NEXGEL, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS NEXGEL, INC CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2024 AND DECEMBER 31, 2023 (Unaudited) (in thousands, except share and per share data) September 30, 2024 December 31, 2023 ASSETS: Current Assets: Cash and cash equivalents $ 1,059 $ 2,700 Accounts receivable, net 894 633 Inventory 1,778 1,319 Prepaid expenses and other current assets 879 400 Total current assets 4,610 5,052 Goodwill 1,124 1,128 Intangibles, net 839 326 Property and equipment, net 2,219 1,499 Operating lease - right of use asset 1,685 1,855 Other assets 95 95 Total assets $ 10,572 $ 9,955 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 1,505 $ 1,233 Accrued expenses and other current liabilities 609 398 Deferred revenue 179 20 Current portion of note payable 83 80 Warrant liability 109 146 Contingent consideration liability 271 439 Financing lease liability, current portion 58 - Operating lease liabilities, current portion 234 233 Total current liabilities 3,048 2,549 Operating lease liabilities, net of current portion 1,589 1,727 Financing lease liability, net of current portion 323 - Notes payable, net of current portion 626 513 Total liabilities 5,586 4,789 Commitments and Contingencies (Note 16) - Preferred stock, par value $ 0.001 per share, 5,000,000 shares authorized, no shares issued and outstanding - - Common stock, par value $ 0.001 per share, 25,000,000 shares authorized; 6,790,777 and 5,741,838 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively 7 6 Additional paid-in capital 21,826 19,406 Accumulated deficit ( 17,146 ) ( 14,715 ) Total NexGel stockholders’ equity 4,687 4,697 Non-controlling interest in joint venture 299 469 Total stockholders’ equity 4,986 5,166 Total liabilities and stockholders’ equity $ 10,572 $ 9,955 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents NEXGEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (Unaudited) (in thousands, except share and per share data) 2024 2023 2024 2023 Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Revenues, net $ 2,940 $ 1,221 $ 5,647 $ 3,007 Cost of revenues 1,658 877 3,678 2,546 Gross profit 1,282 344 1,969 461 Operating expenses Research and development - 6 78 90 Selling, general and administrative 2,070 950 4,604 2,629 Total operating expenses 2,070 956 4,682 2,719 Loss from operations ( 788 ) ( 612 ) ( 2,713 ) ( 2,258 ) Other income (expense) Interest expense ( 20 ) ( 3 ) ( 67 ) ( 13 ) Interest income - 1 2 3 Other income 39 - 40 3 Gain on investments 5 44 62 168 Changes in fair value of warrant liability 10 18 37 96 Total other income, net 34 60 74 257 Loss before income taxes ( 754 ) ( 552 ) ( 2,639 ) ( 2,001 ) Income tax expense - - - - Net loss $ ( 754 ) $ ( 552 ) $ ( 2,639 ) $ ( 2,001 ) Less: Loss (income) attributable to non-controlling interest in joint venture 61 2 208 ( 58 ) Net loss attributable to NexGel stockholders ( 693 ) ( 550 ) ( 2,431 ) ( 2,059 ) Net loss per common share - basic $ ( 0.11 ) $ ( 0.10 ) $ ( 0.39 ) $ ( 0.36 ) Net loss per common share - diluted $ ( 0.11 ) $ ( 0.10 ) $ ( 0.39 ) $ ( 0.36 ) Weighted average shares used in computing net loss per common share - basic 6,569,403 5,714,316 6,274,221 5,654,981 Weighted average shares used in computing net loss per common share – diluted 6,569,403 5,714,316 6,274,221 5,654,981 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents NEXGEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 (Unaudited) (in thousands, except share data) Shares Amount Capital Interest Deficit Equity Common Stock Additional Paid-in Non- controlling Accumulated Total Stockholders’ Shares Amount Capital Interest Deficit Equity Balance, January 1, 2024 5,741,838 $ 6 $ 19,406 $ 469 $ ( 14,715 ) $ 5,166 Share-based compensation and restricted stock vesting — — 54 — — 54 Equity offering proceeds, net of expenses 485,786 — 946 — — 946 Issuance of placement agent warrants in conjunction with the equity offering — — ( 56 ) — — ( 56 ) Net loss — — — ( 52 ) ( 853 ) ( 905 ) Balance, March 31, 2024 6,227,624 $ 6 $ 20,350 $ 417 $ ( 15,568 ) $ 5,205 Share-based compensation and restricted stock vesting 1,750 — 55 — — 55 Shares issued in acquisition 89,892 — 200 — — 200 Issuance of shares for services 5,000 — 9 — — 9 Non-controlling interest contribution — — — 37 — 37 Net loss — — — ( 94 ) ( 885 ) ( 979 ) Balance, June 30, 2024 6,324,266 $ 6 $ 20,614 $ 360 $ ( 16,453 ) $ 4,527 Share-based compensation and restricted stock vesting 22,511 — 154 — — 154 Equity offering proceeds, net of expenses 444,000 1 1,002 — — 1,003 Issuance of placement agent warrants in conjunction with the equity offering — — 56 — — 56 Net loss — — — ( 61 ) ( 693 ) ( 754 ) Balance, September 30, 2024 6,790,777 $ 7 $ 21,826 $ 299 $ ( 17,146 ) $ 4,986 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents NEXGEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 (Unaudited) (in thousands, except share data) Common Stock Additional Paid-in Non- controlling Accumulated Total Stockholders’ Shares Amount Capital Interest Deficit Equity Balance, January 1, 2023 5,577,916 $ 6 $ 19,189 $ - $ ( 11,558 ) $ 7,637 Restricted stock vesting 5,682 - 24 - - 24 Exercise of warrants 30,430 - - - - - Non-controlling interest in JV - - - 500 - 500 Non-controlling interest contribution - - - 500 - 500 Net income (loss) - - - 7 ( 814 ) ( 807 ) Balance, March 31, 2023 5,614,028 $ 6 $ 19,213 $ 507 $ ( 12,372 ) $ 7,354 Stock-based compensation - - 29 - - 29 Exercise of warrants 82,036 - - - - - Net income (loss) - - - 53 ( 695 ) ( 642 ) Balance, June 30, 2023 5,696,064 $ 6 $ 19,242 $ 560 $ ( 13,067 ) $ 6,741 Balance 5,696,064 $ 6 $ 19,242 $ 560 $ ( 13,067 ) $ 6,741 Stock-based compensation 21,565 - 67 - - 67 Net income (loss) - - - ( 2 ) ( 550 ) ( 552 ) Balance, September 30, 2023 5,717,629 $ 6 $ 19,309 $ 558 $ ( 13,617 ) $ 6,256 Balance 5,717,629 $ 6 $ 19,309 $ 558 $ ( 13,617 ) $ 6,256 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents NEXGEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (Unaudited) (in thousands) 2024 2023 Nine Months Ended September 30, 2024 2023 Operating Activities Net loss $ ( 2,431 ) $ ( 2,059 ) Adjustments to reconcile net loss to net cash used in operating activities: Income (loss) attributable to non-controlling interest in joint venture ( 208 ) 58 Depreciation and amortization 328 103 Changes in ROU asset and operating lease liability 31 33 Share-based compensation and restricted stock vesting 271 120 Gain on investment in marketable securities ( 62 ) 168 Changes in fair value of warrant liability ( 37 ) ( 96 ) Changes in operating assets and liabilities: Accounts receivable ( 261 ) ( 936 ) Inventory ( 459 ) ( 588 ) Prepaid expenses and other assets ( 479 ) ( 227 ) Accounts payable 272 808 Accrued expenses and other current liabilities ( 132 ) ( 67 ) Deferred revenue 159 34 Net Cash Used in Operating Activities ( 3,008 ) ( 2,649 ) Investing Activities Proceeds from sales of marketable securities 62 5,340 Capital expenditures ( 374 ) ( 611 ) Net cash paid for Asset acquisition ( 400 ) - Net Cash (Used in) Provided by Investing Activities ( 712 ) 4,729 Financing Activities Proceeds from margin line of credit 345 89 Proceeds from Rights offering 1,950 — Investment by joint venture partner 37 Principal payment on financing lease liability ( 36 ) — Change in contingent consideration liability ( 164 ) — Principal payments of notes payable ( 53 ) ( 4 ) Net Cash Provided by Financing Activities 2,079 85 Net Decrease in Cash ( 1,641 ) 2,165 Cash – Beginning of period 2,700 1,101 Cash – End of period $ 1,059 $ 3,266 Supplemental Disclosure of Cash Flows Information Cash paid during the year for: Interest $ 65 $ 7 Taxes $ — $ — Supplemental Non-cash Investing and Financing activities Shares issued in conjunction with asset acquisition $ 200 $ — Property and equipment financed under notes payable $ 165 $ — Property and equipment financed under financing leases $ 416 $ — Property and equipment contributed as capital investment to JV $ — $ 500 ROU asset and operating lease liabilities recognized upon consolidation of JV $ — $ 334 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents NEXGEL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) 1. Description of Business, Stock Split and Basis of Presentation NexGel, Inc. (“NexGel” or the “Company”) manufactures high water content, electron beam cross-linked, aqueous polymer hydrogels, or gels, used for wound care, medical diagnostics, transdermal drug delivery and cosmetics. The Company specializes in custom gels by capitalizing on proprietary manufacturing technologies. 