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Item 7. Management’s Discussion and Analysis

2025-03-27 compared with 2024-04-10 · 273 added, 240 removed, 29 unchanged (95% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

following discussion and analysis are intended to help prospective investors understand our business, financial condition, results

of operations, liquidity and capital resources.

You should read this discussion in conjunction with our consolidated financial

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

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

and other non-historical statements are forward-looking statements.

These forward-looking statements are subject to numerous risks and

uncertainties, including, but not limited to, the risks and uncertainties described in “Special Note Regarding Forward-Looking

Statements.” Actual results may differ materially from those contained in any forward-looking statements.

NexGel Financial Statements, discussed below, reflect the NexGel financial condition, results of operations, and cash flows.

The financial

information discussed below and included in this information statement, however, may not necessarily reflect what the NexGel financial

condition, results of operations, or cash flows would have been had NexGel been operated as a separate, independent entity during the

years presented, or what the NexGel financial condition, results of operations, and cash flows may be in the future.

We manufacture high water content, electron beam cross-linked, aqueous polymer hydrogels, or gels, used for wound

care, medical diagnostics, transdermal drug delivery and cosmetics.

We specialize in custom gels by capitalizing on proprietary manufacturing

technologies.

We have 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, our own line of branded consumer products

sold direct to consumers.

Second, we expanded into custom and white label opportunities, which focuses on combining our gels with proprietary

branded products and white label opportunities.

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

coating and cross-linking technologies.

Together, these technologies enable us to produce gels that can satisfy rigid tolerance specifications

with respect to a wide range of physical characteristics (e.g., thickness, water content, adherence, absorption, moisture vapor transmission

rate [a measure of the passage of water vapor through a substance] and release rate) while maintaining product integrity.

Additionally,

we have the manufacturing ability to offer broad choices in the selection of liners onto which the gels are coated.

Consequently, we and

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

color and texture.

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

agreement is effective March 1, 2023.

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

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

Seller’s skincare line focused on reducing symptoms associated with psoriasis operating under the tradename “Kenkoderm”

(“Kenkoderm acquisition”).

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

Additionally, the Company shall pay the Seller a cash

earn-out of the same amount each quarter, payable in the subsequent month flowing quarter end, of $136,625.

The cash earn-out can fluctuate

higher or lower based on the quarterly results of the Kenkoderm business during 2024 according to the formula contained in the Asset Purchase

Agreement relating to the Kenkoderm acquisition.

of Operations

following sections discuss and analyze the changes in the significant line items in our statements of operations for the comparison years

Ended December 31, 2023 Compared to the Year Ended December 31, 2022 ($ in thousands)

the year ended December 31, 2023 revenues were $4,089 and increased by $2,041, or 99.7%, when compared to $2,048 for the year ended December

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

including revenue from the JV from March 1, 2023 through December 31, 2023 of $1,987.

Company has four distinct lines of business;

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

Devices/Other.

Manufacturing

order rolls of gel (“rollstock”).

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

The following discussion and analysis are intended

to help prospective investors understand our business, financial condition, results of operations, liquidity and capital resources.

should read this discussion in conjunction with our consolidated financial statements and related notes thereto included elsewhere in

this information statement.

The statements in this discussion regarding industry

outlook, expectations regarding our future performance, liquidity and capital resources and other non-historical statements are forward-looking

These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks

and uncertainties described in “Special Note Regarding Forward-Looking Statements.” Actual results may differ materially

from those contained in any forward-looking statements.

The NexGel Financial Statements, discussed below,

reflect the NexGel financial condition, results of operations, and cash flows.

The financial information discussed below and included

in this information statement, however, may not necessarily reflect what the NexGel financial condition, results of operations, or cash

flows would have been had NexGel been operated as a separate, independent entity during the years presented, or what the NexGel financial

condition, results of operations, and cash flows may be in the future.

We manufacture high water content, electron beam

cross-linked, aqueous polymer hydrogels, or gels, used for wound care, medical diagnostics, transdermal drug delivery and cosmetics.

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

We have 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, our own line of branded consumer products sold direct to consumers.

Second, we expanded into custom and white

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

gel products are manufactured using proprietary and non-proprietary mixing, coating and cross-linking technologies.

