What changed in this filing

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Item 1. Financial Statements

2024-05-13 compared with 2023-11-13 · 625 added, 439 removed, 378 unchanged (74% of the section changed)

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CONSOLIDATED BALANCE SHEETS

OF SEPTEMBER 30, 2023 AND DECEMBER 31, 2022

OF MARCH 31, 2024 AND DECEMBER 31, 2023

thousands, except share and per share data)

September 30,

Current Assets:

Marketable securities

Accounts receivable, net

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Warrant liability

Operating lease liability, current portion

Contingent consideration liability

Financing lease liability, current portion

Operating lease liabilities, current portion

Total current liabilities

Operating lease liability, net of current portion

Operating lease liabilities, net of current portion

Financing lease liability, net of current portion

Notes payable, net of current portion

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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

6,227,624 and 5,741,838 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

Additional paid-in capital

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CONSOLIDATED STATEMENTS OF OPERATIONS

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

thousands, except share and per share data)

Three months ended

Nine Months Ended

September 30,

Revenues, net

Cost of revenues

Gross margin (loss)

Operating expenses

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Other income (expense)

Interest expense

Interest income

Loss on debt extinguishment

Warrant modification expense

Gain on investments

Changes in fair value of warrant liability

Interest income (expense), net

Changes in fair value of warrant liability and warrant modification expense

Gain on investment in marketable securities

Total other income (expense), net

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023

THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

thousands, except share data)

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Balance, January 1, 2024

Restricted stock vesting

Exercise of warrants

Non-controlling interest in JV

Net income (loss)

Share-based compensation and restricted stock vesting

Rights offering proceeds, net of expenses

Issuance of placement agent warrants in conjunction with the rights offering

Balance, March 31, 2024

Stock-based compensation

Exercise of warrants

Net income (loss)

Balance, June 30, 2023

Stock-based compensation

Balance, September 30, 2023

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022

thousands, except share data)

Stockholders’

Balance, January 1, 2023

Stock-based compensation

Balance, March 31, 2022

Stock-based compensation

Restricted stock vesting

Balance, June 30, 2022

Stock-based compensation

Restricted stock vesting

Exercise of warrants

Non-controlling interest in JV

Net income (loss)

Balance, September 30, 2022

Balance, March 31, 2023

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

Nine Months Ended September 30,

THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

Three Months Ended

Operating Activities

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

Income attributable to non-controlling interest in joint venture

Income (loss) 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

Changes in fair value of warrant liability and warrant modification

Amortization of deferred financing costs

Warrant modification expense

Loss on extinguishment of debt

Changes in fair value of warrant liability

Amortization of right of use asset

Changes in operating assets and liabilities:

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Deferred revenue

Operating lease liability

Net Cash Used in Operating Activities

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Proceeds from sales of marketable securities

Investment in marketable securities

Capital expenditures

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Financing Activities

Proceeds from margin line of credit

Principle payments of notes payable

Proceeds from rights offering, net of expenses

Principal payment on financing lease liability

Principal payments of notes payable

Net Cash Provided by (Used in) Financing Activities

Net Increase (Decrease) in Cash

Net Decrease in Cash

Cash – Beginning of period

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Supplemental Non-cash Investing and Financing activities

Property and equipment financed under notes payable

Property and equipment financed under financing leases

Property and equipment contributed as capital investment to JV

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thousands, except share and per share data)

Description of Business, Stock Split and Basis of Presentation

Description of Business and Basis of Presentation

(“NexGel” or the “Company”) manufactures high water content, electron beam cross-linked, aqueous polymer

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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.

The Company has historically served as a contract manufacturer, supplying

our gels to third parties who incorporate them into their own products.

Beginning in 2020, we created two new lines of business for the

First, we launched our own line of branded consumer products sold direct to consumers.

Second, we expanded into custom and white

label opportunities, which focuses on combining our gels with proprietary branded products and white label opportunities.

gel 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.

enable us 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, we have the manufacturing ability to offer broad choices

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

Consequently, the Company and its customers are able to determine tolerances

in moisture vapor transmission rate and active ingredient release rates while personalizing color and texture.

was previously known as AquaMed Technologies, Inc.

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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,

March 1, 2023, the Company acquired a 50 %

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

Laboratories Inc.

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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

a result of this transaction, the Company owns 50 %

of the JV, with the remaining 50 %

held by CG Labs.

in December 2023, the Company expanded their product portfolio to include the Kenkoderm brand.

Kenkoderm is a skincare line focused on

reducing symptoms associated with psoriasis.