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 Company. 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. 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, 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. NexGel was previously known as AquaMed Technologies, Inc. (“AquaMed”) before changing its name to NexGel, Inc. on November 14, 2019. On May 15, 2024, the Company purchased substantially all of the 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 serum and mascara business operating under the tradename “Silly George” (collectively, the “Silly George Business”). On December 1, 2023, the Company purchased substantially all of the assets Olympus Trading Company, LLC (the “Kenkoderm Seller”) related to the Kenkoderm Seller’s skincare line focused on reducing symptoms associated with psoriasis operating under the tradename “Kenkoderm” (“Kenkoderm acquisition”). On 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. (“CG Labs”) for its converting and packaging business. The JV is effective March 1, 2023. As a result of this transaction, the Company owns 50 % of the JV, with the remaining 50 % held by CG Labs. On January 6, 2023, the Company acquired a 50 % interest in a newly formed JV (“Enigma”) 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. Basis of Presentation The accompanying 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. Principles of Consolidation The 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’s (see Note 5). 2. Going Concern As of September 30, 2024, the Company had a cash balance of $ 1.1 million. For the nine months ended September 30, 2024, the Company incurred a net loss of $ 2.4 million and had a net usage of cash in operating activities of $ 3.0 million. In addition, the Company had a working capital of $ 1.6 million as of September 30, 2024. 8 Table of Contents On November 11, 2024, the Company entered into subscription agreements with investors and certain members of its board of directors and management for the sale by the Company of an aggregate of 363,636 units at a price to the public of $ 5.50 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 $ 4.25 per share (the “November Financing”). The November Financing is expected to close on or about November 13, 2024 with gross proceeds to the Company expected to be $ 2.0 million, before deducting the placement agent’s fees and other estimated 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 (discussed further within Note 19). Management is exploring new product channel sales in adjacent industries, such as cosmetics, athletic products, and proprietary medical devices. The Company has increased focus on sales and developing a sales pipeline for potential customers. This customer base expansion will enable us to provide financial stability for the foreseeable future, expand our current processes, and position us for long-term shareholder value creation. We intend to maintain and attempt to grow our existing contract manufacturing business. We also plan to continue building and developing our catalogue 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 and online advertising and marketplaces. Furthermore, the Company plans to develop its own proprietary medical devices and explore drug delivery programs for its technology. Additionally, the Company continues to evaluate strategic initiatives (e.g., acquisitions) and additional capital raises through debt or equity may be necessary to achieve these objectives. We expect to continue incurring losses for the near-term future. Our ability to continue to operate as a going concern in the long-term is dependent upon our ability to manage and grow our current products and to ultimately achieve profitable operations. Management may consider various options to raise capital to fund potential acquisitions through equity or debt offerings. There can be no assurances, however, that management will be able to obtain sufficient additional funds, if needed, or that such funds, if available, will be obtained on terms satisfactory to us. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and liabilities that might be necessary should we be unable to continue as a going concern. Additionally, it is reasonably possible that estimates made in the condensed consolidated financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including the recoverability of long-lived assets. 3. Significant Accounting Policies and Estimates Use of Estimates The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates and assumptions include allowances for 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 We 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. Segment Reporting The 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. The 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. The NexGel segment includes the Kenkoderm and Silly George recent acquisitions and the Enigma JV. 9 Table of Contents The “CGN” segment is comprised of the CGN JV used for the Company’s converting and packaging business, which is based in Granbury, Texas. Cash and cash equivalents Cash and cash equivalents is comprised of cash in banks and highly liquid investments, including U.S. treasury bills purchased with an original maturity of three months or less as well as investments in money market funds for which the carrying amount approximates fair value, due to the short maturities of these investments. Margin Line of Credit The 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). Amounts borrowed are collateralized by the securities held in the account and bear interest at a negotiated rate payable monthly. Securities pledged to secure margin balances cannot be specifically identified as a portion of all securities held in a brokerage account are used as collateral. As of September 30, 2024 and December 31, 2023, there was $ 345 thousand and $ 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. The short-term credit line will be repaid upon the maturity of U.S. treasury bills of $0.8 million with an original maturity of three months or less which are included in cash within the accompanying consolidated balance sheet (see Note 11). Accounts Receivable, net Trade accounts receivable are stated at the amount the Company expects to collect and do not bear interest. The Company evaluates the collectability of accounts receivable and records a provision to the allowance for 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 $ 19 thousand as of September 30, 2024 and $ 11 thousand as of December 31, 2023. Inventory and Cost of Revenues The inventory balance is stated at the lower of cost, the value determined by the first-in, first-out method, or net realizable value. The Company evaluates inventories for excess quantities, obsolescence, and shelf-life expiration. This evaluation includes an analysis of historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products, general market conditions, and a review of the shelf-life expiration dates for products. These factors determine when, and if, the Company adjusts the carrying value of inventory to estimated net realizable value. The Company produces proprietary branded products and white label opportunities in our manufacturing of consumer products. In our contract manufacturing, the Company builds its products based on customer orders and immediately ships the products upon completion of the production process. The inventory balance is made up of raw materials, work-in-progress, and finished goods. Inventory is maintained at the Company’s warehouses and at fulfilment centers owned by Amazon, Walmart and CVS. The “Cost of revenues” line item in the condensed consolidated statements of operations is comprised of the book value of inventory sold to customers during the reporting period. When circumstances dictate that we use net realizable value as the basis for recording inventory, we base our estimates on expected future selling prices less expected disposal costs. Research and Development Our research and development activities focus on new and innovative products designed to support revenue growth. Research and development expenses consist primarily of contracted development and testing efforts associated with development of products. 