Together, these technologies

enable us to produce gels that can satisfy rigid tolerance specifications with respect to a wide range of physical characteristics (e.g.,

thickness, water content, adherence, absorption, moisture vapor transmission rate [a measure of the passage of water vapor through a

substance] and release rate) while maintaining product integrity.

Additionally, we have the manufacturing ability to offer broad choices

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

Consequently, we and our customers are able to determine tolerances in moisture

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

In May 2023, we formed a joint venture

with CG Laboratories, Inc.

called CG Converting and Packaging, LLC, which is located in Granbury, Texas and of which we own a 50% interest,

allowing us to expand our ability to deliver finished goods to our growing customer base.

We have four distinct lines of business;

Manufacturing, Custom & White Label, Consumer Branded 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.

& White Label

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

into the gel for a beauty mask).

The rollstock is converted and packaged into salable units.

The finished goods are shipped to the customer,

who is ultimately responsible for product distribution.

Frequently these products started as development deals, in which the customer

paid the company a small fee to develop a specific product.

Historically, this has been the Company’s primary

source of revenue.

Custom & White Label

These products often infuse various ingredients

into our base gel to develop unique product offerings to satisfy market demand (e.g.

aloe infused into the gel for a beauty mask).

rollstock is converted and packaged into salable units.

The finished goods are shipped to the customer, who is ultimately responsible

for product distribution.

Frequently these products started as development deals, in which the customer paid the company a small fee

to develop a specific product.

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

Branded Products

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

is responsible for sales, marketing, and distribution.

These products carry the Company’s brand names.

Devices/Other

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

Medical Devices, which are

not yet marketed, are expected to be distributed through strategic partnerships.

The Company will manufacture and possibly convert/package

the device while the strategic partner brings the product to market.

Small market Medical Devices could be launched by the Company, but

also be offered to a distributor to reach the full scale of the market.

profit (loss) Our gross profit was $619 for the year ended December 31, 2023 compared to a gross profit of $256 for the year

ended December 31, 2022.

The increase in the profit recorded for the year ended December 31, 2023, as compared to December 31, 2022,

directly correlates to our higher sales.

Gross profit was approximately 15.1% for the year ended December 31, 2023 compared to a gross

profit of 12.5% for the year ended December 31, 2022.

components of cost of revenues are as follows for the years ended December 31, 2023 and 2022 ($ in thousands):

Consumer Branded Products

These products are finished goods marketed

and sold directly to the customer by the Company through online and retail channels.

We are responsible for sales, marketing, and distribution.

The products we sell under our MedaGel brand primarily relate to healthcare over-the-counter (“OTC”) remedy solutions, such

as blister and pain applications.

In December 2023 we added a second consumer product brand when we completed the purchase of the Kenkoderm

The Kenkoderm skincare line was originally developed by a dermatologist to provide gentle to the skin products for consumer with

In May 2024, we added our third consumer product brand with the purchase of the Silly George brand.

Silly George is a beauty

brand primarily focused on false eyelashes and other eye related products.

We continue to look for additional potential acquisitions

as part of our consumer product ‘roll-up” strategy.

Medical Devices/Other

Medical Devices are a hybrid business,

combining elements of Custom & White Label and Consumer Branded Products.

Medical Devices, which are not yet marketed, are expected

to be distributed through strategic partnerships.

We 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 us, but also be offered to a distributor to reach the

full scale of the market.

Other includes freight charged to customers

who purchase the Company’s branded consumer products through their Spotify stores.

Results of Operations

The following sections discuss and analyze the changes

in the significant line items in our statements of operations for the comparison years identified.

Year Ended December 31, 2024 Compared to the

Year Ended December 31, 2023 ($ in thousands)

Revenues, net

For the year ended December 31, 2024 revenues were

$8,688 and increased by $4,599, or 112.5%, when compared to $4,089 for the year ended December 31, 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 $2,889 for

the period of acquisition through December 31, 2024, and an increase in Other Revenues of $238, which mostly consists of shipping

revenue on our branded consumer products.