Kenkoderm products do not utilize our gel technology and are manufactured by third parties.

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 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.

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 (“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, 2024 .

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, 2023.

of Consolidation

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

NexGelRx, Inc.

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

subsidiary, NexGelRx, Inc.

and the fifty percent ( 50 %) owned JV (see Note 5).

Going Concern

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.

of March 31, 2024, the Company had a cash balance of $ 2.4 million.

For the three months ended March 31, 2024, the Company incurred a

net loss of $ 0.9 million and had a net usage of cash in operating activities of $ 1.1 million.

In addition, the Company had a working

capital of $ 2.4 million as of March 31, 2024.

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

business plan into 2025.

February 15, 2024, the Company, entered into subscription agreements with investors, the Company’s Chief Financial Officer and

certain members of its board of directors for a registered direct offering (“RDO”) of the Company’s common stock.

RDO sold an aggregate 242,891 units at a price to the public of $ 4.22 per unit, with each unit consisting of two shares of the Company’s

common stock, and a warrant to purchase one share of common stock at an exercise price of $ 4.00 per share.

The $ 4.22 purchase price equals

two times the last reported sale price of $2.11 per share of the Company’s common stock on February 15, 2024 on The Nasdaq Capital

The gross proceeds to the Company from the RDO were $ 1.025 million, before deducting the placement agent’s fees and other offering expenses payable by the Company, and excluding the proceeds, if any, from the exercise of the warrants.

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

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

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

value creation.

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.

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.

have sufficient capital to maintain as a going concern due to the recent capital raise.

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.

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

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These estimates and assumptions

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

include allowances for credit losses, inventory reserves, deferred taxes, share-based compensation and related valuation allowances

and fair value of long-lived assets.

Actual results could differ from the estimates.

Reclassifications

have reclassified, combined or separately disclosed certain amounts in the prior years’ consolidated financial statements and accompanying

footnotes to conform with the current year’s presentation.

Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 280, Segment

Reporting , requires that an enterprise report selected information about reportable segments in its financial reports issued to its

stockholders.

The Company has two reportable segments - the NexGel segment and the CGN segment.

NexGel segment is comprised of the manufacturing of ultra-gentle, high-water-content hydrogel products for healthcare and consumer applications,

which is based in Langhorne, Pennsylvania.

CGN segment is comprised of the JV used for the Company’s converting and packaging business, which is based in Granbury,

is comprised of cash in banks and highly liquid investments, including U.S.

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of these investments.

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.

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

of Marketable Securities

September 30,

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)

Line of Credit

have a brokerage account through which we buy and sell U.S.

Company has a brokerage account through which it can 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).

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).

borrowed are collateralized by the securities held in the account and bear interest at a negotiated rate payable monthly.

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.

million with an original maturity of three months or less which are included in cash within the accompanying consolidated balance

sheet (see Note 8).

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 December 31, 2023, there was $ 245 thousand outstanding under this short-term credit line which is included in accrued

expenses and other current liabilities within the accompanying condensed consolidated balance sheet (see Note 10).

The margin line credit

line was repaid in January 2024 and there is no outstanding balance under the credit line as of March 31, 2024.

Receivable, net

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.

and Cost of Goods Sold

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 evaluates the

collectability of accounts receivable and records a provision to the allowance for credit losses based on factors including the

length of time the receivables are past due, the customer’s payment history, the credit quality of the customer and other

factors that may affect the customers’ ability to pay.

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 credit losses was $ 12

thousand as of March 31, 2024 and $ 11

thousand as of December 31, 2023.

and Cost of Revenues

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

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.

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

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

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.

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

Inventory is maintained at the Company’s warehouses

and at fulfillment centers owned by Amazon, Walmart and CVS.

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

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respectively.

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

Shipping revenue and expense are primarily generated through the Amazon marketplace.

and Equipment, net

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carrying value prospectively over the shorter remaining useful life.

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.

carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the year of disposal and any resulting

gains and losses are included in the results of operations during the same year.

of Long-Lived Assets

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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.

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

and Intangible Assets

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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.

Intangible assets with indefinite lives are tested for impairment within one year of the acquisition date 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

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Expenses and Other Current Assets

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.

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

expenses and other current assets are recorded at historical cost and are primarily made up of $ 38

thousand and $ 64

thousand of prepaid insurance, and $ 298

thousand and $ 336

thousand general prepaid expenses and other current assets as of March 31, 2024 and December 31, 2023, respectively.

assets are recorded at historical costs, and as of March 31, 2024 and December 31, 2023, the balance is primarily comprised of spare

parts for manufacturing equipment.