10 Table of Contents Property and Equipment, net Property and equipment is recorded at historical cost, net of accumulated depreciation and amortization. Depreciation is provided over the assets’ useful lives on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or lease terms. Repairs and maintenance costs are expensed as incurred. Management periodically assesses the estimated useful life over which assets are depreciated or amortized. If the analysis warrants a change in the estimated useful life of property and equipment, management will reduce the estimated useful life and depreciate or amortize the carrying value prospectively over the shorter remaining useful life. The carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the year of disposal and any resulting gains and losses are included in the results of operations during the same year. Impairment of Long-Lived Assets The Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Goodwill and Intangible Assets In applying the acquisition method of accounting, amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition, with the remainder recorded as goodwill. Identifiable intangible assets are initially recorded at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Identifiable intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. Intangible assets with indefinite lives are tested for impairment within one year of 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 loss would be recognized for the amount by which a carrying amount exceeds its fair value. The Company performed the annual assessment and concluded it is more likely than not that the fair value exceeds the carrying value and no impairments were recognized in the year ended December 31, 2023. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets are recorded at historical cost and are primarily made up of $ 65 thousand and $ 64 thousand of prepaid insurance, and $ 814 thousand and $ 336 thousand general prepaid expenses and other current assets as of September 30, 2024 and December 31, 2023, respectively. Other Assets Other assets are recorded at historical costs, and as of September 30, 2024 and December 31, 2023, the balance is primarily comprised of spare parts for manufacturing equipment. The Company maintains spare for either repair and maintenance, which is expensed as incurred, or replacement of capitalized equipment. Capitalized equipment spare parts are not subject to depreciation until such time that they are placed into service and the part that is being replaced is disposed. 11 Table of Contents Fair Value Measurements The Company utilizes the fair value hierarchy to apply fair value measurements. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair values that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below: Level 1 —Quoted prices for identical assets or liabilities in active markets. Level 2 —Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 —Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable. The Company considers the carrying amounts of its financial instruments (cash, accounts receivable and accounts payable, notes payable and convertible notes payable) in the condensed consolidated balance sheet to approximate fair value because of the short-term or highly liquid nature of these financial instruments. Warrant Liability Warrants to purchase common stock were issued in connection with equity financing raises, which occurred during 2019 through 2024. The fair values of the warrants are estimated as of the date of issuance and again at each reporting period using a Black-Scholes option valuation model. At 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 condensed consolidated statements of operations. Equity Classified Warrants Warrants that meet all necessary criteria to be accounted for as equity in accordance with ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity are presented within additional paid-in capital within Company’s condensed consolidated statements of changes in stockholders’ equity and condensed consolidated balance sheets. Warrants classified as equity are initially measured at fair value. Subsequent changes in fair value are not recognized as long as the warrants continue to be classified as equity. Revenue Recognition The Company records revenue in accordance with 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 currently recognizes revenue predominately from three sources, contract manufacturing, custom and white label finished goods manufacturing (“Custom and white label”), and our branded consumer products. Contract manufacturing and Custom and white label revenues 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. Branded consumer product revenue is derived from direct-to-consumer purchases through websites like Amazon and through our Shopify stores. Revenue is recognized upon shipment to the end customer. The Company’s customers consist of other life sciences companies and Amazon retail customers. Revenues are predominately concentrated in the United States, but with the Silly George acquisition, have expanded into Europe and Asia. Payment terms, excluding branded consumer products, vary by the type and location of customer and may differ by jurisdiction and customer but payment is generally required in a term ranging from 30 to 60 days from date of shipment. Branded consumer products are purchased and paid for by the consumer at the time the transaction is completed. Estimates for product returns, allowances and discounts are recorded as a reduction of revenue and are established at the time of sale. Returns are estimated through a comparison of historical return data and are determined for each product and adjusted for known or expected changes in the marketplace specific to each product, when appropriate. Historically, sales return provisions have not been material. Amounts accrued for sales allowances and discounts are based on estimates of amounts that are expected to be claimed on the related sales and are based on historical data. Payments for allowances and discounts have historically been immaterial. 12 Table of Contents Disaggregated revenue by sales type ($ in thousands): Schedule of Disaggregated Revenue by Sales Type 2024 2023 Three months ended September 30, 2024 2023 Contract manufacturing $ 864 $ 805 Custom and white label - 5 Branded consumer products 1,930 356 Medical devices/other 146 55 Total $ 2,940 $ 1,221 2024 2023 Nine months ended September 30, 2024 2023 Contract manufacturing $ 1,890 $ 2,072 Custom and white label 42 10 Branded consumer products 3,515 850 Medical devices/other 200 75 Total $ 5,647 $ 3,007 As of September 30, 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 $ 179 and $ 20 at September 30, 2024 and December 31, 2023, respectively, that the Company had not satisfied as of the end of the respective period. The Company has four distinct lines of business; Contract Manufacturing, Custom and White Label, Branded Consumer Products, and Medical Devices/Other. Contract Manufacturing Customers order rolls of gel (“rollstock”). The rollstock is shipped to our customers, which they package into finished goods. Historically, this has been the Company’s primary source of revenue. Custom and White Label These products often infuse various ingredients into our base gel to develop unique product offerings to satisfy market demand (e.g. aloe infused into the gel for a beauty mask). The rollstock is converted and packaged into saleable 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. Custom and white label revenue is recognized upon delivery of the finished product. Branded Consumer Products These products are finished goods marketed and sold directly to the customer by the Company through online and retail channels. The Company is responsible for sales, marketing, and distribution. When merchandise is shipped to a customer, our performance obligation is met, and revenue is recognized when control passes to the customer. These products carry the Company’s brand names, which include Medagel, Lumagel Beauty, Kenkoderm and Silly George. Medical Devices/Other Medical 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. Other includes shipping and handling revenue from customers who purchase the Company’s branded consumer products through their Shopify stores. It also includes a small amount of freight revenue from contract manufacturing customers. Shipping and Handling Revenue and Expense Shipping and handling revenue and expense are included in our condensed consolidated statements of operations in revenues and cost of revenues, respectively. The Company accounts for shipping activities, consisting of direct costs to ship products performed after the control passes to the customer. Shipping revenue and expense are primarily generated through the Amazon marketplace and Silly George direct customer sales. Share-based Compensation On August 28, 2019, the Company adopted the 2019 Long-Term Incentive Plan, as amended (the “2019 Plan”). See Note 13 below for further details regarding the 2019 Plan. 13 Table of Contents The 2019 Plan provides certain employees, contractors, and outside directors with share-based compensation in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights and other awards. The fair values of incentive stock option award grants are estimated as of the date of grant using a Black-Scholes option valuation model. Compensation expense is recognized in the condensed consolidated statements of operations on a straight-line basis over the requisite service period, which is generally the vesting period. Income Taxes Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities at the applicable tax rates. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates. Tax benefits are recognized from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by a tax authority and based upon the technical merits of the tax position. The tax benefit recognized in the condensed consolidated financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized upon settlement. An unrecognized tax benefit, or a portion thereof, is presented in the 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. Leases ASC 842, Leases, requires recognition of leases on the condensed consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company used its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. A number of the lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised. The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, and unamortized lease incentives provided by lessors. Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the 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. Variable Interest Entity The 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. 14 Table of Contents If 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. Assets 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. Recently Issued Accounting Standards From time to time, new accounting pronouncements are issued by the FASB, or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on our condensed consolidated financial position or results of operations upon adoption. In June 2016, the FASB issued Accounting Standards Update (“ASU’) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . ASU 2016-13 significantly changes the impairment model for most financial assets and certain other instruments. ASU 2016-13 will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. ASU 2016-13 is effective for the Company’s fiscal year beginning January 1, 2023 and subsequent interim periods. The Company 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. Accounting Pronouncements Issued But Not Yet Adopted In June 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-05, Business Combinations (ASC Topic 805): Joint Venture Formations, which provides guidance on accounting for joint ventures established through new entities. The update mandates the application of the acquisition method of accounting for such transactions, requiring parties to recognize and measure identifiable assets and liabilities based on fair values at the acquisition date and establishes a measurement period for adjustments. The amendments in this Update are effective prospectively for all joint venture formations with a formation date on or after January 1, 2025. ASU 2023-05 will be effective for non-public entities for annual periods beginning after December 15, 2025, with early adoption permitted. The Company is currently evaluating the implications of this update on its accounting practices for joint ventures and expects it will enhance consistency and transparency in financial reporting, without a material impact on its financial position or results of operations. In 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 threshold. 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. In November 2023, the FASB issued ASU 2023-07 , Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . This 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. 15 Table of Contents 4. Business Segments The 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. Summarized financial information concerning the Company’s reportable segments for each of the quarters ended September 30, 2024 and 2023 is presented below. Schedule of Reportable Segments For Quarter Ended September 30, 2024 ($ in thousands) NexGel CGN JV Total Revenue Contract Manufacturing $ 396 $ 468 $ 864 Custom and White Label Finished Goods - - - Branded Consumer Products 1,930 - 1,930 Other income 109 37 146 Total revenue 2,435 505 2,940 Cost of sales 1,155 503 1,658 Operating expenses 1,873 197 2,070 Loss from operations $ ( 593 ) $ ( 195 ) $ ( 788 ) For Quarter Ended September 30, 2023 ($ in thousands) NexGel CGN JV Total Revenue Contract Manufacturing $ 223 $ 582 $ 805 Custom and White Label Finished Goods 5 - 5 Branded Consumer Products 356 - 356 Other income 53 2 55 Total revenue 637 584 1,221 Cost of sales 444 433 877 Operating expenses 799 157 956 Loss from operations $ ( 606 ) $ ( 6 ) $ ( 612 ) 16 Table of Contents For the Nine Months Ended September 30, 2024 ($ in thousands) NexGel CGN JV Total Revenue Contract Manufacturing $ 665 $ 1,225 $ 1,890 Custom and White Label Finished Goods 42 - 42 Branded Consumer Products 3,515 - 3,515 Other income 156 44 200 Total revenue 4,378 1,269 5,647 Cost of sales 2,504 1,174 3,678 Operating expenses 4,182 500 4,682 Loss from operations $ ( 2,308 ) $ ( 405 ) $ ( 2,713 ) For the Nine Months Ended September 30, 2023 ($ in thousands) NexGel CGN JV Total Revenue Contract Manufacturing $ 702 $ 1,370 $ 2,072 Custom and White Label Finished Goods 10 - 10 Branded Consumer Products 850 - 850 Other income 70 5 75 Total revenue 1,632 1,375 3,007 Cost of sales 1,525 1,021 2,546 Operating expenses 2,476 243 2,719 Loss from operations $ ( 2,369 ) $ 111 $ ( 2,258 ) As of September 30, 2024 ($ in thousands) NexGel CGN JV Total Assets: Current assets: Cash $ 1,049 $ 10 $ 1,059 Accounts receivable, net 446 448 894 Inventory 1,186 592 1,778 Prepaid expenses and other current assets 860 19 879 Total current assets 3,541 1,069 4,610 Goodwill 1,124 - 1,124 Intangibles, net 694 145 839 Property and equipment, net 818 1,401 2,219 Operating lease – right of use asset 1,395 290 1,685 Other assets 95 - 95 Total Assets $ 7,667 $ 2,905 $ 10,572 Liabilities Current liabilities: Accounts payable $ 883 $ 622 $ 1,505 Accrued expenses and other current liabilities 583 26 609 Deferred revenue - 179 179 Current portion of note payable 8 75 83 Warrant liability 109 - 109 Contingent consideration liability 271 - 271 Financing lease liability, current portion - 58 58 Operating lease liabilities, current portion 208 26 