What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-13 compared with 2023-11-13 · 154 added, 191 removed, 145 unchanged (70% of the section changed)

2 unchanged sentences

operations, liquidity and capital resources.

You should read this discussion in conjunction with our financial statements and related

notes thereto included elsewhere in this information statement.

You should read this discussion in conjunction with our condensed consolidated financial

statements and related notes thereto included elsewhere in this information statement.

statements in this discussion regarding industry outlook, expectations regarding our future performance, liquidity and capital resources

50 unchanged sentences

We specialize in custom gels by capitalizing on proprietary manufacturing technologies.

historically served as a contract manufacturer, supplying our gels to third parties who incorporate them into their own products and

have recently began producing our own consumer products using our gels focused on proprietary branded products and white label opportunities.

Both our gels and our consumer products are manufactured using proprietary and non-proprietary mixing, coating and cross-linking technologies.

Together, these technologies 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, we and our customers are able to determine

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

March 1, 2023, the Company acquired of 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 agreement is effective

March 1, 2023.

historically served as a contract manufacturer, supplying our gels to third parties who incorporate them into their own products.

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

First, 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.

All of our gel products are manufactured using proprietary and non-proprietary mixing, coating and cross-linking

technologies.

Together, these technologies 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, we and our

customers are able to determine tolerances in moisture vapor transmission rate and active ingredient release rates while personalizing

color and texture.

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.

March 1, 2023, the Company acquired a 50% interest in its newly formed JV for its converting and packaging business.

The JV agreement

is effective March 1, 2023.

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

December 1, 2023, we purchased substantially all of the assets Olympus Trading Company, LLC (the “Seller”) 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 flowing quarter end,

The cash 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 Asset Purchase Agreement relating to the Kenkoderm acquisition.

of Operations

following sections discuss and analyze the changes in the significant line items in our condensed consolidated statements of operations

for the comparison periods identified.

of the Three Months ended September 30, 2023, and 2022 ($ in thousands)

For the three months ended September 30, 2023,

revenues were $1,221 and increased by $653, or 115.0%, when compared to $568 for the three months ended September 30, 2022.

in our overall revenues was primarily due to sales growth in both our contract manufacturing and branded products, including the revenue

from JV from March 1, 2023 through September 30, 2023 of $1,375.

The Company has four distinct lines of business;

Manufacturing, Custom & White Label, Consumer Branded Products, and Medical Devices as further described in Footnote #3.

Gross profit (loss) .

Our gross profit was $344 for the three months ended September 30, 2023, compared to a gross profit of $148 for the three months ended September

The increase of $196 in gross profit was primarily due to the higher volume of contract manufacturing sales against

fixed costs partially offset by increased manufacturing.

Gross profit was approximately 28.2% for the three months ended September 30,

2023, compared to a gross profit of 26.1% for the three months ended September 30, 2022.

The components of cost of revenues are as follows

for the three months ended September 30, 2023 and 2022 ($ in thousands):

following sections discuss and analyze the changes in the significant line items in the accompanying condensed consolidated statements

of operations for the comparison periods identified.

of the Three Months ended March 31, 2024 and 2023 ($ in thousands)

the three months ended March 31, 2024 revenues were $1,266 and increased by $646, or 104.2%, when compared to $620 for the three months

ended March 31, 2023.

The increase in our overall revenues was primarily due to sales growth in both our contract manufacturing and branded

Company has four distinct lines of business;

Contract Manufacturing, Custom and White Label, Consumer Branded Products, and Medical Devices.

Manufacturing

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.

and White Label

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

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.

Branded Products

products are finished goods marketed and sold directly to the customer by the Company through online and retail channels.

is responsible for sales, marketing, and distribution.

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

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.

profit (loss) .

Our gross profit was $277 for the three months ended March 31, 2024 compared to a gross loss of $57 for the three

months ended March 31, 2023.

The increase of $334 in gross loss quarter over quarter was primarily due to the increase in consumer branded products.

Gross profit was 21.9% for the three months

ended March 31, 2024 compared to a gross loss of (9.2%) for the three months ended March 31, 2023.

components of cost of revenues are as follows for the three months ended March 31, 2024 and 2023 ($ in thousands):

Three Months Ended

September 30,

Cost of revenues

Materials and finished products

Compensation and benefits

Share Based Compensation

Compensation and benefits

Depreciation and amortization

1 unchanged sentence

Total cost of revenues

of revenues increased by $457, or 108.8%, to $877 for the three months ended September 30, 2023, as compared to $420 for the three months ended September 30, 2022.

The increase in cost of revenues pertains to an increase in materials and finished

products and equipment, production, and other expenses.

These increases primarily align with the growth in revenues.

general, and administrative expenses .

