What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-19 compared with 2024-05-13 · 192 added, 95 removed, 204 unchanged (58% of the section changed)

75 unchanged sentences

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

Beginning in May 2024, the Company added the Silly

George brand.

Silly George is a beauty and cosmetics company focused on eyeliner, fake eyelashes, lash growth serum and mascara.

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

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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”).

Enigma Health

On January 6, 2023, the Company acquired a 50% interest

in its newly formed JV to pursue branded consumer product retail opportunities and the development of new patch products.

The JV agreement

is effective January 6, 2023.

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

December 1, 2023, we purchased substantially all of the assets of Olympus Trading Company, LLC (the “Kenkoderm 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.

the Company will pay the Kenkoderm Seller a cash earn-out of the same amount each quarter, payable in the subsequent month flowing quarter

end, of $136,625, subject to adjustment.

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.

May 15, 2024, the Company purchased assets from Semmens Online Pty Ltd as Trustee for Semmens Business Trust (the “SG Seller”)

related to the SG Seller’s eyeliner, fake eyelashes, lash growth serum and mascara business operating under the tradename “Silly

George” (collectively, the “Business”).

the terms of the Purchase Agreement and on the Closing Date, the Company paid the SG Seller a cash payment of $400,000 and issued $200,000

in shares of the Company’s common stock based on the 10-Day VWAP (as defined in the SG Purchase Agreement), or 89,892 of shares

of the Company’s common Stock.

Additionally, the Company shall pay the Seller a cash earn-out based on 20% of the Net Profit (as

defined in the SG Purchase Agreement) related to the Business for the fiscal quarterly period beginning June 30, 2024 and ending on June

of Operations

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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

of the Three Months ended June 30, 2024 and 2023 ($ in thousands)

the three months ended June 30, 2024 revenues were $1,440 and increased by $273, or 23.4%, when compared to $1,167 for the three

months ended June 30, 2023.

The increase in our overall revenues was primarily due to sales growth in our branded consumer products,

including gross revenue from Silly George of $380 from May 15, 2024 through June 30, 2024, and partially offset by a decrease in

contract manufacturing.

Company has four distinct lines of business;

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

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

Manufacturing

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into the gel for a beauty mask).

The rollstock is converted and packaged into salable units.

The rollstock is converted and packaged into saleable units.

The finished goods are shipped to the customer,

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Once completed, the customer places a large order for newly developed product.

Branded Products

Consumer 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):

These products carry the Company’s brand names.

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

Our gross profit was $410 for the three months ended June 30, 2024 compared to a gross profit of $175 thousand for the

three months ended June 30, 2023.

The increase of $235 in gross profit quarter over quarter was primarily due to the increase in branded consumer products.

Gross profit was 28.5% for the three months ended June 30, 2024 compared to a gross profit of 15.0% for the

three months ended June 30, 2023.

components of cost of revenues are as follows for the three months ended June 30, 2024 and 2023 ($ in thousands):

Three Months Ended

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Total cost of 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.

of revenues increased by $38, or 3.8%, to $1,030 for the three months ended June 30, 2024, as compared to $992 for the three months ended

June 30, 2023.

The increase in cost of revenues is primarily aligned with sales of branded consumer products, as both Silly George and Kenkoderm were acquired after the comparable 2023 time period.

general and administrative expenses .

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

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

three months ended June 30, 2024 and 2023 ($ in thousands):

Three Months Ended

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Depreciation and amortization

Advertising, marketing, & Amazon fees

Investor & shareholder services

Franchise tax & corporate insurance

Professional & consulting fees

Advertising, marketing, and Amazon fees

Investor and shareholder services

Franchise tax and corporate insurance

Professional and consulting fees

Other expenses and professional fees

Total Selling, general and administrative expenses

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.

general and administrative expenses increased by $506, or 57.4%, to $1,388 for the three months ended June 30, 2024, as compared to

$882 for the three months ended June 30, 2023.

The increase in Selling, general and administrative expenses is primarily

attributable to the factors described below.

and benefits increased by $76, or 43.2%, to $252 for the three months ended June 30, 2024, as compared to $176 for the three months ended

June 30, 2023.

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

contract renewals.

compensation increased by $30 or 130.4%, to $53 for the three months ended June 30, 2024, as compared to $23 for the three months

ended June 30, 2023.

The increase related to the issuance of stock options and restricted awards to our officers, employees, board

of directors, and advisors.

marketing, Amazon fees increased by $276, or 166.3%, to $442 for the three months ended June 30, 2024, as compared to $166 for the three

months ended June 30, 2023.

The increase is due to the increased Amazon selling fees and an increase in advertising and marketing attributable

to promoting Kenkoderm and Silly George.

and shareholder services decreased by $52 or 37.1%, to $88 for the three months ended June 30, 2024, as compared to $140 for the three

months ended June 30, 2023.

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

taxes and corporate insurance decreased by $41, or 65.1%, to $22 for the three months ended June 30, 2024, as compared to $63

thousand for the three months ended June 30, 2023.

In the prior year period, a non-recurring adjustment resulted in an increase in

franchise taxes.

and consulting fees increased by $155, or 63.0%, to $401 for the three months ended June 30, 2024, as compared to $246 for the three

months ended June 30, 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.

requirements and professional services related to branded consumer products.

Expenses increased by $26, or 50.0%, to $78 for the three months ended June 30, 2024 from $52 for the three months ended June 30 2023.

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

management, including information technology, travel, training and recruiting.

and development expenses .

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

2023, respectively.