Gross profit (loss)

Our gross profit was $2,748 for the year ended December 31, 2024 compared to

a gross profit of $374 for the year ended December 31, 2023 The increase of $2,374 in gross profit recorded for the year ended December

31, 2024, as compared to December 31, 2023, was primarily due to an increase in branded consumer products.

Gross profit was approximately

31.6% for the year ended December 31, 2024 compared to a gross profit of 9.1% for the year ended December 31, 2023.

The components of cost of revenues are as follows

for the years ended December 31, 2024 and 2023 ($ in thousands):

Year Ended December 31,

4 unchanged sentences

Depreciation and amortization

Commission and contract fees

Equipment, production and other expenses

Total cost of revenues

of revenues increased by $1,678, or 93.6 %, to $3,470 for the year ended December 31, 2023, as compared to $1,792 for the year ended

December 31, 2022.

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

and other expenses.

These increases primarily align with the increased revenues.

general and administrative expenses .

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

years ended December 31, 2023 and 2022 ($ in thousands):

Cost of revenues increased by $2,225 or 59.9%,

to $5,940 for the year ended December 31, 2024, as compared to $3,715 for the year ended December 31, 2023.

The increase in cost of

revenues is primarily aligned with sales of branded consumer products.

As mentioned elsewhere, Silly George was acquired in May 2024

while Kenkoderm was acquired in December 2023.

Selling, general and administrative expenses .

The following table highlights selling, general and administrative expenses by type for the years ended December 31, 2024 and 2023 ($

in thousands):

Year Ended December 31,

9 unchanged sentences

Total selling, general and administrative expenses

general and administrative expenses increased by $756, or 23.4%, to $3,993 for the year ended December 31, 2023, as compared to $3,237

for the year ended December 31, 2022.

The increase in selling, general and administrative expenses is primarily attributable to an increase

of compensation and benefits expense, advertising, marketing, and Amazon fees as well as the costs for professional and consulting fees.

and benefits increased by $214, or 40.7%, to $740 for the year ended December 31, 2023, as compared to $526 for the year ended December

The number of employees increased compared to the prior year with the inclusion of the JV.

compensation decreased by $79, or 28.0%, to $203 for the year ended December 31, 2023, as compared to $282 for the year ended December

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

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

marketing, and Amazon fees increased by $184, or 42.20%, to $620 for the year ended December 31, 2023, as compared to $436 for the

year ended December 31, 2022.

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

advertising spend in 2023.

and shareholder services decreased by $141, or 24.9%, to $426 for the year ended December 31, 2023, as compared to $567 for the year

ended December 31, 2022.

The decrease is due to the Company’s management of outsourced services.

taxes and corporate insurance decreased by $181, or 44.7%, to $224 for the year ended December 31, 2023, as compared to $405 for the

year ended December 31, 2022.

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

lowered its franchise tax expense.

and consulting fees increased by $696, or 108.2%, to $1,339 for the year ended December 31, 2023, as compared to $643 for the year

ended December 31, 2022.

We incurred significant expenses related to our European Medical Device Regulation project in

preparation for entering European markets.

expenses decreased by $47, or 13.0%, to $315 for the year ended December 31, 2023 from $362 for the year ended December 31, 2022.

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

information technology, travel, training and recruiting.

and development expenses

and development expenses decreased by $264 to $103 for the year ended December 31, 2023 from $367 for the year ended December 31, 2022.

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

hydrogel technology.

and Capital Resources

Flow (in thousands)

Selling, general and administrative expenses increased by $2,476 or 66.1%, to $6,224

for the year ended December 31, 2024, as compared to $3,748 for the year ended December 31, 2023.

The increase in Selling, general and

administrative expenses is primarily attributable to the factors described below.

Compensation and benefits increased by $280, or 37.8%,

to $1,020 for the year ended December 31, 2024, as compared to $740 for the year ended December 31, 2023.

The primary increase in expense, when compared to the prior period, is the increase in contract labor with the inclusion

of Silly George.

Share-based compensation increased by $134, or 66.0%,

to $337 for the year ended December 31, 2024, as compared to $203 for the year ended December 31, 2023.

The increase related to the issuance

of stock options and restricted awards to our officers, employees, board of directors, and advisors.

