What changed in this filing

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Item 1. Financial Statements

2022-11-08 compared with 2022-08-10 · 271 added, 262 removed, 479 unchanged (53% of the section changed)

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

OF JUNE 30, 2022 AND DECEMBER 31, 2021

OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021

thousands, except share and per share data)

September 30,

Current Assets:

12 unchanged sentences

Convertible notes payable

Note payable, current portion

Notes payable, current portion

Warrant liability

9 unchanged sentences

Common Stock, par value $ 0.001 per share, 25,000,000 shares authorized;

5,572,234 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

5,572,234 shares issued and outstanding as of both September 30, 2022 and December 31, 2021

Additional paid-in capital

4 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

thousands, except share and per share data)

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Revenues, net

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Loss from operations

Other income (expense)

Other expense, net

Interest expense

Loss on debt extinguishment

Warrant modification expense

Debt discount costs

Gain on investments in marketable securities

Changes in fair value of warrant liability

Total other income (expense)

Total other expense, net

Loss before income taxes

4 unchanged sentences

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

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

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

thousands, except share data)

Equity (Deficit)

Stockholders’

Equity (Deficit)

Balance, January 1, 2022

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Balance, June 30, 2022

Stock-based compensation

Restricted stock vesting

Balance, September 30, 2022

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

thousands, except share data)

Stockholders’

Equity (Deficit)

Balance, January 1, 2021

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Balance, June 30, 2021

Stock-based compensation

Restricted stock vesting

Beneficial conversion and warrant features of convertible debt

Balance, September 30, 2021

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

Six Months Ended June 30,

THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

Nine Months Ended September 30,

Operating Activities

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Amortization of deferred financing costs

Warrant modification expense

Loss on extinguishment of debt

Gain on investments in marketable securities

Forgiveness of debt

2 unchanged sentences

Accounts receivable

Prepaid expenses and other assets

Prepaid expenses and other current assets

Accounts payable

Accrued expenses and other liabilities

Accrued expenses and other current liabilities

Deferred revenue

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Investment in marketable securities

Proceeds from sale of marketable securities

Capital expenditures

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Proceeds from notes payable

Principle payment of notes payable

Principal 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

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

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a substance) and release rate) while maintaining product integrity.

Additionally, the Company has the manufacturing ability to offer

Additionally, the Company has the manufacturing capability to offer

broad choices in the selection of liners onto which the gels are coated.

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on November 14, 2019.

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

condensed consolidated financial statements include the accounts of the Company and its consolidated wholly-owned subsidiary, NexGelRx,

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

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of Presentation

accompanying interim unaudited financial statements and footnotes of NexGel, Inc.

have been prepared in accordance with generally accepted

accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to

Rule 10 - 01 of Regulation S- X of the Securities and Exchange Commission (the “SEC”).

Accordingly, they

do not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of management,

these unaudited consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary

for a fair presentation of the results of the interim periods, but are not necessarily indicative of the results of operations

to be anticipated for the full year ending December 31, 2022.

These financial statements should be read in conjunction with the

audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10 -K for the year ended

December 31, 2021.

accompanying interim unaudited condensed financial statements and footnotes of NexGel have been prepared in accordance with generally

accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions

to Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the “SEC”).

Accordingly, they do not include

all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, these unaudited

consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair

presentation of the results of the interim periods, but are not necessarily indicative of the results of operations to be anticipated

for the full year ending December 31, 2022 .

These financial statements should be read in conjunction with the audited financial

statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Going Concern

of June 30, 2022, the Company had a cash balance of $ 4.4

million (including cash equivalents) and $ 5.4

million of marketable securities (see Note 3

for details of our marketable securities).

For the six months ended June 30, 2022, the Company incurred a net loss of $ 2.87

million and had a net usage of cash in operating

activities of $ 1.50

In addition, the Company had a working

capital of $ 8.30 million

as of June 30, 2022.

Additionally, we believe we have sufficient cash and marketable securities to operate our business plan through 2024.

of September 30, 2022, the Company had a cash balance of $ 1.4 million (including cash equivalents) and $ 6.0 million of marketable securities

(see Note 3 for details of our marketable securities).

