NEXGEL, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS NEXGEL, INC CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2023 AND DECEMBER 31, 2022 (Unaudited) (in thousands, except share and per share data) September 30, 2023 December 31, 2022 ASSETS: Current Assets: Cash $ 3,266 $ 1,101 Marketable securities - 5,508 Accounts receivable, net 1,158 222 Inventory 1,090 502 Prepaid expenses and other current assets 367 172 Total current assets 5,881 7,505 Goodwill 311 311 Intangibles, net 12 20 Property and equipment, net 1,737 721 Operating lease - right of use asset 1,911 1,737 Other assets 95 63 Total assets $ 9,947 $ 10,357 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 1,073 $ 265 Accrued expenses and other current liabilities 152 130 Deferred revenue 34 - Current portion of note payable 5 15 Warrant liability 146 242 Operating lease liability, current portion 233 207 Total current liabilities 1,643 859 Operating lease liability, net of current portion 1,774 1,593 Notes payable, net of current portion 274 268 Total liabilities 3,691 2,720 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; 5,717,629 and 5,577,916 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively 6 6 Additional paid-in capital 19,309 19,189 Accumulated deficit ( 13,617 ) ( 11,558 ) Total NexGel stockholders’ equity 5,698 7,637 Non-controlling interest in joint venture 558 - Total stockholders’ equity 6,256 7,637 Total liabilities and stockholders’ equity $ 9,947 $ 10,357 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents NEXGEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (Unaudited) (in thousands, except share and per share data) 2023 2022 2023 2022 Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Revenues, net $ 1,221 $ 568 $ 3,007 $ 1,524 Cost of revenues 877 420 2,546 1,304 Gross profit 344 148 461 220 Operating expenses Research and development 6 193 90 328 Selling, general and administrative 950 992 2,629 2,459 Total operating expenses 956 1,185 2,719 2,787 Loss from operations ( 612 ) ( 1,037 ) ( 2,258 ) ( 2,567 ) Other income (expense) Interest expense ( 3 ) ( 242 ) ( 13 ) ( 1,334 ) Interest income 1 - 3 - Loss on debt extinguishment - - - ( 150 ) Warrant modification expense - ( 57 ) - ( 57 ) Other income - - 3 2 Gain on investments 44 5 168 5 Changes in fair value of warrant liability 18 104 96 3 Total other income (expense), net 60 ( 190 ) 257 ( 1,531 ) Loss before income taxes ( 552 ) ( 1,227 ) ( 2,001 ) ( 4,098 ) Income tax expense - - - - Net loss $ ( 552 ) $ ( 1,227 ) $ ( 2,001 ) $ ( 4,098 ) Less: (Income) loss attributable to non-controlling interest in joint venture 2 - ( 58 ) - Net loss attributable to NexGel stockholders ( 550 ) ( 1,227 ) ( 2,059 ) ( 4,098 ) Net loss per common share - basic $ ( 0.10 ) $ ( 0.22 ) $ ( 0.36 ) $ ( 0.74 ) Net loss per common share - diluted $ ( 0.10 ) $ ( 0.22 ) $ ( 0.36 ) $ ( 0.74 ) Weighted average shares used in computing net loss per common share - basic 5,714,316 5,572,234 5,654,981 5,572,234 Weighted average shares used in computing net loss per common share – diluted 5,714,316 5,572,234 5,654,981 5,572,234 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents NEXGEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 (Unaudited) (in thousands, except share data) Shares Amount Capital Interest Deficit Equity Common Stock Additional Paid-in Non- controlling Accumulated Total Stockholders’ Shares Amount Capital Interest Deficit Equity Balance, January 1, 2023 5,577,916 $ 6 $ 19,189 $ - $ ( 11,558 ) $ 7,637 Restricted stock vesting 5,682 - 24 - - 24 Exercise of warrants 30,430 - - - - - Non-controlling interest in JV - - - 500 - 500 Net income (loss) - - - 7 ( 814 ) ( 807 ) Balance, March 31, 2023 5,614,028 $ 6 $ 19,213 $ 507 $ ( 12,372 ) $ 7,354 Stock-based compensation - - 29 - - 29 Exercise of warrants 82,036 - - - - - Net income (loss) - - - 53 ( 695 ) ( 642 ) Balance, June 30, 2023 5,696,064 $ 6 $ 19,242 $ 560 $ ( 13,067 ) $ 6,741 Stock-based compensation 21,565 - 67 - - 67 Net loss - - - ( 2 ) ( 550 ) ( 552 ) Balance, September 30, 2023 5,717,629 $ 6 $ 19,309 $ 558 $ ( 13,617 ) $ 6,256 5 Table of Contents NEXGEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 (Unaudited) (in thousands, except share data) Shares Amount Capital Deficit) (Deficit) Common Stock Additional Paid-in Retained Earnings (Accumulated Total Stockholders’ Equity Shares Amount Capital Deficit) (Deficit) Balance, January 1, 2022 5,572,234 $ 6 $ 18,891 $ ( 6,812 ) $ 12,085 Stock-based compensation - - 55 - 55 Net loss - - - ( 1,836 ) ( 1,836 ) Balance, March 31, 2022 5,572,234 $ 6 $ 18,946 $ ( 8,648 ) $ 10,304 Stock-based compensation - - 54 - 54 Restricted stock vesting - - 25 - 25 Net loss - - - ( 1,035 ) ( 1,035 ) Balance, June 30, 2022 5,572,234 $ 6 $ 19,025 $ ( 9,683 ) $ 9,348 Balance 5,572,234 $ 6 $ 19,025 $ ( 9,683 ) $ 9,348 Stock-based compensation - - 55 - 55 Restricted stock vesting - - 42 - 42 Net loss - - - ( 1,227 ) ( 1,227 ) Net income (loss) - - - ( 1,227 ) ( 1,227 ) Balance, September 30, 2022 5,572,234 $ 6 $ 19,122 $ ( 10,910 ) $ 8,218 Balance 5,572,234 $ 6 $ 19,122 $ ( 10,910 ) $ 8,218 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents NEXGEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (Unaudited) (in thousands) 2023 2022 Nine Months Ended September 30, 2023 2022 Operating Activities Net loss $ ( 2,059 ) $ ( 4,098 ) Adjustments to reconcile net loss to net cash used in operating activities: Income attributable to non-controlling interest in joint venture 58 - Depreciation and amortization 103 84 Changes in ROU asset and operating lease liability 33 29 Share-based compensation and restricted stock vesting 120 231 Gain on investment in marketable securities 168 ( 5 ) Changes in fair value of warrant liability and warrant modification ( 96 ) ( 3 ) Amortization of deferred financing costs - 1,325 Warrant modification expense - 57 Loss on extinguishment of debt - 150 Changes in operating assets and liabilities: Accounts receivable ( 936 ) ( 56 ) Inventory ( 588 ) ( 108 ) Prepaid expenses and other assets ( 227 ) ( 162 ) Accounts payable 808 104 Accrued expenses and other current liabilities ( 67 ) 109 Deferred revenue 34 - Net Cash Used in Operating Activities ( 2,649 ) ( 2,343 ) Investing Activities Proceeds from sales of marketable securities 5,340 1,000 Investment in marketable securities - ( 6,980 ) Capital expenditures ( 611 ) ( 88 ) Net Cash Provided by (Used in) Investing Activities 4,729 ( 6,068 ) Financing Activities Proceeds from margin line of credit 89 - Principle payments of notes payable ( 4 ) ( 3,512 ) Net Cash Provided by (Used in) Financing Activities 85 ( 3,512 ) Net Increase (Decrease) in Cash 2,165 ( 11,923 ) Cash – Beginning of period 1,101 13,350 Cash – End of period $ 3,266 $ 1,427 Supplemental Disclosure of Cash Flows Information Cash paid during the year for: Interest $ 7 $ - Taxes $ - $ - Supplemental Non-cash Investing and Financing activities Property and equipment contributed as capital investment to JV $ 500 $ - ROU asset and operating lease liabilities recognized upon consolidation of JV $ 334 $ - The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents NEXGEL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) 1. Description of Business, Stock Split and Basis of Presentation NexGel, Inc. (“NexGel” or the “Company”) manufactures high water content, electron beam cross-linked, aqueous polymer hydrogels, or gels, used for wound care, medical diagnostics, transdermal drug delivery and cosmetics. The Company specializes in custom gels by capitalizing on proprietary manufacturing technologies. NexGel has historically served as a contract manufacturer, supplying our gels to third parties who incorporate them into their own products, and has recently began producing the Company’s own consumer products using our gels focused on proprietary branded products and white label opportunities. Both the Company’s gels and consumer products are manufactured using proprietary and non-proprietary mixing, coating and cross-linking technologies. Together, these technologies enable NexGel to produce gels that can satisfy rigid tolerance specifications with respect to a wide range of physical characteristics (e.g., thickness, water content, adherence, absorption, moisture vapor transmission rate (a measure of the passage of water vapor through a substance) and release rate) while maintaining product integrity. Additionally, the Company has the manufacturing capability to offer broad choices in the selection of liners onto which the gels are coated. Consequently, NexGel and our customers are able to determine tolerances in moisture vapor transmission rate and active ingredient release rates while personalizing color and texture. NexGel was previously known as AquaMed Technologies, Inc. (“AquaMed”) before changing its name to NexGel, Inc. on November 14, 2019. On March 1, 2023, the Company acquired a 50 % interest in a newly formed joint venture (“JV”), CG Converting and Packaging, LLC, with C.G. Laboratories Inc. (“CG Labs”) for its converting and packaging business. The JV 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. Basis of Presentation The 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 consolidated 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 The 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). 8 Table of Contents 2. Going Concern As of September 30, 2023, the Company had a cash balance of $ 3.3 million (including cash equivalents). For the nine months ended September 30, 2023, the Company incurred a net loss of $ 2.1 million and had a net usage of cash in operating activities of $ 2.6 million. In addition, the Company had a working capital of $ 4.2 million as of September 30, 2023. We believe we have sufficient cash and marketable securities to operate our business plan through 2024. Management is exploring new product channel sales in adjacent industries, such as cosmetics, athletic products, and proprietary medical devices. 