NEXGEL, INC. 10-K

Item 8. Financial Statements and Supplementary Data FINANCIAL STATEMENTS - TABLE OF CONTENTS For the Years Ended December 31, 2024 and 2023 Page(s) Report of Independent Registered Public Accounting Firm (PCAOB ID: 76 ) F-2 Consolidated Financial Statements: Consolidated Balance Sheets at December 31, 2024 and 202 3 F-3 Consolidated Statements of Operations for the years ended December 31, 2024 and 202 3 F-4 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2024 and 202 3 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 202 3 F-6 Notes to Consolidated Financial Statements F-7 F- 1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of NexGel, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of NexGel, Inc. (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the two year period ended December 31, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has recurring losses from operations and negative cash flows from operating activities, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Turner, Stone & Company, L.L.P . We have served as the Company’s auditor since 2019. Dallas, Texas March 27, 2025 F- 2 Table of Contents NEXGEL, INC CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2024 December 31, 2023 ASSETS: Current Assets: Cash $ 1,807 $ 2,700 Accounts receivable, net 933 633 Inventory 1,751 1,319 Prepaid expenses and other current assets 623 400 Total current assets 5,114 5,052 Goodwill 1,128 1,128 Intangibles, net 807 326 Property and equipment, net 2,211 1,499 Operating lease - right of use asset 1,628 1,855 Other assets 95 95 Total assets $ 10,983 $ 9,955 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 761 $ 579 Accounts payable – related party 531 654 Accounts payable 531 654 Accrued expenses and other current liabilities 310 398 Deferred revenue 179 20 Current portion of note payable 97 80 Warrant liability 118 146 Contingent consideration liability 178 439 Finance lease liability, short term 59 - Operating lease liability, current portion 237 233 Total current liabilities 2,470 2,549 Operating lease liability, net of current portion 1,538 1,727 Finance lease liability, long term 307 - Notes payable, net of current portion 588 513 Total liabilities 4,903 4,789 Commitments and Contingencies (Note 17) - - STOCKHOLDERS’ EQUITY 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; 7,638,497 and 5,741,838 shares issued and outstanding as of December 31, 2024 and 2023, respectively 8 6 Additional paid-in capital 23,743 19,406 Accumulated deficit ( 17,996 ) ( 14,715 ) Total NexGel stockholders’ equity 5,755 4,697 Non-controlling interest in joint venture 325 469 Total stockholders’ equity 6,080 5,166 Total liabilities and stockholders’ equity $ 10,983 $ 9,955 The accompanying notes are an integral part of these consolidated financial statements. F- 3 Table of Contents NEXGEL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) Year Ended December 31, 2024 2023 Revenues, net $ 8,688 $ 4,089 Cost of revenues 5,940 3,715 Gross profit 2,748 374 Operating expenses Research and development 78 103 Selling, general and administrative 6,224 3,748 Total operating expenses 6,302 3,851 Loss from operations ( 3,554 ) ( 3,477 ) Other income (expense) Change in fair value of warrant liability, net of warrant modification expense 28 96 Realized gain on investments in marketable securities 68 191 Interest expense, net ( 81 ) ( 15 ) Change in fair value of contingent consideration ( 18 ) - Other expense ( 4 ) ( 2 ) Other income 98 19 Total other income (expense), net 91 289 Loss before income taxes ( 3,463 ) ( 3,188 ) Income tax expense - - Net loss ( 3,463 ) ( 3,188 ) Less: Loss attributable to non-controlling interest in joint venture 182 31 Net loss attributable to NexGel stockholders $ ( 3,281 ) $ ( 3,157 ) Net loss per common share – basic and diluted $ ( 0.50 ) $ ( 0.56 ) Weighted average shares used in computing net loss per common share – basic and diluted 6,511,574 5,671,842 The accompanying notes are an integral part of these consolidated financial statements. F- 4 Table of Contents NEXGEL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Years Ended December 31, 2024 and 2023 (in thousands, except share data) Common Stock Additional Paid-in Non- controlling Accumulated Total Stockholders’ Shares Amount Capital Interest Deficit Equity Balance, December 31, 2022 5,577,916 $ 6 $ 19,189 $ - $ ( 11,558 ) $ 7,637 Stock-based compensation 3,295 - 217 - - 217 Restricted stock issuances 50,907 - - - - - Exercise of warrants 109,720 - - - - - Non-controlling interest contribution - - - 500 - 500 Net loss - - - ( 31 ) ( 3,157 ) ( 3,188 ) Balance, December 31, 2023 5,741,838 $ 6 $ 19,406 $ 469 $ ( 14,715 ) $ 5,166 Common Stock Additional Paid-in Non- controlling Accumulated Total Stockholders’ Shares Amount Capital Interest Deficit Equity Balance, December 31, 2023 5,741,838 $ 6 $ 19,406 $ 469 $ ( 14,715 ) $ 5,166 Balance 5,741,838 $ 6 $ 19,406 $ 469 $ ( 14,715 ) $ 5,166 Stock-based compensation 90,860 - 280 - - 280 Restricted stock issuances 53,410 - 87 - - 87 Shares issued in acquisition 89,892 - 200 - - 200 Exercise of warrants 5,439 - - - - - Issuance of securities 1,657,058 2 3,770 - - 3,772 Non-controlling interest contribution - - - 38 - 38 Net loss - - - ( 182 ) ( 3,281 ) ( 3,463 ) Balance, December 31, 2024 7,638,497 $ 8 $ 23,743 $ 325 $ ( 17,996 ) $ 6,080 Balance 7,638,497 $ 8 $ 23,743 $ 325 $ ( 17,996 ) $ 6,080 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Table of Contents NEXGEL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2024 2023 Operating Activities Net loss $ ( 3,281 ) $ ( 3,157 ) Adjustments to reconcile net loss to net cash used in operating activities: Loss attributable to non-controlling interest in joint venture ( 182 ) ( 31 ) Depreciation and amortization 436 226 Share-based compensation 367 217 Realized gain on investment in marketable securities ( 68 ) ( 191 ) Change in fair value of warrant liability ( 28 ) ( 125 ) Change in fair value of contingent consideration 18 - Amortization of right of use asset 42 217 Warrant modification expense - 29 Changes in operating assets and liabilities: Accounts receivable, net ( 300 ) ( 411 ) Inventory ( 432 ) ( 760 ) Prepaid expenses and other current assets ( 223 ) ( 260 ) Accounts payable 182 314 Accounts payable – related party ( 123 ) 654 Accrued expenses and other current liabilities ( 434 ) 22 Deferred revenue 159 20 Net Cash Used in Operating Activities ( 3,867 ) ( 3,236 ) Investing Activities Purchases of equipment ( 443 ) ( 696 ) Investment in subsidiary ( 400 ) ( 547 ) Proceeds from sales of marketable securities 68 5,699 Net Cash Provided by (Used in) Investing Activities ( 775 ) 4,456 Financing Activities Principal payments on operating lease liability - ( 175 ) Proceeds from notes payable - 315 Payment of contingent consideration ( 279 ) - Proceeds from rights offering 3,772 - Principal payments of notes payable ( 77 ) ( 6 ) Proceeds from non-controlling interest 38 - Principal payment of financing lease liability ( 50 ) - Proceeds from margin line of credit 345 245 Net Cash Provided by Financing Activities 3,749 379 Net Increase (Decrease) in Cash ( 893 ) 1,599 Cash  – Beginning of year 2,700 1,101 Cash – End of year $ 1,807 $ 2,700 Supplemental Non-cash Investing and Financing Activities Shares issued in conjunction with asset acquisition $ 200 $ - Property and equipment financed under notes payable $ 169 $ - 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 consolidated financial statements. F- 6 Table of Contents NEXGEL, INC. NOTES TO 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 consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and are presented in US dollars. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its consolidated wholly-owned subsidiary, NexGelRx, Inc. and the fifty percent ( 50 %) owned JV’s (see Note 5). F- 7 Table of Contents 2. Going Concern The accompanying audited consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. As of December 31, 2024, the Company had a cash balance of $ 1.8 million. For the year ended December 31, 2024, the Company incurred a net loss of $ 3.5 million and had a net usage of cash in operating activities of $ 3.9 million. In addition, the Company had a working capital of $ 2.6 million as of December 31, 2024. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. 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 closed on November 20, 2024 with gross proceeds to the Company of 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 warrants. The Company intends to use the net proceeds from the November Financing for working capital and for general corporate purposes (discussed further within Note 13). 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 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 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 consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates and assumptions include allowances for doubtful accounts, 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. F- 8 Table of Contents 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. The “CGN” segment is comprised of the CGN JV used for the Company’s converting and packaging business, which is based in Granbury, Texas. 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. These changes consisted of separating Accounts payable – related party from Accounts payable within the December 31, 2023 consolidated balance sheet and we have reclassified expenses on our statement of operations realigning certain expenses previously classified as selling, general and administrative to cost of revenue related to our online sales commissions and contract fees. The reclassifications had no effect on total assets or liabilities as of December 31, 2023. 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 December 31, 2024 and December 31, 2023, there was $ 0 and $ 245 thousand outstanding under this short-term credit line which is included in accrued expenses and other current liabilities within the accompanying consolidated balance sheet. Accounts Receivable, net Trade accounts receivable are stated at the amount the Company expects to collect and do not bear interest. For its financial instruments subject to credit risk, consisting of its receivables, the Company recognizes as an allowance its estimate of lifetime expected credit losses under the current expected credit loss (CECL) model of ASC 326. The approach is based on the Company’s internal knowledge and historical default rates over the expected life of the receivables and is adjusted to reflect current economic conditions. This evaluation takes into account the customer’s ability and intention to pay the consideration when it is due along with incorporating changes in the forward-looking estimates. If the expected financial condition of the Company’s customers were to improve, the allowances may be reduced accordingly . Provisions to the allowances for doubtful accounts are recorded in selling, general and administrative expenses. The allowance for credit losses was $ 5 thousand as of December 31, 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. F- 9 Table of Contents The inventory balance is made up of raw materials, work-in-progress, and finished goods. Inventory is maintained at the Company’s warehouses, third party warehouses and at fulfilment centers owned by Amazon, Walmart and CVS. The “Cost of revenues” line item in the 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. 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 with definite lives 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, 2024 and 2023. F- 10 Table of Contents Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets are recorded at historical cost and are primarily made up of $ 46 thousand and $ 64 thousand of prepaid insurance, and $ 577 thousand and $ 336 thousand general prepaid expenses and other current assets as of December 31, 2024 and 2023, respectively. Other Assets Other assets are recorded at historical costs, and as of December 31, 2024 and 2023, the balance is primarily comprised of spare parts for manufacturing equipment. The Company maintains spare parts 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. 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 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 2023. 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 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 consolidated statements of changes in stockholders’ equity and 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. F- 11 Table of Contents 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. Disaggregated revenue by sales type ($ in thousands): Schedule of Disaggregated Revenue by Sales Type Year Ended December 31, 2024 2023 Contract manufacturing $ 2,841 $ 2,748 Custom and white label finished goods manufacturing 42 15 Consumer branded products 5,483 1,242 Other 322 84 Total $ 8,688 $ 4,089 Contract Liabilities As of December 31, 2024 and 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 thousand and $ 20 thousand at December 31, 2024 and 2023, respectively, that the Company had not satisfied as of the end of the respective period. The following table provides information about contract liabilities from contracts with our customers ($ in thousands). Schedule of Contract Liabilities From Contract With Customers 2024 2023 Year Ended December 31, 2024 2023 Deferred revenue $ 179 $ 20 Total Deferred revenue $ 179 $ 20 Significant changes in the contract liabilities balance during the period are as follows: Schedule of Contract Liabilities Balance Contract liabilities Balance, December 31, 2023 20 Non-cancelable contracts with customers entered during the period $ 179 Revenue recognized related to non-cancelable contracts with customers during the period ( 20 ) Balance, December 31, 2024 $ 179 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. F- 12 Table of Contents 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 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 14 below for further details regarding the 2019 Plan. 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 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 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 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. F- 13 Table of Contents Leases ASC 842, Leases, requires recognition of leases on the 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. 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 consolidated financial statements. As of December 31, 2024, 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 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 consolidated financial position or results of operations upon adoption. F- 14 Table of Contents 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 adopted this new standard during the year ended December 31, 2024. 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 consolidated financial statements. F- 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 the years ended December 31, 2024 and 2023 is presented below. Schedule of Reportable Segments For Year Ended December 31, 2024 ($ in thousands) NexGel CG Labs Total Revenue Contract Manufacturing $ 863 $ 1,978 $ 2,841 Custom and White Label Finished Goods 42 - 42 Branded Consumer Products 5,483 - 5,483 Other income 243 79 322 Total revenue 6,631 2,057 8,688 Cost of sales 4,209 1,731 5,940 Research and development 78 - 78 Advertising, marketing and amazon fees 2,220 - 2,220 General and administrative 3,409 595 4,004 Total Selling, general and administrative 5,629 595 6,224 Operating expenses 5,707 595 6,302 Loss from operations $ ( 3,285 ) $ ( 269 ) $ ( 3,554 ) For Year Ended December 31, 2023 ($ in thousands) NexGel CG Labs Total Revenue Contract Manufacturing $ 769 $ 1,979 $ 2,748 Custom and White Label Finished Goods 15 - 15 Branded Consumer Products 1,242 - 1,242 Other income 76 8 84 Total revenue 2,102 1,987 4,089 Cost of sales 2,092 1,623 3,715 Research and development 103 103 Advertising, marketing and amazon fees 440 - 440 General and administrative 2,881 427 3,308 Total Selling, general and administrative 3,321 427 3,748 Operating expenses 3,424 427 3,851 Loss from operations $ ( 3,414 ) $ ( 63 ) $ ( 3,477 ) As of December 31, 2024 ($ in thousands) NexGel CG Labs Total Assets: Current assets: Cash $ 1,781 $ 26 $ 1,807 Accounts receivable, net 218 715 933 Inventory 1,101 650 1,751 Prepaid expenses and other current assets 578 45 623 Total current assets 3,678 1,436 5,114 Goodwill 1,128 - 1,128 Intangibles 685 122 807 Property and equipment, net 790 1,421 2,211 Operating lease – right of use asset 1,345 283 1,628 Other assets 95 - 95 Total Assets $ 7,721 $ 3,262 $ 10,983 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 560 $ 201 $ 761 Accounts payable – related party 3 528 531 Accounts payable 3 528 531 Accrued expenses and other current liabilities 284 26 310 Deferred revenue - 179 179 Current portion of note payable 12 85 97 Warrant liability 118 - 118 Contingent consideration liability 178 - 178 Finance lease liability, short term - 59 59 Operating lease liability, current portion 207 30 237 Total current liabilities 1,362 1,108 2,470 Operating lease liability, net of current portion 1,278 260 1,538 Finance lease liability, long term - 307 307 Notes payable, net of current portion 268 320 588 Total liabilities $ 2,908 $ 1,995 $ 4,903 F- 16 Table of Contents 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 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. F- 17 Table of Contents The 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 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. The table below shows an analysis for the Kenkoderm acquisition ($ in thousands): Schedule of Business Acquisitions Purchase consideration at fair value: Purchase price $ 547 Contingent consideration liability 439 Amount of consideration $ 986 Assets acquired and liabilities assumed at 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 986 Goodwill $ 817 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 December 31, 2024, the Company has contributed $ 20 thousand and $ 37 thousand has been contributed by the non-controlling interest portion of Enigma contributed business. F- 18 Table of Contents 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. The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the Kenkoderm and Silly George acquisitions and CG Labs 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 For the Year Ended December 31, 2024 2023 Revenues, net $ 9,261 $ 10,009 Net loss allocable to common shareholders $ ( 3,245 ) $ ( 2,775 ) Net loss per share $ ( 0.50 ) $ ( 0.49 ) Weighted average number of shares outstanding 6,511,574 5,671,842 6. Variable interest entities The following table presents the assets and liabilities of the CGN JV and Enigma, included in the Consolidated Balance Sheet as of December 31, 2024 and 2023. The assets and liabilities presented below include only the third-party assets and liabilities of the consolidated VIE and excludes any intercompany balances, which were eliminated upon consolidation. Schedule of Consolidated Variable Interest Entities December 31, 2024 December 31, 2023 ASSETS: Current Assets: Cash $ 26 $ 242 Accounts receivable, net 764 611 Inventory 646 402 Prepaid expenses and other current assets 45 28 Total current assets 1,481 1,283 Intangibles, net 122 204 Property and equipment, net 1,421 600 Operating lease - right of use asset 283 312 Total assets $ 3,307 $ 2,399 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 912 $ 221 Accounts payable – related party 528 654 Accrued expenses and other current liabilities 51 15 Deferred revenue 179 - Current portion of note payable 85 75 Finance lease liability, short term 59 - Operating lease liability, current portion 30 25 Total current liabilities 1,844 990 Operating lease liability, net of current portion 260 290 Finance lease liability, long term 307 - Notes payable, net of current portion 320 240 Total liabilities and stockholders’ equity $ 2,731 $ 1,520 The amounts above represent the combined assets and liabilities of the VIE described above, for which we are the primary beneficiary. The assets of each of these consolidated VIEs can only be used to settle the obligations of the VIE. All of the liabilities are non-recourse to us as of December 31, 2024 and 2023. 7. 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 December 31, 2024 ($ in thousands): Schedule of Future Minimum Operating Lease Payments Maturity of Lease Liability Operating Lease Liability 2025 $ 245 2026 301 2027 315 2028 324 2029 332 Thereafter 459 Total undiscounted operating lease payments $ 1,976 Less: Imputed interest ( 201 ) Present value of operating lease liability $ 1,775 Weighted average remaining lease term 6.4 years Weighted average discount rate 3.0 % F- 19 Table of Contents Total operating lease expense for the years ended December 31, 2024, and 2023, was $ 287 thousand and $ 303 thousand, respectively, and is recorded in cost of goods sold and selling, general, and administrative expenses in the accompanying consolidated statements of operations. Supplemental cash flows information related to leases was as follows: Schedule of Supplemental Cash Flows Information Related to Leases December 31, December 31, 2024 2023 Cash paid for amounts included in the measurement of lease liability ($ in thousands): Operating cash flows from operating lease $ 245 $ 238 8. 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 December 31, 2024, $ 417 thousand is included in the property and equipment on the balance sheet. The weighted average interest rate was 9.1 % at December 31, 2024. The following table presents information about the amount and timing of the liability arising from the Company’s financing lease as of December 31, 2024 ($ in thousands): Schedule of Future Minimum Financing Lease Payments Maturity of Lease Liability Financing Lease Liability 2025 $ 90 2026 91 2027 90 2028 91 2029 90 Thereafter 8 Total undiscounted financing lease payments ` 460 Less: Imputed interest ( 94 ) Present value of financing lease liability $ 366 Weighted average remaining lease term 5.1 years Weighted average discount rate 9.1 % 9. Inventory Inventory consists of the following ($ in thousands): Schedule of Inventory December 31, December 31, 2024 2023 Raw materials $ 723 $ 899 Work-in-progress 25 12 Finished goods 1,003 408 Inventory, gross 1,751 1,319 Less: Inventory reserve for excess and slow moving inventory - - Total $ 1,751 $ 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. F- 20 Table of Contents 10. Property and Equipment, Net Property and equipment consist of the following ($ in thousands): Schedule of Property and Equipment Useful Life December 31, December 31, (Years) 2024 2023 Machinery and equipment 3 - 10 $ 2,118 $ 1,280 Office furniture and equipment 3 - 10 187 139 Leasehold improvements 6 419 419 Construction in progress N/A 532 387 Property and equipment, gross 3,256 2,225 Less: accumulated depreciation and amortization ( 1,045 ) ( 726 ) Property and equipment, net $ 2,211 $ 1,499 Depreciation expense for the year ended December 31, 2024 and 2023 was $ 319 thousand and $ 132 thousand, respectively. 11. Intangible Assets The following provides a breakdown of identifiable intangible assets as of December 31, 2024 and 2023 ($ in thousands): Schedule of Breakdown of Identifiable Intangible Assets December 31, December 31, 2024 2023 Product/Technology Related Identifiable intangible assets, gross $ 325 $ 325 Accumulated amortization ( 191 ) ( 98 ) Product/technology related identifiable intangible assets, net 134 227 Marketing Related Customer related intangible asset, gross 17 17 Tradename related intangible asset, gross 113 113 Trademark related intangibles 600 - Accumulated amortization ( 57 ) ( 31 ) Marketing related identifiable intangible assets, net 673 99 Total identifiable intangible assets, net $ 807 $ 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 CG Labs 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 1.9 years and amortization expense amounted to $ 119 and $ 94 thousand for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, the estimated annual amortization expense for each of the next five fiscal years is as follows ($ in thousands): Schedule of Estimated Annual Amortization Expense 2025 $ 125 2026 64 2027 13 2028 2 2029 2 Thereafter 1 Subtotal 207 Indefinite lived intangible assets (subject to impairment analysis) 600 Total $ 807 F- 21 Table of Contents 12. 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 December 31, December 31, 2024 2023 Salaries, benefits, and incentive compensation $ 242 $ 61 Margin line of credit - 245 Other 68 92 Total accrued expenses and other current liabilities $ 310 $ 398 13. Common Stock At December 31, 2024, the Company has reserved common stock for issuance in relation to the following: Schedule of Reserved Common Stock For Issued Securities in Relation Share-based compensation plan 588,397 Warrants to purchase common stock 4,765,205 Restricted stock units 55,874 Management of the Company has performed a review of events and transactions occurring after the consolidated balance sheet date to determine if there were any such events or transactions requiring adjustment to or disclosure in the accompanying 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 occurred on November 20, 2024 (the “November Closing Date”). On or about the November Closing Date, the Company issued 727,272 shares of common stock and issued 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 were 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 paid 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, the Company issued 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 . 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. F- 22 Table of Contents 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 paid 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, the Company issued 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 . 14. 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. On December 31, 2024, the Board approved an additional 780,000 shares of common stock to be reserved under the 2019 Plan, such that total of number of shares underlying the Plan is 1,651,429 of which 793,735 shares have already been awarded or exercised. The Company intends to submit this 780,000 increase under the 2019 for stockholder approval as part of the 2025 Proxy Statement. 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. F- 23 Table of Contents The following table contains information about the 2019 Plan as of December 31, 2024: Schedule of Information about Incentive Plan Awards Awards Reserved for Awards Awards Available for Issuance Issued Exercised Grant 2019 Plan (1) 1,651,429 793,735 149,464 857,594 Awards issued in excess of 2019 Plan (2) - 70,623 70,623 - (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 On September 17, 2024, the Company granted a contractor an option to purchase up to 70,000 shares of the Company’s common stock at a per share price of $ 2.65 under the Company’s 2019 Long-Term Incentive Plan. A portion of the award, 10,000 options are fully vested as of the date of the grant and the remaining 60,000 options are contingent upon certain sales based milestones being achieved. On September 16, 2024, the Company granted a contractor an option to purchase up to 2,000 shares of the Company’s common stock at a per share exercise price of $ 2.00 under the Company’s 2019 Plan. This option award vests immediately. On September 13, 2024, the Company granted options to purchase up to 100,000 shares of the Company’s common stock at a per share exercise price of $ 2.72 to members of the Board of Directors, all of which vests over a period of one year with 25 % vested upon issuance. On August 17, 2023, the Company granted options to purchase up to 90,000 shares of the Company’s common stock at a per share exercise price of $ 2.05 to members of the Board of Directors, all of which vests over a period of one year with 25 % vested upon issuance. On March 8, 2023, the Company granted a contractor an option to purchase up to 17,532 shares of the Company’s common stock at a per share exercise price of $ 2.00 under the Company’s 2019 Plan. This option award vests over a period of 12 months. The options expired unexercised. The following table summarizes the Company’s incentive stock option activity and related information for the year ended December 31, 2024: Schedule of Incentive Stock Option Activity Weighted Weighted Average Average Contractual Number of Exercise Term in Options Price Years Outstanding at January 1, 2023 524,937 $ 2.351416 8.38 Granted 117,532 $ 2.06041 10.00 Exercised ( 3,295 ) 1.75 — Forfeited — — — Cancelled ( 69,854 ) 1.965823 — Expired ( 8,670 ) 1.703222 — Outstanding at December 31, 2023 560,650 $ 2.350742 7.95 Granted 172,000 $ 2.683140 10.00 Exercised ( 90,860 ) 1.006035 — Forfeited — — — Cancelled ( 39,107 ) 1.006035 — Expired ( 14,286 ) 5.25 — Outstanding at December 31, 2024 588,397 $ 2.674538 7.81 Exercisable at December 31, 2024 353,397 $ 2.168073 7.24 F- 24 Table of Contents As of December 31, 2024 and 2023, vested outstanding stock options had $ 1,151 thousand and $ 295 thousand of intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock, respectively. As of December 31, 2024 and 2023, there were $ 179 thousand and $ 0 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. The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period. The following assumptions were used to calculate share-based compensation expense for year ended December 31, 2024 and 2023: Schedule of Assumptions used in Share-based Compensation 2024 2023 Volatility 277.56 - 279.29 % 257.64 - 258.01 % Risk-free interest rate 3.44 - 3.67 % 4.21 - 4.42 % Dividend yield 0.0 % 0.0 % Expected term 5.00 years 5 - 5.50 years The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. Accordingly, the Company has elected to use the “simplified method” to estimate the expected term of its share-based awards. The simplified method computes the expected term as the sum of the award’s vesting term plus the original contractual term divided by two. 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. 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). Effective as of January 3, 2023, the Company granted a restricted stock award of 37,037 shares of the Company’s common stock to Adam Levy for his service as our Chief Executive Officer pursuant to the terms of his Executive Employment Agreement dated December 30, 2022, all of which shares vested monthly from January 3, 2023 through December 31, 2023. Under ASC 718, the Company has measured the value of the 37,037 shares granted based on the closing price of the Company’s stock at the grant date of the RSU Grant ($ 1.35 per share). Schedule of Restricted Stock Units Granted Number of Weighted Average Grant Date Units Fair Value Outstanding at December 31, 2022 90,432 $ 1.43 Granted 37,037 1.35 Exercised and converted to common shares ( 50,157 ) 1.76522 Forfeited ( 12,750 ) 1.82 Outstanding at December 31, 2023 64,562 1.82 Granted 57,972 2.46 Exercised and converted to common shares ( 62,910 ) 2.08 Forfeited ( 3,750 ) 2.30 Outstanding at December 31, 2024 55,874 $ 2.16 Exercisable at December 31, 2024 2,500 $ 1.82 F- 25 Table of Contents Compensation expense will be recognized ratable over the total vesting schedule. The Company will periodically adjust the cumulative compensation expense for forfeited awards. The Company recognizes the reversal of any previously recognized compensation expense on forfeited awards in the period the awards are forfeited. Stock based compensation of $ 367 thousand and $ 217 thousand has been recorded for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, there was $ 29 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 for the years ended December 31, 2024 and 2023. Schedule of Common Stock Warrants Weighted Weighted Average Average Number of Exercise Contractual Warrants Price Term in Years Outstanding at December 31, 2022 3,637,190 $ 5.16281 3.65 Granted — — — Exercised ( 109,720 ) 0.55 — Forfeited — — — Cancelled ( 84,566 ) 0.89 — Expired — — — Outstanding at December 31, 2023 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 947,792 4.18 5.00 Exercised ( 5,439 ) 2.80 — Forfeited — — — Cancelled ( 7,802 ) 2.80 — Expired — — — Outstanding at December 31, 2024 4,765,205 $ 5.183120 2.42 Exercisable at December 31, 2024 4,765,205 $ 5.183120 2.42 (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 December 31, 2024, vested outstanding stock options had $ 300 thousand intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock. As of December 31, 2023, vested outstanding warrants had no intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock. 15. 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 $ 198 thousand and $ 231 thousand as of December 31, 2024 and 2023, respectively. F- 26 Table of Contents 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 $ 207 thousand and $ 84 thousand as of December 31, 2024 and 2023, respectively. 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 thousand. The principal balance amounted to $ 8 thousand as of December 31, 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 $ 272 thousand and $ 277 thousand as of December 31, 2024 and 2023, respectively. The future annual principal amounts and accrued interest to be paid as of December 31, 2024 are as follows: Schedule of Debt Instruments Amount For the year ending December 31 ($ in thousands): 2025 $ 96 2026 96 2027 103 2028 111 2029 34 Thereafter 245 Total $ 685 Less: current portion of notes payable 97 Long-term portion of notes payable $ 588 16.  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 to five 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 consolidated statements of operations. F- 27 Table of Contents 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 12/31/2022 265,305 $ 242 Exercise of warrants ( 194,286 ) ( 144 ) Modification of warrants - 29 Change in fair value of warrant liability - 19 Fair value as of year ended 12/31/2023 71,019 146 Exercise of warrants ( 13,242 ) ( 12 ) Change in fair value of warrant liability - ( 16 ) Fair value as of year ended 12/31/2024 57,777 $ 118 The following assumptions were used to calculate the warrant liability for years ended December 31, 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 $ 2.16 - $ 4.46 $ 1.28 Volatility 92.34 % - 283.32 % 137.02 % - 287.87 % Risk-free interest rate 3.66 % - 5.09 % 3.81 % - 4.74 % Dividend yield 0.0 % 0.0 % Expected term 0.73 to 2.43 years 0.01 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 future activities and the Company’s stock prices and historical volatility of Guideline Public Companies as inputs. 17. 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 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. 18. 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. There were no revenues from customers that exceeded 10% of total revenues for the year ended December 31, 2024. The accounts receivable from three customers was 50 %, 10 % and 22 % of the total accounts receivable as of December 31, 2024. Revenues from one customer that exceeded 10% of total revenues for the year ended December 31, 2023, was 20 %. The accounts receivable from one customer was 69 % of total accounts receivable as of December 31, 2023. F- 28 Table of Contents 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 December 31, 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. 19. Related Party Transactions Accounts payable – related party As of December 31, 2024, and 2023, the Company had outstanding balances of $ 494 thousand and $ 654 thousand, respectively, due to C.G. Laboratories, Inc., a related party. Additionally, as of December 31, 2024, the Company had an outstanding balance of $ 37 thousand due to Russell Crum, the CEO of CG Labs. These balances primarily relate to transactions for contract manufacturing, packaging, and other services provided by CG Laboratories, Inc. Advances Dr. Jerome Zeldis, a member of the Company board of directors, had an outstanding balance due of $ 25 thousand for services as of December 31, 2023, which is included in accounts payable in the accompanying consolidated balance sheets. The balance was repaid in August 2024. 20. Income Taxes The Company has established a full valuation allowance for its deferred tax assets based on management’s belief that it is not more likely than not that the related deferred tax assets will be realized. For the years ended December 31, 2024 and 2023, there was no income tax expense or benefit. At December 31, 2024 and 2023, the Company had no recorded tax liabilities for uncertain tax positions. The Company does not expect any significant changes to the estimate amount of liabilities associated with uncertain tax positions in the next 12 months. The income tax (benefit) provision consists of the following ($ in thousands): Schedule of Income Tax (Benefit) Provision For The Years Ended December 31 2024 2023 Federal: Current $ ( 640 ) $ ( 617 ) Deferred 640 617 State and local: Current ( 161 ) ( 156 ) Deferred 161 156 Income tax provision $ — $ — F- 29 Table of Contents For the years ended December 31, 2024 and 2023, the expected tax benefit based on the statutory rate reconciled with the actual benefit is as follows: Schedule of Effective Income Tax Rate Reconciliation For The Years Ended December 31, 2024 2023 U.S. federal statutory rate 21.0 % 21.0 % State tax rate, net of federal benefit 5.3 % 5.3 % Permanent differences Non-deductible expenses ( 3.2 )% ( 1.9 )% Timing differences — — Change in valuation allowance ( 23.1 )% ( 24.4 )% Income tax provision — % — % For the years ended December 31, 2024 and 2023, differences between the expected tax expense based on the federal statutory rate and the actual tax expense is primarily attributable to the net losses incurred and the corresponding increase to the valuation allowance. As of December 31, 2024 and 2023, the Company’s deferred tax assets consisted of the effects of temporary differences attributable to the following ($ in thousands): Schedule of Deferred Tax Assets and Liabilities As of December 31, 2024 2023 Deferred tax assets: Net operating loss carryforwards $ 5,661 $ 4,882 Other 7 9 Total deferred tax assets 5,668 4,891 Valuation allowance ( 5,668 ) ( 4,891 ) Deferred tax assets, net of valuation allowance $ — $ — As of December 31, 2024 and 2023, the Company has approximately $ 21.5 million and $ 18.6 million of federal NOL carryovers, respectively, which begin to expire in 2029 through 2037. Similarly, the subsidiary’s Pennsylvania state returns reported state NOL carryovers of approximately $ 21.5 million and $ 18.6 million, as of December 31, 2024 and 2023, respectively. However, these loss carryforwards on a separate company basis may be subject to limitations on the amounts that may be utilized pursuant to Internal Revenue Code section 382 and applicable state law. Section 382 imposes significant limitations on the utilization of net operating losses after certain changes of corporate ownership. The Company will need to determine the amount of loss carryforwards that may be utilized in the future as necessary. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the future generation of taxable income during the years in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance against net deferred tax assets at December 31, 2024 and 2023 because management has determined that it is more likely than not that these deferred tax assets will not be realized. The Company is subject to taxation in the U.S. and various states. Based on the history of net operating losses all jurisdictions and tax years are open for examination until the operating losses are utilized or the statute of limitations expires. As of December 31, 2024 and 2023, the Company does not have any significant uncertain tax positions. 21. Subsequent Events In accordance with ASC 855 “Subsequent Events”, the Company evaluated subsequent events after December 31, 2024, through the date these Consolidated Financial Statements were issued and has no transactions or events requiring disclosure F- 30 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.