CURR Cure Pharmaceutical Holding Corporation (PK)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2023

or

For the transition period from ________________ to ________________

Commission file number333-204857

5805 Sepulveda Boulevard, Suite 500, Sherman Oaks, CA 91411

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (424) 273-8675

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None.

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐   No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐   No ☒

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.

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

As of June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of its shares held by non-affiliates was approximately $5.7 million, as computed by reference to the closing price of such common stock on the OTC Pink Market on such date.

There were 77,993,348 shares outstanding of the registrant’s common stock, par value $0.001 per share, as of May 16, 2024.

DOCUMENTS INCORPORATED BY REFERENCE

None.

AVENIR WELLNESS SOLUTIONS, INC.

2023 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

Special Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (this “Annual Report”) contains forward-looking statements within the meaning of 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 variations thereof, or other comparable terms intended to identify statements about the future. Forward-looking statements include, but are not limited to, statements about:

The forward-looking statements included herein 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 Item 1 “Business” and Item 1A “Risk Factors” of Part I and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of this Annual Report on Form 10-K. 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 will be achieved, and readers are cautioned not to place undue reliance on such 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 Annual 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 Annual 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 Annual Report includes our trademarks and trade names, which is our property and is protected under applicable intellectual property laws. Solely for convenience, trademarks and trade names referred to in this Annual 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.

PART I

ITEM 1. BUSINESS

Overview

Avenir Wellness Solutions, Inc. (“Avenir”), including its wholly-owned subsidiary, The Sera Labs, Inc. (“Sera Labs”), 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 by consumers. 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 the conduction of clinical trials for substantiation of efficacy of our products.

Sera Labs is engaged in the development, production and sale of our 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 (“OTC”) or dietary supplements which do not require approval from the U.S. Food and Drug Administration (“FDA”) but do require following all good manufacturing practices (“GMPs”). Thus, they are less costly and faster to launch 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, health & wellness, and pet care, Sera Labs products are sold in major national drug, mass retailers, grocery chains and convenience stores. We also sell products under private label to major retailers and multi-level marketers, as well as direct-to-consumer (“DTC”), via online website orders, including opt-in subscriptions.

Background

We were incorporated in the State of Nevada on May 15, 2014. On November 7, 2016, we changed our name from “Makkanotti Group Corp.” to “CURE Pharmaceutical Holding Corp.” On September 27, 2019, the Company reincorporated from the State of Nevada to the State of Delaware. On October 14, 2022, we changed our name from “CURE Pharmaceutical Holding Corp.” to “Avenir Wellness Solutions, Inc.”

The Sera Labs, Inc.

Our wholly-owned subsidiary The Sera Labs, Inc. was acquired by the Company in October 2020 to expand the reach of the novel active ingredient formulation and delivery technologies it developed into the wellness and beauty space.

Our Strategy

Our commercial strategy is designed to mitigate risk by pursuing a diversified model in the following categories:

Wellness and Beauty

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 products can be cosmetics, OTC or dietary supplements which do not require FDA approval but do require following all GMPs. Thus, they are less costly and faster to launch in the marketplace. We sell white labeled and private labeled wellness products, which we have produced in third-party state-of-the-art cGMP manufacturing facilities.

Sera Labs is a trusted leader in the health, wellness, and beauty sectors with innovative products with cutting-edge technology and superior ingredients. Sera Labs creates high quality products that use science-backed, proprietary formulations. More than 25 products are sold under the brand names Seratopical™, Seratopical Revolution™ SeraLabs™, and Nutri-Strips™. Sera Labs sells its products at affordable prices, making them easily accessible on a global scale. Strategically positioned in the growth market categories of beauty and health & wellness, Sera Labs products are sold in major national drug, grocery chains, convenience stores and mass retailers. We also sell products under private label to major retailers and multi-level marketers, as well as DTC, via online website orders, including opt-in subscriptions.

In December 2020, Nicole Kidman became the Global Brand Ambassador and Strategic Partner for Seratopical Skincare. In addition to being the face of the brand, Nicole Kidman plays an integral role in the strategic direction of product development and messaging. This partnership, which runs through July 15, 2024, allows for women of all skin tones and types to look and feel their best by using Sera Labs’ industry best ingredients.

Product Technology

As an active ingredient delivery company, we seek to grow our technological capabilities through internal innovation and acquisitions. The use of unique delivery platforms, such as oral thin film (“OTF”) used in our Nutri-Strip product line, helps distinguish our products from those of our competitors.

Safety and Efficacy

Consumer Experience and Regimen Adherence

Manufacturing and Logistics

The film platform is a versatile formulation and active ingredient delivery system for both oral (OTF) and transdermal (skin) delivery. We believe that film formulations can improve or match the pharmacokinetics of active ingredients in accordance with the desired outcome. The platform is compatible with a broad spectrum of molecules, for the formulation of nutraceutical products.

The specific advantages below are present with multiple film products and platform technologies.  Additional advantages include, but are not limited to the following:

Competition

We face competition from wellness and nutraceutical companies like True Botanicals, as well as companies developing advanced active ingredient delivery platforms such as Lonza, Aquestive Therapeutics, BioDelivery and LTS Lohmann, which have substantially greater financial, technical and human resources than we have. Our success will be based in part on our ability to develop products that address unmet wellness needs and create value to consumers at competitive price points. In addition, continuing to build our intellectual property portfolio and designing innovative approaches that surpass our competitors’ products will be critical to success.

Data Security Laws and Regulations

Our business is subject to federal, state, local and foreign regulations. Some of the pertinent laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. In addition, these laws and their interpretations are subject to change.

The restrictions under applicable federal and state data security laws and regulations that may affect our ability to operate include, but are not limited to:

If our operations are found to be in violation of any of the laws or regulations described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal and administrative mandatory penalties, imprisonment, damages, and fines. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws and regulations, the risks cannot be entirely eliminated. Any action against us for violation of these laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, data security and fraud laws and regulations may prove costly.

Human Capital Resources

As of May 16, 2024, we had 11 total employees of which all are full-time employees. None of our employees are subject to a collective bargaining agreement or represented by a trade or labor union. We consider our relationship with our employees to be good.

We believe that our future success largely depends upon our continued ability to attract and retain highly qualified management and personnel. Talent management is critical to our ability to execute our long-term growth strategy. To facilitate talent attraction and retention, we strive to make our Company a safe and rewarding workplace, with opportunities for our employees to grow and develop in their careers, supported by strong compensation and benefits, and by programs that build connections among our employees. We continue to be committed to an inclusive culture, which values equity, opportunity, and respect. In support of our inclusive culture, we offer competitive compensation and benefits, including stock awards, and strive to recruit a diverse talent pool across all levels of the organization.

Company Information

Our principal executive offices are located at 5805 Sepulveda Boulevard, Suite 500, Sherman Oaks, California 91411 and our telephone number is (424) 273-8675. Our website is www.avenirwellness.com. The information contained on or that can be accessed through our website is not incorporated by reference into this Annual Report, and you should not consider any information contained on, or that can be accessed through, our website as part of this Annual Report or in deciding whether to purchase our common stock.

Available Information

Our Annual Reports, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports are accessible free of charge on our website at www.avenirwellness.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov.

ITEM 1A. RISK FACTORS

Investing in our securities involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this Annual Report, including our consolidated financial statements, the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of these risks could have a material and adverse effect on our business, reputation, financial condition, results of operations and future growth prospects, as well as our ability to accomplish our strategic objectives. Certain statements contained in this section constitute forward-looking statements. See the information included in “Special Note Regarding Forward-Looking Statements” in this Annual Report. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks Related to Our Business and Industry

The report of our independent registered public accounting firm contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.

The report of our independent registered public accounting firm on our audited financial statements as of and for the two years in the period ended December 31, 2023 and 2022 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of the uncertainty regarding our ability to continue as a going concern. This going concern opinion could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Further reports on our financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern.

We or our suppliers may experience development or manufacturing problems or delays that could limit the growth of our revenue or increase our losses.

We may encounter unforeseen situations in the manufacturing of our products that could result in delays or shortfalls in the production of our products. In addition, our suppliers’ production processes may have to change to accommodate any significant future demand for our products, which may increase our suppliers’ manufacturing costs, delay production of our products, reduce our product gross margin and adversely impact our business. If we are unable to keep up with demand for our products by successfully shipping our products in a timely manner, our revenue could be impaired, market acceptance for our products could be adversely affected and our customers might instead purchase our competitors’ products.

There has been an increased public focus, including from the United States federal and state governments, on environmental sustainability matters, including with respect to climate change, greenhouse gases, water resources, packaging and waste, animal health and welfare, deforestation, and land use. We endeavor to conduct our business in a manner which reflects our priority of sustainable stewardship, including with respect to environmental sustainability matters, and we are working to manage the risks and costs to us and our supply chain associated with these types of environmental sustainability matters. In addition, as the result of such heightened public focus on environmental sustainability matters, we may face increased pressure to provide expanded disclosure, make or expand commitments, set targets, or establish additional goals and take actions to meet such goals, in connection with such environmental sustainability matters. These matters and our efforts to address them could expose us to market, operational, reputational, and execution costs or risks.

Our business could be adversely affected by widespread public health epidemics or other catastrophic events beyond our control.

In addition to our reliance on our own employees and facilities, we depend on our collaborators, laboratories and other facilities for the continued operation of our business. Despite any precautions we take for natural disasters or other catastrophic events, events such as pandemic disease, terrorist attacks, hurricanes, fires, floods, ice and snowstorms, may result in interruptions in our business.

An outbreak of contagious diseases, and other adverse public health developments, such as the previous COVID-19 pandemic could impact our operations depending on future developments, which are highly uncertain, largely beyond our control and cannot be predicted with certainty. These uncertain factors, including the duration of the outbreak, new information which may emerge concerning the severity of the disease and the actions to contain or treat its impact, could adversely impact our operations, including among others, conduct of our clinical trials, employee mobility and productiveness, temporary closure of facilities, including clinical trial sites, our manufacturing capabilities, and third party service providers, any of which could have an adverse impact on our business and our financial results. In addition, a significant health epidemic could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our products which could have a material adverse effect on our business, operating results and financial condition.

Our ability to compete depends on our ability to attract and retain talented employees.

Our future success depends on our ability to identify, attract, train, integrate and retain highly qualified technical, development, sales and marketing, managerial and administrative personnel. Competition for highly skilled individuals is extremely intense and we face difficulty identifying and hiring qualified personnel in many areas of our business. We may not be able to hire and retain such personnel at compensation levels consistent with our existing compensation and salary structure. Many of the companies with which we compete to hire experienced employees have greater resources than we have. If we fail to identify, attract, train, integrate and retain highly qualified and motivated personnel, our reputation could suffer and our business, financial condition and results of operations could be adversely affected.

Our future success also depends on the continued service and performance of our senior management team. The replacement of members of our senior management team likely would involve significant time and costs, and the loss of any these individuals may delay or prevent the achievement of our business objectives.

If we do not achieve, sustain or successfully manage our anticipated growth, our business and prospects will be harmed.

If we are unable to obtain or sustain adequate revenue growth, our financial results could suffer. Furthermore, significant growth will place strains on our management and our operational and financial systems and processes, and our operating costs may escalate even faster than planned. If we cannot effectively manage our expanding operations and our costs, we may not be able to grow effectively, or we may grow at a slower pace. Additionally, if we do not successfully forecast the timing of regulatory authorization for our products, marketing and subsequent demand for our products or manage our anticipated expenses accordingly, our operating results will be harmed.

New technologies could emerge that might offer better combinations of price and performance than our current products.

It is critical to our success that we anticipate changes in technology and customer requirements and to successfully introduce, on a timely and cost-effective basis, new, enhanced and competitive technologies that meet the needs of current and prospective customers. If we do not successfully innovate and introduce new technology into our product lines or manage the transitions to new product offerings, our revenues, results of operations and business will be adversely impacted. Competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. We anticipate that we will face increased competition in the future as existing companies and competitors develop new or improved products and as new companies enter the market with new technologies.

If the market opportunities for our products are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.

Our projections of both the number of people in our target markets are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including market research, and may prove to be incorrect. Further, new studies may change the estimated market size. The number of consumers may turn out to be lower than expected.

We face intense competition and rapid technological change and the possibility that our competitors may discover, develop or commercialize products that are similar, more advanced or more effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our product candidates.

The wellness and nutraceutical industries are highly competitive. There are many companies that are actively engaged in the research and development of products that may be similar to our product candidates.

We compete with other companies within the wellness and beauty industries, which may have a competitive advantage over us due to their greater size, cash flows and institutional experience. Some of these drug delivery competitors include Aquestive Therapeutics Inc., Tesa-Labtec GmbH, BioDelivery Sciences International, Inc., LTS Lohmann Therapy Systems Corp and IntelGenx. New entrants such as Zim Laboratories in India and CMG Pharmaceuticals in Korea are also pursuing OTF products.

Compared to us, many of our competitors may have significantly greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. As a result of these factors, our competitors may have an advantage in marketing their products and may get their products to market before we are able to, which may limit our ability to develop or commercialize our products. Our competitors may also develop products that are safer, more effective, more widely used and less expensive than ours, and may also be more successful than us in marketing their products. These advantages could materially impact our ability to develop and commercialize our products.

Even if we successfully develop our new products, and commence the marketing of them, other products may be preferred, and we may not be successful in commercializing our products or in bringing them to market.

Additional mergers and acquisitions in the wellness and beauty industries may result in even more resources being concentrated in our competitors. As a result, these companies may achieve greater scale more rapidly than we are able to and may be more effective in selling and marketing their products as well. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective or less costly than any product that we may develop, or achieve earlier product commercialization and market penetration than we do. Additionally, technologies developed by our competitors may render our potential products uneconomical or obsolete, and we may not be successful in marketing our products against those of our competitors.

The commercial success of any current or future product will depend upon the degree of market acceptance by consumers.

The commercial success of our products will depend in part on consumer acceptance of our products as effective, cost-effective and safe. Any product that we bring to the market may not gain market acceptance by consumers. The degree of market acceptance of any of our products will depend on a number of factors, including:

Even if a potential product displays a favorable efficacy and safety profile in clinical studies, market acceptance of the product will not be fully known until after it is launched. If our products are launched but fail to achieve an adequate level of acceptance by consumers, we will not be able to generate sufficient revenue to become or remain profitable.

Our products under development may not gain market acceptance.

Our products may not gain market acceptance among consumers. Significant factors in determining whether we will be able to compete successfully include:

We may be required to defend lawsuits or pay damages for product liability claims.

Product liability is a risk in marketing wellness and beauty products. We may face substantial product liability exposure for products that we sell. We carry product liability insurance and we expect to continue to maintain such policies. However, product liability claims, regardless of their merits, could exceed policy limits, divert management’s attention, and adversely affect our reputation and demand for our products.

Risks Relating to Our Financial Position and Need for Additional Capital

We may not be able to continue to operate as a going concern.

Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements. We may be unable to continue to operate without the threat of liquidation for the foreseeable future.

Even if future financing is successful, we expect that we will need to raise substantial additional funding before we can expect to become profitable from sales of our product candidates. This additional financing may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product candidate development efforts or other operations.

As of December 31, 2023, our cash and cash equivalents were approximately $49 thousand, our working capital deficit was approximately $10.5 million, and our accumulated deficit was approximately $123.4 million. Upon the completion of future financing, we expect that our existing cash and cash equivalents will be sufficient to fund operations. Even if future financing is completed, we expect that we may require substantial additional capital to commercialize our product candidates. In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. Our future funding requirements will depend on many factors, including but not limited to:

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of holders of our securities and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The incurrence of indebtedness could result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable, and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects. Even if we believe that we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidates or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.

We are an active ingredient and development company and have a limited operating history on which to assess the prospects for our business, have incurred significant losses since the date of our inception, and anticipate that we will continue to incur significant losses until we are able to successfully increase sales of our products.

Since our inception, we have been operating as a wellness and beauty company and have a limited operating history on which to assess the prospects for our business, have incurred significant losses, and anticipate that we will continue to incur significant losses for the foreseeable future. We have historically incurred substantial net losses, including net losses of approximately $10.6 million in 2018, approximately $21.4 million in 2019, approximately $30.6 million in 2020, approximately $13.2 million in 2021, approximately $25.5 million in 2022 and approximately $3.4 million in 2023. As of December 31, 2023 and 2022, we had an accumulated deficit of approximately $123.4 million and approximately $120.0 million, respectively.

We have devoted a significant portion of our financial resources to develop and market our products. We have financed our operations primarily through the issuance of equity securities and convertible notes and the sale of certain assets. The amount of our future net losses will depend, in part, on completing the development of our new products, the demand for all of our products, the rate of our future expenditures and our ability to obtain funding through the issuance of our securities or borrowings. Even if we bring to market a new product, our future revenue will depend upon the size of the markets for which our products may achieve sufficient market acceptance, pricing, and adequate market share for our products in those markets. We expect to continue to incur significant losses until we are able to generate higher level of sales of our product, which we may not be successful in achieving. We anticipate that our expenses will increase substantially if and as we:

Raising additional capital may cause dilution to our existing stockholders and restrict our operations or require us to relinquish certain intellectual property rights.

We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances, licensing arrangements and the sale of certain non-core assets. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders may be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt and receivables financings may be coupled with an equity component, such as warrants to purchase shares, which could also result in dilution of our existing stockholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our products or grant licenses on terms that are not favorable to us. A failure to obtain adequate funds may cause us to curtail certain operational activities, including research and development, regulatory trials, sales and marketing, and manufacturing operations, to reduce costs and sustain the business, and would have a material adverse effect on our business and financial condition.

Our inability to raise capital on acceptable terms in the future may cause us to delay, diminish, or curtail certain operational activities, including product development activities, sales and marketing, and other operations, to reduce costs and sustain the business, and such inability would have a material adverse effect on our business and financial condition.

We expect capital outlays and operating expenditures to increase over the next several years as we work to expand our commercial activities, expand our development activities, and expand our infrastructure. We may need to raise additional capital to, among other things:

We have broad discretion in the use of the net proceeds from future financings and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds from future financings. Our management may not apply our cash from financing in ways that ultimately increase the value of any investment in our securities or enhance stockholder value. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from future financings in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply our cash in ways that enhance stockholder value, we may fail to achieve expected financial results, which may result in a decline in the price of our shares of common stock, and, therefore, may negatively impact our ability to raise capital, invest in or expand our business, acquire additional products or licenses, commercialize our products, or continue our operations.

Market and economic conditions may negatively impact our business, financial condition and share price.

Concerns over inflation, energy costs, geopolitical issues, the U.S. mortgage market and a declining real estate market, unstable global credit markets and financial conditions, and volatile oil prices have led to periods of significant economic instability, diminished liquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth going forward, increased unemployment rates, and increased credit defaults in recent years. Our general business strategy may be adversely affected by any such economic downturns, volatile business environments and continued unstable or unpredictable economic and market conditions. If these conditions continue to deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance, and share price and could require us to delay or abandon development or commercialization plans.

In addition, a general weakening or decline in the global economy or a reduction in industrial outputs, business or consumer spending or confidence could delay or significantly decrease purchases of our products by our customers and end users. Consumer purchases of discretionary items, which could include our maintenance products and homecare and cleaning products, may decline during periods where disposable income is reduced or there is economic uncertainty, and this may negatively impact our financial condition and results of operations.  

Risks Related to Intellectual Property

The extent to which we can protect our technologies through intellectual property rights that we own, acquire or license is uncertain.

We employ a variety of proprietary and patented technologies and methods in connection with our products we sell or are developing. We cannot provide any assurance that the intellectual property rights that we own, or license provide effective protection from competitive threats or that we would prevail in any litigation in which our intellectual property rights are challenged. In addition, we may not be successful in obtaining new proprietary or patented technologies or methods in the future, whether through acquiring ownership or through licenses from third parties.

Our currently pending or future patent applications may not result in issued patents, and we cannot predict how long it may take for a patent to issue on any of our pending patent applications, assuming a patent does issue.

Other parties may challenge patents issued or exclusively licensed to us, or courts or administrative agencies will hold our patents or the patents we license on an exclusive basis to be valid and enforceable. We may not be successful in defending challenges made against our patents and other intellectual property rights. Any third-party challenge to any of our patents could result in the unenforceability or invalidity of some or all of the claims of such patents and could be time-consuming and expensive.

The extent to which the patent rights of many companies effectively protect their technologies is often highly uncertain and involves complex legal and factual questions for which important legal principles remain unresolved.

No consistent policy regarding the proper scope of allowable claims of patents held by many companies has emerged to date in the United States. Various courts, including the U.S. Supreme Court, have rendered decisions that impact the scope of patentability of certain inventions or discoveries relating to products. These decisions generally stand for the proposition that inventions that recite laws of nature are not themselves patentable unless they have sufficient additional features that provide practical assurance that the processes are genuine inventive applications of those laws rather than patent drafting efforts designed to monopolize a law of nature itself. What constitutes a “sufficient” additional feature for this purpose is uncertain. While we do not generally rely on gene sequence patents, this evolving case law in the United States may adversely impact our ability to obtain new patents and may facilitate third-party challenges to our existing owned and exclusively licensed patents.

We cannot predict the breadth of claims that may be allowed or enforced in patents we own. For example:

The patent prosecution process is expensive and time-consuming, is highly uncertain and involves complex legal and factual questions. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology and product candidates. We seek to protect our proprietary position by filing in the United States patent applications related to our novel technologies and product candidates that are important to our business.

The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. In addition, we may not pursue or obtain patent protection in all major markets. Moreover, in some circumstances, we may not have the right to control the preparation, filing or prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. In some circumstances, our licensors may have the right to enforce the licensed patents without our involvement or consent, or to decide not to enforce or to allow us to enforce the licensed patents. Therefore, these patents and patent applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. If any of our licensors fail to maintain such patents, or lose rights to those patents, the rights that we have licensed may be reduced or eliminated and our right to develop and commercialize any of our product candidates that are the subject of such licensed rights could be adversely affected.

Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. In particular, during prosecution of any patent application, the issuance of any patents based on the application may depend upon our ability to generate additional nonclinical or clinical data that support the patentability of our proposed claims. We may not be able to generate sufficient additional data on a timely basis, or at all. Moreover, changes in either the patent laws or interpretation of the patent laws in the United States or other countries may diminish the value of our patents or narrow the scope of our patent protection.

Moreover, we may be subject to a third-party pre-issuance submission of prior art to the United States Patent and Trademark Office (“USPTO”), or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings or other patent office proceedings or litigation, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission or proceeding could reduce the scope of, or invalidate, our patent rights; allow third parties to commercialize our technology or products and compete directly with us, without payment to us; or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our owned and licensed patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

Obtaining and maintaining our patent protection depends upon compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The USPTO requires compliance with several procedural, documentary, fee payment and other provisions during the patent prosecution process and following the issuance of a patent. There are situations in which noncompliance with these requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case if our patent was in force.

Our intellectual property rights may not be sufficient to protect our competitive position and to prevent others from manufacturing, using or selling competing products.

The scope of our owned and exclusively licensed intellectual property rights will not be sufficient to prevent others from manufacturing, using or selling competing products. Competitors could purchase our product and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies and thereby avoid infringing our intellectual property rights. If our intellectual property is not sufficient to effectively prevent our competitors from developing and selling similar products, our competitive position and our business could be adversely affected.

We may become involved in disputes relating to our intellectual property rights and may need to resort to litigation to defend and enforce our intellectual property rights.

Extensive litigation regarding patents and other intellectual property rights is common. Litigation may be necessary to assert infringement claims, protect trade secrets or know-how and determine the enforceability, scope and validity of certain proprietary rights. Litigation may even be necessary to resolve disputes of inventorship or ownership of proprietary rights. The defense and prosecution of intellectual property lawsuits, USPTO interference or derivation proceedings and related legal and administrative proceedings (e.g., a re-examination) in the United States and internationally involve complex legal and factual questions. As a result, such proceedings are costly and time consuming to pursue, and their outcome is uncertain.

Even if we prevail in such a proceeding in which we assert our intellectual property rights against third parties, the remedy we obtain may not be commercially meaningful or adequately compensate us for any damages we may have suffered. If we do not prevail in such a proceeding, our patents could potentially be declared to be invalid, unenforceable or narrowed in scope, or we could otherwise lose valuable intellectual property rights. Similar proceedings involving the intellectual property we exclusively license could also have an impact on our business. Further, if any of our other owned or exclusively licensed patents are declared invalid, unenforceable or narrowed in scope, our competitive position could be adversely affected.

We may be subject to claims challenging the inventorship of our intellectual property.

We may be subject to claims that former employees, collaborators or other third parties have an interest in, or right to compensation, with respect to our current patent and patent applications, future patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

If we are unable to maintain effective proprietary rights for our products, we may not be able to compete effectively in our markets.

In addition to the protection afforded by any patents currently owned and that may be granted, historically, we have relied on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes that are not easily known, knowable or easily ascertainable, and for which patent infringement is difficult to monitor and enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data, trade secrets and intellectual property by maintaining physical security of our premises and physical and electronic security of our information technology systems. Agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets and intellectual property may otherwise become known or be independently discovered by competitors.

We cannot provide any assurances that our trade secrets and other confidential proprietary information will not be disclosed in violation of our confidentiality agreements or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Also, misappropriation or unauthorized and unavoidable disclosure of our trade secrets and intellectual property could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets and intellectual property are deemed inadequate, we may have insufficient recourse against third parties for misappropriating any trade secret.

We could face claims that our activities or the manufacture, use or sale of our products infringe the intellectual property rights of others, which could cause us to pay damages or licensing fees and limit our ability to sell some or all of our products and services.

Our product development and commercialization activities may infringe or be claimed to infringe patents or other intellectual property rights owned by other parties of which we may be unaware because the relevant patent applications may have been filed, but not yet published. Certain of our competitors and other companies have substantial patent portfolios and may attempt to use patent litigation as a means to obtain a competitive advantage or to extract licensing revenue. In addition to patent infringement claims, we may also be subject to other claims relating to the violation of intellectual property rights, such as claims that we have misappropriated trade secrets or infringed third party trademarks. The risks of being involved in such litigation may also increase as we gain greater visibility as a public company and as we gain commercial acceptance of our products and move into new markets and applications for our products.

Regardless of merit or outcome, our involvement in any litigation, interference or other administrative proceedings could cause us to incur substantial expense and could significantly divert the efforts of our technical and management personnel. Any public announcements related to litigation or interference proceedings initiated or threatened against us could cause our share price to decline. An adverse determination, or any actions we take or agreements we enter into to resolve or avoid disputes, may subject us to the loss of our proprietary position or to significant liabilities, or require us to seek licenses that may include substantial cost and ongoing royalties. Licenses may not be available from third parties or may not be obtainable on satisfactory terms. An adverse determination or a failure to obtain necessary licenses may restrict or prevent us from manufacturing and selling our products and offering our services. These outcomes could materially harm our business, financial condition and results of operations.

Our failure to secure trademark registrations could adversely affect our business and our ability to market our products.

Our trademark applications in the United States and any other jurisdictions where we may file may not be allowed for registration, and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our applications and/or registrations, and our applications and/or registrations may not survive such proceedings. Failure to secure such trademark registrations in the United States could adversely affect our business and our ability to market our products.

Global economic conditions may negatively impact the Company’s financial condition and results of operations.

A general weakening or decline in the global economy or a reduction in industrial outputs, business or consumer spending or confidence could delay or significantly decrease purchases of our products by our customers and end users. Consumer purchases of discretionary items, which could include our beauty and wellness products, may decline during periods where disposable income is reduced or there is economic uncertainty, and this may negatively impact our financial condition and results of operations.

 Risks Related to Common Stock

We are a “smaller reporting company” and have elected to comply with certain reduced reporting and disclosure requirements which could make our common stock less attractive to investors.

We are a “smaller reporting company,” as defined in the Regulation S-K of the Securities Act of 1933, as amended, which allows us to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies, including (1) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and (2) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until we are no longer a smaller reporting company.

Investors may find our common stock less attractive as a result of our election to utilize these exemptions, which could result in a less active trading market for our common stock and/or the market price of our common stock may be more volatile.

We do not intend to pay cash dividends to our stockholders for the foreseeable future, so you may not receive any return on your investment in us prior to selling your interest.

We have never paid any dividends to our common stockholders and do not foresee doing so as a public company. We currently intend to retain any future earnings for funding growth and, therefore, do not expect to pay any cash dividends in the foreseeable future. If we determine that we will pay cash dividends to the holders of our common stock, we cannot assure that such cash dividends will be paid on a regular basis. The success of an investment in us will likely depend entirely upon any future appreciation. As a result, an investor will not receive any return on their investment prior to selling our shares of common stock and, for the other reasons discussed in this “Risk Factors” section, an investor may not receive any return on their investment even when they sell our shares of common stock.

Our stock price may be volatile, and you may not be able to resell your shares at or above the purchase price.

Although our common stock is registered under the Exchange Act, and our stock is traded over-the-counter on the OTCQB Market, an active trading market for the securities does not yet exist and may not exist or be sustained in the future. The OTCQB Market is an over-the-counter market that provides significantly less liquidity than national securities exchanges. Quotes for stocks included on the OTCQB Market are not listed in the financial sections of newspapers as are those listed on national securities exchanges. Therefore, prices for securities traded solely on the OTCQB Market may be difficult to obtain and holders of common stock may be unable to resell their securities at or near their original offering price or at any price.

There is no assurance that an established public trading market for our common stock will ultimately develop, and if it does develop, that it will be sustainable, which would adversely affect the ability of our investors to sell their shares of common stock in the public market.

In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

The market price of our common stock is volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

Future sales and issuances of our common stock or rights to purchase common stock could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.

We expect that significant additional capital will be needed in the future to continue our planned operations, including expanding research and development, funding clinical trials, purchasing of capital equipment, hiring new personnel, commercializing, and continuing activities as an operating public company. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

Our common stock is quoted on the over-the-counter market, which subjects us to the SEC’s penny stock rules and may decrease the liquidity of our common stock.

Our common stock is traded over-the-counter on the OTCQB Market. Over-the-counter markets are generally considered to be less efficient than, and not as broad as, a national stock exchange. Accordingly, there may be a limited market for our stock, and trading in our stock may become more difficult and our share price could decrease. Specifically, you may not be able to resell your shares of common stock at or above the price you paid for such shares or at all.

In addition, our ability to raise additional capital may be impaired because of the less liquid nature of the over-the-counter markets. While we cannot guarantee that we would be able to complete an equity financing on acceptable terms, or at all, we believe that dilution from any equity financing while our shares are quoted on an over-the-counter market would likely be substantially greater than if we were to complete a financing while our common stock is traded on a national securities exchange.

Our common stock is also subject to penny stock rules, which impose additional sales practice requirements on broker-dealers who sell our common stock. The SEC generally defines “penny stock” as an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. The ability of broker-dealers to sell our common stock and the ability of our stockholders to sell their shares in the secondary market will be limited and, as a result, the market liquidity for our common stock will likely be adversely affected. We cannot assure you that trading in our securities will not be subject to these or other regulations in the future.

Further, some discount and major brokerage firms have implemented rules regarding the deposit of penny stock shares into new or existing accounts where such stocks do not meet minimum price and volume requirements. Such rules may make it difficult or even prevent stockholders from timely selling their shares through such brokerage firms unless the shares meet such minimum requirements.

Being a public company is expensive and administratively burdensome.

As a public reporting company, we are subject to the information and reporting requirements of the Securities Act, the Exchange Act and other federal securities laws, rules and regulations related thereto, including compliance with the Sarbanes-Oxley Act. Complying with these laws and regulations requires the time and attention of our Board and management and increases our expenses. Among other things, we are required to:

The costs of preparing and filing annual and quarterly reports, proxy statements, when required, and other information with the SEC and furnishing audited reports to stockholders is expensive and much greater than that of a privately-held company, and compliance with these rules and regulations may require us to hire additional financial reporting, internal controls and other finance personnel, and involve a material increase in regulatory, legal and accounting expenses and the attention of management. These costs require us to divert a significant amount of monies that we could otherwise use to develop our business. If we are unable to satisfy our obligations as a public company, we could be subject to fines, sanctions, and other regulatory action, and potentially civil litigation.

There can also be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all. In addition, being a public company makes it more expensive for us to obtain director and officer liability insurance. In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage.

We have identified a material weakness in our internal control over financial reporting. This material weakness could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed 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 (“GAAP”). Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

As described elsewhere in this Annual Report, we identified several material weaknesses in our internal control over financial reporting. As a result of these material weaknesses, our management concluded that our internal control over financial reporting was not effective as of December 31, 2023.

Any failure to maintain such internal control could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis, which could result in a material adverse effect on our business. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the SEC or other regulatory authorities. In addition, we would likely incur additional accounting, legal and other costs in connection with any remediation steps. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the price of our stock.

To respond to these material weaknesses, we have devoted, and plan to continue to devote, effort and resources to the remediation and improvement of our internal control over financial reporting. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance these processes to better evaluate our research and understanding of the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include investing in information technology (“IT”) systems to enhance our operational and financial reporting and internal controls, enhancing our organizational structure to support financial reporting processes and internal controls, further developing and documenting detailed policies and procedures regarding business processes for significant accounts, critical accounting policies and critical accounting estimates, establishing effective general controls over IT systems to ensure that information produced can be relied upon by process level controls is relevant and reliable, providing guidance, education and training to employees relating to our accounting policies and procedures. Additionally, we have hired, and plan to continue to hire, as resources permit, qualified accounting personnel to better manage our functional controls and segregate responsibilities. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.

We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.

Cybersecurity risks and cyber incidents, as well as other significant disruptions of our information technology networks and related systems and resources, could adversely affect our business, disrupt operations and expose us to liabilities to employees, customers, governmental regulators, and other third parties.

We use information technology and other computer resources to carry out important operational activities and to maintain our business records. As part of our normal business activities, we permit certain employees to perform some or all of their business activities remotely, we collect and store certain personal identifying and/or confidential information relating to our employees, customers, vendors and suppliers, and we maintain operational and financial information related to our business. Furthermore, we rely on products and services provided by third-party suppliers to operate certain critical business systems, including without limitation, cloud-based infrastructure, encryption and authentication technology, email, and other functions, which exposes us to supply-chain attacks or other business disruptions.

We face risks associated with security breaches through cyber-attacks or cyber-intrusions, malware, computer viruses and malicious codes, ransomware, attachments to e-mail, unauthorized access attempts, denial of service attacks, phishing, social engineering, persons with access to systems inside our organization, and other significant disruptions of our information technology networks and related systems. The risk of a security breach has generally increased as the frequency, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques, tools and tactics used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed to not be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers, disaster recovery or other preventative or corrective measures, and thus it is impossible for us to entirely counteract this risk or fully mitigate the harms after such an attack.

We have implemented certain systems and processes intended to address ongoing and evolving cybersecurity risks, secure our information technology, applications and computer systems, and prevent unauthorized access to or loss of sensitive, confidential and personal data. Although we and our service providers employ what we believe are adequate security, disaster recovery and other preventative and corrective measures, our security measures, taken as a whole, may not be sufficient for all possible situations and may be vulnerable to, among other things, fraud, hacking, employee error, system error, and faulty password management. Additionally, we rely on third-parties for virtually all of our operating infrastructure, who may themselves have standards of materiality of cybersecurity risks that differ from the materiality standards of the Company itself.

Our ability to conduct our business may be impaired if our or our services providers’ information technology networks, systems or resources, including our and their websites or e-mail systems, are compromised, degraded, damaged or fail, whether due to a virus or other harmful circumstance, fraud, intentional penetration or disruption of our or their information technology resources by:

A significant and extended disruption could damage our business or reputation and cause, amongst other things, loss of revenues or customer relationships, unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying and confidential information, and us to incur significant expenses to address and remediate or otherwise resolve these kinds of issues. Our disaster recovery procedures and contingency planning rely heavily on third-party providers and may prove insufficient to fully protect our operations and business interests.

The release of confidential information may also lead to litigation or other proceedings against us by affected individuals, business partners and/or regulators, and the outcome of such proceedings, which could include losses, penalties, fines, injunctions, expenses and charges recorded against our earnings and cause us reputational harm and/or could have a material and adverse effect on our business, financial position or results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 1C. CYBERSECURITY

Risk management and strategy

Due to the size of our company, we have not yet developed robust policies and processes for assessing, identifying, and managing material risk from cybersecurity threats. We have implemented access controls with respect to our systems, which we monitor regularly and audit annually. We currently rely heavily on products and services provided by third-party suppliers to operate certain critical business systems, including without limitation, cloud-based infrastructure, encryption and authentication technology, email, and other functions. We rely on third party providers and outsourced IT services to monitor and address cybersecurity related risks, including installing software for threat protection and malware. Such third-party providers are tasked with notifying management of any material risks or cybersecurity concerns that they identify, which management then assesses and may bring to our board of directors to discuss if deemed necessary or appropriate.  Based on the results of our risk assessments, if deemed necessary or appropriate, we take steps to re-design, implement, and maintain reasonable safeguards to minimize identified risks; reasonably address any identified gaps in existing safeguards; and regularly monitor the effectiveness of our safeguards.

We intend to work with outside counsel and third-party service providers in the near term to further develop our expertise, processes and procedures with respect to cybersecurity protection and our response plan.

To date, we have not (to our knowledge) encountered cybersecurity challenges that have materially impaired our operations or financial standing. For additional information regarding risks from cybersecurity threats, please refer to Item 1A, “Risk Factors,” in this Report.

Governance

Our management team is primarily responsible for assessing and managing our strategic risk exposures, including material risks from cybersecurity threats, with assistance from third-party service providers. Management oversees our cybersecurity process on a day-to-day basis, including those described in “Risk Management and Strategy” above.

Our audit committee is tasked with general oversight of our risk management process, including risks from cybersecurity threats. Members of management provide periodic briefings to the audit committee of our board of directors regarding our cybersecurity risks and activities, including any recent cybersecurity incidents and related responses, cybersecurity systems testing, activities of third parties, and the like. In furtherance thereof, the committee is responsible for monitoring and assessing strategic risk exposure. Our audit committee provides regular updates to the board of directors on such reports.

ITEM 2. PROPERTIES

We do not own any real property. Our principal executive offices are located at 5805 Sepulveda Boulevard, Suite 500, Sherman Oaks, California 91411. The offices consist of 2,902 square feet leased pursuant to a 2-year lease expiring April 30, 2026. Rent expense for the office was approximately $123 thousand for the year ended December 31, 2023 and $122 thousand for the year ended December 31, 2022.

We believe that our facilities are generally in good condition and suitable for conducting our business. We also believe that, if required, suitable alternative or additional space will be available to us on commercially reasonable terms.

ITEM 3. 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. Other than as disclosed below, 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.

On January 5, 2022, we entered into a Forbearance Agreement with the Investor pursuant to which the Investor has agreed not to exercise, with certain exclusions, any of its judicial or administrative enforcement actions to obtain cash or other assets (excluding common stock or other assets issuable upon conversion or exchange of the Series B Note in accordance with the terms thereof) from us on account of any of our payment obligations under the Series B Note or the Event of Default Redemption Notice that exist as of the date of the Forbearance Agreement or that may arise from the date of this Agreement through February 15, 2022. On April 12, 2022, we filed a civil action in the California Superior Court against the Investor, alleging that the Investor entered into the Securities Purchase Agreement dated as of October 30, 2020 (the “Purchase Agreement”), by and between the Company and the Investor, as an unregistered securities dealer and unlicensed finance lender in violation of California law. Our 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, we and the 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, we refiled our 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, we 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, we filed our opposition response to the Investor’s motion to dismiss. As of the filing date of this Annual Report, the Investor has not filed a response to our opposition to their motion to dismiss. Settlement discussions between the parties are ongoing.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is currently quoted on the OTCQB Market under the symbol “AVRW.” Only a limited market exists for our securities. There is no assurance that a regular trading market will develop, or if developed, that it will be sustained.

The table below sets forth the high and low closing prices of our common stock during the years indicated.  The quotations reflect inter-dealer prices without retail mark-up, markdown or commission and may not reflect actual transactions.

Holders of Record

As of May 16, 2024, there were approximately 140 stockholders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Dividend Policy

To date, we have paid no dividends on our common stock and do not expect to pay cash dividends in the foreseeable future. We plan to retain all earnings to provide funds for the operations of our Company. In the future, our Board will decide whether to declare and pay dividends based upon our earnings, financial condition, capital requirements, and other factors that our Board may consider relevant. We are not under any contractual restriction as to present or future ability to pay dividends, however, the terms of any financing arrangements that we may enter into may restrict our ability to pay any dividends.

Unregistered Sales of Equity Securities

There were no sales of unregistered equity securities during fiscal year 2023.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

There were no purchases of our equity securities by the Company or affiliates during fiscal year 2023.

Securities Authorized for Issuance Under Existing Equity Compensation Plans

There are 10,000,000 shares of common stock authorized for issuance under the 2017 Plan. A summary of our 2017 Plan may be found in our definitive proxy statement for our annual meeting of stockholders filed with the SEC on July 12, 2019 as well as our Form S-3 filed with the SEC on November 30, 2020.

We do not have any individual compensation arrangements with respect to our common or preferred stock. The issuance of any of our common or preferred stock is within the discretion of our Board, which has the power to issue any or all of our authorized but unissued shares without stockholder approval.

The following table summarizes certain information regarding our equity compensation plans as of December 31, 2023:

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Performance Graph

As a smaller reporting company, we are not required to provide the performance graph required by Item 201(e) of Regulation S-K.

ITEM 6. [RESERVED]

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our audited consolidated financial statements for the two-year period ended December 31, 2023 and highlight certain other information which, in the opinion of management, will enhance a reader’s understanding of our financial condition, changes in financial condition and results of operations. In particular, the discussion is intended to provide an analysis of significant trends and material changes in our financial position and the operating results of our business during the year ended December 31, 2023, as compared to the year ended December 31, 2022. This discussion should be read in conjunction with our consolidated financial statements for the two-year period ended December 31, 2023 and related notes included in Part II, Item 8 of this Annual Report.

Cautionary Notice Regarding Forward Looking Statements

The information contained in this Item 7 of Part II contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this Annual Report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this Annual Report.

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This filing contains a number of forward-looking statements that reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, clinical developments, which management expects or anticipates will or may occur in the future, including statements relating to our technology, market expectations, future revenues, financing alternatives, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words, “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligations to revise these forward-looking statements to reflect any future events or circumstances.

Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (particularly in “Item 1A – Risk Factors”) and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such differences could include, but are not limited to, the risks to be discussed in this Annual Report on Form 10-K and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors, which may affect our business. We undertake no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For additional information regarding forward-looking statements, see Item 1 – Our Business – “Forward-Looking Statements.”

Corporate Overview

Overview

We are 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 efficacy of our products.

We were incorporated in the State of Nevada on May 15, 2014. The Company was formerly named Makkanotti Group Corp., which was formed to engage in the business of manufacturing food paper bags in Nicosia, Cyprus. On November 7, 2016, the Board and the majority stockholder of the then outstanding shares of our common stock executed a written consent to change our name from “Makkanotti Group Corp.” to “CURE Pharmaceutical Holding Corp.” The Certificate of Amendment to the Articles of Incorporation was filed with the State of Nevada on November 30, 2016. On September 27, 2019, we reincorporated from the State of Nevada to the State of Delaware. On September 20, 2022, the Board executed a written consent to change our name from “CURE Pharmaceutical Holding Corp.” to “Avenir Wellness Solutions, Inc.” The Certificate of Amendment of Certificate of Incorporation was filed with the State of Delaware on October 14, 2022.

Further, on November 7, 2016, we, in a reverse take-over transaction, acquired a specialty pharmaceutical and bioscience company based in California that specializes in drug delivery technologies, by executing a Share Exchange Agreement and Conversion Agreement (“Exchange Agreement”) by and among us and a holder of a majority of our issued and outstanding capital stock prior to the closing (the “Majority Stockholder”), on the one hand, and Avenir Wellness Solutions of California, Inc. (f/k/a CURE Pharmaceutical Corp.) (“Avenir CA"), all of the shareholders of Avenir CA’s issued and outstanding share capital (the “Avenir CA Shareholders”) and the holders of certain convertible promissory notes of Avenir CA (“Avenir CA Noteholders”), on the other hand. Hereinafter, this share exchange transaction is described as the “Share Exchange.”

As a result of the Share Exchange, Avenir CA became a wholly-owned subsidiary of the Company, and the Avenir CA Shareholders and Avenir CA Noteholders became our controlling shareholders owning, at such time, approximately 65% of our issued and outstanding common stock. For accounting purposes, Avenir CA was the surviving entity. As a result of the recapitalization and change in control, Avenir CA was deemed to be the accounting acquirer in accordance with ASC 805, Business Combinations.

On May 14, 2019, the Company, and Merger Sub, a Delaware corporation and wholly-owned subsidiary of the Company, completed the transactions contemplated in the Merger Agreement with CHI, a Delaware corporation. As agreed in the Merger Agreement and pursuant to the Merger, CHI became a wholly-owned subsidiary of the Company and the stockholders of CHI received shares of the Company’s common stock, par value $0.001 per share in exchange for all of the issued and outstanding shares of CHI. The assets and operations of CHI were combined with and into Avenir CA as of the completion of the Merger.

On October 2, 2020, the Company completed its acquisition of Sera Labs, a Delaware corporation pursuant to the Sera Labs Merger Agreement, by and among the Company, Sera Labs Merger Sub, a Delaware corporation and a wholly-owned subsidiary of the Company, Sera Labs and Ms. Nancy Duitch, in her capacity as the security holders’ representative regarding the Sera Labs Merger.

On July 22, 2022, we completed the sale of certain assets comprising our pharmaceutical segment pursuant to an Asset Purchase Agreement (the “APA”) with TF Tech Ventures, Inc. (the “Buyer”), under which the Buyer purchased certain assets (the “Asset Sale”), including certain pharmaceutical patents, trademarks and related inventory and machinery and equipment. We retained 15 other patents not included in the Asset Sale, which we expect to monetize through product development, licensing arrangements and/or the sale of such patents. In connection with the Asset Sale, the Buyer assumed the lease of our Oxnard, California facility where our prior corporate office and pharmaceutical business were located and hired the related employees based at the facility. This pharmaceutical business ceased operations on July 22, 2022 upon the closing of the Asset Sale thus making Sera Labs our primary operating business.

Key Factors Affecting our Performance

As a result of 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.

Inflation

Prices of certain commodity products, including raw materials, are historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, labor costs, competition, market speculation, government regulations, trade restrictions and tariffs. Rapid and significant changes in commodity prices may negatively affect our profit margins if we are unable to mitigate any inflationary increases through various customer pricing actions and cost reduction initiatives. During 2023, we did not experience unusual increases in prices charged by our manufacturers or in shipping rates. If we do experience such price increases, we may be able to increase the prices of our affected products in 2024. Increasing the price of our products may impact the demand of our products which may adversely affect our business, financial condition, and results of operations.

Supply Chain

The supply chain for the procurement of our products, including raw materials and packaging and other components and shipping, has been adversely impacted by recent world and local events causing delays in the production and receipt of our products. Such delays have been minimized through expansive sourcing of materials and production capacity so our business has not been significantly impacted financially. If our supply chain is more significantly constrained, longer delays could 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.

Geopolitical Conditions

In February 2022, Russia initiated significant military action against Ukraine. In response, the U.S. and certain other countries imposed significant sanctions and export controls against Russia, Belarus and certain individuals and entities connected to Russian or Belarusian political, business, and financial organizations, and the U.S. and certain other countries could impose further sanctions, trade restrictions, and other retaliatory actions should the conflict continue or worsen. It is not possible to predict the broader consequences of the conflict, including related geopolitical tensions, and the measures and retaliatory actions taken by the U.S. and other countries in respect thereof as well as any counter measures or retaliatory actions by Russia or Belarus in response, including, for example, potential cyberattacks or the disruption of energy exports, is likely to cause regional instability, geopolitical shifts, and could materially adversely affect global trade, currency exchange rates, regional economies and the global economy. The situation remains uncertain, and while it is difficult to predict the impact of any of the foregoing, the conflict and actions taken in response to the conflict could increase our costs, 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.

Results of Operations

Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022

Revenue

Revenue for the year ended December 31, 2023 was $4.3 million as compared to $4.9 million for the year ended December 31, 2022. The decrease in revenue was mainly due to: (i) financial constraints which limited our overall ability to market and promote Sera Labs products resulting in a decrease in unit sales in our DTC channel of distribution when compared to the previous year and (ii) the discontinuation of the sale of the Keto product line ($1.6 million) marketed through the related party ALT. However, this decrease was offset in part by increases in unit sales of our Seratopical Revolution products with the launch of a new product, DNA Complex ($604 thousand), an increase in unit sales of product bundles which also included DNA Complex ($428 thousand), the increase in unit sales of our Seratopical Revolution beauty products in our wholesale channel of distribution with the addition of a new customer in the online subscription box category ($311 thousand), and  of our Seratopical Revolution beauty products and Nutri-Strips wellness products to the largest e-commerce company ($212 thousand) in the United States.

Cost of Goods Sold

Cost of goods sold was $1.2 million, or 28.5% of revenue, for the year ended December 31, 2023 compared to $1.6 million, or 31.8% of revenue, for the year ended December 31, 2022. The decrease of $319 thousand was primarily due to the decrease in the reserve for slow selling merchandise from 2022 to 2023 of $307 thousand.  The higher inventory reserve in 2022 was due to the excessive quantities, aging and short shelf-life of inventory of our various product lines including Seratopical beauty ($262 thousand), Seratopical Revolution beauty ($27 thousand) and Nutri-Strip wellness ($23 thousand) products which experienced lower sales during the period in which funds were limited for advertising and promotion. Product expiration dates and sales history of the inventory on hand were among the factors considered in the determination of the inventory reserves.

Selling, General and Administrative Expenses

Our operating expenses are summarized as follows for the years ended December 31 (in thousands):

Marketing and Advertising

Marketing and advertising expenses increased by $579 thousand for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase was due in part to the execution of new marketing plans, the launch of a new product and the use of more digital and social media initiatives.

Salaries and Wages

Salaries and wages expense increased by $494 thousand during the year ended December 31, 2023 as compared to the year ended December 31, 2022. The increase was primarily due to the increase in the number of employees during the year ended December 31, 2023 compared to the same period in 2022.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses decreased by $815 thousand for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The main factors for the decrease in SG&A expenses for the year ended December 31, 2023 are (i) $96 thousand less insurance expense due to less office space and less employees (ii) less consulting expenses ($196 thousand), and (iii) decrease in various other expenses due to reduction in company size as a result of the Asset Sale.

Depreciation and Amortization

Depreciation and amortization expenses decreased by $1.5 million, of which $711 thousand was due to the write-off the customer relationships as of June 30, 2022, $173 thousand was due to the non-compete agreements being fully amortized as of September 30, 2022 and $653 thousand was due to the write off of tradenames as of December 31, 2022.

Professional and Investor Relations

Professional and investor relations expenses decreased by $353 thousand for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The decrease was primarily due to higher legal fees in 2022 incurred in connection with the Asset Sale and certain litigation.

Stock-based Compensation

Stock-based compensation expense decreased by approximately $1.0 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The decrease was mainly due to: (i) restricted stock issued in 2022 in connection with the Asset Sale and for other service providers totaling $971 thousand and no restricted stock issued in 2023, and (ii) the overall decline in the issuance of stock-based compensation resulting from the forfeiture of stock options related to employees terminated in connection with the Asset Sale.

Impairment of Intangibles

There were no impairment losses for the year ended December 31, 2023 compared to impairment losses for the year ended December 31, 2022 of $10.5 million. Our management determined that the customer relationships have no future value and were written down by $4.6 million to $0 as of June 30, 2022, and that goodwill and trade name have no future value and were written down by $4.7 million and $1.1 million, respectively, both to $0 as of December 31, 2022. In connection with the Company’s acquisition of Sera Labs in October 2020, the Company engaged a third-party valuation firm to assist in the valuation of the acquired assets and liabilities and the allocation of the purchase price as required by ASC 805 – Business Combinations. Pursuant to the valuation, the Company recorded values for goodwill and other intangible assets. The business of Sera Labs with its wellness and beauty products makes up the Company’s Sera Labs segment which currently comprises the Company’s continuing operations. Subsequent to the acquisition of Sera Labs, its forecasts have since not been met and its sales and cash flows have declined resulting in significant negative impacts in the roll forward of financial assumptions used in management’s impairment analysis of these assets and there has been a significant non-temporary decline in the Company’s overall market value which in total necessitated the recording of the charges to income for the resulting impairment pursuant to the Company’s assessments under ASC 350 and ASC 360.

Change in Fair Value Contingent Stock Consideration

The gain from the change in fair value of contingent stock consideration was $505 thousand for the year ended December 31, 2023 as compared to $570 thousand for the year ended December 31, 2022. The decrease was due the decrease in the stock price of the Company’s common stock and the finalization of the Sera Labs earnout with the issuance of the contingent shares per the agreement made with the Sera Labs acquisition as of December 31, 2023.

Other Income (Expense)

Other income for the year ended December 31, 2023 increased approximately $2.3 million, as compared to the year ended December 31, 2022. The increase is primarily due to $1.1 million gain on the extinguishment of debt, $1.1 million on the change in the fair value of convertible notes, offset by the recording of the reserve on the investment in ReLeaf Europe B.V. in the amount of $147 thousand on December 31, 2023 versus $71 thousand during the year ended December 31, 2022.

Liquidity & Capital Resources

As of December 31, 2023, we had $49 thousand in cash, restricted cash and cash equivalents. We have generated only limited revenues and have relied primarily upon capital generated from securities offerings and the Asset Sale. As of December 31, 2023, we had an accumulated deficit of $123.4 million.

To date, our principal sources of liquidity consisted of net proceeds from securities offerings and cash exercises of outstanding warrants and the sale of certain assets. During the year ended December 31, 2023, no proceeds were received from exercises of warrants and $1.0 million in total consideration was received in connection with the Asset Sale.

In 2022, the Company engaged ALT 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. In connection with the provision of these services, ALT’s bank account was used by the Company.  The Distribution Services Agreement with ALT does not contain any specific terms granting access or otherwise authorizing the Company’s employees to use the ALT bank account. Rather, the authorization was granted extemporaneously by the chief executive office of the Company who is the beneficial owner of ALT to help facilitate the administration of the agreement. The Company did not have funding needs nor was there a lack of funding. Funding needs was not the business purpose of entering into the agreement with ALT nor did it provide additional liquidity to the Company. The ALT structure afforded Sera Labs logistical flexibility in payment processing to pay its vendors in a timelier manner as required by such vendors (i.e., weekly as is the industry standard for the direct-to-consumer sales channel) than the corporate department could.

Management is focused on growing our existing product offerings, as well as our customer base, to increase our revenues. 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 business developments. Future business development and demands may lead to cash utilization at levels greater than recently experienced. We may need to raise additional capital in the future. We believe our current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet its working capital requirements for at least one year from the date of issuance of the accompanying consolidated financial statements.

Working Capital Deficit

Working capital deficit as of December 31, 2023 was approximately $10.5 million, as compared to a working capital deficit of approximately $8.0 million as of December 31, 2022. As of December 31, 2023, current assets were approximately $2.0 million, comprised primarily of (i) cash of approximately $49 thousand, (ii) notes receivable of $1.0 million, (iii) accounts receivable, net of $443 thousand, (iv) inventory, net of $199 thousand, (v) prepaid expenses and other assets of $286 thousand and (vi) due from related party of $4 thousand. As of December 31, 2022, current assets were approximately $5.9 million, comprised primarily of (i) cash of approximately $2.9 million, (ii) notes receivable of $2.0 million, (iii) accounts receivable, net of $232 thousand, (iv) inventory, net of $145 thousand, (v) prepaid expenses and other assets of $441 thousand and (vi) due from related party of $167 thousand.

As of December 31, 2023, current liabilities were approximately $12.5 million, comprised primarily of (i) approximately $8.2 million in loans, notes and convertible notes payable, (ii) approximately $2.5 million in accounts payable; (iii) $416 thousand in deferred revenue, (iv) approximately $1.3 million in accrued expenses, payroll liabilities and sales tax payable, and (v) $45 thousand of operating lease payables. Comparatively, as of December 31, 2022, current liabilities were approximately $13.9 million, comprised primarily of (i) approximately $9.9 million in loans, notes and convertible notes payable, (ii) approximately $1.1 million in accounts payable; (iii) $495 thousand in deferred revenue, (iv) approximately $1.5 million in accrued expenses, payroll liabilities and sales tax payable, (v) contingent stock consideration of $860 thousand and (vi) $124 thousand of operating lease payables. 

Cash Flows and Liquidity

Net cash used in Operating Activities

Net cash used in operating activities was approximately $3.8 million for the year ended December 31, 2023. This was primarily due to the reported net loss of approximately $3.4 million, and from non-cash income items including (i) a change in the fair value of convertible notes of approximately $1.1 million, (ii) gain in extinguishment of debt of $1.1 million, and (iii) the change in fair value of contingent share consideration of  $505 thousand, reduced by (i) an increase in accounts payable of $1.4 million, and (ii) the non-cash stock-based compensation related to vested stock options and restricted stock of $572 thousand.

Net cash used in operating activities was approximately $10.1 million for the year ended December 31, 2022. This was primarily due to the net loss of approximately $25.5 million, and from, (i) a decrease in accounts payable of approximately $1.7 million, (ii) a decrease in accrued expenses of approximately $1.9 million, and (iii) the change in fair value of contingent share consideration of  $570 thousand, reduced by (i) the settlement of assets and liabilities held for sale for $5.1 million, (ii) the change in fair value of vested stock options and restricted stock of $1.6 million, (iii) depreciation and amortization of approximately $1.5 million, (iv) impairment of intangibles other than goodwill of $5.8 million, and (v) impairment of goodwill of $4.7 million.

Net cash provided by (used in) Investing Activities

Net cash provided by investing activities of approximately $971 thousand during the year ended December 31, 2023 was due primarily from the $1.0 million collection of the note receivable due in connection with the Asset Sale. 

Net cash provided by investing activities of approximately $13.8 million during the year ended December 31, 2022 was due primarily from the net proceeds of $13.9 million received in connection with the Asset Sale. 

Net cash provided by (used in) Financing Activities

Net cash used in financing activities of $22 thousand during the year ended December 31, 2023 was due to the repayment of loans payable.

Net cash used in financing activities of $837 thousand during the year ended December 31, 2022 was primarily related to the repayment of notes payable in the aggregate amount of $8.8 million offset in part by the receipt of proceeds from the issuance of notes payable in the aggregate amount of $8.0 million.

We may need to raise additional operating capital in the calendar year 2024 to maintain our operations and to realize our business 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.

Going Concern

The accompanying consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2023, we had an accumulated deficit of approximately $123.4 million and a working capital deficit of approximately $10.5 million. Our operating activities consume the majority of our cash resources. We anticipate that we will continue to incur operating losses and negative cash flows from operations, at least into the near future, as we execute our commercialization and development plans and strategic and business development initiatives.

For the year ended December 31, 2023, the auditors’ opinion contained a going concern paragraph, which stated that the Company had an accumulated deficit, working capital deficit and net loss. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements.

Our ability to continue as a going concern is dependent on our obtaining adequate capital to fund operating losses until we establish a sufficient revenue stream to consistently generate operating profits. We are continually analyzing our current costs and are attempting to make additional cost reductions where possible. We expect that we will continue to generate losses from operations throughout 2024.

Historically, we have had operating losses and negative cash flows from operations which cast significant doubt upon our ability to continue as a going concern. As such, we needed to raise capital to fund our operations. This need may be adversely impacted by uncertain market conditions and changes in the regulatory environment. We have previously funded our losses primarily through the issuance of common stock and/or promissory notes, combined with or without warrants, and cash generated from our product sales and research and development and license agreements. There can be no assurance that funds will be available on terms acceptable to us or will be enough to fully sustain operations. We believe the funds available through potential financings will be sufficient to meet the Company’s working capital requirements during the coming year. If we are unable to raise sufficient additional funds, we will have to develop and implement a plan to extend payables, reduce expenditures, or scale back our business plan until sufficient additional capital is raised to support further operations.

Our ability to continue as a going concern is dependent upon our ability to successfully accomplish the plans described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary if we are unable to continue as a going concern.

Future Financing

We will require additional funds to implement the growth strategy for our business. As mentioned above, we intend to continue funding our losses primarily through the issuance of common stock and/or borrowings, and cash generated from our product sales and license agreements. There can be no assurance that funds will be available on terms acceptable to us or will be enough to fully sustain operations.

Off-Balance Sheet Arrangements

As of December 31, 2023, we did 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, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Material Cash Requirements from Known Contractual and Other Obligations

The following table summarizes our contractual obligations as of December 31, 2023 and for the 12 months thereafter (in thousands):

We intend to fund our contractual obligations with working capital.

Impact of Inflation

The impact of inflation upon our revenue and loss from operations during the years ended December 31, 2023 and 2022 has not been material to our financial position or results of operations for those years.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and related notes. Our significant accounting policies are described in Note 2 to our consolidated financial statements included elsewhere in this Annual Report. We have identified below our critical accounting policies and estimates that we believe require the greatest amount of judgment. On an ongoing basis, we evaluate estimates which are subject to significant judgment, including those related to the going concern assessments of our consolidated financial statements, allocation of direct and indirect expenses, useful lives associated with long-lived intangible assets, machinery and equipment, loss contingencies, valuation allowances related to deferred income taxes, and assumptions used to value stock-based awards, debt or other equity instruments. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. To the extent that there are material differences between our estimates and our actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We believe the assumptions and estimates associated with the following have the greatest potential impact on our consolidated financial statements.

Going Concern Assessment

With the implementation of FASB’s standard on going concern, ASU No. 2014-15, we assess going concern uncertainty in our consolidated financial statements to determine if we have sufficient cash and cash equivalents on hand and working capital, including available loans or lines of credit, if any, to operate for a period of at least one year from the date our consolidated financial statements are issued, which is referred to as the “look-forward period” as defined by ASU No. 2014-15. As part of this assessment, based on conditions that are known and reasonably knowable to us, we consider various scenarios, forecasts, projections, and estimates, and we make certain key assumptions, including the timing and nature of projected cash expenditures or programs, and our ability to delay or curtail those expenditures or programs, if necessary, among other factors. Based on this assessment, as necessary or applicable, we make certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent we deem probable those implementations can be achieved and we have the proper authority to execute them within the look-forward period in accordance with ASU No. 2014-15.

Business Combinations

We account for business combinations in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, which requires the purchase price to be measured at fair value. When the purchase consideration consists, in part or entirely, of our common shares, we calculate the purchase price by determining the fair value, as of the acquisition date, of shares issued in connection with the closing of the acquisition. We recognize estimated fair values of the tangible assets and intangible assets acquired and liabilities assumed as of the acquisition date, and we record as goodwill any amount of the fair value of the tangible and intangible assets acquired and liabilities assumed in excess of the purchase price.

Contingent Consideration Liabilities

ASC 805 requires that contingent consideration be estimated and recorded at fair value as of the acquisition date as part of the total consideration transferred. Contingent consideration is an obligation of the acquirer to transfer additional assets or equity interests to the selling shareholders in the future if certain future events occur or conditions are met, such as the attainment of product development milestones. Contingent consideration also includes additional future payments to selling shareholders based on achievement of components of earnings, such as “earn-out” provisions or percentage of future revenues, including royalties paid to the selling shareholders based on a percentage of revenues generated over the contractual period.

The fair value of milestone-based contingent consideration was determined using a scenario analysis valuation method which incorporates our assumptions with respect to the likelihood of achievement of revenue and gross margin percentage milestones, as defined in the Sera Labs Merger Agreement, credit risk, timing of the contingent consideration payments and a risk-adjusted discount rate to estimate the present value of the expected payments, all of which require significant management judgment and assumptions. Since the contingent consideration payments are based on nonfinancial, binary events, management believes the use of the scenario analysis method is appropriate.

The fair value of all contingent consideration after the Sera Labs Merger Date is reassessed by us as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in our consolidated statements of operations. Changes in key assumptions can materially affect the estimated fair value of contingent consideration liabilities and, accordingly, the resulting gain or loss that we record in our consolidated financial statements. On December 31, 2023, the Company issued 4,790,419 shares of common stock in accordance with the terms outlined in the Sera Labs Merger Agreement and has no other contingent consideration liabilities as of that date.

 Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities. 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 our 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. As of July 2022, with the divestiture of the pharmaceutical segment, we have operated in one segment, The Sera Labs, which is considered to be the one reporting unit and, therefore, any goodwill is tested for impairment at that segment/reporting unit level.

Accounting for Warrants

We determine the accounting classification of warrants we issue, as either liability or equity classified, by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, then in accordance with ASC 815-40, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”. Under ASC 480, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate us to settle the warrants or the underlying shares by paying cash or other assets, and warrants that must or may require settlement by issuing variable number of shares. If warrants do not meet the liability classification under ASC 480-10, we assess the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815-40, to conclude equity classification, we also assess whether the warrants are indexed to our common stock and whether the warrants are classified as equity under ASC 815-40 or other GAAP. After all such assessments, we conclude whether the warrants are classified as liability or equity. Liability classified warrants require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value after the issuance date recorded in the statements of operations. Equity classified warrants only require fair value accounting at issuance with no changes recognized subsequent to the issuance date. We do not have any liability classified warrants as of any period presented. See Note 16 to our consolidated financial statements included elsewhere in this Annual Report.

Fair Value Option for Convertible Notes

We have elected the fair value option to account for the Series A and B Notes that were issued on October 30, 2020 and record these at fair value with changes in fair value recorded in the Consolidated Statements of Operations. As a result of applying the fair value option, direct costs and fees related to the Series A and B Notes are recognized in earnings as incurred and not deferred. Values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s and, if applicable, an independent third-party valuation firm’s own assumptions about the assumptions a market participant would use in pricing the asset or liability. We believe accounting for the Series A and B Notes at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate certain earnings volatility.

When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3).

Stock-based Compensation

We recognize compensation expense related to share-based payments in accordance with ASC 718, “Compensation - Stock Compensation” (“ASC 718”), which requires the measurement and recognition of compensation expense for share-based payment awards made to directors and employees based on estimated fair values. We estimate the fair value of employee stock-based payment awards on the grant-date and recognize the resulting fair value over the requisite service period on a straight-line basis. For stock-based awards that vest only upon the attainment of one or more performance goals, compensation cost is recognized if and when we determine that it is probable that the performance condition or conditions will be, or have been, achieved. We utilize the Black-Scholes option pricing model for determining the fair value of stock options. Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. For the years ended December 31, 2023 and 2022, we estimated the expected volatility using our own stock price volatility to the extent applicable or a combination of our stock price volatility and the stock price volatility of stock of peer companies, for a period equal to the expected term of the options. The expected term of options granted is based on our own experience and, in part, based upon the “simplified method” provided under Staff Accounting Bulletin, Topic 14, or SAB Topic 14, as necessary. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. Although the fair value of employee stock options is determined in accordance with FASB guidance, the key inputs and assumptions may change as we develop our own company estimates, experience and key inputs including our expected term, and stock price volatility based on the trading history of our stock in the public market. Changes in these subjective assumptions can materially affect the estimated value of equity grants and the stock-based compensation that we record in our consolidated financial statements.

Leases

We account for leases in accordance with ASC 842, “Leases” (“ASC 842”). We determine if an arrangement is a lease at inception. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the consolidated statements of operations. Under the available practical expedients for the adoption of ASC 842, we account for the lease and non-lease components as a single lease component. We recognize right-of-use (“ROU”) assets and lease liabilities for leases with terms greater than twelve months in the consolidated balance sheet. ROU assets represent the right to use an underlying asset during the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when it is readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Operating leases are included as operating right-of-use assets and operating lease liabilities, current and long-term, in the consolidated balance sheets. Financing leases are included as finance right-of-use assets and in financing lease liabilities, current and long-term, in the consolidated balance sheets. We disclose the amortization of our ROU assets and operating lease payments as a net amount, “Amortization of right-of-use assets,” on the consolidated statements of cash flows.

On January 1, 2019, the adoption date of ASC 842, and based on the available practical expedients under the standard, we did not reassess any expired or existing contracts, reassess the lease classification for any expired or existing leases and reassess initial direct costs for existing leases. We also elected not to capitalize leases that have terms of twelve months or less.

The adoption of ASC 842 did not have a material impact to our consolidated financial statements because we did not have any significant operating leases at the time of adoption.

Impairment of Long-Lived Assets

We assess the impairment of long-lived assets, which consists primarily of long-lived intangible assets, machinery and equipment, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded.

Income Taxes

We account for income taxes in accordance with ASC 740, “Income Taxes”, which prescribes the use of the asset and liability method, whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect. Valuation allowances are established when necessary to reduce deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized. Our judgments regarding future taxable income may change over time due to changes in market conditions, changes in tax laws, tax planning strategies or other factors. If our assumptions and consequently our estimates change in the future, the valuation allowance may be increased or decreased, which may have a material impact on our statements of operations.

The guidance also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not sustainable upon examination by taxing authorities. We will recognize accrued interest and penalties, if any, related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties as of the financial statement periods presented herein. We account for uncertain tax positions by assessing all material positions taken in any assessment or challenge by relevant taxing authorities. We are currently unaware of any tax issues under review. See Note 20 to our consolidated financial statements included elsewhere in this Annual Report.

Revenue Recognition

We followed the revenue recognition standard ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). Pursuant to ASC 606, revenues are recognized when control of services performed is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. ASC 606 provides for a five-step model that includes: (i) identifying the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations, and (v) recognizing revenue when, or as, an entity satisfies a performance obligation.

Product Revenue

In determining whether all of the revenue recognition criteria (i) through (v) above are met with respect to our wellness and beauty a product order is considered a single performance obligation and is generally considered complete when the product result is delivered or made available to the customer and, as such, there are shipping and/or handling fees incurred by us or billed to customers. Although we bill a list price for all products ordered and completed for all payer types, we recognize realized revenue when all the revenue recognition criteria have been met. These contracts do not have variable price considerations. For all payers, we must take into account the uncertainty of receiving payment, or being subject to claims for refund, from payers with whom we do not have a sufficient payment collection history or contractual reimbursement agreements.

We establish an allowance for doubtful accounts based on the evaluation of the collectability of accounts receivables after considering a variety of factors, including the length of time receivables are past due, significant events that may impair the customer’s ability to pay, such as a bankruptcy filing or deterioration in the customer’s operating results or financial position, and historical experience. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. We continuously monitor collections and payments from customers and maintain a provision for estimated credit losses and uncollectible accounts, if any, based upon historical experience and any specific customer collection issues that have been identified. Amounts determined to be uncollectible are written off against the allowance for doubtful accounts. As of December 31, 2023, we have no recorded allowance for doubtful accounts on accounts receivables.

Accounting Standards Adopted in 2023

In September 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, with additional updates and amendments being issued in 2018, 2019, 2020 and 2022 (collectively, “ASC 326”).  The new standard updates the impairment model for financial assets measured at amortized cost, known as the Current Expected Credit Loss (“CECL”) model. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities are required to use a new forward-looking “expected loss” model that generally results in the earlier recognition of an allowance for credit losses.  The Company adopted ASC 326 on January 1, 2023. The adoption of this standard did not have a material impact to the Company.

Other Recently Adopted Accounting Pronouncements

Information on Recently Issued Accounting Standards that could potentially impact our consolidated financial statements and related disclosures is incorporated by reference to Part II, Item 8, Note 2, “Summary of Significant Accounting Policies”, included in this Annual Report.

ITEM 7A. 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 Exchange Act.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by Item 8 is included following the “Index to Financial Statements” on page F-1 contained in this Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based upon that evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, our disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.

The ineffectiveness of our internal control over financial reporting was due to i) the inadequate segregation of duties consistent with control objectives, which is indicative of many small companies with small number of staff and ii) the improper disclosure in 2022 of a related party transaction wherein the bank account of an inactive company of which an executive and board member of the Company is the beneficial owner was used to collect sales and pay the vendors to which the sales related, and  iii) 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 (the “2021 Annual Report”), and the quarterly report on Form 10-Q for the first quarter of 2022.

Impact on Internal Control over Financial Reporting (ICFR) and Disclosure Controls and Procedures (DCP):

This conclusion is based on our evaluation using the framework outlined in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), encompassing key components such as the control environment, risk assessment, control activities, information and communication, and monitoring.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

 Because of our inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting because the attestation report requirement has been removed for “smaller reporting companies” under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Material Weakness in Internal Control over Financial Reporting

Management, with the participation of our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) as of December 31, 2023, the end of the period covered by this Annual Report. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that as of December 31, 2023, the Company’s internal control over financial report is not effective as a result of the identified material weakness described herein.

Management’s report on internal control over financial reporting was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit a smaller reporting company to provide only management’s report in this Annual Report, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected.

A material weakness, as defined in the standards established by the Sarbanes-Oxley Act, is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The ineffectiveness of our internal control over financial reporting was due to the following material weakness:

Management’s Plan to Remediate the 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 the separation of duties as a material weakness during its assessment of internal controls over financial reporting as of December 31, 2023. Management also identified that the contractual arrangement with ALT involved the commingling of the Company’s funds with those of ALT, wherein ALT's fees for services provided were held within the same ALT bank account as the revenue from the sale of the Sera Labs products. This commingling resulted from the operational practices under our distribution services agreement with ALT, whereby ALT was responsible for collecting sales proceeds, deducting its service fee of 5% of the net proceeds, as defined, and remitting the balance to the Company. This practice was initially not identified as a commingling of funds due to the clear contractual obligations and records maintained that delineated ALT's fees from the net proceeds due to the Company. However, upon a more thorough evaluation, we recognize this arrangement did indeed result in the commingling of funds, which should have been disclosed and considered more explicitly in our evaluation of our ICFR and DCP.

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, 2023, we continued to execute upon our planned remediation actions which are all intended to strengthen our overall control environment. During the third quarter of fiscal year 2022 management hired a new Chief Financial Officer. Our Chief Financial Officer is an experienced C-Level executive. During the fourth quarter of fiscal year 2022 we hired a new Controller with expertise in functional areas of finance and accounting. We believe the above additions have improved the segregation of duties as well as added to the overall oversight of internal controls.

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 are enhancing and revising the design of existing controls and procedures to properly account for significant and unusual transactions.

The following are the primary remediation efforts made by us:

In addition, we engaged external Sarbanes-Oxley Act consultants to further enhance our internal control environment. After several meetings with the key accounting personnel the following were put in place:

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 year ended December 31, 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. Our management is committed to achieving and maintaining the highest standards of financial reporting accuracy and transparency.

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table lists the names, ages as of May 16, 2024, and positions of the individuals who serve as our executive officers and directors:

Our Executive Officers

Nancy Duitch – Chief Executive Officer and Director

Nancy Duitch has over 30 years’ experience as an entrepreneur and leader in the consumer products industry. Ms. Duitch currently serves as Chief Executive Officer of the Company and has since July 2022. From October 2020 to October 2022, she served as Chief Executive Officer of Sera Labs and as Chief Strategy Officer-Wellness of the Company. From 2014 to 2018, Ms. Duitch served as Chief Executive Officer of a marketing agency, Vision Worx where she founded the Company and grew it to a multi-million dollar marketing agency. Ms. Duitch has founded and developed several diverse businesses from start-up to public company level, and she has executed state-of-the-art campaigns generating over $3 billion in revenue for some of the most well-loved consumer brands. Her creativity, ability to develop talent, and effective utilization of multi-channel strategy for optimal ROI has consistently positioned Ms. Duitch as an industry leader. Sera Labs was created to expand products in the health, wellness, and beauty sectors, and has redefined these sectors with innovation and technology that incorporates exceptional ingredients. Sera Labs develops high-quality products that use science-backed, proprietary formulations and its more than 20 products are sold under the brand names Sera Labs® and Seratopical Revolution®. Ms. Duitch is also passionate about, and heavily involved in, several philanthropic activities supporting children in need. After losing two siblings to sudden cardiac death when they were in their twenties, Ms. Duitch and her mother embarked on a mission to educate and raise awareness and resources to help fight sudden death in children and young adults. In 1995 they founded the Cardiac & Arrhythmia Research & Education Foundation (C.A.R.E.) which continues to play a critical role in supporting thousands of patients and their families. Ms. Duitch received her undergraduate degree from Temple University. We believe that Ms. Duitch is qualified to serve on our Board based on her extensive professional background and business development in the consumer products industry.

Joel Bennett – Chief Financial Officer

Joel Bennett joined us in May 2022 as consulting Chief Financial Officer of Sera Labs and was appointed Chief Financial Officer in July 2022. Mr. Bennett most recently provided independent sell-side business advisory services from January 2021 to April 2022 prior to which he served as the principal finance and accounting executive of Live Nation Merchandise LLC, the consumer products division of Live Nation Entertainment, Inc., a leading publicly-listed international entertainment company, from November 2019 to December 2021, where he oversaw accounting and financial reporting, budgeting and forecasting, and strategic planning. From August 2018 to February 2019, he was Chief Financial Officer for BlockHold Capital Corporation, an early-stage emerging growth publicly-listed company providing fintech advisory services and products, where he oversaw all financial activities including accounting and financial reporting, budgeting and forecasting, and strategic planning, and for Kori Capital, Inc., the related investment management and strategic advisory firm, from February 2019 to May 2020, where he oversaw all financial activities including accounting and financial reporting, budgeting and forecasting, and strategic planning . From September 1995 to March 2018, he was Chief Financial Officer and was an Executive Vice President since May 2000 of JAKKS Pacific, Inc., a leading publicly-held international designer and producer of children’s toys and related products and consumer products, where he oversaw all financial activities including corporate accounting and financial reporting, treasury, capital structure and allocation, strategic planning, mergers and acquisitions, and investor relations. Prior to this, Joel held various financial management positions at The Walt Disney Company and Time Warner Entertainment Company and in the direct-to-consumer computer industry. He began his career with over three years at Ernst & Young LLP, holds a Bachelor of Science degree in Accounting and a Master of Business Administration degree in Finance and is a Certified Public Accountant.

Our Directors

Robert Davidson

Robert Davidson has served as a director since July 2011 and was reappointed as Chairman in August 2022. Mr. Davidson as our Chief Executive Officer from July 2011 to July 2022 and served as Chairman of our Board until January 2019. Prior to joining the Company, Mr. Davidson served as President, Chief Executive Officer, and director of InnoZen Inc. from 2003 to 2011, Chief Executive Officer and director of Gel Tech LLC from 1998 to 2001, and Chief Executive Officer and director of Bio Delivery Technologies Inc. from 1999 to 2003. In addition to his service as a director at Innozen, Inc., Gel Tech LLC, and Bio Delivery Technologies Inc., Mr. Davidson served as a director of HealthSport Inc. from 2007 to 2011. Mr. Davidson was responsible for the development of several drug delivery technologies and commercial brand extensions. He has worked with brands such as Chloraseptic™, Suppress™, as well as Pediastrip™, a private label electrolyte OTF sold in major drug store chains. Mr. Davidson is also considered an industry expert leader in OTF technology. Mr. Davidson holds a B.S. in Biological Life Sciences from the University of the State of New York, Excelsior College, a Masters Certificate in Applied Project Management from Villanova University, Masters of Public Health from American Military University, Virginia, and a Masters in Health and Wellness from Liberty University, Virginia. Mr. Davidson also holds a Certificate of Sustainable Value Chains and a Masters in Sustainability Leadership from the University of Cambridge and is a Certified Performance Enhancement Specialist and Fitness Nutrition Specialist through the National Academy of Sports Medicine. We believe that Mr. Davidson’s executive and board experience as well as his extensive knowledge of OTF and drug delivery technologies qualifies him to serve on our Board.

Gene Salkind, M.D.

Dr. Gene Salkind has served as a director of the Company since January 2019. Dr. Salkind is board certified in neurological surgery by the American Board of Neurological Surgery and has worked as a practicing neurosurgeon at Bruno & Salkind, MD PC since 1985, where he is currently president and shareholder. Dr. Salkind completed various residencies, fellowships, and postgraduate trainings at Abington Memorial hospital, The Graduate Hospital, Veteran’s Administration Hospital, Pennsylvania Hospital, Children’s Hospital of Philadelphia, and the Hospital of the University of Pennsylvania and has had numerous faculty, hospital, and administrative appointments at nearly every major hospital in northeastern Philadelphia and surrounding areas. As a prolific pharmaceutical investor, some of Dr. Salkind’s previous successful investments include Intuitive Surgical, Pharmacyclics, which grew from less than $1 per share to subsequently being acquired by Abbvie for $250/share and Centocor, one of the nation’s largest biotechnology companies, which was acquired by Johnson & Johnson for $4.9 billion in stock. Dr. Salkind has served on the board of DermTech, a private company based in San Diego that has become the global leader in non-invasive dermatological molecular diagnostics, since 2004 and Mobiquity Technologies since 2019. Dr. Salkind holds a B.A. in Biology from the University of Pennsylvania and M.D. from Temple University School of Medicine. We believe that Dr. Salkind’s medical background and experience, as well as his extensive investing experience, qualifies him to serve on our Board.

Dov Szapiro

Mr. Szapiro has over 20 years’ experience as an entrepreneur, investor, advisor, and board member in companies across multiple industries and different growth phases. Mr. Szapiro currently serves as Co-Founder, Managing Partner and Principal of Entourage Effect Capital since 2018, one of the cannabis industry’s most highly regarded investment firms. In 2016, Mr. Szapiro founded e54 Capital, LLC, where he is currently the Managing Director. Mr. Szapiro also co-founded AFS Acceptance LLC (“AFS”), where he served as President and Chief Executive Officer from 2001 to 2017. Prior to co-founding AFS, Mr. Szapiro was the Director of Business Development for GovWorks, Inc, an internet start-up in the e-government sector. Mr. Szapiro holds a B.B.A. from the University of Pennsylvania. Earlier in his career, Mr. Szapiro was an analyst for Bassini, Playfair + Associates, a $1.2 billion emerging markets private equity firm. We believe that Mr. Szapiro’s extensive executive and business experience qualifies him to serve on the Board.

Gerald Bagg

Mr. Bagg is a 45+ year veteran of the advertising industry best known for pioneering the BRAND RESPONSE advertising approach to campaigns. He is the Chairman and a co-founder of Quigley-Simpson & Heppelwhite, Inc., a more than twenty-year-old full-service advertising agency specializing in strategic planning, marketing, media planning and buying, brand building, creative development, and production. Mr. Bagg has served in that position since September 2022.Quigley-Simpson clients include some of the largest consumer goods companies with some of the most well-known brands in the world including over 60 brands from Proctor & Gamble (e.g., Beauty (CoverGirl), Health & Wellbeing (Olay Vitamins and Supplements in conjunction with Pharmavite)), J.P. Morgan Chase credit card division, which includes the United MileagePlus Card, Sapphire Card, and International Hotel Group (IHG) Card amongst others. Other clients of the agency include and have included NBCUniversal, Tivity Health, Ball Corporation, Philips, SC Johnson, Reckitt Benckiser, VISA and The Hoover Company, to name a few. Prior to establishing Quigley-Simpson, Mr. Bagg had an extensive advertising and marketing career beginning in 1976, which included senior executive positions with major advertising agencies. We believe that Mr. Bagg’s extensive executive and business experience qualifies him to serve on the Board.

Robert Costantino

Mr. Costantino is a retired CPA and former senior executive who has served as Chief Executive Officer, Chief Operating Officer and Chief Financial Officer of large corporations. He is currently a part time financial consultant, investor and a current member of the Board of Directors of NASDAQ listed PetVivo (PETV) and of 4 Yamaha Motor Finance subsidiaries. Previously he served as Executive Vice President - Chief Financial Officer and Chief Operating Officer of Westcorp, Inc., a $17 billion publicly-held diversified financial services group of companies that included two public finance companies and an OTS regulated California commercial and retail bank from 2005 to 2007.  2007He was responsible for operations and all financial areas including SEC filings, analyst interaction, earnings calls, and treasury of both companies. Mr. Costantino played a key role in the negotiation and ultimate sale of both companies to Wachovia (Wells Fargo) for $3.9 billion. From August 2002 to May 2005, Mr. Costantino served as President, Chief Executive Office and Member of the Board of Directors of Mitsubishi Motors Credit of America, Inc., a $10+ billion North American automotive captive finance company. For over seventeen years he served in various senior financial management positions at Volvo Cars of North America LLC and related companies during his tenure ultimately serving as its Sr. Vice President – Finance and Chief Financial Officer. He began his career with over four years at Deloitte Touche Tohmatsu Limited, received Bachelor of Science degree in Accounting from Fairleigh Dickinson University, and is a Certified Public Accountant. We believe that Mr. Costantino’s extensive executive and financial experience qualifies him to serve on the Board.

Board of Directors

Our Board currently consists of six members. All directors hold office until the next annual meeting of stockholders. At each annual meeting of stockholders, the successors to directors whose terms then expire are elected to serve from the time of election and qualification until the next annual meeting following election.

Management has been delegated the responsibility for meeting defined corporate objectives, implementing approved strategic and operating plans, carrying on our business in the ordinary course, managing cash flow, evaluating new business opportunities, recruiting staff and complying with applicable regulatory requirements. The Board exercises its supervision over management by reviewing and approving long-term strategic, business and capital plans, material contracts and business transactions, and all debt and equity financing transactions and stock issuances.

 Family Relationships

There are no family relationships among any of our officers or directors.

Involvement in Certain Legal Proceedings

To our knowledge, none of our current directors or executive officers has, during the past 10 years:

Director Independence

The Board utilizes The Nasdaq Stock Market LLC’s (“Nasdaq”) standards for determining the independence of its members. In applying these standards, the Board considers commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, among others, in assessing the independence of directors, and must disclose any basis for determining that a relationship is not material.

The Board has concluded that each of Messrs. Salkind, Szapiro, Bagg and Costantino are “independent” based on the listing standards of Nasdaq, having concluded that any relationship between such director and our Company, in its opinion, does not interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Board Committees

The Board held a total of three meetings during 2023. During 2023, all directors attended 100% of the aggregate number of meetings of the Board that were held during the time that they served as members of the Board. We do not have a formal policy regarding attendance by members of the Board at the annual meeting of stockholders, but we strongly encourage all members of the Board to attend our annual meetings and expect such attendance except in the event of extraordinary circumstances.

We did not hold an annual meeting of stockholders in 2023.

Committees of the Board of Directors

The Board has established and currently maintains the following three standing committees: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee (the “N&CG”). The Board has adopted written charters for each of these committees, which we make available free of charge on or through our website, along with other items related to corporate governance matters, including our Code of Business Conduct and Ethics applicable to all employees, officers and directors. We maintain our website at www.avenirwellness.com. You can access our committee charters and code of conduct on our website by first clicking “Investors” and then “Governance.”

We disclose on our website any amendments to or waivers from our Code of Business Conduct and Ethics, as well as any amendments to the charters of any of our standing committees. Any stockholder may also obtain copies of these documents, free of charge, by sending a request in writing to: Avenir Wellness Solutions, Inc., 5805 Sepulveda Boulevard, Suite 500, Sherman Oaks, California 91411.

Each committee has the composition and responsibilities described below. Our Board of Directors may from time to time establish other committees.

During the 2023 fiscal year, the Audit Committee held eight meetings, the Compensation Committee held three meetings and the N&CG Committee did not meet.

Audit Committee

Among other functions, the Audit Committee reviews and approves the engagement of our independent auditors to perform audit and any permissible non-audit services, evaluates the performance, independence and qualifications of our independent auditors and determines whether to retain our existing independent auditors or to engage new independent auditors, reviews our annual and quarterly financial statements and reports, including the disclosures contained in the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” recommends that the audited financial statements be included in the Company’s Annual Reports on Form 10-K and discusses the statements and reports with our independent auditors and management, reviews with our independent auditors and management significant issues that arise regarding accounting principles and financial statement presentation and matters concerning scope, adequacy and effectiveness of our financial controls, reviews our major financial risk exposures, including the guidelines and policies to govern the process by which risk assessment and risk management is implemented, and reviews and evaluates on an annual basis the performance of the audit committee, including compliance of the audit committee with its charter.

The Board has determined that each of the current members of the Audit Committee is an independent director within the meaning of the Nasdaq independence standards and Rule 10A-3 promulgated by the SEC under the Exchange Act. In addition, the Board has determined that Mr. Costantino qualifies as an Audit Committee Financial Expert pursuant to Item 407(d)(5) of Regulation S-K SEC Rules and satisfies the Nasdaq standards of financial literacy and financial or accounting expertise or experience.

Compensation Committee

The Compensation Committee’s functions include reviewing, modifying and approving (or if it deems appropriate, making recommendations to the full Board regarding) our overall compensation strategy and policies, reviewing and approving compensation, the performance goals and objectives relevant to the compensation, and other terms of employment of our Chief Executive Officer and our other executive officers, reviewing and approving (or if it deems appropriate, making recommendations to the full Board regarding) equity incentive plans, compensation plans and similar programs advisable for us, as well as modifying, amending or terminating existing plans and programs, reviewing and approving the terms of employment agreements, severance arrangements, change in control protections and any other compensatory arrangements for our executive officers, reviewing with management and approving our disclosures under the caption “Compensation Discussion and Analysis” in our periodic reports or proxy statements to be filed with the SEC, and preparing the report that the SEC requires in our annual proxy statement.

The Compensation Committee may select or receive advice from, a compensation consultant, legal counsel or other adviser to the Compensation Committee, other than in-house legal counsel, only after taking into consideration the following factors:

Neither the Compensation Committee nor the Board retained any consultants to assist in the review and approval of the compensation and benefits for the executive officers of our Company during 2022. The Board has determined that each current member of the Compensation Committee is an independent director within the meaning of the Nasdaq independence standards.

 Nominating and Corporate Governance Committee

The N&GC functions include identifying, reviewing and evaluating candidates to serve on our Board consistent with criteria approved by our Board, evaluating director performance on our Board and applicable committees of our Board and determining whether continued service on our Board is appropriate, evaluating, nominating and recommending individuals for membership on our Board, and evaluating nominations by stockholders for election to our Board.

In selecting candidates for the Board, the Board (or, as used throughout this section, the N&GC, as applicable) begins by determining whether the incumbent directors, whose terms expire at the annual meeting of stockholders, desire and are qualified to continue their service on the Board. If there are positions on the Board for which the Board will not be renominating an incumbent director, or if there is a vacancy on the Board, the Board will solicit recommendations for nominees from persons whom the Board believes are likely to be familiar with qualified candidates, including members of our Board and our senior management. The Board may also engage a search firm to assist in the identification of qualified candidates. The Board will review and evaluate those candidates whom it believes merit serious consideration, taking into account all available information concerning the candidate, the existing composition and mix of talent and expertise on the Board and other factors that it deems relevant. In conducting its review and evaluation, the committees may solicit the views of management and other members of the Board and may conduct interviews of proposed candidates.

The Board generally requires that all candidates for the Board be of the highest personal and professional integrity and have demonstrated exceptional ability and judgement. The Board will consider whether such candidate will be effective, in conjunction with the other members of the Board, in collectively serving the long-term interests of our stockholders. In addition, the Board requires that all candidates have no interests that materially conflict with our interest and those of our stockholders, have meaningful management, advisory or policymaking experience, have general appreciation of the major business issues facing us and have adequate time to devote to service on the Board.

The Board will consider stockholder recommendations for nominees to fill director positions, provided that the Board will not entertain stockholder nominations from stockholders who do not meet the eligibility criteria for submission of stockholder proposals under Rule 14a-8 of Regulation 14A under the Exchange Act. Stockholders may submit written recommendations for nominees to the Board, together with appropriate biographical information and qualification of such nominees as required by our Bylaws, to our Corporate Secretary following the same procedures as described in “Stockholder Communications” in our annual proxy statement. In order for a nominee for directorship submitted by a stockholder to be considered, such recommendation must be received by the Corporate Secretary by the time period set forth in our most recent proxy statement for the submission of stockholder proposals under Rule 14a-8 of Regulation 14A under the Exchange Act. The Corporate Secretary shall then deliver any such communications to the Chairman of the Board or the N&GC, as applicable. The Board will evaluate stockholder recommendations for candidates for the Board using the same criteria as for other candidates, except that the Board may consider, as one of the factors in its evaluation of stockholder recommended candidates, the size and duration of the interest of the recommending stockholder or stockholder group in our equity.

The Board has determined that each current member of the N&GC is an independent director within the meaning of the Nasdaq independence standards.

See “Directors, Executive Officers and Corporate Governance – Directors” above for descriptions of the relevant education and experience of each member of the above stated committees.

DELINQUENT SECTION 16(A) REPORTS

Our records reflect that all reports which were required to be filed pursuant to Section 16(a) of the Exchange Act, were filed on a timely basis.

Corporate Code of Conduct and Ethics

Our Board has adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Copies of our corporate code of conduct and ethics are available, without charge, upon request in writing to Avenir Wellness Solutions, Inc., 5805 Sepulveda Boulevard, Suite 500, Sherman Oaks, California 91411, and are posted on the investor relations section of our website, which is located at www.avenirwellness.com. The inclusion of our website address in this Annual Report does not include or incorporate by reference the information on our website into this Annual Report. We also intend to disclose any amendments to our Code of Conduct and Ethics, or any waivers of its requirements, on our website.

Board Leadership Structure and Role in Risk Oversight

Our Board is currently chaired by Mr. Robert Davidson, who was appointed to serve in such capacity since August 11, 2022. Our amended and restated bylaws provide our Board with flexibility to combine or separate the positions of Chairman of the Board and Chief Executive Officer in accordance with its determination that utilizing one or the other structure is in the best interests of our Company. As Chairman of the Board, Mr. Davidson facilitates communications between members of our Board and works with management in the preparation of the agenda for each Board meeting. All of our directors are encouraged to make suggestions for Board agenda items or pre-meeting materials. Mr. Davidson presides over the executive sessions of the Board and serves as a liaison to our Chief Executive Officer, Ms. Duitch, and management on behalf of the independent members of the Board.

Our Board has concluded that our current leadership structure is appropriate at this time based on their specific characteristics as described in the “Directors, Executive Officers and Corporate Governance – Directors” above for descriptions of the relevant education and experience of each member of Board of Directors. However, the Board periodically reviews our leadership structure and may make such changes in the future as it deems appropriate.

Our Board and the Audit Committee thereof are responsible for overseeing the risk management processes on behalf of our Company. The Board and, to the extent applicable, the Audit Committee, receive and review periodic reports from management, auditors, legal counsel and others, as considered appropriate regarding our company’s assessment of risks. Where applicable, the Audit Committee reports regularly to the full Board with respect to risk management processes. The Audit Committee and the full Board focus on the most significant risks facing our Company and our Company’s general risk management strategy, and also ensure that risks undertaken by our Company are consistent with the Board’s appetite for risk. While the Board oversees the risk management of our Company, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our Company and that our Board leadership structure supports this approach.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information regarding compensation earned during 2023 and 2022 by our principal executive officer and our two most highly compensated executive officers as of the end of the 2023 fiscal year (“Named Executive Officers”).

Summary Compensation Table

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Pay Ratio

Based on the SEC rules, we are required to disclose the ratio of the annual total compensation of our Chief Executive Officer (“CEO”) to the annual total compensation of our median employee, excluding the salary of the CEO.  We identified our median employee by reviewing the total compensation paid to all employees of the Company, excluding the CEO, and selecting the employee whose total compensation was in the middle of the range of all employees. CEO pay was based on the compensation of Ms. Duitch. The CEO pay ratio is a reasonable estimate calculated in accordance with SEC rules and is provided to help investors understand the relationship between our CEO’s compensation and that of our employees. The pay ratio may not be comparable to the pay ratios of other companies due to differences in industries, sizes, and other factors.

Outstanding Equity Awards as of December 31, 2023

The following sets forth information regarding the outstanding equity awards held by our Named Executive Officers as of the end of our 2023 fiscal year: