What changed in this filing

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Item 1. Financial Statements

2023-08-14 compared with 2023-05-15 · 373 added, 353 removed, 407 unchanged (64% of the section changed)

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

OF MARCH 31, 2023 AND DECEMBER 31, 2022

OF JUNE 30, 2023 AND DECEMBER 31, 2022

thousands, except share and per share data)

receivable, net

expenses and other current assets

Current Assets:

and equipment, net

lease - right of use asset

AND STOCKHOLDERS’ EQUITY

expenses and other current liabilities

payable, current portion

lease liability, current portion

Marketable securities

Accounts receivable, net

Prepaid expenses and other current assets

Total current assets

Intangibles, net

Property and equipment, net

Operating lease - right of use asset

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

lease liability, net of current portion

payable, net of current portion

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, 25,000,000 shares authorized;

5,614,028 and 5,577,916 shares issued and outstanding as of March 31, 2023

and December 31, 2022, respectively

paid-in capital

NexGel stockholders’ equity

Non-controlling

interest in joint venture

Accounts payable

Accrued expenses and other current liabilities

Current portion of note payable

Warrant liability

Operating lease liability, current portion

Total current liabilities

Operating lease liability, net of current portion

Notes payable, net of current portion

Total liabilities

Commitments and Contingencies (Note 15)

STOCKHOLDERS’ EQUITY

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, 25,000,000 shares authorized;

5,696,064 and 5,577,916 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

Accumulated deficit

Total NexGel stockholders’ equity

Non-controlling interest in joint venture

Total stockholders’ equity

liabilities and stockholders’ equity

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

Total liabilities and stockholders’ equity

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

CONSOLIDATED STATEMENTS OF OPERATIONS

THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

thousands, except share and per share data)

and development

general and administrative

Three Months Ended

Six Months Ended

Revenues, net

Cost of revenues

Operating expenses

from operations

income (expense)

income (expense), net

on debt extinguishment

in fair value of warrant liability and warrant modification expense

Gain on investment in marketable securities

other income (expense), net

before income taxes

Research and development

Selling, general and administrative

Total operating expenses

Loss from operations

Other income (expense)

Interest expense

Interest income

Loss on debt extinguishment

Gain on investments

Changes in fair value of warrant liability

Total other income (expense), net

Loss before income taxes

Income tax expense

Income attributable to non-controlling interest in joint venture

loss attributable to NexGel stockholders

loss per common share - basic

loss per common share - diluted

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

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

Net loss attributable to NexGel stockholders

Net loss per common share - basic

Net loss per common share - diluted

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

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

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

thousands, except share data)

Stockholders’

January 1, 2023

stock vesting

Balance, January 1, 2023

Restricted stock vesting

Exercise of warrants

Non-controlling

interest in JV

income (loss)

March 31, 2023

Non- controlling

Non-controlling interest in JV

Net income (loss)

Balance, March 31, 2023

Stock-based compensation

Exercise of warrants

Net income (loss)

Balance, June 30, 2023

Stockholders’

January 1, 2022

income (loss)

March 31, 2022

Balance, January 1, 2022

Stock-based compensation

Balance, March 31, 2022

Stock-based compensation

Restricted stock vesting

Balance, June 30, 2022

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

Months Ended March 31,

to reconcile net loss to net cash used in operating activities:

attributable to non-controlling interest in joint venture

and amortization

in ROU asset and operating lease liability

THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

Six Months Ended June 30,

Operating Activities

Adjustments to reconcile net loss to net cash used in operating activities:

Income attributable to non-controlling interest in joint venture

Depreciation and amortization

Changes in ROU asset and operating lease liability

Share-based compensation and restricted stock vesting

Gain on investment in marketable securities

in fair value of warrant liability and warrant modification

of deferred financing costs

on extinguishment of debt

in operating assets and liabilities:

expenses and other assets

expenses and other current liabilities

Cash Used in Operating Activities

from sales of marketable securities

Cash Provided by Investing Activities

payment of notes payable

Cash Used in Financing Activities

Decrease in Cash

Cash – Beginning

Disclosure of Cash Flows Information

paid during the year for:

Non-cash Investing and Financing activities

and equipment contributed as capital investment to JV

asset and operating lease liabilities recognized upon consolidation of JV

Changes in fair value of warrant liability and warrant modification

Amortization of deferred financing costs

Loss on extinguishment of debt

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Accounts payable

Accrued expenses and other current liabilities

Net Cash Used in Operating Activities

Investing Activities

Proceeds from sales of marketable securities

Investment in marketable securities

Capital expenditures

Net Cash Provided by Investing Activities

Financing Activities

Principle payments of notes payable

Net Cash Used in Financing Activities

Net Decrease in Cash

Cash – Beginning of period

Cash – End of period

Supplemental Disclosure of Cash Flows Information

Cash paid during the year for:

Supplemental Non-cash Investing and Financing activities

Property and equipment contributed as capital investment to JV

ROU asset and operating lease liabilities recognized upon consolidation of JV

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

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on November 14, 2019.

March 1, 2023, the Company acquired a 50 % interest in a newly formed joint venture (“JV”), CG Converting and Packaging,

LLC, with C.G.

March 1, 2023, the Company acquired a 50 % interest in a newly formed joint venture (“JV”), CG Converting and Packaging, LLC,

Laboratories Inc.

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The agreement is effective March 1, 2023.

As a result of this transaction, the Company owns 50 % of the JV, with the remaining 50 %

held by CG Labs.

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.

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.

As a result of this transaction, the Company owns 50 % of the JV, with the remaining 50 % held by

of Presentation

accompanying interim unaudited condensed consolidated 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”).

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, 2023 .

These consolidated

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, 2022.

of Consolidation

The accompanying

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

the JV (see Note 11).

accompanying interim unaudited condensed consolidated 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 condensed 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, 2023 .

These condensed consolidated 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, 2022.

Principles of Consolidation

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

NexGelRx, Inc.

and the fifty percent ( 50 %) owned JV (see Note 11).

Going Concern

of March 31, 2023, the Company had a cash balance of $ 787 thousand (including cash equivalents) and $ 5.0 million of marketable securities

of June 30, 2023, the Company had a cash balance of $ 3.7 million (including cash equivalents) and $ 612 thousand of marketable securities

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

For the three months ended March 31, 2023, the Company incurred a net loss of $ 814

thousand and had a net usage of cash in operating activities of $ 709 thousand.

In addition, the Company had a working capital of $ 5.8

million as of March 31, 2023.

For the six months ended June 30, 2023, the Company incurred a net loss of $ 1.5

million and had a net usage of cash in operating activities of $ 1.9 million.

In addition, the Company had a working capital of $ 5.0 million

as of June 30, 2023.

We believe we have sufficient cash and marketable securities to operate our business plan through 2025.

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

The Company has increased focus 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

The Company has increased its focus 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.

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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.

The condensed 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.

it is reasonably possible that estimates made in the condensed 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

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

allowances for doubtful accounts, inventory reserves, deferred taxes, share-based compensation and related valuation allowances and fair

value of long-lived assets.

preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions

that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.

These estimates and assumptions

include 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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These securities are carried at fair value with any change in fair value recorded as an unrealized gain (loss) in

the statement of operations of the year in which such change occurs.

The total unrealized gain related to the marketable securities was

inconsequential during the three months ended March 31, 2023.

Company had the following marketable securities as of March 31, 2023 and December 31, 2022:

the consolidated statement of operations of the period in which such change occurs.

Company had the following marketable securities as of June 30, 2023 and December 31, 2022:

of Marketable Securities

States treasury bills (due February 23, 2023)

States treasury bills (due April 27, 2023)

States treasury bills (due June 15, 2023)

States treasury bills (due July 13, 2023)

States treasury bills (due August 10, 2023)

Marketable Securities

United States treasury bills (due February 23, 2023)

United States treasury bills (due April 27, 2023)

United States treasury bills (due June 15, 2023)

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 $ 19 thousand as of March 31, 2023

The allowance for doubtful accounts was $ 17 thousand as of June 30, 2023,

and $ 9 thousand as of December 31, 2022.

