# Nexgel, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Nexgel, Inc.](/companies/nxgl.md) (CIK 1468929)
- Form: 10-Q
- Filed: 2024-11-13
- Accepted by EDGAR: Nov 13, 2024, 22:29 ET
- Period: 2024-09-30
- Accession: 0001493152-24-045213
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1468929/000149315224045213/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1468929/000149315224045213/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $2.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $5.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $1.7m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $3.7m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $1.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $2.0m | us-gaap:GrossProfit |
| Research and development | 9 months, 2024-01-01 to 2024-09-30 | $78.0k | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $2.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $4.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$788.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$2.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $20.0k | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $67.0k | us-gaap:InterestExpenseNonoperating |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$693.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$2.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.11 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.39 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.11 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.39 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 6,569,403 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 6,274,221 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$3.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $374.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2024-09-30 | $1.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $4.6m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $10.6m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $3.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $5.6m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $709.0k | us-gaap:LongTermDebt |
| Short-term borrowings | at 2024-09-30 | $345.0k | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-09-30 | $4.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 31,490 characters.

*The following discussion and analysis are intended to help prospective investors understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this information statement.*

*The statements in this discussion regarding industry outlook, expectations regarding our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Special Note Regarding Forward-Looking Statements.” Actual results may differ materially from those contained in any forward-looking statements.*

*The NexGel Financial Statements, discussed below, reflect the NexGel financial condition, results of operations, and cash flows. The financial information discussed below and included in this information statement, however, may not necessarily reflect what the NexGel financial condition, results of operations, or cash flows would have been had NexGel been operated as a separate, independent entity during the years presented, or what the NexGel financial condition, results of operations, and cash flows may be in the future.*

### Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will actually be achieved. Forward-looking statements are based on information we have when those statements are made or our management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

- our ability to continue as a going concern;
- inadequate capital;
- inadequate or an inability to raise sufficient capital to execute our business plan;
- our ability to comply with current good manufacturing practices;
- loss or retirement of key executives;
- our plans to make significant additional outlays of working capital before we expect to generate significant revenues and the uncertainty regarding when we will begin to generate significant revenues, if we are able to do so;
- adverse economic conditions and/or intense competition;
- loss of a key customer or supplier;
- entry of new competitors;

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- adverse federal, state and local government regulation;
- technological obsolescence of our manufacturing process and equipment;
- technical problems with our research and products;
- risks of mergers and acquisitions including the time and cost of implementing transactions and the potential failure to achieve expected gains, revenue growth or expense savings;
- price increases for supplies and components; and
- the inability to carry out our business plans.

For a discussion of these and other risks that relate to our business and investing in shares of our common stock, you should carefully review the risks and uncertainties described elsewhere in the Company’s Annual Report on Form 10-K filed with the SEC on April 20, 2024. The forward-looking statements contained in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. We do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.

### Overview

From 2019 through November 2023, we only manufactured high water content, electron beam cross-linked, aqueous polymer hydrogels, or gels, used for wound care, medical diagnostics, transdermal drug delivery and cosmetics. We specialize in custom gels by capitalizing on proprietary manufacturing technologies. We have historically served as a contract manufacturer, supplying our gels to third parties who incorporate them into their own products. Beginning in 2020, we created two new lines of business for the company. First, our own line of branded consumer products sold direct to consumers. Second, we expanded into custom and white label opportunities, which focuses on combining our gels with proprietary branded products and white label opportunities. All of our gel products are manufactured using proprietary and non-proprietary mixing, coating and cross-linking technologies. Together, these technologies enable us to produce gels that can satisfy rigid tolerance specifications with respect to a wide range of physical characteristics (e.g., thickness, water content, adherence, absorption, moisture vapor transmission rate \[a measure of the passage of water vapor through a substance\] and release rate) while maintaining product integrity. Additionally, we have the manufacturing ability to offer broad choices in the selection of liners onto which the gels are coated. Consequently, we and our customers are able to determine tolerances in moisture vapor transmission rate and active ingredient release rates while personalizing color and texture.

On March 1, 2023, the Company acquired a 50% interest in a newly formed JV for its converting and packaging business. The new JV expands the Company’s offerings, allowing it to reach more customers with a variety of gel shapes and sizes. The Company had limited converting and packaging operations in its Langhorne Facility, making a JV to expand capacity an attractive opportunity.

Beginning in December 2023, the Company expanded their product portfolio to include the Kenkoderm brand. Kenkoderm is a skincare line focused on reducing symptoms associated with psoriasis. Kenkoderm products do not utilize our gel technology and are manufactured by third parties. This marks the first time the company expanded its product portfolio to include products unrelated to its core gel technology.

Beginning in May 2024, the Company added the Silly George brand. Silly George is a beauty and cosmetics company focused on eyeliner, fake eyelashes, lash serum and mascara. Similar to Kenkoderm, Silly George products are purchased and resold from third party manufacturers. This second acquisition further expanded the Company’s retail sales presence in products unrelated to its core gel technology.

### Joint Ventures

#### CGN

On March 1, 2023, the Company acquired a 50% interest in its newly formed JV for its converting and packaging business. The JV agreement is effective March 1, 2023. As a result of this transaction, the Company owns 50% of the JV, with the remaining 50% held by CG Labs.

#### Enigma Health

On January 6, 2023, the Company acquired a 50% interest in its newly formed JV to pursue branded consumer product retail opportunities and the development of new patch products. The JV agreement is effective January 6, 2023. As a result of this transaction, the Company owns 50% of the JV, with the remaining 50% held by Moiety.

### Acquisitions

#### Kenkoderm

On December 1, 2023, we purchased substantially all of the assets of Olympus Trading Company, LLC (the “Kenkoderm Seller”) related to the Seller’s skincare line focused on reducing symptoms associated with psoriasis operating under the tradename “Kenkoderm” (“Kenkoderm acquisition”).

#### Silly George

On May 15, 2024, the Company purchased substantially all of the assets from Semmens Online Pty Ltd as Trustee for Semmens Business Trust related to the SG Seller’s eyeliner, fake eyelashes, lash serum and mascara business operating under the tradename “Silly George”.

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### Results of Operations

The following sections discuss and analyze the changes in the significant line items in the accompanying condensed consolidated statements of operations for the comparison periods identified.

### Comparison of the Three Months ended September 30, 2024 and 2023 ($ in thousands)

### Revenues, net

For the three months ended September 30, 2024 revenues were $2,940 and increased by $1,719, or 140.8%, when compared to $1,221 for the three months ended September 30, 2023. The increase in our overall revenues was primarily due to sales growth in our branded consumer products, including gross revenue from Silly George of $1,373 for the three months ending September 30, 2024, and partially offset by a decrease in contract manufacturing.

The Company has four distinct lines of business; Contract Manufacturing, Custom and White Label, Branded Consumer Products, and Medical Devices.

#### 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.

#### 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. 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 freight charged to customers who purchase the Company’s branded consumer products through their Shopify stores.

**Gross profit**. Our gross profit was $1,282 thousand for the three months ended September 30, 2024 compared to a gross profit of $344 thousand for the three months ended September 30, 2023. The increase of $938 in gross profit quarter over quarter was primarily due to the increase in branded consumer products. Gross profit was 43.6% for the three months ended September 30, 2024 compared to a gross profit of 28.2% for the three months ended September 30, 2023.

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

| Cost of revenues | Three Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Materials and finished products | $1,250 | $593 |
| Share-based compensation | 10 | 11 |
| Compensation and benefits | 97 | 51 |
| Depreciation and amortization | 157 | 32 |
| Equipment, production and other expenses | 144 | 190 |
| Total cost of revenues | $1,658 | $877 |

Cost of revenues increased by $781, or 89.1%, to $1,658 for the three months ended September 30, 2024, as compared to $877 for the three months ended September 30, 2023. The increase in cost of revenues is primarily aligned with sales of branded consumer products, as both Silly George and Kenkoderm were acquired after the comparable 2023 time period.

**Selling, general and administrative expenses**. The following table highlights Selling, general and administrative expenses by type for the three months ended September 30, 2024 and 2023 ($ in thousands):

| Selling, general and administrative expenses | Three Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Compensation and benefits | $239 | $169 |
| Share-based compensation | 143 | 66 |
| Depreciation and amortization | 27 | 5 |
| Advertising, marketing, and Amazon fees | 997 | 178 |
| Investor and shareholder services | 47 | 86 |
| Franchise tax and corporate insurance | 38 | 52 |
| Professional and consulting fees | 375 | 271 |
| Other expenses and professional fees | 204 | 123 |
| Total Selling, general and administrative expenses | $2,070 | $950 |

Selling, general and administrative expenses increased by $1,120, or 117.9%, to $2,070 for the three months ended September 30, 2024, as compared to $950 for the three months ended September 30, 2023. The increase in Selling, general and administrative expenses is primarily attributable to the factors described below.

Compensation and benefits increased by $70, or 41.4%, to $239 for the three months ended September 30, 2024, as compared to $169 for the three months ended September 30, 2023. The number of employees increased compared to the prior period and officer compensation increased in conjunction with contract renewals.

Share-based compensation increased by $77 or 116.7%, to $143 for the three months ended September 30, 2024, as compared to $66 for the three months ended September 30, 2023. The increase related to the issuance of stock options and restricted awards to our officers, employees, board of directors, and advisors.

Advertising, marketing, Amazon fees increased by $819, or 460.1%, to $997 for the three months ended September 30, 2024, as compared to $178 for the three months ended September 30, 2023. The increase is due to the increased Amazon selling fees and an increase in advertising and marketing attributable to promoting Kenkoderm and Silly George.

Investor and shareholder services decreased by $39 or 45.3%, to $47 for the three months ended September 30, 2024, as compared to $86 for the three months ended September 30, 2023. The decrease is due to a net reduction of investor services compared to the prior year period.

Franchise taxes and corporate insurance decreased by $14, or 26.9%, to $38 for the three months ended September 30, 2024, as compared to $52 thousand for the three months ended September 30, 2023. In the prior year period, a non-recurring adjustment resulted in an increase in franchise taxes.

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Professional and consulting fees increased by $104, or 38.4%, to $375 for the three months ended September 30, 2024, as compared to $271 for the three months ended September 30, 2023. We continued to incur accounting and consulting fees associated with public company governance requirements and professional services related to branded consumer products.

Other Expenses increased by $81, or 65.9%, to $204 for the three months ended September 30, 2024 from $123 for the three months ended September 30 2023. Other Selling, general and administrative expenses generally consist of normal costs associated with our selling efforts and general management, including information technology, travel, training and recruiting.

**Research and development expenses**. Research and development expenses decreased by $6, or 100%, to $0 for the three months ended September 30, 2024 from $6 for the three months ended September 30, 2023. Research and development expenses are related to research costs incurred for potential products for existing or new customers.

### Comparison of the Nine Months ended September 30, 2024 and 2023 (in thousands)

### Revenues, net

For the nine months ended September 30, 2024, revenues were $5,647 and increased by $2,640, or 87.8%, when compared to $3,007 for the nine months ended September 30, 2023. The increase in our overall revenues was primarily due to sales growth in our branded consumer products, including gross revenue from Silly George of $1,753 from May 15, 2024 through September 30, 2024, and partially offset by a decrease in contract manufacturing.

**Gross profit**. Our gross profit was $1,969 for the nine months ended September 30, 2024, compared to a gross profit of $461 for the nine months ended September 30, 2023. The increase of $1,508 in gross profit recorded for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, was primarily due to increase in branded consumer products. Gross profit was approximately 34.9% for the nine months ended September 30, 2024, compared to a gross profit of 15.3% for the nine months ended September 30, 2023.

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

| Cost of revenues | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Materials and finished products | $2,537 | $1,542 |
| Share based compensation | 15 | 11 |
| Compensation and benefits | 432 | 385 |
| Depreciation and amortization | 218 | 73 |
| Equipment, production, and other expenses | 476 | 535 |
| Total cost of revenues | $3,678 | $2,546 |

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Cost of revenues increased by $1,132, or 44.5%, to $3,678 for the nine months ended September 30, 2024, as compared to $2,546 for the nine months ended September 30, 2023. The increase in cost of revenues pertains to an increase in materials and finished products. The increase in cost of revenues is primarily aligned with sales of branded consumer products, as both Silly George and Kenkoderm were acquired after the comparable 2023 time period.

**Selling, general, and administrative expenses**. The following table highlights selling, general, and administrative expenses by type for the nine months ended September 30, 2024 and 2023 ($ in thousands):

| Selling, general, and administrative expenses | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Compensation and benefits | $743 | $490 |
| Share-based compensation | 246 | 109 |
| Depreciation and amortization | 110 | 32 |
| Advertising, marketing, and Amazon fees | 1,693 | 438 |
| Investor and shareholder services | 197 | 323 |
| Franchise tax and corporate insurance | 118 | 174 |
| Professional and consulting fees | 1,140 | 823 |
| Other expenses | 357 | 240 |
| Total selling, general and administrative expenses | $4,604 | $2,629 |

Selling, general, and administrative expenses increased by $1,975 or 75.1%, to $4,604 for the nine months ended September 30, 2024, as compared to $2,629 for the nine months ended September 30, 2023. The increase in selling, general, and administrative expenses is primarily attributable to increased Advertising, marketing and Amazon fees, which directly correlates to our growth in branded consumer products.

Compensation and benefits increased by $253, or 51.6%, to $743 for the nine months ended September 30, 2024, as compared to $490 for the nine months ended September 30, 2023. The number of employees increased compared to the prior period and officer compensation increased in conjunction with contract renewals.

Share-based compensation increased by $137, or 125.7%, to $246 for the nine months ended September 30, 2024, as compared to $109 for the nine months ended September 30, 2023. The increase related to the issuance of stock options and restricted awards to our officers, employees, board of directors, and advisors.

Advertising, marketing, Amazon fees increased by $1,255 or 286.5%, to $1,693 for the nine months ended September 30, 2024, as compared to $438 for the nine months ended September 30, 2023. The increase is due to the increased Amazon selling fees and increase in advertising and marketing attributable to promoting Kenkoderm and Silly George.

Investor and shareholder services decreased by $126 or 39.0%, to $197 for the nine months ended September 30, 2024, compared to $323 for the nine months ended September 30, 2023. The decrease is due to a net reduction of investor services compared to the prior year period.

Franchise taxes and corporate insurance decreased by $56 or 32.2%, to $118 for the nine months ended September 30, 2024, as compared to $174 for the nine months ended September 30, 2023. In the prior year period, a non-recurring adjustment resulted in an increase in franchise taxes.

Professional and consulting fees increased by $317 or 38.5% to $1,140 for the nine months ended September 30, 2024, as compared to $823 for the nine months ended September 30, 2023. We continued to incur accounting and consulting fees associated with public company governance requirements and professional services related to branded consumer products.

Other expenses increased by $117, or 48.8%, to $357 for the nine months ended September 30, 2024 from $240 for the nine months ended September 30, 2023. Other Selling, general and administrative expenses generally consist of normal costs associated with our selling efforts and general management, including information technology, travel, training and recruiting.

**Research and development expenses**. Research and development expenses decreased by $12, or 13.3% to $78 for the nine months ended September 30, 2024 from $90 for the nine months ended September 30, 2023. Research and development expenses are related to research costs incurred for potential products for existing or new customers.

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### Liquidity and Capital Resources

### Cash Flow (in thousands)

|  | September 30, 2024 | September 30, 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(3,008) | $(2,649) |
| Net cash provided by (used in) investing activities | (712) | 4,729 |
| Net cash provided by financing activities | 2,079 | 85 |
| Net increase (decrease) in cash and cash equivalents | (1,641) | 2,165 |
| Cash and cash equivalents at beginning of year | 2,700 | 1,101 |
| Cash and cash equivalent at end of quarter | $1,059 | $3,266 |

As of September 30, 2024, we had $1,059 of cash and cash equivalents, compared to $2,700 of cash and cash equivalents at December 31, 2023. Net cash used in operating activities was $3,008 and $2,649 for the nine months ended September 30, 2024 and 2023, respectively.

Net cash used in investing activities was $712 and net cash provided by investing activities was $4,729 for the nine months ended September 30, 2024 and 2023, respectively, consisting of the sales of marketable securities of $62, the purchase of capital equipment of $374 and the Silly George acquisition of $400 for nine months ended September 30, 2024 and consisting of the sales of marketable securities of $5,340 and purchases of capital equipment of $611 for nine months ended September 30, 2023.

Net cash provided by financing activities for the nine months ended September 30, 2024 was $2,079 consisting of net proceeds from the February Offering and August Offering of $1,950, an investment of $37 by a joint venture partner, and from the margin line of credit of $345, offset by principal payments of notes payable of $36, a change in contingent consideration liability of $164, and by principal payment on financing lease liability of $53. Net cash used in financing activities for the nine months ended September 30, 2023 was attributable to the proceeds from the margin line of credit of $89 thousand and principal payments of notes payable and convertible notes of $4.

At September 30, 2024, current assets totaled $4,610 and current liabilities totaled $3,048 as compared to current assets totaling $5,052 and current liabilities totaling $2,549 at December 31, 2023. As a result, we had working capital of $1,562 at September 30, 2024, compared to a working capital of $2,503 at December 31, 2023. The change in the working capital as of September 30, 2024 is primarily attributable to the loss from operations of $2,713, cash paid for asset acquisition of $400, capital expenditures of $374, offset by net proceeds of $1,950 from the February Offering and August Offering.

We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we anticipate that all available funds and any earnings generated in our business will be used to finance the growth of our business and will not be paid out as dividends to our shareholders. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our Board of Directors may deem relevant.

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Management is exploring new product channel sales in consumer products, such as cosmetics, athletic products, and proprietary medical devices. The Company has increased its focus on sales and developing a sales pipeline for potential customers. This customer base expansion will enable us to provide financial stability for the foreseeable future, expand our current processes, and position us for long-term shareholder value creation.

Our recent capital raise expected to close on or about November 13, 2024 provides working capital necessary to continue our strategic objectives (discussed further within Note 19). 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, television and online marketplaces. Furthermore, the Company plans to develop its own proprietary medical devices and explore drug delivery programs for its technology. Additionally, the Company continues to evaluate strategic initiatives (e.g., acquisitions) and additional capital raises through debt or equity may be necessary to achieve these objectives.

We expect to continue incurring losses for the near-term future. Our ability to continue to operate as a going concern in the long term is dependent upon our ability to manage and grow our current products and to ultimately achieve profitable operations. Management may consider various options to raise capital to fund potential acquisitions through equity or debt offerings. There can be no assurances, however, that management will be able to obtain sufficient additional funds, if needed, or that such funds, if available, will be obtained on terms satisfactory to us. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and liabilities that might be necessary should we be unable to continue as a going concern.

Additionally, it is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including the recoverability of long-lived assets.

### Off Balance Sheet Arrangements

As of September 30, 2024, we had no off-balance sheet arrangements in the nature of guarantee contracts, retained or contingent interests in assets transferred to entities (or similar arrangements serving as credit, liquidity or market risk support to entities for any such assets), or obligations (including contingent obligations) arising out of variable interests in entities providing financing, liquidity, market risk or credit risk support to us, or that engage in leasing, hedging or research and development services with us.

### Critical Accounting Policies and Estimates

The preparation of our accompanying condensed consolidated financial statements in accordance with generally accepted accounting principles is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider the accounting policies discussed below to be critical to the understanding of our Financial Statements. Actual results could differ from our estimates and assumptions, and any such differences could be material to our Financial Statements.

*Share-based compensation –* We utilize share-based compensation in the form of incentive stock options. The fair values of incentive stock option award grants are estimated as of the date of grant using a Black-Scholes option valuation model. Compensation expense is recognized in the statements of operations on a straight-line basis over the requisite service period, which is generally the vesting period required to obtain full vesting. The expected term of the awards granted is estimated using the simplified method which computes the expected term as the sum of the award’s vesting term plus the original contractual term divided by two.

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*Warrant Liability –* Warrants to purchase common stock were issued in connection with equity financing raises which occurred during 2019 through 2024. The fair values of the warrants are estimated as of the date of issuance and again at each year end using a Black-Scholes option valuation model. At issuance, the fair value of the warrant is recognized as an equity issuance cost within additional paid-in-capital. Fair value adjustments to the warrant liability are recognized in other income (expense) in the statements of operations. The expected term of the awards granted are based on either the three-year or five-year contractual expiration date.

*Black Scholes Inputs -* The fair value of each stock option award and warrant issued was estimated on the date of grant using a Black-Scholes option-valuation model, which requires management to make certain assumptions regarding: (i) fair value of the common stock that underlies the stock option; (ii) the expected volatility in the market price of our common stock; (iii) dividend yield; (iv) risk-free interest rates; and (iv) the period of time employees are expected to hold the award prior to exercise (referred to as the expected term). Under the Black-Scholes option-valuation model, entities typically estimate the expected volatility based on historical volatilities of the entity’s own common stock. Based on the lack of historical data of volatility for the Company’s common stock, the Company based its estimate of expected volatility on a weighted average of the historical volatility of comparable public companies that manufacture similar products and are similar in size, stage of life cycle, and financial leverage. The fair value of the common stock that underlies the stock option is estimated by the Company considering the price of the most recent issuance of the Company’s common stock. The dividend yield is based upon the assumption that the Company will not declare a dividend over the life of the options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for bonds with maturities consistent with the expected term of the related award.

## Controls and procedures

As filed, 1,211 characters.

### Disclosure Controls and Procedures.

As of September 30, 2024, we conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”), as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended. The Disclosure Controls evaluation was done under the supervision and with the participation of management, including our chief executive officer and chief financial officer. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our chief executive officer and chief financial officer have concluded that our Disclosure Controls were effective as of September, 2024 at a reasonable level of assurance.

### Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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## Risk factors

As filed, 394 characters.

In addition to the other information set forth in this quarterly report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2023 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. There have been no material changes during fiscal 2024 to the risk factors that were included in the Form 10-K.

Filed Nov 13, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-045213. Last ingested by Listed: Oct 24, 2026, 15:08 ET. No prices; not investment advice.