234 Total current liabilities 2,062 986 3,048 Financing lease liability, net of current portion - 323 323 Operating lease liabilities, net of current portion 1,318 271 1,589 Notes payable, net of current portion 275 351 626 Total liabilities $ 3,655 $ 1,931 $ 5,586 17 Table of Contents As of December 31, 2023 ($ in thousands) NexGel CGN JV Total Assets: Current assets: Cash $ 2,458 $ 242 $ 2,700 Accounts receivable, net 26 607 633 Inventory 622 697 1,319 Prepaid expenses and other current assets 312 88 400 Total current assets 3,418 1,634 5,052 Goodwill 1,128 - 1,128 Intangibles, net 122 204 326 Property and equipment, net 898 601 1,499 Operating lease – right of use asset 1,543 312 1,855 Other assets 95 - 95 Total Assets $ 7,204 $ 2,751 $ 9,955 Liabilities Current liabilities: Accounts payable $ 509 $ 724 $ 1,233 Accrued expenses and other current liabilities 137 261 398 Deferred revenue 20 - 20 Current portion of note payable 6 74 80 Warrant liability 146 - 146 Contingent consideration liability 439 - 439 Operating lease liability, current portion 207 26 233 Total current liabilities 1,464 1,085 2,549 Operating lease liability, net of current portion 1,438 289 1,727 Notes payable, net of current portion 272 241 513 Total liabilities $ 3,174 $ 1,615 $ 4,789 5. Acquisition Silly George Acquisition On May 15, 2024, the Company entered into and closed a transaction related to an Asset Purchase Agreement dated May 15, 2024 (the “SG Purchase Agreement”) with Semmens Online Pty Ltd as Trustee for Semmens Business Trust, an Australian proprietary limited company (the “SG Seller”), whereby the Company purchased the Silly George assets. The Company believes the Silly George assets will be accretive and synergistic to its existing health and beauty customer product brands. Under the terms of the SG 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 will pay the Seller a cash earn-out based on 20 % of the Net Profit (as defined in the SG Purchase Agreement) related to the Silly George assets for the fiscal quarterly period beginning June 30, 2024 and ending on June 30, 2028. Per the scope exception under ASC 815, the Company has not accrued the contingent consideration. Schedule of Business Acquisitions Provisional purchase consideration at preliminary fair value: Purchase price $ 600 Contingent consideration liability - Consideration paid $ 600 Trademark related intangibles 600 Intangible assets acquired $ 600 Kenkoderm Acquisition On December 1, 2023, the Company closed a transaction related to an Asset Purchase Agreement dated November 30, 2023 (the Kenkoderm Purchase Agreement”) with Olympus Trading Company, LLC, a Virginia limited liability company, whereby the Company purchased all assets related to the Kenkoderm Seller’s skincare line focused on reducing symptoms associated with psoriasis operating under the tradename “Kenkoderm” (“Kenkoderm acquisition”). The Company believes the Kenkoderm brand fits its health and wellness lines of product. Under the terms of the Kenkoderm Purchase Agreement, the Company paid the Kenkoderm Seller a cash payment of $ 547 thousand on December 1, 2023. Additionally, the Company will pay the Kenkoderm Seller a cash earn-out of the same amount each quarter, payable in the subsequent month following quarter end, of $ 137 thousand, 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 Kenkoderm Purchase Agreement. The provisional fair value of the purchase consideration issued to the Kenkoderm Seller was allocated to the net tangible assets acquired. The Company 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. 18 Table of Contents The table below shows a preliminary analysis for the Kenkoderm acquisition ($ in thousands): Schedule of Business Acquisitions Provisional purchase consideration at preliminary fair value: Purchase price $ 547 Contingent consideration liability 435 Amount of consideration $ 982 Assets acquired and liabilities assumed at preliminary fair value Inventory $ 56 Product/technology related intangibles 77 Marketing related intangibles 36 Net tangible assets acquired $ 169 Total net assets acquired $ 169 Consideration paid 982 Preliminary goodwill $ 813 Sports Defense Acquisition On May 29, 2020, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) whereby the Company purchased all of the outstanding equity securities of Sport Defense LLC, a Delaware limited liability company (“Sports Defense”), from the members of Sport Defense (the “Sellers”). Subsequent to the Closing Date, Sport Defense is a wholly-owned subsidiary of the Company. Sport Defense is a marketing and distribution company that leverages the unique benefits of ultra-gentle, high-water content hydrogels, manufactured by the Company, to build brands that treat various ailments of the skin caused by athletic training, such as blisters, turf burns, scrapes and skin irritations. Under the terms of the Purchase Agreement, the purchase price paid to the Sellers was an aggregate of $ 375 thousand (the “Sports Defense Purchase Price”) which was paid by the Company through the issuance of an aggregate of 9,375,000 shares of the Company’s common stock, par value $ 0.001 (the “Shares”), which equates to a per share purchase price of $ 0.04 . The Shares are “restricted securities” as such term is defined by Rule 144 promulgated under the Securities Act of 1933, as amended. Adam Levy, the Company’s Chief Executive Officer and Chief Financial Officer, and Nachum Stein, a member of the Company’s Board of Directors (the “Board”), were each members of Sport Defense and part of the Sellers. Mr. Levy received 1,546,875 of the Shares and Mr. Stein received 3,187,500 of the Shares. Due to the potential conflict of interest that existed because of Messrs. Levy and Stein’s partial ownership of Sport Defense, the Board obtained an independent investment bank to prepare a valuation report with respect to Sport Defense. This valuation report supported the Sports Defense Purchase Price. Also, Mr. Stein recused himself from the vote of the Board regarding the approval to purchase Sport Defense. The Purchase Agreement and the Sport Defense acquisition were not subject to approval by the shareholders of the Company. The Purchase Agreement contained minimal representations and warranties regarding Sport Defense and certain limited representations and warranties regarding the Company and the Sellers. The fair value of the purchase consideration issued to the Seller was allocated to the net tangible assets acquired. The Company accounted for the Sports Defense 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 consolidated with those of the Company. The fair value of the net assets acquired was approximately $ 375 thousand. The excess of the aggregate fair value of the net tangible assets has been allocated to goodwill. The table below shows an analysis for the Sports Defense acquisition: Schedule of Business Acquisitions Purchase Consideration at preliminary fair value: Purchase price $ 375 Amount of consideration $ 375 Assets acquired and liabilities assumed at preliminary fair value Inventories 21 Product/Technology related intangibles 31 Marketing related intangibles 8 Customer related intangibles 17 Accounts payable and accrued expenses ( 13 ) Other liabilities - Net tangible assets acquired $ 64 Total net assets acquired $ 64 Consideration paid 375 Preliminary goodwill $ 311 Interest in Joint Venture – CGN On March 1, 2023, the Company acquired a 50 % interest in the JV (see Note 1). The JV is owned 50 % by the Company and 50 % by CG Labs. CG Labs contributed its existing converting and packaging division to the JV, including, but not limited to, its facilities, equipment, employees, and customers. The Company will contribute $ 500,000 to the JV, on a schedule to be determined, to be used for equipment and facility upgrades as well as general corporate purposes for the JV. The JV is considered to be a VIE and we have consolidated the JV because we believe we are the primary beneficiary because we meet the Power and the Economics Criteria, as laid out in ASC 323. The Company 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): Schedule of Business Acquisitions Purchase consideration at fair value: Cash contributed by the Company $ 500 Noncontrolling interest portion of CG Labs contributed business 500 Consideration Paid $ 1,000 Assets acquired and liabilities assumed at fair value Cash contributed by the Company 500 Fixed assets 213 Product/technology related intangibles 217 Marketing related intangibles 70 Net tangible assets acquired $ 1,000 Interest in Joint Venture – Enigma On January 6, 2023, the Company acquired a 50 % interest in a newly formed JV (“Enigma”) 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. As of September 30, 2024, the Company has contributed $ 20 thousand and $ 37 thousand has been contributed by the non-controlling interest portion of Enigma contributed business. The JV is considered to be a VIE and we have consolidated the JV because we believe we are the primary beneficiary because we meet the Power and the Economics Criteria, as laid out in ASC 323. The 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. 