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balance is made up of raw materials, work-in-progress, and finished goods.

Inventory is maintained primarily at the Company’s

warehouse and at an Amazon fulfillment center.

“Cost of revenues” 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.

Inventory is maintained primarily at the Company’s warehouse

and at an Amazon fulfillment center.

“Cost of revenues” line item in the condensed consolidated statements of operations 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.

and Development

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and Handling Revenue and Expense

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

and handling revenue and expense are included in our condensed consolidated statements of operations in revenues and cost of revenues,

respectively.

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

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indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison

of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset.

If such assets

are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds

the fair value of the asset.

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

The recoverability of assets to be held and used is measured by

a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount

of the asset exceeds the fair value of the asset.

Long-lived assets to be disposed of are reported at the lower of carrying amount or

fair value less costs to sell.

and Intangible Assets

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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 $ 28 thousand and $ 63 thousand of prepaid

insurance, and $ 101 thousand and $ 109 thousand general prepaid expenses and other current assets as of March 31, 2023 and December 31,

expenses and other current assets are recorded at historical cost and is primarily made up of $ 96 thousand and $ 63 thousand of prepaid

insurance, and $ 270 thousand and $ 109 thousand general prepaid expenses and other current assets as of June 30, 2023, and December 31,

2022, respectively.

assets are recorded at historical costs, and as of March 31, 2023 and December 31, 2022, the balance is primarily comprised of spare parts

for manufacturing equipment.

Other assets are not subject to depreciation, until such time that they are placed

into service and the part that is being replaced is disposed.

assets are recorded at historical costs, and as of June 30, 2023, and December 31, 2022, the balance is primarily comprised of spare

parts for manufacturing equipment.

Other assets 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

States treasury bills

June 30, 2023

Marketable securities:

United States treasury bills

December 31, 2022

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to purchase common stock were issued in connection with equity financing raises, which occurred during 2019 through 2021.

values of the warrants are estimated as of the date of issuance and again at each year end using a Black-Scholes option valuation

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

value adjustments to the warrant liability are recognized in other income (expense) in the accompanying condensed consolidated

statements of operations.

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

Customers (“ASC 606”).

The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer

of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in

exchange for those goods or services.

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

more judgment and estimates may be required within the revenue recognition process than required under existing 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 manufactured and branded 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.

The fair values

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

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 are recognized in other income (expense) in the accompanying condensed consolidated statements of operations.

January 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification

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

The core principle of ASC 606

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

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

ASC 606 defines a

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

the revenue recognition process than required under existing 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.

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 manufactured and branded 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

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

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Revenue by Sales Type

manufacturing

and white label finished goods manufacturing

branded consumer products

of March 31, 2023 and December 31, 2022, the Company did not have any contract assets or contract liabilities from contracts with customers.

As of March 31, 2023 and December 31, 2022, there were no remaining performance obligations that the Company had not satisfied.

Three months ended

Contract manufacturing

Custom and white label finished goods manufacturing

NexGel branded consumer products

Six months ended

Contract manufacturing

Custom and white label finished goods manufacturing

NexGel branded consumer products

of June 30, 2023, and December 31, 2022, the Company did not have any contract assets or contract liabilities from contracts with customers.

As of June 30, 2023, and December 31, 2022, there were no remaining performance obligations that the Company had not satisfied.

Company has four distinct lines of business;

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Forfeitures are accounted for when

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

June 2018, 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

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

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

standard was 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 a material impact to its consolidated financial statements.

The Company adopted this new standard early in the third quarter of 2019 and

it did not have a material impact to its condensed 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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examination by a tax authority and based upon the technical merits of the tax position.

The tax benefit recognized in the consolidated

The tax benefit recognized in the condensed consolidated

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

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event the uncertain tax position is disallowed.

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.

842, Leases, requires recognition of leases on the condensed consolidated balance sheets as right-of-use (“ROU”) assets and lease

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.

Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing

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Issued Accounting Standards

time to time, new accounting pronouncements are issued by 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, FASB issued Accounting Standards Update (“ASU”) 2016-13,

Financial Instruments - Credit Losses (Topic 326):

time to time, new accounting pronouncements are issued by 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, FASB issued 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.

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 condensed 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 March 31, 2023 ($ in thousands):

of June 30, 2023 ($ in thousands):

of Future Minimum Lease Payments

of Lease Liability

Maturity of Lease Liability

Total undiscounted operating lease payments

Imputed interest

Present value of operating

lease liability

Present value of operating lease liability

Weighted average remaining lease term

Weighted average discount rate

operating lease expense for the three months ending March 31, 2023 and 2022, was $ 65

thousand and $ 61

thousand, respectively, and is recorded in cost of goods sold and selling, general and administrative expenses in the accompanying

condensed consolidated statement of operations.

operating lease expense for the six months ended June 30, 2023, and 2022, was $ 136 thousand and $ 103 thousand, respectively, and is

recorded in cost of goods sold and selling, general, and administrative expenses in the accompanying condensed consolidated 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

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

Operating cash flows from operating lease

consists of the following ($ in thousands):

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Inventory, gross

Inventory reserve

for excess and slow moving inventory

Inventory reserve for excess and slow moving inventory

is maintained at the Company’s warehouse, an outsourced third-party contract manufacturing vendor, and at Amazon fulfillment centers.

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and Equipment

and equipment

furniture and equipment

Property and equipment, gross

Machinery and equipment

Office furniture and equipment

Leasehold improvements

Construction in progress

Total property and equipment

accumulated depreciation and amortization

and equipment, net

expense for the three months ended March 31, 2023 and 2022 was $ 27 thousand and $ 25 thousand, respectively.

Property and equipment, net

expense for the six months ended June 30, 2023, and 2022 was $ 61 thousand and $ 49 thousand, respectively.

Intangible Assets

following provides a breakdown of identifiable intangible assets as of March 31, 2023 and December 31, 2022:

following provides a breakdown of identifiable intangible assets as of June 30, 2023 and December 31, 2022:

of Breakdown of Identifiable Intangible Assets

Product/Technology Related

intangible assets, gross

Identifiable intangible assets, gross

Accumulated amortization

Product/Technology Related

identifiable intangible assets, net

Product/Technology Related identifiable intangible assets, net

Marketing Related

Customer related intangible

Tradename related intangible

related identifiable intangible assets, net

Identifiable intangible assets, net

Customer related intangible asset, gross

Tradename related intangible asset, gross

Accumulated amortization

Marketing related identifiable intangible assets, net

Total Identifiable intangible assets, net

connection with the May 29, 2020, acquisition of Sports Defense, the Company identified intangible assets of $ 55 thousand representing

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These assets are being amortized on a straight-line basis over their weighted average

estimated useful life of 5.7 years and amortization expense amounted to $ 4 thousand and $ 3 thousand for the three months ended March

31, 2023 and 2022, respectively.

of March 31, 2023, the estimated annual amortization expense for each of the next five fiscal years is as follows:

estimated useful life of 5.7 years and amortization expense amounted to $ 7 thousand for the six months ended June 30, 2023, and 2022,

respectively.

of June 30, 2023, the estimated annual amortization expense for each of the next five fiscal years is as follows:

of Estimated Annual Amortization Expense

3 unchanged sentences

Expenses and Other Current Liabilities

Salaries, benefits, and incentive

Salaries, benefits, and incentive compensation

Franchise tax accrual

Total accrued expenses

and other current liabilities

March 31, 2023, the Company has reserved common stock for issuance in relation to the following:

of Reserved Common Stock For Issuance in Relation

compensation plan

to purchase common stock

Total accrued expenses and other current liabilities

June 30, 2023, the Company has reserved common stock for issued securities in relation to the following:

of Reserved Common Stock For Issued Securities in Relation

Share-based compensation plan

Warrants to purchase common stock

Restricted stock units

Share-based Compensation

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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.

March 23, 2023, the board of directors of the Company approved an increase of the number of shares to be reserved under the Company’s

2019 Plan by 300,000 shares of common stock, or from an aggregate number of 571,429 to 871,429 shares of common stock

(the “2019 Plan Increase”).

The Company expects the 2019 Plan Increase to satisfy the Company’s anticipated equity

incentive award requirements for at least two years.

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.

of common stock of the Company up to an amount of 871,429 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

option or SARs may be granted to an executive officer during any calendar year is 14,286 shares of common stock.

stock options

March 8, 2023, the Company granted a contractor an option to purchase up to 17,532 shares of the Company’s common stock at a per

1 unchanged sentence

This option award vests over a period of 12 months.

following table contains information about the 2019 Plan as of March 31, 2023:

following table contains information about the 2019 Plan as of June 30, 2023:

of Information about Incentive Plan

& Outstanding

granted outside of the 2019 Plan (2)

Issued & Outstanding

Available for

2019 Plan (1)

Awards granted outside of the 2019 Plan (2)

incentive stock options and restricted stock units discussed below.

Includes shares of restricted common stock granted outside of the 2019

Plan to our Chief Executive Officer, Adam Levy.

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

shares of restricted common stock granted outside of the 2019 Plan to our Chief Executive Officer, Adam Levy.

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

of Incentive Stock Option Activity

at January 1, 2023

at March 31, 2023

of March 31, 2023, vested outstanding stock options had $ 129 thousand intrinsic value as the exercise price is greater than the estimated

Outstanding at January 1, 2023

Outstanding at June 30, 2023

Exercisable at June 30, 2023

of June 30, 2023, vested outstanding stock options had $ 129 thousand intrinsic value as the exercise price is greater than the estimated

fair value of the underlying common stock, respectively.

As of March 31, 2023, there was approximately $ 23 thousand of total unrecognized

As of June 30, 2023, there was approximately $ 17 thousand of total unrecognized

share-based compensation related to unvested stock options, which the Company expects to recognize over the next 11 months excluding

3 unchanged sentences

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

for the period ending March 31, 2023:

for the period ended June 30, 2023:

of Assumptions used in Share-based Compensation

interest rate

Risk-free interest rate

Dividend yield

Expected term

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

7 unchanged sentences

size, stage of life cycle, and financial leverage.

as of August 1, 2022, the Company granted a restricted stock award of 84,750 shares of the Company’s common stock to 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

Under ASC 718, Compensation-Stock Compensation (“ASC 718”), the Company has measured the value of the 84,750

shares granted based on a closing price of the closing price of the Company’s stock at the grant date of the RSU Grant ($ 1.82 per

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

of the Company’s common stock to 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, the Company has measured the value of the 84,750 shares

granted based on a closing price of the closing price of the Company’s stock at the grant date of the RSU Grant ($ 1.82 per

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

9 unchanged sentences

of Restricted Stock Units Granted

at January 1, 2023

and converted to common shares

at March 31, 2023

Outstanding at January 1, 2023

Exercised and converted to common shares

Outstanding at June 30, 2023

Exercisable at June 30, 2023

expense will be recognized ratably over the total vesting schedule.

1 unchanged sentence

expense for forfeited awards.

Stock based compensation of $ 24 thousand and $ 55 thousand has been recorded for the year ended March 31,

2023 and 2022, respectively.

As of March 31, 2023, there was $ 116 thousand unrecognized share-based compensation related to unvested

RSUs, which the Company expects to recognize over the next 3 years.

following table shows a summary of common stock warrants through March 31, 2023:

As of June 30, 2023, there was $ 121 thousand

unrecognized share-based compensation related to unvested RSUs, which the Company expects to recognize over the next 3

Stock based compensation and restricted stock vesting of $ 53 thousand and $ 134 thousand has been recorded for the

six months ended June 30, 2023, and 2022, respectively.

following table shows a summary of common stock warrants through June 30, 2023:

of Common Stock Warrants

at January 1, 2023

Outstanding at March

Exercisable at March

of March 31, 2023, vested outstanding warrants had $ 90 thousand intrinsic value as the exercise price is greater than the estimated fair

value of the underlying common stock.

Term in Years

Outstanding at January 1, 2023

Outstanding at June 30, 2023

Exercisable at June 30, 2023

of June 30, 2023, vested outstanding warrants had $ 0 intrinsic value as the exercise price is greater than the estimated fair value of

the underlying common stock.

Noncontrolling Interest in Joint Venture

March 1, 2023, the Company acquired a 50 % interest in

a newly formed joint venture (“JV”), named CG Converting and Packaging, LLC, with C.G.

March 1, 2023, the Company acquired a 50 %

interest in a JV, named CG Converting and Packaging, LLC, with C.G.

Laboratories Inc.

for its converting and packaging business.

The JV is owned 50 % by the Company and 50 % by CG Labs.

CG Labs contributed its existing converting

and packaging division to the JV, including, but not limited to, its facilities, equipment, employees, and customers.

The Company will

contribute $ 500,000 to the JV, on a schedule to be determined, to be used for equipment and facility upgrades as well as general corporate

As of March 31, 2023, the Company has contributed $ 100,000 of its $ 500,000 commitment.

(“CG Labs”) for its converting and

packaging business (see Note 1).

The JV is owned 50 %

by the Company and 50 %

CG Labs contributed its existing converting and packaging division to the JV, including, but not limited to, its

facilities, equipment, employees, and customers.

The Company will contribute $ 500,000

to the JV, on a schedule to be determined, to be used for equipment and facility upgrades as well as general corporate purposes for JV.

of June 30, 2023, the Company has contributed $ 350,000

of its $ 500,000

JV is considered to be a variable interest entity (“VIE”), as defined by authoritative accounting guidance.

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Interest accrues at the rate of 3.75 %

Installment payments, including principal and interest, are due monthly beginning May 28, 2021 (twelve months from the date

of the SBA Note) in the amount of $ 1,270 .

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

Installment payments, including principal and interest, are due monthly which the Company began paying in December 2022 (thirty

months from the date of the SBA Note) in the amount of $ 1,270 .

The balance of principal and interest is payable thirty years from the

date of the SBA Note.

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

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.

SBA has since extended the repayment start to 30 months from the date of the SBA Note.

The Company made its first payment in December

The balances of the principal and accrued interest amounted to $ 281 thousand and $ 283 thousand as of March 31, 2023 and December

31, 2022, respectively.

future annual principal amounts and accrued interest to be paid as of March 31, 2023 are as follows:

of the principal and accrued interest amounted to $ 280 thousand and $ 283 thousand as of June 30, 2023 and December 31, 2022, respectively.

future annual principal amounts and accrued interest to be paid as of June 30, 2023 are as follows:

of Debt Instruments

the year ending December 31 ($ in thousands):

For the year ending December 31 ($ in thousands):

2023 (remainder of the year)

6 unchanged sentences

September 2, 2021, the Company issued to certain holders one-year subordinated secured convertible promissory notes in the aggregate

principal amount of $ 1,814 thousand, which included $ 194 thousand of interest which was deemed fully earned as of the issuance date (the

“September 2 Notes”).

On January 25, 2022, the Company repaid one of the September 2 Notes in full with a one-time cash payment

of $ 300 thousand of outstanding principal and accrued but unpaid interest.

The Company incurred pre-payment penalty of $ 17 thousand with

respect to the repayment of the note and the remaining unamortized debt discount in the amount of $ 133 thousand was written off and both

amounts were recorded as a loss on extinguishment of debt of $ 150 thousand in accompany statement of operations during 2022.

The repayment

extinguished the note in its entirety.

On September 6, 2022, the outstanding balance on the remaining September 2 Notes’ was repaid

in full which consisted of principal of $ 1,478 thousand.

principal amount of $ 1,814

thousand, which included $ 194

thousand of interest which was deemed fully earned as of the issuance date (the “September 2 Notes”).

On January 25,

2022, the Company repaid one of the September 2 Notes in full with a one-time cash payment of $ 300

thousand of outstanding principal and accrued but unpaid interest.

The Company incurred pre-payment penalty of $ 17

thousand with respect to the repayment of the note and the remaining unamortized debt discount in the amount of $ 133

thousand was written off and both amounts were recorded as a loss on extinguishment of debt of $ 150

thousand in accompany condensed consolidated statement of operations during 2022.

The repayment extinguished the note in its

On September 6, 2022, the outstanding balance on the remaining September 2 Notes’ was repaid in full which consisted

of principal of $ 1,478

Warrant Liability

4 unchanged sentences

common stock at an exercise price equal to $ 0.49 to $ 5.25 per share at any time on or after their issuance date and on or prior to the

close of business 3 years after the issuance date (the “Termination Date”).

The Company determined that these warrants are

free standing financial instruments that are legally detachable and separately exercisable from the common stock included in the public

share offering.

close of business 3 or 5 years, as applicable, after the issuance date (the “Termination Date”).

The Company determined that

these warrants are free standing financial instruments that are legally detachable and separately exercisable from the common stock included

in the public share offering.

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

In accordance

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

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

income in the statement of operations.

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.

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

of Warrant Liability

Value per Share

value as of year ended 12/31/2022

Warrant Liability

Warrants Outstanding

Fair Value per Share

Fair value as of year ended 12/31/2022

Exercise of warrants

in fair value of warrant liability

value as of year ended 3/31/2023

Change in fair value of warrant liability

Fair value as of period ended 6/30/2023

warrant liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes various

11 unchanged sentences

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

from three customers that exceeded 10% of total revenues for the three months ended March 31, 2023 were 52 %, 21 %, and 13 %.

receivable from the top three customers were 0 %, 25 %, and 31 % as well as 10 % from one other customer of the total accounts receivable

as of March 31, 2023.

from three customers that exceeded 10% of total revenues for the three months ended March 31, 2022 were 52 %, 12 %, and 12 %.

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.

from two customers that exceeded 10% of total revenues for the six months ended June 30, 2023, were 40 % and 14 %.

The accounts receivable

from those top two customers were 0 % and 22 % as well as 13 %, 15 %, and 16 % from three other customers of the total accounts receivable

as of June 30, 2023.

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

The accounts receivable

from those 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.

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

5 unchanged sentences

limit of $ 250 thousand.

As of March 31, 2023, the total amount exceeding such limit was $ 335 thousand.

The Company has not experienced

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

As of June 30, 2023, the total amount exceeding such limit was $ 3 million.

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.

6 unchanged sentences

Promissory Note

September 2, 2021, the Company issued three Secured Convertible Promissory Notes to members of the board of directors in an aggregate

amounts of $ 150,000 to Mr.

September 2, 2021, the Company issued three Secured Convertible Promissory Notes to members of the board of directors in aggregate amounts

of $ 150,000 to Mr.

Stein, $ 150,000 to Mr.

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

Zeldis as part of the September

Zeldis as part of the September 2 Notes.

The notes were repaid in full in 2022.

Jerome Zeldis, a member of the Company board of directors, has an outstanding balance due of $ 40,000 for services as of March 31, 2023

and December 31, 2022, included in accounts payable in the accompanying consolidated balance sheets.

Jerome Zeldis, a member of the Company board of directors, has an outstanding balance due of $ 25,000 for services as of June 30, 2023

and $ 40,000 as of December 31, 2022, included in accounts payable in the accompanying condensed consolidated balance sheets.

Subsequent Events

of the Company has performed a review of events and transactions occurring after the consolidated balance sheet date to determine if

there were any such events or transactions requiring adjustment to or disclosure in the accompanying consolidated financial statements.

of the Company has performed a review of events and transactions occurring after the condensed consolidated balance sheet date to determine

if there were any such events or transactions requiring adjustment to or disclosure in the accompanying condensed consolidated financial

statements and has noted none except as follows.

July 2023, the Company announced a new strategic relationship with Enigma Health, a new joint venture company, for retail distribution

and marketing services in North America.

In addition to the Company, Enigma Health will also be providing services for Moiety, Inc.,

a topical lotion and creams manufacturer.

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