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Item 8. Financial Statements and Supplementary Data

2022-03-21 compared with 2021-03-31 · 537 added, 1002 removed, 286 unchanged (84% of the section changed)

Financial Statements and Supplementary

FINANCIAL STATEMENTS - TABLE OF CONTENTS

Financial Statements and Supplementary Data

CONSOLIDATED FINANCIAL STATEMENTS - TABLE OF CONTENTS

For the Years Ended December 31, 2021 and 2020

Report of Independent Registered Public

Accounting Firm

Audited Financial Statements:

Balance Sheets at December 31,

2020 and 201 9

Statements of Operations for the years ended December 31,

2020 and 201 9

Statements of Stockholders' Equity for the years ended

December 31, 2020 and 201 9

Statements of Cash Flows for the years ended December 31,

2020 and 201 9

Report of Independent Registered Public Accounting Firm

Consolidated Financial Statements:

Balance Sheets at December 31, 2021 and 2020

Statements of Operations for the years ended December 31, 2021 and 2020

Statements of Stockholders' Equity for the years ended December 31, 2021 and 2020

Statements of Cash Flows for the years ended December 31, 2021 and 2020

Notes to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of NexGel, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets

of NexGel, Inc.

(the “Company”) as of December 31, 2020 and 2019 and the related statements of operations, stockholders’

equity and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December

31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles

generally accepted in the United States of America.

Explanatory Paragraph –

Going Concern

The accompanying financial statements have been

prepared assuming that the Company will continue as a going concern.

As more fully described in Note 2, the Company has incurred significant

losses and needs to raise additional funds to meet its obligations and sustain its operations.

These conditions raise substantial doubt

about the Company’s ability to continue as a going concern.

Management’s plans in regard to these matters are also described

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Opinion on the Consolidated Financial Statements

We have audited the accompanying balance sheets of NexGel, Inc.

(the “Company”) as of December 31, 2021 and 2020 and the related statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial

statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged

to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ Turner, Stone & Company, L.L.P.

We have served as the Company’s auditor since 2019.

Dallas, Texas

March 21, 2022

We have served as the Company’s auditor

BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

20 unchanged sentences

Total liabilities

Commitments and Contingencies

Commitments and Contingencies (Note 17)

Preferred Stock, par value $ 0.001 per share, 5,000,000 shares authorized, no shares issued and outstanding

5 unchanged sentences

Total liabilities and stockholders' equity

The accompanying notes are an integral part of

these financial statements.

STATEMENTS OF OPERATIONS

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

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

4 unchanged sentences

Operating expenses

Research and development

Selling, general and administrative

3 unchanged sentences

Change in fair value of warrant liability

Forgiveness of debt

Debt discount costs

Loss on debt extinguishment

Interest expense

Total other income (expense)

Net loss per common share - basic

Net loss per common share - diluted

Weighted average shares used in computing net loss per common share - basic

Weighted average shares used in computing net loss per common share –

The accompanying notes are an integral part of

these financial statements.

STATEMENTS OF STOCKHOLDERS’

Net loss per common share - diluted and diluted

Weighted average shares used in computing net loss per common share - basic and diluted

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

Parent’s

Stockholders’

Balance, January 1, 2019

Transfers from parent

Reclassification of parent’s net investment in connection with spin-off, June 21, 2019

Common stock distributed in connection with spin-off, June 21, 2019

Issuance of common stock, net of issuance costs

Share-based compensation

Balance, December 31, 2019

6 unchanged sentences

Balance, December 31, 2020

The accompanying notes are an integral part of

these financial statements.

Stockholders'

Balance, December 31, 2020

Issuance of common stock, net of issuance costs

Restricted stock vesting

Beneficial conversion and warrant features of convertible debt

Exercise of stock options

Share-based compensation

Derivative liability - COVA

Share adjustment for stock split rounding

Balance, December 31, 2021

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

STATEMENTS OF CASH FLOWS

5 unchanged sentences

Share-based compensation

Changes in ROU asset and operating lease liability

Forgiveness of debt

Changes in fair value of warrant liability

Loss of extinguishment of debt

Amortization of deferred financing costs

Beneficial conversion feature in excess of face value

Changes in operating assets and liabilities:

12 unchanged sentences

Proceeds from convertible notes

Net distributions from Former Parent

Payment of financing costs

Principal payment of notes payable

Principal payment on convertible notes

Proceeds from notes payable (PPP)

Net Cash Provided by Financing Activities

Net Increase (Decrease) in Cash

Cash  – Beginning of period

Cash – End of period

Cash – Beginning of period

Cash – End of period

Supplemental Disclosure of Cash Flows Information

1 unchanged sentence

Non-cash Investing and Financing Activities

Fair value of beneficial conversion and warrant features of Convertible Notes Payable

Original issue discounts recognized on Convertible Notes Payable

Warrants issued for debt and equity financing costs

Operating lease, ROU assets and liabilities

Common Shares issued for acquisition

1 unchanged sentence

Accounts payable assumed from acquisition

Intangible assets acquired from acquisition

Beneficial conversion feature

Warrants issued as equity issuance cost

Accrued construction in progress

The accompanying notes are an integral part of

these financial statements.

NOTES TO FINANCIAL STATEMENTS

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

1 unchanged sentence

Description of Business

(the “Company”

“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” or the “Company”) 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.

NexGel 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 the Company’s own consumer products using our 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.

(“AquaMed”) before changing its

name to NexGel, Inc.

(“AquaMed”) before changing its name to NexGel, Inc.

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.

(“Adynxx”

and the “Parent”)

in connection with the closing of a reverse merger between Adynxx, Inc.

and Alliqua BioMedical, Inc., (“Adynxx”)

of NexGel’s common stock for common stock of Parent.

The consolidated financial statements include the accounts of the Company and its consolidated wholly-owned subsidiary, NexGelRX, Inc.

On November 29, 2021, the Company effected a 1-for-35 reverse stock split of our issued and outstanding common stock (the “Reverse Stock Split”).

As a result of the Reverse Stock Split, each issued and outstanding share of our common stock, and the per share exercise price of and number of shares of the Company’s common stock underlying our outstanding equity awards and warrants, was automatically proportionally adjusted based on the 1-for-35 Reverse Stock Split ratio.

No fractional shares of common stock were issued in connection with the reverse stock split, and all such fractional interests were rounded up to the nearest whole number.

Except as otherwise provided herein, all share and per-share amounts of our common stock, equity awards and warrants, including the shares of common stock and warrants being offered hereby, have been adjusted to give effect to the Reverse Stock Split for all periods presented.

The Reverse Stock Split did not alter the par value of the Company’s common stock, which remains at $ 0.001 per share, modify any voting rights or other terms of our common stock, or impact the amount of preferred stock the Company is authorized to issue.

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

(“Adynxx” and the “Parent”) in connection with the closing of a reverse merger between Adynxx, Inc.

and Alliqua BioMedical, Inc., Adynxx, Inc.

was previously known as Alliqua BioMedical, Inc.

subsequently changed its name to Adynxx, Inc.

and subsequently changed its name to Adynxx, Inc.

on May 3, 2019.

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.

Pursuant to the Spin-Off and in exchange for the

5,005,211 shares of common stock, NexGel assumed the following net liabilities from Parent as of June 21, 2019 ($ in thousands):

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 143,006 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.

Pursuant to the Spin-Off and in exchange for the 143,006 shares of common stock, NexGel assumed the following net liabilities from Parent as of June 21, 2019 ($ in thousands):

Accounts receivable, net

8 unchanged sentences

Basis of Presentation

The balance sheet as of December 31, 2020

consists of the balances of NexGel as prepared on a stand-alone basis.

The balance sheet as of December 31, 2019, and the statements

of operations, stockholders’

equity, and cash flows were prepared on a “carve-out”

basis for the periods and dates prior

to the Spin-Off and include stand-alone results for the period subsequent to the date of Spin-Off.

Prior to the separation, these financial

statements were derived from the consolidated financial statements and accounting records of Adynxx, Inc.

Prior to the Spin-Off, Adynxx used a centralized

approach to cash management and financing its operations, including the operations of the Company.

Accordingly, none of the cash of Adynxx

have been attributed to the Company in the financial statements.

Transactions between Adynxx and the Company were accounted for through

Parent’s Net Investment.

The expenses, including executive compensation, have been allocated

by management based either on specific attribution of those expenses or, where necessary and appropriate, based on management’s

best estimate of an appropriate proportional allocation.

The consolidated financial statements of the Company have been prepared without audit in accordance with generally accepted accounting principles in the United States of America ("GAAP") and are presented in US dollars.

Going Concern

As of December 31, 2020, the Company had

a cash balance of $32 thousand.

For the year ended December 31, 2020, the Company incurred a net loss of $2.26 million and

had a net usage of cash in operating activities of $1.80 million.

In addition, the Company had a working capital deficit of $0 .97

million as of December 31, 2020.

From January 1, 2021 through March, 2021,

the Company entered into Securities Purchase Agreements with certain accredited investors whereby we sold 3,562,500 shares of our common

stock at a price per share equal to $0.08 for an aggregate purchase price of $285,000.

On March 4, 2021, the Company received a second PPP Loan

in the amount of $127 thousand under Phase II of the Paycheck Protection Program which commenced on January 13, 2021 and allowed

certain businesses that received an initial PPP Loan to seek a second draw PPP Loan.

On March 11, 2021, 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.

Proceeds from the offerings are expected to be

used for working capital, new product development and testing, and general business operations.

The Company is in the process of expanding its

customer base to increase revenue in order to alleviate the current going concern.

Management is exploring new product channel sales in

adjacent industries, such as cosmetics, athletic products and proprietary medical devices.

The Company has increased focused on sales

and developing a sales pipeline for potential customers.

This customer base expansion will enable us to provide financial stability for

the foreseeable future, expand our current processes, and position us for long-term shareholder value creation.

Moving forward, the Company we will be raising

additional capital and focusing on increasing revenues for the business to stabilize and become profitable.

The Company will maintain

and attempt to grow the existing contract manufacturing business.

The Company plans to continue building and developing its catalog of

consumer products for sale to branding partners.

The Company products have the ability to deliver a wide range of compounds.

we will use our in-house capabilities to create and test market additional branded products.

These products will be target marketed and

sold online through social media, television and online market places.

The Company expects to continue incurring losses

for the near-term future and may need to raise additional capital to support ongoing operations.

The ability of the Company to continue

to operate as a going concern is dependent upon its ability to raise additional capital and to ultimately achieve profitable operations.

Management is evaluating various options to raise capital to fund the Company’s working capital requirements through equity offerings.

There can be no assurances, however, that management will be able to obtain sufficient additional funds when needed, or that such funds,

if available, will be obtained on terms satisfactory to the Company.

These factors raise substantial doubt as to the Company’s ability

to continue as a going concern.

The financial statements do not include any adjustments relating to the recoverability and classification

of recorded assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

On January 30, 2020, the World Health Organization declared the

coronavirus outbreak a "Public Health Emergency of International Concern"

and on March 10, 2020, declared it to be a pandemic.

Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain

areas, and forced closures for certain types of public places and businesses.

The coronavirus and actions taken to mitigate it have had

and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical

area in which the Company operates.

While it is unknown how long these conditions will last and what the complete financial effect will

be to the company, to date, the Company could experience declining revenue, labor and supply shortages, or difficulty in raising additional

Our concentrations with a few customers and one supplier make it reasonably possible that we are vulnerable to the risk of a

near-term severe impact.

Additionally, it is reasonably possible that estimates made in the

financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including

the recoverability of long lived assets.

As of December 31, 2021, the Company had a cash balance of $ 13.35 million.

For the year ended December 31, 2021, the Company incurred a net loss of $ 4.31 million and had a net usage of cash in operating activities of $ 2.75 million.

In addition, the Company had a working capital of $ 11.04 million as of December 31, 2021.

On December 27, 2021, the Company sold an aggregate of 2,585,000 units at a price to the public of $ 5.50 per unit (the “Offering”), each unit consisting of one share of the Company’s common stock, par value $ 0.001 per share (the “Common Stock”), and a warrant to purchase one share of Common Stock at an exercise price of $ 5.50 per share (the “Warrants”), for net proceeds of $ 13.2 million.

Proceeds from the offerings are expected to be used for working capital, new product development and testing, and general business operations.

Management is exploring new product channel sales in adjacent industries, such as cosmetics, athletic products, and proprietary medical devices.

The Company has increased focused on sales and developing a sales pipeline for potential customers.

This customer base expansion will enable us to provide financial stability for the foreseeable future, expand our current processes, and position us for long-term shareholder value creation.

We have sufficient capital to maintain as a going concern due to the capital raise that occurred on December 27, 2021.

We intend to maintain and attempt to grow our existing contract manufacturing business.

We also plan to continue building and developing its catalog of consumer products for sale to branding partners and to use our in-house capabilities to create and test market additional branded products.

These products will be target marketed and sold online through social media, television and online marketplaces.

Furthermore, the Company plans to develop its own proprietary medical devices and explore drug delivery programs for its technology.

Additionally, the Company continues to evaluate strategic initiatives (e.g., acquisitions) and additional capital raises through debt or equity may be necessary to achieve these objectives.

We expect to continue incurring losses for the near-term future.

Our ability to continue to operate as a going concern in the long-term is dependent upon our ability to manage and grow our current products and to ultimately achieve profitable operations.

Management may consider various options to raise capital to fund potential acquisitions through equity or debt offerings.

There can be no assurances, however, that management will be able to obtain sufficient additional funds, if needed, or that such funds, if available, will be obtained on terms satisfactory to us.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and liabilities that might be necessary should we be unable to continue as a going concern.

Additionally, it is reasonably possible that estimates made in the consolidated financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including the recoverability of long lived assets.

Significant Accounting Policies and Estimates

Use of Estimates

The preparation of the financial statements in

conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements

and accompanying notes.

These estimates and assumptions include allowance for doubtful accounts, inventory reserves, deferred taxes, share-based

compensation and related valuation allowances and fair value of long-lived assets.

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

These estimates and assumptions include allowance for doubtful accounts, inventory reserves, deferred taxes, share-based compensation and related valuation allowances and fair value of long-lived assets.

Actual results could differ from the estimates.

Cash include cash on hand and highly liquid investments

having an original maturity of three months or less.

Cash include cash on hand and highly liquid investments having an original maturity of three months or less.

Accounts receivable, net

Trade accounts receivable are stated at the amount

the Company expects to collect and do not bear interest.

The Company evaluates the collectability of accounts receivable and records a

provision to the allowance for doubtful accounts based on factors including the length of time the receivables are past due, the current

business environment and the Company’s historical experience.

Provisions to the allowances for doubtful accounts are recorded in

selling, general and administrative expenses.

Account balances are charged off against the allowance when it is probable that the receivable

will not be recovered.

Trade accounts receivable are stated at the amount the Company expects to collect and do not bear interest.

The Company evaluates the collectability of accounts receivable and records a provision to the allowance for doubtful accounts based on factors including the length of time the receivables are past due, the current business environment and the Company’s historical experience.

Provisions to the allowances for doubtful accounts are recorded in selling, general and administrative expenses.

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 December 31, 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.

The Company evaluates inventories for excess quantities,

obsolescence or shelf-life expiration.

This evaluation includes an analysis of historical sales levels by product, projections of future

demand, the risk of technological or competitive obsolescence for products, general market conditions, and a review of the shelf-life

expiration dates for products.

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, work-in-progress,

and finished goods of $190 thousand, $22 thousand and $21 thousand on December 31, 2020, respectively, and was $113 thousand of raw

material on December 31, 2019.

As a contract manufacturer, the Company builds

its products based on customer orders and immediately ships the products upon completion of the production process.

There were no work

in progress or finished goods inventories as of December 31, 2019

Inventory and Cost of Goods Sold

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

The Company evaluates inventories for excess quantities, obsolescence, and shelf-life expiration.

This evaluation includes an analysis of historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products, general market conditions, and a review of the shelf-life expiration dates for products.

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, work-in-progress, and finished goods of $ 178 thousand, $ 88 thousand, and $ 25 thousand on December 31, 2021, respectively, and the balance was made up of raw materials, work-in-progress, and finished goods of $ 190 thousand, $ 22 thousand, and $ 21 thousand on December 31, 2020, respectively.

As a contract manufacturer, the Company builds its products based on customer orders and immediately ships the products upon completion of the production process.

The “Cost of goods sold” line item in the consolidated statements of income is comprised of the book value of inventory sold to customers during the reporting period.

When circumstances dictate that we use net realizable value as the basis for recording inventory, we base our estimates on expected future selling prices less expected disposal costs.

Research and Development

Our research and development activities focus on new and innovative products designed to support revenue growth.

Research and development expenses consist primarily of contracted development and testing efforts associated with development of products.

Shipping and Handling Revenue and Expense

Shipping and handling revenue and expense are included in our consolidated statements of operations in Revenue, net.

This is primarily through shipping fees incurred in the Amazon marketplace.

Property and equipment, net

Property and equipment is recorded at historical

cost, net of accumulated depreciation and amortization.

Depreciation is provided over the assets’

useful lives on a straight-line

Property and equipment is recorded at historical cost, net of accumulated depreciation and amortization.

Depreciation is provided over the assets’ useful lives on a straight-line basis.

Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or lease terms.

Repairs and maintenance costs are expensed as incurred.

Management periodically assesses the estimated

useful life over which assets are depreciated or amortized.

If the analysis warrants a change in the estimated useful life of property

and equipment, management will reduce the estimated useful life and depreciate or amortize the carrying value prospectively over the shorter

remaining useful life.

The carrying amounts of assets sold or retired

and the related accumulated depreciation are eliminated in the period of disposal and the resulting gains and losses are included in the

results of operations during the same period.

Management periodically assesses the estimated useful life over which assets are depreciated or amortized.

If the analysis warrants a change in the estimated useful life of property and equipment, management will reduce the estimated useful life and depreciate or amortize the carrying value prospectively over the shorter remaining useful life.

The carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the period of disposal and the resulting gains and losses are included in the results of operations during the same period.

Impairment of Long-Lived Assets

We review the recoverability of our long-lived

assets, including equipment and right-of-use assets, when events or changes in circumstances occur that indicate that the carrying value

of the asset, or asset group, may not be recoverable.

Events or circumstances that might cause management to perform impairment testing

include, but are not limited to, significant underperformance relative to historical or projected future operating results of the asset

or asset group, significant changes in the manner or use of assets or the strategy for our overall business;

and significant negative

industry or economic trends.

If indicators of potential impairment are present, management performs a recoverability test and, if necessary,

records an impairment loss.

If the total estimated future undiscounted cash flows to be generated from the use and ultimate disposition

of an asset or asset group is less than its carrying value, an impairment loss is recorded in the Company’s results of operations,

measured as the amount required to reduce the carrying value to fair value.

Fair value is determined in accordance with the best available

information per the hierarchy described under Fair Value Measurements below.

For example, the Company would first seek to identify

quoted prices or other observable market data.

If observable data is not available, Management would apply the best available information

under the circumstances to a technique such as a discounted cash flow model to estimate fair value.

Impairment analysis involves estimates

and the use of assumptions due to the inherently judgmental nature of forecasting long-term estimated inflows and outflows resulting from

the use and ultimate disposition of an asset, and determining the ultimate useful lives of assets.

Actual results may differ from these

estimates using different assumptions, which could materially impact the results of an impairment assessment.

The Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The test for impairment is required to be performed by management at least annually.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Goodwill and Intangible Assets

In applying the acquisition method of accounting, amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition, with the remainder recorded as goodwill.

Identifiable intangible assets are initially recorded at fair value using generally accepted valuation methods appropriate for the type of intangible asset.

Identifiable intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise.

Intangible assets with indefinite lives are tested for impairment within one year of acquisitions or annually as of December 31, and whenever indicators of impairment exist.

The fair value of intangible assets are compared with their carrying values, and an impairment loss would be recognized for the amount by which a carrying amount exceeds its fair value.

The Company performed the annual assessment and concluded it is more likely than not that the fair value exceeds the carrying value.

Prepaid expenses and other current assets

Prepaid expenses and other current assets is recorded

at historical cost and is primarily made up of $16 thousand and $18 thousand of prepaid insurance, and $9 thousand and $17 thousand general

prepaid expenses and other current assets in the years ended December 31, 2020 and 2019 respectively.

Other Assets is recorded at historical costs,

and as of 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

Prepaid expenses and other current assets is recorded at historical cost and is primarily made up of $ 23 thousand and $ 16 thousand of prepaid insurance, and $ 54 thousand and $ 9 thousand general prepaid expenses and other current assets in the years ended December 31, 2021 and 2020 respectively.

Other Assets is recorded at historical costs, and as of December 31, 2021 and 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.

Fair value measurements

The Company utilizes the fair value hierarchy

to apply fair value measurements.

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair values

that are either observable or unobservable.

Observable inputs reflect assumptions market participants would use in pricing an asset or

liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing

based upon its own market assumptions.

The Company utilizes the fair value hierarchy to apply fair value measurements.

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair values that are either observable or unobservable.

Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions.

The basis for fair value measurements for each level within the hierarchy is described below:

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

2 —Quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or

liabilities in markets that are not active;

or model-derived valuations whose inputs are observable or whose significant value drivers

are observable.

3 —Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable.

The Company considers the carrying amounts of

its financial instruments (cash, accounts receivable and accounts payable) in the balance sheet to approximate fair value because of the

short-term or highly liquid nature of these financial instruments.

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

Level 2 —Quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in markets that are not active;

or model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 —Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable.

The Company considers the carrying amounts of its financial instruments (cash, accounts receivable and accounts payable, notes payable and convertible notes payable) in the balance sheet to approximate fair value because of the short-term or highly liquid nature of these financial instruments.

Warrant Liability

Warrants to purchase common stock were

issued in connection with equity financing raises, which occurred on 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.

At issuance, the fair value of the warrant is recognized as an equity issuance cost

within additional paid-in-capital.

Fair value adjustments to the warrant liability are recognized in other income (expense) in the

statements of operations.

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.

At issuance, the fair value of the warrant is recognized as an equity issuance cost within additional paid-in-capital.

Fair value adjustments to the warrant liability are recognized in other income (expense) in the statements of operations.

Revenue recognition

On January 1, 2018, the Company adopted Accounting

Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

The core principle

of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that

reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

ASC 606 defines a five-step

process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue

recognition process than required under existing accounting principles generally accepted in the United States of America (“U.S.

GAAP”) including identifying performance obligations in the contract, estimating the amount of variable consideration to include

in the transaction price and allocating the transaction price to each separate performance obligation.

The Company adopted ASC 606 for

all applicable contracts using the modified retrospective method, which would have required a cumulative-effect adjustment, if any, as

of the date of adoption.

The adoption of ASC 606 did not have a material impact on the Company’s financial statements as of the

date of adoption.

On January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing accounting principles generally accepted in the United States of America (“U.S.

GAAP”) including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

The Company adopted ASC 606 for all applicable contracts using the modified retrospective method, which would have required a cumulative-effect adjustment, if any, as of the date of adoption.

The adoption of ASC 606 did not have a material impact on the Company’s consolidated financial statements as of the date of adoption.

As a result, a cumulative-effect adjustment was not required.

The Company recognizes revenue predominately from

one type of revenue, contract manufacturing.

Revenue from contract manufacturing is recognized at the point where the customer obtains

control of the goods and the Company satisfies its performance obligation, which generally is at the time it ships the product to the

The Company’s customers consist of other

life sciences companies and revenues are concentrated in the United States.

Payment terms vary by the type and location of customer and

may differ by jurisdiction and customer but payment is generally required in a term ranging from 30 to 60 days from date of shipment.

Estimates for product returns, allowances and

discounts are recorded as a reduction of revenue and are established at the time of sale.

Returns are estimated through a comparison

of historical return data and are determined for each product and adjusted for known or expected changes in the marketplace specific

to each product, when appropriate.

The Company recognizes revenue predominately from one type of revenue, contract manufacturing.

Revenue from contract manufacturing is recognized at the point where the customer obtains control of the goods and the Company satisfies its performance obligation, which generally is at the time the customer receives the product.

The Company’s customers consist of other life sciences companies and revenues are concentrated in the United States.

Payment terms vary by the type and location of customer and may differ by jurisdiction and customer but payment is generally required in a term ranging from 30 to 60 days from date of shipment.

Estimates for product returns, allowances and discounts are recorded as a reduction of revenue and are established at the time of sale.

Returns are estimated through a comparison of historical return data and are determined for each product and adjusted for known or expected changes in the marketplace specific to each product, when appropriate.

Historically, sales return provisions have not been material.

Amounts accrued for sales allowances

and discounts are based on estimates of amounts that are expected to be claimed on the related sales and are based on historical data.

Amounts accrued for sales allowances and discounts are based on estimates of amounts that are expected to be claimed on the related sales and are based on historical data.

Payments for allowances and discounts have historically been immaterial.

As of December 31, 2020 and 2019, the Company

did not have any contract assets or contract liabilities from contracts with customers.

As of December 31, 2020 and December 31,

2019, there were no remaining performance obligations that the Company had not satisfied.

Disaggregated revenue by sales type:

Contract manufacturing

Custom and white label finished goods manufacturing

NexGel branded consumer products

As of December 31, 2021 and 2020, the Company did not have any contract assets or contract liabilities from contracts with customers.

As of December 31, 2021 and December 31, 2020, there were no remaining performance obligations that the Company had not satisfied.

Share-based compensation

On August 28, 2019, the Company adopted the

2019 Long-Term Incentive Plan (the “2019 Plan”).

The 2019 Plan provides for the granting of incentive stock options, nonqualified

stock options, restricted stock, stock appreciation rights (“SARs”), restricted stock units, performance awards, dividend

equivalent rights and other awards, which may be granted singly, in combination, or in tandem, and which may be paid in cash, shares of

common stock of the Company or a combination of cash and shares of common stock of the Company.

The Company initial reserved a total of

2,000,000 shares of the Company’s common stock for awards under the 2019 Plan.

Effective as of May 26, 2020, the Board approved

an increase of the number of authorized shares of common stock reserved under the 2019 Plan from 2,000,000 shares of common stock to 17,000,000

shares of common stock all of which may be delivered pursuant to incentive stock options.

Subject to adjustments pursuant to the 2019

Plan, the maximum number of shares of common stock with respect to which stock options or SARs may be granted to an executive officer

during any calendar year is 500,000 shares of common stock.

The Company’s 2019 Long-Term Incentive Plan

provides certain employees, contractors and outside directors with share-based compensation in the form of incentive stock options, nonqualified

stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights and

other awards.

The fair values of incentive stock option award grants are estimated as of the date of grant using a Black-Scholes option

valuation model.

Compensation expense is recognized in the statements of operations on a straight-line basis over the requisite service

period, which is generally the vesting period required to obtain full vesting.

On August 28, 2019, the Company adopted the 2019 Long-Term Incentive Plan (the “2019 Plan”).

The 2019 Plan provides for the granting of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights (“SARs”), restricted stock units, performance awards, dividend equivalent rights and other awards, which may be granted singly, in combination, or in tandem, and which may be paid in cash, shares of common stock of the Company or a combination of cash and shares of common stock of the Company.

The Company initial reserved a total of 57,143 shares of the Company’s common stock for awards under the 2019 Plan.

Effective as of May 26, 2020, the Board approved an increase of the number of authorized shares of common stock reserved under the 2019 Plan from 57,143 shares of common stock to 485,714 shares of common stock all of which may be delivered pursuant to incentive stock options.

Subject to adjustments pursuant to the 2019 Plan, the maximum number of shares of common stock with respect to which stock options or SARs may be granted to an executive officer during any calendar year is 14,285 shares of common stock.

The Company’s 2019 Long-Term Incentive Plan provides certain employees, contractors, and outside directors with share-based compensation in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights and other awards.

The fair values of incentive stock option award grants are estimated as of the date of grant using a Black-Scholes option valuation model.

Compensation expense is recognized in the statements of operations on a straight-line basis over the requisite service period, which is generally the vesting period required to obtain full vesting.

Forfeitures are accounted for when they occur.

In June 2018, the FASB issued Accounting

Standards Update (“ASU”) No.

2018-07, Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee

Share-Based Payment Accounting .

These amendments expand the scope of Topic 718, Compensation - Stock Compensation , to include

share-based payments issued to nonemployees for goods or services.

Consequently, the accounting for share-based payments to nonemployees

and employees will be substantially aligned.

In June 2018, the FASB issued Accounting Standards Update (“ASU”) No.

2018-07, Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting .

These amendments expand the scope of Topic 718, Compensation - Stock Compensation , to include share-based payments issued to nonemployees for goods or services.

Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned.

This new standard is effective for the Company on January 1, 2020.

The Company early

adopted this new standard in the third quarter of 2019 and it did not have material impact to its condensed financial statements.

Income taxes are accounted for using an asset

and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of

temporary differences between the financial statement and tax bases of assets and liabilities at the applicable tax rates.

assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not

The Company early adopted this new standard in the third quarter of 2019 and it did not have material impact to its consolidated financial statements.

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities at the applicable tax rates.

Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates.

Tax benefits are recognized from an uncertain

tax position only if it is more likely than not that the tax position will be sustained upon examination by a tax authority and based

upon the technical merits of the tax position.

The tax benefit recognized in the financial statements for a particular tax position is

based on the largest benefit that is more likely than not to be realized upon settlement.

An unrecognized tax benefit, or a portion thereof,

is presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss,

or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed.

Tax benefits are recognized from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by a tax authority and based upon the technical merits of the tax position.

The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized upon settlement.

An unrecognized tax benefit, or a portion thereof, is presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed.

ASC 842 requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities.

ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation

to make lease payments arising from the leases.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date.

As the Company’s leases do not provide an implicit rate, the Company used its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

A number of the lease agreements contain options to renew and options to terminate the leases early.

The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised.

The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months.

The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, and unamortized lease incentives provided by lessors.

Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses.

Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur.

The Company has elected not to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities.

Segment reporting

The Company operates in one business segment as

a contract manufacturer of aqueous polymer hydrogels.

As a result, the Company’s operations are a single reportable segment, which

is consistent with the Company’s internal management reporting.

The Company operates in one business segment as a contract manufacturer of aqueous polymer hydrogels.

As a result, the Company’s operations are a single reportable segment, which is consistent with the Company’s internal management reporting.

Comprehensive loss

Comprehensive loss consists of net loss and changes

in equity during a period from transactions and other equity and circumstances generated from non-owner sources.

The Company’s net

loss equals comprehensive loss for all periods presented,

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (the

“FASB”) established ASC Topic 842, Leases , by issuing Accounting Standards Update (“ASU”) No.

which requires lessees to recognize operating leases on the balance sheet and disclose key information about leasing arrangements.

Topic 842 was subsequently amended by ASU No.

2018-01, Land Easement Practical Expedient for Transition to Topic 842;

2018-10, Codification Improvements to Topic 842, Leases;

2018-11, Targeted Improvements .

The new standard

establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance

sheet for all leases.

Leases will be classified as either finance or operating, with classification affecting the pattern and classification

of expense recognition in the income statement.

Lessor accounting under the new standard is substantially unchanged.

Additional qualitative

and quantitative disclosures are also required.

The Company adopted the new standard on leases

on January 1, 2019.

The Company currently recognizes an operating lease right-of-use asset and a corresponding lease liability on

its condensed balance sheet.

The Company also applies the following accounting policies related to this standard:

The Company does not recognize ROU assets and liabilities for leases with a term of 12 months or less;

The Company does not separate lease and non-lease components in the Company’s lease contracts.

Comprehensive loss consists of net loss and changes in equity during a period from transactions and other equity and circumstances generated from non-owner sources.

The Company’s net loss equals comprehensive loss for all periods presented,

Recently Issued Accounting Standards

From time to time, new accounting pronouncements

are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by us as of the specified

effective date.

Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material

impact on our financial position or results of operations upon adoption.

Instruments—

Credit Losses

In June 2016, the FASB issued ASU No.

Financial Instruments —

Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which introduces a

model based on expected losses to estimate credit losses for most financial assets and certain other instruments.

In November 2019,

the FASB issued ASU No.

2019-10 Financial Instruments —

Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and

Leases (Topic 842).

The update allows the extension of the initial effective date for entities which have not yet adopted ASU No.

The standard is effective for annual reporting periods beginning after December 15, 2022, with early adoption permitted for annual

reporting periods beginning after December 15, 2018.

Entities will apply the standard’s provisions by recording a cumulative

effect adjustment to retained earnings.

The Company has not yet adopted ASU 2016-13 and currently assessing the impact of this new standard

on its financial statements.

Collaborative Arrangements

In November 2018, the FASB issued ASU

2018-18, Collaborative Arrangements (Topic 808).

This update clarifies the interaction between ASC 808, Collaborative Arrangements and

ASC 606, Revenue from Contracts with Customers (“ASU 2018-18”) .

The update clarifies that certain transactions

between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer.

the update precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue if the counterparty

is not a customer for that transaction.

This update will be effective for the Company for fiscal years beginning after December 15,

2019, and interim periods within those fiscal years.

ASU 2018-18 should be applied retrospectively to the date of initial application

of ASC 606 and early adoption is permitted.

The adoption of this standard will not have a material impact on the Company’s financial

statements as the Company does not have any collaborative agreements.

However, there is a potential for the Company to enter into collaborative

agreements in the future, as it expands into consumer markets.

Fair Value Measurement—Disclosure Framework

In August 2018, the FASB issued ASU No.

Fair Value Measurement (Topic 820):

Disclosure Framework —

Changes to the Disclosure Requirements for Fair Value Measurement

(“ASU 2018-13”), which amends ASC Topic 820, Fair Value Measurements.

ASU 2018-13 modifies the disclosure requirements for

fair value measurements by removing, modifying, or adding certain disclosures.

The effective date is the first quarter of fiscal year

2021, with early adoption permitted for the removed disclosures and delayed adoption permitted until fiscal year 2021 for the new disclosures.

The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective

The Company has not yet adopted ASU 2018-13 and currently assessing the impact of this new standard on its financial statements.

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”).

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by us as of the specified effective date.

Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

ASU 2016-13 significantly changes the impairment model for most financial assets and certain other instruments.

ASU 2016-13 will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments.

ASU 2016-13 is effective for the Company's fiscal year beginning March 1, 2023 and subsequent interim periods.

The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment.

ASU 2017-04 simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test.

Under the amendments in ASU 2017-04, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Additionally, ASU 2017-04 requires any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test.

We adopted ASU 2017-04 effective March 1, 2020 (the first quarter of our 2021 fiscal year).

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes.

This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted.

We will adopt ASU 2019-12 effective March 1, 2021 and do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

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 (“Sport Defense”), from the members of Sport Defense (the “Sellers”).

Subsequent to the Closing Date, Sport Defense is a wholly-owned subsidiary of the Company.

Sport Defense is a marketing and distribution

company that leverages the unique benefits of ultra-gentle, high-water content hydrogels, manufactured by the Company, to build brands

that treat various ailments of the skin caused by athletic training, such as blisters, turf burns, scrapes and skin irritations.

Under the terms of the Purchase Agreement, the

purchase price paid to the Sellers was an aggregate of $375 thousand (the “Purchase Price”) which was paid by the Company

through the issuance of an aggregate of 9,375,000 shares of the Company’s common stock, par value $0.001 (the “Shares”),

which equates to a per share purchase price of $0.04.

The Shares are “restricted securities”

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.

Sport Defense is a marketing and distribution company that leverages the unique benefits of ultra-gentle, high-water content hydrogels, manufactured by the Company, to build brands that treat various ailments of the skin caused by athletic training, such as blisters, turf burns, scrapes and skin irritations.

To date the Company has commercialized four branded products acquired from the acquisition of Sport Defense.

Under the terms of the Purchase Agreement, the purchase price paid to the Sellers was an aggregate of $ 375 thousand (the “Purchase Price”) which was paid by the Company through the issuance of an aggregate of 9,375,000 shares of the Company’s common stock, par value $ 0.001 (the “Shares”), which equates to a per share purchase price of $ 0.04 .

The Shares are “restricted securities” 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.

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

Stein received 3,187,500

of the Shares.

Stein received 3,187,500 of the Shares.

Due to the potential conflict of interest that existed because of Messrs.

Levy and Stein’s partial ownership

of Sport Defense, the Board obtained an independent investment bank to prepare a valuation report with respect to Sport Defense.

valuation report supported the Purchase Price.

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 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.

Levy and Stein’s partial ownership of Sport Defense, the Board obtained an independent investment bank to prepare a valuation report with respect to Sport Defense.

This valuation report supported the Purchase Price.

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 Company accounted for the Sport 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 excess of the aggregate fair value of the net tangible assets has been allocated to goodwill.

The Company is currently in the process of completing

the preliminary purchase price allocation as an acquisition of certain assets.

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 an analysis for the Sport Defense acquisition:

Provisional Purchase Consideration at preliminary fair value:

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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.

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 Sport Defense acquisition been completed as of January 1, 2020 or to project potential operating results as of any future date or for any future periods.

For the Year Ended

3 unchanged sentences

Weighted average number of shares outstanding

The Company has one operating lease for a commercial

manufacturing facility and administrative offices located in Langhorne, Pennsylvania that runs through January 2026.

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 December 31, 2020 ($ in thousands):

The Company has one operating lease for a commercial manufacturing facility and administrative offices located in Langhorne, Pennsylvania that runs through January 2031.

The following table presents information about the amount and timing of the liability arising from the Company’s operating lease as of December 31, 2021 ($ in thousands):

Maturity of Lease Liability

4 unchanged sentences

Weighted average discount rate

Total operating lease expense for the year ended

December 31, 2020 and 2019 was $207 thousand, and is recorded in cost of goods sold and selling, general and administrative expenses

on the statement of operations.

For the year ended December 31, 2019, the Company recorded lease expense under Accounting Standards

Codification Topic 840, Leases , and recognized $207 thousand, which was recorded in cost of goods sold and selling, general and

administrative expenses.

Supplemental cash flows information related to leases was as follows

($ in thousands):

Total operating lease expense for the year ended December 31, 2021 and 2020 was $ 207 thousand, and is recorded in cost of goods sold and selling, general and administrative expenses on the statement of operations.

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

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

7 unchanged sentences

Inventory reserve for excess and slow moving inventory

As a contract manufacturer, the Company builds

its products based on customer orders and immediately ships the products upon completion of the production process.

As a contract manufacturer, the Company builds its products based on customer orders and immediately ships the products upon completion of the production process.

Property and Equipment, Net

6 unchanged sentences

Property and equipment, net

Depreciation expense for the year ended December 31,

2020 and 2019 was $42 thousand and $67 thousand, respectively.

Depreciation expense for the year ended December 31, 2021 and 2020 was $ 99 thousand and $ 42 thousand, respectively.

Intangible Assets

The following provides

a breakdown of identifiable intangible assets as of December 31, 2020:

The following provides a breakdown of identifiable intangible assets as of December 31, 2021:

Product/Technology Related

8 unchanged sentences

Total Identifiable intangible assets, net

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 2.6

years and amortization expense amounted to $8 thousand for the year ended December 31, 2020.

As of December 31,

2020, the estimated annual amortization expense for each of the next five fiscal years is as follows:

Accrued Expenses and Other Current Liabilities

In connection with the acquisitions of Sport 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 4.5 years and amortization expense amounted to $ 14 thousand and $ 8 thousand for the year ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, the estimated annual amortization expense for each of the next five fiscal years is as follows:

Accrued Expenses and Other Current Liabilities

consist of the following ($ in thousands):

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

Salaries, benefits, and incentive compensation

1 unchanged sentence

Total accrued expenses and other current liabilities

On September 10, 2019, the Company entered

into a Stock Purchase Agreement to issue and sell shares of the Company’s common stock, par value $0.001 per share, in a private

placement offering to accredited investors for an aggregate of up to $175 on the initial closing date, and an aggregate of up to $575

of shares of common stock on a subsequent closing date at a price per share equal to $0.053525.

On September 10, 2019, certain accredited

investors purchased 3,269,500 shares of the Company’s common stock that resulted in cash proceeds of $175 thousand.

For their commitment

to invest the $175 thousand, the two shareholders who invested in the September 10, 2019 private placement each became a member of

the Company’s Board of Directors and gained control of the Company.

Their investments carried full ratchet protection on the purchase

price per share of $0.053525 because the actual price of the shares in the September 10, 2019 private placement was undetermined

at that time.

The final price per share of the September 10, 2019 private placement, which was governed by a term sheet dated August 27,

2019, was ultimately determined to be $0.014.

On November 6, 2019 and pursuant to the Stock Purchase Agreement, the Company issued

an additional 39,999,998 shares of its common stock, par value $0.001 per share, in a private placement offering to accredited investors

valued at $0.014 per share and raised $560 thousand.

Proceeds from this offering are expected to be used for working capital and general

business operations.

Upon the completion of the secondary offering on November 6, 2019 that provided for the settlement of the ratchet

protection, there was a reclassification from Additional paid-in capital to Common stock for the par value of the 9,230,500 additional

shares that were issued to the two shareholders who invested in the September 10, 2019 private placement.

Issuance costs related

to the September 10, 2019 and November 6, 2019 private placements totaled $5 dollars in legal fees and $56 thousand related

to warrants issued as an equity issuance cost.

See Note 14–

Warrant Liability.

Share issuances

From February 6, 2020 through March 20,

2020, the Company entered into Securities Purchase Agreements with certain accredited investors whereby we sold 15,500,000 shares of our

common stock at a price per share equal to $0.04 for an aggregate purchase price of $620,000.

Proceeds from this offering are expected

to be used for working capital, new product development and testing, and general business operations.

The p lacement

agent for the private placement and is entitled to receive a total fee equal to 6% of the total gross proceeds and warrants to purchase

the number of shares of Common Stock equal to 10% of the number of shares of Common Stock issued to the Investors, for such services rendered.

On December 27, 2021, the Company sold an aggregate of 2,585,000 units at a price to the public of $ 5.50 per unit (the “Offering”), each unit consisting of one share of our common stock, and a warrant to purchase one share of our common stock at an exercise price of $ 5.50 per share .

In addition, the Company granted the Underwriter a 45-day option to purchase up to 387,750 additional shares of our common Stock, and/or 387,750 additional warrants, to cover over-allotments in connection with the Offering, which the Underwriter partially exercised to purchase 387,750 Warrants on the Closing Date.

From January 1, 2021 through March 31, 2021, the Company entered into Securities Purchase Agreements with certain accredited investors whereby we sold 101,800 shares of our common stock at a price per share equal to $ 2.80 for an aggregate purchase price of $ 285,000 .

From February 6, 2020 through March 20, 2020, the Company entered into Securities Purchase Agreements with certain accredited investors whereby we sold 442,858 shares of our common stock at a price per share equal to $ 1.40 for an aggregate purchase price of $ 620,000 .

Proceeds from this offering are expected to be used for working capital, new product development and testing, and general business operations.

The placement agent for the private placement and is entitled to receive a total fee equal to 6 % of the total gross proceeds and warrants to purchase the number of shares of Common Stock equal to 10 % of the number of shares of Common Stock issued to the Investors, for such services rendered.

The warrants are exercisable for 3 years at an exercise price equal to $ 1.40 .

From July 30, 2020 through August 14,

2020, the Company entered into Securities Purchase Agreements with certain accredited investors whereby we sold 6,585,000 shares of our

common stock at a price per share equal to $0.06 for an aggregate purchase price of $395,100.

From October 13, 2020 through December 24,

2020, the Company entered into Securities Purchase Agreements with certain accredited investors whereby we sold 4,437,500 shares of our

common stock at a price per share equal to $0.08 for an aggregate purchase price of $355,000.

Proceeds from this offering are expected

to be used for working capital, new product development and testing, and general business operations.

On February 10, 2020, a majority of our stockholder

through a written consent approved the following:

an amendment to our Restated Certificate of Incorporation which will increase the number

of authorized shares of Common Stock from 100,000,000 shares of Common Stock to 3,000,000,000 shares of Common Stock and (ii) an

amendment to our Restated Certificate of Incorporation to effect a reverse stock split of our Common Stock by a ratio of not less than

one-for-thirty and not more than one-for-one hundred, with the exact number to be set at a whole number within this range to be determined

by our board of directors in its sole discretion and to authorize our board of directors to implement the reverse stock split by filing

an amendment to our Amended and Restated Certificate of Incorporation.

On May 26, 2020, the Company filed an amendment to the certificate

of incorporation to increase the number of the Company’s authorized shares of common stock from 100,000,000 shares of common stock

to 3,000,000,000 shares of common stock.

The reverse stock split has not been effected as of date of the filing of this Form 10-K.

For more information on these amendments, please see the Company’s Definitive Information Statement on Schedule 14C filed with the

SEC on March 16, 2020.

On February 17, 2020, the Company granted

certain equity awards to the members of the Company’s Board of Director with the following terms:

From July 30, 2020 through August 14, 2020, the Company entered into Securities Purchase Agreements with certain accredited investors whereby we sold 188,143 shares of our common stock at a price per share equal to $ 2.10 for an aggregate purchase price of $ 395,100 .

From October 13, 2020 through December 24, 2020, the Company entered into Securities Purchase Agreements with certain accredited investors whereby we sold 126,786 shares of our common stock at a price per share equal to $ 2.80 for an aggregate purchase price of $ 355,000 .

Proceeds from this offering are expected to be used for working capital, new product development and testing, and general business operations.

On February 10, 2020, a majority of our stockholder through a written consent approved the following:

an amendment to our Restated Certificate of Incorporation which will increase the number of authorized shares of Common Stock from 100,000,000 shares of Common Stock to 3,000,000,000 shares of Common Stock and (ii) an amendment to our Restated Certificate of Incorporation to effect a reverse stock split of our Common Stock by a ratio of not less than one-for-thirty and not more than one-for-one hundred , with the exact number to be set at a whole number within this range to be determined by our board of directors in its sole discretion and to authorize our board of directors to implement the reverse stock split by filing an amendment to our Amended and Restated Certificate of Incorporation.

On May 26, 2020, the Company filed an amendment to the certificate of incorporation to increase the number of the Company’s authorized shares of common stock from 100,000,000 shares of common stock to 3,000,000,000 shares of common stock.

The reverse stock split has not been effected as of date of the filing of this prospectus.

For more information on these amendments, please see the Company’s Definitive Information Statement on Schedule 14C filed with the SEC on March 16, 2020.

On February 17, 2020, the Company granted certain equity awards to the members of the Company’s Board of Director with the following terms:

each of Messrs.

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 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.

On February 17, 2020, the Company granted a restricted stock award

of 5,928,571 shares of the Company’s common stock to the Company’s Chief Executive Officer and Chief Financial Officer, Adam

Levy, with the following vesting terms:

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 81,633 shares of the Company’s common stock at a per share exercise price of $ 0.49 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 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.

On February 17, 2020, the Company granted a restricted stock award of 169,388 shares of the Company’s common stock to the Company’s Chief Executive Officer and Chief Financial Officer, Adam Levy, with the following vesting terms:

(i) 3/12th of such shares vested as of February 17, 2020;

of such shares vest on each of the eight months following February 17, 2020 and (iii) all remaining shares vest on September 10,

In November 2020, the Company issued 5,928,871 shares to our Chief Executive Officer upon the vesting of the restricted stock

awards (See Note 12).

At December 31, 2020, the Company has reserved

common stock for issuance in relation to the following:

(ii) 1/12th of such shares vest on each of the eight months following February 17, 2020 and (iii) all remaining shares vest on September 10, 2020.

In November 2020, the Company issued 169,397 shares to our Chief Executive Officer upon the vesting of the restricted stock awards (See Note 12).

At December 31, 2021, the Company has reserved common stock for issuance in relation to the following:

Share-based compensation plan

Warrants to purchase common stock

Net Loss Per Common Share

Basic loss per share data is computed using the weighted-average number of shares of common stock outstanding during the period.

Diluted loss per share data is computed using the weighted-average number of common and dilutive common-equivalent shares outstanding during the period.

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 year ended December 31, 2019, to the extent they are issued and outstanding, because their effect would be anti-dilutive.

On June 21, 2019, the date of consummation of the Spin-Off, 5,005,211 shares of the Company’s Common Stock, par value $0.001 per share, was distributed to Adynxx shareholders of record as of April 22, 2019.

This share amount is being utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the Spin-Off as no common stock was outstanding prior to the date of the Spin-Off.

For the year ended December 31, 2019 calculations, these shares are treated as issued and outstanding from January 1, 2019 for purposes of calculating historical basic and diluted earnings per share.

The financial statements for 2019 were adjusted herein to reflect the subsequent consummation of the spinout and the inclusion of basic and diluted earnings per share, as described above, consistent with that of the year ended December 31, 2019.

Share-based Compensation

On August 28, 2019, the Company adopted the

2019 Long-Term Incentive Plan (the “2019 Plan”).

The 2019 Plan provides for the granting of incentive stock options, nonqualified

stock options, restricted stock, stock appreciation rights (“SARs”), restricted stock units, performance awards, dividend

equivalent rights and other awards, which may be granted singly, in combination, or in tandem, and which may be paid in cash, shares of

common stock of the Company or a combination of cash and shares of common stock of the Company.

The Company initially reserved a total

of 2,000,000 shares of the Company’s common stock for awards under the 2019 Plan.

Effective as of May 26, 2020, the Board approved

an increase of the number of authorized shares of common stock reserved under the 2019 Plan from 2,000,000 shares of common stock to 17,000,000

shares of common stock all of which may be delivered pursuant to incentive stock options., all of which may be delivered pursuant to incentive

stock options.

Subject to adjustments pursuant to the 2019 Plan, the maximum number of shares of common stock with respect to which stock

options or SARs may be granted to an executive officer during any calendar year is 500,000 shares of common stock.

On August 28, 2019, the Company adopted the 2019 Long-Term Incentive Plan (the “2019 Plan”).

The Company initially reserved a total of 2,000,000 shares of the Company’s common stock for awards under the 2019 Plan.

Effective as of May 26, 2020, the Board approved an increase of the number of authorized shares of common stock reserved under the 2019 Plan from 2,000,000 shares of common stock to 17,000,000 shares of common stock all of which may be delivered pursuant to incentive stock options., all of which may be delivered pursuant to incentive stock options.

Incentive stock options

In August 2019, pursuant to the terms of

the 2019 Plan, the Company awarded options to purchase an aggregate of 1,000,000 shares of common stock to two of its employees and one

Pursuant to the terms of the option agreements, 50% of such options vested on the date of grant, and the remaining 50% of

such options will vest on the first anniversary of the date of grant.

The term of the options is ten years.

On February 17, 2020, the Company granted

certain equity awards to the members of the Company’s Board of Director with the following terms:

On February 17, 2020, the Company granted certain equity awards to the members of the Company’s Board of Director with the following terms:

each of Messrs.

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.

In May 2020 and July 2020, pursuant

to the terms of the 2019 Plan, the Company awarded options to purchase an aggregate of 5,325,000 shares of common stock to two of its

employees and one contractor.

Pursuant to the terms of the option agreements, 325,000 of the options vested on the date of grant, and

of the 5,000,000 options, 10% of such options vested on the date of grant, and the remaining of such options will vest upon meeting established

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 81,633 shares of the Company’s common stock at a per share exercise price of $ 0.49 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 $ 2.10 and equates to 19,048 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.

In May 2020 and July 2020, pursuant to the terms of the 2019 Plan, the Company awarded options to purchase an aggregate of 152,143 shares of common stock to two of its employees and one contractor.

Pursuant to the terms of the option agreements, 9,286 of the options vested on the date of grant, and of the 142,858 options, 10 % of such options vested on the date of grant, and the remaining of such options will vest upon meeting established criteria.

The term of the options is ten years.

The following table contains information about

the 2020 Plan as of December 31, 2020:

On January 15, 2021, the Company awarded a contractor options to purchase an aggregate of 14,286 shares of the Company’s common stock at a per share exercise price of $ 2.80 under the Company’s 2019 Long-Term Incentive Plan.

This option award fully vested 20 % as of the date of grant and the remaining 80 % in November 2022.

On March 8, 2021, the Company granted Dr.

Jerome Zeldis, a member of the Company Board, an option to purchase up to 19,048 shares of the Company’s common stock at a per share exercise price of $ 2.80 under the Company’s 2019 Long-Term Incentive Plan.

This option award fully vested as of the date of grant.

On March 8, 2021, the Company appointed Steven Glassman to the Board of Directors to serve for a term expiring at the next annual meeting of stockholders or until his successor is duly elected and qualified.

On March 8, 2021 and in consideration for his appointment to the board of directors, the Company granted Mr.

Glassman an option to purchase up to 14,286 shares of common stock at a per share exercise price of $ 2.80 under the Company’s 2019 Long-Term Incentive Plan.

This option award fully vested as of the date of grant.

On September 2, 2021, the Company appointed Adam Levy, Yaakov Spinrad and Miranda J.

Toledano to the Board of Directors to serve for a term expiring at the next annual meeting of stockholders or until their successor is duly elected and qualified.

On September 9, 2021 and in consideration for each person’s appointment to the board of directors, the Company granted each of Mr.

Spinrad, and Ms.

Toledano an option to purchase up to 14,286 shares of common stock at a per share exercise price of $ 5.25 under the Company’s 2019 Long-Term Incentive Plan.

This option award vests in four equal calendar quarter installments beginning on October 1, 2021.

The following table contains information about the 2019 Plan as of December 31, 2021:

Available for

The following table summarizes the Company’s

incentive stock option activity and related information for the period ended December 31, 2020:

Term in Years

Outstanding at June 21, 2019

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

Outstanding at January 1, 2020

Outstanding at December 31, 2020

1 unchanged sentence

Exercisable at December 31, 2021

As of December 31, 2020, vested outstanding

stock options had $681 thousand intrinsic value as the exercise price is greater than the estimated fair value of the underlying common

As of December 31, 2020, there was approximately $72 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

As of December 31, 2021, vested outstanding stock options had $ 529 thousand intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock.

As of December 31, 2021, there was approximately $ 195 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 year ended December 31, 2021:

4 unchanged sentences

Expected term

The Company does not have sufficient historical

information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

the Company has elected to use the “simplified method”

to estimate the expected term of its share-based awards.

The simplified

method computes the expected term as the sum of the award’s vesting term plus the original contractual term divided by two.

Based on the lack of historical data of volatility

for the Company’s common stock, the Company based its estimate of expected volatility on a weighted-average of the historical volatility

of comparable public companies that manufacture similar products and are similar in size, stage of life cycle, and financial leverage.

5.0 - 5.75 years

The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

Accordingly, the Company has elected to use the “simplified method” to estimate the expected term of its share-based awards.

The simplified method computes the expected term as the sum of the award’s vesting term plus the original contractual term divided by two.

Based on the lack of historical data of volatility for the Company’s common stock, the Company based its estimate of expected volatility on a weighted-average of the historical volatility of comparable public companies that manufacture similar products and are similar in size, stage of life cycle, and financial leverage.

Restrictive stock awards

On February 17, 2020, the Company granted

a restricted stock award of 5,928,571 shares of the Company’s common stock to the Company’s Chief Executive Officer and Interim

Chief Financial Officer, Adam Levy, with the following vesting terms:

(i) 3/12 th of such shares vested as of February 17,

(ii) 1/12 th of such shares vest on each of the eight months following February 17, 2020 and (iii) all

remaining shares vest on September 10, 2020.

On March 8, 2021, the Company granted a restricted

stock award of 1,383,333 shares of the Company’s common stock to the Adam Levy for his service as our Chief Executive Officer and

Chief Financial Officer from October 1, 2020 through September 30, 2021, all of which shares vested immediately.

On February 17, 2020, the Company granted a restricted stock award of 169,388 shares of the Company’s common stock to the Company’s Chief Executive Officer and Interim Chief Financial Officer, Adam Levy, with the following vesting terms:

(i) 3/12 th of

such shares vested as of February 17, 2020;

(ii) 1/12 th of such shares vest on each of the eight months following February 17, 2020 and (iii) all remaining shares vest on September 10, 2020.

On March 8, 2021, the Company granted a restricted stock award of 39,524 shares of the Company’s common stock to the Adam Levy for his service as our Chief Executive Officer and Chief Financial Officer from October 1, 2020 through September 30, 2021, all of which shares vested immediately.

Exercised and converted to common shares

Outstanding at December 31, 2020

Exercised and converted to common shares

Outstanding at December 31, 2021

Exercisable at December 31, 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 were 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 December 31, 2020, there was approximately $63 thousand of total unrecognized

share-based compensation related to restricted stock awards, which the Company expects to recognize over the next 9 months.

Compensation expense will be recognized ratably

over the total vesting schedule.

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 ($ 0.49 per share).

An additional issuance of 39,924 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 ($ 2.10 per share).

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

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

based compensation of $103 thousand has been recorded for the year ended December 31, 2020.

The following table shows a summary of common stock warrants through

December 31, 2020:

Stock based compensation of $ 284 thousand and $ 232 thousand has been recorded for the year ended December 31, 2021 and 2020, respectively.

The following table shows a summary of common stock warrants through December 31, 2021:

Term in Years

1 unchanged sentence

Outstanding at December 31, 2020

Outstanding at December 31, 2021

Exercisable at December 31, 2021

As of December 31, 2020, vested outstanding warrants had

$408 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.

(the “Bank”), which provides for a loan in the amount

of $147,300 (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security

Act (the “CARES Act”).

As of December 31, 2021, vested outstanding warrants had $ 372 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.

(the “Bank”), which provides for a loan in the amount of $ 147,300 (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

On March 4, 2021, the Company received a second PPP Loan in the amount of $ 127,400 thousand under Phase II of the Paycheck Protection Program which commenced on January 13, 2021 and allowed certain businesses that received an initial PPP Loan to seek a second draw PPP Loan.

The PPP Loan has a two-year term and bears interest at a rate of 1.0 % per annum.

Monthly principal

and interest payments are deferred for six months after the date of disbursement.

The PPP Loan may be prepaid at any time prior to maturity

with no prepayment penalties.

Monthly principal and interest payments are deferred for six months after the date of disbursement.

The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties.

The Promissory Note contains events of default and other provisions customary for a loan of this type.

Paycheck Protection Program provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying

expenses as described in the CARES Act.

The Company used the proceeds from the PPP Loan for qualifying expenses and 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.

The Paycheck Protection Program provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act.

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.

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.

On November 16, 2021, the Company received notice from PNC Bank that its second PPP loan of $ 127,400 had been forgiven in its entirety by the SBA.

The balance of the PPP loan as of December 31, 2020 amounted to $ 147,300 .

Economic Injury Disaster Loan

On May 28, 2020, the Company entered into

the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster

Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business.

to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the principal amount of the EIDL Loan is up to

$260,500, with proceeds to be used for working capital purposes.

On May 28, 2020, the Company entered into the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business.

Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the principal amount of the EIDL Loan is up to $ 260,500 , with proceeds to be used for working capital purposes.

Interest accrues at the rate of 3.75 % per annum.

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

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 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.

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

On March 26, 2021, the SBA announced that all EIDL loans issued in 2020 will start repayment 24 months from the date of the SBA Note.

Convertible Notes Payable

On December 24, 2020, the Company entered

into two Securities Purchase Agreement, dated December 24, 2020 (the “Purchase Agreement”) pursuant to which the Company

issued the following (i) $100,000 6% Secured Convertible Promissory Note which was convertible into shares of the Company’s

common stock at a price per share of $0.08 and (ii) Common Stock purchase warrants to purchase up to 312,500 shares of common stock

with an exercise price of $0.08.

On December 24, 2020, the Company entered into two Securities Purchase Agreement, dated December 24, 2020 (the “Purchase Agreement”) pursuant to which the Company issued the following (i) $ 100,000 6 % Secured Convertible Promissory Note which was convertible into shares of the Company’s common stock at a price per share of $ 2.80 and (ii) Common Stock purchase warrants to purchase up to 8,929 shares of common stock with an exercise price of $ 2.80 .

The notes are secured by all of the assets and equipment owned by the Company.

The notes are due on or

before June 24, 2021.

The notes were due on or before June 24, 2021 and fully-repaid (including all accrued but unpaid interest) on March 14, 2021.

On January 19, 2021, the Company entered into a Securities Purchase Agreement, (the “2021 Purchase Agreement”) pursuant to which the Company issued the following (i) $ 15,000 Secured Convertible Promissory Note which was convertible into shares of the Company’s common stock at a price per share of $ 1.05 .

The notes were due on or before March 19, 2021 and fully-repaid (including all accrued but unpaid interest) on March 14, 2021.

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 $ 1,680,000 , including Original Issue Discount (OID) of $ 180,000 (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).

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

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

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

The Auctus Note bears 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 $ 180,000 ) is guaranteed and deemed to be earned in full as of the Issuance Date.

In the event the Company fails to pay any amount when due under the Auctus Note, the interest rate will increase to the greater of 16 % or the maximum amount permitted by law.

The Auctus Note may be prepaid during the first 180 calendar days from the Issuance Date subject to a 110 % prepayment penalty on all principal and accrued but unpaid interest then outstanding.

The Auctus Note may not be paid in whole or in part after 180 calendar days from the Issuance Date.

Auctus may convert any amount due under the Auctus Note at any time, and from time to time, into shares of the Company’s common stock at a conversion price of $ 3.50 per share;

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 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, (iii) cause the registration statement to become effective by the Trading Date and (iv) maintain a certain share reserve for the conversion of the note.

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

Additionally, the Auctus Note is 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 Auctus Note (the “Security Agreement”);

provided, however, the Security Agreement will be automatically terminated as of the Trading Date assuming no event of default then exists.

The Auctus Amendment waived any events of default which may have existed under Sections 3.18 and 3.19 of the Auctus Note prior to August 13, 2021.

There were no events of default for the year ended December 31, 2021 and through the note repayment on March 15, 2022 (see Note 19).

In connection with the issuance of the Auctus Note, Auctus was also issued two five-year warrants as follows:

the first warrant was to purchase up to an aggregate of 171,429 shares of the Company’s common stock at an exercise price of $ 4.375 per share (the “First Auctus Warrant”) and the second warrant was to purchase up to an aggregate of 142,858 shares of the Company’s common stock at an exercise price of $ 5.25 per share (the “Second Auctus Warrant”).

The First Auctus Warrant and the Second Auctus Warrant are referred to herein as the “Auctus Warrants” and the shares of the Company’s common stock underlying the Auctus Warrants are referred to as the “Auctus Warrant Shares”.

Auctus may not exercise the Auctus Warrants with respect to any number of Auctus Warrant Shares that would cause it to beneficially own in excess of 4.99 % of the Company’s common stock.

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

The number of shares of common stock to be deliverable upon exercise of the Auctus 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 Auctus Purchase Agreement, the Company granted Auctus piggyback registration rights with respect to the shares underlying the Auctus Note and the Auctus Warrant.

In addition, the Company agreed that, while any amount remains unpaid under the Auctus Note, it would not sell securities on more favorable terms than those provided to Auctus, without adjusting Auctus’ terms accordingly.

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

Further and in connection with the issuance of the Auctus Note, the Company entered into a registration rights agreement with Auctus (the “Registration Rights Agreement”) whereby it the Company agreed to (i) file with the Securities and Exchange Commission a registration statement covering resale by Auctus at prevailing market prices (and not fixed prices) of all of the common stock underlying the Auctus Note and the Auctus Warrants within 30 calendar days following the Issuance Date, (ii) cause the registration statement to become effective by the Trading Date.

Alere Financial, A Division of Cova Capital Partners, LLC (“Alere”), served as the placement agent for the Auctus Note and received a total cash fee equal to $ 120,000 (or 8 % of the principal amount of the Auctus Note).

Additionally, Alere received warrants to purchase 654,545 and 545,455 shares of common stock at an exercise price equal to $ 4.375 and $ 5.25 , respectively, for such services rendered.

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

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 December 31, 2021, the Auctus Fund Financing note outstanding was $ 1,357,808 , which consisted of principal of $ 1,680,000 , net of unamortized balance of $ 256,410 of a beneficial conversion and warrant features, unamortized original issue discount of $ 34,521 .

and unamortized debt issuance costs of $ 31,261 .

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, 2021.

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 $ 5.25 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.

If the Company issues Common Stock or securities convertible into Common Stock at a per share price lower than the conversion price of $ 5.25 (the “Base Price”), then the conversion price of the Notes will be reduced to the new Base Price at the option of the holder.

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 308,571 shares of the Company’s common stock (the “September Warrant Shares”) at an exercise price of $ 5.25 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 September 2 Warrant’s exercise price, and there is not an effective registration statement covering the September 2 Warrant Shares, the September 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.

In the event that the Company issues Common Stock, securities convertible into Common Stock, or the right to acquire Common Stock at an effective per share price less than $5.25 (the “Base Price”), the per share price the of September 2 Warrants are adjustable down to the new Base Price at the option of the holder.

If such adjustment occurs, the number of warrant shares issuable under the September 2 Warrants shall also be increased such that the aggregate exercise price of the warrants shall be the same of the aggregate price prior to the adjustment.

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 $ 5.25 .

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 December 31, 2021, the September 2 Notes’ outstanding balance was $ 678,864 , which consisted of principal of $ 1,814,400 , net of unamortized balance of $ 927,734 of a beneficial conversion and warrant features, unamortized original issue discount of $ 130,312 and unamortized debt issuance costs of $ 77,490 .

Warrant Liability

On December 24, 2020, March 18,

2020, September 10, 2019 and November 6, 2019, the Company issued 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.

warrants entitle the holder to purchase one share of our common stock at an exercise price equal to $0.014 to $0.080 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”).

The Company determined that these warrants are free standing financial instruments that are legally

detachable and separately exercisable from the common stock included in the public share offering.

Management also determined that

the warrants required classification as a liability pursuant to ASC 815.

In accordance with the accounting guidance, the outstanding

warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and

subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of

The fair value of the warrant liabilities was

measured using a Black-Scholes model.

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 22,019 , 34,286 , 7,429 , 7,286 , 44,286 , 35,715 and 114,286 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 $ 0.49 to $ 5.25 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”).

The Company determined that these warrants are free standing financial instruments that are legally detachable and separately exercisable from the common stock included in the public share offering.

Management also determined that the warrants required classification as a liability pursuant to ASC 815.

In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations.

The fair value of the warrant liabilities was measured using a Black-Scholes model.

Significant inputs into the model at the inception are as follows:

Interest Rate

Black -Scholes Assumptions

Stock Price (8)

(annual) (10)

per share (11)

September 2, 2021 (1)

Exercise Price (1)(2)(3)(4)

Warrant Expiration Date (1)(2)(3)(4)

September 2, 2026

March 11, 2021 (2)

March 11, 2026

0.3325 - 0.0329

February 3, 2021 (3)

February 3, 2024

December 24, 2020 (4)

December 24, 2023

March 18, 2020 (5)

March 18, 2023

September 10, 2019 (6)

September 10, 2022

November 6, 2019 (7)

Stock Price (5)

Interest Rate (annual) (6)

Volatility (annual) (7)

Time to Maturity (Years)

Calculated fair value per share

Future Estimated Quarterly Dividend per share (8)

Significant inputs into the model at the reporting

period measurement dates are as follows:

November 6, 2022

Significant inputs into the model at the reporting period measurement dates are as follows:

Interest Rate

Black-Scholes Assumptions

Exercise Price (1)(2)(3)(4)

Warrant Expiration Date (1)(2)(3)(4)

Stock Price (8)

(annual) (10)

per share (11)

December 31, 2021 (1)

September 2, 2026

December 31, 2021 (2)

March 11, 2026

0.096101 - 0.0957467

December 31, 2021 (3)

February 3, 2024

December 31, 2021 (4)

December 24, 2023

December 31, 2021 (5)

March 18, 2023

December 31, 2021 (6)

September 10, 2022

December 31, 2021 (7)

November 6, 2022

Stock Price (5)

Interest Rate (annual) (6)

Volatility (annual) (7)

Time to Maturity (Years)

Calculated fair value per share

Future Estimated Quarterly Dividend per share (8)

Black-Scholes Assumptions

Exercise Price (1)(2)(3)(4)

Warrant Expiration Date (1)(2)(3)(4)

(annual) (10)

per share (11)

December 31, 2020 (4)

December 24, 2020

December 31, 2020 (5)

March 18, 2023

December 31, 2020 (6)

September 10, 2022

December 31, 2020 (7)

November 6, 2022

Stock Price (5)

Interest Rate (annual) (6)

Volatility (annual) (7)

Time to Maturity (Years)

Calculated fair value per share

Future Estimated Quarterly Dividend per share (8)

( 1) Based on the terms provided in the

warrant agreement related to the issuance of common stock of on December 24 th , 2020

( 2) Based on the terms provided in the

warrant agreement related to the issuance of common stock of on March 18 th , 2020

( 3) Based on the terms provided in the

warrant agreement related to the issuance of common stock of on September 10 th , 2019

( 4) Based on the terms provided in the

warrant agreement related to the issuance of common stock of on November 6 th , 2019

(5) Based on the observable transaction

value of common stock of per the most recent stock issuance financing agreements.

(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

(3) Based on the terms provided in the warrant agreement related to the issuance of common stock of on February 3 rd , 2021

(4) Based on the terms provided in the warrant agreement related to the issuance of common stock of on December 24 th , 2020

(5) Based on the terms provided in the warrant agreement related to the issuance of common stock of on March 18 th , 2020

(6) Based on the terms provided in the warrant agreement related to the issuance of common stock of on September 10 th , 2019

(7) Based on the terms provided in the warrant agreement related to the issuance of common stock of on November 6 th , 2019

(8) Based on the observable transaction value of common stock of per the most recent stock issuance financing agreements.

(9) Interest rate for U.S.

Treasury Bonds,

as of the issuance dates and each presented period ending date, as published by the U.S.

Treasury Bonds, as of the issuance dates and each presented period ending date, as published by the U.S.

Federal Reserve.

(7) Based on the historical daily volatility

of Guideline Public Companies and each presented period ending date.

(8) Current estimated dividend payments

beyond initial four quarters.

At a future date, the company will review the working capital needs and make a final determination of any

future dividend payments.

The warrants outstanding and fair values at each

of the respective valuation dates are summarized below:

(10) Based on the historical daily volatility of Guideline Public Companies and each presented period ending date.

(11) Current estimated dividend payments beyond initial four quarters.

At a future date, the company will review the working capital needs and make a final determination of any future dividend payments.

The warrants outstanding and fair values at each of the respective valuation dates are summarized below:

Warrant Liability

Fair Value at initial measurement date of 12/31/19

Fair Value at initial measurement date of 11/6/2019

Fair Value at initial measurement dates

Change in fair value of warrant liability

Fair Value as of period ending 12/31/2020

Fair Value at initial measurement dates of 2020

Fair Value at initial measurement dates

Change in fair value of warrant liability

Fair Value as of period ending 12/31/2021

The warrant liabilities are considered Level 3 liabilities on the fair

value hierarchy as the determination of fair value includes various assumptions about of future activities and the Company’s stock

prices and historical volatility of Guideline Public Companies as inputs.

As of December 31, 2020, none of the warrants have been

The warrant liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes various assumptions about of future activities and the Company’s stock prices and historical volatility of Guideline Public Companies as inputs.

As of December 31, 2020, none of the warrants have been exercised.

Related Party Transactions

Convertible Promissory Note

On December 24, 2020, the Company issued

a Secured Convertible Promissory Notes in the amount of $100,000 to Mr.

Stein, a member of the board of directors and an entity affiliated

On December 24, 2020, the Company issued two Secured Convertible Promissory Notes in an aggregate amount of $ 100,000 to Mr.

Stein, a member of the board of directors and an entity affiliated to Mr.

Stein, N&F Trust 774 (See Note 13).

Sports Defense Acquisition

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.

Levy received 1,546,875

of the shares and Mr.

The notes were repaid in March 2021.

On September 2, 2021, the Company issued three Secured Convertible Promissory Notes to members 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 13).

Sport Defense Acquisition

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.

Levy received 44,197 of the shares and Mr.

Stein received 91,072 of the shares (See Note 4).

Jerome Zeldis, a member of the Company

Board, has an outstanding balance due of $30,000 for services as of December 31, 2020.

While the Company was owned by Adynxx, the Company

was included within the consolidation process of Adynxx.

The Company’s operating losses of $612 million in the year ending December 31,

2019 were included within Adynxx’s financial results.

All significant intercompany transactions and

related party transactions between the Company and Adynxx have been included in these financial statements, as these statements were prepared

on a “carve-out basis”

prior to the Spin-Off.

For the year ended December 31, 2019, cash flows from our Adynxx was $1.35

million, all of which were cash advances.

The total net effect of the settlement of these transactions detailed above is reflected in

the Statements of Cash Flows as a financing activity and in the Balance Sheets as parent’s net investment of $1,345 as of December 31,

The Company has established a full valuation allowance

for its deferred tax assets based on management’s belief that it is not more likely than not that the related deferred tax assets

will be realized.

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

The fees were paid in March, 2021.

The Company has established a full valuation allowance for its deferred tax assets based on management’s belief that it is not more likely than not that the related deferred tax assets will be realized.

For the years ended December 31, 2021 and 2020, there was no income tax expense or benefit.

At December 31, 2020 and December 31,

2019, the Company had no recorded tax liabilities for uncertain tax positions.

The Company has not yet filed any federal or state income

tax returns for its stand-alone operations for years that are open for examination.

The Company does not expect any significant changes

to the estimate amount of liabilities associated with uncertain tax positions in the next 12 months.

Pursuant to the Spin-off, the Company and Alliqua

BioMedical, Inc.

At December 31, 2021 and December 31, 2020, the Company had no recorded tax liabilities for uncertain tax positions.

The Company does not expect any significant changes to the estimate amount of liabilities associated with uncertain tax positions in the next 12 months.

Pursuant to the Spin-off, the Company and Alliqua BioMedical, Inc.

entered into a Tax Matters Agreement to provide for the payment of tax liabilities and entitlement of refunds;

of the responsibility for, and cooperation in, filing of tax returns;

and other matters relating to taxes for the pre- and post-Spin-off

Prior to the consummation of the Spin-Off, NexGel’s

operating results were included in Adynxx consolidated U.S.

allocation of the responsibility for, and cooperation in, filing of tax returns;

and other matters relating to taxes for the pre- and post-Spin-off periods.

Prior to the consummation of the Spin-Off, NexGel’s operating results were included in Adynxx consolidated U.S.

federal and state income tax returns.

For the purposes of the Company's Consolidated

and Combined Financial Statements for periods prior to the Separation, income tax expense and deferred tax balances have been recorded

as if the Company filed tax returns on a standalone basis separate from Adynxx.

The Separate Return Method applies the accounting guidance

for income taxes to the standalone financial statements as if the Company was a separate taxpayer and a standalone enterprise prior to

the separation from Adynxx.

The income tax (benefit) provision consists of

the following:

For the purposes of the Company’s Consolidated and Combined Financial Statements for periods prior to the Separation, income tax expense and deferred tax balances have been recorded as if the Company filed tax returns on a standalone basis

separate from Adynxx.

The Separate Return Method applies the accounting guidance for income taxes to the standalone financial statements as if the Company was a separate taxpayer and a standalone enterprise prior to the separation from Adynxx.

The income tax (benefit) provision consists of the following:

For The Years Ended

1 unchanged sentence

Income tax provision

Company has established a full valuation allowance

for its deferred tax assets based on management’s belief that it is not more likely than not that the related deferred tax assets

will be realized.

For the years ended December 31, 2020 and 2019, the expected tax benefit based on the statutory rate reconciled

with the actual benefit is as follows:

For The Years Ended

Company has established a full valuation allowance for its deferred tax assets based on management’s belief that it is not more likely than not that the related deferred tax assets will be realized.

For the years ended December 31, 2021 and 2020, the expected tax benefit based on the statutory rate reconciled with the actual benefit is as follows:

For The Years Ended December 31,

federal statutory rate

1 unchanged sentence

Permanent differences

 Non-deductible expenses

State tax change

Timing differences

Change in valuation allowance

Income tax provision

For the years ended December 31, 2020 and

2019, differences between the expected tax expense based on the federal statutory rate and the actual tax expense is primarily attributable

to losses for which no benefit is recognized.

As of December 31, 2020 and 2019, the Company’s

deferred tax assets consisted of the effects of temporary differences attributable to the following:

For the years ended December 31, 2021 and 2020, differences between the expected tax expense based on the federal statutory rate and the actual tax expense is primarily attributable to losses for which no benefit is recognized.

As of December 31, 2021 and 2020, the Company’s deferred tax assets consisted of the effects of temporary differences attributable to the following:

As of December 31,

9 unchanged sentences

Net deferred tax liabilities

The deferred tax assets associated with net operating

losses included in the table above reflect proforma net operating losses as if the Company were a separate taxpayer during the periods

As of December 31, 2020 and 2019, reported approximately $10.0 million and $8.0 million of federal NOL carryovers, respectively,

which begin to expire in 2029 and through 2036.

Similarly, the subsidiary’s Pennsylvania state returns reported state NOL carryovers

of approximately $10 million and $7.9 million, as of December 31, 2020 and 2019, respectively.

However, these loss carryforwards

on a separate company basis may be subject to limitations on the amounts that may be utilized pursuant to Internal Revenue Code section

382 and applicable state law.

Section 382 imposes significant limitations on the utilization of net operating losses after certain

changes of corporate ownership.

The Company will need to determine the amount of loss carryforwards that may be utilized in the future

as necessary.

In assessing the realization of deferred tax assets,

management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

realization of the deferred tax assets is dependent upon the future generation of taxable income during the periods in which those temporary

differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income

and tax planning strategies in making this assessment.

After consideration of all the evidence, both positive and negative, management

has recorded a full valuation allowance against net deferred tax assets at December 31, 2020 and 2019 because management has determined

that it is more likely than not that these deferred tax assets will not be realized.

The deferred tax assets associated with net operating losses included in the table above reflect proforma net operating losses as if the Company were a separate taxpayer during the periods presented.

As of December 31, 2021 and 2020, reported approximately $ 12.6 million and $ 10.0 million of federal NOL carryovers, respectively, which begin to expire in 2029 and through 2036.

Similarly, the subsidiary’s Pennsylvania state returns reported state NOL carryovers of approximately $ 12.6 million and $ 10 million, as of December 31, 2021 and 2020, respectively.

However, these loss carryforwards on a separate company basis may be subject to limitations on the amounts that may be utilized pursuant to Internal Revenue Code section 382 and applicable state law.

Section 382 imposes significant

limitations on the utilization of net operating losses after certain changes of corporate ownership.

The Company will need to determine the amount of loss carryforwards that may be utilized in the future as necessary.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

The ultimate realization of the deferred tax assets is dependent upon the future generation of taxable income during the periods in which those temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance against net deferred tax assets at December 31, 2021 and 2020 because management has determined that it is more likely than not that these deferred tax assets will not be realized.

The Company is subject to taxation in the U.S.

and various states.

Based on the history of net operating losses all jurisdictions and tax years are open for examination until the operating

losses are utilized or the statute of limitations expires.

As of December 31, 2020 and 2019, the Company does not have any significant

uncertain tax positions.

Based on the history of net operating losses all jurisdictions and tax years are open for examination until the operating losses are utilized or the statute of limitations expires.

As of December 31, 2021 and 2020, the Company does not have any significant uncertain tax positions.

Commitments and Contingencies

The Company may be subject to legal proceedings and claims that arise in the ordinary course of business.

Management is not currently aware of any matters that will have a material effect on the financial position, results of operations, or cash flows of the Company.

Concentrations of Risk

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 year ended December 31, 2020 were 45%, 22%, and 11%.

The accounts receivable from the top three customers

were 57%, 0%, and 0% as well as 12% from one other customer of the total accounts receivable as of December 31, 2020.

Revenues from four customers that exceeded 10%

of total revenues for the year ended December 31, 2019 were 38%, 17%, 13% and 10%.

Accounts receivable from these same four customers

were 0%, 13%, 0% and 34% as well as 43% from three other customers of the total accounts receivable as of December 31, 2019.

The Company’s financial instruments that

are exposed to concentrations of credit risk consist primarily of cash.

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 year ended December 31, 2021 were 15 %, 14 %, and 13 %.

The accounts receivable from the top three customers were 45 %, 12 %, and 8 % as well as 20 % from one other customer of the total accounts receivable as of December 31, 2021.

Revenues from three customers that exceeded 10 % of total revenues for the year ended December 31, 2020 were 45 %, 22 %, and 11 %.

The accounts receivable from the top three customers were 57 %, 0 %, and 0 % as well as 12 % from one other customer of the total accounts receivable as of December 31, 2020.

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

Cash balances are maintained principally at major U.S.

institutions and are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to regulatory limits.

From time to time,

cash balances may exceed the FDIC insurance limit.

The Company has not experienced any credit losses associated with its cash balances

financial institutions and are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to regulatory limits.

From time to time, cash balances may exceed the FDIC insurance limit.

The Company has not experienced any credit losses associated with its cash balances in the past.

Subsequent Events

Auctus 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).

The Company intends

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

The Auctus Note has a maturity date of one year

from the Issuance Date.

The Auctus Note bears 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 $180,000) is guaranteed and deemed to be earned in full as of the Issuance Date.

event the Company fails to pay any amount when due under the Auctus Note, the interest rate will increase to the greater of 16% or the

maximum amount permitted by law.

The Auctus Note may be prepaid during the first 180 calendar days from the Issuance Date subject to a

110% prepayment penalty on all principal and accrued but unpaid interest then outstanding.

The Auctus Note may not be paid in whole or

in part after 180 calendar days from the Issuance Date.

Auctus may convert any amount due under the Auctus

Note at any time, and from time to time, into shares of the Company’s common stock at a conversion price of $0.10 per share;

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

The Auctus Note 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 within 120 days of the Issuance Date

(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

within 150 calendar days following the Issuance Date.

An event of default is subject to a confession of judgement against the Company

in the favor of Auctus.

Additionally, the Auctus Note is 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 Auctus Note (the “Security Agreement”);

provided, however, the

Security Agreement will be automatically terminated as of the Trading Date assuming no event of default then exists.

In connection with the issuance of the Auctus

Note, Auctus was also issued two five-year warrants as follows:

the first warrant was to purchase up to an aggregate of 6,000,000 shares

of the Company’s common stock at an exercise price of $0.125 per share (the “First Auctus Warrant”) and the second warrant

was to purchase up to an aggregate of 5,000,000 shares of the Company’s common stock at an exercise price of $0.15 per share (the

“Second Auctus Warrant”).

The First Auctus Warrant and the Second Auctus Warrant are referred to herein as the “Auctus

Warrants”

and the shares of the Company’s common stock underlying the Auctus Warrants are referred to as the “Auctus

Warrant Shares”.

Auctus may not exercise the Auctus Warrants with

respect to any number of Auctus Warrant Shares that would cause it to beneficially own in excess of 4.99% of the Company’s common

The Auctus Warrants may be exercised for cash, or, if the “market price”

of the Company’s common stock is greater

than the Auctus Warrant’s exercise price, and there is not an effective registration statement covering the Auctus Warrant Shares,

the Auctus Warrants may be exercised on a cashless basis.

The number of shares of common stock to be deliverable upon exercise of the

Auctus 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 Auctus Purchase Agreement, the

Company granted Auctus piggyback registration rights with respect to the shares underlying the Auctus Note and the Auctus Warrant.

addition, the Company agreed that, while any amount remains unpaid under the Auctus Note, it would not sell securities on more favorable

terms than those provided to Auctus, without adjusting Auctus’

terms accordingly.

Further, among other things, the Company agreed

that, while any amount remains unpaid under the Auctus Note, it would not enter into any variable rate transactions.

and in connection with the issuance of the Auctus Note, the Company entered into a registration rights agreement with Auctus (the “Registration

Rights Agreement”) whereby it the Company agreed to (i) file with the Securities and Exchange Commission a registration

statement covering resale by Auctus at prevailing market prices (and not fixed prices) of all of the common stock underlying the Auctus

Note and the Auctus Warrants within 30 calendar days following the Issuance Date, (ii) cause the registration statement to become

effective within 150 calendar days following the Issuance Date.

Alere Financial, A Division of Cova Capital Partners,

LLC (“Alere”), served as the placement agent for the Auctus Note and received a total cash fee equal to $120,000 (or 8% of

the principal amount of the Auctus Note).

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.

Private Placement

From January 1, 2021 through March, 2021,

the Company entered into Securities Purchase Agreements with certain accredited investors whereby we sold 3,562,500 shares of our common

stock at a price per share equal to $0.08 for an aggregate purchase price of $285,000.

Equity Grants

On March 8, 2021, the Company granted a restricted

stock award of 1,383,333 shares of the Company’s common stock to the Adam Levy for his service as our Chief Executive Officer and

Chief Financial Officer from October 1, 2020 through September 30, 2021.

This equity award fully vested as of the date of grant.

On March 8, 2021, the Company granted Dr.

Zeldis, a member of the Company Board, an option to purchase up to 666,667 shares of the Company’s common stock at a per share exercise

price of $0.06 under the Company’s 2019 Long-Term Incentive Plan.

This option award fully vested as of the date of grant.

Board of Director Appointment

March 8, 2021, the Company appointed Steven Glassman to the Board of Directors to serve for a term expiring at the next annual

meeting of stockholders or until his successor is duly elected and qualified.

On March 8, 2021 and in consideration for his appointment

to the board of directors, the Company granted Mr.

Glassman an option to purchase up to 500,000 shares of common stock at a per share

exercise price of $0.08 under the Company’s 2019 Long-Term Incentive Plan.

This option award fully vested as of the date of grant.

Paycheck Protection Program –

On March 4, 2021, the Company received a second PPP Loan

in the amount of $127 thousand under Phase II of the Paycheck Protection Program which commenced on January 13, 2021 and allowed

certain businesses that received an initial PPP Loan to seek a second draw PPP Loan.

Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure

On March 11, 2021, the Company entered into a securities 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 with a one-year term (the “Auctus Note”).

The Auctus Note was fully repaid by the Company, including all principle and interest, on March 15, 2022 which thereby extinguished the Auctus Note in its entirety.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data