19 Table of Contents The 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 and Silly George acquisitions and the CGN JV and Enigma 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): Schedule of Unaudited Pro-Forma Results of Operations September 30, September 30, 2024 2023 Revenues, net $ 3,280 $ 6,638 Net loss allocable to common shareholders $ ( 1,780 ) $ ( 895 ) Net loss per share $ ( 0.28 ) $ ( 0.16 ) Weighted average number of shares outstanding 6,274,221 5,744,873 6. Operating Leases The Company has an operating lease for a commercial manufacturing facility and administrative offices located in Langhorne, Pennsylvania that runs through January 2031. There are two options that can extend the lease term for five years each. The exercise of the lease options to renew is solely at the Company’s discretion. The 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. The following table presents information about the amount and timing of the liability arising from the Company’s operating lease as of September 30, 2024 ($ in thousands): Schedule of Future Minimum Operating Lease Payments Maturity of Lease Liability Operating Lease Liabilities 2024 (Remainder of year) $ 61 2025 245 2026 301 2027 315 2028 324 Thereafter 791 Total undiscounted operating lease payments 2,037 Less: Imputed interest ( 214 ) Present value of operating lease liabilities $ 1,823 Weighted average remaining lease term 6.8 years Weighted average discount rate 3.0 % Total operating lease expense for the nine months ended September 30, 2024 and 2023, was $ 183 thousand and $ 197 thousand, respectively, and is recorded in cost of goods sold and selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. Supplemental cash flows information related to leases was as follows: Schedule of Supplemental Cash Flows Information Related to Leases September 30, 2024 Cash paid for amounts included in the measurement of lease liability ($ in thousands): Operating cash flows from operating lease $ 214 20 Table of Contents 7. Financing Lease In February 2024, the CGN JV entered into a lease agreement for certain equipment under separate non-cancelable equipment loan and security agreements. 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 September 30, 2024, $ 417 thousand is included in the property and equipment on the balance sheet. The weighted average interest rate was 9.1 % at September 30, 2024. The following table presents information about the amount and timing of the liability arising from the Company’s financing lease as of September 30, 2024 ($ in thousands): Schedule of Future Minimum Financing Lease Payments Maturity of Lease Liability Financing Lease Liability 2024 (Remainder of year) $ 22 2025 90 2026 90 2027 91 2028 91 Thereafter 98 Total undiscounted financing lease payments ` 482 Less: Imputed interest ( 101 ) Present value of financing lease liability $ 381 Weighted average remaining lease term 5.3 years Weighted average discount rate 9.1 % 8. Inventory Inventory consists of the following ($ in thousands): Schedule of Inventory September 30, December 31, 2024 2023 Raw materials $ 1,006 $ 899 Work-in-progress 76 12 Finished goods 696 408 Inventory, gross 1,778 1,319 Less: Inventory reserve for excess and slow moving inventory - - Total $ 1,778 $ 1,319 Inventory 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. 9. Property and Equipment, Net Property and equipment consist of the following ($ in thousands): Schedule of Property and Equipment Useful Life September 30, December 31, (Years) 2024 2023 Machinery and equipment 3 - 10 $ 1,468 $ 1,280 Office furniture and equipment 3 - 10 184 139 Leasehold improvements 6 459 419 Construction in progress N/A 951 387 Property and equipment, gross 3,062 2,225 Less: accumulated depreciation and amortization ( 843 ) ( 726 ) Property and equipment, net $ 2,219 $ 1,499 21 Table of Contents Depreciation expense for the nine months ended September 30, 2024 and 2023 was $ 240 and $ 95 , respectively. 10. Intangible Assets The following provides a breakdown of identifiable intangible assets as of September 30, 2024 and December 31, 2023 ($ in thousands): Schedule of Breakdown of Identifiable Intangible Assets Useful Life September 30, December 31, (Years) 2024 2023 Product/Technology Related Identifiable intangible assets, gross 3 $ 325 $ 325 Accumulated amortization ( 166 ) ( 98 ) Product/technology related identifiable intangible assets, net 159 227 Marketing Related Customer related intangible asset, gross 10 17 17 Tradename related intangible asset, gross 4 113 113 Trademark related intangibles Indefinite 600 - Accumulated amortization ( 50 ) ( 31 ) Marketing related identifiable intangible assets, net 680 99 Total identifiable intangible assets, net $ 839 $ 326 In connection with the May 29, 2020 acquisition of Sports Defense, the Company identified intangible assets of $ 55 thousand representing technology related and customer related intangibles. In connection with the March 1, 2023 CGN JV, the Company identified intangible assets of $ 287 thousand representing technology related and customer related intangibles. In connection with the December 1, 2023 acquisition of Kenkoderm, the Company identified intangible assets of $ 113 thousand representing technology related and customer related intangibles. In connection with the May 15, 2024 acquisition of Silly George, the Company identified intangible assets of $ 600 thousand representing trademark related intangibles with indefinite lives. 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. These assets are being amortized on a straight-line basis over their weighted average estimated useful life of 2.2 years and amortization expense amounted to $ 88 thousand and $ 4 thousand for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 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) $ 32 2025 126 2026 64 2027 13 2028 2 Thereafter 2 Subtotal 239 Indefinite lived intangible assets (subject to impairment analysis) 600 Total $ 839 22 Table of Contents 11. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following ($ in thousands): Schedule of Accrued Expenses and Other Current Liabilities September 30, December 31, 2024 2023 Salaries, benefits, and incentive compensation $ 130 $ 61 Margin line of credit 345 245 Other 134 92 Total accrued expenses and other current liabilities $ 609 $ 398 12. Common Stock At September 30, 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 704,708 Warrants to purchase common stock 4,356,629 Restricted stock units 97,596 On August 8, 2024, the Company entered into subscription agreements with investors and certain members of its board of directors and management for the sale by the Company of an aggregate of 222,000 units at a price to the public of $ 5.00 per unit (the “August Financing”), 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 $ 4.25 per share (the “August Warrants”). The closing of the August Offering occurred August 23, 2024 (the “August Closing Date”). On the August Closing Date, the Company issued 444,000 shares of common stock and issued August Warrants to purchase up to 222,000 shares of common stock. Subject to certain ownership limitations, each of the August Warrants will became exercisable on the August Closing Date and will expire five years after the August Closing Date. The August 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 August Warrants to or by the holder. The holder of an August 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 %. The net proceeds to the Company from the August Offering were approximately $ 1.1 million, after deducting the placement agent’s fees and other estimated offering expenses payable by the Company. The Company has and intends to continue to use the net proceeds from the August Offering for working capital and for general corporate purposes. The Company retained Alere Financial Partners, LLC (a division of Cova Capital Partners, LLC) to act as the placement agent (the “August Placement Agent”) for the August Offering. The Company agreed to pay the August Placement Agent a cash fee of 8 % of the aggregate gross proceeds in the August Offering received from non-affiliates of the Company and 4 % of the aggregate gross proceeds in the August Offering received from affiliates of the Company. Additionally, and upon the closing of the August Offering, the Company agreed to issue to the August Placement Agent warrants exercisable for a period of five years to purchase up to 8 % of the number of shares sold in August Offering, or up to 33,360 shares, at a per share exercise price of $ 4.25 . On June 6, 2024, Company issued 5,000 common shares to a consultant valued at $ 9 thousand. On February 15, 2024, the Company entered into subscription agreements with investors and certain members of its board of directors and management for the sale by the Company of an aggregate of 242,891 units at a price to the public of $ 4.22 per unit (the “February Offering”), 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 “February Warrants”). The closing of the February Offering occurred on March 1, 2024 (the “February Closing Date”). On the February Closing Date, the Company issued 485,782 shares of common stock and issued February Warrants to purchase up to 242,891 shares of common stock. Subject to certain ownership limitations, each of the February Warrants became exercisable on the February Closing Date and will expire five years after the February 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 %. The net proceeds to the Company from the February Offering were $ 0.9 million, after deducting the placement agent’s fees and other estimated offering expenses payable by the Company, and excluding the proceeds, if any, from the exercise of the warrants. The Company has and intends to continue to use the net proceeds from the February Offering RDO for working capital and for general corporate purposes. The Company retained Alere Financial Partners, LLC (A division of Cova Capital Partners, LLC) (the “February Placement Agent”) to act as the placement agent for the February Offering. The Company paid the February Placement Agent a cash fee of 6 % of the aggregate gross proceeds in the February Offering received from non-affiliates of the Company and 3 % of the aggregate gross proceeds in the February Offering received from affiliates of the Company. Additionally, on the February Closing Date, the Company issued to the February 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 . 13. Share-based Compensation The 2019 Plan provides for the granting of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights (“SARs”), restricted stock units, performance awards, dividend equivalent rights and other awards, which may be granted singly, in combination, or in tandem, and which may be paid in cash, shares of common stock of the Company or a combination of cash and shares of common stock of the Company. 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. 23 Table of Contents On 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 827,379 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. The following table contains information about the 2019 Plan as of September 30, 2024: Schedule of Information about Incentive Plan Awards Awards Awards Reserved for Issued & Awards Available for Issuance Outstanding Exercised Grant 2019 Plan (1) 871,429 779,452 47,927 44,050 Awards issued in excess of 2019 Plan (2) - 70,623 48,401 - (1) Includes incentive stock options and restricted stock units discussed below. (2) Includes shares of restricted common stock granted outside of the 2019 Plan to our Chief Executive Officer, Adam Levy. Incentive stock options The following table summarizes the Company’s incentive stock option activity and related information for the period ended September 30, 2024: Schedule of Incentive Stock Option Activity Weighted Weighted Average Average Contractual Number of Exercise Term in Options Price Years Outstanding at January 1, 2024 560,650 $ 2.350742 7.95 Granted 172,000 2.683140 10.00 Exercised ( 6,823 ) 1.40 — Forfeited — — — Cancelled ( 7,463 ) 1.40 — Expired ( 14,286 ) 5.25 — Outstanding at September 30, 2024 704,708 $ 2.392407 7.45 Exercisable at September 30, 2024 444,078 $ 1.821620 6.84 As of September 30, 2024 and 2023, vested outstanding stock options had $ 428 thousand and $ 282 thousand of intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock, respectively. As of September 30, 2024, there were $ 255 thousand of 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. Restrictive stock awards Effective 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. The shares vest 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). 24 Table of Contents Schedule of Restricted Stock Units Granted Weighted Average Number of Grant Date Units Fair Value Outstanding at January 1, 2024 64,562 $ 1.82 Granted 57,972 2.46 Exercised and converted to common shares ( 23,188 ) 2.03 Forfeited ( 1,750 ) 1.82 Outstanding at September 30, 2024 97,596 $ 2.13 Exercisable at September 30, 2024 33,890 $ 2.17 Compensation expense will be recognized ratable over the total vesting schedule. The Company will periodically adjust the cumulative compensation expense for forfeited awards. Stock based compensation of $ 271 thousand and $ 120 thousand has been recorded for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, there was $ 53 thousand unrecognized share-based compensation related to unvested RSUs, which the Company expects to recognize through December 2025. Warrants The following table shows a summary of common stock warrants through September 30, 2024: Schedule of Common Stock Warrants Weighted Weighted Average Average Number of Exercise Contractual Warrants Price Term in Years Outstanding at January 1, 2024 (originally reported) 3,442,904 $ 5.414793 2.87 Warrants – 2021 IPO (1) 387,750 5.50 2.99 Outstanding at January 1, 2024 (corrected) 3,830,654 5.423418 2.88 Granted 525,973 4.12 5.00 Exercised — — — Forfeited — — — Cancelled — — — Expired — — — Outstanding at September 30, 2024 4,356,629 $ 5.266223 2.43 Exercisable at September 30, 2024 4,356,629 $ 5.266223 2.43 (1) The warrants outstanding have been corrected to reflect 387,750 additional warrants related to the December 27, 2021 unit offering not previously included in the prior year warrant schedule. As of September 30, 2024 and 2023, vested outstanding warrants had no intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock. 14. Notes Payable CGN JV Notes Payable The CGN JV has entered into a $ 231 thousand promissory note agreement for certain equipment. The equipment was installed in December 2023. The 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. The principal balance amounted to $ 208 thousand and $ 231 thousand as of September 30, 2024 and December 31, 2023, respectively. The CGN JV has entered into a $ 237 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, 2024. 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 $ 218 thousand and $ 84 thousand as of September 30, 2024 and December 31, 2023, respectively. 