The following table highlights selling, general, and administrative expenses by type for the

three months ended September 30, 2023 and 2022 ($ in thousands):

general and administrative expenses

and amortization

marketing, & Amazon fees

& shareholder services

tax & corporate insurance

& consulting fees

expenses and professional fees

selling, general and administrative expenses

general and administrative expenses decreased by $42, or 4.2%, to $950 for the three months ended September 30, 2023,

as compared to $992 for the three months ended September 30, 2022.

The decrease in Selling, general and administrative expenses

is primarily attributable to the factors described below.

and benefits increased by $51, or 43.2%, to $169 for the three months ended September 30, 2023, as compared to $118 for the three months ended September 30, 2022.

The number of employees increased compared to the prior period and officer compensation

increased in conjunction with contract renewals.

compensation decreased by $19, or 22.4%, to $66 for the three months ended September 30, 2023, as compared to $85 for the three months ended September 30, 2022.

The decrease in share-based compensation related to the issuance of stock options and

restricted awards to our officers, employees, and advisors in the prior year period that compared to members of the Board of Directors

in the current period.

Advertising, marketing, & Amazon fees

increased by $75, or 72.8% to $178 for the three months ended September 30, 2023, as compared to $103 for the three months ended September 30, 2022.

The increase is due to the increased Amazon selling fees and Amazon

Advertising, which correlates with our increase in Branded Sales.

Investor and shareholder services increased by $15, or 21.1% to $86 for the three months ended September 30, 2023, as compared to $71 for the three months

ended September 30, 2022.

The increase is due to an increase in investor outreach.

Franchise taxes and corporate insurance decreased

by $212, or 80.3% to $52 for the three months ended September 30, 2023, as compared to $264 for the three months

ended September 30, 2022.

The vast majority of this decrease pertains to the Company’s reduction in authorized shares, which lowered

its franchise tax expense.

Professional and consulting fees increased by $58, or 27.2% to $271 for the three months ended September 30, 2023, as compared to $213 for the three months ended

September 30, 2022.

We continued to incur accounting and consulting fees associated with public company governance requirements.

Other expenses decreased by $11, or 8.2%,

to $123 for the three months ended September 30, 2023 from $134 for the three months ended September 30, 2022.

selling, general and administrative expenses generally consist of costs associated with our selling efforts and general management, including

information technology, travel, training and recruiting.

Research and development expenses .

and development expenses were $6 and $193 for the three months ended September 30, 2023 and September 30, 2022, respectively.

The decrease is due to the completion of development efforts of two proof of concept studies for drug delivery candidates utilizing our

hydrogel technology.

Comparison of the Nine Months ended September

30, 2023 and 2022 ($ in thousands)

Revenues, net .

For the nine months ended September 30, 2023, revenues

were $3,007 and increased by $1,483, or 97.3%, when compared to $1,524 for the nine months ended September

The increase in our overall revenues was primarily due to sales growth in both our contract manufacturing and branded products,

including the revenue from our JV from March 1, 2023 through September 30, 2023 of $1,375.

Our gross profit was $461 for the nine months ended September 30, 2023, compared to a gross profit of $220 for the nine months ended September 30, 2022.

The increase in profit recorded for the nine months ended September 30, 2023, as compared

to the nine months ended September 30, 2022, was primarily due to the higher volume of contract manufacturing sales against fixed costs,

partially offset by increased manufacturing of promotional materials, customer product samples and other marketing materials to support

our new product launches.

Gross profit was approximately 15.3% for the nine months ended September 30, 2023, compared to a gross profit

of 14.4% for the nine months ended September 30, 2022.

The components of cost of revenues are as follows for the nine months ended September

30, 2023 and 2022 ($ in thousands):

and finished products

and amortization

production, and other expenses

cost of revenues

Cost of revenues increased by $1,242, or

95.2%, to $2,546 for the nine months ended September 30, 2023, as compared to $1,304 for the nine months ended September

The increase in cost of revenues pertains to an increase in materials and finished products and equipment, production and other

These increases primarily align with the increased revenues.

of revenues increased by $312, or 46.1%, to $989 for the three months ended March 31, 2024, as compared to $677 for the three months

ended March 31, 2023.

The increase in cost of revenues is primarily aligned with the increase in revenue growth.

general and administrative expenses .

The following table highlights Selling, general and administrative expenses by type for the

nine months ended September 30, 2023 and 2022 ($ in thousands):

Nine Months Ended

September 30,

three months ended March 31, 2024 and 2023 ($ in thousands):

Three Months Ended

Selling, general and administrative expenses

6 unchanged sentences

Professional & consulting fees

Other expenses

Other expenses and professional fees

Total Selling, general and administrative expenses

general, and administrative expenses increased by $170, or 6.9%, to $2,629 for the nine months ended September 30,

2023, as compared to $2,459 for the nine months ended September 30, 2022.

The increase in selling, general, and administrative

expenses is primarily attributable to our costs for professional fees and other administrative expenses in the current period associated

with public company governance requirements.

and benefits increased by $111, or 29.3%, to $490 for the nine months ended September 30, 2023, as compared to $379 for the nine months ended September 30, 2022.

The number of employees increased compared to the prior period and officer compensation

increased in conjunction with contract renewals.

Share-based compensation decreased by $110,

or 50.2%, to $109 for the nine months ended September 30, 2023, as compared to $219 for the nine months ended September

The decrease in share-based compensation year over year relates to the issuance of stock, restricted stock, and options

to our CEO and options to board members in 2023 in comparison to companywide restricted stock awards issued to employees in 2022.

Advertising, marketing, & Amazon fees

increased by $91, or 26.2% to $438 for the nine months ended September 30, 2023, as compared to $347 for

the nine months ended September 30, 2022.

The corresponds to increased Amazon sales, partially offset by optimization of Amazon

advertising spend in 2023.

Investor and shareholder services increased by $144, or 80.4% to $323 for the nine months ended September 30, 2023, as compared to $179 for the nine months ended

September 30, 2022.

The increase is due to an increase in investor outreach.

Franchise taxes and corporate insurance decreased

by $160, or 47.9% to $174 for the nine months ended September 30, 2023, as compared to $334 for the nine months

ended September 30, 2022.

The vast majority of this decrease pertains to the Company’s reduction in authorized shares, which lowered

its franchise tax expense.

Professional and consulting fees increased by $239, or 40.9% to $823 for the nine months ended September 30, 2023, as compared to $584 for the nine months ended

September 30, 2022.

We continued to incur accounting and consulting fees associated with public company governance requirements.

expenses decreased by $166, or 40.9%, to $240 for the nine months ended September 30, 2023 from $406 for the

nine months ended September 30, 2022.

Other selling, general and administrative expenses generally consist of costs associated with our

selling efforts and general management, including information technology, travel, training and recruiting.

general and administrative expenses increased by $349, or 43.8%, to $1,146 for the three months ended March 31, 2024, as compared to

$797 for the three months ended March 31, 2023.

The increase in Selling, general and administrative expenses is primarily attributable

to the factors described below.

and benefits increased by $91, or 56.5%, to $252 for the three months ended March 31, 2024, as compared to $161 for the three months

ended March 31, 2023.

The number of employees increased compared to the prior period and officer compensation increased in

conjunction with contract renewals.

compensation increased by $32, or 168.4%, to $51 for the three months ended March 31, 2024, as compared to $19 for the three months ended

March 31, 2023.

The share-based compensation related to the issuance of stock options and restricted awards to our officers, employees,

and advisors in the prior year period.

marketing, Amazon fees increased by $159, or 169.1%, to $253 for the three months ended March 31, 2024, as compared to $94 for the three

months ended March 31, 2023.

The increase primarily pertains to an increase in consumer branded product sales year over year.

and shareholder services decreased by $34, or 35.4%, to $62 for the three months ended March 31, 2024, as compared to $96 for the three

months ended March 31, 2023.

The decrease is due to a reduction of investor services compared to the prior year period.

taxes and corporate insurance increased by $14, or 31.8%, to $58 for the three months ended March 31, 2024, as compared to $44 thousand

for the three months ended March 31, 2023.

and consulting fees increased by $101, or 38.4%, to $364 for the three months ended March 31, 2024, as compared to $263 for the

three months ended March 31, 2023.

We continued to incur accounting and consulting fees associated with public company governance

requirements.

Additionally, we incurred significant expenses related to our European Medical Device Regulation project in preparation

for entering European markets.

Expenses decreased by $35, or 31.8%, to $75 for the three months ended March 31, 2024 from $110 for the three months ended March 31,

Other Selling, general and administrative expenses generally consist of costs associated with our selling efforts and general management,

including information technology, travel, training and recruiting.

and development expenses .

Research and development expenses decreased by $238 to $90 for the nine months ended

September 30, 2023 from $328 for the nine months ended September 30, 2022.

The decrease is due to the completion of development

efforts of two proof of concept studies for drug delivery candidates utilizing our hydrogel technology.