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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.

following table sets forth the fair value of the Company’s financial assets within the fair value hierarchy:

of Fair Value of Financial Assets

September 30, 2023

Marketable securities:

United States treasury bills

December 31, 2022

Marketable securities:

United States treasury bills

convertible notes payable) in the condensed consolidated balance sheet to approximate fair value because of the short-term or highly

liquid nature of these financial instruments.

to purchase common stock were issued in connection with equity financing raises, which occurred during 2019 through 2024.

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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.

issuance, the fair values of the warrant 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

to the warrant liability are recognized in other income (expense) in the condensed consolidated statements of operations.

Company records revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

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

Company currently recognizes revenue predominately from three sources, contract manufacturing, custom and white label finished goods

manufacturing and our branded products.

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

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

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

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Disaggregated

revenue by sales type:

of Disaggregated

Revenue by Sales Type

revenue by sales type ($ in thousands):

of Disaggregated Revenue by Sales Type

Three months ended

September 30,

Contract manufacturing

Custom and white label finished goods manufacturing

NexGel branded consumer products

Nine months ended

September 30,

Contract manufacturing

Custom and white label finished goods manufacturing

NexGel branded consumer products

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.

Consumer branded products

of March 31, 2024 and December 31, 2023, the Company did not have any contract assets or contract liabilities from contracts with customers

and there were no remaining performance obligations that the Company had not satisfied except for deferred revenue of $ 250 thousand and

$ 20 thousand at March 31, 2024 and December 31, 2023, respectively, that the Company had not satisfied as of the end of the respective

Company has four distinct lines of business;

Contract Manufacturing, Custom & White Label, Consumer Branded Products, and Medical

Devices/Other.

Manufacturing

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this has been the Company’s primary source of revenue.

& White Label

and White Label

products often infuse various ingredients into our base gel to develop unique product offerings to satisfy market demand (e.g.

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is responsible for sales, marketing, and distribution.

These products carry the Company’s brand names.

Devices are a hybrid business, combining elements of Custom & White Label and Consumer Branded Products.

These products carry the Company’s brand names, which include Medagel, Lumagel Beauty, and Kenkoderm.

Devices are a hybrid business, combining elements of Custom and White Label and Consumer Branded Products.

Medical Devices, which are

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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

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.

Compensation expense is recognized in the condensed consolidated statements of operations on

a straight-line basis over the requisite service period, which is generally the vesting period.

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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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.

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

and lease liabilities.

An unrecognized tax benefit, or a portion thereof, is presented in the condensed consolidated 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.

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

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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 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

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.

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.

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 year 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.

Interest Entity

Company reviews each legal entity formed by parties related to the Company to determine whether or not the Company has a variable interest

in the entity and whether or not the entity would meet the definition of a variable interest entity (“VIE”) in accordance

with ASC Topic 810, Consolidation .

In assessing whether the Company has a variable interest in the entity as a whole, the Company

considers and makes judgements regarding the purpose and design of the entity, the value of the licensed assets to the entity, the value

of the entity’s total assets and the significant activities of the entity.

If the Company has a variable interest in the entity

as a whole, the Company assesses whether or not the Company is a primary beneficiary of that VIE, based on a number of factors, including:

(i) which party has the power to direct the activities that most significantly affect the VIE’s economic performance, (ii) the

parties’ contractual rights and responsibilities pursuant to the collaboration agreement, and (iii) which party has the obligation

to absorb losses of or the right to receive benefits from the VIE that could be significant to the VIE.

the Company determines that it is the primary beneficiary of a VIE at the onset of the collaboration, the collaboration is treated as

a business combination and the Company consolidates the financial statements of the VIE into the Company’s condensed consolidated

financial statements.

As of December 31, 2023, and on a quarterly basis thereafter, the Company will evaluate whether it continues to

be the primary beneficiary of the consolidated VIE.

If the Company determines that it is no longer the primary beneficiary of a consolidated

VIE, it deconsolidates the VIE in the period in which the determination is made.

and liabilities recorded as a result of consolidating the financial results of the VIE into the Company’s condensed consolidated

balance sheet do not represent additional assets that could be used to satisfy claims against the Company’s general assets or liabilities

for which creditors have recourse to the Company’s general assets.

Comprehensive

loss consists of net loss and changes in equity during the period from transactions and other equity and circumstances generated from

non-owner sources.

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

Issued Accounting Standards

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

specified effective date.

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

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

June 2016, the FASB issued 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

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

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

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 condensed consolidated financial position or results of operations upon adoption.

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

Measurement of Credit Losses on Financial Instruments .

ASU 2016-13 significantly changes the impairment model for most financial

assets and certain other instruments.

ASU 2016-13 will require immediate recognition of estimated credit losses expected to occur over

the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans

and other financial instruments.

ASU 2016-13 is effective for the Company’s fiscal year beginning January 1, 2023 and subsequent

interim periods.

The Company adopted this new standard during the year ended December 31, 2023 and it did not have a material impact

to its condensed consolidated financial statements.

Pronouncements Issued But Not Yet Adopted

December 2023, the FASB issued ASU 2023-09 , Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

The ASU requires

that an entity disclose specific categories in the effective tax rate reconciliation as well as reconciling items that meet a quantitative

Further, the ASU requires additional disclosures on income tax expense and taxes paid, net of refunds received, by jurisdiction.

The new standard is effective for annual periods beginning after December 15, 2024 on a prospective basis with the option to apply it

retrospectively.

Early adoption is permitted.

The adoption of this guidance will result in the Company being required to include enhanced

income tax related disclosures.

The Company is currently evaluating the impact this standard will have on its condensed consolidated

financial statements.

November 2023, the FASB issued ASU 2023-07 , Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

ASU includes amendments that expand the existing reportable segment disclosure requirements and requires disclosure of (i) significant

expense categories and amounts by reportable segment as well as the segment’s profit or loss measure(s) that are regularly provided

to the chief operating decision maker (the “CODM”) to allocate resources and assess performance;

(ii) how the CODM uses each

reported segment profit or loss measure to allocate resources and assess performance;

(iii) the nature of other segment balances contributing

to reported segment profit or loss that are not captured within segment revenues or expenses;

and (iv) the title and position of the

individual or name of the group or committee identified as the CODM.

This guidance requires retrospective application to all prior periods

presented in the financial statements and is effective for fiscal years beginning after December 15, 2023 and interim periods within

fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The adoption of this guidance will result in the Company

being required to include enhanced disclosures relating to its reportable segments.

The Company is currently evaluating the impact this

standard will have on its condensed consolidated financial statements.

Business Segments

Company’s CODM evaluates the financial performance of the Company’s segments

based upon segment adjusted operating income or (loss) as the profitability measure.

Items outside of adjusted operating income or (loss)

are not reported by segment, since they are excluded from the single measure of segment profitability reviewed by the CODM.

financial information concerning the Company’s reportable segments for each of the quarters ended March 31, 2024 and 2023 is presented

of Reportable Segments

Quarter Ended March 31, 2024 ($ in thousands)

Contract Manufacturing

Custom and White Label Finished Goods

Branded Consumer Products

Total revenue

Cost of sales

Operating expenses

Loss from operations

Quarter Ended March 31, 2023 ($ in thousands)

Contract Manufacturing

Custom and White Label Finished Goods

Branded Consumer Products

Total revenue

Cost of sales

Operating expenses

Loss from operations

of March 31, 2024 ($ in thousands)

Current assets:

Accounts receivable, net

Prepaid expenses and other current assets

Total current assets

Intangibles, net

Property and equipment, net

Operating lease – right of use asset

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities

Deferred revenue

Current portion of note payable

Warrant liability

Contingent consideration liability

Financing lease liability, current portion

Operating lease liabilities, current portion

Total current liabilities

Financing lease liability, net of current portion

Operating lease liabilities, net of current portion

Notes payable, net of current portion

Total liabilities

of December 31, 2023 ($ in thousands)

Current assets:

Accounts receivable, net

Prepaid expenses and other current assets

Total current assets

Intangibles, net

Property and equipment, net

Operating lease – right of use asset

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities

Deferred revenue

Current portion of note payable

Warrant liability

Contingent consideration liability

Operating lease liability, current portion

Total current liabilities

Operating lease liability, net of current portion

Notes payable, net of current portion

Total liabilities

December 1, 2023, the Company closed a transaction related to an Asset Purchase Agreement dated November 30, 2023 (the “Purchase

Agreement”) with Olympus Trading Company, LLC, a Virginia limited liability company (the “Seller”), whereby the Company

purchased all assets related to the Seller’s skincare line focused on reducing symptoms associated with psoriasis operating under

the tradename “Kenkoderm” (“Kenkoderm acquisition”).

the terms of the Kenkoderm acquisition, the Company paid the Seller a cash payment of $ 546,500 .