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. We have sufficient capital to maintain as a going concern due to the capital raise that occurred on December 27, 2021. We intend to maintain and attempt to grow our existing contract manufacturing business. We also plan to continue building and developing our catalog of consumer products for sale to branding partners and to use our in-house capabilities to create and test market additional branded products. These products will be target marketed and sold online through social media, television and online marketplaces. Furthermore, the Company plans to develop its own proprietary medical devices and explore drug delivery programs for its technology. Additionally, the Company continues to evaluate strategic initiatives (e.g., acquisitions) and additional capital raises through debt or equity may be necessary to achieve these objectives. We expect to continue incurring losses for the near-term future. Our ability to continue to operate as a going concern in the long-term is dependent upon our ability to manage and grow our current products and to ultimately achieve profitable operations. Management may consider various options to raise capital to fund potential acquisitions through equity or debt offerings. There can be no assurances, however, that management will be able to obtain sufficient additional funds, if needed, or that such funds, if available, will be obtained on terms satisfactory to us. The 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 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. 3. Significant Accounting Policies and Estimates Use of Estimates The 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. Cash Cash is comprised of cash in banks and highly liquid investments, including U.S. treasury bills purchased with an original maturity of three months or less as well as investments in money market funds for which the carrying amount approximates fair value, due to the short maturities of these investments. Marketable Securities The Company classifies its marketable securities as held-to-maturity, which include U.S. treasury bills with original maturities of greater than three months. These securities are carried at fair value with any change in fair value recorded as an unrealized gain (loss) in the consolidated statement of operations of the period in which such change occurs. 9 Table of Contents The Company had the following marketable securities as of September 30, 2023 and December 31, 2022: Schedule of Marketable Securities September 30, December 31, 2023 2022 Marketable Securities United States treasury bills (due February 23, 2023) $ - $ 492 United States treasury bills (due April 27, 2023) - 20 United States treasury bills (due June 15, 2023) - 4,384 United States treasury bills (due July 13, 2023) - 127 United States treasury bills (due August 10, 2023) - 485 Total $ - $ 5,508 Margin Line of Credit We have a brokerage account through which we buy and sell U.S. treasury bills. The provisions of the account allow us to borrow on certain securities held in the account and to purchase additional securities based on the account equity (including cash). Amounts borrowed are collateralized by the securities held in the account and bear interest at a negotiated rate payable monthly. Securities pledged to secure margin balances cannot be specifically identified as a portion of all securities held in a brokerage account are used as collateral. As of September 30, 2023, there was $ 89 thousand outstanding under this short-term credit line which is included in accrued expenses and other current liabilities within the accompanying consolidated balance sheet. The short-term credit line will be repaid upon the maturity of U.S. treasury bills of $ 3 million with an original maturity of three months or less which are included in cash within the accompanying consolidated balance sheet (see Note 8). Accounts Receivable, net Trade accounts receivable are stated at the amount the Company expects to collect and do not bear interest. The Company evaluates the collectability of accounts receivable and records a provision to the allowance for doubtful accounts based on factors including the length of time the receivables are past due, the current business environment and the Company’s historical experience. Provisions to the allowances for doubtful accounts are recorded in selling, general, and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. The allowance for doubtful accounts was $ 17 thousand as of September 30, 2023, and $ 9 thousand as of December 31, 2022. Inventory and Cost of Goods Sold Inventory is stated at the lower of cost, the value determined by the first-in, first-out method, or net realizable value. The Company evaluates inventories for excess quantities, obsolescence, and shelf-life expiration. This evaluation includes an analysis of historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products, general market conditions, and a review of the shelf-life expiration dates for products. These factors determine when, and if, the Company adjusts the carrying value of inventory to estimated net realizable value. The Company produces proprietary branded products and white label opportunities in our manufacturing of consumer products. In our contract manufacturing, the Company builds its products based on customer orders and immediately ships the products upon completion of the production process. The 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. The “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. 10 Table of Contents Research and Development Our research and development activities focus on new and innovative products designed to support revenue growth. Research and development expenses consist primarily of contracted development and testing efforts associated with development of products. Shipping and Handling Revenue and Expense Shipping and handling revenue and expense are included in our condensed consolidated statements of operations in revenues and cost of revenues, respectively. This is primarily through shipping fees incurred in the Amazon marketplace. Property and Equipment, net Property and equipment is recorded at historical cost, net of accumulated depreciation and amortization. Depreciation is provided over the assets’ useful lives on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or lease terms. Repairs and maintenance costs are expensed as incurred. Management periodically assesses the estimated useful life over which assets are depreciated or amortized. If the analysis warrants a change in the estimated useful life of property and equipment, management will reduce the estimated useful life and depreciate or amortize the carrying value prospectively over the shorter remaining useful life. The carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the period of disposal and the resulting gains and losses are included in the results of operations during the same period. Impairment of Long-Lived Assets The Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Goodwill and Intangible Assets In applying the acquisition method of accounting, amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition, with the remainder recorded as goodwill. Identifiable intangible assets are initially recorded at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Identifiable intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. Intangible assets with indefinite lives are tested for impairment within one year of acquisitions or annually as of December 31, and whenever indicators of impairment exist. The fair value of intangible assets is compared with their carrying values, and an impairment loss would be recognized for the amount by which a carrying amount exceeds its fair value. The Company performed the annual assessment and concluded it is more likely than not that the fair value exceeds the carrying value and no impairments were recognized in the year ended December 31, 2022. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets are recorded at historical cost and is primarily made up of $ 77 thousand and $ 63 thousand of prepaid insurance, and $ 290 thousand and $ 109 thousand general prepaid expenses as of September 30, 2023, and December 31, 2022, respectively. 11 Table of Contents Other Assets Other assets are recorded at historical costs, and as of September 30, 2023, and December 31, 2022, the balance is primarily comprised of spare parts for manufacturing equipment. Spare parts are not subject to depreciation until such time that they are placed into service and the part that is being replaced is disposed. Fair Value Measurements The Company utilizes the fair value hierarchy to apply fair value measurements. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair values that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below: Level 1 — Quoted prices for identical assets or liabilities in active markets. Level 2 — Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 — Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable. The Company considers the carrying amounts of its financial instruments (cash, accounts receivable and accounts payable, notes payable and convertible notes payable) in the balance sheet to approximate fair value because of the short-term or highly liquid nature of these financial instruments. The following table sets forth the fair value of the Company’s financial assets within the fair value hierarchy: Schedule of Fair Value of Financial Assets Level 1 Level 2 Level 3 Fair Value September 30, 2023 Level 1 Level 2 Level 3 Fair Value Assets Marketable securities: United States treasury bills $ - $ - $ - $ - Total $ - $ - $ - $ - Level 1 Level 2 Level 3 Fair Value December 31, 2022 Level 1 Level 2 Level 3 Fair Value Assets Marketable securities: United States treasury bills $ 5,508 $ - $ - $ 5,508 Total $ 5,508 $ - $ - $ 5,508 Warrant Liability Warrants to purchase common stock were issued in connection with equity financing raises, which occurred during 2019 through 2021. 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. 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 are recognized in other income (expense) in the accompanying condensed consolidated statements of operations. 12 Table of Contents Revenue Recognition On 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. The 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 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. Estimates for product returns, allowances and discounts are recorded as a reduction of revenue and are established at the time of sale. Returns are estimated through a comparison of historical return data and are determined for each product and adjusted for known or expected changes in the marketplace specific to each product, when appropriate. Historically, sales return provisions have not been material. Amounts accrued for sales allowances and discounts are based on estimates of amounts that are expected to be claimed on the related sales and are based on historical data. Payments for allowances and discounts have historically been immaterial. Disaggregated revenue by sales type: Schedule of Disaggregated Revenue by Sales Type 2023 2022 Three months ended September 30, 2023 2022 Contract manufacturing $ 805 $ 277 Custom and white label finished goods manufacturing 5 15 NexGel branded consumer products 356 231 Other 55 45 Total $ 1,221 $ 568 2023 2022 Nine months ended September 30, 2023 2022 Contract manufacturing $ 2,072 $ 736 Custom and white label finished goods manufacturing 10 34 NexGel branded consumer products 850 623 Other 75 131 Total $ 3,007 $ 1,524 As of September 30, 2023, and December 31, 2022, the Company did not have any contract assets or contract liabilities from contracts with customers. As of September, 2023, and December 31, 2022, there were no remaining performance obligations that the Company had not satisfied except for deferred revenue of $ 34 thousand and $ 0 that the Company had not satisfied as of the end of the period. 13 Table of Contents The Company has four distinct lines of business; Contract Manufacturing, Custom & White Label, Consumer Branded Products, and Medical Devices. Contract Manufacturing Customers order rolls of gel (“rollstock”). The rollstock is shipped to our customers, which they package into finished goods. Historically, this has been the Company’s primary source of revenue. Custom & White Label These products often infuse various ingredients into our base gel to develop unique product offerings to satisfy market demand (e.g. aloe infused into the gel for a beauty mask). The rollstock is converted and packaged into salable units. The finished goods are shipped to the customer, who is ultimately responsible for product distribution. Frequently these products started as development deals, in which the customer paid the Company a small fee to develop a specific product. Once completed, the customer places a large order for newly developed product. Consumer Branded Products These products are finished goods marketed and sold directly to the customer by the Company through online and retail channels. The Company is responsible for sales, marketing, and distribution. These products carry the Company’s brand names. Medical Devices Medical Devices are a hybrid business, combining elements of Custom & White Label and Consumer Branded Products. Medical Devices, which are not yet marketed, are expected to be distributed through strategic partnerships. The Company will manufacture and possibly convert/package the device while the strategic partner brings the product to market. Small market Medical Devices could be launched by the Company, but also be offered to a distributor to reach the full scale of the market. Share-based Compensation On August 28, 2019, the Company adopted the 2019 Long-Term Incentive Plan, as amended (the “2019 Plan”). See Note 10 below for further details regarding the 2019 Plan. The 2019 Plan provides certain employees, contractors, and outside directors with share-based compensation in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights and other awards. The fair values of incentive stock option award grants are estimated as of the date of grant using a Black-Scholes option valuation model. Compensation expense is recognized in the statements of operations on a straight-line basis over the requisite service period, which is generally the vesting period required to obtain full vesting. Forfeitures are accounted for when they occur. In June 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-07, Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting . These amendments expand the scope of Topic 718, Compensation - Stock Compensation , to include share-based payments issued to non-employees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. This new standard was effective for the Company on January 1, 2020. 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. Income Taxes Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities at the applicable tax rates. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates. 14 Table of Contents Tax benefits are recognized from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by a tax authority and based upon the technical merits of the tax position. The tax benefit recognized in the 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. An unrecognized tax benefit, or a portion thereof, is presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. Leases ASC 842, Leases , requires recognition of leases on the condensed consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company used its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. A number of the lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised. The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, and unamortized lease incentives provided by lessors. Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur. The Company has elected not to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities. Segment Reporting The Company operates in one business segment as a contract manufacturer of aqueous polymer hydrogels. As a result, the Company’s operations are a single reportable segment, which is consistent with the Company’s internal management reporting. Recently Issued Accounting Standards From 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. In June 2016, the 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 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. 4. Leases The Company has one operating lease for a commercial manufacturing facility and administrative offices located in Langhorne, Pennsylvania that runs through January 2031. There are two options that can extend the lease term for five years each. The exercise of the lease options to renew is solely at the Company’s discretion. 15 Table of Contents The following table presents information about the amount and timing of the liability arising from the Company’s operating lease as of September 30, 2023 ($ in thousands): Schedule of Future Minimum Lease Payments Operating Lease Maturity of Lease Liability Liability 2023 $ 61 2024 245 2025 245 2026 301 2027 315 Thereafter 1,115 Total undiscounted operating lease payments 2,282 Less: Imputed interest ( 275 ) Present value of operating lease liability $ 2,007 Weighted average remaining lease term 8.3 years Weighted average discount rate 3.5 % Total operating lease expense for the nine months ended September 30, 2023, and 2022, was $ 197 thousand and $ 155 thousand, respectively, and is recorded in cost of goods sold and selling, general, and administrative expenses in the accompanying condensed consolidated statements of operations. Supplemental cash flows information related to leases was as follows ($ in thousands): Schedule of Supplemental Cash Flows Information Related to Leases September 30, 2023 Cash paid for amounts included in the measurement of lease liability: Operating cash flows from operating lease $ 197 5. Inventory Inventory consists of the following ($ in thousands): Schedule of Inventory September 30, December 31, 2023 2022 Raw materials $ 762 $ 295 Work-in-progress 15 51 Finished goods 313 156 Inventory, gross 1,090 502 Less: Inventory reserve for excess and slow moving inventory — — Total $ 1,090 $ 502 Inventory is maintained at the Company’s warehouse, an outsourced third-party contract manufacturing vendor, and at Amazon fulfillment centers. The Company builds its contract manufacturing products based on customer orders and immediately ships the products upon completion of the production process. 16 Table of Contents 6. Property and Equipment, Net Property and equipment consist of the following ($ in thousands): Schedule of Property and Equipment Useful Life September 30, December 31, (Years) 2023 2022 Machinery and equipment 3 - 10 $ 1,566 $ 973 Office furniture and equipment 3 - 10 139 59 Leasehold improvements 6 391 228 Construction in progress N/A 330 55 Total property and equipment 2,426 1,315 Less: accumulated depreciation and amortization ( 689 ) ( 594 ) Property and equipment, net $ 1,737 $ 721 Depreciation expense for the nine months ended September 30, 2023, and 2022 was $ 95 thousand and $ 74 thousand, respectively. 7. Intangible Assets The following provides a breakdown of identifiable intangible assets as of September 30, 2023 and December 31, 2022 ($ in thousands): Schedule of Breakdown of Identifiable Intangible Assets September 30, December 31, 2023 2022 Product/Technology Related Identifiable intangible assets, gross $ 31 $ 31 Accumulated amortization ( 31 ) ( 26 ) Product/Technology Related identifiable intangible assets, net - 5 Marketing Related Customer related intangible asset, gross 17 17 Tradename related intangible asset, gross 7 7 Accumulated amortization ( 12 ) ( 9 ) Marketing related identifiable intangible assets, net 12 15 Total Identifiable intangible assets, net $ 12 $ 20 In connection with the May 29, 2020, acquisition of Sports Defense, the Company identified intangible assets of $ 55 thousand representing technology related and customer related intangibles. These assets are being amortized on a straight-line basis over their weighted average estimated useful life of 5.7 years and amortization expense amounted to $ 8 thousand and $ 10 thousand for the nine months ended September 30, 2023, and 2022, respectively. As of September 30, 2023, the estimated annual amortization expense for each of the next five fiscal years is as follows: Schedule of Estimated Annual Amortization Expense ($ in thousands): 2023 $ 1 2024 2 2025 2 2026 2 2027 2 Thereafter 3 Total $ 12 17 Table of Contents 8. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following ($ in thousands): Schedule of Accrued Expenses and Other Current Liabilities September 30, December 31, 2023 2022 Salaries, benefits, and incentive compensation $ 37 $ 56 Franchise tax accrual - 52 Margin line of credit 89 - Other 26 22 Total accrued expenses and other current liabilities $ 152 $ 130 9. Common Stock At September 30, 2023, the Company has reserved common stock for issued securities in relation to the following: Schedule of Reserved Common Stock For Issued Securities in Relation Share-based compensation plan 528,182 Warrants to purchase common stock 3,442,904 Restricted stock units 121,787 10. Share-based Compensation 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 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. Incentive stock options On 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 share exercise price of $ 2.00 under the Company’s 2019 Plan. This option award vests over a period of 12 months. On August 17, 2023, the Company granted options to purchase up to 90,000 shares of the Company’s common stock at a per share exercise price of $ 2.05 to members of the Board of Directors, all of which vests over a period of one year with 25% vested upon issuance. The following table contains information about the 2019 Plan as of September 30, 2023: Schedule of Information about Incentive Plan Awards Awards Awards Reserved for Issuance Issued & Outstanding Awards Exercised Available for Grant 2019 Plan (1) 871,429 689,783 19,683 161,963 Awards granted outside of the 2019 Plan (2) - 48,401 29,880 - (1) Includes incentive stock options and restricted stock units discussed below. (2) Includes shares of restricted common stock granted outside of the 2019 Plan to our Chief Executive Officer, Adam Levy. 18 Table of Contents The following table summarizes the Company’s incentive stock option activity and related information for the period ended September 30, 2023: Schedule of Incentive Stock Option Activity Weighted Weighted Average Average Contractual Number of Exercise Term in Options Price Years Outstanding at January 1, 2023 524,937 $ 2.351416 8.38 Granted 117,532 2.06041 10.0 Exercised ( 10,000 ) 1.75 — Forfeited — — — Cancelled ( 13,149 ) 2.00 — Expired ( 4,287 ) 1.40 — Outstanding at September 30, 2023 615,033 $ 2.319728 8.05 Exercisable at September 30, 2023 362,533 $ 1.801861 7.20 As of September 30, 2023, vested outstanding stock options had $ 469 thousand intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock, respectively. As of September 30, 2023, there was no unrecognized share-based compensation related to unvested stock options, excluding options fully contingent upon certain sales-based milestones being achieved within 18 to 36 months of commercial release. The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period. The following assumptions were used to calculate share-based compensation expense for the period ended September 30, 2023: Schedule of Assumptions used in Share-based Compensation Volatility 257.64 - 258.01 % Risk-free interest rate 4.21 - 4.42 % Dividend yield 0.0 % Expected term 5 - 5.50 years The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. Accordingly, the Company has elected to use the “simplified method” to estimate the expected term of its share-based awards. The simplified method computes the expected term as the sum of the award’s vesting term plus the original contractual term divided by two. Based on the lack of historical data of volatility for the Company’s common stock, the Company based its estimate of expected volatility on a weighted-average of the historical volatility of comparable public companies that manufacture similar products and are similar in size, stage of life cycle, and financial leverage. Restrictive Stock Awards Effective 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 share). Effective 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, 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). 19 Table of Contents Effective as of January 3, 2023, the Company granted a restricted stock award of 37,037 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 December 30, 2022, all of which shares vested monthly from January 3, 2023 through December 31, 2023. Under ASC 718, the Company has measured the value of the 37,037 shares granted based on the closing price of the Company’s stock at the grant date of the RSU Grant ($ 1.35 per share). Schedule of Restricted Stock Units Granted Weighted Average Number of Grant Date Units Fair Value Outstanding at January 1, 2023 90,432 $ 1.98211 Granted 37,037 1.35 Exercised and converted to common shares ( 26,698 ) 2.04313 Forfeited ( 7,500 ) 1.82 Outstanding at September 30, 2023 93,271 $ 1.72667 Exercisable at September 30, 2023 27,946 $ 1.66430 Compensation expense will be recognized ratably over the total vesting schedule. The Company will periodically adjust the cumulative compensation expense for forfeited awards. As of September 30, 2023, there was $ 99 thousand unrecognized share-based compensation related to unvested RSUs, which the Company expects to recognize through December 2026. Stock based compensation and restricted stock vesting of $ 120 thousand and $ 231 thousand has been recorded for the nine months ended September 30, 2023, and 2022, respectively. Warrants The following table shows a summary of common stock warrants through September 30, 2023: Summary of Common Stock Warrants Weighted Weighted Average Average Number of Exercise Contractual Warrants Price Term in Years Outstanding at January 1, 2023 3,637,190 $ 5.16281 3.65 Granted — — — Exercised ( 112,466 ) 0.55 — Forfeited — — — Cancelled ( 81,820 ) 0.91 — Expired — — — Outstanding at September 30, 2023 3,442,904 $ 5.414793 3.09 Exercisable at September 30, 2023 3,442,904 $ 5.414793 3.09 As of September 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. 11. Noncontrolling Interest in Joint Venture On March 1, 2023, the Company acquired a 50 % interest in the JV (see Note 1). 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 purposes for JV. As of September 30, 2023, the Company has contributed its full $ 500,000 commitment. 20 Table of Contents The JV is considered to be a variable interest entity (“VIE”), as defined by authoritative accounting guidance. A VIE must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. All major decisions related to the JV that most significantly impact its economic performance, including but not limited to operating procedures with respect to business affairs. Therefore, we have consolidated the JV. 12. Notes Payable Economic Injury Disaster Loan On May 28, 2020, the Company entered into the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the principal amount of the EIDL Loan is up to $ 260,500 , with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75 % per annum. Installment payments, including principal and interest, are due monthly 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. The balances of the principal and accrued interest amounted to $ 279 thousand and $ 283 thousand as of September 30, 2023 and December 31, 2022, respectively. The future annual principal amounts and accrued interest to be paid as of September 30, 2023 are as follows: Schedule of Debt Instruments Amount For the year ending December 31 ($ in thousands): 2023 (remainder of the year) $ 2 2024 5 2025 5 2026 5 2027 6 Thereafter 256 Total $ 279 13. Convertible Notes Payable On March 11, 2021, the Company issued Auctus Fund, LLC, a Delaware limited liability company a one-year senior secured convertible promissory note in the principal amount of $ 1.68 million, which included $ 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 $ 1.68 million. On 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 the accompanying condensed consolidated 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. 21 Table of Contents 14. Warrant Liability On September 2, 2021, March 11, 2021, February 3, 2021, December 24, 2020, March 18, 2020, September 10, 2019, and November 6, 2019, the Company issued 22,019 , 34,286 , 7,429 , 7,286 , 44,286 , 35,715 and 114,286 warrants, respectively, as equity issuance consideration, in connection with a private placement of the Company’s common stock. The warrants entitle the holder to purchase one share of our common stock at an exercise price equal to $ 0.49 to $ 5.25 per share at any time on or after their issuance date and on or prior to the close of business 3 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 accompanying statement of operations. The warrants outstanding and fair values at each of the respective valuation dates are summarized below: Schedule of Warrant Liability Warrant Liability Warrants Outstanding Fair Value per Share Fair Value Fair value as of year ended 12/31/2022 265,305 $ 242 Exercise of warrants ( 194,286 ) ( 154 ) Change in fair value of warrant liability - 58 Fair value as of period ended 9/30/2023 71,019 $ 146 The warrant liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes various assumptions about of future activities and the Company’s stock prices and historical volatility of Guideline Public Companies as inputs. 15. Commitments and Contingencies Litigation The Company may be subject to legal proceedings and claims that arise in the ordinary course of business. Management is not currently aware of any matters that will have a material effect on the financial position, results of operations, or cash flows of the Company. Service Agreement On March 21, 2023, the Company entered into a Services Agreement with GlaxoSmithKline Consumer Healthcare Holdings (US) LLC (“Haleon”) to supply material for a consumer product to be developed and released in the future. There can be no guaranty that a consumer product will be released or, if released, that it will be successful. GlaxoSmithKline Consumer Healthcare Holdings (US) LLC is a Haleon group company. 16. Concentrations of Risk The Company’s revenues are concentrated in a small group of customers with some individually having more than 10% of total revenues. Revenues from three customers that exceeded 10% of total revenues for the nine months ended September 30, 2023, were 20 %, 11 %, and 10 %. The accounts receivable from those top three customers were 0 %, 23 %, and 0 % as well as 15 %, 18 %, and 13 % from three other customers of the total accounts receivable as of September 30, 2023. Revenues 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 those top two customers by revenue were 6 % and 53 % as well as 17 % and 19 % from two other customers of the total accounts receivable as of September 30, 2022. 22 Table of Contents The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. Cash balances are maintained principally at major U.S. financial institutions and are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to regulatory limits. Such cash balances are currently in excess of the FDIC insurance limit of $ 250 thousand. As of September 30, 2023, there was no amount exceeding such limit. 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. Marketable securities are comprised of U.S. treasury bills with original maturities greater than three months. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash, cash equivalents, and marketable securities and performs periodic evaluations of the credit standing of such institutions. 17. Related Party Transactions Convertible Promissory Note On 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 2 Notes. The notes were repaid in full in 2022. Advances Dr. Jerome Zeldis, a member of the Company board of directors, has an outstanding balance due of $ 25,000 for services as of September 30, 2023 and $ 40,000 as of December 31, 2022, included in accounts payable in the accompanying condensed consolidated balance sheets. 18. Subsequent Events Management 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 no such events or transactions. 23 Table of Contents