25 Table of Contents NexGel The Company has entered into a $ 13 thousand promissory note agreement for certain leasehold improvements. The leasehold improvements were installed 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 less than $ 1 . The principal balance amounted to $ 9 thousand as of September 30, 2024. Economic Injury Disaster Loan On May 28, 2020, the Company entered into the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the principal amount of the EIDL Loan is up to $ 260,500 , with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75 % per annum. Installment payments, including principal and interest, are due monthly 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 $ 273 and $ 279 thousand as of September 30, 2024 and December 31, 2023, respectively. The future annual principal amounts and accrued interest to be paid as of September 30, 2024 are as follows: Schedule of Debt Instruments Amount For the year ending December 31 ($ in thousands): 2024 $ 26 2025 96 2026 96 2027 103 2028 111 Thereafter 277 Total $ 709 26 Table of Contents 15.  Warrant Liability On September 2, 2021, March 11, 2021, February 3, 2021, December 24, 2020, March 18, 2020, September 10, 2019, and November 6, 2019, the Company issued 22,019 , 34,285 , 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 three 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, 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. The warrants outstanding and fair values at each of the respective valuation dates are summarized below: Schedule of Warrant Liability Warrant Liability Warrants Outstanding Fair Value per Share Fair Value Fair value as of year ended 12/31/2023 71,019 $ 146 Change in fair value of warrant liability - ( 37 ) Fair value as of year ended 9/30/2024 71,019 $ 109 The following assumptions were used to calculate the warrant liability for nine months ended September 30, 2024 and 2023: Schedule of Assumptions Used in Warrant Liability 2024 2023 Exercise price $ 2.80 to $ 5.25 $ 0.49 - $ 5.25 Share price $ 1.99 - $ 2.73 $ 1.28 Volatility 105.98 % - 542.65 % 137.02 % - 287.87 % Risk-free interest rate 3.58 % - 5.09 % 3.81 % - 4.74 % Dividend yield 0.0 % 0.0 % Expected term 1.0 to 5.0 years 0.1 to 3.4 years The warrant liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes various assumptions about of future activities and the Company’s stock prices and historical volatility of Guideline Public Companies as inputs. 16. Commitments and Contingencies Litigation The Company may be subject to legal proceedings and claims that arise in the ordinary course of business. Management is not currently aware of any matters that will have a material effect on the condensed consolidated financial position, results of operations, or cash flows of the Company. Service Agreement On March 21, 2023, the Company entered into a Services Agreement with GlaxoSmithKline Consumer Healthcare Holdings (US) LLC (“Haleon”) to supply material for a consumer product to be developed and released in the future. There can be no guaranty that a consumer product will be released or, if released, that it will be successful. 17. Concentrations of Risk The Company’s revenues are concentrated in a small group of customers with some individually having more than 10% of total revenues. Revenues from one customer that exceeded 10% of total revenues for the nine months ended September 30, 2024, was 10 %. The accounts receivable from the top customer was 25 % as well as 10 %, 13 % and 23 % from three other customers of the total accounts receivable as of September 30, 2024. Revenues from three customers that exceeded 10% of total revenues for the nine months ended September 30, 2023, were 20 %, 11 % and 10 %. The accounts receivable from those top three customers were 0 % and 23 % and 0 % as well as 15 %, 18 %, and 13 % from three other customers of the total accounts receivable as of September 30, 2023. The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. Cash balances are maintained principally at major U.S. financial institutions and are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to regulatory limits. Such cash balances are currently in excess of the FDIC insurance limit of $ 250 thousand. As of September 30, 2024, the Company did not have any balances that exceeded the FDIC insurance limit. The Company has not experienced any credit losses associated with its cash balances in the past. The Company invests its cash equivalents in U.S. treasury bills with original maturities of three months or less. Marketable securities are comprised of U.S. treasury bills with original maturities greater than three months. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash, cash equivalents, and marketable securities and performs periodic evaluations of the credit standing of such institutions. 18. Related Party Transactions Advances Dr. Jerome Zeldis, a member of the Company board of directors, has an outstanding balance due of $ 25,000 for services as of December 31, 2023, which is included in accounts payable in the accompanying condensed consolidated balance sheets. The balance was repaid in August 2024. 19. Subsequent Events Management of the Company has performed a review of events and transactions occurring after the condensed consolidated balance sheet date to determine if there were any such events or transactions requiring adjustment to or disclosure in the accompanying condensed consolidated financial statements, noting no such events or transactions except as set forth below: On November 11, 2024, the Company entered into subscription agreements with investors and certain members of its board of directors and management for the sale by the Company of an aggregate of 363,636 units at a price to the public of $ 5.50 per unit (the “November Financing”), 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 $ 4.25 per share (the “November Warrants”). The closing of the November Financing is expected to occur on or about November 13, 2024 (the “November Closing Date”). On or about the November Closing Date, the Company expects to issue 727,272 shares of common stock and issue November Warrants to purchase up to 363,636 shares of common stock Subject to certain ownership limitations, each of the November Warrants will become exercisable on the November Closing Date and will expire five years after the November Closing Date. The November 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 November Warrants to or by the holder. The holder of an November 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%. Certain members of the Company’s board of directors and management have agreed to purchase an aggregate of 19,659 units in the November Financing. In connection with the November Financing, the members of board of directors and management purchasing units in the November Financing have agreed not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any of securities relating to the units for a period of 180 days following the date of the prospectus used in the November Financing. The gross proceeds to the Company from the November Financing are expected to be approximately $ 2.0 million, before deducting the placement agent’s fees and other estimated offering expenses payable by the Company, and excluding the proceeds, if any, from the exercise of the November Warrants. The Company intends to use the net proceeds from the November Financing for working capital and for general corporate purposes. The Company retained Alere Financial Partners, LLC (a division of Cova Capital Partners, LLC) to act as the placement agent (the “November Placement Agent”) for the November Financing. The Company agreed to pay the November Placement Agent a cash fee of 8 % of the aggregate gross proceeds in the November Financing received from non-affiliates of the Company and 4 % of the aggregate gross proceeds in the November Financing received from affiliates of the Company. Additionally, and upon the closing of the November Financing, the Company agreed to issue to the November Placement Agent warrants exercisable for a period of five years to purchase up to 8 % of the number of shares sold in November Financing, or up to 58,182 shares, at a per share exercise price of $ 4.25 . 27 Table of Contents