Additionally, the Company shall pay the

Seller a cash earn-out of the same amount each quarter, payable in the subsequent month following quarter end, of $ 136,625 .

earn-out can fluctuate higher or lower based on the quarterly results of the Kenkoderm business during 2024 according to the formula

contained in the Purchase Agreement.

Purchase Agreement and the transaction contemplated thereby were not subject to approval by the shareholders of the Company.

Agreement contains standard representations and warranties regarding the Seller and the Kenkoderm business and certain limited representations

and warranties regarding the Company.

The Purchase Agreement also contains indemnification provisions for the benefit of the Company

and the Seller.

Neither the Company nor the Seller shall be liable for more than the Purchase Price under the indemnification provisions

except in the case of fraud or willful misconduct.

The Seller and the Seller’s President and owner agreed to 3-year non-compete

provisions as part of the Purchase Agreement.

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

accounted for the Kenkoderm acquisition as the purchase of a business under GAAP under the acquisition method of accounting, and the

assets and liabilities acquired were recorded as of the acquisition date, at their respective fair values and condensed consolidated

with those of the Company.

The fair value of the net assets acquired was approximately $ 169 thousand.

The excess of the aggregate fair

value of the net tangible assets has been allocated to goodwill.

table below shows a preliminary analysis for the Kenkoderm acquisition ($ in thousands):

of Business Acquisitions

Provisional purchase consideration at preliminary fair value:

Purchase price

Contingent consideration liability

Amount of consideration

Assets acquired and liabilities assumed at preliminary fair value

Product/technology related intangibles

Marketing related intangibles

Net tangible assets acquired

Total net assets acquired

Consideration paid

Preliminary goodwill

Non-controlling

Interest in Joint Venture – CG Labs

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 the

JV is considered to be a VIE and we have consolidated the JV.

recorded assets acquired and liabilities assumed in connection with the formation of the JV based on their estimated fair values as of

the March 1, 2023.

The purchase price allocation is as follow ($ in thousands):

of Business Acquisitions

Purchase consideration at fair value:

Cash contributed by the Company

Noncontrolling interest portion of CG Labs contributed business

Amount of consideration

Assets acquired and liabilities assumed at fair value

Cash contributed by the Company

Product/technology related intangibles

Marketing related intangibles

Net tangible assets acquired

Total net assets acquired

Consideration paid

allocation of the purchase price to identifiable assets is based on the preliminary valuations performed to determine the fair value

of the net assets as of the acquisition date.

The measurement period for the valuation of net assets acquired ends as soon as information

on the facts and circumstances that existed as of the acquisition dates becomes available, but not to exceed 12 months following the

acquisition date.

Adjustments in purchase price allocations may require a change in the amounts allocated to net assets acquired during

the periods in which the adjustments are determined.

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

The unaudited pro-forma

condensed consolidated results of operations are not intended to present actual results that would have been attained had the Kenkoderm

acquisition and the JV been completed as of January 1, 2023 or to project potential operating results as of any future date or for any

future periods ($ in thousands except share and per share amounts):

of Unaudited Pro-Forma Results of Operations

March 31, March 31,

Revenues, net

Net loss allocable to common shareholders

Net loss per share

Weighted average number of shares outstanding

Operating Leases

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

that runs through January 2031.

2 unchanged sentences

to renew is solely at the Company’s discretion.

Company also has a sublease for office and manufacturing space in Granbury, Texas that runs through February 2028.

There is an option

that can extend the lease term for an additional five years through February 2033 .

The exercise of the lease options to renew is solely

at the Company’s discretion.

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):

of Future Minimum Lease Payments

of March 31, 2024 ($ in thousands):

of Future Minimum Operating Lease Payments

Maturity of Lease Liability

2024 (Remainder of year)

Total undiscounted operating lease payments

Imputed interest

Present value of operating lease liability

Present value of operating lease liabilities

Weighted average remaining lease term

Weighted average discount rate

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.

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

of Supplemental

Cash Flows Information Related to Leases

September 30,

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

operating lease expense for the three months ended March 31, 2024 and 2023, was $ 71 thousand and $ 65 thousand, respectively, and is recorded

in cost of goods sold and selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

cash flows information related to leases was as follows:

of Supplemental Cash Flows Information Related to Leases

Cash paid for amounts included in the measurement of lease liability ($ in thousands):

Operating cash flows from operating lease

Financing Lease

February 2024, the JV entered into a lease agreement for certain equipment under separate non-cancelable equipment loan and security

The agreement matures in January 2030.

The agreements require monthly payments of principal and interest through maturity

and are secured by the assets under the lease.

As of March 31, 2024, $ 416 thousand is included in the property and equipment on the balance

The weighted average interest rate was 9.1 % at March 31, 2024.

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

of March 31, 2024 ($ in thousands):

of Future Minimum Financing Lease Payments

Maturity of Lease Liability

2024 (Remainder of year)

Total undiscounted operating lease payments `

Imputed interest

Present value of operating lease liability

Weighted average remaining lease term

Weighted average discount rate

consists of the following ($ in thousands):

September 30,

Raw materials

3 unchanged sentences

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.

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

the production process.

is maintained at the Company’s warehouses and at fulfillment centers owned by Amazon, Walmart and CVS.

The Company builds its contract

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

Property and Equipment, Net

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

and Equipment

September 30,

of Property and Equipment

Machinery and equipment

2 unchanged sentences

Construction in progress

Total property and equipment

Property and equipment, gross

accumulated depreciation and amortization

Property and equipment, net

expense for the nine months ended September 30, 2023, and 2022 was $ 95 thousand and $ 74 thousand, respectively.

expense for the three months ended March 31, 2024 and 2023 was $ 38 thousand and $ 27 thousand, respectively.

Intangible Assets

following provides a breakdown of identifiable intangible assets as of September 30, 2023 and December 31, 2022 ($ in thousands):

of Breakdown of Identifiable Intangible Assets

September 30,

following provides a breakdown of identifiable intangible assets as of March 31, 2024 and December 31, 2023 ($ in thousands):

Schedule of Breakdown of Identifiable Intangible Assets

Product/Technology Related

10 unchanged sentences

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.

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

of Estimated Annual Amortization Expense

($ in thousands):

connection with the March 1, 2023 JV, the Company identified intangible assets of $ 287 thousand representing technology related and customer

related intangibles.

connection with the December 1, 2023 acquisition of Kenkoderm, the Company identified intangible assets of $ 113 thousand representing

technology related and customer related intangibles.

assets are being amortized on a straight-line basis over their weighted average estimated useful life of 2.6 years and amortization expense

amounted to $ 24 and $ 4 thousand for the three months ended March 31, 2024 and 2023, respectively.

of March 31, 2024, the estimated annual amortization expense for each of the next five fiscal years is as follows ($ in thousands):

Schedule of Estimated Annual Amortization Expense

2024 (remainder of the year)

Accrued Expenses and Other Current Liabilities

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

Expenses and Other Current Liabilities

September 30,

Schedule of Accrued Expenses and Other Current Liabilities

Salaries, benefits, and incentive compensation

Franchise tax accrual

Margin line of credit

Total accrued expenses and other current liabilities

September 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

March 31, 2024, the Company has reserved common stock for issuance in relation to the following:

Schedule of Reserved Common Stock For Issued Securities in Relation

Share-based compensation plan

1 unchanged sentence

Restricted stock units

February 15, 2024 (the “Closing Date”), the Company, entered into subscription agreements with investors, the Company’s

Chief Financial Officer and certain members of its board of directors for a RDO of the Company’s common stock.

The RDO sold an

aggregate 242,891 units at a price to the public of $ 4.22 per unit, with each unit consisting of two shares of the Company’s common

stock, and a warrant to purchase one share of common stock at an exercise price of $ 4.00 per share.

The $ 4.22 purchase price equals two

times the last reported sale price of $ 2.11 per share of the Company’s common stock on February 15, 2024 on The Nasdaq Capital

The Company issued 485,782 shares of common stock and warrants to purchase up to 242,891 shares of common stock.

to certain ownership limitations, each of the warrants will become exercisable on the Closing Date, will have an exercise price of $ 4.00

per share and will expire five years after the Closing Date.

The warrants may only be exercised on a cashless basis if there is no registration

statement registering, or the prospectus contained in the registration statement is not available for, the issuance or resale of shares

of common stock underlying the warrants to or by the holder.

The holder of a warrant is prohibited from exercising of any such warrants

to the extent that such exercise would result in the number of shares of common stock beneficially owned by such holder and its affiliates

exceeding 4.99 % of the total number of shares of common stock outstanding immediately after giving effect to the exercise, which percentage

may be increased or decreased at the holder’s election not to exceed 9.99 %.

net proceeds to the Company from the RDO were $ 0.9 million, after deducting the placement agent’s fees and other offering

expenses payable by the Company, and excluding the proceeds, if any, from the exercise of the warrants.

The Company intends to use the

net proceeds from the RDO for working capital and for general corporate purposes.

Company retained Alere Financial Partners, LLC (A division of Cova Capital Partners, LLC) to act as the placement agent for the RDO.

The Company agreed to pay the placement agent a cash fee of 6 % of the aggregate gross proceeds in the RDO received from non-affiliates

of the Company and 3 % of the aggregate gross proceeds in the RDO received from affiliates of the Company.

Additionally, and upon the

closing of the RDO, the Company agreed to issue to the placement agent warrants exercisable for a period of five years to purchase up

to 6 % of the number of shares sold in this offering, or up to 27,725 shares, at a per share exercise price of $ 4.00 .

Share-based Compensation

2 unchanged sentences

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.

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

share exercise price of $ 2.00 under the Company’s 2019 Plan.

This option award vests over a period of 12 months.

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.

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

of Information about Incentive Plan

Issued & Outstanding

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 approved an additional 300,000 shares of common stock to be reserved under the 2019 Plan, such that total of

number of shares underlying the Plan is 871,429 of which 609,687 shares have already been awarded or exercised.

Subject to adjustments

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

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

following table contains information about the 2019 Plan as of March 31, 2024:

Schedule of Information about Incentive Plan

Available for

2019 Plan (1)

Awards granted outside of the 2019 Plan (2)

Awards issued in excess of 2019 Plan (2)

incentive stock options and restricted stock units discussed below.

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 September

of Incentive Stock Option Activity

stock options

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

Schedule of Incentive Stock Option Activity

Outstanding at January 1, 2024

Outstanding at September 30, 2023

Exercisable at September 30, 2023

of September 30, 2023, vested outstanding stock options had $ 469 thousand intrinsic value as the exercise price is greater than the estimated

Outstanding at March 31, 2024

Exercisable at March 31, 2024

of March 31, 2024, vested outstanding stock options had $ 342 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.

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:

of Assumptions used in Share-based Compensation

257.64 - 258.01 %

Risk-free interest rate

4.21 - 4.42 %

Dividend yield

Expected term

5 - 5.50 years

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.

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.

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, 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).

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).

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).

of Restricted Stock Units Granted

As of March 31, 2024, there was approximately $ 31 thousand of total unrecognized

share-based compensation related to unvested stock options, which the Company expects to recognize over the next 3 months excluding options

fully contingent upon certain sales-based milestones being achieved within 18 to 36 months of commercial release.

as of January 1, 2024, the Company granted an aggregated restricted stock award of 22,222 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

31, 2023, all of which shares vested monthly from April 1, 2024 through December 31, 2024.

Under ASC 718, Compensation—Stock

Compensation, the Company has measured the value of the 22,222 shares granted based on the closing price of the Company’s stock

at the grant date of the RSU Grant ($ 2.25 per share).

Schedule of Restricted Stock Units Granted

Outstanding at January 1, 2024

Exercised and converted to common shares

Outstanding at September 30, 2023

Exercisable at September 30, 2023

Outstanding at March 31, 2024

Exercisable at March 31, 2024

expense will be recognized ratably over the total vesting schedule.

1 unchanged sentence

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.

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.

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

of Common Stock Warrants

Stock based compensation of $ 54 thousand and $ 24 thousand has been recorded for the three months ended

March 31, 2024 and 2023, respectively.

As of March 31, 2024, there was $ 50 thousand unrecognized share-based compensation related to

unvested RSUs, which the Company expects to recognize through December 2024.

following table shows a summary of common stock warrants through March 31, 2024:

Schedule of Common Stock Warrants

Term in Years

Outstanding at January 1, 2024

Outstanding at September 30, 2023

Exercisable at September 30, 2023

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.

Noncontrolling Interest in Joint Venture

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.

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.

Outstanding at March 31, 2024

Exercisable at March 31, 2024

of March 31, 2024 and 2023, vested outstanding warrants had $ 0 and $ 90 thousand, respectively, intrinsic value as the exercise price

is greater than the estimated fair value of the underlying common stock.

Notes Payable

JV has entered into a $ 231 thousand promissory note agreement for certain equipment.

The equipment was installed in December 2023.

promissory note has a term of five years beginning on March 13, 2024.

The promissory note accrues interest at 8 % and requires interest

only payments through March 13, 2024 and monthly payments of $ 4 thousand thereafter.

principal balance amounted to $ 227 thousand and $ 231 thousand as of March 31, 2024 and December 31, 2023, respectively.

JV has entered into a $ 242 thousand promissory note agreement for certain equipment.

The funding advances of $ 153 thousand and $ 84 thousand

have been issued in February 2024 and December 2023, respectively.

The promissory note has a term of five years beginning on March 13,

The promissory note accrues interest at 8 % and requires interest only payments through March 13, 2024 and monthly payments of $ 5

thousand thereafter.

The principal balance amounted

to $ 234 thousand and $ 84 thousand as of March 31, 2024 and December 31, 2023, respectively.

Compay has entered into a $ 13

thousand promissory note agreement for LED energy efficient lighting.

The installation was certified

complete in February 2024.

The promissory note has a term of two

years beginning on February 11, 2024.

The promissory note accrues interest at 0 %

and requires monthly payments of $ 545 .

principal balance amounted to $ 13

thousand as of March 31, 2024.

Injury Disaster Loan

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Interest accrues at the rate of 3.75 %

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.

of the principal and accrued interest amounted to $ 279 thousand and $ 283 thousand as of September 30, 2023 and December 31, 2022, respectively.

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

of Debt Instruments

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

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

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

In connection therewith, the Company received an $ 8 thousand 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.

The 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 2022.

The balances of the principal

and accrued interest amounted to $ 276 and $ 279 thousand as of March 31, 2024 and December 31, 2023, respectively.

future annual principal amounts and accrued interest to be paid as of March 31, 2024 are as follows:

Schedule of Debt Instruments

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

2023 (remainder of the year)

Convertible Notes Payable

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.

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

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

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

February 21, 2024, 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 27,725 , 22,019 , 34,285 , 7,429 , 7,286 , 44,286 , 35,714 and 114,286 warrants, respectively, as equity issuance

consideration, in connection with equity offering of the Company’s common stock.

The warrants entitle the holder to purchase one

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

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

The Company determined that these

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

in the public share offering.

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

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

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

of other income in the accompanying statement of operations.

Derivatives and Hedging .

In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability

on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes

being recorded as a component of other income (expense) in the condensed consolidated statements of operations.

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

of Warrant Liability

Schedule of Warrant Liability

Warrant Liability

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Fair value as of year ended 12/31/2023

Exercise of warrants

Fair value at initial measurement date

Change in fair value of warrant liability

Fair value as of period ended 9/30/2023

Fair value as of year ended 3/31/2024

following assumptions were used to calculate the warrant liability for three months ended March 31, 2024 and 2023:

of Assumptions Used in Warrant Liability

Exercise price

$ 2.80 to $ 5.25

$ 0.49 - $ 5.25

$ 1.99 - $ 2.73

237.08 % - 277.25 %

137.02 - 287.87 %

Risk-free interest rate

4.21 % - 5.03 %

3.81 % - 4.74 %

Dividend yield

Expected term

1.5 to 5.0 years

0.1 to 3.4 years

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

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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.

of any matters that will have a material effect on the condensed consolidated financial position, results of operations, or cash flows

of the Company.

March 21, 2023, the Company entered into a Services Agreement with GlaxoSmithKline Consumer Healthcare Holdings (US) LLC (“Haleon”)

2 unchanged sentences

will be released or, if released, that it will be successful.

GlaxoSmithKline Consumer Healthcare Holdings (US) LLC is a Haleon group

Concentrations of Risk

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 nine months ended September 30, 2023, were 20 %, 11 %, and 10 %.

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.

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.

the three months ended March 31, 2024, the Company had revenue from one customer that approximated 10 % of total revenue.

For the three

months ended March 31, 2023, the Company had revenue from three customers that exceeded 10% of total revenues which were 52 %, 21 %, and

Company had two customers with accounts receivable balances that were 24 % and 44 % of total accounts receivable as of March 31, 2024.

The Company had three customers with accounts receivable balances that were 25 %, 31 %, and 10 % of total accounts receivable as of March

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 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.

As of March 31, 2024, the total amount exceeding such limit was $ 98 thousand.

The Company has not experienced

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

The Company invests its cash equivalents in U.S.

treasury bills with original maturities

of three months or less.

treasury bills with

original maturities of three months or less.

securities are comprised of U.S.

5 unchanged sentences

Related Party Transactions

Promissory Note

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.

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.

Jerome Zeldis, a member of the Company board of directors, has an outstanding balance due of $ 25,000 for services as of March 31, 2024

and December 31, 2023, included in accounts payable in the accompanying condensed consolidated balance sheets.

Subsequent Events

1 unchanged sentence

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.

statements, noting no such events or transactions.

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