SEC Info - Avenir Wellness Solutions, Inc.

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		Alternative Formats (Word, et al.) Condensed Consolidated Balance Sheets Controls and Procedures Defaults Upon Senior Securities Exhibits Financial Statements (Unaudited) Item 1 Item 1A Item 2 Item 3 Item 4 Item 5 Item 6 Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Mine Safety Disclosure Notes to the Unaudited Condensed Consolidated Financial Statements Other Information Part I. FINANCIAL INFORMATION Part II. OTHER INFORMATION Quantitative and Qualitative Disclosures About Market Risk Risk Factors Signatures Special Note Regarding Forward-Looking Statements Table of Contents Unaudited Condensed Consolidated Statements of Cash Flows Unaudited Condensed Consolidated Statements of Operations Unaudited Condensed Consolidated Statements of Stockholders' Equity (Deficit) Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Table of Contents
"	Special Note Regarding Forward-Looking Statements
"	Part I. FINANCIAL INFORMATION
"	Item 1
"	Financial Statements (Unaudited)
"	Condensed Consolidated Balance Sheets
"	Unaudited Condensed Consolidated Statements of Operations
"	Unaudited Condensed Consolidated Statements of Stockholders' Equity (Deficit)
"	Unaudited Condensed Consolidated Statements of Cash Flows
"	Notes to the Unaudited Condensed Consolidated Financial Statements
"	Item 2
"	Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Item 3
"	Quantitative and Qualitative Disclosures About Market Risk
"	Item 4
"	Controls and Procedures
"	Part II. OTHER INFORMATION
"	Legal Proceedings
"	Item 1A
"	Risk Factors
"	Unregistered Sales of Equity Securities and Use of Proceeds
"	Defaults Upon Senior Securities
"	Mine Safety Disclosure
"	Item 5
"	Other Information
"	Item 6
"	Exhibits
"	Signatures

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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. i 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). i 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):

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 i ☐ No ☒

On November 14, 2023, we had i 73,202,929 shares of common stock, par value $0.001 per share (the “Common Stock”) issued and outstanding.

This Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023 (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.

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.

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

Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

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

Revenue from eCommerce sales, including DTC sales, is recognized upon delivery of merchandise to the customer. We 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.

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 16 – Share-based Payments for additional information.

The following table summarizes fair value measurements by level at September 30, 2023 for assets and liabilities measured at fair value on a recurring basis (in thousands):

The following table summarizes fair value measurements by level at December 31, 2022 for assets and liabilities measured at fair value on a recurring basis (in thousands):

The following table summarizes the changes in Level 3 financial instruments during the nine months ended September 30, 2023 (in thousands):

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:

In connection with the Sera Labs Merger, Sera Labs security holders are entitled to receive up to i 5,988,024 shares of the Company’s common stock (the “Clawback Shares”) based on the achievement of certain sales and gross margin milestones. Due to the uncertainty of the number of Clawback Shares to be issued, these Clawback Shares were not included in the table above.

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 $ i 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.

The following table summarizes the financial results of the discontinued operations for the periods presented (in thousands):

On April 1, 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 will provide auxiliary services in connection with the distribution of certain of our products. Compensation for such services amounts to i 5% of the net proceeds received from the sale of the products. In 2023, ALT has agreed to waive their entire compensation earned pursuant to the agreement. Total compensation earned for the three months ended September 30, 2023 and 2022 was $ i 0 and $ i 0, respectively, $ i 0 and $ i 0 for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, unpaid net proceeds due to the Company was $ i 43 thousand, including merchant account reserves in the amount of $ i 34 thousand due from third-party merchant account processors.

On July 25, 2022, the Company entered into a consulting agreement with Rob Davidson under which Mr. Davidson will provide advisory services on matters including strategic, financial, fund raising, product development and technology in exchange for compensation in the amount of $ i 12 thousand per month. i The term of the agreement was through July 25, 2023 and required Mr. Davidson to provide approximately 20 to 25 hours of service per week. Total consulting expense incurred for the nine months ended September 30, 2023 and 2022 was $ i 81 thousand and $ i 63 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, 2023, the Company purchased goods and services in the aggregate amount of $ i 153 thousand from this manufacturer.

On February 6, 2022, 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”). For the nine months ended September 30, 2023, the Company incurred $ i 149 thousand to the Agency pursuant to the Agreement, which expired in August 2023.

Fair value of Series A and B convertible promissory notes consists of the following at September 30, 2023 and December 31, 2022 (in thousands):

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 $ i 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 $ i 4.6 million and a Series B senior secured convertible note (the “Series B Note,” and together with the Series A Note, the “Convertible Notes” and, each a “Convertible Note”) with an initial principal amount of $ i 6.9 million in a private placement.

The Series A Note was sold with an original issue discount of $ i 0.6 million and the Series B Note was sold with an original issue discount of $ i 0.9 million. The Investor paid for the Series A Note issued to the Investor by delivering $ i 4.0 million in cash consideration and paid for the Series B Note issued to the Investor 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 the extent the Investor Note is not repaid, the remainder of the principal under the Series B Note is considered to be “restricted.” Upon any repayment of the Investor Note, the principal of the Series B Note becomes “unrestricted” on dollar-for-dollar basis.

The Series A Note matured on October 30, 2022 and the Series B Note matured on October 30, 2021 (the “Maturity Date”), and as of September 30, 2023, both are currently in default. No action by the Investor has been pursued on either Convertible Note 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.

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, except that the remaining restricted amount of $ i 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).

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 i 18% per annum. See “—Events of Default” below.

Each Convertible Note (other than the restricted portion of the Series B Note) is convertible, at the option of the Investor, into shares of Common Stock at a conversion price of $ i 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.

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 i 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 i 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.

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.

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 gain of $ i 1.3 million and a loss of $ i 718 thousand attributed to the aggregate changes in fair value of the Series A and B Notes for the nine months ended September 30, 2023 and 2022, respectively, which were recorded in the unaudited condensed consolidated statements of operations.

As of September 30, 2023, the Company valued the Series A and B Notes giving consideration to the terms under the existing default. i 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 approximately $8.1 million, or (ii) the issuance of 3,765,561 shares of the Company’s common stock plus a cash payment of approximately $7.8 million, at the option of the Investor.

There were no warrants granted during the three and nine months ended September 30, 2023 and 2022.

The aggregate intrinsic value of warrants outstanding and exercisable at September 30, 2023 was $ i 0.

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

The aggregate intrinsic value of options outstanding and exercisable at September 30, 2023 was $0.

The aggregate grant date fair value of options granted during the nine months ended September 30, 2023 and 2022 amounted to $ i 0 and $ i 65 thousand, respectively. Compensation expense related to stock options for the three months ended September 30, 2023 and 2022 was $ i 73 thousand and $ i 189 thousand, respectively. Compensation expense related to stock options for the nine months ended September 30, 2023 and 2022 was $ i 243 thousand and $ i 857 thousand, respectively.

As of September 30, 2023, total unrecognized fair value of compensation cost related to unvested stock options was $ i 85 thousand, which is to be recognized over a remaining weighted average period of i 1.39 years.

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

At September 30, 2023 and December 31, 2022, the Company had $ i 83 thousand and $ i 244 thousand, respectively, of total unrecognized compensation expense related to unvested restricted stock units, which will be recognized as compensation expense over weighted-average periods of i 0.81 years and i 0.50 years, respectively.

Compensation expense related to restricted stock units for the three months ended September 30, 2023 and 2022 was $ i 43 thousand and $ i 102 thousand, respectively. Compensation expense related to restricted stock units for the nine months ended September 30, 2023 and 2022 was $ i 271 thousand and $ i 307 thousand, respectively. All compensation expense related to restricted stock units is included in selling, general and administrative expenses.

The acquisition was accounted for in accordance with ASC 805. The issuance of the Clawback Shares is subject to a variety of earn-out and milestone provisions thus they are considered contingent shares based on the achievement of certain sales and gross margin milestones.

The following table presents the change in fair value of contingent stock consideration for the nine months ended September 30, 2023 (in thousands):

The Company currently maintains its leased corporate offices at 5805 Sepulveda Boulevard, Suite 801, Sherman Oaks, CA 91411. The lease agreement (the “Lease”), which expires on April 30, 2024, contains an option to extend the lease for an additional 36 months and the Company will reassess the lease term when it has determined it is reasonably certain to exercise the option. The Lease provides for the payment of base monthly rent in the amount of $ i 10 thousand during the first 12 months of the term with annual increases of i 3% over the base monthly rent then in effect.

Rent expense was $ i 31 thousand and $ i 30 thousand for the three months ended September 30, 2023 and 2022, respectively. Rent expense was $ i 92 thousand and $ i 91 thousand for the nine months ended September 30, 2023 and 2022, respectively.

The Company classified the Lease as an operating lease in accordance with ASC 842, “Lease Accounting,” and has recognized a right-of-use asset and a lease liability based on the present value of its lease payments over its lease term. The Company used the services of a third party valuation company to compute 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 i 11.30%. Operating lease payments and lease expense are recognized on a straight-line basis over the lease term.

The future payments due under the operating lease by year as of September 30, 2023 are as follows (in thousands):

The following table presents supplemental balance sheet information related to operating lease as of September 30, 2023 and December 31, 2022 (in thousands, except lease term and discount rate):

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, 2022, as filed with the SEC on July 28, 2023 (our “2022 Annual Report”).

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.

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.

The U.S. economy is 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 rising 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.

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 Palestine, 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-Palestinian war, 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-Palestinian 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.

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.

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

The following discussion for our results of operations does not include the loss from our discontinued operations which was $0 and $0 for the three and nine months ended September 30, 2023, respectively, and $119 thousand and $6.4 million for the three and nine months ended September 30, 2022, respectively. The significant component of the loss from discontinued operations was the aggregate charges to income for the impairment of goodwill amounting to $4.7 million for the nine months ended September 30, 2022.

Revenue for the three and nine months ended September 30, 2023 was approximately $1.0 million and $3.2 million, respectively, as compared to approximately $1.8 million and $4.0 million for the three and nine months ended September 30, 2022. The decrease in net sales for the three months and nine months ended September 30, 2023 was mainly due to the decrease in unit sales of ingestible wellness products, offset in part by greater unit sales of our Seratopical Revolution products in 2023 with the launch of DNA Complex and the successful promotion of Gleaming and Adoring.

Cost of goods sold was $278 thousand, or 27.4% of net sales, in the three months ended September 30, 2023, compared to $356 thousand, or 20.0% of net sales, in the three months ended September 30, 2022. Cost of goods sold decreased by $78 thousand during the three months ended September 30, 2023, compared to the three months ended September 30, 2022 primarily due to a decrease in net sales. Cost of goods sold as a percentage of net sales increased in the three months ended September 30, 2023 due to an accrual adjustment booked in 2022 related to customer returns in our wholesale channel of distribution and a changing product mix. Cost of goods sold was $817 thousand, or 25.3% of net sales, for the nine months ended September 30, 2023, compared to $843 thousand, or 21.2% of net sales, for the nine months ended September 30, 2022. The decrease in cost of goods sold of $26 thousand was due to lower sales in 2023, the accrual adjustment for customer returns in 2022 and a change in product mix.

Our selling, general and administrative expenses for the three and nine months ended September 30, 2023 are summarized as follows in comparison to such expenses for the three and nine months ended September 30, 2022 (in thousands):

Marketing and advertising increased by $110 thousand and $917 thousand for the three and nine months ended September 30, 2023, respectively, as compared to the three and nine months ended September 30, 2022. The increase is primarily due to the increased use of affiliates marketers to market and sell our products in the direct-to-consumer channel of distribution and an increase in media/on-line advertising (Facebook, Newsletters, Google) in 2023.

Salaries and wages increased by $123 thousand and $494 thousand for the three and nine months ended September 30, 2023, respectively, as compared to the three and nine months ended September 30, 2022, respectively. This was primarily due to the increase in the number of employees during the 2023 period when compared to the same period in 2022.

Selling, general and administrative decreased by $646 thousand and $2.0 million for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, respectively. The decrease is due to a reduction in amortization due to the non-compete agreements being fully amortized as of September 30, 2022, the write off of the customer relationships as of June 30, 2022, and the write off of trade names as of December 31, 2022.

Professional services and investor relations decreased by $498 thousand and $574 thousand for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, respectively. The decrease was primarily due to more legal expenses incurred in 2022 in connection with the Asset Sale.

Share-based compensation decreased by $408 thousand and $856 thousand for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, respectively. This was primarily due to us recording the fair value of a decreased number of vested stock options, restricted stock awards and restricted stock units issued from our 2017 Equity Incentive Plan during the three and nine months ended September 30, 2023, as compared to the same period in 2022.

The change in fair value contingent stock consideration decreased by $304 thousand and increased by $223 thousand for the three and nine months ended September 30, 2023, as compared the three and nine months ended September 30, 2022. The change in fair value of contingent stock consideration during the three and nine months ended September 30, 2023 was based on the extension of the Sera Labs earnout period and a change in the probability percentages of achieving the milestones which was different compared to the probability percentages estimates used in the same period in 2022.

No impairment losses were recognized for the three and nine months ended September 30, 2023, and for the three and nine months ended September 30, 2022, $0 and $4.6 million, respectively, was charged against income for the impairment of customer relationships which were determined by Management to have no future value as of June 30, 2022. For the three and nine months ended September 30, 2022, $0 and $4.7 million was charged to impairment of goodwill and included in the loss from disposal group.

Other income/(expense) decreased by $247 thousand and increased by $2.3 million for the three and nine months ended September 30, 2023 as compared to the three and nine months ended September 30, 2022. This was primarily due to an increase in the change in fair value of convertible promissory notes of $237 thousand for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. The change for the nine months ended September 30, 2023 versus September 30, 2022 was primarily due to (i) an increase in the change in fair value of convertible promissory notes of $2.0 million, and (ii) a decrease in interest expense of $378 thousand due to lower amount of notes payable outstanding resulting from the repayment of notes payable in 2022.

We had net cash used by operating activities for the nine months ended September 30, 2023 of $3.3 million, and as of September 30, 2023, we had a cash balance of $189 thousand and an accumulated deficit of $123.4 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.

We plan to use our cash within the twelve months from September 30, 2023 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.

Working capital deficit as of September 30, 2023 was approximately $10.8 million, compared to the working capital deficit of $8.0 million as of December 31, 2022. As of September 30, 2023, current assets were approximately $2.0 million, comprised primarily of (i) cash of approximately $189 thousand, (ii) accounts receivable, net of $145 thousand, (iii) inventory, net of $220 thousand, (iv) prepaid expenses and other assets of $129 thousand and (v) current notes receivable of $1.3 million. As of December 31, 2022, current assets were approximately $5.9 million, comprised primarily of (i) cash of approximately $2.9 million, (ii) accounts receivable, net of $232 thousand, (iii) inventory, net of $145 thousand, (iv) prepaid expenses and other assets of $441 thousand and (v) current notes receivable of $2.0 million.

As of September 30, 2023, current liabilities were approximately $12.8 million, comprised primarily of (i) approximately $8.4 million in loans, convertible notes payable and fair value of convertible promissory notes (ii) $1.6 million in accounts payable; (iii) $1.7 million in accrued expenses, (iv) $78 thousand of operating lease payables, (v) contingent stock consideration of $570 thousand, and (vi) deferred revenue of approximately $453 thousand. Comparatively, as of December 31, 2022, current liabilities were approximately $13.9 million, comprised primarily of (i) approximately $9.9 million in loans, convertible notes payable and fair value of convertible promissory notes, (ii) $1.1 million in accounts payable; (iii) $495 thousand in deferred revenue, (iv) approximately $1.5 million in accrued expenses, (v) $124 thousand of operating lease payables, and (vi) contingent stock consideration of $860 thousand.

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 gain related to the decrease in fair value of convertible promissory notes of approximately $1.3 million, offset in part by the non-cash charges related to the fair value of vested stock options and restricted stock of $514 thousand and an increase in accounts payable of $506 thousand.

Comparatively, net cash used in operating activities was approximately $8.5 million during the nine months ended September 30, 2022. This was primarily due to the net loss from continuing operations of approximately $11.4 million and the loss from disposal group of approximately $7.0 million, which included the change in fair value of contingent stock consideration of $513 thousand and the decrease in accrued expenses of $2.0 million, offset in part by non-cash charges for (i) the impairment of goodwill for $4.6 million, (ii) $1.4 million for depreciation and amortization, and (iii) fair value of vested stock options and restricted stock of $1.4 million.

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 from TF Tech ($750 thousand) offset in part by the purchase of intangible assets ($51 thousand). Comparatively, net cash of $13.9 million provided by investing activities during the nine months ended September 30, 2022 was due primarily to the receipt of sale proceeds from the Asset Sale.

Net cash used in financing activities of $134 thousand during the nine months ended September 30, 2023 was due to the repayment of loans payable of $134 thousand. Correspondingly, net cash used by financing activities of approximately $1.0 million during the nine months ended September 30, 2022 was primarily due to (i) repayment of various notes payable and loans payable in the aggregate amount of $5.6 million offset in part by proceeds from notes payable – disposal group in the amount of $3.4 million.

The total consideration received in connection with the Asset Sale on July 22, 2022 was $20.0 million, which consisted of (i) the cancellation of indebtedness owed by us to the Buyer in the amount of $4.15 million, (ii) a $2.0 million payable in the form of a secured promissory note due July 22, 2023 which bears interest at 2.37% per annum, and (iii) the remainder of $13.85 million in cash. A portion of the net proceeds from the sale was used to pay down debt and related accrued interest ($5.6 million) and the balance is available 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.

In the event that such working capital is insufficient, we may need to raise additional operating capital in the remainder of calendar year 2023 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.

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 2022 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 2022 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.

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.

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”).

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 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, 2023, the end of the period covered by this Quarterly Report. Based on this assessment, management, including our Principal Executive Officer and Principal Financial Officer, concluded that as of September 30, 2023, 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.

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 the segregation of duties as a material weakness during its assessment of internal controls over financial reporting as of September 30, 2023. 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:

During the fiscal year ended December 31, 2022, we continued to execute upon our planned remediation actions which are all intended to strengthen our overall control environment.

Additionally, management has engaged a professional services firm with expertise in internal controls. In order 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:

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, 2023. 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.

There were no changes in our internal controls over financial reporting during the fiscal quarter ended September 30, 2023 that materially affected, or is reasonably likely to have a material effect, on our internal control over financial reporting.

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 19 – Commitments and Contingencies” of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q (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 2022 Annual Report on Form 10-K (the “2022 Annual Report”).

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 2022 Annual Report. There have been no material changes from the risk factors previously disclosed in such filing.

As previously disclosed, we were notified by the OTC Markets Group Inc. (the “OTC Markets Group”) on May 16, 2023 that our common stock, par value $0.001 per share, would be moved from the OTC Market Group’s OTCQB market (the “OTCQB”) to the OTC Pink Market, effective May 17, 2023, because we had not timely filed our 2022 Annual Report, failing to comply with our ongoing disclosure obligations outlined in Section 2.2(2) of the OTCQB Standards. The Company has since regained compliance with the requirements of the OTCQB Standards and fulfilled all of the OTC Markets Group’s requirements for the re-listing of its common stock on the OTCQB. On September 14, 2023, the OTC Markets Group notified the Company that its common stock would be moved from the OTC Pink Market to the OTCQB, effective September 15, 2023. On September 15, 2023, the Company’s common stock was listed on the OTCQB, with an opening price of $0.11 per share.

# 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.

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.

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

	September 30, 2023			December 31, 2022
Assets	(Unaudited)
Current assets
Cash	$	i 189		$	i 2,943
Accounts receivable, net		i 145			i 232
Inventory, net		i 220			i 145
Prepaid expenses and other current assets		i 129			i 441
Note receivable - current		i 1,250			i 2,000
Due from related party		i 43			i 167
Total current assets		i 1,976			i 5,928

Property and equipment, net		i 2			i 4
Operating lease right-of-use asset, net		i 79			i 160
Investments, net		i 411			i 411
Patents and other intangibles, net		i 317			i 315
Other assets		i 36			i 36

Total assets	$	i 2,821		$	i 6,854

Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable	$	i 1,571		$	i 1,065
Accrued expenses		i 1,691			i 1,478
Operating lease payable		i 78			i 124
Loans payable		i 27			i 161
Convertible promissory notes		i 550			i 550
Fair value of convertible promissory notes		i 7,849			i 9,180
Deferred revenue		i 453			i 495
Contingent stock consideration		i 570			i 860
Total current liabilities		i 12,789			i 13,913

Operating lease payable		i -			i 46

Total liabilities		i 12,789			i 13,959

Commitments and contingencies (see Note 19)

Stockholders’ equity (deficit)
Common stock: $ i 0.001 par value; authorized i 150,000,000 shares; i 73,195,429 and i 71,426,801 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		i 73			i 71
Additional paid-in capital		i 113,026			i 112,471
Common stock issuable		i 308			i 308
Accumulated deficit		( i 123,375	)		( i 119,955	)
Total stockholders’ equity (deficit)		( i 9,968	)		( i 7,105	)

Total liabilities and stockholders’ equity (deficit)	$	i 2,821		$	i 6,854

	For the Nine Months Ended
	September 30, 2023			September 30, 2022

Loss from continuing operations	$	( i 3,420	)	$	( i 11,396	)
Loss from disposal group		i -			( i 6,967	)
Net loss		( i 3,420	)		( i 18,363	)

Adjustments to reconcile net loss to net cash used in operating activities:
Loss on disposal of pharmaceutical assets and liabilities		i -			i 565
Stock-based compensation – services		i 43			i 7
Gain from extinguishment of debt		i -			( i 40	)
Change in fair value of contingent stock consideration		( i 290	)		( i 513	)
Change in fair value of convertible promissory notes		( i 1,331	)		i 718
Impairment of intangibles other than goodwill		i -			i 4,622
Depreciation and amortization		i 51			i 1,390
Amortization of right-of-use asset		i 81			i 71
Recovery of bad debt expense		i -			( i 35	)
Inventory reserve for obsolescence		( i 84	)		i 108
Fair value of vested stock options and restricted stock		i 514			i 1,405

Changes in operating assets and liabilities:
Accounts receivable		i 87			i 165
Inventory		i 9			( i 127	)
Prepaid expenses and other current assets		i 312			( i 46	)
Other assets		i -			( i 104	)
Due from related party		i 124			( i 248	)
Accounts payable		i 506			( i 1,178	)
Accrued expenses		i 213			( i 2,012	)
Operating lease payable		( i 92	)		( i 79	)
Deferred revenue		( i 42	)		i 95
Assets and liabilities held for sale		i -			i 5,112
Cash (used in) operating activities		( i 3,319	)		( i 8,487	)

Cash flows from investing activities:
Purchase of intangible assets		( i 51	)		i -
Repayment from promissory note		i 750			i -
Proceeds from the sale of pharmaceutical assets and liabilities		i -			i 13,891
Cash provided by investing activities		i 699			i 13,891

Cash flows from financing activities:
Proceeds from notes payable		i -			i 200
Proceeds from notes payable – disposal group		i -			i 3,702
Repayment of notes payable		i -			( i 2,629	)
Proceeds from related party payable		i -			i 190
Repayment of related party payable		i -			( i 2,243	)
Proceeds from loan payable		i -			i 38
Repayment of loans payable		( i 134	)		( i 235	)
Cash (used in) financing activities		( i 134	)		( i 977	)

Net increase (decrease) in cash and cash equivalents		( i 2,754	)		i 4,427

Cash and cash equivalents, beginning of year		i 2,943			i 16

Cash and cash equivalents, end of period	$	i 189		$	i 4,443

Supplemental cash flow information:

Cash paid for interest and income taxes:
Interest	$	i 9		$	i 585
Income taxes	$	i -		$	i -

Non-cash investing and financing activities:
Cancellation of indebtedness to Buyer of assets sold	$	i -		$	i 4,150
Receipt of promissory note consideration for assets sold	$	i -		$	i 2,000
Common stock issued for conversion of promissory notes and accrued interest	$	i -		$	i 666
Reclassification of accrued expense to related party payable	$	i -		$	i 42

	·	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.

	·	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.

Avenir Wellness Solutions, Inc. – ‘10-Q’ for 9/30/23

On: Tuesday, 11/14/23, at 3:01pm ET · For: 9/30/23 · Accession #: 1477932-23-8419 · File #: 0-55908

Previous ‘10-Q’: ‘10-Q’ on 8/14/23 for 6/30/23 · Latest ‘10-Q’: This Filing

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

Document Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

		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	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	45

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	Mine Safety Disclosure	47

Item 5.	Other Information	47

Item 6.	Exhibits	48

	Signatures	49

Balance at December 31, 2022	$	i 495
Additions		i 65
Customer deposits returned		i -
Transfers to revenue		( i 107	)
Balance at September 30, 2023	$	i 453

	·	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.

Fair value of Series A and B Notes at December 31, 2022	$	i 9,180
Change in fair value of Series A Note		( i 766	)
Change in fair value of Series B Note		( i 565	)
Fair value of Series A and B Notes at September 30, 2023	$	i 7,849

	September 30, 2023			December 31, 2022
Stock price	$	i 0.25		$	i 0.25
Conversion price	$	i 1.32		$	i 1.32
Term (in years) – Series A Note		i 0.0			i 0.0
Term (in years) – Series B Note		i 0.0			i 0.0
Volatility – Series A Note		i 79.0	%		i 85.0	%
Volatility – Series B Note		i 79.0	%		i 85.0	%
Risk-free interest rate – Series A Note		i 5.38	%		i 4.60	%
Risk-free interest rate – Series B Note		i 5.38	%		i 4.60	%
Interest rate		i 18.0	%		i 18.0	%

	Nine Months Ended September 30,
	2023		2022

Vested stock options from the Company’s 2017 Equity Incentive Plan		i 1,373,946		i 3,173,469
Warrants		i 312,500		i 615,530
Shares to be issued upon conversion of convertible notes payable		i 618,327		i 584,994

Total		i 2,304,773		i 4,373,993

	September 30, 2023		December 31, 2022

Customer billed accounts receivable	$	i 145	$	i 232
Allowance for doubtful accounts		i -		i -
Accounts receivable, net	$	i 145	$	i 232

	September 30, 2023		December 31, 2022

Prepaid insurance	$	i 68	$	i 207
Prepaid expenses		i 6		i 176
Other current assets		i 55		i 58
Prepaid expenses and other current assets	$	i 129	$	i 441

	September 30, 2023			December 31, 2022
Packaging components	$	i 70		$	i 88
Finished goods		i 429			i 420
		i 499			i 508
Reserve for obsolescence		( i 279	)		( i 363	)
Inventory, net	$	i 220		$	i 145

Sales price	$	i 20,000
Forgiveness of Buyer advances		( i 4,150	)
Holdback secured by promissory note		( i 2,000	)
Obligations assumed by Buyer		( i 41	)
Buyer expenses paid by Company		i 82
Net cash received	$	i 13,891

Sales price for assets sold	$	i 20,000
Net book value of assets sold		i 20,616
Net book value of liabilities sold		( i 51	)
Net book value of net assets sold		i 20,565
Loss on sale of net assets	$	( i 565	)

	September 30, 2023			December 31, 2022

Computer and other equipment	$	i 8		$	i 8
Less accumulated depreciation		( i 6	)		( i 4	)
Property and equipment, net	$	i 2		$	i 4

	September 30, 2023			December 31, 2022
TF Tech Ventures, Inc. secured promissory note	$	i 1,250		$	i 2,000
Less: Allowance for doubtful accounts		i -			i -
Less: Current portion of note receivable, net		( i 1,250	)		( i 2,000	)
Note receivable, net of current portion	$	i -		$	i -

	September 30, 2023			December 31, 2022
Intangible assets subject to amortization:
Patents	$	i 316		$	i 316
Other Intangibles		i 141			i 90
	$	i 457		$	i 406
Accumulated amortization		( i 140	)		( i 91	)
Patents and other intangibles, net	$	i 317		$	i 315

2023 (remaining)	$	i 20
2024		i 68
2025		i 34
2026		i 19
2027		i 19
2028		i 17
Thereafter		i 140
Total Amortization	$	i 317

	September 30, 2023			December 31, 2022

Investment in ReLeaf Europe B.V.	$	i 619		$	i 619
Less: Valuation reserve		( i 421	)		( i 421	)
Investment in ReLeaf Europe B.V., net		i 198			i 198

Investment in Biopharmaceutical Research Company		i 213			i 213
Investments, net	$	i 411		$	i 411

	September 30, 2023		December 31, 2022

Refunds and returns liability	$	i 542	$	i 551
Accrued interest expense		i 266		i 233
Accrued payroll		i 146		i 82
Accrued vacation leave		i 89		i 64
Accrued expenses		i 304		i 217
Sales tax payable		i 344		i 331
Accrued Expenses	$	i 1,691	$	i 1,478

	September 30, 2023			December 31, 2022
Loan due June 6, 2024, monthly payments including interest at 10.92% per annum; unsecured	$	i 27		$	i -
Loan due September 29, 2023, monthly payments including interest at 7.07% per annum; unsecured		i -			i 136
Loan due June 6, 2023, monthly payments including interest at 8.07% per annum; unsecured		i -			i 25
Current portion of loan payable		( i 27	)		( i 161	)
Loan payable, less current portion	$	i -		$	i -

	September 30, 2023			December 31, 2022

Series A subordinated convertible note at fair value	$	i 4,455		$	i 5,221
Series B senior secured convertible note at fair value		i 3,394			i 3,959
Carrying value of convertible promissory notes at fair value		i 7,849			i 9,180
Less: current portion of convertible promissory notes at fair value		( i 7,849	)		( i 9,180	)
Convertible promissory notes at fair value, less current portion	$	i -		$	i -

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Outstanding, December 31, 2021		i 588,235		$	i 0.70
Granted		i 1,351,688			i 0.29
Vested		( i 588,235	)		i 0.70
Forfeited/Expired		i -			-
Outstanding, December 31, 2022		i 1,351,688		$	i 0.29
Granted		i 988,288			i 0.12
Vested		( i 1,408,156	)		i 0.28
Forfeited/Expired		-			i -
Outstanding, September 30, 2023		i 931,820		$	i 0.11