Research and development expenses increased by $21, or 38.2%, to $76 for the three months ended June

30, 2024 from $55 for the three months ended June 30, 2023.

Research and development expenses are related to research costs incurred

for potential products for existing or new customers.

of the Six Months ended June 30, 2024 and 2023 (in thousands)

the six months ended June 30, 2024, revenues were $2,706 and increased by $920, or 51.5%, when compared to $1,786 for the six months

ended June 30, 2023.

The increase in our overall revenues was primarily due to sales growth in our branded consumer products, including

gross revenue from Silly George of $380 from May 15, 2024 through June 30, 2024, and partially offset by a decrease in contract manufacturing.

Our gross profit was $687 for the six months ended June 30, 2024, compared to a gross profit of $117 for the six months ended

June 30, 2023.

The increase of $570 in gross profit recorded for the six months ended June 30, 2024, as compared to the six months ended

June 30, 2023, was primarily due to increase in branded consumer products.

Gross profit was approximately 25.4% for the six months ended June 30, 2024,

compared to a gross profit of 6.6% for the six months ended June 30, 2023.

components of cost of revenues are as follows for the six months ended June 30, 2024 and 2023 ($ in thousands):

Six Months Ended

Cost of revenues

Materials and finished products

Share based compensation

Compensation and benefits

Depreciation and amortization

Equipment, production, and other expenses

Total cost of revenues

of revenues increased by $350, or 21.0%, to $2,019 for the six months ended June 30, 2024, as compared to $1,669 for the six months ended

June 30, 2023.

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

The increase in cost of revenues is primarily aligned with sales of branded consumer products, as both Silly George

and Kenkoderm were acquired after the comparable 2023 time period.

general, and administrative expenses .

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

six months ended June 30, 2024 and 2023 ($ in thousands):

Six Months Ended

Selling, general, and administrative expenses

Compensation and benefits

Share-based compensation

Depreciation and amortization

Advertising, marketing, and Amazon fees

Investor and shareholder services

Franchise tax and corporate insurance

Professional and consulting fees

Other expenses

Total selling, general and administrative expenses

general, and administrative expenses increased by $855, or 50.9%, to $2,534 for the six months ended June 30, 2024, as compared to

$1,679 for the six months ended June 30, 2023.

The increase in selling, general, and administrative expenses is primarily

attributable to increased Advertising, marketing and Amazon fees, which directly correlates to our growth in branded consumer

and benefits increased by $183, or 57.0%, to $504 for the six months ended June 30, 2023, as compared to $321 for the six months ended

June 30, 2023.

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

contract renewals.

compensation increased by $62, or 147.6%, to $104 for the six months ended June 30, 2024, as compared to $42 for the six months ended

June 30, 2023.

The increase related to the issuance of stock options and restricted awards to our officers, employees, board of

directors, and advisors.

marketing, Amazon fees increased by $435 or 167.3%, to $695 for the six months ended June 30, 2024, as compared to $260 for the six months

ended June 30, 2023.

The increase is due to the increased Amazon selling fees and increase in advertising and marketing attributable

to promoting Kenkoderm and Silly George.

and shareholder services decreased by $87 or 36.7%, to $150 for the six months ended June 30, 2024, as compared to $237 for the six months

ended June 30, 2023.

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

taxes and corporate insurance decreased by $42 or 34.4%, to $80 for the six months ended June 30, 2024, as compared to $122 for the six

months ended June 30, 2023.

In the prior year period, a non-recurring adjustment resulted in an increase in franchise taxes.

and consulting fees increased by $213 or 38.6% to $765 for the six months ended June 30, 2024, as compared to $552 for the six

months ended June 30, 2023.

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

services related to branded consumer products.

expenses increased by $34, or 28.6%, to $153 for the six months ended June 30, 2024 from $119 for the six months ended June 30,

Other Selling, general and administrative expenses generally consist of normal 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 $6, or 7.1% to $78 for the six months ended June 30, 2024

from $84 for the six months ended June 30, 2023.

Research and development expenses are related to research costs incurred for potential

products for existing or new customers.

and Capital Resources

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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

of June 30, 2024, we had $1,069 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

Net cash used in operating activities was $1,792 and $1,926 for the six months ended June

30, 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.

cash used in investing activities was $704 and net cash provided by investing activities was $ 4,519 for the six months ended June 30,

2024 and 2023, respectively, consisting of the sales of marketable securities of $57, the purchase

of capital equipment of $361 and the acquisition of $400 for six months ended June 30, 2024 and consisting of the sales of marketable

securities of $4,772 and purchases of capital equipment of $253 for six months ended June 30, 2023.

cash provided by financing activities for the six months ended June 30, 2024 was $865 consisting of net proceeds from the RDO of

$946 and an investment of $37 by a joint venture partner, offset by principal payments of notes payable of $27, a change in contingent consideration liability of $69, and by principal

payment on financing lease liability of $22.

Net cash used in financing activities for June 30, 2023 was $3 is attributable to the

principal payments of notes payable.

June 30, 2024, current assets totaled $3,588 and current liabilities totaled $2,633 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 $955 at June 30, 2024, compared

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

The change in the working capital as of June 30, 2024 is primarily

attributable to the loss from operations of $1,925, cash paid for asset acquisition of $403, capital expenditures of $361, offset by

net proceeds of $946 from the RDO.

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

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value creation.

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).

believe we have sufficient capital to maintain as a going concern due to the recent capital raise on August 8, 2024 (discussed further

within Note 19).

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.

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.

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

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Balance Sheet Arrangements

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

of June 30, 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

46 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