Advertising, marketing, and Amazon fees increased by $1,780, or 404.5%, to $2,220 for

the year ended December 31, 2024, as compared to $440 for the year ended December 31, 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.

Investor and shareholder services decreased by $153,

or 35.9%, to $273 for the year ended December 31, 2024, as compared to $426 for the year ended December 31, 2023.

The decrease is due

to a net reduction of investor services compared to the prior year period.

Franchise taxes and corporate insurance decreased

by $67, or 29.9%, to $157 for the year ended December 31, 2024, as compared to $224 for the year ended December 31, 2023.

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

its franchise tax expense.

The Company enjoyed the full benefit of the reduction in authorized shares throughout 2024, as opposed to a

partial benefit in 2023.

Professional and consulting fees increased by $312,

or 23.3%, to $1,651 for the year ended December 31, 2024, as compared to $1,339 for the year ended December 31, 2023.

We continued to

incur accounting and consulting fees associated with public company governance requirements and professional services related to branded

consumer products.

Additionally, consulting fees increased in 2024 with the acquisition of Silly George, which utilizes numerous consultants

to assist with marketing, IT, graphic design, and various other services.

Other expenses increased by $160, or 64.0%, to $410 for the year ended December

31, 2024 from $250 for the year ended December 31, 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 credit card processing fees.

Credit card processing fees in particular increased significantly from 2023 to 2024

with the inclusion of Silly George.

Research and development expenses

Research and development expenses decreased by $25

to $78 for the year ended December 31, 2024 from $103 for the year ended December 31, 2023.

Research and development expenses are related

to research costs incurred for potential products for existing or new customers.

Liquidity and Capital Resources

Cash Flow (in thousands)

Years Ended December 31,

1 unchanged sentence

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

1 unchanged sentence

Cash and cash equivalent at end of year

of December 31, 2023, we had $2,700 of cash and cash equivalents compared to $1,101 of cash and cash equivalents and $5,508 of

marketable securities at December 31, 2022.

Net cash used in operating activities was $3,236 and $2,992 for the years ended December

31, 2023 and 2022, respectively.

See Notes 2 and 3 of the accompanying consolidated financial statements for a more detailed

discussion of our marketable securities.

cash provided by investing activities was $4,456 million and net cash used in investing activities was $5,595 for the year ended December

31, 2023 and 2022, respectively, consisting of the sales of marketable securities of $5,699, offset by purchases of capital equipment

of $696 and the Kenkoderm acquisition of $547 for the year ended December 31, 2023 and consisting of investments in marketable securities

of $6,999, the sale of marketable securities for $1,500, and purchases of capital equipment of $96 for the year ended December 31, 2022.

cash provided by financing activities for year ended December 31, 2023 was $379 which is attributable to the proceeds of equipment

notes payable of $315, proceeds from margin line of credit of $245, offset by principal payments of notes payments of $6 and

payments of $175 made on the operating lease liability.

Net cash used in financing activities for year ended December 31, 2022 was

$3,662 which is attributable to the principal payments of convertible notes of $3,511 and payments of $151 made on the operating

lease liability.

December 31, 2023, current assets totaled $5,052 and current liabilities totaled $2,549, as compared to current assets totaling $7,505

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

As a result, we had working capital of $2,503 at December 31, 2023, compared

to a working capital of $6,646 at December 31, 2022.

The decrease in the working capital as of December 31, 2023 is primarily

attributable to the loss from operations of $3,477.

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

For the foreseeable future, we anticipate that all available funds

and any earnings generated in our business will be used to finance the growth of our business and will not be paid out as dividends to

our shareholders.

Any future determination related to our dividend policy will be made at the discretion of our Board of Directors and

will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions,

business prospects and other factors our Board of Directors may deem relevant.

is exploring new product channel sales in consumer products, such as cosmetics, athletic products, and proprietary medical devices.

Company has increased its focus on sales and developing a sales pipeline for potential customers.

This customer base expansion will enable

us to provide financial stability for the foreseeable future, expand our current processes, and position us for long-term shareholder

value creation.

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

within Note 20).

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

intend to maintain and attempt to grow our existing contract manufacturing business.

We also plan to continue building and

developing our catalog of consumer products for sale to branding partners and to use our in-house capabilities to create and test

market additional branded products.

These products will be target marketed and sold online through social media, television and

online marketplaces.

Furthermore, the Company plans to develop its own proprietary medical devices and explore drug delivery

programs for its technology.

Additionally, the Company continues to evaluate strategic initiatives (e.g., acquisitions) and

additional capital raises through debt or equity may be necessary to achieve these objectives.

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

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 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 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.

As of December 31, 2024, we had $1,807 thousand

of cash and cash equivalents compared to $2,700 thousand of cash and cash equivalents at December 31, 2023.

Net cash used in

operating activities was $3,867 thousand and $3,236 thousand for the years ended December 31, 2024 and 2023, respectively.

Net cash used in investing activities was $775

thousand and net cash provided by investing activities was $4,456 thousand for the year ended December 31, 2024 and 2023,

respectively, consisting of the sales of marketable securities of $68 thousand, offset by purchases of capital equipment of $443

thousand and the investment in the subsidiary Semmens Online of $400 thousand for the year ended December 31, 2024 while the sales

of marketable securities of $5,699 thousand, offset by purchases of capital equipment of $696 thousand and the Kenkoderm acquisition

of $547 thousand were for the year ended December 31, 2023.

Net cash provided by financing activities for

year ended December 31, 2024 was $3,749 thousand which is attributable to the proceeds from rights offering of $3,772 thousand,

proceeds from non-controlling interest of $38 thousand, and proceeds from margin line of credit of $345 thousand, offset by

principal payments of notes payments of $77 thousand, and change in contingent consideration of $279 thousand made on the operating

lease liability, and $50 thousand of principal payment of financing lease liability.

Net cash provided by financing activities for

year ended December 31, 2023 was $379 thousand which is attributable to the proceeds of equipment notes payable of $315 thousand,

proceeds from margin line of credit of $245 thousand, offset by principal payments of notes payments of $6 thousand and payments of

$175 thousand made on the operating lease liability.

At December 31, 2024, current assets totaled

$5,114 thousand and current liabilities totaled $2,470 thousand, as compared to current assets totaling $5,052 thousand and current

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

As a result, we had working capital of $2,644 thousand at December 31,

2024, compared to a working capital of $2,503 thousand at December 31, 2023.

The increase in the working capital as of

December 31, 2024 is primarily attributable to the loss from operations of $3,554 thousand and proceeds from rights offering of

$3,772 thousand.

We have never declared or paid any cash dividends

on our common stock.

For the foreseeable future, we anticipate that all available funds and any earnings generated in our business will

be used to finance the growth of our business and will not be paid out as dividends to our shareholders.

Any future determination related

to our dividend policy will be made at the discretion of our Board of Directors and will depend upon, among other factors, our results

of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our Board of

Directors may deem relevant.

Management is exploring new product channel sales

in consumer products, such as cosmetics, athletic products, and proprietary medical devices.

The Company has increased its focus on sales

and developing a sales pipeline for potential customers.

This customer base expansion will enable us to provide financial stability for

the foreseeable future, expand our current processes, and position us for long-term shareholder value creation.

Our recent capital raise which closed on or about

November 20, 2024 provides working capital necessary to continue our strategic objectives (discussed further within Note 13).

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

These products will be target marketed and sold online through social media, television and online marketplaces.

the Company plans to develop its own proprietary medical devices and explore drug delivery programs for its technology.

Additionally,

it is reasonably possible that estimates made in the 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.

Balance Sheet Arrangements

of December 31, 2023, we had no off-balance sheet arrangements in the nature of guarantee contracts, retained or contingent interests

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

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

market risk or credit risk support to us, or that engage in leasing, hedging or research and development services with us.

Accounting Policies and Estimates

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

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

the effects of matters that are inherently uncertain.

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

understanding of our Financial Statements.

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

could be material to our Financial Statements.

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

The fair values of incentive stock

option award grants are estimated as of the date of grant using a Black-Scholes option valuation model.

Compensation expense is recognized

in the statements of operations on a straight-line basis over the requisite service period, which is generally the vesting period required

to obtain full vesting.

The expected term of the awards granted is estimated using the simplified method which computes the expected

term as the sum of the award’s vesting term plus the original contractual term divided by two.

Liability – Warrants to purchase common stock were issued in connection with equity financing raises which occurred during

2019 through 2021.

The fair values of the warrants are estimated as of the date of issuance and again at each year end using a Black-Scholes

option valuation model.

At issuance, the fair value of the warrant is 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 statements of operations.

term of the awards granted are based on either the three-year or five-year contractual expiration date.

Scholes Inputs - The fair value of each stock option award and warrant issued was estimated on the date of grant using a Black-Scholes

option-valuation model, which requires management to make certain assumptions regarding:

(i) fair value of the common stock that underlies

the stock option;

(ii) the expected volatility in the market price of our common stock;

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

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 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 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.

Off Balance Sheet Arrangements

As of December 31, 2024, we had no off-balance sheet

arrangements in the nature of guarantee contracts, retained or contingent interests in assets transferred to entities (or similar arrangements

serving as credit, liquidity or market risk support to entities for any such assets), or obligations (including contingent obligations)

arising out of variable interests in entities providing financing, liquidity, market risk or credit risk support to us, or that engage

in leasing, hedging or research and development services with us.

Critical Accounting Policies and Estimates

The preparation of our accompanying consolidated

financial statements in accordance with generally accepted accounting principles is based on the selection and application of accounting

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

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

Actual results could

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

Share-based compensation – We utilize

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

The fair values of incentive stock option award grants are estimated

as of the date of grant using a Black-Scholes option valuation model.

Compensation expense is recognized in the statements of operations

on a straight-line basis over the requisite service period, which is generally the vesting period required to obtain full vesting.

expected term of the awards granted is estimated using the simplified method which computes the expected term as the sum of the award’s

vesting term plus the original contractual term divided by two.

Warrant Liability – Warrants to purchase

common stock were issued in connection with equity financing raises which occurred during 2019 through 2021.

The fair values of the warrants

are estimated as of the date of issuance and again at each year end using a Black-Scholes option valuation model.

At issuance, the fair

value of the warrant is 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 statements of operations.

The expected term of the awards granted are based

on either the three-year or five-year contractual expiration date.

Black Scholes Inputs - The fair value of each

stock option award and warrant issued was estimated on the date of grant using a Black-Scholes option-valuation model, which requires

management to make certain assumptions regarding:

(i) fair value of the common stock that underlies the stock option;

(ii) the expected

volatility in the market price of our common stock;

(iii) dividend yield;

(iv) risk-free interest

and (iv) the period of time employees are expected to hold the award prior to exercise (referred to as the expected term).

the Black-Scholes option-valuation model, entities typically estimate the expected volatility based on historical volatilities of the

entity’s own common stock.

Based on the lack of historical data of volatility for the Company’s common stock, the Company

based its estimate of expected volatility on a weighted average of the historical volatility of comparable public companies that manufacture

similar products and are similar in size, stage of life cycle, and financial leverage.

The fair value of the common stock that underlies

the stock option is estimated by the Company considering the price of the most recent issuance of the Company’s common stock.

dividend yield is based upon the assumption that the Company will not declare a dividend over the life of the options.

The risk-free

interest rate is based on the U.S.

Treasury yield curve in effect at the time of grant for bonds with maturities consistent with the

expected term of the related award.

Quantitative and Qualitative Disclosures About Market Risk

(iv) risk-free interest rates;

and (iv) the period of time

employees are expected to hold the award prior to exercise (referred to as the expected term).

Under the Black-Scholes option-valuation

model, entities typically estimate the expected volatility based on historical volatilities of the entity’s own common stock.

on the lack of historical data of volatility for the Company’s common stock, the Company based its estimate of expected volatility

on a weighted average of the historical volatility of comparable public companies that manufacture similar products and are similar in

size, stage of life cycle, and financial leverage.

The fair value of the common stock that underlies the stock option is estimated by

the Company considering the price of the most recent issuance of the Company’s common stock.

The dividend yield is based upon the

assumption that the Company will not declare a dividend over the life of the options.

The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time of grant for bonds with maturities consistent with the expected term of the related award.

Quantitative and Qualitative Disclosures

About Market Risk

Not required.

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-K

Item 7. Management’s Discussion and Analysis