10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number

 000-55908

AVENIR WELLNESS SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware	2844	90-1504639
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Number)	(IRS Employer Identification Number)

15233 Ventura Blvd., Suite 420, Sherman Oaks, California 91403

(Address of principal executive offices)

 (424) 273-8675

(Issuer’s telephone number)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     No ☒

On November 19, 2024, we had 78,925,168 shares of common stock, par value $0.001 per share (the “Common Stock”), issued and outstanding.

AVENIR WELLNESS SOLUTIONS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED September 30, 2024

ITEMS IN FORM 10-Q

		Page
	Special Note Regarding Forward-Looking Statements	3
Part I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Unaudited Condensed Consolidated Statements of Operations	5
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit)	6
	Unaudited Condensed Consolidated Statements of Cash Flows	7
	Notes to the Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosure	39
Item 5.	Other Information	39
Item 6.	Exhibits	41
	Signatures	42

2

Special Note Regarding Forward-Looking Statements 

This Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2024 (this “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties, including statements based on our current expectations, assumptions, estimates and projections about future events, our business, financial condition, results of operations and prospects, our industry and the regulatory environment in which we operate. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, or other comparable terms intended to identify statements about the future.

The forward-looking statements included herein speak only as of the date they are made and are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to predict accurately and many of which are beyond our control. As such, our actual results may differ significantly from those expressed in any forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” of this Quarterly Report. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the Securities and Exchange Commission (“SEC”). In light of the significant risks and uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results, objectives and plans will be achieved, and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. Except as required by law, we undertake no obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. You should read this Quarterly Report and the documents we file with the SEC, with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

Unless otherwise indicated or the context requires otherwise, as used in this Quarterly Report, the words “we,” “us,” “our,” the “Company,” “our Company,” or “Avenir” refer to Avenir Wellness Solutions, Inc., a Delaware corporation, and our subsidiaries taken as a whole, unless otherwise noted.

Trademarks and Trade Names

This Quarterly Report includes our trademarks and trade names, which are our property and protected under applicable intellectual property laws. This Quarterly Report also includes trademarks and trade names that are the property of other organizations. Solely for convenience, trademarks and trade names referred to in this Quarterly Report may appear without the ® and ™ symbols, but those references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AVENIR WELLNESS SOLUTIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

	September 30, 2024			December 31, 2023
Assets	(Unaudited)
Current assets
Cash	$	11		$	49
Accounts receivable, net		33			443
Inventory, net		142			199
Prepaid expenses and other current assets		52			286
Note receivable - current		-			975
Due from related party		-			4
Total current assets		238			1,956
Property and equipment, net		3			4
Operating lease right-of-use asset, net		-			50
Investments, net		264			264
Patents, net		212			227
Other intangibles, net		31			70
Other assets		-			36
Total assets	$	748		$	2,607
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable	$	2,452		$	2,452
Accrued expenses		1,587			1,342
Operating lease payable		-			45
Loans payable		-			139
Note payable - related party		41			-
Notes payable		107			-
Fair value of convertible promissory notes		8,713			8,099
Deferred revenue		396			416
Total current liabilities		13,296			12,493
Operating lease payable		-			-
Total liabilities		13,296			12,493
Commitments and contingencies (see Note 18)
Stockholders’ equity (deficit)
Common stock: $0.001 par value; authorized 150,000,000 shares; 78,925,168 and 77,993,348 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively		79			78
Additional paid-in capital		113,505			113,435
Accumulated deficit		(126,132	)		(123,399	)
Total stockholders’ equity (deficit)		(12,548	)		(9,886	)
Total liabilities and stockholders’ equity (deficit)	$	748		$	2,607

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

AVENIR WELLNESS SOLUTIONS, INC. AND SUBSIDIARIES 

Unaudited Condensed Consolidated Statements of Operations 

(In thousands, except share amounts)

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
Revenue:
Product sales, net of discounts and refunds	$	192		$	1,011		$	919		$	3,221
Total Revenue	$	192		$	1,011		$	919		$	3,221
Cost of goods sold:
Cost of goods sold		35			278			187			817
Gross profit		157			733			732			2,404
Operating expenses:
Selling, general and administrative expenses		660			2,287			2,821			7,446
Change in fair value of contingent stock consideration		-			18			-			(290	)
Total operating expenses		660			2,305			2,821			7,156
Net operating loss before other income (expense)		(503	)		(1,572	)		(2,089	)		(4,752	)
Other income (expense):
Interest income		-			11			5			43
Change in fair value of convertible promissory notes		(19	)		(648	)		(614	)		1,331
Interest expense		(19	)		(15	)		(32	)		(42	)
Total other income (expense)		(38	)		(652	)		(641	)		1,332
Loss before provision for income taxes		(541	)		(2,224	)		(2,730	)		(3,420	)
Provision for income taxes		-			-			(3	)		-
Net loss	$	(541	)	$	(2,224	)	$	(2,733	)	$	(3,420	)
Basic and diluted loss per share
Net loss per share, basic and diluted	$	(0.01	)	$	(0.03	)	$	(0.03	)	$	(0.05	)
Weighted average shares outstanding - basic and diluted		78,439,001			72,231,926			78,142,983			71,717,926

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 

5

AVENIR WELLNESS SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

					Additional			Common
	Common Stock				Paid-in			Stock		Accumulated
	Shares		Amount		Capital			Issuable		Deficit			Total
Balance, December 31, 2023		77,993,348	$	78	$	113,435		$	-	$	(123,399	)	$	(9,886	)
Fair value of stock options granted		-		-		5			-		-			5
Fair value of restricted stock units granted		-		-		30			-		-			30
Net loss		-		-		-			-		(1,295	)		(1,295	)
Balance, March 31, 2024		77,993,348	$	78	$	113,470		$	-	$	(124,694	)	$	(11,146	)
Fair value of stock options granted		-		-		5			-		-			5
Fair value of restricted stock units granted		-		-		24			-		-			24
Net loss		-		-		-			-		(897	)		(897	)
Balance, June 30, 2024		77,993,348	$	78	$	113,499		$	-	$	(125,591	)	$	(12,014	)
Issuance of common stock pursuant to vested restricted stock units		931,820		1		(1	)		-		-			-
Fair value of stock options granted		-		-		4			-		-			4
Fair value of restricted stock units granted		-		-		3			-		-			3
Net loss		-		-		-			-		(541	)		(541	)
Balance, September 30, 2024		78,925,168	$	79	$	113,505		$	-	$	(126,132	)	$	(12,548	)
Balance, December 31, 2022		71,426,801	$	71	$	112,471		$	308	$	(119,955	)	$	(7,105	)
Issuance of common stock for professional services		15,000		-		2			-		-			2
Fair value of stock options granted		-		-		96			-		-			96
Fair value of restricted stock units granted		-		-		113			-		-			113
Net loss		-		-		-			-		(209	)		(209	)
Balance, March 31, 2023		71,441,801	$	71	$	112,682		$	308	$	(120,164	)	$	(7,103	)
Issuance of common stock for professional services		254,790		1		31			-		-			32
Fair value of stock options granted		-		-		75			-		-			75
Fair value of restricted stock units granted		-		-		115			-		-			115
Net loss		-		-		-			-		(987	)		(987	)
Balance, June 30, 2023		71,696,591	$	72	$	112,903		$	308	$	(121,151	)	$	(7,868	)
Issuance of common stock for professional services		90,682		-		9			-		-			9
Issuance of common stock pursuant to vested restricted stock options		1,408,156		1		(1	)		-		-			-
Fair value of stock options granted		-		-		72			-		-			72
Fair value of restricted stock units granted		-		-		43			-		-			43
Net loss		-		-		-			-		(2,224	)		(2,224	)
Balance, September 30, 2023		73,195,429	$	73	$	113,026		$	308	$	(123,375	)	$	(9,968	)

 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

AVENIR WELLNESS SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

	For the Nine Months Ended
	September 30, 2024			September 30, 2023
Net loss	$	(2,733	)	$	(3,420	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation – services		-			43
Change in fair value of contingent stock consideration		-			(290	)
Change in fair value of convertible promissory notes		614			(1,331	)
Depreciation and amortization		56			51
Amortization of right-of-use asset		50			81
Inventory reserve for obsolescence		(12	)		(84	)
Fair value of vested stock options and restricted stock		71			514
Changes in operating assets and liabilities:
Accounts receivable		410			87
Inventory		69			9
Prepaid expenses and other current assets		270			312
Due from related party		4			124
Accounts payable		-			506
Accrued expenses		245			106
Operating lease payable		(45	)		(92	)
Deferred revenue		(20	)		65
Cash (used in) operating activities		(1,021	)		(3,319	)
Cash flows from investing activities:
Purchase of intangible assets		(1	)		(51	)
Repayment of note receivable		975			750
Cash provided by investing activities		974			699
Cash flows from financing activities:
Proceeds from note payable to related party		45			-
Repayment of note payable to related party		(4	)		-
Proceeds from note payable		122			-
Repayment of note payable		(15	)		-
Repayment of loans payable		(139	)		(134	)
Cash (used in) financing activities		9			(134	)
Net increase (decrease) in cash and cash equivalents		(38	)		(2,754	)
Cash and cash equivalents, beginning of year		49			2,943
Cash and cash equivalents, end of period	$	11		$	189
Supplemental cash flow information:
Cash paid for interest and income taxes:
Interest	$	19		$	9
Income taxes	$	-		$	-

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 

7

AVENIR WELLNESS SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30, 2024

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Business Operations

Avenir Wellness Solutions, Inc. (“Avenir”), its wholly-owned subsidiaries including The Sera Labs, Inc. (“Sera Labs”) collectively (the “Company,” “we,” “our,” “us,” or “Avenir”) is a broad platform technology company focusing on the development of nutraceutical formulation and delivery technologies in novel dosage forms to improve efficacy and enhance wellness. Our mission is to improve lives by redefining how active ingredients are delivered and experienced. Our primary business model is to develop health, wellness and beauty products using our proprietary formulations and technology as well as incubate new technologies for commercial exploitation through product development of new products to be sold under existing or new proprietary brands through Sera Labs and the licensing and/or sale of the rights to such technologies to third parties for their use. Development may include conduction of clinical trials for substantiation of the efficacy of our products.

Sera Labs is engaged in the development, production and sale of the Company’s wellness and beauty products and is a trusted leader in the health, wellness and beauty sectors with innovative products containing cutting edge technology and superior ingredients. Sera Labs creates high quality products that use science-backed, proprietary oral and topical formulations. We focus on evidence-based wellness products that are differentiated by using proprietary and/or proven active ingredients that we formulate for greater stability, overall quality and increased bioavailability. Wellness and beauty products can be cosmetics, over-the-counter or dietary supplements which do not require approval from the U.S. Food and Drug Administration but do require following all good manufacturing practices. Thus, they are less costly and can be launched more quickly in the marketplace than pharmaceutical products. More than 25 products are sold under the brand names Seratopical®, Seratopical Revolution® SeraLabs®, and Nutri-Strips™ at affordable prices, making them easily accessible on a global scale. Strategically positioned in the growth categories of beauty and health & wellness, Sera Labs products are sold direct-to-consumer (“DTC”) via online website orders, including opt-in subscribe and save option, and also online and in-store at major national drug, mass retailers, grocery chains and convenience stores and on Amazon.com.

8

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to prevent the information presented from being misleading. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K, which contains audited financial information for the two years in the period ended December 31, 2023.

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of ordinary recurring items) to present fairly the financial position and the results of operations of the Company for the periods presented. Interim results are not necessarily indicative of results to be expected for the full fiscal year or any future period.

Going Concern and Management’s Liquidity Plans

In accordance with the Financial Accounting Standards Board (“FASB”) standard on going concern, Accounting Standard Update (“ASU”) 2014-15, the Company assesses going concern uncertainty in its condensed consolidated financial statements to determine if it has sufficient cash, cash equivalents and working capital on hand, including marketable securities, and any available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued, which is referred to as the “look-forward period” in ASU 2014-15. As part of this assessment, based on conditions that are known and reasonably knowable to the Company, it considers various scenarios, forecasts, projections, estimates and makes certain key assumptions, including the timing and nature of projected cash expenditures or programs, and its ability to delay or curtail expenditures or programs, if necessary, among other factors. Based on this assessment, the Company makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent the Company deems probable those implementations can be achieved and it has the proper authority to execute them within the look-forward period in accordance with ASU 2014-15.

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

As of September 30, 2024, the Company had $11 thousand of cash on hand, had an accumulated deficit of $126.1 million and a working capital deficit of $13.1 million. Our operating activities consume a portion of our cash resources. We anticipate that we will continue to incur operating losses and negative cash flows from operations as we execute our strategic and business development initiatives. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company may need to complete additional equity or debt financings to fully execute its business plans and strategies.

We have previously funded our operating losses primarily through the issuance of common stock and/or promissory notes and cash generated from our product sales. We anticipate that we will incur decreased operating losses and negative cash flows from operations as we execute on our strategic and business development initiatives and with the elimination of overhead and operating expenses related to the Company’s pharmaceutical business segment that have been discontinued in connection with the sale of its pharmaceutical assets (the “Asset Sale”). There can be no assurance, however, that the Company will be able to raise additional capital when needed, or at terms deemed acceptable, if at all.

Reclassifications

Certain reclassifications have been made to prior year’s consolidated financial statements to enhance comparability with the current year’s consolidated financial statements. These reclassifications had no effect on the previously reported net loss.

9

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements, and other factors that management believes to be reasonable. In addition, the Company has considered the potential impact of certain macroeconomic factors, including inflation, rising interest rates, and recessionary pressures, on its business and operations. Although the full impact of these factors is unknown and cannot be estimated reasonably, the Company believes it has made appropriate accounting estimates and assumptions based on the facts and circumstances available as of the reporting date.

Significant areas requiring the use of management estimates include, but are not limited to, revenue recognition, the allowance for doubtful accounts, valuation of intangible assets and goodwill, depreciation and amortization useful lives, assumptions used to calculate the fair value of the contingent stock consideration, stock-based compensation, deferred taxes and the assumptions used to calculate fair values of the purchase price allocations and convertible promissory notes. Actual results could differ materially from such estimates under different assumptions or circumstances.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. As of September 30, 2024 and December 31, 2023, the Company had no cash equivalents. The Company maintains its cash in banks insured by the Federal Deposit Insurance Corporation in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions. As of September 30, 2024, the Company did not have cash balances in excess of the federal insurance limit.

Investments

The Company follows Accounting Standards Codification (“ASC”) 325-20, “Cost Method Investments” (“ASC 325-20”), to account for its ownership interest in noncontrolled entities. Under ASC 325-20, equity securities that do not have readily determinable fair values (i.e., non-marketable equity securities) and are not required to be accounted for under the equity method are typically carried at cost. Investments of this nature are initially recorded at cost. Dividends distributed from net accumulated earnings of the noncontrolled entity subsequent to the date of investment are recorded as income. Dividends received in excess of earnings accumulated subsequent to the date of investment are considered a return of investment and are recorded as reductions in the cost basis of the investment. The carrying amount of investments is written down only when there is clear evidence that a decline in value that is considered other than temporary has occurred.

10

Accounts Receivable

Accounts receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s evaluation of their collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that the likelihood of collection is remote. Any future recoveries are applied against the allowance for doubtful accounts.

Inventory

Inventory is stated at the lower of cost or net realizable value (“NRV”). NRV is the amount by which the estimated selling price of the product exceeds the sum of any additional costs expected to be incurred on the sale of such product in the ordinary course of business. The Company determines the cost of its inventory on a first-in, first-out (“FIFO”) basis. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period. To state the inventory at the lower of cost or NRV, we maintain reserves against individual stock keeping units. Inventory reserves, once established, are not reversed until the related inventories have been sold or scrapped. If future demand or market conditions are less favorable than our projections, a write-down of inventory may be required, and would be reflected in the cost of goods sold in the period the revision is made.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price paid over the fair value of net identifiable assets and liabilities acquired. Goodwill is not amortized but is tested for impairment at least annually, or if circumstances indicate its value may no longer be recoverable. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors affecting the Company’s business. Based on the qualitative assessment, if it is determined that the fair value of goodwill is more likely than not to be less than its carrying amount, the fair value of a reporting unit will be calculated and compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value.

Intangible assets with finite lives, such as patents, web design and trademarks are stated at cost less accumulated amortization. Amortization is calculated using the straight-line method over the estimated useful lives of the assets, which range from two years to twenty years. We review the useful lives and potential impairment of intangible assets whenever events or circumstances suggest that the carrying amount may not be recoverable.

Impairment of Long-Lived Assets

Long-lived assets include equipment and intangible assets other than those with indefinite lives. We assess the carrying value of our long-lived asset groups when indicators of impairment exist and recognize an impairment loss when the carrying amount of a long-lived asset is not recoverable when compared to undiscounted cash flows expected to result from the use and eventual disposition of the asset.

Indicators of impairment include significant underperformance relative to historical or projected future operating results, significant changes in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected, net, undiscounted cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically a discounted cashflow analysis, and an impairment charge is recorded for the excess of carrying value over fair value.

11

Contingent Consideration Liabilities

Business acquisitions of the Company may involve the potential for future payment of consideration to former selling security holders in amounts determined upon the attainment of prescribed financial or other milestones. The fair value of such liabilities is determined using unobservable inputs. These inputs include the estimated amount and timing of projected cash flows and the risk-adjusted discount rate used to present value the cash flows. These obligations are referred to as contingent consideration.

ASC 805, “Business Combinations,” requires that contingent consideration be estimated and recorded at fair value as of the acquisition date as part of the total consideration transferred. Additionally, the fair value of contingent consideration after the acquisition date is reassessed by the Company as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in its unaudited condensed consolidated statements of operations. Changes in key assumptions can materially affect the estimated fair value of contingent consideration liabilities.

Related Parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

 Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, “Revenue Recognition.” Revenue under Topic 606 is required to be recognized either at a “point in time” or “over time,” depending on the facts and circumstances of the arrangement, and are evaluated using a five-step model.

To achieve the core principle of Topic 606, we performed the following five steps:

· Identify the contract(s) with customer;

· Identify the performance obligations in the contract;

· Determine the transactions price;

· Allocate the transactions price to the performance obligations in the contract; and

· Recognize revenue when (or as) we satisfy a performance obligation.

12

Sera Labs Revenue

Sera Labs recognizes revenue as, or when, we satisfy performance obligations under a contract. We account for a contract when the parties approved the contract and are committed to perform on it, the rights of each party and the payment terms are identified, the contract has commercial substance and it is probable that we will collect substantially all of the consideration. A performance obligation is a promise in a contract to transfer a distinct good or service, or a series of distinct goods or services, to a customer. The transaction price of a contract must be allocated to each performance obligation and recognized as the performance obligation is satisfied. In essence, we recognize revenue when or as control of the promised goods or services transfer to the customer.

 Sales through Related Party - Advanced Legacy Technologies LLC (ALT)

In April 2022, pursuant to the Distribution Services Agreement between Sera Labs and ALT (the “Agreement”), ALT was engaged to provide a range of auxiliary services to Sera Labs designed to support the direct-to-consumer (“DTC”) sales channel, enhancing the efficiency and effectiveness of our product distribution. These services include, but are not limited to, processing customer payments, handling customer service inquiries, and managing logistics and fulfillment coordination with our third-party manufacturing and fulfillment vendor (3PL). ALT's role was instrumental in facilitating the seamless operation of our DTC model, acting as an extension of our operational infrastructure to ensure customer satisfaction and streamline sales processes. However, ALT does not have its own employees and the management of the aforementioned processes was performed by employees of Sera Labs. Additionally, pursuant to the Agreement, Sera Labs is permitted to “assign, transfer or otherwise delegate [the] Agreement or any of its rights or obligations [under the Agreement] without the written consent of ALT,” which Sera Labs did in having its employees administer the Agreement.  Under Topic 606, the Company was determined to be the principal in the transactions as we control the product, pricing, and promotions offered to the customers, and we are responsible for product returns and customer satisfaction. Sales through ALT were discontinued in 2023.

The Agreement contemplated the use by ALT of its own bank account, but it did not explicitly authorize Sera Labs employees to directly execute transactions through ALT's bank account. The authorization was granted extemporaneously by the beneficial owner of ALT, who is the chief executive officer of the Company. Such authorization was provided to help facilitate the administration of the Agreement and encompasses the following key features:

1.	Transaction Execution: Sera Labs employees are permitted to initiate and approve transactions related to the sales of our products, including the collection of revenues and payment of expenses associated with our direct-to-consumer sales channel.
2.	Bank Account Management: Specific protocols are outlined for the oversight and reconciliation of the bank account, ensuring transparency and accountability in its use. This includes regular auditing and reporting mechanisms to monitor the flow of funds and to ensure they are accurately attributed to the respective parties.
3.	Operational Integration: The intent was for the integration of ALT’s services to be performed similar to Sera Labs’ operational procedures, ensuring that ALT’s bank account usage is consistent with our overall business objectives and financial reporting practices.

13

Revenue Recognition

Revenue from eCommerce sales, including DTC sales, are recognized upon receipt of the merchandise by the customer. Sera Labs recognizes revenue in its DTC sales channel based on the principle that control of the specified goods is transferred to the customer. With the Power Keto and Immunity nutraceutical products which were facilitated through ALT, this control is evidenced through our agreement with 3PL, which stipulates that Sera Labs has the unilateral ability to direct 3PL to produce and ship the products directly to the customer upon order receipt. Despite 3PL retaining legal title to the products until the point of sale, the immediate transfer of legal title from Sera Labs to the customer upon sale (flash title transfer) demonstrates Sera Labs' control over the goods. 

Key factors supporting our determination as the principal in the ALT transactions include:

Primary Responsibility for Goods and Services: Under the terms of the Agreement, Sera Labs has ultimate responsibility for the specified goods' delivery and quality, indicating our control over the goods before they are transferred to the customer.

Inventory Risk: Under the terms of the Agreement, Sera Labs bears ultimate inventory risk before the goods are transferred to customers, as evidenced by our commitment to purchase the goods from 3PL upon receiving a customer order.

Pricing Discretion: Under the terms of the Agreement, Sera Labs has the sole discretion to establish the pricing for the specified goods, further supporting our role in directing the use of and obtaining the benefits from the sale of these goods.

These factors affirm the position of Sera Labs as the principal in the transactions under ASC 606, ensuring the correct recognition of revenue on a gross basis.

We also elected to adopt the practical expedient related to shipping and handling fees which allows us to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations. Therefore, shipping and handling activities are considered part of the Company’s obligation to transfer the products and therefore are recorded as direct selling expenses, as incurred. Shipping revenue is recorded upon delivery to the customer.

Practical Expedients and Exemptions

The Company has elected certain practical expedients and policy elections as permitted under ASC Topic 606 as follows:

· The Company adopted the practical expedient related to not adjusting the promised amount of consideration for the effects of a significant financing component if the period between transfer of product and customer payment is expected to be less than one year at the time of contract inception;

· The Company made the accounting policy election to exclude any sales and similar taxes from the transaction price; and

· The Company adopted the practical expedient not to disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

14

Sales Tax

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods or services to a customer, excluding sales taxes. The net amount of sales tax payable to the various state taxation authorities is included in sales tax payable in the unaudited condensed consolidated balance sheets.

Sales Returns, Discounts and Warranties

Sales returns, discount and warranties are considered variable consideration under ASC 606. The Company reduces revenue for estimated future returns, discounts and warranties which may occur with distributors and retailers. When evaluating the adequacy of sales returns, discounts and warranties, the Company analyzes the following: historical credit allowances, current sell-through of inventory of the Company’s products, current trends in retail industry, changes in customer demand, acceptance of products, and other related factors.

Cost to Obtain a Contract

The Company pays sales commissions to its employees and outside sales representatives for contracts and orders that they obtain relating to the wholesale sales of our products. The Company applies the optional practical expedient to immediately expense costs to obtain a contract or order if the recognition period of the revenue is one year or less. As such, sales commissions are immediately recognized as an expense and included as part of sales and marketing expenses.

Deferred Revenue

Advance payments and billings in excess of revenue recognized represent deferred revenue and is recorded as a liability when customers remit cash payments in advance before the Company satisfies its performance obligations under contractual or other sales arrangements. Deferred revenue is derecognized when revenue is recognized and the performance obligation is satisfied and is generally classified as current based on the timing of when the Company expects to recognize the revenue.

Deferred revenue is made up of the following as of September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024		December 31, 2023
Advance payments and customer deposits for commercial products	$	396	$	416

The following table summarizes the changes in deferred revenue during the period presented (in thousands):

Balance at December 31, 2023	$	416
Additions		37
Customer deposits returned		-
Transfers to revenue		(57	)
Balance at September 30, 2024	$	396

15

Cost of Goods Sold

Cost of goods sold primarily consists of costs for our products incurred to third-party manufacturers and in-bound freight.

Advertising Expense

The Company expenses marketing, promotions and advertising costs as incurred. Such costs are included in selling, general and administrative expense in the accompanying unaudited condensed consolidated statements of operations. The Company recorded advertising costs of $82 thousand and $802 thousand for the three months ended September 30, 2024 and 2023, respectively. The Company recorded advertising costs of $511 thousand and $2.2 million for the nine months ended September 30, 2024 and 2023, respectively.

Income Taxes

The Company utilizes ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.

The Company generated a deferred tax asset through net operating loss carry-forward. However, a valuation allowance of 100% has been established due to the uncertainty of the Company’s realization of the net operating loss carry-forward prior to its expiration.

Share-based Payments

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718, “Stock Compensation” (“ASC 718”) which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

16

Pursuant to ASC 2018-07 (Topic 718) for share-based payments to employees, consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the grant date. For awards of restricted stock, the Company determines grant date fair value based on the closing price of the Company’s common stock on the grant date as reported on the over-the-counter market (the “OTC Market”). For awards of stock options, the Company uses the Black-Scholes option valuation model to estimate grant date fair value.

Compensation expense is recognized for the portion of the award that is ultimately expected to vest over the period during which the recipient renders the required services to the Company using the straight-line single option method. See Note 15 – Share-based Payments for additional information.

Fair Value Measurements

The Company follows ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements and establishes a framework for measuring fair value and expands disclosure about such fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The carrying amounts of cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate fair values because of the short-term nature of these items.

Valuation techniques used to measure fair value, when required, must maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

· Level 1 – Quoted prices in active markets for identical assets and liabilities.

· Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

· Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

When a portion of the purchase consideration consists of shares of the Company’s common stock, the Company calculates the purchase price attributable to those shares, a Level 1 security, by determining the fair value of those shares quoted on the OTC Market as of the acquisition date. The Company recognizes estimated fair values of the tangible assets and identifiable intangible assets acquired and liabilities assumed, including any contingent consideration, as of the acquisition date. Goodwill is recognized as any amount of consideration transferred in excess of the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed.

In determining fair value, the Company also considers counterparty credit risk in its assessment of fair value. At September 30, 2024 and December, 31, 2023, the Company had no financial assets or liabilities recorded at fair value on a recurring basis, except for the Series A and B Notes, for which we elected the fair value option. These liabilities are measured at fair value using the period-end quoted market prices of the Company’s common stock as a Level 3 input and are marked-to-market at each reporting date with the change in fair value reported as a gain (loss) in the unaudited condensed consolidated statement of operations.

The following table summarizes fair value measurements by level at September 30, 2024 for assets and liabilities measured at fair value on a recurring basis (in thousands):

	Total		Level 1		Level 2		Level 3
Fair value of Series A Note	$	4,918	$	-	$	-	$	4,918
Fair value of Series B Note	$	3,795	$	-	$	-	$	3,795

The following table summarizes fair value measurements by level at December 31, 2023 for assets and liabilities measured at fair value on a recurring basis (in thousands):

	Total		Level 1		Level 2		Level 3
Fair value of Series A Note	$	4,597	$	-	$	-	$	4,597
Fair value of Series B Note	$	3,502	$	-	$	-	$	3,502

17

The following table summarizes the changes in Level 3 financial instruments during the nine months ended September 30, 2024 (in thousands):

Fair value of Series A and B Notes at December 31, 2023	$	8,099
Change in fair value of Series A Note		321
Change in fair value of Series B Note		293
Fair value of Series A and B Notes at September 30, 2024	$	8,713

A summary of the weighted average (in aggregate) significant unobservable inputs used in measuring the Series A and B Notes that are categorized within Level 3 of the fair value hierarchy is as follows:

	September 30, 2024			December 31,  2023
Stock price	$	0.0519		$	0.0744
Conversion price	$	1.32		$	1.32
Term (in years) – Series A Note		0.0			0.0
Term (in years) – Series B Note		0.0			0.0
Volatility – Series A Note		70.5	%		78.0	%
Volatility – Series B Note		70.5	%		78.0	%
Risk-free interest rate – Series A Note		4.73	%		5.13	%
Risk-free interest rate – Series B Note		4.73	%		5.13	%
Interest rate		18.0	%		18.0	%

Contingencies

We are exposed to claims and litigation arising in the ordinary course of business and use various methods to resolve these matters in a manner that we believe serves the best interest of our stockholders and other constituents. When a loss is probable, we record an accrual based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated range of loss and, if material, disclose the estimated range of loss. We do not record liabilities for reasonably possible loss contingencies, but we do disclose a range of reasonably possible losses if they are material and we are able to estimate such a range. If we cannot provide a range of reasonably possible losses, we explain the factors that prevent us from determining such a range. We believe the recorded reserves in our unaudited condensed consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of these identified claims or litigation will be material to our results of operations, cash flows, or financial condition. Gain contingencies are recorded when the contingency is resolved. 

18

Net Loss per Common Share

Basic net loss per common share is computed using the weighted average number of common shares outstanding during the periods presented. Diluted net loss per share is computed using the weighted average common shares and common share equivalents outstanding during the periods presented (which consist of restricted stock units, stock options and warrants to the extent they are dilutive).

The following table sets forth the computation of basic and diluted net loss per share for the periods presented (in thousands, except per share data):

	For the Three Months Ended						For the Nine Months Ended
(Dollars in thousands)	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
Net loss	$	(541	)	$	(2,224	)	$	(2,733	)	$	(3,420	)
Weighted average common shares outstanding – basic and diluted		78,439,001			72,231,926			78,142,983			71,717,926
Basic and diluted loss per share	$	(0.01	)	$	(0.03	)	$	(0.03	)	$	(0.05	)

The following table summarizes the number of shares excluded from the calculation of diluted net loss per share to the extent they are antidilutive for the periods presented:

	For the Nine Months Ended September 30,
	2024		2023
Vested stock options from the Company’s 2017 Equity Incentive Plan		1,261,182		1,373,946
Warrants		-		312,500
Shares to be issued upon conversion of convertible payable		-		618,327
Total		1,261,182		2,304,773

19

The Series A and B Notes (other than restricted amounts under the Series B Note) are convertible, at the option of the Investor, into shares of Common Stock at a conversion price of $1.32 per share. The conversion price is subject to full ratchet antidilution protection upon any transaction in which the Company is deemed to have granted, issued or sold, any shares of Common Stock. If the Company enters into any agreement to issue any variable rate securities, other than a bona fide at-the-market offering or equity line of credit, the Investor has the additional right to substitute such variable price (or formula) for the conversion price. If an Event of Default has occurred under the Convertible Notes, the Investor may elect to alternatively convert the Convertible Notes at the redemption premium described therein. Due to the uncertainty of the number of shares to be issued, the shares to be issued from the conversion of the Series A and B Notes were also not included in the table above.

Segment Reporting

The Company uses the “management approach” to identify its reportable segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. Using the management approach, the Company determined that it does not have reportable segments.

Accounting Standards Adopted in 2024

Recent Accounting Pronouncements

Recently Adopted Accounting Standards Financial Instruments – Credit Losses. The Financial Accounting Standards Board (“FASB”) issued five Accounting Standards Updates (“ASUs”) related to financial instruments – credit losses. The ASUs issued were: (1) in June 2016, ASU 2016-13, “Financial Instruments – Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments,” (2) in November 2018, ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” (3) in April 2019, ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” (4) in May 2019, ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief” and (5) in November 2019, ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses.” Additionally, in February and March 2020, the FASB issued ASU 2020-02, “Financial Instruments—Credit Losses (Topic 326) and Leases (“ASC 842”): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (“ASC 842”) and ASU 2020-03, “Codification Improvements to Financial Instruments,” respectively, which include amendments to ASC 326.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, to require a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance the transparency and decision-usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid. The ASU’s amendments are effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its financial statements and related disclosures.  

20

NOTE 3 – ACCOUNTS RECEIVABLE

As of September 30, 2024 and December 31, 2023, accounts receivable consist of the following (in thousands):

	September 30, 2024		December 31, 2023
Customer billed accounts receivable	$	33	$	443
Allowance for doubtful accounts		-		-
Accounts receivable, net	$	33	$	443

Customer billed accounts receivable represents amounts billed to customers that have yet to be collected.

Allowances for doubtful accounts have been determined through specific identification of amounts considered to be uncollectible and potential write-offs, plus a non-specific allowance for other amounts for which some potential loss has been determined to be probable based on current and past experiences.

NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

As of September 30, 2024 and December 31, 2023, prepaid expenses and other current assets consist of the following (in thousands):

	September 30, 2024		December  1, 2023
Prepaid insurance	$	29	$	184
Prepaid expenses		8		33
Other current assets		15		69
Prepaid expenses and other current assets	$	52	$	286

NOTE 5 – INVENTORY

Inventory consists primarily of finished goods and packaging components. The Company’s inventory is stated at the lower of cost (first in, first out basis) or net realizable value.

As of September 30, 2024 and December 31, 2023, the carrying value of inventory consists of the following (in thousands):

	September 30, 2024			December 31, 2023
Packaging components	$	55		$	84
Finished goods		352			408
		407			492
Reserve for obsolescence		(265	)		(293	)
Inventory, net	$	142		$	199

For the three months ended September 30, 2024 and 2023, inventory reserve adjustments amounted to $0 and $43 thousand, respectively. For the nine months ended September 30, 2024 and 2023, inventory reserve adjustments amounted to $0 and $78 thousand, respectively.

21

NOTE 6 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September  30, 2024			December 31, 2023
Computer and other equipment	$	10		$	10
Less accumulated depreciation		(7	)		(6	)
Property and equipment, net	$	3		$	4

For the three months ended September 30, 2024 and 2023, depreciation expense amounted to $1 thousand and $1 thousand, respectively. For the nine months ended September 30, 2024 and 2023, depreciation expense amounted to $1 thousand and $1 thousand, respectively.

NOTE 7 – NOTE RECEIVABLE

In July 2022, the Company received a promissory note in the amount of $2.0 million (the “Note”) in connection with the Asset Sale. The Note bearing interest at 2.37% per annum was due on or before July 22, 2023. In the event of default, the interest rate on the Note increases to 2.63% per annum. On July 31, 2023, the repayment terms of the Note were modified by mutual agreement, under which repayment of the Note was to be made in three installments. Payments on the Note aggregating $1.0 million were received in multiple installments during fiscal year 2023 and the remaining balance of the Note plus accrued interest was paid in full in multiple installments during the first and second quarter of 2024.

Note receivable consists of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024		December 31, 2023
TF Tech Ventures, Inc. secured promissory note	$	-	$	975
Less: Current portion of note receivable, net		-		(975	)
Note receivable, net of current portion	$	-	$	-

NOTE 8 – PATENTS AND OTHER INTANGIBLE ASSETS

Intangible Asset Summary

Patents, net and Other intangible assets, net consist of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024			December 31, 2023
Intangible assets subject to amortization:
Patents	$	316		$	316
Other intangibles		142			141
	$	458		$	457
Accumulated amortization		(215	)		(160	)
Patents, net and Other intangibles, net	$	243		$	297

Amortization expense was $18 thousand and $20 thousand for the three months ended September 30, 2024 and 2023, respectively. Amortization expense was $54 thousand and $49 thousand for the nine months ended September 30, 2024 and 2023, respectively.

The estimated aggregate future amortization expense by period is as follows (in thousands):

2024 (remaining)	$	15
2025		34
2026		19
2027		17
2028		17
2029		17
Thereafter		124
Total Amortization	$	243

22

NOTE 9 – INVESTMENTS

During 2019 and 2020, the Company purchased Convertible Loans (“Loans”) from ReLeaf Europe B.V. (“ReLeaf”) in the aggregate amount of $509 thousand bearing interest at 6% per annum and became due and payable to the Company on the conversion date. During 2022, the Company agreed to convert the Loans and unpaid accrued interest of $56 thousand into shares of ReLeaf as per the Loan terms and also made additional investments in ReLeaf in the aggregate amount of $54 thousand. The Company recorded its investment in ReLeaf using the cost method of accounting and recorded a valuation reserve on the investment. The issuance of such shares to the Company pursuant to the conversion is currently pending.

As of September 30, 2024, the Company holds 11,698 shares of preferred stock of Biopharmaceutical Research Company (“BRC”) representing a 0.39% interest in BRC. The BRC shares were acquired in 2022 through the conversion of a convertible loan the Company purchased from BRC in May 2021, and the carrying amount of the investment is comprised of the original principal amount of $200 thousand plus unpaid accrued interest of $13 thousand. BRC produces active pharmaceutical ingredients (API) and partners with others on clinical drug development to develop innovative therapeutics for unmet medical needs to gain FDA approval and ultimately achieve commercialization.

Investments, net, at cost, consists of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024			December 31, 2023
Investment in ReLeaf Europe B.V.	$	619		$	619
Less: Valuation reserve		(568	)		(568	)
Investment in ReLeaf Europe B.V., net		51			51
Investment in Biopharmaceutical Research Company		213			213
Investments, net	$	264		$	264

As of September 30, 2024 and December 31, 2023, the carrying amount of the net investments is based on management’s best estimate of net realizable value, which includes a valuation reserve in the amount of $568 thousand and $568 thousand, respectively.

NOTE 10 – ACCRUED EXPENSES

Accrued expenses consist of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024		December 31, 2023
Refunds and returns liability	$	584	$	566
Accrued interest expense		3		-
Accrued payroll		352		205
Accrued vacation leave		89		81
Accrued expenses		241		154
Sales tax payable		318		336
Accrued Expenses	$	1,587	$	1,342

23

NOTE 11 – RELATED PARTY TRANSACTIONS

The Company and other related entities have had a commonality of ownership and/or management control, and as a result, the reported operating results and/or financial position of the Company could significantly differ from what would have been obtained if such entities were autonomous.  

In April 2022, the Company entered into a distribution services agreement with Advanced Legacy Technologies, LLC (“ALT”) which is beneficially owned by Nancy Duitch under which ALT provided auxiliary services in connection with the distribution of certain of our products in exchange for compensation in the amount of 5% of the net proceeds received from the sale of the products. In 2023, ALT agreed to waive their entire compensation earned pursuant to the agreement and the sale of our product through ALT was discontinued. No compensation was earned for the nine months ended September 30, 2024 and 2023. As of September 30, 2024, there were no outstanding balances between ALT and to the Company.

In July 2022, the Company entered into a consulting agreement with Rob Davidson under which Mr. Davidson provided advisory services on matters including strategic, financial, fund raising, product development and technology in exchange for compensation in the amount of $12 thousand per month. The agreement expired July 25, 2023. Total consulting expense incurred to Mr. Davidson for the nine months ended September 30, 2024 and 2023 was $0 and $81 thousand, respectively.

The Company has been doing business with a third-party contract manufacturer and formulator in which a member of our board of directors acquired a minority interest during the second quarter of 2023. For the nine months ended September 30, 2024, the Company did not purchase goods and services from this manufacturer.

In February 2023, the Company entered into a media buying and digital services agreement (the “Agreement”) with an advertising agency of which a member of our board of directors is an officer (the “Agency”). The Agreement expired in August 2023 and no further expenses have been incurred to the Agency by the Company.

On January 4, 2024, the Company and Nancy Duitch, the Chief Executive Officer of the Company (the “Executive”), entered into a Senior Secured Promissory Note and Security Agreement (the “Agreement”). The Agreement, as amended on March 31, 2024 and July 30, 2024, provides for a secured loan facility of up to $250,000, of which the Company borrowed an initial amount of $39,000 (the “Initial Principal Amount”) on January 4, 2024. The Agreement also provides for the ability of the Company to request additional loan amounts up to $211,000 (the “Future Advances”), inclusive of the outstanding balances of certain credit cards (the “Cards”) used exclusively by the Company of which are issued in the name of the Executive. The portion of the principal amount of the Agreement (the “Principal Amount”) comprised of the Initial Principal Amount and the Future Advances (and excluding the outstanding balances on the Cards), accrues interest at an annual rate of 12%, or 18% in the event of default. The Principal Amount plus all accrued and unpaid interest is due and payable in full on the sooner of: (i) the demand of the Holder; and (ii) December 31, 2024. The Company may prepay the Principal Amount, in whole or in part, without the prior written consent of the Executive and without penalty. The Company granted the Executive a security interest in all of the Company’s present and future personal property.

In the event of default, the Executive may, upon written notice to the Company, declare the Principal Amount, including any accrued interest, immediately due and payable in cash and in full. The following constitutes events of default: (i) the Company fails to pay when due any principal or interest payment on the due date, and such payment has not been made within ten (10) days of the Company’s receipt of the Executive’s written notice to the Company of such failure to pay; (ii) the Company materially breaches any other covenant contained in the Agreement and such failure continues for fifteen (15) days after the Company receives written notice of such material breach from the Executive; (iii) the Company voluntarily files for bankruptcy protection or makes a general assignment for the benefit of creditors; or (iv) the Company is the subject of an involuntary bankruptcy petition and such petition is not dismissed within sixty (60) days.

The outstanding amount of the note as of September 30, 2024 including accrued interest payable is $44 thousand.

As of September 30, 2024 and December 31, 2023, the Company had accrued related party interest of $3 thousand and $0, respectively. Interest expense in regard to related party notes payable for the three months ended September 30, 2024 and 2023 was $1 thousand and $0, respectively. Interest expense in regard to related party notes payable for the nine months ended September 30, 2024 and 2023 was $3 thousand and $0, respectively.

24

NOTE 12 – LOANS AND NOTES PAYABLE

Loans payable consists of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024		December 31, 2023
Loan due June 6, 2024, monthly payments including interest at 10.92% per annum; unsecured	$	-	$	17
Loan due September 29, 2024, monthly payments including interest at 8.57% per annum; unsecured		-		122
Current portion of loans payable		-		(139	)
Loans payable, less current portion	$	-	$	-

Interest expense for the three months ended September 30, 2024 and 2023 was $1 thousand and $1 thousand, respectively. Interest expense for the nine months ended September 30, 2024 and 2023 was $5 thousand and $5 thousand, respectively.

Notes payable consists of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024			December 31, 2023
Note due March 30, 2025, payable in monthly payments beginning December 30, 2024; unsecured	$	49		$	-
Note due April 30, 2025; payable in monthly payments beginning July 30, 2024; unsecured		58			-
Current portion of notes payable		(107	)		-
Notes payable, less current portion	$	-		$	-

On June 28, 2024, we entered into a securities purchase agreement with a lender (the “Lender”), pursuant to which we agreed to issue and sell to the Lender two bridge notes in the principal amounts of (i) $49,450, including an original issue discount (“OID”) of $6,450, maturing on March 30, 2025 and payable in four monthly installments beginning on December 30, 2024 (Bridge Note A), and (ii) $72,450, including an OID of $9,450, maturing on April 30, 2025 and payable in ten monthly installments beginning on July 30, 2024 (“Bridge Note B”) (both such bridge notes, collectively, the “Bridge Notes”), and additional tranches of up to $350,000 in the aggregate, subject to further agreement between us and the Lender. Fixed interest charges of 15% and 14% applied to the principal amounts of Bridge Note A and Bridge Note B, respectively, and aggregate financing costs incurred of $6 thousand have been recorded and are being amortized to interest expense over the respective terms of the Bridge Notes. Any amount of principal or interest on the Bridge Notes which is not paid when due bear interest at the rate of twenty-two percent (22%) per annum as default interest. Pursuant to the Bridge Notes, after the occurrence of an event of default, as defined, if not otherwise cured, the outstanding and unpaid portion of each Note is convertible into the Company’s Class A common stock, par value $0.001 par value per share, at a conversion price calculated by multiplying 70% of the lowest trading price for the common stock during the ten-day trading period ending on the latest complete trading day prior to the conversion date. The conversion price is subject to adjustment for stock splits, stock dividends, or rights offerings by us relating to our securities, combinations, recapitalizations, and similar events.

Interest expense for the three months ended September 30, 2024 and 2023 was $13 thousand and $0, respectively. Interest expense for the nine months ended September 30, 2024 and 2023 was $13 thousand and $0, respectively. Amortization of the OID and financing costs included in interest expense for the three months ended September 30, 2024 and 2023 was $7 thousand and $0, respectively, and $7 thousand and $0 for the nine months ended September 30, 2024 and 2023, respectively.

NOTE 13 – FAIR VALUE OF CONVERTIBLE PROMISSORY NOTES

Fair value of Series A and B convertible promissory notes consists of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024			December 31, 2023
Series A subordinated convertible note at fair value	$	4,918		$	4,597
Series B senior secured convertible note at fair value		3,795			3,502
Carrying value of convertible promissory notes at fair value		8,713			8,099
Less: current portion of convertible promissory notes at fair value		(8,713	)		(8,099	)
Convertible promissory notes at fair value, less current portion	$	-		$	-

In October 2020, the Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with an institutional investor (the “Investor”) for the purchase of a series of two convertible notes with an aggregate principal amount of $11.5 million. Concurrently, the Company consummated the sale to the Investor of a Series A subordinated convertible note (the “Series A Note”) with an initial principal amount of $4.6 million, including an original issue discount of $0.6 million, and a Series B senior secured convertible note (the “Series B Note,” and together with the Series A Note, the “Convertible Notes”) with an initial principal amount of $6.9 million, including an original issue discount of $0.9 million.

The Investor paid for the Series A Note by delivering $4.0 million in cash consideration and paid for the Series B Note by delivering a secured promissory note (the “Investor Note”) with an initial principal amount of $6.0 million. The Company was to receive cash in respect of the Series B Note upon cash repayment of the corresponding Investor Note. To date, $1.0 million of the Investor Note was repaid, and to the extent the Investor Note is not repaid, the remainder of the principal under the Series B Note is considered to be “restricted.”

The Series A Note matured on October 30, 2022 and is currently in default. The Series B Note was originally set to mature on October 30, 2021 but it matured earlier on the date of default of the Series A Note (the “Maturity Date”) and is also currently in default. No action by the Investor has been pursued on the Convertible Notes as of the date of this Quarterly Report.

25

On April 12, 2022, the Company filed a civil action in the California Superior Court against the Investor, alleging that the investor entered into the Purchase Agreement as an unregistered securities dealer and unlicensed finance lender in violation of California law. The Company’s complaint seeks rescission of the Purchase Agreement, damages, attorneys’ fees and other relief. The Investor responded to the complaint by filing a demurrer/motion to dismiss and on August 31, 2022, the Company and Investor entered into a stipulation to stay the litigation for 30 days and allow the parties to engage in further settlement discussions. The matter was unable to be resolved within the 30 days, and, pursuant to the Stipulation, the Company refiled its action in New York where a New York court will be required to apply California law to our causes of action for rescission and unfair competition. On November 18, 2022, the Company filed an amended complaint alleging six additional causes of action, including fraud, breach of contract and unfair competition. The Investor responded to the New York amended complaint by filing a motion to dismiss and on February 3, 2023, the Company filed its opposition response to the Investor’s motion to dismiss. On September 7, 2023, a hearing was held on the motion to dismiss. As of the filing date of this Quarterly Report, a ruling has not been issued by the court on the motion. Settlement discussions between the parties are ongoing.

Payment of Amounts Due under the Convertible Notes

On the Maturity Date, the Company shall pay to the Investor an amount in cash (other than the restricted portion of the Series B Note) representing all outstanding principal, Make-Whole Amount (as defined in the Convertible Notes), if any, accrued and unpaid interest and accrued and unpaid Late Charges (as defined in the Convertible Notes) on such principal. The remaining restricted amount of $5.0 million under the Series B Note has been automatically satisfied on the Maturity Date (in lieu of a cash payment) by Maturity Netting (as defined in the Investor Note described below).

Interest

The Convertible Notes shall bear no interest unless there is an occurrence, and during the continuance, of an Event of Default (as defined in the Convertible Notes). During any such Event of Default, the Convertible Notes will accrue interest at the rate of 18% per annum. See “—Events of Default” below.

Conversion; Alternate Conversion upon Event of Default

The Convertible Notes (other than the restricted portion of the Series B Note) are convertible, at the option of the Investor, into shares of Common Stock at a conversion price of $1.32 per share. The conversion price is subject to full ratchet antidilution protection upon any transaction in which the Company is deemed to have granted, issued or sold, any shares of Common Stock. If the Company enters into any agreement to issue any variable rate securities, other than a bona fide at-the-market offering or equity line of credit, the Investor has the additional right to substitute such variable price (or formula) for the conversion price.

Due to the Event of Default that has occurred under the Convertible Notes, the Investor may elect to alternatively convert the Convertible Notes at the redemption premium described therein.

Conversion Limitation

The Investor will not have the right to convert any portion of the Convertible Notes, to the extent that, after giving effect to such conversion, the Investor (and other certain related parties) would beneficially own in excess of 4.99% of the shares of Common Stock outstanding immediately after giving effect to such conversion. This limit may, from time to time, be increased, up to 9.99%, or decreased; provided that any such increase will not be effective until the 61^st day after delivery of a notice to the Company of such increase.

26

Events of Default

The Convertible Notes include certain customary and other Events of Default. In connection with an Event of Default, the Investor may require the Company to redeem in cash any or all of the Convertible Notes. The redemption price will be at a premium to the amount due under the Convertible Notes as described therein.

Fair Value Option for the Series A and B Notes

The Company elected the fair value option under ASC 825, “Financial Instruments,” for both the Series A and B Notes, which have been accounted for as follows: (1) the portion of the change in the liabilities’ fair value that is attributable to a change in instrument-specific credit risk in other comprehensive income; (2) the remaining change in the liabilities’ fair value in net income; (3) the excess of the fair value over the proceeds was recognized as an expense; and (4) upfront costs and fees were recognized in earnings as incurred gains and losses.

The Company recognized a loss of $614 thousand and a gain of $1.3 million attributed to the aggregate changes in fair value of the Series A and B Notes for the nine months ended September 30, 2024 and 2023, respectively, which were recorded in the unaudited condensed consolidated statements of operations.

As of September 30, 2024, the Company valued the Series A and B Notes giving consideration to the terms under the existing default. If the Company is required to settle the Series A and B Notes under those terms, the settlement would be either (i) a cash payment of $10.0 million, or (ii) the issuance of 4,145,212 shares of the Company’s common stock plus a cash payment of $9.9 million, at the option of the Investor.

NOTE 14 – WARRANT AGREEMENTS

The Company’s warrant activity during the periods presented was as follows:

	Warrants			Weighted Average Exercise Price		Weighted Average Contractual Remaining Life (years)
Outstanding, December 31, 2022		312,500		$	2.00		1.12
Granted		-			-		-
Exercised		-			-		-
Forfeited/Expired		-			-		-
Outstanding, December 31, 2023		312,500		$	2.00		0.12
Granted		-			-		-
Exercised		-			-		-
Forfeited/Expired		(312,500	)	$	2.00		-
Outstanding, September 30, 2024		-		$	-		-
Exercisable at September 30, 2024		-		$	-		-

NOTE 15 – SHARE-BASED PAYMENTS

The Company’s Amended and Restated 2017 Equity Incentive Plan (the “2017 Equity Incentive Plan” or the “Plan”) provides for the awarding of stock options, restricted stock and restricted stock units to certain employees, including executive officers, non-employee members of the Board of Directors of the Company (the “Board”) and consultants. Of the 10 million shares authorized under the Plan, there are 213,280 remaining shares available for grant as of September 30, 2024.

During 2020, the Company granted an option to purchase 1,518,194 shares of the Company’s common stock to a consultant that contains performance-based vesting conditions where revenue milestones must be met by December 5, 2024 (the “Performance Period”). No option shares that contain performance-based vesting conditions vested during the nine months ended September 30, 2024 and it is highly improbable that the performance-based conditions will be met prior to the end of the Performance Period.

27

Stock Options

The Company’s stock option activity during the periods presented was as follows:

	Options			Weighted Average Exercise Price		Weighted Average Contractual Remaining Life (years)
Outstanding, December 31, 2022		3,169,942		$	1.20		8.05
Granted		50,000			0.185		9.12
Exercised		-			-		-
Forfeited/Expired		(15,800	)		0.99		-
Outstanding, December 31, 2023		3,204,142		$	1.19		7.08
Granted		-			-		-
Exercised		-			-		-
Forfeited/Expired		(321,957	)		0.69		-
Outstanding, September 30, 2024		2,882,185		$	1.24		6.24
Exercisable at September 30, 2024		1,261,182		$	1.32		6.19

Range of Exercise Prices	Number of Awards		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number of Awards Exercisable		Weighted Average Exercise Price
$0.156 - $3.40		2,882,183		6.24	$	1.24		1,261,182	$	1.32
		2,882,185		6.24	$	1.24		1,261,182	$	1.32

The aggregate intrinsic value of options outstanding and exercisable at September 30, 2024 was $0.

No options were granted during the three-month periods ending September 30, 2024 and 2023, resulting in aggregate grant date fair values of $0 for both periods. Compensation expense related to stock options for the three months ended September 30, 2024 and 2023 was $4 thousand and $73 thousand, respectively. Compensation expense related to stock options for the nine months ended September 30, 2024 and 2023 was $14 thousand and $243 thousand, respectively.

As of September 30, 2024, total unrecognized fair value of compensation cost related to unvested stock options was $33 thousand, which is to be recognized over a remaining weighted average period of 0.94 years.

28

Restricted Stock Units

The Company’s restricted stock unit activity during the periods presented was as follows:

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Outstanding, December 31, 2022		1,351,668		$	0.29
Granted		988,288			0.12
Vested		(1,408,156	)		0.28
Forfeited/Expired		-			-
Outstanding, December 31, 2023		931,820		$	0.11
Granted		1,400,000			0.03
Vested		(931,820	)		0.11
Forfeited/Expired		-			-
Outstanding, September 30, 2024		1,400,000		$	0.03

As of September 30, 2024 and December 31, 2023, the Company had $38 thousand and $54 thousand, respectively, of total unrecognized compensation expense related to unvested restricted stock units, to be recognized as compensation expense over weighted-average periods of 0.92 years and 0.50 years, respectively.

Compensation expense related to restricted stock units for the three months ended September 30, 2024 and 2023 was $3 thousand and $43 thousand, respectively. Compensation expense related to restricted stock units for the nine months ended September 30, 2024 and 2023 was $57 thousand and $271 thousand, respectively. All compensation expense related to restricted stock units is included in selling, general and administrative expenses.

NOTE 16 – COMMON STOCK

Common Stock

The Company is authorized to issue 150,000,000 common shares with a par value of $0.001 per share. All issuances of common stock are issued from the Company’s authorized but not issued and outstanding shares.

From January 1, 2023 to September 30, 2023, the Company issued an aggregate of 360,472 common stock shares, at prices per share ranging from $0.08 to $0.166 in connection with several consulting agreements at a total value of $42 thousand and an aggregate of 931,820 shares of its common stock to its five non-executive directors pursuant to the vesting of their 2022 annual restricted stock unit grant

From January 1, 2024 to September 30, 2024, the Company issued an aggregate of 1,408,156 shares of its common stock to its five non-executive directors pursuant to the vesting of their 2023 annual restricted stock unit grant.

NOTE 17 – CONTINGENT STOCK CONSIDERATION

In October 2020, the Company acquired all of the issued and outstanding stock of Sera Labs in exchange for consideration of (i) $1.0 million in cash and (ii) 5,014,868 shares of the Company’s common stock. In addition, the Sera Labs security holders were also entitled to receive up to an additional 5,988,024 shares of the Company’s common stock (the “Clawback Shares”) based on the achievement of certain sales and gross margin milestones through December 31, 2023. As of December 31, 2023, 4,790,419 of the Clawback Shares were earned and the remaining 1,197,605 shares were forfeited and cancelled.

29

NOTE 18 – COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

On April 12, 2022, the Company filed a civil action in the California Superior Court against the Investor referenced in Note 14, alleging that the investor entered into the Purchase Agreement as an unregistered securities dealer and unlicensed finance lender in violation of California law. The Company’s complaint seeks rescission of the Purchase Agreement, damages, attorneys’ fees and other relief. The Investor responded to the complaint by filing a demurrer/motion to dismiss and on August 31, 2022, the Company and Investor entered into a stipulation to stay the litigation for 30 days and allow the parties to engage in further settlement discussions. The matter was unable to be resolved within the 30 days, and, pursuant to the Stipulation, the Company refiled its action in New York where a New York court will be required to apply California law to our causes of action for rescission and unfair competition. On November 18, 2022, the Company filed an amended complaint alleging six additional causes of action, including fraud, breach of contract and unfair competition. The Investor responded to the New York amended complaint by filing a motion to dismiss and on February 3, 2023, the Company filed its opposition response to the Investor’s motion to dismiss. On September 7, 2023, a hearing was held on the motion to dismiss. As of the filing date of this Quarterly Report, a ruling has not been issued by the court on the motion. Settlement discussions between the parties are ongoing.

Tax Filings

The Company tax filings are subject to audit by taxing authorities in jurisdictions where it conducts business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through the courts. As of September 30, 2024, the Company is not subject to any such audits.

Employment Contracts

The Company has entered into employment agreements with two executive officers. Under the provisions of the contracts, the Company may be required to incur severance obligations for matters relating to changes in control, as defined, and certain terminations of executives. As of September 30, 2024, the Company had no such severance obligations, in accordance with the severance benefit provisions of the respective employment agreements.

Indemnification

In the normal course of business, the Company may provide indemnification of varying scope under the Company’s agreements with other companies or consultants, suppliers and others. Pursuant to these agreements, the Company will generally agree to indemnify, hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with the use of the Company’s products. Indemnification provisions could also cover third party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to the Company’s products. The Company’s office lease also will generally contain indemnification obligations, including obligations for indemnification of the lessor for environmental law matters and injuries to persons or property of others, arising from the Company’s use or occupancy of the leased property. The term of these indemnification agreements will generally continue in effect after the termination or expiration of the particular services, lease, or license agreement to which they relate. Historically, the Company has not been subject to any claims or demands for indemnification. The Company also maintains various liability insurance policies that limit the Company’s financial exposure. As a result, the Company management believes that the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of September 30, 2024 and December 31, 2023.

30

Operating Lease

The Company currently maintains its corporate offices at 15233 Ventura Boulevard, Suite 420, Sherman Oaks, CA 91403 at no cost to the Company under an informal arrangement with its tenant while the Company seeks to identify suitable permanent office space. The Company previously maintained its leased corporate offices at 5805 Sepulveda Boulevard, Suite 500, Sherman Oaks, CA 91411 under a lease agreement (the “Lease”), which was originally set to expire on April 30, 2026. Effective on September 6, 2024, the Company early terminated the lease without penalty by mutual agreement with the landlord and the Company vacated the premises. The lease provided for the payment of base monthly rent in the amount of $7 thousand during the first 12 months of the term with an increase of 3% over the base monthly rent beginning on the one-year anniversary of the Lease. The Company previously occupied Suite 801 in the same building under a lease agreement that expired on April 30, 2024.

Rent expense was $16 thousand and $31 thousand for the three months ended September 30, 2024 and 2023, respectively. Rent expense was $75 thousand and $92 thousand for the nine months ended September 30, 2024 and 2023, respectively.

The Company classified the Lease as an operating lease in accordance with ASC 842, “Lease Accounting,” to be recognized as a right-of-use asset and a lease liability based on the present value of its lease payments over its lease term. The Company computed the incremental borrowing rate (“IBR”) which is necessary to determine the present value of its lease payments since a borrowing rate is not explicitly available in the lease agreement. The concluded IBR is 14.16%. Operating lease payments and lease expense were recognized on a straight-line basis over the lease term.

As a result of the early termination of the Lease, there are no future payments due under the operating lease.

The following table presents supplemental balance sheet information related to the particular operating lease in effect as of September 30, 2024 and December 31, 2023 (in thousands, except lease term and discount rate):

	September 30, 2024		December 31, 2023
Operating lease
Right-of-use asset, net	$	-	$	50
Right-of-use lease liability, current	$	-	$	45
Right-of-use lease liability, noncurrent		-
Total operating lease liability	$	-	$	45
Weighted average remaining lease term
Operating lease			0.29 years
Weighted average discount rate
Operating lease				11.30	%

NOTE 19 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the filing date of this Quarterly Report, November 19, 2024, and there are no subsequent events that would have required adjustment to or disclosure in the unaudited condensed consolidated financial statements.

31

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report, as well as the audited consolidated financial statements and the notes thereto, and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on May 17, 2024 (our “2023 Annual Report”).

Overview

Avenir Wellness Solutions, Inc. (“Avenir”) and its wholly-owned subsidiaries including The Sera Labs, Inc. (“Sera Labs”) (collectively the “Company,” “we,” “our,” “us,” or “Avenir”) is a broad platform technology company focusing on the development and manufacturing of nutraceutical formulation and delivery technologies in novel dosage forms to improve safety, efficacy and enhance wellness. Our mission is to improve lives by redefining how active ingredients are delivered and experienced. Our primary business model is to develop wellness products using our proprietary technology and may grant product rights to third parties responsible for marketing, sales and distribution, while retaining exclusive rights to produce and market, sell and distribute branded health, wellness, and beauty products through Sera Labs.

We focus on evidence-based wellness products that are differentiated by using proprietary and/or proven active ingredients that we formulate for greater stability, overall quality and increased bioavailability. Wellness and beauty products can be cosmetics, over-the-counter or dietary supplements which do not require U.S. Food and Drug Administration (“FDA”) approval but do require following all good manufacturing practices (“GMPs”). Thus, they are less costly and faster to launch in the marketplace than pharmaceutical products.

Key Factors Affecting our Performance

Due to a number of factors, our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period. Set forth below is a brief discussion of the key factors impacting our results of operations.

Known Trends and Uncertainties

Inflation

The U.S. economy had recently been experiencing the highest rates of inflation since the 1980s. Historically, we have not experienced significant inflation risk in our business. However, our ability to raise our product prices depends on market conditions and there may be periods during which we are unable to fully recover increases in our costs. In addition, the global economy suffers from slowing growth and high interest rates, and many economists believe that a global recession may begin in the near future. If the global economy slows, our business would likely be adversely affected.

Geopolitical Conditions

In February 2022, Russia initiated military action against Ukraine. Russia’s invasion, the responses of countries and political bodies to Russia’s actions, and the potential for wider conflict may increase financial market volatility and could have adverse effects on regional and global economic markets. Following Russia’s actions, various countries, including the United States among others, issued broad-ranging economic sanctions against Russia. The sanctions consist of the prohibition of trading in certain Russian securities and engaging in certain private transactions, the prohibition of doing business with certain Russian corporate entities, large financial institutions, officials and persons and the freezing of Russian assets. A number of large corporations and U.S. states have also announced plans to curtail business dealings with certain Russian businesses.

The imposition of the current sanctions (and potential imposition of further sanctions) and other actions undertaken by countries and businesses may adversely impact various sectors of the Russian economy, and the military action has severely impacted the Ukrainian economy, including its exports and food production. The duration of ongoing hostilities and corresponding sanctions and related events cannot be predicted and may result in a negative impact on the markets and thereby may negatively impact our business, financial condition and results of operation. 

In addition, while we do not have any direct operations or significant sales in the Middle East, geopolitical tensions and ongoing conflicts in the region, particularly between Israel and Hamas, may lead to global economic instability and fluctuating energy prices that could materially affect our business. It is not possible to predict the broader consequences of the Israel-Hamas war or other ongoing conflicts in the region, including related geopolitical tensions, and the measures and actions taken by other countries in respect thereof, which could materially adversely affect global trade, currency exchange rates, regional economies and the global economy. While it is difficult to predict the impact of any of the foregoing, the Israel-Hamas war may increase our costs, disrupt our supply chain, reduce our sales and earnings, impair our ability to raise additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition and results of operations.

32

Supply Chain

Global business interruptions may adversely impact our third-party relationships which we rely upon in our business as well as manufacturers, suppliers, and makers of raw materials. If any such parties are adversely impacted by supply chain restrictions, or if such third parties need to prioritize other products or customers over us, we may experience delays or disruptions in our supply chain, which could have a material and adverse impact on our business.

Seasonality

Our business could be affected by seasonal variations. However, taken as a whole, seasonality does not have a material impact on our financial results.

RESULTS OF OPERATIONS

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Revenue

Revenue for the three months ended September 30, 2024 was $192 thousand as compared to $1.0 million for the three months ended September 30, 2023. The $819 thousand decrease in net sales for the three months ended September 30, 2024 was due to a decrease in unit sales of the Seratopical Revolution product line ($739 thousand) due to reductions in advertising spend and in the use of affiliate marketers as well as not matching launch quantities of DNA Complex ($123 thousand), which launched in the second quarter of 2023, and due to decreases in unit sales of the Nutri-Strip products ($31 thousand) and CBD products ($49 thousand) due to a reduction in advertising spend and no TV promotion.

Revenue for the nine months ended September 30, 2024 was $919 thousand as compared to $3.2 million for the nine months ended September 30, 2023. The $2.3 million decrease in net sales for the nine months ended September 30, 2024 was due to a decrease in unit sales of our CBD products ($966 thousand) due to reductions in advertising spend and the use of affiliate marketers in 2024 and discontinuation of the Power Keto ingestible wellness product line ($297 thousand) and decreases in unit sales in our  Seratopical Revolution products ($841 thousand) and Nutri-Strip products ($198 thousand) also due to reductions in both advertising spend and the use of affiliate marketers in 2024.

Cost of Goods Sold

Cost of goods sold was $35 thousand, or 18.2% of net sales, in the three months ended September 30, 2024, compared to $278 thousand, or 27.5% of net sales, in the three months ended September 30, 2023. Cost of goods sold decreased by $243 thousand during the three months ended September 30, 2024, compared to the three months ended September 30, 2023 primarily due to the overall decrease in unit sales of our products. Cost of goods sold for our Seratopical Revolution line of products decreased by $74 thousand and shipping and fulfillment costs decreased by $98 thousand..

Cost of goods sold was $187 thousand, or 20.3% of net sales, in the nine months ended September 30, 2024, compared to $817 thousand, or 25.4% of net sales, in the nine months ended September 30, 2023. Cost of goods sold decreased by $630 thousand during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 primarily due to the overall decrease in unit sales of our products. Cost of goods sold for our Seratopical Revolution line decreased by $156 thousand, shipping and fulfillment costs decreased by $229 thousand and due to the phase out of Power Keto product, lower unit sales resulted in a cost decrease of $24 thousand.

33

Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the three and nine months ended September 30, 2024 are summarized as follows in comparison to such expenses for the three and nine months ended September 30, 2023 (in thousands):

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
Marketing and advertising	$	85	$	802	$	511	$	2,216
Salaries and wages		246		493		1,084		1,498
Selling, general and administrative		259		681		755		2,261
Professional services and investor relations		62		186		400		914
Non-cash compensation		8		125		71		557
Total selling, general and administrative expenses	$	660	$	2,287	$	2,821	$	7,446

Marketing and Advertising

Marketing and advertising decreased by $717 thousand and $1.7 million for the three and nine months ended September 30, 2024, respectively, as compared to the three and nine months ended September 30, 2023. The decrease for the three months ended September 2024 is due to the decreased use of affiliate marketers ($466 thousand) to market and sell our products in the direct-to-consumer channel of distribution, and less media/on-line digital advertising, $247 thousand, (e.g., Facebook, e-mail/SMS, Google) in 2024.  The decrease for the nine months was due to our decreased use of affiliate marketers ($1.3 million) and less media/on-line digital advertising ($481 thousand), offset in part by an increase in search engine optimization ($32 thousand).

Salaries and Wages

Salaries and wages decreased by $247 thousand and $414 thousand for the three and nine months ended September 30, 2024, respectively, as compared to the three and nine months ended September 30, 2023, respectively. This was primarily due to the lower employee headcount during the 2024 periods when compared to the same periods in 2023.

Selling, General and Administrative

Selling, general and administrative decreased by $422 thousand and $1.5 million for the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023, respectively.  The decrease for the three months ended September 30, 2024 is due to a reduction of $250 thousand in brand ambassador expense due to the expiration of the related contract in 2023, a $68 thousand reduction in merchant account fees, customer service and other expenses corresponding to the decrease in sales in our direct-to-consumer (“DTC”) channel of distribution, and a $95 thousand reduction in public relations fees due to the implementation of cost saving initiatives,.  The decrease for the nine months ended September 30, 2024 is due to a reduction of $900 thousand in brand ambassador expense due to the expiration of the related contract in 2023, a $95 thousand reduction in public relations fees due to the implementation of cost saving initiatives, and a $284 thousand reduction in merchant account fees, customer service and other expenses corresponding to the decrease in sales in our direct-to-consumer (“DTC”) channel of distribution. 

34

Professional Services and Investor Relations

Professional services and investor relations decreased by $124 thousand and $514 thousand for the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023, respectively. The decrease for the three months ended September 30, 2024 was due primarily to a reduction in our investor relations initiatives ($29 thousand) in an effort to conserve cash, lower legal fees ($42 thousand) in 2024 and a reduction in audit fees ($41 thousand), which were higher in 2023 due to the change in auditor.  The decrease for the nine months ended September 30, 2024 was due primarily to a reduction in our investor relations initiatives ($227 thousand) and reducing the use of outside accounting consultants ($66 thousand) in an effort to conserve cash, lower legal fees ($118 thousand) and a reduction in audit fees ($103 thousand), which were higher in 2023 due to the work associated with the change in auditor.

Share-based Compensation

Share-based compensation decreased by $117 thousand and $485 thousand for the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023, respectively. This was primarily due to a reduction in the amount of unvested stock options and restricted stock units outstanding as of the beginning of these periods which resulted from the full vesting in the fourth quarter of 2023 of certain stock options and the full vesting of restricted stock units in the second quarter of 2024 and a reduction in the aggregate value of restricted stock units granted in 2023 compared to 2022 from the Amended and Restated Avenir Wellness Solutions, Inc. 2017 Equity Incentive Plan.

Change in Fair Value Contingent Stock Consideration

The change in fair value contingent stock consideration decreased by $18 thousand and increased by $290 thousand for the three and nine months ended September 30, 2024 as compared the three and nine months ended September 30, 2023. The changes during the three and nine months ended September 30, 2024 were due to the completion of the earn-out period as of December 31, 2023 with no further valuations required thereafter.

Other Income (Expense) (in thousands)

	For the Three Months Ended						For the Nine months Ended
	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
Interest income	$	-		$	11		$	5		$	43
Change in fair value of convertible promissory notes		(19	)		(648	)		(614	)		1,1,331
Interest expense		(19	)		(15	)		(32	)		(42	)
Total other income (expense), net	$	(38	)	$	(652	)	$	(641	)	$	1,332

Other income/(expense) increased by $614 thousand and decreased by $2.0 million, respectively, for the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023. This was primarily due to the change in fair value of convertible promissory notes of $629 thousand and $2.0 million for the three and nine months ended September 30, 2024, respectively, compared to the comparable periods in 2023.

35

LIQUIDITY AND CAPITAL RESOURCES; GOING CONCERN

We had net cash used by operating activities for the nine months ended September 30, 2024 of $1.0 million, and as of September 30, 2024, we had a cash balance of $11 thousand and an accumulated deficit of $126.1 million. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We believe our current cash balance coupled with anticipated cash flow from operating activities will not be sufficient to meet our working capital requirements for at least the next twelve months. We cannot give assurance that we can increase our cash balances or limit our cash consumption and thus maintain sufficient cash balances for our planned operations or future acquisitions. Future business demands may lead to cash utilization at levels greater than recently experienced. We may need to raise additional capital in the future. However, we cannot assure that we will be able to raise additional capital on acceptable terms, or at all. To date, we have funded our operations through cash generated from our product sales, issuance of common stock and promissory notes.

On June 28, 2024, we entered into a securities purchase agreement with a lender (the “Lender”), pursuant to which we agreed to issue and sell to the Lender two bridge notes in the principal amounts of (i) $49,450 including an original issue discount of $6,450 payable in four monthly installments beginning on December 30, 2024; and (ii) $72,450 including an original issue discount of $9,450 payable in ten monthly installments beginning on July 30, 2024, and additional tranches of up to $350,000 in the aggregate, subject to further agreement between the Lender and the Company. Net proceeds from the issuance of the Notes in the aggregate amount of $100,000 (after the deduction of legal fees of $6,000) were received on July 2, 2024.

We plan to use our cash within the twelve months from September 30, 2024 and beyond for working capital and other general corporate purposes including the development and procurement of product and for marketing and promoting our products and brands in furtherance of our strategic plan.

As of September 30, 2024 and December 31, 2023

Working Capital Deficit (in thousands)

	September 30, 2024			December 31, 2023
Current assets	$	238		$	1,956
Current liabilities		(13,296	)		(12,493	)
Working capital (deficiency)	$	(13,058	)	$	(10,537	)

Working capital deficit as of September 30, 2024 was $13.1 million, compared to the working capital deficit of $10.5 million as of December 31, 2023. As of September 30, 2024, current assets were $238 thousand, comprised of (i) cash of $11 thousand; (ii) accounts receivable, net of $33 thousand; (iii) inventory, net of $142 thousand; and (iv) prepaid expenses and other assets of $52 thousand. As of December 31, 2023, current assets were $2.0 million, comprised primarily of (i) cash of $49 thousand; (ii) accounts receivable, net of $443 thousand; (iii) inventory, net of $199 thousand; (iv) prepaid expenses and other assets of $286 thousand; and (v) current note receivable of $975 thousand.

As of September 30, 2024, current liabilities were $13.3 million, comprised primarily of (i) $8.8 million in loans and fair value of convertible promissory notes; (ii) $2.5 million in accounts payable; (iii) $1.6 million in accrued expenses, (iv) $41 thousand of related party note payable, and (vi) deferred revenue of $396 thousand. Comparatively, as of December 31, 2023, current liabilities were $12.5 million, comprised primarily of (i) $8.2 million in loans and fair value of convertible promissory notes, (ii) $2.5 million in accounts payable; (iii) $416 thousand in deferred revenue, (iv) $1.3 million in accrued expenses, and (v) $45 thousand of operating lease payables.

36

Net Cash (in thousands)

	For the Nine months Ended
	September 30, 2024			September 30, 2023
Net cash used in operating activities	$	(1,021	)	$	(3,319	)
Net cash provided by (used in) investing activities		974			699
Net cash provided by (used in) financing activities		9			(134	)
Net increase (decrease) in cash	$	(38	)	$	(2,754	)

Net cash used in Operating Activities

Net cash used in operating activities was $1.0 million during the nine months ended September 30, 2024. This was primarily due to the net loss from continuing operations of $2.7 million reduced by the non-cash loss related to the increase in fair value of convertible promissory notes of $614 thousand,  a decrease in accounts receivable of $410 thousand, an increase in accrued expenses of $245 thousand, a decrease in prepaid expense and other assets of $234 thousand, and the non-cash charges related to the fair value of vested stock options and restricted stock of $71 thousand.

Comparatively, net cash used in operating activities was approximately $3.3 million during the nine months ended September 30, 2023. This was primarily due to the net loss from continuing operations of $3.4 million adjusted for the non-cash gains related to the decreases in fair value of convertible promissory notes of approximately $1.3 million and fair value of contingent stock consideration of $290 thousand, offset in part by the non-cash charges related to the fair value of vested stock options and restricted stock of $557 thousand.

37

Net cash provided by (used in) Investing Activities

Net cash provided by investing activities of $974 thousand during the nine months ended September 30, 2024 was due to the repayment on the note receivable from TF Tech ($975 thousand) offset in part by the purchase of intangible assets ($1 thousand). Comparatively, net cash provided by investing activities of $699 thousand during the nine months ended September 30, 2023 was due to the repayment on the note receivable from TF Tech ($750 thousand) offset in part by the purchase of intangible assets ($51 thousand).

Net cash provided by (used in) Financing Activities

Net cash provided by financing activities of $9 thousand during the nine months ended September 30, 2024 was primarily due to the receipt of proceeds from loans payable ($122 thousand) and related party note payable ($45 thousand) offset in part by the repayment of loans payable and note payable of $154 thousand. Correspondingly, net cash used in financing activities of $134 thousand during the nine months ended September 30, 2023 was due to the repayment of notes payable of $134 thousand.

In the event that such working capital is insufficient, we may need to raise additional operating capital in the remainder of calendar year 2024 in order to maintain our operations and to realize our strategic plan. Without additional sources of cash and/or the deferral, reduction, or elimination of significant planned expenditures, we may not have the cash resources to continue as a going concern thereafter.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.

Our 2023 Annual Report contains additional information regarding the critical accounting policies that affect our more significant estimates and judgments used in the preparation of our condensed consolidated financial statements included in this Quarterly Report. There have been no material changes to these policies reported in our 2023 Annual Report. Please refer to “Note 2 – Summary of Significant Accounting Policies” of the notes to condensed consolidated financial statements included in this Quarterly Report for information regarding recently adopted accounting standards.

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Information for this Item is not required as we are a “smaller reporting company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(f) and 15d-15(f)) of the Exchange Act are designed to ensure that: (1) information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in “SEC” rules and forms; and (2) such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. There can be no assurance that our disclosure controls and procedures will detect or uncover all failures of persons within our Company and our consolidated subsidiaries to disclose material information otherwise required to be set forth in our periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Our management, with the participation of our Principal Executive Officer and Principal Financial and Principal Accounting Officer, assessed the effectiveness of our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) as of September 30, 2024, the end of the period covered by this Quarterly Report. Based on this assessment, management, including our Principal Executive Officer and Principal Financial and Principal Accounting Officer, concluded that as of September 30, 2024, we did not maintain effective internal controls over financial reporting as a result of the identified material weakness in our internal control over financial reporting described below. In making this assessment, management used the framework set forth in the report entitled Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.

38

Identified Material Weakness

A material weakness in our internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement or the financial statements will not be prevented or detected. Management identified two weaknesses in our internal control:

1.

During the preparation of our 10-K filing for the year ended December 31, 2022, we identified an error in the calculation of earnings per share (EPS) that affected the financial statements included in the second and third quarterly reports on Form 10-Q in 2021, the annual report on Form 10-K for 2021, and the quarterly report on Form 10-Q for the first quarter of 2022. The error was attributed to a spreadsheet error which caused the incorrect calculation of the weighted average shares outstanding used to compute EPS.  Upon discovery, we promptly initiated a comprehensive review of our EPS calculations and revised our reported EPS figures accordingly.

2.

The segregation of duties as a material weakness during its assessment of internal controls over financial reporting as of September 30, 2024.

Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions planned include:

· re-design of our accounting processes and control procedures;  

· implementing additional review and verification processes for the calculation of EPS, and other spreadsheet calculations and enhancing our training programs for personnel involved in the financial reporting process to prevent similar errors in the future; and

· identify gaps in our skills base and the expertise of our staff required to meet the financial reporting requirements of a public company.

During the fiscal year ended December 31, 2023, we continued to execute upon our planned remediation actions which are all intended to strengthen our overall control environment.

The following are the primary remediation efforts made by us:

· prepare accounting memos relating to the debt issuances made by us during 2023 and 2022 which include derivative and warrants;

· review fair value of convertible promissory notes in relation to the Series A and B Notes;

· review of impairment of long-lived assets including goodwill and intangibles; and

· review periodic reports to ensure the appropriate disclosures are made within the SEC filed documents.

Additionally, management has engaged a professional services firm with expertise in internal controls. To remediate the material weaknesses described above, management has initiated compensating controls in the near term and is enhancing and revising the design of existing controls and procedures to properly account for significant and unusual transactions. After several meetings between the consultants and key accounting personnel the following actions were completed:

· adoption of COSO;

· Sarbanes-Oxley Act of 2002 (“SOX”) risk assessment memo;

· entity level COSO mapping; and

· SOX control narratives for financial reporting as well as other processes.

While we believe these additions have addressed our lack of segregation of duties, due to the timing of the events, they were not able to mitigate the material weakness for the three-month period ended September 30, 2024. We are committed to maintaining a strong internal control environment and believe that these remediation efforts will represent significant improvements in our control environment. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the fiscal quarter ended September 30, 2024 that materially affected, or is reasonably likely to have a material effect, on our internal control over financial reporting.

39

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We currently are not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our results of operations, financial position or cash flows. Regardless of the outcome, any litigation could have an adverse impact on us due to defense and settlement costs, diversion of management resources and other factors.

The information contained in “Note 18 – Commitments and Contingencies” of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report is incorporated by reference into this Item 1. Except as set forth therein, there have been no new material legal proceedings and no material developments in the legal proceedings reported in our 2023 Annual Report on Form 10-K (the “2023 Annual Report”).

Item 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. The occurrence of any of these risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. In evaluating the Company and its business, you should carefully consider the information included in this Quarterly Report and the factors discussed under Part I, Item 1A. “Risk Factors” in our 2023 Annual Report. There have been no material changes from the risk factors previously disclosed in such filing.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

None.

40

Item 6. Exhibits

31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1#	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2#	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH	Inline XBRL Taxonomy Extension Schema Document.
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

_____________

* Filed herewith.

# The information in Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act (including this Quarterly Report on Form 10-Q), unless the Registrant specifically incorporates the foregoing information into those documents by reference.

41

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AVENIR WELLNESS SOLUTIONS, INC.
Dated: November 19, 2024	By:	/s/ Nancy Duitch
		Nancy Duitch
		Chief Executive Officer

Dated: November 19, 2024	By:	/s/ Joel Bennett
		Joel Bennett
		Chief Financial Officer

42

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) OR

RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Nancy Duitch, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Avenir Wellness Solutions, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 19, 2024	By:	/s/ Nancy Duitch
		Nancy Duitch
		Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) OR

RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Joel Bennett, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Avenir Wellness Solutions, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 19, 2024	By:	/s/ Joel Bennett
		Joel Bennett
		Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S. C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Avenir Wellness Solutions, Inc., (the “Company”) on Form 10-Q for the period ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, Nancy Duitch, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)	The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: November 19, 2024	By:	/s/ Nancy Duitch
		Nancy Duitch
		Chief Executive Officer (Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S. C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Avenir Wellness Solutions, Inc., (the “Company”) on Form 10-Q for the period ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, Joel Bennett, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)	The Quarterly Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: November 19, 2024	By:	/s/ Joel Bennett
		Joel Bennett
		Chief Financial Officer (Principal Financial and Accounting Officer)

XML

Cover - shares	9 Months Ended
	Sep. 30, 2024	Nov. 19, 2024
Cover [Abstract]
Entity Registrant Name	AVENIR WELLNESS SOLUTIONS, INC.
Entity Central Index Key	0001643301
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Sep. 30, 2024
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2024
Entity Common Stock Shares Outstanding		78,925,168
Entity File Number	000-55908
Entity Incorporation State Country Code	DE
Entity Tax Identification Number	90-1504639
Entity Address Address Line 1	15233 Ventura Blvd
Entity Address Address Line 2	Suite 420
Entity Address City Or Town	Sherman Oaks
Entity Address State Or Province	CA
Entity Address Postal Zip Code	91403
City Area Code	424
Local Phone Number	273-8675
Document Quarterly Report	true
Document Transition Report	false
Entity Interactive Data Current	Yes

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
Current assets
Cash	$ 11	$ 49
Accounts receivable, net	33	443
Inventory, net	142	199
Prepaid expenses and other current assets	52	286
Note receivable - current	0	975
Due from related party	0	4
Total current assets	238	1,956
Property and equipment, net	3	4
Operating lease right-of-use asset, net	0	50
Investments, net	264	264
Patents, net	212	227
Other intangibles, net	31	70
Other assets	0	36
Total assets	748	2,607
Current liabilities
Accounts payable	2,452	2,452
Accrued expenses	1,587	1,342
Operating lease payable	0	45
Loans payable	0	139
Note payable - related party	41	0
Notes payable	107	0
Fair value of convertible promissory notes	8,713	8,099
Deferred revenue	396	416
Total current liabilities	13,296	12,493
Operating lease payable	0	0
Total liabilities	13,296	12,493
Stockholders' equity (deficit)
Common stock: $0.001 par value; authorized 150,000,000 shares; 78,925,168 and 77,993,348 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	78	79
Additional paid-in capital	113,505	113,435
Accumulated deficit	(126,132)	(123,399)
Total stockholders' equity (deficit)	(12,548)	(9,886)
Total liabilities and stockholders' equity (deficit)	$ 748	$ 2,607

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2024	Dec. 31, 2023
Stockholders' equity
Common stock, shares par value	$ 0.001	$ 0.001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	78,925,168	77,993,348
Common stock, shares outstanding	78,925,168	77,993,348

XML

Unaudited Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023
Revenue:
Product sales, net of discounts and refunds	$ 192	$ 1,011	$ 919	$ 3,221
Total Revenue	192	1,011	919	3,221
Cost of goods sold:
Cost of goods sold	35	278	187	817
Gross profit	157	733	732	2,404
Operating expenses:
Selling, general and administrative expenses	660	2,287	2,821	7,446
Change in fair value of contingent stock consideration	0	18	0	(290)
Total operating expenses	660	2,305	2,821	7,156
Net operating loss before other income (expense)	(503)	(1,572)	(2,089)	(4,752)
Other income (expense):
Interest income	0	11	5	43
Change in fair value of convertible promissory notes	(19)	(648)	(614)	1,331
Interest expense	(19)	(15)	(32)	(42)
Total other income (expense)	(38)	(652)	(641)	1,332
Loss before provision for income taxes	(541)	(2,224)	(2,730)	(3,420)
Provision for income taxes	0	0	(3)	0
Net loss	$ (541)	$ (2,224)	$ (2,733)	$ (3,420)
Basic and diluted loss per share
Net loss per share, basic and diluted	$ (0.01)	$ (0.03)	$ (0.03)	$ (0.05)
Weighted average shares outstanding - basic and diluted	78,439,001	72,231,926	78,142,983	71,717,926

XML

Unaudited Condensed Consolidated Statements of Stockholders Equity (Deficit) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Common Stock Issuable	Accumulated Deficit
Balance, shares at Dec. 31, 2022		71,426,801
Balance, amount at Dec. 31, 2022	$ (7,105)	$ 71	$ 112,471	$ 308	$ (119,955)
Issuance of common stock for professional services, shares		15,000
Issuance of common stock for professional services, amount	2	$ 0	2	0	0
Fair value of stock options granted	96	0	96	0	0
Fair value of restricted stock units granted	113	0	113	0	0
Net loss	(209)	$ 0	0	0	(209)
Balance, shares at Mar. 31, 2023		71,441,801
Balance, amount at Mar. 31, 2023	(7,103)	$ 71	112,682	308	(120,164)
Balance, shares at Dec. 31, 2022		71,426,801
Balance, amount at Dec. 31, 2022	(7,105)	$ 71	112,471	308	(119,955)
Net loss	(3,420)
Balance, shares at Sep. 30, 2023		73,195,429
Balance, amount at Sep. 30, 2023	(9,968)	$ 73	113,026	308	(123,375)
Balance, shares at Mar. 31, 2023		71,441,801
Balance, amount at Mar. 31, 2023	(7,103)	$ 71	112,682	308	(120,164)
Issuance of common stock for professional services, shares		254,790
Issuance of common stock for professional services, amount	32	$ 1	31	0	0
Fair value of stock options granted	75	0	75	0	0
Fair value of restricted stock units granted	115	0	115	0	0
Net loss	(987)	$ 0	0	0	(987)
Balance, shares at Jun. 30, 2023		71,696,591
Balance, amount at Jun. 30, 2023	(7,868)	$ 72	112,903	308	(121,151)
Issuance of common stock for professional services, shares		90,682
Issuance of common stock for professional services, amount	9	$ 0	9	0	0
Fair value of stock options granted	72	0	72	0	0
Fair value of restricted stock units granted	43	0	43	0	0
Net loss	(2,224)	$ 0	0	0	(2,224)
Issuance of common stock pursuant to vested restricted stock options, shares		1,408,156
Issuance of common stock pursuant to vested restricted stock options, amount	0	$ 1	(1)	0	0
Balance, shares at Sep. 30, 2023		73,195,429
Balance, amount at Sep. 30, 2023	(9,968)	$ 73	113,026	308	(123,375)
Balance, shares at Dec. 31, 2023		77,993,348
Balance, amount at Dec. 31, 2023	(9,886)	$ 78	113,435	0	(123,399)
Fair value of stock options granted	5	0	5	0	0
Fair value of restricted stock units granted	30	0	30	0	0
Net loss	(1,295)	$ 0	0	0	(1,295)
Balance, shares at Mar. 31, 2024		77,993,348
Balance, amount at Mar. 31, 2024	(11,146)	$ 78	113,470	0	(124,694)
Balance, shares at Dec. 31, 2023		77,993,348
Balance, amount at Dec. 31, 2023	(9,886)	$ 78	113,435	0	(123,399)
Net loss	(2,733)
Balance, shares at Sep. 30, 2024		78,925,168
Balance, amount at Sep. 30, 2024	(12,548)	$ 79	113,505	0	(126,132)
Balance, shares at Mar. 31, 2024		77,993,348
Balance, amount at Mar. 31, 2024	(11,146)	$ 78	113,470	0	(124,694)
Fair value of stock options granted	5	0	5	0	0
Fair value of restricted stock units granted	24	0	24	0	0
Net loss	(897)	$ 0	0	0	(897)
Balance, shares at Jun. 30, 2024		77,993,348
Balance, amount at Jun. 30, 2024	(12,014)	$ 78	113,499	0	(125,591)
Fair value of stock options granted	4	0	4	0	0
Fair value of restricted stock units granted	3	0	3	0	0
Net loss	(541)	$ 0	0	0	(541)
Issuance of common stock pursuant to vested restricted stock options, shares		931,820
Issuance of common stock pursuant to vested restricted stock options, amount	0	$ 1	(1)	0	0
Balance, shares at Sep. 30, 2024		78,925,168
Balance, amount at Sep. 30, 2024	$ (12,548)	$ 79	$ 113,505	$ 0	$ (126,132)

XML

Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023
Unaudited Condensed Consolidated Statements of Cash Flows
Net loss	$ (2,733)	$ (3,420)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation - services	0	43
Change in fair value of contingent stock consideration	0	(290)
Change in fair value of convertible promissory notes	614	(1,331)
Depreciation and amortization	56	51
Amortization of right-of-use asset	50	81
Inventory reserve for obsolescence	(12)	(84)
Fair value of vested stock options and restricted stock	71	514
Changes in operating assets and liabilities:
Accounts receivable	410	87
Inventory	69	9
Prepaid expenses and other current assets	270	312
Due from related party	(4)	124
Accounts payable	0	506
Accrued expenses	245	106
Operating lease payable	(45)	(92)
Deferred revenue	(20)	65
Cash (used in) operating activities	(1,021)	(3,319)
Cash flows from investing activities:
Purchase of intangible assets	(1)	(51)
Repayment of note receivable	975	750
Cash provided by investing activities	974	699
Cash flows from financing activities:
Proceeds from note payable to related party	45	0
Repayment of note payable to related party	(4)	0
Proceeds from note payable	122	0
Repayment of note payable	(15)	0
Repayment of loans payable	(139)	(134)
Cash (used in) financing activities	9	(134)
Net increase (decrease) in cash and cash equivalents	(38)	(2,754)
Cash and cash equivalents, beginning of year	49	2,943
Cash and cash equivalents, end of period	11	189
Cash paid for interest and income taxes:
Interest	19	9
Income taxes	$ 0	$ 0

XML

ORGANIZATION AND DESCRIPTION OF BUSINESS

9 Months Ended

Sep. 30, 2024

ORGANIZATION AND DESCRIPTION OF BUSINESS

ORGANIZATION AND DESCRIPTION OF BUSINESS

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Business Operations

Avenir Wellness Solutions, Inc. (“Avenir”), its wholly-owned subsidiaries including The Sera Labs, Inc. (“Sera Labs”) collectively (the “Company,” “we,” “our,” “us,” or “Avenir”) is a broad platform technology company focusing on the development of nutraceutical formulation and delivery technologies in novel dosage forms to improve efficacy and enhance wellness. Our mission is to improve lives by redefining how active ingredients are delivered and experienced. Our primary business model is to develop health, wellness and beauty products using our proprietary formulations and technology as well as incubate new technologies for commercial exploitation through product development of new products to be sold under existing or new proprietary brands through Sera Labs and the licensing and/or sale of the rights to such technologies to third parties for their use. Development may include conduction of clinical trials for substantiation of the efficacy of our products.

Sera Labs is engaged in the development, production and sale of the Company’s wellness and beauty products and is a trusted leader in the health, wellness and beauty sectors with innovative products containing cutting edge technology and superior ingredients. Sera Labs creates high quality products that use science-backed, proprietary oral and topical formulations. We focus on evidence-based wellness products that are differentiated by using proprietary and/or proven active ingredients that we formulate for greater stability, overall quality and increased bioavailability. Wellness and beauty products can be cosmetics, over-the-counter or dietary supplements which do not require approval from the U.S. Food and Drug Administration but do require following all good manufacturing practices. Thus, they are less costly and can be launched more quickly in the marketplace than pharmaceutical products. More than 25 products are sold under the brand names Seratopical®, Seratopical Revolution® SeraLabs®, and Nutri-Strips™ at affordable prices, making them easily accessible on a global scale. Strategically positioned in the growth categories of beauty and health & wellness, Sera Labs products are sold direct-to-consumer (“DTC”) via online website orders, including opt-in subscribe and save option, and also online and in-store at major national drug, mass retailers, grocery chains and convenience stores and on Amazon.com.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2024

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to prevent the information presented from being misleading. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K, which contains audited financial information for the two years in the period ended December 31, 2023.

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of ordinary recurring items) to present fairly the financial position and the results of operations of the Company for the periods presented. Interim results are not necessarily indicative of results to be expected for the full fiscal year or any future period.

Going Concern and Management’s Liquidity Plans

In accordance with the Financial Accounting Standards Board (“FASB”) standard on going concern, Accounting Standard Update (“ASU”) 2014-15, the Company assesses going concern uncertainty in its condensed consolidated financial statements to determine if it has sufficient cash, cash equivalents and working capital on hand, including marketable securities, and any available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued, which is referred to as the “look-forward period” in ASU 2014-15. As part of this assessment, based on conditions that are known and reasonably knowable to the Company, it considers various scenarios, forecasts, projections, estimates and makes certain key assumptions, including the timing and nature of projected cash expenditures or programs, and its ability to delay or curtail expenditures or programs, if necessary, among other factors. Based on this assessment, the Company makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent the Company deems probable those implementations can be achieved and it has the proper authority to execute them within the look-forward period in accordance with ASU 2014-15.

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

As of September 30, 2024, the Company had $11 thousand of cash on hand, had an accumulated deficit of $126.1 million and a working capital deficit of $13.1 million. Our operating activities consume a portion of our cash resources. We anticipate that we will continue to incur operating losses and negative cash flows from operations as we execute our strategic and business development initiatives. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company may need to complete additional equity or debt financings to fully execute its business plans and strategies.

We have previously funded our operating losses primarily through the issuance of common stock and/or promissory notes and cash generated from our product sales. We anticipate that we will incur decreased operating losses and negative cash flows from operations as we execute on our strategic and business development initiatives and with the elimination of overhead and operating expenses related to the Company’s pharmaceutical business segment that have been discontinued in connection with the sale of its pharmaceutical assets (the “Asset Sale”). There can be no assurance, however, that the Company will be able to raise additional capital when needed, or at terms deemed acceptable, if at all.

Reclassifications

Certain reclassifications have been made to prior year’s consolidated financial statements to enhance comparability with the current year’s consolidated financial statements. These reclassifications had no effect on the previously reported net loss.

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements, and other factors that management believes to be reasonable. In addition, the Company has considered the potential impact of certain macroeconomic factors, including inflation, rising interest rates, and recessionary pressures, on its business and operations. Although the full impact of these factors is unknown and cannot be estimated reasonably, the Company believes it has made appropriate accounting estimates and assumptions based on the facts and circumstances available as of the reporting date.

Significant areas requiring the use of management estimates include, but are not limited to, revenue recognition, the allowance for doubtful accounts, valuation of intangible assets and goodwill, depreciation and amortization useful lives, assumptions used to calculate the fair value of the contingent stock consideration, stock-based compensation, deferred taxes and the assumptions used to calculate fair values of the purchase price allocations and convertible promissory notes. Actual results could differ materially from such estimates under different assumptions or circumstances.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. As of September 30, 2024 and December 31, 2023, the Company had no cash equivalents. The Company maintains its cash in banks insured by the Federal Deposit Insurance Corporation in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions. As of September 30, 2024, the Company did not have cash balances in excess of the federal insurance limit.

Investments

The Company follows Accounting Standards Codification (“ASC”) 325-20, “Cost Method Investments” (“ASC 325-20”), to account for its ownership interest in noncontrolled entities. Under ASC 325-20, equity securities that do not have readily determinable fair values (i.e., non-marketable equity securities) and are not required to be accounted for under the equity method are typically carried at cost. Investments of this nature are initially recorded at cost. Dividends distributed from net accumulated earnings of the noncontrolled entity subsequent to the date of investment are recorded as income. Dividends received in excess of earnings accumulated subsequent to the date of investment are considered a return of investment and are recorded as reductions in the cost basis of the investment. The carrying amount of investments is written down only when there is clear evidence that a decline in value that is considered other than temporary has occurred.

Accounts Receivable

Accounts receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s evaluation of their collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that the likelihood of collection is remote. Any future recoveries are applied against the allowance for doubtful accounts.

Inventory

Inventory is stated at the lower of cost or net realizable value (“NRV”). NRV is the amount by which the estimated selling price of the product exceeds the sum of any additional costs expected to be incurred on the sale of such product in the ordinary course of business. The Company determines the cost of its inventory on a first-in, first-out (“FIFO”) basis. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period. To state the inventory at the lower of cost or NRV, we maintain reserves against individual stock keeping units. Inventory reserves, once established, are not reversed until the related inventories have been sold or scrapped. If future demand or market conditions are less favorable than our projections, a write-down of inventory may be required, and would be reflected in the cost of goods sold in the period the revision is made.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price paid over the fair value of net identifiable assets and liabilities acquired. Goodwill is not amortized but is tested for impairment at least annually, or if circumstances indicate its value may no longer be recoverable. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors affecting the Company’s business. Based on the qualitative assessment, if it is determined that the fair value of goodwill is more likely than not to be less than its carrying amount, the fair value of a reporting unit will be calculated and compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value.

Intangible assets with finite lives, such as patents, web design and trademarks are stated at cost less accumulated amortization. Amortization is calculated using the straight-line method over the estimated useful lives of the assets, which range from two years to twenty years. We review the useful lives and potential impairment of intangible assets whenever events or circumstances suggest that the carrying amount may not be recoverable.

Impairment of Long-Lived Assets

Long-lived assets include equipment and intangible assets other than those with indefinite lives. We assess the carrying value of our long-lived asset groups when indicators of impairment exist and recognize an impairment loss when the carrying amount of a long-lived asset is not recoverable when compared to undiscounted cash flows expected to result from the use and eventual disposition of the asset.

Indicators of impairment include significant underperformance relative to historical or projected future operating results, significant changes in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected, net, undiscounted cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically a discounted cashflow analysis, and an impairment charge is recorded for the excess of carrying value over fair value.

Contingent Consideration Liabilities

Business acquisitions of the Company may involve the potential for future payment of consideration to former selling security holders in amounts determined upon the attainment of prescribed financial or other milestones. The fair value of such liabilities is determined using unobservable inputs. These inputs include the estimated amount and timing of projected cash flows and the risk-adjusted discount rate used to present value the cash flows. These obligations are referred to as contingent consideration.

ASC 805, “Business Combinations,” requires that contingent consideration be estimated and recorded at fair value as of the acquisition date as part of the total consideration transferred. Additionally, the fair value of contingent consideration after the acquisition date is reassessed by the Company as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in its unaudited condensed consolidated statements of operations. Changes in key assumptions can materially affect the estimated fair value of contingent consideration liabilities.

Related Parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

 Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, “Revenue Recognition.” Revenue under Topic 606 is required to be recognized either at a “point in time” or “over time,” depending on the facts and circumstances of the arrangement, and are evaluated using a five-step model.

To achieve the core principle of Topic 606, we performed the following five steps:

· Identify the contract(s) with customer;

· Identify the performance obligations in the contract;

· Determine the transactions price;

· Allocate the transactions price to the performance obligations in the contract; and

· Recognize revenue when (or as) we satisfy a performance obligation.

Sera Labs Revenue

Sera Labs recognizes revenue as, or when, we satisfy performance obligations under a contract. We account for a contract when the parties approved the contract and are committed to perform on it, the rights of each party and the payment terms are identified, the contract has commercial substance and it is probable that we will collect substantially all of the consideration. A performance obligation is a promise in a contract to transfer a distinct good or service, or a series of distinct goods or services, to a customer. The transaction price of a contract must be allocated to each performance obligation and recognized as the performance obligation is satisfied. In essence, we recognize revenue when or as control of the promised goods or services transfer to the customer.

 Sales through Related Party - Advanced Legacy Technologies LLC (ALT)

In April 2022, pursuant to the Distribution Services Agreement between Sera Labs and ALT (the “Agreement”), ALT was engaged to provide a range of auxiliary services to Sera Labs designed to support the direct-to-consumer (“DTC”) sales channel, enhancing the efficiency and effectiveness of our product distribution. These services include, but are not limited to, processing customer payments, handling customer service inquiries, and managing logistics and fulfillment coordination with our third-party manufacturing and fulfillment vendor (3PL). ALT's role was instrumental in facilitating the seamless operation of our DTC model, acting as an extension of our operational infrastructure to ensure customer satisfaction and streamline sales processes. However, ALT does not have its own employees and the management of the aforementioned processes was performed by employees of Sera Labs. Additionally, pursuant to the Agreement, Sera Labs is permitted to “assign, transfer or otherwise delegate [the] Agreement or any of its rights or obligations [under the Agreement] without the written consent of ALT,” which Sera Labs did in having its employees administer the Agreement.  Under Topic 606, the Company was determined to be the principal in the transactions as we control the product, pricing, and promotions offered to the customers, and we are responsible for product returns and customer satisfaction. Sales through ALT were discontinued in 2023.

The Agreement contemplated the use by ALT of its own bank account, but it did not explicitly authorize Sera Labs employees to directly execute transactions through ALT's bank account. The authorization was granted extemporaneously by the beneficial owner of ALT, who is the chief executive officer of the Company. Such authorization was provided to help facilitate the administration of the Agreement and encompasses the following key features:

1.	Transaction Execution: Sera Labs employees are permitted to initiate and approve transactions related to the sales of our products, including the collection of revenues and payment of expenses associated with our direct-to-consumer sales channel.
2.	Bank Account Management: Specific protocols are outlined for the oversight and reconciliation of the bank account, ensuring transparency and accountability in its use. This includes regular auditing and reporting mechanisms to monitor the flow of funds and to ensure they are accurately attributed to the respective parties.
3.	Operational Integration: The intent was for the integration of ALT’s services to be performed similar to Sera Labs’ operational procedures, ensuring that ALT’s bank account usage is consistent with our overall business objectives and financial reporting practices.

Revenue Recognition

Revenue from eCommerce sales, including DTC sales, are recognized upon receipt of the merchandise by the customer. Sera Labs recognizes revenue in its DTC sales channel based on the principle that control of the specified goods is transferred to the customer. With the Power Keto and Immunity nutraceutical products which were facilitated through ALT, this control is evidenced through our agreement with 3PL, which stipulates that Sera Labs has the unilateral ability to direct 3PL to produce and ship the products directly to the customer upon order receipt. Despite 3PL retaining legal title to the products until the point of sale, the immediate transfer of legal title from Sera Labs to the customer upon sale (flash title transfer) demonstrates Sera Labs' control over the goods. 

Key factors supporting our determination as the principal in the ALT transactions include:

Primary Responsibility for Goods and Services: Under the terms of the Agreement, Sera Labs has ultimate responsibility for the specified goods' delivery and quality, indicating our control over the goods before they are transferred to the customer.

Inventory Risk: Under the terms of the Agreement, Sera Labs bears ultimate inventory risk before the goods are transferred to customers, as evidenced by our commitment to purchase the goods from 3PL upon receiving a customer order.

Pricing Discretion: Under the terms of the Agreement, Sera Labs has the sole discretion to establish the pricing for the specified goods, further supporting our role in directing the use of and obtaining the benefits from the sale of these goods.

These factors affirm the position of Sera Labs as the principal in the transactions under ASC 606, ensuring the correct recognition of revenue on a gross basis.

We also elected to adopt the practical expedient related to shipping and handling fees which allows us to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations. Therefore, shipping and handling activities are considered part of the Company’s obligation to transfer the products and therefore are recorded as direct selling expenses, as incurred. Shipping revenue is recorded upon delivery to the customer.

Practical Expedients and Exemptions

The Company has elected certain practical expedients and policy elections as permitted under ASC Topic 606 as follows:

· The Company adopted the practical expedient related to not adjusting the promised amount of consideration for the effects of a significant financing component if the period between transfer of product and customer payment is expected to be less than one year at the time of contract inception;

· The Company made the accounting policy election to exclude any sales and similar taxes from the transaction price; and

· The Company adopted the practical expedient not to disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

Sales Tax

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods or services to a customer, excluding sales taxes. The net amount of sales tax payable to the various state taxation authorities is included in sales tax payable in the unaudited condensed consolidated balance sheets.

Sales Returns, Discounts and Warranties

Sales returns, discount and warranties are considered variable consideration under ASC 606. The Company reduces revenue for estimated future returns, discounts and warranties which may occur with distributors and retailers. When evaluating the adequacy of sales returns, discounts and warranties, the Company analyzes the following: historical credit allowances, current sell-through of inventory of the Company’s products, current trends in retail industry, changes in customer demand, acceptance of products, and other related factors.

Cost to Obtain a Contract

The Company pays sales commissions to its employees and outside sales representatives for contracts and orders that they obtain relating to the wholesale sales of our products. The Company applies the optional practical expedient to immediately expense costs to obtain a contract or order if the recognition period of the revenue is one year or less. As such, sales commissions are immediately recognized as an expense and included as part of sales and marketing expenses.

Deferred Revenue

Advance payments and billings in excess of revenue recognized represent deferred revenue and is recorded as a liability when customers remit cash payments in advance before the Company satisfies its performance obligations under contractual or other sales arrangements. Deferred revenue is derecognized when revenue is recognized and the performance obligation is satisfied and is generally classified as current based on the timing of when the Company expects to recognize the revenue.

Deferred revenue is made up of the following as of September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024		December 31, 2023
Advance payments and customer deposits for commercial products	$	396	$	416

The following table summarizes the changes in deferred revenue during the period presented (in thousands):

Balance at December 31, 2023	$	416
Additions		37
Customer deposits returned		-
Transfers to revenue		(57	)
Balance at September 30, 2024	$	396

Cost of Goods Sold

Cost of goods sold primarily consists of costs for our products incurred to third-party manufacturers and in-bound freight.

Advertising Expense

The Company expenses marketing, promotions and advertising costs as incurred. Such costs are included in selling, general and administrative expense in the accompanying unaudited condensed consolidated statements of operations. The Company recorded advertising costs of $82 thousand and $802 thousand for the three months ended September 30, 2024 and 2023, respectively. The Company recorded advertising costs of $511 thousand and $2.2 million for the nine months ended September 30, 2024 and 2023, respectively.

Income Taxes

The Company utilizes ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.

The Company generated a deferred tax asset through net operating loss carry-forward. However, a valuation allowance of 100% has been established due to the uncertainty of the Company’s realization of the net operating loss carry-forward prior to its expiration.

Share-based Payments

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718, “Stock Compensation” (“ASC 718”) which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC 2018-07 (Topic 718) for share-based payments to employees, consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the grant date. For awards of restricted stock, the Company determines grant date fair value based on the closing price of the Company’s common stock on the grant date as reported on the over-the-counter market (the “OTC Market”). For awards of stock options, the Company uses the Black-Scholes option valuation model to estimate grant date fair value.

Compensation expense is recognized for the portion of the award that is ultimately expected to vest over the period during which the recipient renders the required services to the Company using the straight-line single option method. See Note 15 – Share-based Payments for additional information.

Fair Value Measurements

The Company follows ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements and establishes a framework for measuring fair value and expands disclosure about such fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The carrying amounts of cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate fair values because of the short-term nature of these items.

Valuation techniques used to measure fair value, when required, must maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

· Level 1 – Quoted prices in active markets for identical assets and liabilities.

· Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

· Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

When a portion of the purchase consideration consists of shares of the Company’s common stock, the Company calculates the purchase price attributable to those shares, a Level 1 security, by determining the fair value of those shares quoted on the OTC Market as of the acquisition date. The Company recognizes estimated fair values of the tangible assets and identifiable intangible assets acquired and liabilities assumed, including any contingent consideration, as of the acquisition date. Goodwill is recognized as any amount of consideration transferred in excess of the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed.

In determining fair value, the Company also considers counterparty credit risk in its assessment of fair value. At September 30, 2024 and December, 31, 2023, the Company had no financial assets or liabilities recorded at fair value on a recurring basis, except for the Series A and B Notes, for which we elected the fair value option. These liabilities are measured at fair value using the period-end quoted market prices of the Company’s common stock as a Level 3 input and are marked-to-market at each reporting date with the change in fair value reported as a gain (loss) in the unaudited condensed consolidated statement of operations.

The following table summarizes fair value measurements by level at September 30, 2024 for assets and liabilities measured at fair value on a recurring basis (in thousands):

	Total		Level 1		Level 2		Level 3
Fair value of Series A Note	$	4,918	$	-	$	-	$	4,918
Fair value of Series B Note	$	3,795	$	-	$	-	$	3,795

The following table summarizes fair value measurements by level at December 31, 2023 for assets and liabilities measured at fair value on a recurring basis (in thousands):

	Total		Level 1		Level 2		Level 3
Fair value of Series A Note	$	4,597	$	-	$	-	$	4,597
Fair value of Series B Note	$	3,502	$	-	$	-	$	3,502

The following table summarizes the changes in Level 3 financial instruments during the nine months ended September 30, 2024 (in thousands):

Fair value of Series A and B Notes at December 31, 2023	$	8,099
Change in fair value of Series A Note		321
Change in fair value of Series B Note		293
Fair value of Series A and B Notes at September 30, 2024	$	8,713

A summary of the weighted average (in aggregate) significant unobservable inputs used in measuring the Series A and B Notes that are categorized within Level 3 of the fair value hierarchy is as follows:

	September 30, 2024			December 31,  2023
Stock price	$	0.0519		$	0.0744
Conversion price	$	1.32		$	1.32
Term (in years) – Series A Note		0.0			0.0
Term (in years) – Series B Note		0.0			0.0
Volatility – Series A Note		70.5	%		78.0	%
Volatility – Series B Note		70.5	%		78.0	%
Risk-free interest rate – Series A Note		4.73	%		5.13	%
Risk-free interest rate – Series B Note		4.73	%		5.13	%
Interest rate		18.0	%		18.0	%

Contingencies

We are exposed to claims and litigation arising in the ordinary course of business and use various methods to resolve these matters in a manner that we believe serves the best interest of our stockholders and other constituents. When a loss is probable, we record an accrual based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated range of loss and, if material, disclose the estimated range of loss. We do not record liabilities for reasonably possible loss contingencies, but we do disclose a range of reasonably possible losses if they are material and we are able to estimate such a range. If we cannot provide a range of reasonably possible losses, we explain the factors that prevent us from determining such a range. We believe the recorded reserves in our unaudited condensed consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of these identified claims or litigation will be material to our results of operations, cash flows, or financial condition. Gain contingencies are recorded when the contingency is resolved. 

Net Loss per Common Share

Basic net loss per common share is computed using the weighted average number of common shares outstanding during the periods presented. Diluted net loss per share is computed using the weighted average common shares and common share equivalents outstanding during the periods presented (which consist of restricted stock units, stock options and warrants to the extent they are dilutive).

The following table sets forth the computation of basic and diluted net loss per share for the periods presented (in thousands, except per share data):

	For the Three Months Ended						For the Nine Months Ended
(Dollars in thousands)	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
Net loss	$	(541	)	$	(2,224	)	$	(2,733	)	$	(3,420	)
Weighted average common shares outstanding – basic and diluted		78,439,001			72,231,926			78,142,983			71,717,926
Basic and diluted loss per share	$	(0.01	)	$	(0.03	)	$	(0.03	)	$	(0.05	)

The following table summarizes the number of shares excluded from the calculation of diluted net loss per share to the extent they are antidilutive for the periods presented:

	For the Nine Months Ended September 30,
	2024		2023
Vested stock options from the Company’s 2017 Equity Incentive Plan		1,261,182		1,373,946
Warrants		-		312,500
Shares to be issued upon conversion of convertible payable		-		618,327
Total		1,261,182		2,304,773

The Series A and B Notes (other than restricted amounts under the Series B Note) are convertible, at the option of the Investor, into shares of Common Stock at a conversion price of $1.32 per share. The conversion price is subject to full ratchet antidilution protection upon any transaction in which the Company is deemed to have granted, issued or sold, any shares of Common Stock. If the Company enters into any agreement to issue any variable rate securities, other than a bona fide at-the-market offering or equity line of credit, the Investor has the additional right to substitute such variable price (or formula) for the conversion price. If an Event of Default has occurred under the Convertible Notes, the Investor may elect to alternatively convert the Convertible Notes at the redemption premium described therein. Due to the uncertainty of the number of shares to be issued, the shares to be issued from the conversion of the Series A and B Notes were also not included in the table above.

Segment Reporting

The Company uses the “management approach” to identify its reportable segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. Using the management approach, the Company determined that it does not have reportable segments.

Accounting Standards Adopted in 2024

Recent Accounting Pronouncements

Recently Adopted Accounting Standards Financial Instruments – Credit Losses. The Financial Accounting Standards Board (“FASB”) issued five Accounting Standards Updates (“ASUs”) related to financial instruments – credit losses. The ASUs issued were: (1) in June 2016, ASU 2016-13, “Financial Instruments – Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments,” (2) in November 2018, ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” (3) in April 2019, ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” (4) in May 2019, ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief” and (5) in November 2019, ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses.” Additionally, in February and March 2020, the FASB issued ASU 2020-02, “Financial Instruments—Credit Losses (Topic 326) and Leases (“ASC 842”): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (“ASC 842”) and ASU 2020-03, “Codification Improvements to Financial Instruments,” respectively, which include amendments to ASC 326.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, to require a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance the transparency and decision-usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid. The ASU’s amendments are effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its financial statements and related disclosures.  

XML

ACCOUNTS RECEIVABLE

9 Months Ended

Sep. 30, 2024

ACCOUNTS RECEIVABLE

ACCOUNTS RECEIVABLE

NOTE 3 – ACCOUNTS RECEIVABLE

As of September 30, 2024 and December 31, 2023, accounts receivable consist of the following (in thousands):

	September 30, 2024		December 31, 2023
Customer billed accounts receivable	$	33	$	443
Allowance for doubtful accounts		-		-
Accounts receivable, net	$	33	$	443

Customer billed accounts receivable represents amounts billed to customers that have yet to be collected.

Allowances for doubtful accounts have been determined through specific identification of amounts considered to be uncollectible and potential write-offs, plus a non-specific allowance for other amounts for which some potential loss has been determined to be probable based on current and past experiences.

XML

PREPAID EXPENSES AND OTHER CURRENT ASSETS

9 Months Ended

Sep. 30, 2024

PREPAID EXPENSES AND OTHER CURRENT ASSETS

PREPAID EXPENSES AND OTHER CURRENT ASSETS

NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

As of September 30, 2024 and December 31, 2023, prepaid expenses and other current assets consist of the following (in thousands):

	September 30, 2024		December  1, 2023
Prepaid insurance	$	29	$	184
Prepaid expenses		8		33
Other current assets		15		69
Prepaid expenses and other current assets	$	52	$	286

XML

INVENTORY

9 Months Ended

Sep. 30, 2024

INVENTORY

INVENTORY

NOTE 5 – INVENTORY

Inventory consists primarily of finished goods and packaging components. The Company’s inventory is stated at the lower of cost (first in, first out basis) or net realizable value.

As of September 30, 2024 and December 31, 2023, the carrying value of inventory consists of the following (in thousands):

	September 30, 2024			December 31, 2023
Packaging components	$	55		$	84
Finished goods		352			408
		407			492
Reserve for obsolescence		(265	)		(293	)
Inventory, net	$	142		$	199

For the three months ended September 30, 2024 and 2023, inventory reserve adjustments amounted to $0 and $43 thousand, respectively. For the nine months ended September 30, 2024 and 2023, inventory reserve adjustments amounted to $0 and $78 thousand, respectively.

XML

PROPERTY AND EQUIPMENT

9 Months Ended

Sep. 30, 2024

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT

NOTE 6 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September  30, 2024			December 31, 2023
Computer and other equipment	$	10		$	10
Less accumulated depreciation		(7	)		(6	)
Property and equipment, net	$	3		$	4

For the three months ended September 30, 2024 and 2023, depreciation expense amounted to $1 thousand and $1 thousand, respectively. For the nine months ended September 30, 2024 and 2023, depreciation expense amounted to $1 thousand and $1 thousand, respectively.

XML

NOTE RECEIVABLE

9 Months Ended

Sep. 30, 2024

NOTE RECEIVABLE

NOTE RECEIVABLE

NOTE 7 – NOTE RECEIVABLE

In July 2022, the Company received a promissory note in the amount of $2.0 million (the “Note”) in connection with the Asset Sale. The Note bearing interest at 2.37% per annum was due on or before July 22, 2023. In the event of default, the interest rate on the Note increases to 2.63% per annum. On July 31, 2023, the repayment terms of the Note were modified by mutual agreement, under which repayment of the Note was to be made in three installments. Payments on the Note aggregating $1.0 million were received in multiple installments during fiscal year 2023 and the remaining balance of the Note plus accrued interest was paid in full in multiple installments during the first and second quarter of 2024.

Note receivable consists of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024		December 31, 2023
TF Tech Ventures, Inc. secured promissory note	$	-	$	975
Less: Current portion of note receivable, net		-		(975	)
Note receivable, net of current portion	$	-	$	-

XML

PATENTS AND OTHER INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2024

PATENTS AND OTHER INTANGIBLE ASSETS

PATENTS AND OTHER INTANGIBLE ASSETS

NOTE 8 – PATENTS AND OTHER INTANGIBLE ASSETS

Intangible Asset Summary

Patents, net and Other intangible assets, net consist of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024			December 31, 2023
Intangible assets subject to amortization:
Patents	$	316		$	316
Other intangibles		142			141
	$	458		$	457
Accumulated amortization		(215	)		(160	)
Patents, net and Other intangibles, net	$	243		$	297

Amortization expense was $18 thousand and $20 thousand for the three months ended September 30, 2024 and 2023, respectively. Amortization expense was $54 thousand and $49 thousand for the nine months ended September 30, 2024 and 2023, respectively.

The estimated aggregate future amortization expense by period is as follows (in thousands):

2024 (remaining)	$	15
2025		34
2026		19
2027		17
2028		17
2029		17
Thereafter		124
Total Amortization	$	243

XML

INVESTMENTS

9 Months Ended

Sep. 30, 2024

INVESTMENTS

INVESTMENTS

NOTE 9 – INVESTMENTS

During 2019 and 2020, the Company purchased Convertible Loans (“Loans”) from ReLeaf Europe B.V. (“ReLeaf”) in the aggregate amount of $509 thousand bearing interest at 6% per annum and became due and payable to the Company on the conversion date. During 2022, the Company agreed to convert the Loans and unpaid accrued interest of $56 thousand into shares of ReLeaf as per the Loan terms and also made additional investments in ReLeaf in the aggregate amount of $54 thousand. The Company recorded its investment in ReLeaf using the cost method of accounting and recorded a valuation reserve on the investment. The issuance of such shares to the Company pursuant to the conversion is currently pending.

As of September 30, 2024, the Company holds 11,698 shares of preferred stock of Biopharmaceutical Research Company (“BRC”) representing a 0.39% interest in BRC. The BRC shares were acquired in 2022 through the conversion of a convertible loan the Company purchased from BRC in May 2021, and the carrying amount of the investment is comprised of the original principal amount of $200 thousand plus unpaid accrued interest of $13 thousand. BRC produces active pharmaceutical ingredients (API) and partners with others on clinical drug development to develop innovative therapeutics for unmet medical needs to gain FDA approval and ultimately achieve commercialization.

Investments, net, at cost, consists of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024			December 31, 2023
Investment in ReLeaf Europe B.V.	$	619		$	619
Less: Valuation reserve		(568	)		(568	)
Investment in ReLeaf Europe B.V., net		51			51
Investment in Biopharmaceutical Research Company		213			213
Investments, net	$	264		$	264

As of September 30, 2024 and December 31, 2023, the carrying amount of the net investments is based on management’s best estimate of net realizable value, which includes a valuation reserve in the amount of $568 thousand and $568 thousand, respectively.

XML

ACCRUED EXPENSES

9 Months Ended

Sep. 30, 2024

ACCRUED EXPENSES

ACCRUED EXPENSES

NOTE 10 – ACCRUED EXPENSES

Accrued expenses consist of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024		December 31, 2023
Refunds and returns liability	$	584	$	566
Accrued interest expense		3		-
Accrued payroll		352		205
Accrued vacation leave		89		81
Accrued expenses		241		154
Sales tax payable		318		336
Accrued Expenses	$	1,587	$	1,342

XML

RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2024

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

NOTE 11 – RELATED PARTY TRANSACTIONS

The Company and other related entities have had a commonality of ownership and/or management control, and as a result, the reported operating results and/or financial position of the Company could significantly differ from what would have been obtained if such entities were autonomous.  

In April 2022, the Company entered into a distribution services agreement with Advanced Legacy Technologies, LLC (“ALT”) which is beneficially owned by Nancy Duitch under which ALT provided auxiliary services in connection with the distribution of certain of our products in exchange for compensation in the amount of 5% of the net proceeds received from the sale of the products. In 2023, ALT agreed to waive their entire compensation earned pursuant to the agreement and the sale of our product through ALT was discontinued. No compensation was earned for the nine months ended September 30, 2024 and 2023. As of September 30, 2024, there were no outstanding balances between ALT and to the Company.

In July 2022, the Company entered into a consulting agreement with Rob Davidson under which Mr. Davidson provided advisory services on matters including strategic, financial, fund raising, product development and technology in exchange for compensation in the amount of $12 thousand per month. The agreement expired July 25, 2023. Total consulting expense incurred to Mr. Davidson for the nine months ended September 30, 2024 and 2023 was $0 and $81 thousand, respectively.

The Company has been doing business with a third-party contract manufacturer and formulator in which a member of our board of directors acquired a minority interest during the second quarter of 2023. For the nine months ended September 30, 2024, the Company did not purchase goods and services from this manufacturer.

In February 2023, the Company entered into a media buying and digital services agreement (the “Agreement”) with an advertising agency of which a member of our board of directors is an officer (the “Agency”). The Agreement expired in August 2023 and no further expenses have been incurred to the Agency by the Company.

On January 4, 2024, the Company and Nancy Duitch, the Chief Executive Officer of the Company (the “Executive”), entered into a Senior Secured Promissory Note and Security Agreement (the “Agreement”). The Agreement, as amended on March 31, 2024 and July 30, 2024, provides for a secured loan facility of up to $250,000, of which the Company borrowed an initial amount of $39,000 (the “Initial Principal Amount”) on January 4, 2024. The Agreement also provides for the ability of the Company to request additional loan amounts up to $211,000 (the “Future Advances”), inclusive of the outstanding balances of certain credit cards (the “Cards”) used exclusively by the Company of which are issued in the name of the Executive. The portion of the principal amount of the Agreement (the “Principal Amount”) comprised of the Initial Principal Amount and the Future Advances (and excluding the outstanding balances on the Cards), accrues interest at an annual rate of 12%, or 18% in the event of default. The Principal Amount plus all accrued and unpaid interest is due and payable in full on the sooner of: (i) the demand of the Holder; and (ii) December 31, 2024. The Company may prepay the Principal Amount, in whole or in part, without the prior written consent of the Executive and without penalty. The Company granted the Executive a security interest in all of the Company’s present and future personal property.

In the event of default, the Executive may, upon written notice to the Company, declare the Principal Amount, including any accrued interest, immediately due and payable in cash and in full. The following constitutes events of default: (i) the Company fails to pay when due any principal or interest payment on the due date, and such payment has not been made within ten (10) days of the Company’s receipt of the Executive’s written notice to the Company of such failure to pay; (ii) the Company materially breaches any other covenant contained in the Agreement and such failure continues for fifteen (15) days after the Company receives written notice of such material breach from the Executive; (iii) the Company voluntarily files for bankruptcy protection or makes a general assignment for the benefit of creditors; or (iv) the Company is the subject of an involuntary bankruptcy petition and such petition is not dismissed within sixty (60) days.

The outstanding amount of the note as of September 30, 2024 including accrued interest payable is $44 thousand.

As of September 30, 2024 and December 31, 2023, the Company had accrued related party interest of $3 thousand and $0, respectively. Interest expense in regard to related party notes payable for the three months ended September 30, 2024 and 2023 was $1 thousand and $0, respectively. Interest expense in regard to related party notes payable for the nine months ended September 30, 2024 and 2023 was $3 thousand and $0, respectively.

XML

LOANS AND NOTES PAYABLE

9 Months Ended

Sep. 30, 2024

LOANS AND NOTES PAYABLE

LOANS AND NOTES PAYABLE

NOTE 12 – LOANS AND NOTES PAYABLE

Loans payable consists of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024		December 31, 2023
Loan due June 6, 2024, monthly payments including interest at 10.92% per annum; unsecured	$	-	$	17
Loan due September 29, 2024, monthly payments including interest at 8.57% per annum; unsecured		-		122
Current portion of loans payable		-		(139	)
Loans payable, less current portion	$	-	$	-

Interest expense for the three months ended September 30, 2024 and 2023 was $1 thousand and $1 thousand, respectively. Interest expense for the nine months ended September 30, 2024 and 2023 was $5 thousand and $5 thousand, respectively.

Notes payable consists of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024			December 31, 2023
Note due March 30, 2025, payable in monthly payments beginning December 30, 2024; unsecured	$	49		$	-
Note due April 30, 2025; payable in monthly payments beginning July 30, 2024; unsecured		58			-
Current portion of notes payable		(107	)		-
Notes payable, less current portion	$	-		$	-

On June 28, 2024, we entered into a securities purchase agreement with a lender (the “Lender”), pursuant to which we agreed to issue and sell to the Lender two bridge notes in the principal amounts of (i) $49,450, including an original issue discount (“OID”) of $6,450, maturing on March 30, 2025 and payable in four monthly installments beginning on December 30, 2024 (Bridge Note A), and (ii) $72,450, including an OID of $9,450, maturing on April 30, 2025 and payable in ten monthly installments beginning on July 30, 2024 (“Bridge Note B”) (both such bridge notes, collectively, the “Bridge Notes”), and additional tranches of up to $350,000 in the aggregate, subject to further agreement between us and the Lender. Fixed interest charges of 15% and 14% applied to the principal amounts of Bridge Note A and Bridge Note B, respectively, and aggregate financing costs incurred of $6 thousand have been recorded and are being amortized to interest expense over the respective terms of the Bridge Notes. Any amount of principal or interest on the Bridge Notes which is not paid when due bear interest at the rate of twenty-two percent (22%) per annum as default interest. Pursuant to the Bridge Notes, after the occurrence of an event of default, as defined, if not otherwise cured, the outstanding and unpaid portion of each Note is convertible into the Company’s Class A common stock, par value $0.001 par value per share, at a conversion price calculated by multiplying 70% of the lowest trading price for the common stock during the ten-day trading period ending on the latest complete trading day prior to the conversion date. The conversion price is subject to adjustment for stock splits, stock dividends, or rights offerings by us relating to our securities, combinations, recapitalizations, and similar events.

Interest expense for the three months ended September 30, 2024 and 2023 was $13 thousand and $0, respectively. Interest expense for the nine months ended September 30, 2024 and 2023 was $13 thousand and $0, respectively. Amortization of the OID and financing costs included in interest expense for the three months ended September 30, 2024 and 2023 was $7 thousand and $0, respectively, and $7 thousand and $0 for the nine months ended September 30, 2024 and 2023, respectively.

XML

FAIR VALUE OF CONVERTIBLE PROMISSORY NOTES

9 Months Ended

Sep. 30, 2024

FAIR VALUE OF CONVERTIBLE PROMISSORY NOTES

FAIR VALUE OF CONVERTIBLE PROMISSORY NOTES

NOTE 13 – FAIR VALUE OF CONVERTIBLE PROMISSORY NOTES

Fair value of Series A and B convertible promissory notes consists of the following at September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024			December 31, 2023
Series A subordinated convertible note at fair value	$	4,918		$	4,597
Series B senior secured convertible note at fair value		3,795			3,502
Carrying value of convertible promissory notes at fair value		8,713			8,099
Less: current portion of convertible promissory notes at fair value		(8,713	)		(8,099	)
Convertible promissory notes at fair value, less current portion	$	-		$	-

In October 2020, the Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with an institutional investor (the “Investor”) for the purchase of a series of two convertible notes with an aggregate principal amount of $11.5 million. Concurrently, the Company consummated the sale to the Investor of a Series A subordinated convertible note (the “Series A Note”) with an initial principal amount of $4.6 million, including an original issue discount of $0.6 million, and a Series B senior secured convertible note (the “Series B Note,” and together with the Series A Note, the “Convertible Notes”) with an initial principal amount of $6.9 million, including an original issue discount of $0.9 million.

The Investor paid for the Series A Note by delivering $4.0 million in cash consideration and paid for the Series B Note by delivering a secured promissory note (the “Investor Note”) with an initial principal amount of $6.0 million. The Company was to receive cash in respect of the Series B Note upon cash repayment of the corresponding Investor Note. To date, $1.0 million of the Investor Note was repaid, and to the extent the Investor Note is not repaid, the remainder of the principal under the Series B Note is considered to be “restricted.”

The Series A Note matured on October 30, 2022 and is currently in default. The Series B Note was originally set to mature on October 30, 2021 but it matured earlier on the date of default of the Series A Note (the “Maturity Date”) and is also currently in default. No action by the Investor has been pursued on the Convertible Notes as of the date of this Quarterly Report.

On April 12, 2022, the Company filed a civil action in the California Superior Court against the Investor, alleging that the investor entered into the Purchase Agreement as an unregistered securities dealer and unlicensed finance lender in violation of California law. The Company’s complaint seeks rescission of the Purchase Agreement, damages, attorneys’ fees and other relief. The Investor responded to the complaint by filing a demurrer/motion to dismiss and on August 31, 2022, the Company and Investor entered into a stipulation to stay the litigation for 30 days and allow the parties to engage in further settlement discussions. The matter was unable to be resolved within the 30 days, and, pursuant to the Stipulation, the Company refiled its action in New York where a New York court will be required to apply California law to our causes of action for rescission and unfair competition. On November 18, 2022, the Company filed an amended complaint alleging six additional causes of action, including fraud, breach of contract and unfair competition. The Investor responded to the New York amended complaint by filing a motion to dismiss and on February 3, 2023, the Company filed its opposition response to the Investor’s motion to dismiss. On September 7, 2023, a hearing was held on the motion to dismiss. As of the filing date of this Quarterly Report, a ruling has not been issued by the court on the motion. Settlement discussions between the parties are ongoing.

Payment of Amounts Due under the Convertible Notes

On the Maturity Date, the Company shall pay to the Investor an amount in cash (other than the restricted portion of the Series B Note) representing all outstanding principal, Make-Whole Amount (as defined in the Convertible Notes), if any, accrued and unpaid interest and accrued and unpaid Late Charges (as defined in the Convertible Notes) on such principal. The remaining restricted amount of $5.0 million under the Series B Note has been automatically satisfied on the Maturity Date (in lieu of a cash payment) by Maturity Netting (as defined in the Investor Note described below).

Interest

The Convertible Notes shall bear no interest unless there is an occurrence, and during the continuance, of an Event of Default (as defined in the Convertible Notes). During any such Event of Default, the Convertible Notes will accrue interest at the rate of 18% per annum. See “—Events of Default” below.

Conversion; Alternate Conversion upon Event of Default

The Convertible Notes (other than the restricted portion of the Series B Note) are convertible, at the option of the Investor, into shares of Common Stock at a conversion price of $1.32 per share. The conversion price is subject to full ratchet antidilution protection upon any transaction in which the Company is deemed to have granted, issued or sold, any shares of Common Stock. If the Company enters into any agreement to issue any variable rate securities, other than a bona fide at-the-market offering or equity line of credit, the Investor has the additional right to substitute such variable price (or formula) for the conversion price.

Due to the Event of Default that has occurred under the Convertible Notes, the Investor may elect to alternatively convert the Convertible Notes at the redemption premium described therein.

Conversion Limitation

The Investor will not have the right to convert any portion of the Convertible Notes, to the extent that, after giving effect to such conversion, the Investor (and other certain related parties) would beneficially own in excess of 4.99% of the shares of Common Stock outstanding immediately after giving effect to such conversion. This limit may, from time to time, be increased, up to 9.99%, or decreased; provided that any such increase will not be effective until the 61^st day after delivery of a notice to the Company of such increase.

Events of Default

The Convertible Notes include certain customary and other Events of Default. In connection with an Event of Default, the Investor may require the Company to redeem in cash any or all of the Convertible Notes. The redemption price will be at a premium to the amount due under the Convertible Notes as described therein.

Fair Value Option for the Series A and B Notes

The Company elected the fair value option under ASC 825, “Financial Instruments,” for both the Series A and B Notes, which have been accounted for as follows: (1) the portion of the change in the liabilities’ fair value that is attributable to a change in instrument-specific credit risk in other comprehensive income; (2) the remaining change in the liabilities’ fair value in net income; (3) the excess of the fair value over the proceeds was recognized as an expense; and (4) upfront costs and fees were recognized in earnings as incurred gains and losses.

The Company recognized a loss of $614 thousand and a gain of $1.3 million attributed to the aggregate changes in fair value of the Series A and B Notes for the nine months ended September 30, 2024 and 2023, respectively, which were recorded in the unaudited condensed consolidated statements of operations.

As of September 30, 2024, the Company valued the Series A and B Notes giving consideration to the terms under the existing default. If the Company is required to settle the Series A and B Notes under those terms, the settlement would be either (i) a cash payment of $10.0 million, or (ii) the issuance of 4,145,212 shares of the Company’s common stock plus a cash payment of $9.9 million, at the option of the Investor.

XML

WARRANT AGREEMENTS

9 Months Ended

Sep. 30, 2024

WARRANT AGREEMENTS

WARRANT AGREEMENTS

NOTE 14 – WARRANT AGREEMENTS

The Company’s warrant activity during the periods presented was as follows:

	Warrants			Weighted Average Exercise Price		Weighted Average Contractual Remaining Life (years)
Outstanding, December 31, 2022		312,500		$	2.00		1.12
Granted		-			-		-
Exercised		-			-		-
Forfeited/Expired		-			-		-
Outstanding, December 31, 2023		312,500		$	2.00		0.12
Granted		-			-		-
Exercised		-			-		-
Forfeited/Expired		(312,500	)	$	2.00		-
Outstanding, September 30, 2024		-		$	-		-
Exercisable at September 30, 2024		-		$	-		-

XML

SHARE-BASED PAYMENTS

9 Months Ended

Sep. 30, 2024

SHARE-BASED PAYMENTS

SHARE-BASED PAYMENTS

NOTE 15 – SHARE-BASED PAYMENTS

The Company’s Amended and Restated 2017 Equity Incentive Plan (the “2017 Equity Incentive Plan” or the “Plan”) provides for the awarding of stock options, restricted stock and restricted stock units to certain employees, including executive officers, non-employee members of the Board of Directors of the Company (the “Board”) and consultants. Of the 10 million shares authorized under the Plan, there are 213,280 remaining shares available for grant as of September 30, 2024.

During 2020, the Company granted an option to purchase 1,518,194 shares of the Company’s common stock to a consultant that contains performance-based vesting conditions where revenue milestones must be met by December 5, 2024 (the “Performance Period”). No option shares that contain performance-based vesting conditions vested during the nine months ended September 30, 2024 and it is highly improbable that the performance-based conditions will be met prior to the end of the Performance Period.

Stock Options

The Company’s stock option activity during the periods presented was as follows:

	Options			Weighted Average Exercise Price		Weighted Average Contractual Remaining Life (years)
Outstanding, December 31, 2022		3,169,942		$	1.20		8.05
Granted		50,000			0.185		9.12
Exercised		-			-		-
Forfeited/Expired		(15,800	)		0.99		-
Outstanding, December 31, 2023		3,204,142		$	1.19		7.08
Granted		-			-		-
Exercised		-			-		-
Forfeited/Expired		(321,957	)		0.69		-
Outstanding, September 30, 2024		2,882,185		$	1.24		6.24
Exercisable at September 30, 2024		1,261,182		$	1.32		6.19

Range of Exercise Prices	Number of Awards		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number of Awards Exercisable		Weighted Average Exercise Price
$0.156 - $3.40		2,882,183		6.24	$	1.24		1,261,182	$	1.32
		2,882,185		6.24	$	1.24		1,261,182	$	1.32

The aggregate intrinsic value of options outstanding and exercisable at September 30, 2024 was $0.

No options were granted during the three-month periods ending September 30, 2024 and 2023, resulting in aggregate grant date fair values of $0 for both periods. Compensation expense related to stock options for the three months ended September 30, 2024 and 2023 was $4 thousand and $73 thousand, respectively. Compensation expense related to stock options for the nine months ended September 30, 2024 and 2023 was $14 thousand and $243 thousand, respectively.

As of September 30, 2024, total unrecognized fair value of compensation cost related to unvested stock options was $33 thousand, which is to be recognized over a remaining weighted average period of 0.94 years.

Restricted Stock Units

The Company’s restricted stock unit activity during the periods presented was as follows:

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Outstanding, December 31, 2022		1,351,668		$	0.29
Granted		988,288			0.12
Vested		(1,408,156	)		0.28
Forfeited/Expired		-			-
Outstanding, December 31, 2023		931,820		$	0.11
Granted		1,400,000			0.03
Vested		(931,820	)		0.11
Forfeited/Expired		-			-
Outstanding, September 30, 2024		1,400,000		$	0.03

As of September 30, 2024 and December 31, 2023, the Company had $38 thousand and $54 thousand, respectively, of total unrecognized compensation expense related to unvested restricted stock units, to be recognized as compensation expense over weighted-average periods of 0.92 years and 0.50 years, respectively.

Compensation expense related to restricted stock units for the three months ended September 30, 2024 and 2023 was $3 thousand and $43 thousand, respectively. Compensation expense related to restricted stock units for the nine months ended September 30, 2024 and 2023 was $57 thousand and $271 thousand, respectively. All compensation expense related to restricted stock units is included in selling, general and administrative expenses.

XML

COMMON STOCK

9 Months Ended

Sep. 30, 2024

COMMON STOCK

COMMON STOCK

NOTE 16 – COMMON STOCK

Common Stock

The Company is authorized to issue 150,000,000 common shares with a par value of $0.001 per share. All issuances of common stock are issued from the Company’s authorized but not issued and outstanding shares.

From January 1, 2023 to September 30, 2023, the Company issued an aggregate of 360,472 common stock shares, at prices per share ranging from $0.08 to $0.166 in connection with several consulting agreements at a total value of $42 thousand and an aggregate of 931,820 shares of its common stock to its five non-executive directors pursuant to the vesting of their 2022 annual restricted stock unit grant

From January 1, 2024 to September 30, 2024, the Company issued an aggregate of 1,408,156 shares of its common stock to its five non-executive directors pursuant to the vesting of their 2023 annual restricted stock unit grant.

XML

CONTINGENT STOCK CONSIDERATION

9 Months Ended

Sep. 30, 2024

CONTINGENT STOCK CONSIDERATION

CONTINGENT STOCK CONSIDERATION

NOTE 17 – CONTINGENT STOCK CONSIDERATION

In October 2020, the Company acquired all of the issued and outstanding stock of Sera Labs in exchange for consideration of (i) $1.0 million in cash and (ii) 5,014,868 shares of the Company’s common stock. In addition, the Sera Labs security holders were also entitled to receive up to an additional 5,988,024 shares of the Company’s common stock (the “Clawback Shares”) based on the achievement of certain sales and gross margin milestones through December 31, 2023. As of December 31, 2023, 4,790,419 of the Clawback Shares were earned and the remaining 1,197,605 shares were forfeited and cancelled.

XML

COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2024

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 18 – COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

On April 12, 2022, the Company filed a civil action in the California Superior Court against the Investor referenced in Note 14, alleging that the investor entered into the Purchase Agreement as an unregistered securities dealer and unlicensed finance lender in violation of California law. The Company’s complaint seeks rescission of the Purchase Agreement, damages, attorneys’ fees and other relief. The Investor responded to the complaint by filing a demurrer/motion to dismiss and on August 31, 2022, the Company and Investor entered into a stipulation to stay the litigation for 30 days and allow the parties to engage in further settlement discussions. The matter was unable to be resolved within the 30 days, and, pursuant to the Stipulation, the Company refiled its action in New York where a New York court will be required to apply California law to our causes of action for rescission and unfair competition. On November 18, 2022, the Company filed an amended complaint alleging six additional causes of action, including fraud, breach of contract and unfair competition. The Investor responded to the New York amended complaint by filing a motion to dismiss and on February 3, 2023, the Company filed its opposition response to the Investor’s motion to dismiss. On September 7, 2023, a hearing was held on the motion to dismiss. As of the filing date of this Quarterly Report, a ruling has not been issued by the court on the motion. Settlement discussions between the parties are ongoing.

Tax Filings

The Company tax filings are subject to audit by taxing authorities in jurisdictions where it conducts business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through the courts. As of September 30, 2024, the Company is not subject to any such audits.

Employment Contracts

The Company has entered into employment agreements with two executive officers. Under the provisions of the contracts, the Company may be required to incur severance obligations for matters relating to changes in control, as defined, and certain terminations of executives. As of September 30, 2024, the Company had no such severance obligations, in accordance with the severance benefit provisions of the respective employment agreements.

Indemnification

In the normal course of business, the Company may provide indemnification of varying scope under the Company’s agreements with other companies or consultants, suppliers and others. Pursuant to these agreements, the Company will generally agree to indemnify, hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with the use of the Company’s products. Indemnification provisions could also cover third party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to the Company’s products. The Company’s office lease also will generally contain indemnification obligations, including obligations for indemnification of the lessor for environmental law matters and injuries to persons or property of others, arising from the Company’s use or occupancy of the leased property. The term of these indemnification agreements will generally continue in effect after the termination or expiration of the particular services, lease, or license agreement to which they relate. Historically, the Company has not been subject to any claims or demands for indemnification. The Company also maintains various liability insurance policies that limit the Company’s financial exposure. As a result, the Company management believes that the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of September 30, 2024 and December 31, 2023.

Operating Lease

The Company currently maintains its corporate offices at 15233 Ventura Boulevard, Suite 420, Sherman Oaks, CA 91403 at no cost to the Company under an informal arrangement with its tenant while the Company seeks to identify suitable permanent office space. The Company previously maintained its leased corporate offices at 5805 Sepulveda Boulevard, Suite 500, Sherman Oaks, CA 91411 under a lease agreement (the “Lease”), which was originally set to expire on April 30, 2026. Effective on September 6, 2024, the Company early terminated the lease without penalty by mutual agreement with the landlord and the Company vacated the premises. The lease provided for the payment of base monthly rent in the amount of $7 thousand during the first 12 months of the term with an increase of 3% over the base monthly rent beginning on the one-year anniversary of the Lease. The Company previously occupied Suite 801 in the same building under a lease agreement that expired on April 30, 2024.

Rent expense was $16 thousand and $31 thousand for the three months ended September 30, 2024 and 2023, respectively. Rent expense was $75 thousand and $92 thousand for the nine months ended September 30, 2024 and 2023, respectively.

The Company classified the Lease as an operating lease in accordance with ASC 842, “Lease Accounting,” to be recognized as a right-of-use asset and a lease liability based on the present value of its lease payments over its lease term. The Company computed the incremental borrowing rate (“IBR”) which is necessary to determine the present value of its lease payments since a borrowing rate is not explicitly available in the lease agreement. The concluded IBR is 14.16%. Operating lease payments and lease expense were recognized on a straight-line basis over the lease term.

As a result of the early termination of the Lease, there are no future payments due under the operating lease.

The following table presents supplemental balance sheet information related to the particular operating lease in effect as of September 30, 2024 and December 31, 2023 (in thousands, except lease term and discount rate):

	September 30, 2024		December 31, 2023
Operating lease
Right-of-use asset, net	$	-	$	50
Right-of-use lease liability, current	$	-	$	45
Right-of-use lease liability, noncurrent		-
Total operating lease liability	$	-	$	45
Weighted average remaining lease term
Operating lease			0.29 years
Weighted average discount rate
Operating lease				11.30	%

XML

SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2024

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE 19 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the filing date of this Quarterly Report, November 19, 2024, and there are no subsequent events that would have required adjustment to or disclosure in the unaudited condensed consolidated financial statements.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2024

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to prevent the information presented from being misleading. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K, which contains audited financial information for the two years in the period ended December 31, 2023.

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of ordinary recurring items) to present fairly the financial position and the results of operations of the Company for the periods presented. Interim results are not necessarily indicative of results to be expected for the full fiscal year or any future period.

Going Concern and Management's Liquidity Plans

In accordance with the Financial Accounting Standards Board (“FASB”) standard on going concern, Accounting Standard Update (“ASU”) 2014-15, the Company assesses going concern uncertainty in its condensed consolidated financial statements to determine if it has sufficient cash, cash equivalents and working capital on hand, including marketable securities, and any available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued, which is referred to as the “look-forward period” in ASU 2014-15. As part of this assessment, based on conditions that are known and reasonably knowable to the Company, it considers various scenarios, forecasts, projections, estimates and makes certain key assumptions, including the timing and nature of projected cash expenditures or programs, and its ability to delay or curtail expenditures or programs, if necessary, among other factors. Based on this assessment, the Company makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent the Company deems probable those implementations can be achieved and it has the proper authority to execute them within the look-forward period in accordance with ASU 2014-15.

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

As of September 30, 2024, the Company had $11 thousand of cash on hand, had an accumulated deficit of $126.1 million and a working capital deficit of $13.1 million. Our operating activities consume a portion of our cash resources. We anticipate that we will continue to incur operating losses and negative cash flows from operations as we execute our strategic and business development initiatives. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company may need to complete additional equity or debt financings to fully execute its business plans and strategies.

We have previously funded our operating losses primarily through the issuance of common stock and/or promissory notes and cash generated from our product sales. We anticipate that we will incur decreased operating losses and negative cash flows from operations as we execute on our strategic and business development initiatives and with the elimination of overhead and operating expenses related to the Company’s pharmaceutical business segment that have been discontinued in connection with the sale of its pharmaceutical assets (the “Asset Sale”). There can be no assurance, however, that the Company will be able to raise additional capital when needed, or at terms deemed acceptable, if at all.

Reclassifications

Certain reclassifications have been made to prior year’s consolidated financial statements to enhance comparability with the current year’s consolidated financial statements. These reclassifications had no effect on the previously reported net loss.

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements, and other factors that management believes to be reasonable. In addition, the Company has considered the potential impact of certain macroeconomic factors, including inflation, rising interest rates, and recessionary pressures, on its business and operations. Although the full impact of these factors is unknown and cannot be estimated reasonably, the Company believes it has made appropriate accounting estimates and assumptions based on the facts and circumstances available as of the reporting date.

Significant areas requiring the use of management estimates include, but are not limited to, revenue recognition, the allowance for doubtful accounts, valuation of intangible assets and goodwill, depreciation and amortization useful lives, assumptions used to calculate the fair value of the contingent stock consideration, stock-based compensation, deferred taxes and the assumptions used to calculate fair values of the purchase price allocations and convertible promissory notes. Actual results could differ materially from such estimates under different assumptions or circumstances.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. As of September 30, 2024 and December 31, 2023, the Company had no cash equivalents. The Company maintains its cash in banks insured by the Federal Deposit Insurance Corporation in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions. As of September 30, 2024, the Company did not have cash balances in excess of the federal insurance limit.

Investments

The Company follows Accounting Standards Codification (“ASC”) 325-20, “Cost Method Investments” (“ASC 325-20”), to account for its ownership interest in noncontrolled entities. Under ASC 325-20, equity securities that do not have readily determinable fair values (i.e., non-marketable equity securities) and are not required to be accounted for under the equity method are typically carried at cost. Investments of this nature are initially recorded at cost. Dividends distributed from net accumulated earnings of the noncontrolled entity subsequent to the date of investment are recorded as income. Dividends received in excess of earnings accumulated subsequent to the date of investment are considered a return of investment and are recorded as reductions in the cost basis of the investment. The carrying amount of investments is written down only when there is clear evidence that a decline in value that is considered other than temporary has occurred.

Accounts Receivable

Accounts receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s evaluation of their collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that the likelihood of collection is remote. Any future recoveries are applied against the allowance for doubtful accounts.

Inventory

Inventory is stated at the lower of cost or net realizable value (“NRV”). NRV is the amount by which the estimated selling price of the product exceeds the sum of any additional costs expected to be incurred on the sale of such product in the ordinary course of business. The Company determines the cost of its inventory on a first-in, first-out (“FIFO”) basis. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period. To state the inventory at the lower of cost or NRV, we maintain reserves against individual stock keeping units. Inventory reserves, once established, are not reversed until the related inventories have been sold or scrapped. If future demand or market conditions are less favorable than our projections, a write-down of inventory may be required, and would be reflected in the cost of goods sold in the period the revision is made.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price paid over the fair value of net identifiable assets and liabilities acquired. Goodwill is not amortized but is tested for impairment at least annually, or if circumstances indicate its value may no longer be recoverable. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors affecting the Company’s business. Based on the qualitative assessment, if it is determined that the fair value of goodwill is more likely than not to be less than its carrying amount, the fair value of a reporting unit will be calculated and compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value.

Intangible assets with finite lives, such as patents, web design and trademarks are stated at cost less accumulated amortization. Amortization is calculated using the straight-line method over the estimated useful lives of the assets, which range from two years to twenty years. We review the useful lives and potential impairment of intangible assets whenever events or circumstances suggest that the carrying amount may not be recoverable.

Impairment of Long-Lived Assets

Long-lived assets include equipment and intangible assets other than those with indefinite lives. We assess the carrying value of our long-lived asset groups when indicators of impairment exist and recognize an impairment loss when the carrying amount of a long-lived asset is not recoverable when compared to undiscounted cash flows expected to result from the use and eventual disposition of the asset.

Indicators of impairment include significant underperformance relative to historical or projected future operating results, significant changes in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected, net, undiscounted cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically a discounted cashflow analysis, and an impairment charge is recorded for the excess of carrying value over fair value.

Contingent Consideration Liabilities

Business acquisitions of the Company may involve the potential for future payment of consideration to former selling security holders in amounts determined upon the attainment of prescribed financial or other milestones. The fair value of such liabilities is determined using unobservable inputs. These inputs include the estimated amount and timing of projected cash flows and the risk-adjusted discount rate used to present value the cash flows. These obligations are referred to as contingent consideration.

ASC 805, “Business Combinations,” requires that contingent consideration be estimated and recorded at fair value as of the acquisition date as part of the total consideration transferred. Additionally, the fair value of contingent consideration after the acquisition date is reassessed by the Company as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in its unaudited condensed consolidated statements of operations. Changes in key assumptions can materially affect the estimated fair value of contingent consideration liabilities.

Related Parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, “Revenue Recognition.” Revenue under Topic 606 is required to be recognized either at a “point in time” or “over time,” depending on the facts and circumstances of the arrangement, and are evaluated using a five-step model.

To achieve the core principle of Topic 606, we performed the following five steps:

· Identify the contract(s) with customer;

· Identify the performance obligations in the contract;

· Determine the transactions price;

· Allocate the transactions price to the performance obligations in the contract; and

· Recognize revenue when (or as) we satisfy a performance obligation.

Sera Labs Revenue

Sera Labs recognizes revenue as, or when, we satisfy performance obligations under a contract. We account for a contract when the parties approved the contract and are committed to perform on it, the rights of each party and the payment terms are identified, the contract has commercial substance and it is probable that we will collect substantially all of the consideration. A performance obligation is a promise in a contract to transfer a distinct good or service, or a series of distinct goods or services, to a customer. The transaction price of a contract must be allocated to each performance obligation and recognized as the performance obligation is satisfied. In essence, we recognize revenue when or as control of the promised goods or services transfer to the customer.

 Sales through Related Party - Advanced Legacy Technologies LLC (ALT)

In April 2022, pursuant to the Distribution Services Agreement between Sera Labs and ALT (the “Agreement”), ALT was engaged to provide a range of auxiliary services to Sera Labs designed to support the direct-to-consumer (“DTC”) sales channel, enhancing the efficiency and effectiveness of our product distribution. These services include, but are not limited to, processing customer payments, handling customer service inquiries, and managing logistics and fulfillment coordination with our third-party manufacturing and fulfillment vendor (3PL). ALT's role was instrumental in facilitating the seamless operation of our DTC model, acting as an extension of our operational infrastructure to ensure customer satisfaction and streamline sales processes. However, ALT does not have its own employees and the management of the aforementioned processes was performed by employees of Sera Labs. Additionally, pursuant to the Agreement, Sera Labs is permitted to “assign, transfer or otherwise delegate [the] Agreement or any of its rights or obligations [under the Agreement] without the written consent of ALT,” which Sera Labs did in having its employees administer the Agreement.  Under Topic 606, the Company was determined to be the principal in the transactions as we control the product, pricing, and promotions offered to the customers, and we are responsible for product returns and customer satisfaction. Sales through ALT were discontinued in 2023.

The Agreement contemplated the use by ALT of its own bank account, but it did not explicitly authorize Sera Labs employees to directly execute transactions through ALT's bank account. The authorization was granted extemporaneously by the beneficial owner of ALT, who is the chief executive officer of the Company. Such authorization was provided to help facilitate the administration of the Agreement and encompasses the following key features:

1.	Transaction Execution: Sera Labs employees are permitted to initiate and approve transactions related to the sales of our products, including the collection of revenues and payment of expenses associated with our direct-to-consumer sales channel.
2.	Bank Account Management: Specific protocols are outlined for the oversight and reconciliation of the bank account, ensuring transparency and accountability in its use. This includes regular auditing and reporting mechanisms to monitor the flow of funds and to ensure they are accurately attributed to the respective parties.
3.	Operational Integration: The intent was for the integration of ALT’s services to be performed similar to Sera Labs’ operational procedures, ensuring that ALT’s bank account usage is consistent with our overall business objectives and financial reporting practices.

Revenue from eCommerce sales, including DTC sales, are recognized upon receipt of the merchandise by the customer. Sera Labs recognizes revenue in its DTC sales channel based on the principle that control of the specified goods is transferred to the customer. With the Power Keto and Immunity nutraceutical products which were facilitated through ALT, this control is evidenced through our agreement with 3PL, which stipulates that Sera Labs has the unilateral ability to direct 3PL to produce and ship the products directly to the customer upon order receipt. Despite 3PL retaining legal title to the products until the point of sale, the immediate transfer of legal title from Sera Labs to the customer upon sale (flash title transfer) demonstrates Sera Labs' control over the goods. 

Key factors supporting our determination as the principal in the ALT transactions include:

Primary Responsibility for Goods and Services: Under the terms of the Agreement, Sera Labs has ultimate responsibility for the specified goods' delivery and quality, indicating our control over the goods before they are transferred to the customer.

Inventory Risk: Under the terms of the Agreement, Sera Labs bears ultimate inventory risk before the goods are transferred to customers, as evidenced by our commitment to purchase the goods from 3PL upon receiving a customer order.

Pricing Discretion: Under the terms of the Agreement, Sera Labs has the sole discretion to establish the pricing for the specified goods, further supporting our role in directing the use of and obtaining the benefits from the sale of these goods.

These factors affirm the position of Sera Labs as the principal in the transactions under ASC 606, ensuring the correct recognition of revenue on a gross basis.

We also elected to adopt the practical expedient related to shipping and handling fees which allows us to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations. Therefore, shipping and handling activities are considered part of the Company’s obligation to transfer the products and therefore are recorded as direct selling expenses, as incurred. Shipping revenue is recorded upon delivery to the customer.

Practical Expedients and Exemptions

The Company has elected certain practical expedients and policy elections as permitted under ASC Topic 606 as follows:

· The Company adopted the practical expedient related to not adjusting the promised amount of consideration for the effects of a significant financing component if the period between transfer of product and customer payment is expected to be less than one year at the time of contract inception;

· The Company made the accounting policy election to exclude any sales and similar taxes from the transaction price; and

· The Company adopted the practical expedient not to disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

Sales Tax

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods or services to a customer, excluding sales taxes. The net amount of sales tax payable to the various state taxation authorities is included in sales tax payable in the unaudited condensed consolidated balance sheets.

Sales Returns, Discounts and Warranties

Sales returns, discount and warranties are considered variable consideration under ASC 606. The Company reduces revenue for estimated future returns, discounts and warranties which may occur with distributors and retailers. When evaluating the adequacy of sales returns, discounts and warranties, the Company analyzes the following: historical credit allowances, current sell-through of inventory of the Company’s products, current trends in retail industry, changes in customer demand, acceptance of products, and other related factors.

Cost to Obtain a Contract

The Company pays sales commissions to its employees and outside sales representatives for contracts and orders that they obtain relating to the wholesale sales of our products. The Company applies the optional practical expedient to immediately expense costs to obtain a contract or order if the recognition period of the revenue is one year or less. As such, sales commissions are immediately recognized as an expense and included as part of sales and marketing expenses.

Deferred Revenue

Advance payments and billings in excess of revenue recognized represent deferred revenue and is recorded as a liability when customers remit cash payments in advance before the Company satisfies its performance obligations under contractual or other sales arrangements. Deferred revenue is derecognized when revenue is recognized and the performance obligation is satisfied and is generally classified as current based on the timing of when the Company expects to recognize the revenue.

Deferred revenue is made up of the following as of September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024		December 31, 2023
Advance payments and customer deposits for commercial products	$	396	$	416

The following table summarizes the changes in deferred revenue during the period presented (in thousands):

Balance at December 31, 2023	$	416
Additions		37
Customer deposits returned		-
Transfers to revenue		(57	)
Balance at September 30, 2024	$	396

Cost of Goods Sold

Cost of goods sold primarily consists of costs for our products incurred to third-party manufacturers and in-bound freight.

Advertising Expense

The Company expenses marketing, promotions and advertising costs as incurred. Such costs are included in selling, general and administrative expense in the accompanying unaudited condensed consolidated statements of operations. The Company recorded advertising costs of $82 thousand and $802 thousand for the three months ended September 30, 2024 and 2023, respectively. The Company recorded advertising costs of $511 thousand and $2.2 million for the nine months ended September 30, 2024 and 2023, respectively.

Income Taxes

The Company utilizes ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.

The Company generated a deferred tax asset through net operating loss carry-forward. However, a valuation allowance of 100% has been established due to the uncertainty of the Company’s realization of the net operating loss carry-forward prior to its expiration.

Share-based Payments

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718, “Stock Compensation” (“ASC 718”) which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC 2018-07 (Topic 718) for share-based payments to employees, consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the grant date. For awards of restricted stock, the Company determines grant date fair value based on the closing price of the Company’s common stock on the grant date as reported on the over-the-counter market (the “OTC Market”). For awards of stock options, the Company uses the Black-Scholes option valuation model to estimate grant date fair value.

Compensation expense is recognized for the portion of the award that is ultimately expected to vest over the period during which the recipient renders the required services to the Company using the straight-line single option method. See Note 15 – Share-based Payments for additional information.

Fair Value Measurements

The Company follows ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements and establishes a framework for measuring fair value and expands disclosure about such fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The carrying amounts of cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate fair values because of the short-term nature of these items.

Valuation techniques used to measure fair value, when required, must maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

· Level 1 – Quoted prices in active markets for identical assets and liabilities.

· Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

· Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

When a portion of the purchase consideration consists of shares of the Company’s common stock, the Company calculates the purchase price attributable to those shares, a Level 1 security, by determining the fair value of those shares quoted on the OTC Market as of the acquisition date. The Company recognizes estimated fair values of the tangible assets and identifiable intangible assets acquired and liabilities assumed, including any contingent consideration, as of the acquisition date. Goodwill is recognized as any amount of consideration transferred in excess of the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed.

In determining fair value, the Company also considers counterparty credit risk in its assessment of fair value. At September 30, 2024 and December, 31, 2023, the Company had no financial assets or liabilities recorded at fair value on a recurring basis, except for the Series A and B Notes, for which we elected the fair value option. These liabilities are measured at fair value using the period-end quoted market prices of the Company’s common stock as a Level 3 input and are marked-to-market at each reporting date with the change in fair value reported as a gain (loss) in the unaudited condensed consolidated statement of operations.

The following table summarizes fair value measurements by level at September 30, 2024 for assets and liabilities measured at fair value on a recurring basis (in thousands):

	Total		Level 1		Level 2		Level 3
Fair value of Series A Note	$	4,918	$	-	$	-	$	4,918
Fair value of Series B Note	$	3,795	$	-	$	-	$	3,795

The following table summarizes fair value measurements by level at December 31, 2023 for assets and liabilities measured at fair value on a recurring basis (in thousands):

	Total		Level 1		Level 2		Level 3
Fair value of Series A Note	$	4,597	$	-	$	-	$	4,597
Fair value of Series B Note	$	3,502	$	-	$	-	$	3,502

The following table summarizes the changes in Level 3 financial instruments during the nine months ended September 30, 2024 (in thousands):

Fair value of Series A and B Notes at December 31, 2023	$	8,099
Change in fair value of Series A Note		321
Change in fair value of Series B Note		293
Fair value of Series A and B Notes at September 30, 2024	$	8,713

A summary of the weighted average (in aggregate) significant unobservable inputs used in measuring the Series A and B Notes that are categorized within Level 3 of the fair value hierarchy is as follows:

	September 30, 2024			December 31,  2023
Stock price	$	0.0519		$	0.0744
Conversion price	$	1.32		$	1.32
Term (in years) – Series A Note		0.0			0.0
Term (in years) – Series B Note		0.0			0.0
Volatility – Series A Note		70.5	%		78.0	%
Volatility – Series B Note		70.5	%		78.0	%
Risk-free interest rate – Series A Note		4.73	%		5.13	%
Risk-free interest rate – Series B Note		4.73	%		5.13	%
Interest rate		18.0	%		18.0	%

Contingencies

We are exposed to claims and litigation arising in the ordinary course of business and use various methods to resolve these matters in a manner that we believe serves the best interest of our stockholders and other constituents. When a loss is probable, we record an accrual based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated range of loss and, if material, disclose the estimated range of loss. We do not record liabilities for reasonably possible loss contingencies, but we do disclose a range of reasonably possible losses if they are material and we are able to estimate such a range. If we cannot provide a range of reasonably possible losses, we explain the factors that prevent us from determining such a range. We believe the recorded reserves in our unaudited condensed consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of these identified claims or litigation will be material to our results of operations, cash flows, or financial condition. Gain contingencies are recorded when the contingency is resolved. 

Net Loss per Common Share

Basic net loss per common share is computed using the weighted average number of common shares outstanding during the periods presented. Diluted net loss per share is computed using the weighted average common shares and common share equivalents outstanding during the periods presented (which consist of restricted stock units, stock options and warrants to the extent they are dilutive).

The following table sets forth the computation of basic and diluted net loss per share for the periods presented (in thousands, except per share data):

	For the Three Months Ended						For the Nine Months Ended
(Dollars in thousands)	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
Net loss	$	(541	)	$	(2,224	)	$	(2,733	)	$	(3,420	)
Weighted average common shares outstanding – basic and diluted		78,439,001			72,231,926			78,142,983			71,717,926
Basic and diluted loss per share	$	(0.01	)	$	(0.03	)	$	(0.03	)	$	(0.05	)

The following table summarizes the number of shares excluded from the calculation of diluted net loss per share to the extent they are antidilutive for the periods presented:

	For the Nine Months Ended September 30,
	2024		2023
Vested stock options from the Company’s 2017 Equity Incentive Plan		1,261,182		1,373,946
Warrants		-		312,500
Shares to be issued upon conversion of convertible payable		-		618,327
Total		1,261,182		2,304,773

The Series A and B Notes (other than restricted amounts under the Series B Note) are convertible, at the option of the Investor, into shares of Common Stock at a conversion price of $1.32 per share. The conversion price is subject to full ratchet antidilution protection upon any transaction in which the Company is deemed to have granted, issued or sold, any shares of Common Stock. If the Company enters into any agreement to issue any variable rate securities, other than a bona fide at-the-market offering or equity line of credit, the Investor has the additional right to substitute such variable price (or formula) for the conversion price. If an Event of Default has occurred under the Convertible Notes, the Investor may elect to alternatively convert the Convertible Notes at the redemption premium described therein. Due to the uncertainty of the number of shares to be issued, the shares to be issued from the conversion of the Series A and B Notes were also not included in the table above.

Segment Reporting

The Company uses the “management approach” to identify its reportable segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. Using the management approach, the Company determined that it does not have reportable segments.

Accounting Standards Adopted in 2024

Recent Accounting Pronouncements

Recently Adopted Accounting Standards Financial Instruments – Credit Losses. The Financial Accounting Standards Board (“FASB”) issued five Accounting Standards Updates (“ASUs”) related to financial instruments – credit losses. The ASUs issued were: (1) in June 2016, ASU 2016-13, “Financial Instruments – Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments,” (2) in November 2018, ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” (3) in April 2019, ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” (4) in May 2019, ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief” and (5) in November 2019, ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses.” Additionally, in February and March 2020, the FASB issued ASU 2020-02, “Financial Instruments—Credit Losses (Topic 326) and Leases (“ASC 842”): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (“ASC 842”) and ASU 2020-03, “Codification Improvements to Financial Instruments,” respectively, which include amendments to ASC 326.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, to require a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance the transparency and decision-usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid. The ASU’s amendments are effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its financial statements and related disclosures.  

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2024

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of changes in deferred revenue

	September 30, 2024		December 31, 2023
Advance payments and customer deposits for commercial products	$	396	$	416

Balance at December 31, 2023	$	416
Additions		37
Customer deposits returned		-
Transfers to revenue		(57	)
Balance at September 30, 2024	$	396

Summary of fair value measurements of assets and liabilities

	Total		Level 1		Level 2		Level 3
Fair value of Series A Note	$	4,918	$	-	$	-	$	4,918
Fair value of Series B Note	$	3,795	$	-	$	-	$	3,795

	Total		Level 1		Level 2		Level 3
Fair value of Series A Note	$	4,597	$	-	$	-	$	4,597
Fair value of Series B Note	$	3,502	$	-	$	-	$	3,502

Schedule of financial instruments

Fair value of Series A and B Notes at December 31, 2023	$	8,099
Change in fair value of Series A Note		321
Change in fair value of Series B Note		293
Fair value of Series A and B Notes at September 30, 2024	$	8,713

Schedule of computation of diluted income (loss) per share

	September 30, 2024			December 31,  2023
Stock price	$	0.0519		$	0.0744
Conversion price	$	1.32		$	1.32
Term (in years) – Series A Note		0.0			0.0
Term (in years) – Series B Note		0.0			0.0
Volatility – Series A Note		70.5	%		78.0	%
Volatility – Series B Note		70.5	%		78.0	%
Risk-free interest rate – Series A Note		4.73	%		5.13	%
Risk-free interest rate – Series B Note		4.73	%		5.13	%
Interest rate		18.0	%		18.0	%

Schedule of fair value hierarchy

	For the Three Months Ended						For the Nine Months Ended
(Dollars in thousands)	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
Net loss	$	(541	)	$	(2,224	)	$	(2,733	)	$	(3,420	)
Weighted average common shares outstanding – basic and diluted		78,439,001			72,231,926			78,142,983			71,717,926
Basic and diluted loss per share	$	(0.01	)	$	(0.03	)	$	(0.03	)	$	(0.05	)

Schedule of antidilutive securities

	For the Nine Months Ended September 30,
	2024		2023
Vested stock options from the Company’s 2017 Equity Incentive Plan		1,261,182		1,373,946
Warrants		-		312,500
Shares to be issued upon conversion of convertible payable		-		618,327
Total		1,261,182		2,304,773

XML

ACCOUNTS RECEIVABLE (Tables)

9 Months Ended

Sep. 30, 2024

ACCOUNTS RECEIVABLE

Schedule of accounts receivable

	September 30, 2024		December 31, 2023
Customer billed accounts receivable	$	33	$	443
Allowance for doubtful accounts		-		-
Accounts receivable, net	$	33	$	443

XML

PREPAID EXPENSES AND OTHER CURRENT ASSETS (Tables)

9 Months Ended

Sep. 30, 2024

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Schedule of prepaid expenses and other assets

	September 30, 2024		December  1, 2023
Prepaid insurance	$	29	$	184
Prepaid expenses		8		33
Other current assets		15		69
Prepaid expenses and other current assets	$	52	$	286

XML

INVENTORY (Tables)

9 Months Ended

Sep. 30, 2024

INVENTORY

Schedule of inventory

	September 30, 2024			December 31, 2023
Packaging components	$	55		$	84
Finished goods		352			408
		407			492
Reserve for obsolescence		(265	)		(293	)
Inventory, net	$	142		$	199

XML

PROPERTY AND EQUIPMENT (Tables)

9 Months Ended

Sep. 30, 2024

PROPERTY AND EQUIPMENT

Schedule of property and equipment, net

	September  30, 2024			December 31, 2023
Computer and other equipment	$	10		$	10
Less accumulated depreciation		(7	)		(6	)
Property and equipment, net	$	3		$	4

XML

NOTES RECEIVABLE (Tables)

9 Months Ended

Sep. 30, 2024

NOTE RECEIVABLE

Schedule of note receivable

	September 30, 2024		December 31, 2023
TF Tech Ventures, Inc. secured promissory note	$	-	$	975
Less: Current portion of note receivable, net		-		(975	)
Note receivable, net of current portion	$	-	$	-

XML

PATENTS AND OTHER INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2024

PATENTS AND OTHER INTANGIBLE ASSETS

Schedule of intangible assets, net

	September 30, 2024			December 31, 2023
Intangible assets subject to amortization:
Patents	$	316		$	316
Other intangibles		142			141
	$	458		$	457
Accumulated amortization		(215	)		(160	)
Patents, net and Other intangibles, net	$	243		$	297

Schedule of aggregate amortization expense

2024 (remaining)	$	15
2025		34
2026		19
2027		17
2028		17
2029		17
Thereafter		124
Total Amortization	$	243

XML

INVESTMENTS (Tables)

9 Months Ended

Sep. 30, 2024

INVESTMENTS

Schedule of Investment

	September 30, 2024			December 31, 2023
Investment in ReLeaf Europe B.V.	$	619		$	619
Less: Valuation reserve		(568	)		(568	)
Investment in ReLeaf Europe B.V., net		51			51
Investment in Biopharmaceutical Research Company		213			213
Investments, net	$	264		$	264

XML

ACCRUED EXPENSES (Tables)

9 Months Ended

Sep. 30, 2024

ACCRUED EXPENSES

Schedule of accrued expenses

	September 30, 2024		December 31, 2023
Refunds and returns liability	$	584	$	566
Accrued interest expense		3		-
Accrued payroll		352		205
Accrued vacation leave		89		81
Accrued expenses		241		154
Sales tax payable		318		336
Accrued Expenses	$	1,587	$	1,342

XML

LOANS AND NOTES PAYABLE (Tables)

9 Months Ended

Sep. 30, 2024

LOANS AND NOTES PAYABLE

Schedule of loans Payable

	September 30, 2024		December 31, 2023
Loan due June 6, 2024, monthly payments including interest at 10.92% per annum; unsecured	$	-	$	17
Loan due September 29, 2024, monthly payments including interest at 8.57% per annum; unsecured		-		122
Current portion of loans payable		-		(139	)
Loans payable, less current portion	$	-	$	-

Schedule of note Payable

	September 30, 2024			December 31, 2023
Note due March 30, 2025, payable in monthly payments beginning December 30, 2024; unsecured	$	49		$	-
Note due April 30, 2025; payable in monthly payments beginning July 30, 2024; unsecured		58			-
Current portion of notes payable		(107	)		-
Notes payable, less current portion	$	-		$	-

XML

FAIR VALUE OF CONVERTIBLE PROMISSORY NOTES (Tables)

9 Months Ended

Sep. 30, 2024

FAIR VALUE OF CONVERTIBLE PROMISSORY NOTES

Schedule of fair value of convertible promissory notes

	September 30, 2024			December 31, 2023
Series A subordinated convertible note at fair value	$	4,918		$	4,597
Series B senior secured convertible note at fair value		3,795			3,502
Carrying value of convertible promissory notes at fair value		8,713			8,099
Less: current portion of convertible promissory notes at fair value		(8,713	)		(8,099	)
Convertible promissory notes at fair value, less current portion	$	-		$	-

XML

WARRANT AGREEMENTS (Tables)

9 Months Ended

Sep. 30, 2024

WARRANT AGREEMENTS

Schedule of warrant activity

	Warrants			Weighted Average Exercise Price		Weighted Average Contractual Remaining Life (years)
Outstanding, December 31, 2022		312,500		$	2.00		1.12
Granted		-			-		-
Exercised		-			-		-
Forfeited/Expired		-			-		-
Outstanding, December 31, 2023		312,500		$	2.00		0.12
Granted		-			-		-
Exercised		-			-		-
Forfeited/Expired		(312,500	)	$	2.00		-
Outstanding, September 30, 2024		-		$	-		-
Exercisable at September 30, 2024		-		$	-		-

XML

SHARE-BASED PAYMENTS (Tables)

9 Months Ended

Sep. 30, 2024

SHARE-BASED PAYMENTS

Schedule of stock option activity

	Options			Weighted Average Exercise Price		Weighted Average Contractual Remaining Life (years)
Outstanding, December 31, 2022		3,169,942		$	1.20		8.05
Granted		50,000			0.185		9.12
Exercised		-			-		-
Forfeited/Expired		(15,800	)		0.99		-
Outstanding, December 31, 2023		3,204,142		$	1.19		7.08
Granted		-			-		-
Exercised		-			-		-
Forfeited/Expired		(321,957	)		0.69		-
Outstanding, September 30, 2024		2,882,185		$	1.24		6.24
Exercisable at September 30, 2024		1,261,182		$	1.32		6.19

Schedule of stock option summary

Range of Exercise Prices	Number of Awards		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number of Awards Exercisable		Weighted Average Exercise Price
$0.156 - $3.40		2,882,183		6.24	$	1.24		1,261,182	$	1.32
		2,882,185		6.24	$	1.24		1,261,182	$	1.32

Schedule of restricted stock activity

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Outstanding, December 31, 2022		1,351,668		$	0.29
Granted		988,288			0.12
Vested		(1,408,156	)		0.28
Forfeited/Expired		-			-
Outstanding, December 31, 2023		931,820		$	0.11
Granted		1,400,000			0.03
Vested		(931,820	)		0.11
Forfeited/Expired		-			-
Outstanding, September 30, 2024		1,400,000		$	0.03

XML

COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2024

COMMITMENTS AND CONTINGENCIES

Schedule of future payments due under operating lease

	September 30, 2024		December 31, 2023
Operating lease
Right-of-use asset, net	$	-	$	50
Right-of-use lease liability, current	$	-	$	45
Right-of-use lease liability, noncurrent		-
Total operating lease liability	$	-	$	45
Weighted average remaining lease term
Operating lease			0.29 years
Weighted average discount rate
Operating lease				11.30	%

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Advance payments and customer deposits for commercial products	$ 396	$ 416

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) $ in Thousands	9 Months Ended
	Sep. 30, 2024 USD ($)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Deferred revenue beginning balance	$ 416
Additions	37
Customer deposits returned	0
Transfers to revenue	(57)
Deferred revenue ending balance	$ 396

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
Fair value of Series A Note	$ 4,918	$ 4,597
Fair value of Series B Note	3,795	3,502
Fair Value, Inputs, Level 1 [Member]
Fair value of Series A Note	0	0
Fair value of Series B Note	0	0
Fair Value, Inputs, Level 2 [Member]
Fair value of Series A Note	0	0
Fair value of Series B Note	0	0
Fair Value, Inputs, Level 3 [Member]
Fair value of Series A Note	4,918	4,597
Fair value of Series B Note	$ 3,795	$ 3,502

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) $ in Thousands	9 Months Ended
	Sep. 30, 2024 USD ($)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Change in fair value Beginning Balance	$ 8,099
Change in fair value of Series A Note	321
Change in fair value of Series B Note	293
Change in fair value Ending Balance	$ 8,713

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 4) - $ / shares	9 Months Ended	12 Months Ended
	Sep. 30, 2024	Dec. 31, 2023
Stock price	$ 0.0519	$ 0.0744
Conversion price	$ 1.32	$ 1.32
Interest Rate	18.00%	18.00%
Series B Note [Member]
Risk-free interest rate	4.73%	5.13%
Volatility	70.50%	78.00%
Series A Note [Member]
Risk-free interest rate	4.73%	5.13%
Volatility	70.50%	78.00%

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 5) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2024	Jun. 30, 2024	Mar. 31, 2024	Sep. 30, 2023	Jun. 30, 2023	Mar. 31, 2023	Sep. 30, 2024	Sep. 30, 2023
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net loss	$ (541)	$ (897)	$ (1,295)	$ (2,224)	$ (987)	$ (209)	$ (2,733)	$ (3,420)
Weighted average common shares outstanding - basic and diluted	78,439,001			72,231,926			78,142,983	71,717,926
Basic and diluted loss per share	$ (0.01)			$ (0.03)			$ (0.03)	$ (0.05)

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 6) - shares	9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Vested stock options from the company's 2017 Equity Incentive plan	1,261,182	1,373,946
Warrants	0	312,500
Shares to be issued upon conversion of convertible payable	0	618,327
Total	1,261,182	2,304,773

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash on hand	$ 11,000		$ 11,000
Accumulated deficit	(126,100,000)		(126,100,000)
Working capital deficit	(13,100,000)		(13,100,000)
FDIC insured amount	250,000		250,000
Advertising expense	$ 82,000	$ 802,000	$ 511,000	$ 2,200,000
Valuation allowance percentage	100.00%		100.00%

XML

ACCOUNTS RECEIVABLE (Details) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
ACCOUNTS RECEIVABLE
Customer billed accounts receivable	$ 33	$ 443
Allowance for doubtful accounts	0	0
Accounts receivable, net	$ 33	$ 443

XML

PREPAID EXPENSES AND OTHER CURRENT ASSETS (Details) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid insurance	$ 29	$ 184
Prepaid expenses	8	33
Other current assets	15	69
Prepaid expenses and other current assets	$ 52	$ 286

XML

INVENTORY (Details) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
INVENTORY
Packaging Components	$ 55	$ 84
Finished Goods	352	408
Inventory, Gross	407	492
Reserve for Obsolescence	(265)	(293)
Inventory, net	$ 142	$ 199

XML

INVENTORY (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023
INVENTORY
Inventory reserves	$ 0	$ 43	$ 0	$ 78

XML

PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
Less accumulated depreciation	$ (7)	$ (6)
Property and Equipment, net	3	4
Computer and other equipment [Member]
Property and Equipment	$ 10	$ 10

XML

PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023
PROPERTY AND EQUIPMENT
Depreciation	$ 1	$ 1	$ 1	$ 1

XML

NOTES RECEIVABLE (Details) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
Less: Current portion of note receivable, net	$ 0	$ (975)
Note receivable, non-current portion	0	0
Tf Tech Ventures Llc [Member]
Note receivable, net of current portion	$ 0	$ 975

XML

NOTES RECEIVABLE (Details Narrative) $ in Millions	Jul. 22, 2022 USD ($)
Promissory NotesD3	$ 1.0
BRC [Member]
Interest rate	2.37%
Price per share paid in percentage	2.63%
Promissory Notes	$ 2.0

XML

PATENTS AND OTHER INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
Total intangible assets subject to amortization	$ 458	$ 457
Accumulated amortization	(215)	(160)
Patents, net and Other intangibles, net	243	297
Other intangible Asset [Member]
Total intangible assets subject to amortization	142	141
Patents [Member]
Total intangible assets subject to amortization	$ 316	$ 316

XML

PATENTS AND OTHER INTANGIBLE ASSETS (Details 1) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
PATENTS AND OTHER INTANGIBLE ASSETS
2024 (remaining)	$ 15
2025	34
2026	19
2027	17
2028	17
2029	17
2029 and thereafter	124
Total Amortization	$ 243	$ 297

XML

PATENTS AND OTHER INTANGIBLE ASSETS (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023
PATENTS AND OTHER INTANGIBLE ASSETS
Amortization expense	$ 18	$ 20	$ 54	$ 49

XML

INVESTMENTS (Details) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
Investment in Biopharmaceutical Research Company	$ 213	$ 213
Investments, net	264	264
Valuation reserve	(568)	(568)
Investment [Member]
Investments, net	51	51
Investment in Releaf Europe BV	619	619
Valuation reserve	$ (568)	$ (568)

XML

INVESTMENTS (Details Narrative) - USD ($) $ in Thousands	1 Months Ended	9 Months Ended	12 Months Ended
	May 31, 2021	Sep. 30, 2024	Dec. 31, 2023	Dec. 31, 2022	Dec. 31, 2020
Interest rate		18.00%	18.00%
Valuation reserve		$ (568)	$ (568)
Biopharmaceutical Research Company [Member]
Original principal amount	$ 200
Preferred stock shares authorized		11,698
Preferred stock shares percentage rate		0.39%
Accrued interest	$ 13
ReLeaf Europe B.V [Member]
convertible loan					$ 509
Interest rate					6.00%
Accrued interest				$ 56
Aggregate amount				$ 54

XML

ACCRUED EXPENSES (Details) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
ACCRUED EXPENSES
Refunds and returns liability	$ 584	$ 566
Accrued interest expense	3	0
Accrued payroll	352	205
Accrued vacation leave	89	81
Accrued expenses	241	154
Sales tax payable	318	336
Accrued Expenses	$ 1,587	$ 1,342

XML

RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)			1 Months Ended	3 Months Ended		9 Months Ended
	Jan. 04, 2024	Apr. 03, 2022	Jul. 31, 2022	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023	Dec. 31, 2023
Interest Expenses				$ 1,000	$ 0	$ 3,000	$ 0
Accrued interest payable				44,000		44,000
Accrued interest to related party				3,000		3,000		$ 0
Rob Davidson [Member]
Advisory Compensation			$ 12,000
Consulting Expenses						0	$ 81,000
Expiry date			Jul. 25, 2023
Advanced Legacy Technologies, LLC [Member]
Compensation percentage		5.00%
Nancy Duitch [Member] | January 4 2024 [Member]
Description Of accrued intrest rate	accrues interest at an annual rate of 12%, or 18% in the event of default
Secured loan facility				$ 250,000		$ 250,000
Borrowed initial amount	$ 39,000
Additional loan amounts	$ 211,000

XML

LOANS AND NOTES PAYABLE (Details) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
Loan payable, less current portion	$ 0	$ 0
Current portion of loans payable	0	(139)
Loan Payable One [Member]
Current portion of loans payable	0	17
Loans Payable Two [Member]
Current portion of loans payable	$ 0	$ 122

XML

LOANS AND NOTES PAYABLE (Details 1) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
Note payable, less current portion	$ 0	$ 0
Current portion of note payable	(107)	0
Notes Payable Two [Member]
Current portion of note payable	49	0
Notes Payable One [Member]
Current portion of note payable	$ 58	$ 0

XML

LOANS AND NOTES PAYABLE (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023	Jun. 30, 2024	Jun. 28, 2024
Aggregate financing costs			$ 6,000
Lowest trading price percentage rate						70.00%
Additional tranches amount						$ 350,000
Interest rate					22.00%
Common stock, par value					$ 0.001
Loan Payable [Member]
Interest Expenses	$ 1,000	$ 1,000	5,000	$ 5,000
Notes Payable [Member]
Interest Expenses	13,000	0	13,000	0
Amortization of the OID and financing costs	$ 7,000	$ 0	$ 7,000	$ 0
Note B [Member]
Interest rate					14.00%
Notes principal amount						72,450
Notes original issue discount amount						9,450
Note A [Member]
Interest rate					15.00%
Notes principal amount						49,450
Notes original issue discount amount						$ 6,450

XML

FAIR VALUE OF CONVERTIBLE PROMISSORY NOTES (Details ) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
FAIR VALUE OF CONVERTIBLE PROMISSORY NOTES
Series A subordinated convertible note at fair value	$ 4,918	$ 4,597
Series B senior secured convertible note at fair value	3,795	3,502
Carrying value of convertible promissory notes at fair value	8,713	8,099
Less: current portion of convertible promissory notes at fair value	(8,713)	(8,099)
Convertible promissory notes at fair value, less current portion	$ 0	$ 0

XML

FAIR VALUE OF CONVERTIBLE PROMISSORY NOTES (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Oct. 30, 2020
Proceeds from investor note	$ 10,000
Remaining balance of investor note	$ 9,900
Conversion price	$ 1.32
Interest rate	18.00%
Conversion price description	The Investor will not have the right to convert any portion of the Convertible Notes, to the extent that, after giving effect to such conversion, the Investor (and other certain related parties) would beneficially own in excess of 4.99% of the shares of Common Stock outstanding immediately after giving effect to such conversion. This limit may, from time to time, be increased, up to 9.99%, or decreased
Warrant, exercisable shares	4,145,212
Cash repayment	$ 139	$ 134
Investor [Member]
Proceeds from investor note	4,000
Initial principal amount	6,000
Cash repayment	1,000
Series B Note [Member]
Remaining restricted amount	5,000
Series A Note [Member]
Gain (Loss) on change in fair value	$ 614	$ 1,300
Series A Subordinated Convertible Note [Member]
Initial principal amount			$ 4,600
Original issue discount			600
Series B Senior Secured Convertible Note [Member]
Initial principal amount			6,900
Securities Purchase Agreement [Member] | Institutional Investor [Member]
Aggregate principal amount			11,500
Original issue discount			$ 900

XML

WARRANT AGREEMENTS (Details) - Warrants [Member] - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2024	Dec. 31, 2023
Warrants, beginning balance	312,500	312,500
Warrants granted	$ 0	$ 0
Warrants Exercised	0	0
Warrants Forfeited/Expired	(312,500)	0
Warrants, ending balance	0	312,500
Exercisable at ending balance	0
Weighted average exercise price beginning balance	$ 2.00	$ 2.00
Weighted Average Exercise Price, Granted	0	0
Weighted Average Exercise Price, Exercised	0	0
Weighted Average Exercise Price, Forfeited/Expired	2.00	0
Weighted Average Exercise Price, ending balance	0	$ 2.00
Weighted Average Exercise Price, Exercisable	$ 0
Weighted Average Contractual Remaining Life, beginning	1 year 1 month 13 days	1 month 13 days
Weighted Average Contractual Remaining Life, Ending		1 month 13 days

XML

SHARE-BASED PAYMENTS (Details) - Options [Member] - $ / shares	9 Months Ended	12 Months Ended
	Sep. 30, 2024	Dec. 31, 2023
Outstanding, beginning balance	3,204,142	3,169,942
Granted	0	50,000
Exercised	0	0
Forfeited/Expired	(321,957)	(15,800)
Outstanding, ending balance	2,882,185	3,204,142
Exercisable at ending balance	1,261,182
Weighted average exercise price beginning balance	$ 1.19	$ 1.20
Weighted Average Exercise Price, Granted	0	0.185
Weighted Average Exercise Price, Exercised	0	0
Weighted Average Exercise Price, Forfeited/Expired	0.69	0.99
Weighted Average Exercise Price, ending balance	1.24	$ 1.19
Weighted Average Exercise Price, Exercisable	$ 1.32
Weighted Average Contractual Remaining Life, beginning balance	8 years 18 days	7 years 29 days
Weighted Average Contractual Remaining Life, Granted		9 years 1 month 13 days
Weighted Average Contractual Remaining Life, ending balance	6 years 2 months 26 days	7 years 29 days
Weighted Average Contractual Remaining Life, Exercisable	6 years 2 months 8 days

XML

SHARE-BASED PAYMENTS (Details 1)	9 Months Ended
	Sep. 30, 2024 $ / shares shares
Stock Options [Member]
Number of Awards | shares	2,882,185
Weighted Average Remaining Contractual Life (years)	6 years 2 months 26 days
Weighted Average Exercise Price | $ / shares	$ 1.24
Number of Awards Exercisable | shares	1,261,182
Weighted Average Exercise Price, Exercisable | $ / shares	$ 1.32
0.156-$3.40 [Member]
Number of Awards | shares	2,882,183
Weighted Average Remaining Contractual Life (years)	1 year 2 months 26 days
Weighted Average Exercise Price | $ / shares	$ 6.24
Number of Awards Exercisable | shares	1,261,182
Weighted Average Exercise Price, Exercisable | $ / shares	$ 1.32

XML

SHARE-BASED PAYMENTS (Details 2) - Restricted Stock Units RSU [Member] - $ / shares	9 Months Ended	12 Months Ended
	Sep. 30, 2024	Dec. 31, 2023
Restricted Stock Units, Outstanding beginning balance	931,820	1,351,668
Restricted Stock Units, Granted	1,400,000	988,288
Restricted Stock Units, Vested	(931,820)	(1,408,156)
Restricted Stock Units, Forfeited/Expired	0	0
Restricted Stock Units, Outstanding ending balance	1,400,000	931,820
Restricted Stock Units, Weighted Average Grant Date Fair Value Outstanding, beginning balance	$ 0.11	$ 0.29
Restricted Stock Units, Weighted Average Grant Date Fair Value Granted	0.03	0.12
Restricted Stock Units, Weighted Average Grant Date Fair Value Vested	0.11	0.28
Restricted Stock Units, Weighted Average Grant Date Fair Value Forfeited/Expired	0	0
Restricted Stock Units, Weighted Average Grant Date Fair Value Outstanding, ending balance	$ 0.03	$ 0.11

XML

SHARE-BASED PAYMENTS (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023	Dec. 31, 2023	Dec. 31, 2020
Fair value of options granted	$ 0	$ 0
Option to purchase common stock						1,518,194
Compensation expense	4,000	73,000	$ 14,000	$ 243,000
Unrecognized compensation expense	$ 33,000		$ 33,000
Weighted Average Remaining Contractual Life (years)			11 months 8 days
Equity Incentive Plan [Member]
Common stock available for grant			213,280
Common stock shares authorized	10,000,000		10,000,000
Stock Options [Member]
Aggregate Intrinsic Value, Outstanding	$ 0		$ 0
Restricted Stock Units RSU [Member]
Compensation expense	3,000	$ 43,000	$ 57,000	$ 271,000
Weighted-average periods			11 months 1 day	6 months
Unrecognized fair value of compensation cost	$ 38,000		$ 38,000		$ 54,000

XML

COMMON STOCK (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023	Dec. 31, 2023
Common stock, shares par value	$ 0.001		$ 0.001		$ 0.001
Common stock, shares authorized	150,000,000		150,000,000		150,000,000
Common stock issued during period, amount	$ 0	$ 0
Consulting Agreement [Member]
Common stock issued during period, shares				360,472
Common stock issued during period, amount				$ 42
Consulting Agreement [Member] | Minimum [Member]
Common stock issued during period, price per share				$ 0.08
Consulting Agreement [Member] | Maximum
Common stock issued during period, price per share				$ 0.166
Non-Executive Directors [Member]
Common stock issued during period, shares			1,408,156	931,820

XML

CONTINGENT STOCK CONSIDERATION (Details Narrative) - USD ($) $ in Millions	1 Months Ended
	Oct. 20, 2020	Sep. 30, 2024	Dec. 31, 2023	Oct. 10, 2020
Common stock shares outstanding		78,925,168	77,993,348
Cash				$ 1.0
Shares of common stock earned			4,790,419
Remaining shares forfeited and cancelled			1,197,605
Maximum [Member]
Receive shares of common stock	5,988,024
Lease Agreement [Member]
Common stock shares outstanding				5,014,868

XML

COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2023	Sep. 30, 2024
Operating leases
Right-of-use asset, net	$ 50	$ 0
Right-of-use lease liability, current	45	0
Right-of-use lease liability, noncurrent		0
Total operating lease liability	$ 45	$ 0
Weighted average remaining lease term, Operating lease	3 months 14 days
Weighted average discount rate, Operating leases	11.30%

XML

COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023
Weighted average discount rate			14.16%
Description of lease			a lease agreement (the “Lease”), which was originally set to expire on April 30, 2026. Effective on September 6, 2024, the Company early terminated the lease without penalty by mutual agreement with the landlord and the Company vacated the premises. The lease provided for the payment of base monthly rent in the amount of $7 thousand during the first 12 months of the term with an increase of 3% over the base monthly rent beginning on the one-year anniversary of the Lease. The Company previously occupied Suite 801 in the same building under a lease agreement that expired on April 30, 2024
Lease Agreement [Member]
Monthly Rent	$ 16	$ 31	$ 75	$ 92