For the nine months ended September 30, 2022, the Company incurred a net loss

of $ 4.1 million and had a net usage of cash in operating activities of $ 2.3 million.

In addition, the Company had a working capital

of $ 7.2 million as of September 30, 2022.

Additionally, we believe we have sufficient cash and marketable securities to operate our business

plan through 2024.

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”),

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of $ 14.2 million.

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

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

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

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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.

an allowances 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.

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The total unrecognized gain related to the marketable securities was inconsequential

during the six months ended June 30, 2022.

during the nine months ended September 30, 2022.

of Marketable Securities

June 30, 2022

Marketable Securities

Cash equivalents:

United States treasury bills (due August 23, 2022)

Cash equivalents

September 30, 2022

Marketable Securities

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United States treasury bills (due June 15, 2023)

Total marketable securities

United States treasury bills (due July 13, 2023)

United States treasury bills (due August 10, 2023)

Receivable, net

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when it is probable that the receivable will not be recovered.

The allowance for doubtful accounts was $ 6 thousand as of June 30, 2022

The allowance for doubtful accounts was $ 10 thousand as of September 30,

2022 and $ 4 thousand as of December 31, 2021.

and Cost of Goods Sold

and Cost of Revenues

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

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value of inventory to estimated net realizable value.

balance is made up of raw materials, work-in-progress, and finished goods of $ 256 thousand, $ 90 thousand, and $ 35 thousand on June 30,

balance is made up of raw materials, work-in-progress, and finished goods of $ 285 thousand, $ 87 thousand, and $ 27 thousand on September

30, 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.

Inventory is maintained at the Company’s warehouse and at an Amazon fulfillment center.

Inventory is maintained at the Company’s warehouse and at an Amazon fulfillment

Company produces proprietary branded products and white label opportunities in our manufacturing of consumer products.

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manufacturing, the Company builds its products based on customer orders and immediately ships the products upon completion of the production

“Cost of goods sold” line item in the consolidated statements of income is comprised of the book value of inventory sold

“Cost of Revenues” line item in the consolidated statements of operations is comprised of the book value of inventory sold

to customers during the reporting period.

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and Handling Revenue and Expense

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.

and handling revenue and expense are included in our consolidated statements of operations in Revenue and Cost of revenues, respectively.

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

and Equipment, net

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Expenses and Other Current Assets

expenses and other current assets is recorded at historical cost and is primarily made up of $ 111 thousand and $ 23 thousand of prepaid

insurance, and $ 202 thousand and $ 54 general prepaid expenses and other current assets as of June 30, 2022 and December 31, 2021, respectively.

assets is recorded at historical costs, and as of June 30, 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.

expenses and other current assets is recorded at historical cost and is primarily made up of $ 98

thousand and $ 23

thousand of prepaid insurance, and $ 141

thousand and $ 54

thousand general prepaid expenses and other current assets as of September 30, 2022 and December 31, 2021, respectively.

assets is recorded at historical costs, and as of September 30, 2022 and December 31, 2021, the balance is primarily made up of spare

parts for manufacturing equipment.

Spare parts 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.

Value Measurements

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of Fair Value of Financial Assets

June 30, 2022

Cash equivalents:

United States treasury bills

Cash equivalents

September 30, 2022

Marketable securities:

United States treasury bills

Marketable securities

to purchase common stock were issued in connection with equity financing raises, which occurred on September 2, 2021, March 11, 2021,

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as of the date of issuance and again at each period end using a Black-Scholes option valuation model.

At issuance, the fair value of

the warrant is recognized as an equity issuance cost within additional paid-in-capital.

At issuance, the fair values of

the warrants are recognized as an equity issuance cost within additional paid-in-capital.

Fair value adjustments to the warrant liability

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ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible

more judgment and estimates may be required within the revenue recognition process than required under existing accounting principles

generally accepted in the United States of America (“U.S.

GAAP”) including identifying performance obligations in the contract,

estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate

performance obligation.

The Company adopted ASC 606 for all applicable contracts using the modified retrospective method, which would

have required a cumulative-effect adjustment, if any, as of the date of adoption.

The adoption of ASC 606 did not have a material impact

on the Company’s consolidated financial statements as of the date of adoption.

As a result, a cumulative-effect adjustment was

not required.

more judgment and estimates may be required within the revenue recognition process than required under existing GAAP including identifying

performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating

the transaction price to each separate performance obligation.

The Company adopted ASC 606 for all applicable contracts using the modified

retrospective method, which would have required a cumulative-effect adjustment, if any, as of the date of adoption.

The adoption of ASC

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

a cumulative-effect adjustment was not required.

Company currently recognizes revenue predominately from three types of revenue, contract manufacturing, custom and white label finished

goods manufacturing and our branded products.

Revenues from our manufacturing is recognized at the point where the customer obtains control

of the goods and the Company satisfies its performance obligation, which generally is at the time the customer receives the product.

Revenues from manufactured products are recognized at the point where the customer obtains

control of the goods and the Company satisfies its performance obligation, which generally is at the time the customer receives the product.

Company’s customers consist of other life sciences companies and Amazon retail customers.

Revenues are entirely

concentrated in the United States.

Payment terms vary by the type and location of customer and may differ by jurisdiction and

customer but payment is generally required in a term ranging from 30 to 60 days from date of shipment.

Revenues are entirely concentrated in

the United States.

Payment terms vary by the type and location of customer and may differ by jurisdiction and customer but payment is

generally required in a term ranging from 30 to 60 days from date of shipment.

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

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Three months ending

September 30,

Contract manufacturing

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NexGel branded consumer products

Six months ending

Nine months ending

September 30,

Contract manufacturing

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NexGel branded consumer products

of June 30, 2022 and December 31, 2022, the Company did not have any contract assets or contract liabilities from contracts with customers.

As of June 30, 2022 and December 31, 2021, there were no remaining performance obligations that the Company had not satisfied.

of September 30, 2022 and December 31, 2021, the Company did not have any contract assets or contract liabilities from contracts with

As of September 30, 2022 and December 31, 2021, there were no remaining performance obligations that the Company had not satisfied.

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

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Forfeitures are accounted for when

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

2018-07, Compensation - Stock Compensation (Topic 718)

- Improvements to Nonemployee Share-Based Payment Accounting .

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

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

Consequently, the accounting for share-based

payments to nonemployees and employees will be substantially aligned.

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

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

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

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

These amendments expand

the scope of Topic 718, Compensation - Stock Compensation , to include share-based payments issued to nonemployees for goods or

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

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 consolidated financial statements.

taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for

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Issued Accounting Standards

time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting

bodies and adopted by us as of the specified effective date.

Unless otherwise discussed, the impact of recently issued standards that

are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13,

Financial Instruments - Credit Losses (Topic 326):

time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by us as of the specified

effective date.

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

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

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

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.

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 January 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.

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

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carrying amount to perform Step 2 of the goodwill impairment test.

We adopted ASU 2017-04 effective March 1, 2021.

We adopted ASU 2017-04 effective January 1, 2021.

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.

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 adopted ASU 2019-12 effective

January 1, 2021 and the adoption of this guidance did not have a material impact on our consolidated financial statements.

Company has one operating lease for a commercial manufacturing facility and administrative offices located in Langhorne, Pennsylvania

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following table presents information about the amount and timing of the liability arising from the Company’s operating lease as

of June 30, 2022 ($ in thousands):

of September 30, 2022 ($ in thousands):

of Future Minimum Lease Payments

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Weighted average discount rate

operating lease expense for the three months ending June 30, 2022 and 2021, respectively, was $ 103 thousand and $ 103 thousand, and is

recorded in cost of goods sold and selling, general and administrative expenses on the statement of operations.

operating lease expense for the nine months ending September 30, 2022 and 2021 was $ 155 thousand and $ 192 thousand, respectively, and

is recorded in cost of revenues and selling, general and administrative expenses on the statement of operations.

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

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Cash Flows Information Related to Leases

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

Operating cash flows from operating lease

paid for amounts included in the measurement of lease liability:

cash flows from operating lease

consists of the following ($ in thousands):

Raw materials

Work-in-progress

Finished goods

Inventory, gross

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and Equipment

September 30,

Machinery and equipment

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Leasehold improvements

Construction in progress

Property and equipment, gross

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Property and equipment, net

expense for the six months ended June 30, 2022 and 2021 was $ 49 thousand and $ 49 thousand, respectively.

expense for the nine months ended September 30, 2022 and 2021 was $ 74 thousand and $ 75 thousand, respectively.

Intangible Assets

following provides a breakdown of identifiable intangible assets as of June 30, 2022 and December 31, 2021:

following provides a breakdown of identifiable intangible assets as of September 30, 2022 and December 31, 2021 ($ in thousands):

of Breakdown of Identifiable Intangible Assets

September 30,

Product/Technology Related

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Total identifiable intangible assets, net

connection with the acquisitions of Sport Defense, the Company identified intangible assets of $ 26 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 3.7 years and amortization expense amounted to $ 7 and $ 7 thousand for the six months ended June 30, 2022 and 2021, respectively.

of June 30, 2022, the estimated annual amortization expense for each of the next five fiscal years is as follows:

connection with the acquisition of Sport Defense in 2020, 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 3.7

years and amortization expense amounted to $ 10

thousand for each of the nine months periods ended September 30, 2022 and 2021.

of September 30, 2022, the estimated annual amortization expense for each of the next five fiscal years is as follows ($ in thousands):

of Estimated Annual Amortization Expense

(reminder of the year)

Accrued Expenses and Other Current Liabilities

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Expenses and Other Current Liabilities

Salaries, benefits, and incentive compensation

Total accrued expenses and other current liabilities

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 with respect to the Offering 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 December 27, 2021.

benefits, and incentive compensation

accrued expenses and other current liabilities

connection with the Offering 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, 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

In addition, the Company granted the underwriter with respect to the Offering 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 December 27, 2021.

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 .

June 30, 2022, the Company has reserved common stock for issuance in relation to the following:

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 thousand.

September 30, 2022, the Company has reserved common stock for issuance in relation to the following:

of Reserved Common Stock For Issuance in Relation

Share-based compensation plan

Warrants to purchase common stock

compensation plan

to purchase common stock

Share-based Compensation

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

The 2019 Plan provides for the

granting of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights (“SARs”), restricted

stock units, performance awards, dividend equivalent rights and other awards, which may be granted singly, in combination, or in tandem,

and which may be paid in cash, shares of common stock of the Company or a combination of cash and shares of common stock of the Company.

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

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.

Subject to adjustments pursuant to the 2019 Plan, the maximum

number of shares of common stock with respect to which stock options or SARs may be granted to an executive officer during any calendar

year is 14,286 shares of common stock.

2019 Plan provides for the granting of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights

(“SARs”), restricted stock units, performance awards, dividend equivalent rights and other awards, which may be granted singly,

in combination, or in tandem, and which may be paid in cash, shares of common stock of the Company or a combination of cash and shares

of common stock of the Company.

The Company initially reserved a total of 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.

Subject to adjustments pursuant

to the 2019 Plan, the maximum number of shares of common stock with respect to which stock options or SARs may be granted to an executive

officer during any calendar year is 14,286 shares of common stock.

stock options

following table contains information about the 2019 Plan as of June 30, 2022:

following table contains information about the 2019 Plan as of September 30, 2022:

of Information about Incentive Plan

Available for

following table summarizes the Company’s incentive stock option activity and related information for the period ended June 30,

following table summarizes the Company’s incentive stock option activity and related information for the period ended September

Schedule of Incentive Stock Option Activity

Outstanding at January 1, 2022

Outstanding at June 30, 2022

Exercisable at June 30, 2022

of June 30, 2022, vested outstanding stock options had $ 205 thousand intrinsic value as the exercise price is greater than the estimated

Outstanding at September 30, 2022

Exercisable at September 30, 2022

of September 30, 2022, vested outstanding stock options had $ 169 thousand intrinsic value as the exercise price is greater than the estimated

fair value of the underlying common stock.

As of June 30, 2022, there was approximately $ 85 thousand of total unrecognized share-based

As of September 30, 2022, there was approximately $ 85 thousand of total unrecognized share-based

compensation related to unvested stock options, which the Company expects to recognize over the next 12 months.

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The following assumptions were used to calculate share-based compensation expense

for year ended June 30, 2022:

Schedule of Assumptions used in Share-based Compensation

171.12 %- 183.48 %

Risk-free interest rate

for year ended September 30, 2022:

of Assumptions used in Share-based Compensation

171.12 %- 183.48

Dividend yield

Expected term

5.0 - 5.75 years

interest rate

Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting

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size, stage of life cycle, and financial leverage.

as of January 1, 2022, the Company granted a restricted stock award of 11,364 shares of the Company’s common stock to the Adam

as of August 1, 2022, the Company granted a restricted stock award of 84,750

shares of the Company’s common stock to

the certain officers and employees, all of which shares vest in four equal installments on each of January 1, 2023, January 1, 2024,

January 1, 2025 and January 1, 2026.

Under ASC 718, Compensation-Stock Compensation (“ASC 718”) , the Company

has measured the value of the 84,750

shares granted based on the closing price of

the Company’s stock at the grant date of the RSU Grant ($ 1.82

as of January 1, 2022, the Company granted a restricted stock award of 11,364 shares of the Company’s common stock to Adam

Levy for his service as our Chief Executive Officer pursuant to the terms of his Executive Employment Agreement dated November 4, 2021,

all of which shares vested monthly from January 1, 2022 through December 31, 2022.

Under ASC 718, Compensation-Stock Compensation (“ASC

718”), the Company has measured the value of the 11,364 shares granted based on a closing price of the closing price of the Company’s

Under ASC 718, the Company has measured the value of the 11,364 shares granted based on the closing price of the Company’s

stock at the grant date of the RSU Grant ($ 4.40 per share).

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.

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).

following table shows a summary of common stock warrants through June 30, 2022:

March 8, 2021, the Company granted a restricted stock award of 39,524 shares of the Company’s common stock to 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.

Under ASC 718, the Company has measured the value of the 39,524 shares granted based on the closing price of the

Company’s stock at the grant date of the RSU Grant ($ 2.10 per share).

of Restricted Stock Units Grant

Outstanding at January 1, 2022

Exercised and converted to common shares

Outstanding at September 30, 2022

Exercisable at September 30, 2022

following table shows a summary of common stock warrants through September 30, 2022:

Summary of Common Stock Warrants

1 unchanged sentence

Outstanding at January 1, 2022

Outstanding at June 30, 2022

Exercisable at June 30, 2022

of June 30, 2022, vested outstanding warrants had $ 195 thousand intrinsic value as the exercise price is greater than the estimated fair

value of the underlying common stock.

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.

On June 2, 2021, the Company received notice

from PNC Bank that its initial loan of $ 147,300 had been forgiven in its entirety by the SBA.

On November 16, 2021, the Company received

notice from PNC Bank that its second PPP loan of $ 127,400 had been forgiven in its entirety by the SBA.

Outstanding at September 30, 2022

Exercisable at September 30, 2022

of September 30, 2022, vested outstanding warrants had $ 158 thousand intrinsic value as the exercise price is greater than the estimated

fair value of the underlying common stock.

Notes Payable

April 22, 2020, the Company, entered into a promissory note with PNC Bank, N.A.

(the “PNC 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

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 Small Business Administration (“SBA”).

On November 16, 2021, the Company

received notice from PNC Bank that its second PPP loan of $ 127,400

had been forgiven in its entirety by the SBA.

Injury Disaster Loan

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

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

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

On March 26, 2021, the SBA announced

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start to 30 months from the date of the SBA Note.

The balances of the principal and accrued interest amounted to $ 283 thousand and $ 276

thousand as of September 30, 2022 and December 31, 2021, respectively.

Convertible Notes Payable

December 24, 2020, the Company issued an $ 100,000

December 24, 2020, the Company issued a $ 100

Secured Convertible Promissory Note which was convertible into shares of the Company’s common stock at a price per share of

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January 19, 2021, the Company issued a $ 15

Secured Convertible Promissory Note which was convertible into shares of the Company’s common stock at a price per share of

thousand Secured Convertible Promissory Note which was convertible into shares of the Company’s common stock at a price per

share of $ 1.05 .

The note was fully repaid (including all accrued but unpaid interest) on March 14, 2021.

Fund Financing

March 11, 2021, the Company Auctus Fund, LLC, a Delaware limited liability company (“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 Auctus Note was

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

March 11, 2021, the Company and Auctus Fund, LLC, a Delaware limited liability company (“Auctus”) entered into a senior

secured convertible promissory note in the principal amount of $ 1,680

thousand , which includes $ 180

thousand of interest which was deemed fully

earned as of the issuance date (the “Auctus Note”).

The Auctus Note was fully repaid (including all principal and

interest) on March 15, 2022 with a one-time cash payment of $ 1,680 thousand .

Private Placement Offering

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)).

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

Notes have a maturity date of one year from September 2, 2021.

The Notes bear interest at a rate of 12 % per annum, which is also payable

on maturity, with the understanding that the first 12 months of interest (equal to an aggregate of $ 194,400 ) is guaranteed and deemed

to be earned in full as of September 2, 2021.

In the event the Company fails to pay any amount when due under the September 2 Notes,

the interest rate will increase to the greater of 18 % or the maximum amount permitted by law.

The 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 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.

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.

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.

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.

of June 30, 2022, the September 2 Notes’ outstanding balance was $ 1,239,503 , which consisted of principal of $ 1,478,400 , net of

unamortized balance of $ 195,182 of a beneficial conversion and warrant features, unamortized original issue discount of $ 27,415 and unamortized

debt issuance costs of $ 16,302 .

September 2, 2021, the Company closed a private placement offering with twenty accredited investors (the “September 2

Investors”) whereby the Company issued to the September 2 Investors subordinated secured convertible promissory notes in the

aggregate principal amount of $ 1,814

thousand , which includes $ 194

thousand of interest which was deemed fully

earned as of the issuance date (the “September 2 Notes”).

January 25, 2022, the Company repaid a September 2 Investor in full with a one-time cash payment of $ 300 thousand

of outstanding principal and accrued but unpaid interest.

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.

September 6, 2022, the September 2 Notes remaining outstanding balance was repaid in full which consisted of principal and interest

of $ 1,478 thousand .

Warrant Liability

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share offering.

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

In accordance

with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at

their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other

income in the statement of operations.

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

and Hedging .

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 expense, net in the statement of operations.

September 6, 2022, the Company agreed to extend the September 10, 2019 and November 6, 2019 warrants an additional six months until March

9, 2023 and May 5, 2023, respectively.

The warrants were remeasured as of September 6, 2022 and consequently resulted in a warrant modification

expense of $ 57 thousand.

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

2 unchanged sentences

Fair Value as of period ending 12/31/2021

Modification of warrants

Change in fair value of warrant liability

1 unchanged sentence

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

As of June 30, 2022, none of the warrants have been exercised.

assumptions about future activities and the Company’s stock prices and historical volatility of other comparable public companies

used as inputs.

As of September 30, 2022, none of the warrants have been exercised.

Commitments and Contingencies

4 unchanged sentences

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

from two customers that exceeded 10% of total revenues for the six months ended June 30, 2022 were 40 % and 25 % .

from two customers that exceeded 10% of total revenues for the nine months ended September 30, 2022 were 39 % and 27 %.

The accounts receivable

from the top two customers by revenue were 6 % , and 46 % as well as 15 % and 22 % from two other customers of the total accounts receivable

as of June 30, 2022.

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

receivable from the top three customers by revenue were 13 % , 0 % , and 44 % as well as 25 % from one other customer of the total accounts

receivable as of June 30, 2021.

from the top two customers by revenue were 6 %, and 53 %, respectively, as well as 17 % and 19 % from two other customers of the total accounts

receivable as of September 30, 2022.

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

receivable from the top three customers by revenue were 16 %, 17 %, and 0 %, respectively, as well as 18 % from one other customer of the

total accounts receivable as of September 30, 2021.

Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents and

4 unchanged sentences

Such cash balances are currently in excess of the FDIC insurance

limit of $ 250,000 .

As of June 30, 2022, the total amount exceeding such limit was $ 4,170,000 .

The Company has not experienced any credit

losses associated with its cash balances in the past.

limit of $ 250 thousand.

As of September 30, 2022, the total amount exceeding such limit was $ 1,156 thousand.

The Company has not experienced

any credit losses associated with its cash balances in the past.

The Company invests its cash equivalents in U.S.

treasury bills with original maturities

of three months or less.

treasury bills with

original maturities of three months or less.

securities are comprised of U.S.

5 unchanged sentences

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