NEXGEL, INC.

Previous wording

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

Current wording

We manufacture high water content, electron beam cross-linked, aqueous polymer hydrogels, or gels, used for wound care, medical diagnostics, transdermal drug delivery and cosmetics. We specialize in custom gels by capitalizing on proprietary manufacturing technologies. We have historically served as a contract manufacturer, supplying our gels to third parties who incorporate them into their own products. Beginning in 2020, we created two new lines of business for the company. First, our own line of branded consumer products sold direct to consumers. Second, we expanded into custom and white label opportunities, which focuses on combining our gels with proprietary branded products and white label opportunities. All of our gel products are manufactured using proprietary and non-proprietary mixing, coating and cross-linking technologies. Together, these technologies enable us to produce gels that can satisfy rigid tolerance specifications with respect to a wide range of physical characteristics (e.g., thickness, water content, adherence, absorption, moisture vapor transmission rate [a measure of the passage of water vapor through a substance] and release rate) while maintaining product integrity. Additionally, we have the manufacturing ability to offer broad choices in the selection of liners onto which the gels are coated. Consequently, we and our customers are able to determine tolerances in moisture vapor transmission rate and active ingredient release rates while personalizing color and texture. In May 2023, we formed a joint venture with CG Laboratories, Inc. called CG Converting and Packaging, LLC, which is located in Granbury, Texas and of which we own a 50% interest, allowing us to expand our ability to deliver finished goods to our growing customer base.

Previous wording

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

Current wording

We have four distinct lines of business; Contract Manufacturing, Custom & White Label, Consumer Branded Products, and Medical Devices/Other.

Previous wording

These products are finished goods marketed and sold directly to the customer by the Company through online and retail channels. The Company is responsible for sales, marketing, and distribution. These products carry the Company’s brand names.

Current wording

These products are finished goods marketed and sold directly to the customer by the Company through online and retail channels. We are responsible for sales, marketing, and distribution. The products we sell under our MedaGel brand primarily relate to healthcare over-the-counter (“OTC”) remedy solutions, such as blister and pain applications. In December 2023 we added a second consumer product brand when we completed the purchase of the Kenkoderm brand. The Kenkoderm skincare line was originally developed by a dermatologist to provide gentle to the skin products for consumer with psoriasis. In May 2024, we added our third consumer product brand with the purchase of the Silly George brand. Silly George is a beauty brand primarily focused on false eyelashes and other eye related products. We continue to look for additional potential acquisitions as part of our consumer product ‘roll-up” strategy.

Previous wording

Medical Devices are a hybrid business, combining elements of Custom & White Label and Consumer Branded Products. Medical Devices, which are not yet marketed, are expected to be distributed through strategic partnerships. The Company will manufacture and possibly convert/package the device while the strategic partner brings the product to market. Small market Medical Devices could be launched by the Company, but also be offered to a distributor to reach the full scale of the market.

Current wording

Medical Devices are a hybrid business, combining elements of Custom & White Label and Consumer Branded Products. Medical Devices, which are not yet marketed, are expected to be distributed through strategic partnerships. We will manufacture and possibly convert/package the device while the strategic partner brings the product to market. Small market Medical Devices could be launched by us, but also be offered to a distributor to reach the full scale of the market.

Previous wording

For the year ended December 31, 2023 revenues were $4,089 and increased by $2,041, or 99.7%, when compared to $2,048 for the year ended December 31, 2022. The increase in our overall revenues was primarily due to sales growth in both our contract manufacturing and branded products, including revenue from the JV from March 1, 2023 through December 31, 2023 of $1,987.

Current wording

For the year ended December 31, 2024 revenues were $8,688 and increased by $4,599, or 112.5%, when compared to $4,089 for the year ended December 31, 2023. The increase in our overall revenues was primarily due to sales growth in our branded consumer products, including gross revenue from Silly George of $2,889 for the period of acquisition through December 31, 2024, and an increase in Other Revenues of $238, which mostly consists of shipping revenue on our branded consumer products.

Previous wording

Gross profit (loss) Our gross profit was $619 for the year ended December 31, 2023 compared to a gross profit of $256 for the year ended December 31, 2022. The increase in the profit recorded for the year ended December 31, 2023, as compared to December 31, 2022, directly correlates to our higher sales. Gross profit was approximately 15.1% for the year ended December 31, 2023 compared to a gross profit of 12.5% for the year ended December 31, 2022.

Current wording

Our gross profit was $2,748 for the year ended December 31, 2024 compared to a gross profit of $374 for the year ended December 31, 2023 The increase of $2,374 in gross profit recorded for the year ended December 31, 2024, as compared to December 31, 2023, was primarily due to an increase in branded consumer products. Gross profit was approximately 31.6% for the year ended December 31, 2024 compared to a gross profit of 9.1% for the year ended December 31, 2023.

Previous wording

Selling, general and administrative expenses increased by $756, or 23.4%, to $3,993 for the year ended December 31, 2023, as compared to $3,237 for the year ended December 31, 2022. The increase in selling, general and administrative expenses is primarily attributable to an increase of compensation and benefits expense, advertising, marketing, and Amazon fees as well as the costs for professional and consulting fees.

Current wording

Selling, general and administrative expenses increased by $2,476 or 66.1%, to $6,224 for the year ended December 31, 2024, as compared to $3,748 for the year ended December 31, 2023. The increase in Selling, general and administrative expenses is primarily attributable to the factors described below.

Previous wording

Compensation and benefits increased by $214, or 40.7%, to $740 for the year ended December 31, 2023, as compared to $526 for the year ended December 31, 2022. The number of employees increased compared to the prior year with the inclusion of the JV.

Current wording

Compensation and benefits increased by $280, or 37.8%, to $1,020 for the year ended December 31, 2024, as compared to $740 for the year ended December 31, 2023. The primary increase in expense, when compared to the prior period, is the increase in contract labor with the inclusion of Silly George.

Previous wording

Share-based compensation decreased by $79, or 28.0%, to $203 for the year ended December 31, 2023, as compared to $282 for the year ended December 31, 2022. The decrease in share-based compensation year over year relates to the issuance of stock, restricted stock, and options to our CEO and options to board members in 2023 in comparison to companywide restricted stock awards issued to employees in 2022.

Current wording

Share-based compensation increased by $134, or 66.0%, to $337 for the year ended December 31, 2024, as compared to $203 for the year ended December 31, 2023. The increase related to the issuance of stock options and restricted awards to our officers, employees, board of directors, and advisors.

Previous wording

Investor and shareholder services decreased by $141, or 24.9%, to $426 for the year ended December 31, 2023, as compared to $567 for the year ended December 31, 2022. The decrease is due to the Company’s management of outsourced services.

Current wording

Investor and shareholder services decreased by $153, or 35.9%, to $273 for the year ended December 31, 2024, as compared to $426 for the year ended December 31, 2023. The decrease is due to a net reduction of investor services compared to the prior year period.

Previous wording

Franchise taxes and corporate insurance decreased by $181, or 44.7%, to $224 for the year ended December 31, 2023, as compared to $405 for the year ended December 31, 2022. The vast majority of this decrease pertains to the Company’s reduction in authorized shares, which lowered its franchise tax expense.

Current wording

Franchise taxes and corporate insurance decreased by $67, or 29.9%, to $157 for the year ended December 31, 2024, as compared to $224 for the year ended December 31, 2023. The vast majority of this decrease pertains to the Company’s reduction in authorized shares, which lowered its franchise tax expense. The Company enjoyed the full benefit of the reduction in authorized shares throughout 2024, as opposed to a partial benefit in 2023.

Previous wording

Other expenses decreased by $47, or 13.0%, to $315 for the year ended December 31, 2023 from $362 for the year ended December 31, 2022. Other selling, general and administrative expenses generally consist of costs associated with our selling efforts and general management, including information technology, travel, training and recruiting.

Current wording

Other expenses increased by $160, or 64.0%, to $410 for the year ended December 31, 2024 from $250 for the year ended December 31, 2023. Other Selling, general and administrative expenses generally consist of normal costs associated with our selling efforts and general management, including information technology, travel, training and credit card processing fees. Credit card processing fees in particular increased significantly from 2023 to 2024 with the inclusion of Silly George.

Previous wording

As of December 31, 2023, we had $2,700 of cash and cash equivalents compared to $1,101 of cash and cash equivalents and $5,508 of marketable securities at December 31, 2022. Net cash used in operating activities was $3,236 and $2,992 for the years ended December 31, 2023 and 2022, respectively. See Notes 2 and 3 of the accompanying consolidated financial statements for a more detailed discussion of our marketable securities.

Current wording

As of December 31, 2024, we had $1,807 thousand of cash and cash equivalents compared to $2,700 thousand of cash and cash equivalents at December 31, 2023. Net cash used in operating activities was $3,867 thousand and $3,236 thousand for the years ended December 31, 2024 and 2023, respectively.

Previous wording

Net cash provided by investing activities was $4,456 million and net cash used in investing activities was $5,595 for the year ended December 31, 2023 and 2022, respectively, consisting of the sales of marketable securities of $5,699, offset by purchases of capital equipment of $696 and the Kenkoderm acquisition of $547 for the year ended December 31, 2023 and consisting of investments in marketable securities of $6,999, the sale of marketable securities for $1,500, and purchases of capital equipment of $96 for the year ended December 31, 2022.

Current wording

Net cash used in investing activities was $775 thousand and net cash provided by investing activities was $4,456 thousand for the year ended December 31, 2024 and 2023, respectively, consisting of the sales of marketable securities of $68 thousand, offset by purchases of capital equipment of $443 thousand and the investment in the subsidiary Semmens Online of $400 thousand for the year ended December 31, 2024 while the sales of marketable securities of $5,699 thousand, offset by purchases of capital equipment of $696 thousand and the Kenkoderm acquisition of $547 thousand were for the year ended December 31, 2023.

Previous wording

Net cash provided by financing activities for year ended December 31, 2023 was $379 which is attributable to the proceeds of equipment notes payable of $315, proceeds from margin line of credit of $245, offset by principal payments of notes payments of $6 and payments of $175 made on the operating lease liability. Net cash used in financing activities for year ended December 31, 2022 was $3,662 which is attributable to the principal payments of convertible notes of $3,511 and payments of $151 made on the operating lease liability.

Current wording

Net cash provided by financing activities for year ended December 31, 2024 was $3,749 thousand which is attributable to the proceeds from rights offering of $3,772 thousand, proceeds from non-controlling interest of $38 thousand, and proceeds from margin line of credit of $345 thousand, offset by principal payments of notes payments of $77 thousand, and change in contingent consideration of $279 thousand made on the operating lease liability, and $50 thousand of principal payment of financing lease liability. Net cash provided by financing activities for year ended December 31, 2023 was $379 thousand which is attributable to the proceeds of equipment notes payable of $315 thousand, proceeds from margin line of credit of $245 thousand, offset by principal payments of notes payments of $6 thousand and payments of $175 thousand made on the operating lease liability.

Previous wording

At December 31, 2023, current assets totaled $5,052 and current liabilities totaled $2,549, as compared to current assets totaling $7,505 and current liabilities totaling $859 at December 31, 2022. As a result, we had working capital of $2,503 at December 31, 2023, compared to a working capital of $6,646 at December 31, 2022. The decrease in the working capital as of December 31, 2023 is primarily attributable to the loss from operations of $3,477.

Current wording

At December 31, 2024, current assets totaled $5,114 thousand and current liabilities totaled $2,470 thousand, as compared to current assets totaling $5,052 thousand and current liabilities totaling $2,549 thousand at December 31, 2023. As a result, we had working capital of $2,644 thousand at December 31, 2024, compared to a working capital of $2,503 thousand at December 31, 2023. The increase in the working capital as of December 31, 2024 is primarily attributable to the loss from operations of $3,554 thousand and proceeds from rights offering of $3,772 thousand.

Previous wording

We have sufficient capital to maintain as a going concern due to the recent capital raise on February 14, 2024 (discussed further within Note 20). We believe we have sufficient cash and marketable securities to operate our business plan into 2025. We intend to maintain and attempt to grow our existing contract manufacturing business. We also plan to continue building and developing our catalog of consumer products for sale to branding partners and to use our in-house capabilities to create and test market additional branded products. These products will be target marketed and sold online through social media, television and online marketplaces. Furthermore, the Company plans to develop its own proprietary medical devices and explore drug delivery programs for its technology. Additionally, the Company continues to evaluate strategic initiatives (e.g., acquisitions) and additional capital raises through debt or equity may be necessary to achieve these objectives.

Current wording

Our recent capital raise which closed on or about November 20, 2024 provides working capital necessary to continue our strategic objectives (discussed further within Note 13). We intend to maintain and attempt to grow our existing contract manufacturing business. We also plan to continue building and developing our catalogue of consumer products for sale to branding partners and to use our in-house capabilities to create and test market additional branded products. These products will be target marketed and sold online through social media, television and online marketplaces. Furthermore, the Company plans to develop its own proprietary medical devices and explore drug delivery programs for its technology. Additionally, the Company continues to evaluate strategic initiatives (e.g., acquisitions) and additional capital raises through debt or equity may be necessary to achieve these objectives.

Previous wording

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

Current wording

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