Research and development expenses were $2 and $29 for the three months ended March 31, 2024 and March 31,

2023, respectively.

and Capital Resources

September 30,

Flow (in thousands)

Net cash used in operating activities

1 unchanged sentence

Net cash provided by (used in) financing activities

Net increase (decrease) in cash

Cash at beginning of year

Cash at end of quarter

of September 30, 2023, we had $3.3 million of cash and $0 thousand of marketable securities ,

compared to $1.1 million of cash and $5.5 million of marketable securities at December 31,

Net cash used in operating activities was $2.6 million and $2.3 million for the nine months ended September 30, 2023 and 2022,

respectively.

cash provided by investing activities was $4.7 million and net cash used in investing activities was $6.1 million for the nine months

ended September 30, 2023 and 2022, respectively, consisting of the sales of marketable securities

of $5.3 million and purchases of capital equipment of $611 thousand for nine months ended September 30,

2023 and consisting of investments in marketable securities of $6,980 thousand, the sale of marketable securities for $1,000 thousand,

and purchases of capital equipment of $88 thousand for the nine months ended September 30, 2022.

cash provided by financing activities and cash used in financing activities for the nine months ended September 30, 2023 and 2022 was

$85 thousand and $3.5 million, respectively, and is attributable to the proceeds from the margin line of credit of $89 thousand and principal

payments of notes payable and convertible notes of $4 thousand for the nine months ended September 30, 2023 and attributable to principal

payments of convertible notes of $3.5 million in the nine months ended September 30, 2022.

September 30, 2023, current assets totaled $5.9 million and current liabilities totaled $1.7 million, as compared to current assets totaling

$7.5 million and current liabilities totaling $859 thousand at December 31, 2022.

As a result, we had working capital of $4.2 million

at September 30, 2023, compared to a working capital of $6.6 million at December 31, 2022.

The decrease in the working capital

as of September 30, 2023 is primarily attributable to the loss from operations of $2.3 million.

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalent at end of quarter

of March 31, 2024, we had $2,419 of cash and cash equivalents , compared to $2,700 of cash

and cash equivalents at December 31, 2023.

Net cash used in operating activities was $1,092 and $709 for the three months ended March

31, 2024 and 2023, respectively.

cash used in investing activities was $118 and net cash provided by $397 for the three months ended March 31, 2024 and 2023, respectively,

consisting of the sales of marketable securities of $34 and the purchase of capital equipment of

$152 for three months ended March 31, 2024 and consisting of the sales of marketable securities of $485 and purchases of capital equipment

of $88 for three months ended March 31, 2023.

cash provided by financing activities for the three months ended March 31, 2024 was $929 consisting of net proceeds from the RDO of $946,

offset by principal payments of notes payable of $8 and by principal payment on financing lease liability of $9.

Net cash used in financing

activities for March 31, 2023 was $2 is attributable to the principal payments of notes payable.

March 31, 2024, current assets totaled $4,863 and current liabilities totaled $2,483, as compared to current assets totaling $5,052 and

current liabilities totaling $2,549 at December 31, 2023.

As a result, we had working capital of $2,380 at March 31, 2024, compared to

a working capital of $2,503 at December 31, 2023.

The change in the working capital as of March 31, 2024 is primarily attributable

to the loss from operations of $871 and the net proceeds of $946 from the RDO.

have never declared or paid any cash dividends on our common stock.

10 unchanged sentences

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 its catalog of consumer

products for sale to branding partners and to use our in-house capabilities to create and test market additional branded products.

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.

believe we have sufficient capital to maintain as a going concern due to the recent capital raise on February 14, 2024 (discussed

further within Note 20).

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

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.

12 unchanged sentences

Balance Sheet Arrangements

of September 30, 2023, we had no off-balance sheet arrangements in the nature of guarantee contracts, retained or contingent interests

in assets transferred to entities (or similar arrangements serving as credit, liquidity or market risk support to entities for any such

of March 31, 2024, we had no off-balance sheet arrangements in the nature of guarantee contracts, retained or contingent interests in

assets transferred to entities (or similar arrangements serving as credit, liquidity or market risk support to entities for any such

assets), or obligations (including contingent obligations) arising out of variable interests in entities providing financing, liquidity,

1 unchanged sentence

Accounting Policies and Estimates

preparation of our Financial Statements in accordance with generally accepted accounting principles is based on the selection and application

of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently

We consider the accounting policies discussed below to be critical to the understanding of our Financial Statements.

results could differ from our estimates and assumptions, and any such differences could be material to our Financial Statements.

preparation of our accompanying condensed consolidated financial statements in accordance with generally accepted accounting principles

is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about

the effects of matters that are inherently uncertain.

We consider the accounting policies discussed below to be critical to the understanding

of our Financial Statements.

Actual results could differ from our estimates and assumptions, and any such differences could be material

to our Financial Statements.

compensation – We utilize share-based compensation in the form of incentive stock options.

35 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis