| Significant Accounting Policies and Estimates | 3.
Significant Accounting Policies and Estimates Use
of Estimates The
preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates and assumptions
include allowances for credit losses, inventory reserves, deferred taxes, share-based compensation and related valuation allowances and
fair value of long-lived assets. Actual results could differ from the estimates. Reclassifications We
have reclassified, combined or separately disclosed certain amounts in the prior years’ consolidated financial statements and accompanying
footnotes to conform with the current year’s presentation. Segment
Reporting The
Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 280, Segment
Reporting 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 JV used for the Company’s converting and packaging business, which is based in
Granbury, Texas. Cash Cash
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, 2023, there was $ 245 no Accounts
Receivable, net Trade
accounts receivable are stated at the amount the Company expects to collect and do not bear interest. The Company evaluates the collectability
of accounts receivable and records a provision to the allowance for credit losses based on factors including the length of time the receivables
are past due, the customer’s payment history, the credit quality of the customer and other factors that may affect the customers’
ability to pay. Provisions to the allowances for doubtful accounts are recorded in selling, general and administrative expenses. Account
balances are charged off against the allowance when it is probable that the receivable will not be recovered. The allowance for credit
losses was $ 18 11 Inventory
and Cost of Revenues The
inventory balance is stated at the lower of cost, the value determined by the first-in, first-out method, or net realizable value. The
Company evaluates inventories for excess quantities, obsolescence, and shelf-life expiration. This evaluation includes an analysis of
historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products,
general market conditions, and a review of the shelf-life expiration dates for products. These factors determine when, and if, the Company
adjusts the carrying value of inventory to estimated net realizable value. The
Company produces proprietary branded products and white label opportunities in our manufacturing of consumer products. In our contract
manufacturing, the Company builds its products based on customer orders and immediately ships the products upon completion of the production
process. The
inventory balance is made up of raw materials, work-in-progress, and finished goods. Inventory is maintained at the Company’s warehouses
and at fulfilment centers owned by Amazon, Walmart and CVS. The
“Cost of revenues” line item in the condensed consolidated statements of operations is comprised of the book value of inventory
sold to customers during the reporting period. When circumstances dictate that we use net realizable value as the basis for recording
inventory, we base our estimates on expected future selling prices less expected disposal costs. Research
and Development Our
research and development activities focus on new and innovative products designed to support revenue growth. Research and development
expenses consist primarily of contracted development and testing efforts associated with development of products. Shipping
and Handling Revenue and Expense Shipping
and handling revenue and expense are included in our condensed consolidated statements of operations in revenues and cost of revenues,
respectively. Shipping revenue and expense are primarily generated through the Amazon marketplace. Property
and Equipment, net Property
and equipment is recorded at historical cost, net of accumulated depreciation and amortization. Depreciation is provided over the assets’
useful lives on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated
useful lives or lease terms. Repairs and maintenance costs are expensed as incurred. Management
periodically assesses the estimated useful life over which assets are depreciated or amortized. If the analysis warrants a change in
the estimated useful life of property and equipment, management will reduce the estimated useful life and depreciate or amortize the
carrying value prospectively over the shorter remaining useful life. The
carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the year of disposal and any resulting
gains and losses are included in the results of operations during the same year. Impairment
of Long-Lived Assets The
Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs
to sell. Goodwill
and Intangible Assets In
applying the acquisition method of accounting, amounts assigned to identifiable assets and liabilities acquired were based on estimated
fair values as of the date of acquisition, with the remainder recorded as goodwill. Identifiable intangible assets are initially recorded
at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Identifiable intangible assets
with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise.
Intangible assets with indefinite lives are tested for impairment within one year of the acquisition date or annually as of December
31, and whenever indicators of impairment exist. The fair value of intangible assets is compared with their carrying values, and an impairment
loss would be recognized for the amount by which a carrying amount exceeds its fair value. The
Company performed the annual assessment and concluded it is more likely than not that the fair value exceeds the carrying value and no Prepaid
Expenses and Other Current Assets Prepaid
expenses and other current assets are recorded at historical cost and are primarily made up of $ 10 64 458 336 Other
Assets Other
assets are recorded at historical costs, and as of June 30, 2024 and December 31, 2023, the balance is primarily comprised of spare parts
for manufacturing 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 Level
2 Level
3 The
Company considers the carrying amounts of its financial instruments (cash, accounts receivable and accounts payable, notes payable and
convertible notes payable) in the condensed consolidated balance sheet to approximate fair value because of the short-term or highly
liquid nature of these financial instruments. Warrant
Liability Warrants
to purchase common stock were issued in connection with equity financing raises, which occurred during 2019 through 2024. The fair values
of the warrants are estimated as of the date of issuance and again at each year end using a Black-Scholes option valuation model. At
issuance, the fair values of the warrant are recognized as an equity issuance cost within additional paid-in-capital. Fair value adjustments
to the warrant liability are recognized in other income (expense) in the condensed consolidated statements of operations. Revenue
Recognition The
Company records revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers The
Company currently recognizes revenue predominately from three sources, contract manufacturing, custom and white label finished goods
manufacturing and our branded products. Revenues from manufactured products 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. The
Company’s customers consist of other life sciences companies and Amazon retail customers. Revenues are entirely concentrated in
the United States. Payment terms 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. 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
2024 2023
Three months ended
June 30,
2024 2023
Contract manufacturing $ 425 $ 887
Custom and white label finished goods manufacturing 11 —
Branded consumer products 968 259
Other 36 21
Total $ 1,440 $ 1,167
2024 2023
Six months ended
June 30,
2024 2023
Contract manufacturing $ 1,026 $ 1,267
Custom and white label finished goods manufacturing 42 4
Branded consumer products 1,585 493
Other 53 22
Total $ 2,706 $ 1,786 As
of June 30, 2024 and December 31, 2023, the Company did not have any contract assets or contract liabilities from contracts with customers
and there were no 179 20 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. 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 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. Share-based
Compensation On
August 28, 2019, the Company adopted the 2019 Long-Term Incentive Plan, as amended (the “2019 Plan”). See Note 13 below for
further details regarding the 2019 Plan. The
2019 Plan provides certain employees, contractors, and outside directors with share-based compensation in the form of incentive stock
options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend
equivalent rights and other awards. The fair values of incentive stock option award grants are estimated as of the date of grant using
a Black-Scholes option valuation model. Compensation expense is recognized in the condensed consolidated statements of operations on
a straight-line basis over the requisite service period, which is generally the vesting period. Income
Taxes Income
taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities
at the applicable tax rates. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates. Tax
benefits are recognized from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon
examination by a tax authority and based upon the technical merits of the tax position. The tax benefit recognized in the condensed consolidated
financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized upon settlement.
An unrecognized tax benefit, or a portion thereof, is presented in the condensed consolidated financial statements as a reduction to
a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required
or expected in the event the uncertain tax position is disallowed. Leases ASC
842, Leases, requires recognition of leases on the condensed consolidated balance sheets as right-of-use (“ROU”) assets and
lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities
represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease
liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As
the Company’s leases do not provide an implicit rate, the Company used its estimated incremental borrowing rate based on the information
available at commencement date in determining the present value of lease payments. A number of the lease agreements contain options to
renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal
and termination options that are deemed reasonably certain to be exercised. The
Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing
operating leases longer than twelve months. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances
of accrued and prepaid rent, and unamortized lease incentives provided by lessors. Operating lease cost is recognized as a single lease
cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments
for common area maintenance, property taxes and other operating expenses are recognized as expense in the year when the changes in facts
and circumstances on which the variable lease payments are based occur. The Company has elected not to separate lease and non-lease components
for all property leases for the purposes of calculating ROU assets and lease liabilities. Variable
Interest Entity The
Company reviews each legal entity formed by parties related to the Company to determine whether or not the Company has a variable interest
in the entity and whether or not the entity would meet the definition of a variable interest entity (“VIE”) in accordance
with ASC Topic 810, Consolidation If
the Company determines that it is the primary beneficiary of a VIE at the onset of the collaboration, the collaboration is treated as
a business combination and the Company consolidates the financial statements of the VIE into the Company’s condensed consolidated
financial statements. As of December 31, 2023, and on a quarterly basis thereafter, the Company will evaluate whether it continues to
be the primary beneficiary of the consolidated VIE. If the Company determines that it is no longer the primary beneficiary of a consolidated
VIE, it deconsolidates the VIE in the period in which the determination is made. Assets
and liabilities recorded as a result of consolidating the financial results of the VIE into the Company’s condensed consolidated
balance sheet do not represent additional assets that could be used to satisfy claims against the Company’s general assets or liabilities
for which creditors have recourse to the Company’s general assets. Comprehensive
loss Comprehensive
loss consists of net loss and changes in equity during the period from transactions and other equity and circumstances generated from
non-owner sources. The Company’s net loss equals comprehensive loss for all periods presented. Recently
Issued Accounting Standards From
time to time, new accounting pronouncements are issued by the FASB, or other standard setting bodies and adopted by us as of the specified
effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material
impact on our condensed consolidated financial position or results of operations upon adoption. In
June 2016, the FASB issued Accounting Standards Update (“ASU’) 2016-13, Financial Instruments – Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments Accounting
Pronouncements Issued But Not Yet Adopted In
December 2023, the FASB issued ASU 2023-09 , Income Taxes (Topic 740): Improvements to Income Tax Disclosures In
November 2023, the FASB issued ASU 2023-07 , Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures |
