fee received by Alere to which he is entitled as an affiliate of Alere.

As of September 30, 2021, the Auctus Fund Financing note outstanding was $ 510,904 , which consisted of unamortized balance of $ 852,288 of a beneficial conversion and warrant features, unamortized original issue discount of $ 125,260 and unamortized debt issuance costs of $ 191,547 .

Investor Private Placement Offering

On September 2, 2021, the Company conducted a closing of a private placement offering (the “September 2 Offering”) with twenty accredited investors (the “September 2 Investors”) whereby the Company entered into a securities purchase agreement (the “September Purchase Agreement”) with the Investors pursuant to which the Company issued to the Investors subordinated secured convertible promissory notes in the aggregate principal amount of $ 1,620,000 (the “September 2 Notes”).

The net proceeds received by the Company were $ 1,504,400 (after deducting fees owed to its placement agent, Alere (as defined and discussed below)).

The Company intends to use the net proceeds for working capital and general corporate purposes.

The Notes have a maturity date of one year from September 2, 2022.

The Notes bear interest at a rate of 12 % per annum, which is also payable on maturity, with the understanding that the first 12 months of interest (equal to an aggregate of $ 194,400 ) is guaranteed and deemed to be earned in full as of September 2, 2021.

In the event the Company fails to pay any amount when due under the September 2 Notes, the interest rate will increase to the greater of 18 % or the maximum amount permitted by law.

The Notes may be prepaid during the first 180 calendar days from September 2, 2021 subject to a 110 % prepayment penalty on all principal and accrued but unpaid interest then outstanding.

The Notes may not be prepaid in whole or in part after 180 calendar days from September 2, 2021.

The September 2 Investors may convert any amount due under the September 2 Notes at any time, and from time to time, into shares of the Company’s common stock at a conversion price of $ 0.15 per share;

provided, however, that the Investors may not convert any portion of the September 2 Notes that would cause such Investor to beneficially own in excess of 4.99 % of the Company’s common stock.

The conversion price and number of shares of the Company’s common stock issuable upon conversion of the September Notes will be subject to adjustment from time to time for any subdivision or consolidation of shares and other dilutive events.

The September 2 Notes contain a number of events of default, including but not limited to the Company’s failure to file a registration statement covering the Investors’ resale of all of the common stock underlying the September 2 Notes and the September 2 Warrants (as defined below) upon the earlier of 30 calendar days following the effectiveness of a registration statement relating to an underwritten public offering of the Company or December 31, 2021, and cause such registration statement to become effective within 150 calendar days following the initial filing date.

Additionally, the September 2 Notes are secured by all of the assets of the Company pursuant to a security agreement that was entered into in connection with the issuance of the September 2 Notes (the “September 2 Security Agreement”);

provided, however, the Security Agreement will automatically terminate on the business day immediately preceding the Company’s common stock being quoted or listed for trading on the OTCQB Marketplace, OTCQX, any tier of the NASDAQ, Stock Market, the New York Stock Exchange, or the NYSE American assuming that no event of default under the Notes then exists.

The secured interest in all of the Company’s assets granted to the Investors is subordinated to a first priority secured interest previous granted to Auctus Fund, LLC pursuant to the terms of a September 2 Subordination Agreement (the “September 2 Subordination Agreement”).

In connection with the issuance of the Notes, the Investors were also issued five-year warrants to purchase up to an aggregate of 10,800,000 shares of the Company’s common stock (the “September Warrant Shares”) at an exercise price of $ 0.15 per share (the “September 2 Warrants”).

The Investors may not exercise the September 2 Warrants with respect to any number of September 2 Warrant Shares that would cause such Investor to beneficially own in excess of 4.99 % of the Company’s common stock.

The September 2 Warrants may be exercised for cash, or, if the “market price” of the Company’s common stock is greater than the Spetmeber 2 Warrant’s exercise price, and there is not an effective registration statement covering the September 2 Warrant Shares, the Septmeber 2 Warrants may be exercised on a cashless basis.

The number of shares of common stock to be deliverable upon exercise of the September 2 Warrants is subject to adjustment for subdivision or consolidation of shares and other standard dilutive events, or in the event the Company effects a reorganization, reclassification, merger, consolidation, disposition of assets, or other fundamental transaction.

Pursuant to the September 2 Purchase Agreement, the Company agreed that, while any amount remains unpaid under the September 2 Notes, it would not sell securities on more favorable terms than those provided to the Investors, without adjusting the Investors’ terms accordingly.

This right will terminate as of the Post Lock-Up Termination Date (as defined in the September 2 Purchase Agreement).

Further, among other things, the Company agreed that, while any amount remains unpaid under the Notes, it would not enter into any variable rate transactions.

In connection with the issuance of the September 2 Notes, the Company entered into a registration rights agreement with the September 2 Investors (the “September 2 Registration Rights Agreement”) whereby the Company agreed to file a registration statement covering the September 2 Investors’ resale of all of the common stock underlying the September 2 Notes and the September 2 Warrants upon the earlier of 30 calendar days following the effectiveness of a registration statement relating to an underwritten public offering of the Company or December 31, 2021 and cause such registration statement to become effective within 150 calendar days following the initial filing date.

In connection with the September 2 Offering, the Investors entered into a Lock-Up Agreement (the “Lock-Up Agreement”) whereby each Investor agreed not to sell certain percentages of the equity such Investor owns in the Company for a certain period of time subsequent to an initial public offering of the Company’s equity.

Alere Financial, a division of Cova Capital Partners, LLC (“Alere”), served as the placement agent for the September 2Notes and received a total cash fee equal to $ 115,600 and warrants to purchase up to 770,667 shares of the Company’s common stock, with a term of five years , at a per share exercise price of $ 0.15 .

Levy, the Company’s Chief Executive Officer, is affiliated with Alere but has waived any portion of such fee received by Alere to which he is entitled as an affiliate of Alere.

As of September 30, 2021, the September 2 Notes’ outstanding balance was $ 250,710 , which consisted of unamortized balance of $ 1,277,536 of a beneficial conversion and warrant features, unamortized original issue discount of $ 179,446 and unamortized debt issuance costs of $ 106,708 .

Warrant Liability

On March 11, 2021, February 3, 2021, December 24, 2020, March 18, 2020, September 10, 2019 and November 6, 2019, the Company issued 1,200,000 , 260,000 , 255,000 , 1,550,000 , 1,250,000 and 4,000,000 warrants, respectively, as equity issuance consideration, in connection with a private placement of the Company’s common stock.

On September 2, 2021, March 11, 2021, February 3, 2021, December 24, 2020, March 18, 2020, September 10, 2019 and November 6, 2019, the Company issued 770,667 , 1,200,000 , 260,000 , 255,000 , 1,550,000 , 1,250,000 and 4,000,000 warrants, respectively, as equity issuance consideration, in connection with a private placement of the Company’s common stock.

The warrants entitle the holder to purchase one share of our common stock at an exercise price equal to $ 0.014 to $ 0.15 per share at any time on or after their issuance date and on or prior to the close of business 3 years after the issuance date (the “Termination Date”).

7 unchanged sentences

Stock Price (8)

(annual) (10)

per share (11)

September 2, 2021 (1)

September 2, 2024

March 11, 2021 (2)

15 unchanged sentences

Stock Price (8)

(annual) (10)

per share (11)

June 30, 2021

September 30, 2021 (1)

September 2, 2024

September 30, 2021 (2)

March 11, 2024

0.00946 - 0.00941

June 30, 2021

September 30, 2021 (3)

February 3, 2024

June 30, 2021

September 30, 2021 (4)

December 24, 2020

June 30, 2021

September 30, 2021 (5)

March 18, 2020

June 30, 2021

September 30, 2021 (6)

June 30, 2021

September 10, 2022

September 30, 2021 (7)

November 6, 2022

Black-Scholes Assumptions

(annual) (10)

per share (11)

7 unchanged sentences

November 6, 2022

(1) Based on the terms provided in the warrant agreement related to the issuance of common stock of on September 2 nd , 2021

(2) Based on the terms provided in the warrant agreement related to the issuance of common stock of on March 11 th , 2021

26 unchanged sentences

The notes were repaid in March 2021.

On September 2, 2021, the Company issued three Secured Convertible Promissory Notes to members of of the board of directors in an aggregate amounts of $ 150,000 to Mr.

Stein, $ 150,000 to Mr.

Stefansky (Bezalel Partners, LLC), and $ 50,000 to Dr.

Zeldis (See Note 14).

Jerome Zeldis, a member of the Company Board, has an outstanding balance due of $ 30,000 for services as of December 31, 2020.

2 unchanged sentences

On May 29, 2020, the Company entered into a Membership Interest Purchase Agreement whereby the Company purchased all of the outstanding equity securities of Sport Defense LLC.

, Adam Levy, the Company’s Chief Executive Officer and Chief Financial Officer, and Nachum Stein, a member of the Company’s Board of Directors (the “Board”), were each members of Sport Defense and part of the Sellers.

Adam Levy, the Company’s Chief Executive Officer and Chief Financial Officer, and Nachum Stein, a member of the Company’s Board of Directors, were each members of Sport Defense and part of the Sellers.

Levy received 1,546,875 of the shares and Mr.

1 unchanged sentence

Subsequent Events

The Company has evaluated subsequent events for the potential recognition or disclosure through August 16, 2021, the date the financial statements were available to be issued, and has determined that the following matter should be disclosed in the accompanying condensed financial statements.

On August 2, 2021, the Company filed an amendment to its certificate of incorporation to decrease the number of the Company’s authorized shares of common stock from 3,000,000,000 shares of common stock to 750,000,000 shares of common stock.

On August 13, 2021, the Company and Auctus Fund, LLC entered a First Amendment to the Senior Secured Promissory Note, Warrants and Securities Purchase Agreement dated March 11, 2011 (the “Auctus Amendment”).

The Auctus Amendment is attached to this Form 10-Q as Exhibit 10.1, is incorporated herein by reference and is more fully described in Footnote 14 above.

The Company has evaluated subsequent events for the potential recognition or disclosure through November [10], 2021, the date the financial statements were available to be issued, and has determined that the following matter should be disclosed in the accompanying condensed financial statements.

Auctus Fund Second Amendment

Adam Levy Executive Employment Agreement

On November 4, 2021, we entered into an employment agreement with Adam Levy, the Company’s current Chief Executive Officer and President.

Levy has served as our Chief Executive Officer and President since September 10, 2019 without an employment agreement.

Levy has also served as a member of our Board of Directors since September 9, 2021.

Levy was approved be all of the disinterested members of the Board of Directors pursuant to the Delaware General Corporation Law.

Levy’s agreement will become effective upon our common stock being initially listed for trading on any tier of the NASDAQ Stock Market, the New York Stock Exchange, the NYSE American, or any other national securities exchange, which would occur if this offering is successful (the “Initial Public Offering”).

The term of the agreement is for one year from the effective date.

Levy’s agreement becomes effective, Mr.

Levy would be paid a base salary of $ 300,000 per year.

Additionally, Mr.

Levy would be eligible for cash bonuses as follows:

(i) $ 33,000 in the event the we achieve net income for two consecutive fiscal calendar quarters for the period which is one year after the Initial Public Offering (the “Net Income Bonus”) and (ii) $ 67,000 in the event the average closing price of our common stock over any consecutive three month period during the first year subsequent to the Initial Public Offering equals or exceeds one hundred and fifty percent ( 150 %) the price per share at which our common stock is sold at the Initial Public Offering (the “Trading Price Bonus”).

Both the Net Income Bonus and the Trading Price Bonus may be earned if both thresholds are achieved or either the Net Income Bonus or the Trading Price Bonus may be earned if only one of the thresholds is achieved.

The Net Income Bonus and the Trading Price Bonus shall survive the termination of Mr.

Levy so long as the termination is not for cause (as defined in the agreement) and the applicable thresholds are achieved within the one year period after the Initial Public Offering.

Upon effectiveness of the agreement, Mr.

Levy will also receive a grant of shares of our common stock equal to $ 50,000 divided by the per share price at which our common stock is sold at the Initial Public Offering (the “Equity Grant”).

The Equity Grant would vest in twelve equal monthly installments (subject to any rounding adjustments) during the term of the agreement with the first installment vesting on the effective date.

Levy would also be eligible to receive, from time to time, additional equity awards under our existing equity incentive plan, or any other equity incentive plan we may adopt in the future, and the terms and conditions of such awards, if any,

would be determined by our Board of Directors or Compensation Committee, in their discretion.

Levy would also be eligible to participate in any benefit plan or program we adopt.

Pursuant to Mr.

Levy’s agreement, if Mr.

Levy’s employment is terminated upon his disability, Mr.

Levy would be entitled to receive, in addition to other unpaid amounts owed to him (e.g., for base salary, accrued personal time and business expenses):

(i) his then base salary for a period of three months (in accordance with our general payroll policy) commencing on the first payroll period following the fifteenth day after termination of employment and (ii) substantially similar coverage under our then-current medical, health and vision insurance coverage for a period of three months.

Additionally, if Mr.

Levy’s employment is terminated for disability, the vesting of any option grants would continue to vest pursuant to the schedule and terms previously established during the three month severance period.

Subsequent to the three month severance period the vesting of any option grants would immediately cease.

The severance benefits described above are collectively referred to in this Form 10-Q as the “Severance Benefits”.

Pursuant to Mr.

Levy’s agreement and during the initial six months of the term of the agreement, if Mr.

Levy resigns for good reason (as defined in the agreement) or is terminated by us without cause (as defined in the agreement), Mr.

Levy would be entitled to receive (i) his then base salary (in accordance with our general payroll policy) commencing on the first payroll period following the fifteenth day after termination of employment and (ii) substantially similar coverage under our then-current medical, health and vision insurance coverage for a period of one year.

Pursuant to Mr.

Levy’s agreement and subsequent to the initial six months of the term of the agreement, if Mr.

Levy resigns for good reason or is terminated by us without cause or if we fail to enter into a new employment agreement with Mr.

Levy at the end of term of the agreement after bona fide and good faith negotiation between us and Mr.

Levy would be entitled to receive Severance Benefits for a period of one year less one month for each month (on a pro-rated basis) such termination or resignation occurs subsequent to the initial six month anniversary of the term (the “Adjusted Severance Period”).

For example, in the event Mr.

Levy is terminated without cause or resigns for good reason at the end of the eight month anniversary of the effective date, Mr.

Levy would be entitled to an Adjusted Severance Period of ten months.

If we terminate Mr.

Levy’s employment for cause or employment terminates as a result of Mr.

Levy’s resignation (without good reason) or death, Mr.

Levy would only be entitled to any salary earned but unpaid prior to termination, all accrued but unused personal time, and any business expenses that were incurred but not reimbursed as of the date of the termination.

Vesting of any option grants would immediately cease.

Levy’s agreement also contains certain non-competition, non-solicitation, confidentiality, and assignment of inventions provisions whereby Mr.

Levy is subject to non-competition and non-solicitation restrictions for a period of one year and two years following termination of his employment respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements