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Item 1. Financial Statements

2022-05-13 compared with 2021-11-10 · 187 added, 510 removed, 295 unchanged (70% of the section changed)

FINANCIAL STATEMENTS

CONDENSED BALANCE SHEETS

AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2022 AND DECEMBER 31, 2021

(in thousands, except share and per share data)

September 30,

Current Assets:

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Total current assets

Intangibles, net

Property and equipment, net

6 unchanged sentences

Convertible notes payable

Current portion of debt

Note payable – PPP

Note payable, current portion

Warrant liability

2 unchanged sentences

Long-Term Liabilities:

Notes payable

Lease liability, long term

Operating lease liability, net of current portion

Notes payable, net of current portion

Total long-term liabilities

Total liabilities

Commitments and Contingencies

Commitments and Contingencies (Note 15)

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

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

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

5,572,234 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

2 unchanged sentences

Total liabilities and stockholders' equity

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

CONDENSED STATEMENTS OF OPERATIONS

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

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(in thousands, except share and per share data)

Three months ended

Nine Months Ended

September 30,

Revenues, net

Cost of revenues

Gross (loss)/profit

Operating expenses

Research and development

Selling, general and administrative

2 unchanged sentences

Other income (expense)

Interest expense

Interest income (expense), net

Loss on debt extinguishment

Debt discount costs

Forgiveness of debt

Changes in fair value of warrant liability

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

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

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

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

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(in thousands, except share data)

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Stock-based compensation

Restricted stock vesting

Issuances of common stock, net of issuance costs

Warrants issued for debt issuance

Beneficial conversion and warrant features of convertible debt

Balance, March 31, 2022

Stock-based compensation

Restricted stock vesting

Balance, June 30, 2021

Stock-based compensation

Restricted stock vesting

Beneficial conversion and warrant features of convertible debt

Balance, September 30, 2021

Stockholders'

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Balance, January 1, 2021

Stock compensation

Issuance of common stock

Stock-based compensation

Restricted stock vesting

Issuances of common stock, net of issuance costs

Warrants issued for debt issuance

Beneficial conversion and warrant features of convertible debt

Balance, March 31, 2021

Stock compensation

Issuance of common stock for acquisition

Balance, June 30, 2020

Stock compensation

Issuance of common stock for acquisition

Balance, September 30, 2020

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

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating Activities

1 unchanged sentence

Depreciation and amortization

Changes in ROU asset and operating lease liability

Share-based compensation

2 unchanged sentences

Loss on extinguishment of debt

Change in ROU asset and operating lease liability

Forgiveness of debt

Beneficial conversion feature in excess of face value

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Accrued expenses and other liabilities

Deferred revenue

Net Cash Used in Operating Activities

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Proceeds from notes payable

Principle payment of notes payable

Proceeds from notes payable (PPP)

Proceeds from convertible notes

Payment of financing costs

Principal payment on convertible notes

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Warrants issued for debt and equity financing costs

Operating lease, ROU assets and liabilities

Common shares issued for acquisition

Inventory acquired from acquisition

Accounts payable acquired from acquisition

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

NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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Description of Business

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

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

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

(“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.

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on November 14, 2019.

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.

was previously known as Alliqua BioMedical, 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, all existing operations were distributed to NexGel with the exception of a corporate lease for property in Yardley, Pennsylvania which was retained by Adynxx, Inc.

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

Accounts receivable, net

Inventory, net

Prepaid expenses and other current assets

Property and equipment, net

Operating lease - right of use asset

Accounts payable

Accrued expenses and other current liabilities

Operating lease liability - current

Long-term operating lease liability

Total liabilities

Net liabilities assumed in Spin-Off on June 21, 2019

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.

Basis of Presentation

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

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

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.

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

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

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

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

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

Reclassifications

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

The accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly our consolidated financial position as of March 31, 2022 and December 31, 2021, and the results of our consolidated operations for the interim periods presented.

We follow the same accounting policies when preparing quarterly financial data as we use for preparing annual data.

These statements should be read in conjunction with the consolidated financial statements and the notes included in our latest annual report on Form 10-K for the fiscal year ended December 31, 2021 (“Form 10-K”), and our other reports on file with the Securities and Exchange Commission (the “SEC”).

Going Concern

As of March 31, 2022, the Company had a cash balance of $ 10.5 million.

For the three months ended March 31, 2022, the Company incurred a net loss of $1.84 million and had a net usage of cash in operating activities of $ 0.80 million.

In addition, the Company had working capital of $ 9.30 million as of March 31, 2022.

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

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

Use of Estimates

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.

Reclassifications

We have reclassified, combined or separately disclosed certain amounts in the prior years’ condensed consolidated financial statements and accompanying footnotes to conform with the current period’s presentation.

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

Accounts receivable, net

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

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

The allowance for doubtful accounts was $ 2 thousand as of March 31, 2022 and $ 4 thousand as of December 31, 2021.

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 or shelf-life expiration.

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 of $ 231 thousand and $ 190 thousand, work-in-progress of $ 0 thousand and $ 22 thousand, and finished goods of $ 30 thousand and $ 21 thousand on September 30, 2021 and December 31, 2020, respectively.

The balance is made up of raw materials, work-in-progress, and finished goods of $ 184 thousand, $ 40 thousand, and $ 56 thousand on March 31, 2022, respectively, and the balance was made up of raw materials, work-in-progress, and finished goods of $ 266 thousand, $ 0 , and $ 25 thousand on December 31, 2021, 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

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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 valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset.

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

Acquired identifiable intangible assets are amortized over the following periods:

Expected Life

Acquired intangible Asset

Amortization Basis

Technology-Related

Straight-line basis

Marketing-Related

Straight-line basis

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 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 $ 37 thousand and $ 16 thousand of prepaid insurance, and $ 64 thousand and $ 9 thousand general prepaid expenses and other current assets in the period ended September 30, 2021 and December 31, 2020, respectively.

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

Prepaid expenses and other current assets is recorded at historical cost and is primarily made up of $ 25 thousand and $ 23 thousand of prepaid insurance, and $ 141 thousand and $ 54 thousand general prepaid expenses and other current assets as of March 31, 2022 and December 31, 2021, respectively.

Other assets is recorded at historical costs, and as of March 31, 2022 and December 31, 2021, the balance is entirely made up of spare parts for manufacturing equipment.

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

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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) in the balance sheet to approximate fair value because of the short-term or highly liquid nature of these financial instruments.

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

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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.

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 three types of revenue, contract manufacturing, custom and white label manufacturing and proprietary branded products.

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 customer.

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

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

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Disaggregated revenue by sales type:

Nine Months Ended

September 30,

Three months ending

Contract manufacturing

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NexGel branded consumer products

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

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

As of March 31, 2022 and December 31, 2022, the Company did not have any contract assets or contract liabilities from contracts with customers.

As of March 31, 2022 and December 31, 2021, 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 and May 3, 2021, respectively, 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 and from 17,000,000 shares of common stock to 20,000,000 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.

See Note 10 below for further details regarding the 2019 Plan.

The 2019 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.

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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.

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.

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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.

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

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

Recently Adopted Accounting Standards

In August 2020, the FASB issued ASU No.

2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) which simplifies the accounting for convertible instruments.

The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments.

Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this standard.

2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020.

The Company does not expect this ASU to have a material impact on its consolidated results of operations, cash flows and financial position.

Recently Issued Accounting Standards

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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.

Fair Value Measurement—Disclosure Framework

In August 2018, the FASB issued ASU No.

2018-13, 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 basis.

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

Going Concern

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

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

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

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

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 condensed 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.

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 nine months ended September 30, 2021 and 2020, to the extent they are issued and outstanding, because their effect would be anti-dilutive.

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

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 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.

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.

This valuation report supported the Purchase Price.

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

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

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

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

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 analysis for the Sports Defense acquisition ($in thousands):

Provisional Purchase Consideration at preliminary fair value:

Purchase price

Amount of consideration

Assets acquired and liabilities assumed at preliminary fair value

Product/Technology related intangibles

Marketing related intangibles

Customer related intangibles

Accounts payable and accrued expenses

Other liabilities

Net tangible assets acquired

Total net assets acquired

Consideration paid

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

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

For the Nine Months Ended

September 30,

Revenues, net

Net loss allocable to common shareholders

Net loss per share

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 expired in January 2026.

On April 14, 2021, the Company extended the term of the lease for an additional five years commencing on February 1, 2026 and continuing through January 31, 2031.

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 September 30, 2021 ($ in thousands):

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.

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 March 31, 2022 ($ in thousands):

Maturity of Lease Liability

2021 (remainder of year)

Total undiscounted operating lease payments

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Weighted average discount rate

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

Total operating lease expense for the three months ending March 31, 2022 and 2021, respectively, was $ 52 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):

September 30,

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

Operating cash flows from operating lease

Change in right-of-use asset/liability due to lease amendments

Inventory consists of the following ($ in thousands):

September 30,

Raw materials

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

September 30,

Machinery and equipment

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Property and equipment, net

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

Depreciation expense for the three months ended March 31, 2022 and 2021 was $ 25 thousand and $ 24 thousand, respectively.

Intangible Assets

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

September 30,

The following provides a breakdown of identifiable intangible assets as of March 31, 2022 and December 31, 2021:

Product/Technology Related

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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 4.7 years and amortization expense amounted to $ 10 thousand for the nine months ended September 30, 2021.

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

2021 (remainder of year)

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 $ 3 and $ 3 for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, the estimated annual amortization expense for each of the next five fiscal years is as follows:

Accrued Expenses and Other Current Liabilities

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

September 30,

Salaries, benefits, and incentive compensation

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Share issuances

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 15- Warrant Liability.

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 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 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 $ 0.04 .

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

At March 31, 2022, the Company has reserved common stock for issuance in relation to the following:

Share-based compensation plan

Warrants to purchase common stock

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

(i) 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 its 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, which was subsequently amended as described in the next paragraph.

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

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 June 22, 2021, a majority of our stockholders through a written consent approved an amendment to our Restated Certificate of Incorporation to decrease the number of authorized shares of Common Stock from 3,000,000,000 shares of Common Stock to 750,000,000 shares of Common Stock.

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

For more information on this amendments, please see the Company’s Definitive Information Statement on Schedule 14C filed with the SEC on July 12, 2021.

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 period ended September 30, 2021 were 33 %, 38 %, and 24 %.

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

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

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

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

Cash balances are maintained principally at major U.S.

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.

Share-based Compensation

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The Company initially 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 and May 3, 2021, respectively, 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 485,715 and from 485,715 shares of common stock to 571,429 shares of common stock, all of which may be delivered pursuant to incentive stock options.

Incentive stock options

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

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

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

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

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

Additionally, in anticipation to Ms.

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

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

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

On March 8, 2021, the Company granted Dr.

Jerome 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.

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 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.

On January 15, 2021, the Company awarded a contractor options to purchase an aggregate of 500,000 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 20 % as of the date of grant and the remaining 80 % in November 2022.

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 criteria.

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:

each of Messrs.

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

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

The following table contains information about the 2019 Plan as of March 31, 2022:

Available for

Awards Issued

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

The following table summarizes the Company’s incentive stock option activity and related information for the period ended March 31, 2022:

Term in Years

Outstanding at January 1, 2022

Outstanding at December 31, 2020

( 1,000,000 )

Outstanding at September 30, 2021

Exercisable at September 30, 2021

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

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

Outstanding at March 31, 2022

Exercisable at March 31, 2022

As of March 31, 2022, vested outstanding stock options had $ 210 thousand intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock.

As of March 31, 2022, there was approximately $ 138 thousand of total unrecognized share-based compensation related to unvested stock options, which the Company expects to recognize over the next 12 months .

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

The service period is generally the vesting period.

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

The following assumptions were used to calculate share-based compensation expense for year ended March 31, 2022:

171.12 %- 183.48

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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 then 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 vested 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

( 5,928,571 )

Outstanding at December 31, 2020

Exercised and converted to common shares

( 1,383,333 )

Outstanding at September 30, 2021

Exercisable at September 30,2021

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

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

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

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

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

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

Under ASC 718, Compensation-Stock Compensation (“ASC 718”), the Company has measured the value of the 39,924 shares 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).

The following table shows a summary of common stock warrants through March 31, 2022:

Term in Years

Outstanding at December 31, 2019

Outstanding at December 31, 2020

Outstanding at September 30, 2021

Exercisable at September 30, 2021

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

Outstanding at January 1, 2022

Outstanding at March 31, 2022

Exercisable at March 31, 2022

As of March 31, 2022, vested outstanding warrants had $ 139 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.

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

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.

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

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.

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

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

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.

Economic Injury Disaster Loan

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

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

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

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

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

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 .

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.

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Auctus Fund Financing

On March 11, 2021 (the “Issuance Date”), the Company entered into a securities purchase agreement (the “Auctus Purchase Agreement”) with Auctus Fund, LLC, a Delaware limited liability company (“Auctus”), pursuant to which the Company issued to Auctus a senior secured convertible promissory note in the principal amount of $ 1,680,000 , including Original Issue Discount (OID) of $180,000 (the “Auctus Note”).

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 , which includes $ 180,000 of interest which was deemed fully earned as of the Issuance Date (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”).

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

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

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

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

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 $ 0.10 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, (ii) cause the registration statement to become effective by the Trading Date.

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

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.

As of December 31, 2021, the Auctus Note outstanding balance 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 .

The Auctus Note was fully-repaid (including all principal and interest) on March 15, 2022 with a one-time cash payment of $ 1,680,000 .

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

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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).

1 unchanged sentence

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

Investor Private Placement Offering

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

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 2 Purchase Agreement”) with the September 2 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)).

3 unchanged sentences

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 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 September 2 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.

provided, however, that the September 2 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 2 Notes will be subject to adjustment from time to time for any subdivision or consolidation of shares and other dilutive events.

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

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

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

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

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

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

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

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 September 2 Notes will be reduced to the new Base Price at the option of the holder.

In connection with the issuance of the September 2 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 2 Warrant Shares”) at an exercise price of $ 5.25 per share (the “September 2 Warrants”).

The September 2 Investors may not exercise the September 2 Warrants with respect to any number of September 2 Warrant Shares that would cause such September 2 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.

Further, among other things, the Company agreed that, while any amount remains unpaid under the September 2 Notes, it would not enter into any variable rate transactions.

Alere Financial, a division of Cova Capital Partners, LLC (“Alere”), served as the placement agent for the September 2 Notes 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 September 30, 2021, the September 2 Notes’ outstanding balance was $ 250,710 , which consisted of unamortized balance of $ 1,277,536 of a beneficial conversion and warrant features, unamortized original issue discount of $ 179,446 and unamortized debt issuance costs of $ 106,708 .

On January 25, 2022, the Company repaid a September 2 Investor in full with a one-time cash payment of $ 300,000 of outstanding principal and accrued but unpaid interest the September 2 Offering.

The Company did incur a 105 % pre-payment penalty of $ 16,800 with respect to the repayment of the investor’s note and the repayment extinguished the note in its entirety.

As of March 31, 2022, the September 2 Notes’ outstanding balance was $ 894,429 , which consisted of principal of $ 1,478,400 , net of unamortized balance of $ 477,105 of a beneficial conversion and warrant features, unamortized original issue discount of $ 67,015 and unamortized debt issuance costs of $ 39,851 .

Warrant Liability

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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)

September 2, 2024

March 11, 2021 (2)

March 11, 2024

0.0093 - 0.0094

February 3, 2021 (3)

February 3, 2024

December 24, 2020 (4)

December 24, 2020

March 18, 2020 (5)

March 18, 2020

September 10, 2019 (6)

September 10, 2022

November 6, 2019 (7)

November 6, 2022

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

Interest Rate

Black-Scholes Assumptions

Stock Price (8)

(annual) (10)

per share (11)

September 30, 2021 (1)

September 2, 2024

September 30, 2021 (2)

March 11, 2024

0.00946 - 0.00941

September 30, 2021 (3)

February 3, 2024

September 30, 2021 (4)

December 24, 2020

September 30, 2021 (5)

March 18, 2020

September 30, 2021 (6)

September 10, 2022

September 30, 2021 (7)

November 6, 2022

Black-Scholes Assumptions

(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

(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.

Federal Reserve.

(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:

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Fair Value as of period ending 12/31/2021

Fair Value at initial measurement date

Change in fair value of warrant liability

Fair Value as of period ending 3/31/2022

Fair Value at initial measurement dates

Change in fair value of warrant liability

Fair Value as of period ending 9/30/2021

Related Party Transactions

Convertible Promissory Note

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 14).

The notes were repaid in March 2021.

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

Stein, $ 150,000 to Mr.

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

Zeldis (See Note 14).

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

The fees were paid in February 2021.

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, 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 (See Note 3).

Subsequent Events

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

Auctus Fund Second Amendment

Adam Levy Executive Employment Agreement

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

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

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

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

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

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

Levy’s agreement becomes effective, Mr.

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

Additionally, Mr.

Levy would be eligible for cash bonuses as follows:

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

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

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

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

Upon effectiveness of the agreement, Mr.

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

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

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

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

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

Pursuant to Mr.

Levy’s agreement, if Mr.

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

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

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

Additionally, if Mr.

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

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

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

Pursuant to Mr.

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

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

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

Pursuant to Mr.

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

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

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

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

For example, in the event Mr.

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

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

If we terminate Mr.

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

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

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

Vesting of any option grants would immediately cease.

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

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

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 March 31, 2022, none of the warrants have been exercised.

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 three months ended March 31, 2022 were 52 %, 12 %, and 12 %.

The accounts receivable from the top three customers were 0 %, 0 %, and 40 % as well as 16 % and 22 % from two other customers of the total accounts receivable as of March 31, 2022.

Revenues from three customers that exceeded 10 % of total revenues for the three months ended March 31, 2021 were 28 %, 24 %, and 16 %.

The accounts receivable from the top three customers were 13 %, 0 %, and 44 % as well as 25 % from one other customer of the total accounts receivable as of March 31, 2021

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.

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

Such cash balances are currently in excess of the FDIC insurance limit of $ 250,000 .

As of March 31, 2022, the total amount exceeding such limit was $ 10,270,000 .

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

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

What changed 10-Q

Item 1. Financial Statements