NEXGEL, INC.

Previous wording

For a discussion of these and other risks that relate to our business and investing in shares of our common stock, you should carefully review the risks and uncertainties described elsewhere in the Company’s Annual Report on Form 10-K filed with the SEC on April 20, 2024. The forward-looking statements contained in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. We do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.

Current wording

For a discussion of these and other risks that relate to our business and investing in shares of our common stock, you should carefully review the risks and uncertainties described elsewhere in this Quarterly Report on Form 10-Q. The forward-looking statements contained in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. We do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.

Previous wording

From 2019 through November 2023, we only manufactured 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 and White Label, Branded Consumer Products, and Medical Devices.

Current wording

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

Previous wording

Customers order rolls of gel (“rollstock”). The rollstock is shipped to our customers, which they package into finished goods. Historically, this has been the Company’s primary source of revenue.

Current wording

Customers order rolls of gel (“rollstock”). The rollstock is shipped to our customers, which they package into finished goods. Historically, this was the Company’s primary source of revenue.

Previous wording

These products often infuse various ingredients into our base gel to develop unique product offerings to satisfy market demand (e.g. aloe infused into the gel for a beauty mask). The rollstock is converted and packaged into saleable units. The finished goods are shipped to the customer, who is ultimately responsible for product distribution. Frequently these products started as development deals, in which the customer paid the company a small fee to develop a specific product. Once completed, the customer places a large order for newly developed product.

Current wording

These products often infuse various ingredients into our base gel to develop unique product offerings to satisfy market demand (e.g. aloe infused into the gel for a beauty mask). The rollstock is converted and packaged into salable units. The finished goods are shipped to the customer, who is ultimately responsible for product distribution. Frequently these products started as development deals, in which the customer paid the company a small fee to develop a specific product. Once completed, the customer places an order for newly developed product.

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, which include Medagel, Lumagel Beauty, Kenkoderm and Silly George.

Current wording

These products are finished goods marketed and sold directly to consumers 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 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 and White Label and Branded Consumer Products. Medical Devices, which are not yet marketed, are expected to be distributed through strategic partnerships. The Company will manufacture and possibly convert/package the device while the strategic partner brings the product to market. Small market Medical Devices could be launched by the Company, but also be offered to a distributor to reach the full scale of the market.

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

Other includes freight charged to customers who purchase the Company’s branded consumer products through their Shopify stores.

Current wording

Other includes freight charged to customers who purchase the Company’s branded consumer products through their Spotify stores.

Previous wording

For the three months ended September 30, 2024 revenues were $2,940 and increased by $1,719, or 140.8%, when compared to $1,221 for the three months ended September 30, 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 $1,373 for the three months ending September 30, 2024, and partially offset by a decrease in contract manufacturing.

Current wording

For the three months ended March 31, 2025 revenues were $2,806 and increased by $1,540, or 121.6%, when compared to $1,266 for the three months ended March 31, 2024. The increase in our overall revenues was primarily due to sales growth in both our contract manufacturing and branded products.

Previous wording

Gross profit. Our gross profit was $1,282 thousand for the three months ended September 30, 2024 compared to a gross profit of $344 thousand for the three months ended September 30, 2023. The increase of $938 in gross profit quarter over quarter was primarily due to the increase in branded consumer products. Gross profit was 43.6% for the three months ended September 30, 2024 compared to a gross profit of 28.2% for the three months ended September 30, 2023.

Current wording

Gross profit (loss). Our gross profit was $1,188 for the three months ended March 31, 2025 compared to a gross profit of $160 for the three months ended March 31, 2024. The increase of $1,028 in gross profit quarter over quarter was primarily due to the increase in consumer branded products. Gross profit was 42.3% for the three months ended March 31, 2025 compared to a gross profit of 12.6% for the three months ended March 31, 2024.

Previous wording

Cost of revenues increased by $781, or 89.1%, to $1,658 for the three months ended September 30, 2024, as compared to $877 for the three months ended September 30, 2023. The increase in cost of revenues is primarily aligned with sales of branded consumer products, as both Silly George and Kenkoderm were acquired after the comparable 2023 time period.

Current wording

Cost of revenues increased by $512, or 46.3%, to $1,618 for the three months ended March 31, 2025, as compared to $1,106 for the three months ended March 31, 2024. The increase in cost of revenues is primarily aligned with sales of branded consumer products, as Silly George was acquired after the comparable 2024 time period.

Previous wording

Selling, general and administrative expenses increased by $1,120, or 117.9%, to $2,070 for the three months ended September 30, 2024, as compared to $950 for the three months ended September 30, 2023. The increase in Selling, general and administrative expenses is primarily attributable to the factors described below.

Current wording

Selling, general and administrative expenses increased by $935, or 90.9%, to $1,964 for the three months ended March 31, 2025, as compared to $1,029 for the three months ended March 31, 2024. The increase in Selling, general and administrative expenses is primarily attributable to the factors described below.

Previous wording

Compensation and benefits increased by $70, or 41.4%, to $239 for the three months ended September 30, 2024, as compared to $169 for the three months ended September 30, 2023. The number of employees increased compared to the prior period and officer compensation increased in conjunction with contract renewals.

Current wording

Compensation and benefits increased by $103, or 40.9%, to $355 for the three months ended March 31, 2025, as compared to $252 for the three months ended March 31, 2024. The number of employees increased compared to the prior period and officer compensation increased in conjunction with contract renewals.

Previous wording

Share-based compensation increased by $77 or 116.7%, to $143 for the three months ended September 30, 2024, as compared to $66 for the three months ended September 30, 2023. The increase related to the issuance of stock options and restricted awards to our officers, employees, board of directors, and advisors.

Current wording

Share-based compensation increased by $110, or 215.7%, to $161 for the three months ended March 31, 2025, as compared to $51 for the three months ended March 31, 2024. The share-based compensation increase is related to the issuance of stock options and restricted awards to our officers, employees, and advisors compared to the same prior year period.

Previous wording

Investor and shareholder services decreased by $39 or 45.3%, to $47 for the three months ended September 30, 2024, as compared to $86 for the three months ended September 30, 2023. The decrease is due to a net reduction of investor services compared to the prior year period.

Current wording

Investor and shareholder services increased by $1, or 1.6%, to $63 for the three months ended March 31, 2025, as compared to $62 for the three months ended March 31, 2024. The decrease is due to a reduction of investor services compared to the prior year period.

Previous wording

Franchise taxes and corporate insurance decreased by $14, or 26.9%, to $38 for the three months ended September 30, 2024, as compared to $52 thousand for the three months ended September 30, 2023. In the prior year period, a non-recurring adjustment resulted in an increase in franchise taxes.

Current wording

Franchise taxes and corporate insurance decreased by $29, or 50.0%, to $29 for the three months ended March 31, 2025, as compared to $58 thousand for the three months ended March 31, 2024.

Previous wording

Professional and consulting fees increased by $104, or 38.4%, to $375 for the three months ended September 30, 2024, as compared to $271 for the three months ended September 30, 2023. We continued to incur accounting and consulting fees associated with public company governance requirements and professional services related to branded consumer products.

Current wording

Professional and consulting fees increased by $142, or 39.0%, to $506 for the three months ended March 31, 2025, as compared to $364 for the three months ended March 31, 2024. We continued to incur accounting and consulting fees associated with public company governance requirements. Additionally, we incurred significant expenses related to our European Medical Device Regulation project in preparation for entering European markets.

Previous wording

Other Expenses increased by $81, or 65.9%, to $204 for the three months ended September 30, 2024 from $123 for the three months ended September 30 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 recruiting.

Current wording

Other Expenses increased by $92, or 122.6%, to $167 for the three months ended March 31, 2025 from $75 for the three months ended March 31, 2024. 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.

Previous wording

Research and development expenses. Research and development expenses decreased by $6, or 100%, to $0 for the three months ended September 30, 2024 from $6 for the three months ended September 30, 2023. Research and development expenses are related to research costs incurred for potential products for existing or new customers.

Current wording

Research and development expenses. Research and development expenses were $1 and $2 for the three months ended March 31, 2025 and March 31, 2024, respectively.

Previous wording

As of September 30, 2024, we had $1,059 of cash and cash equivalents, compared to $2,700 of cash and cash equivalents at December 31, 2023. Net cash used in operating activities was $3,008 and $2,649 for the nine months ended September 30, 2024 and 2023, respectively.

Current wording

As of March 31, 2025, we had $1,192 of cashand cash equivalents, compared to $1,807 of cash and cash equivalents at December 31, 2024. Net cash used in operating activities was $400 and $1,092 for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

Net cash used in investing activities was $712 and net cash provided by investing activities was $4,729 for the nine months ended September 30, 2024 and 2023, respectively, consisting of the sales of marketable securities of $62, the purchase of capital equipment of $374 and the Silly George acquisition of $400 for nine months ended September 30, 2024 and consisting of the sales of marketable securities of $5,340 and purchases of capital equipment of $611 for nine months ended September 30, 2023.

Current wording

Net cash used in investing activities was $0 and net cash used in investing activities was $118 for the three months ended March 31, 2025 and 2024, respectively, consisting of the sales of marketable securities of $34 and purchases of capital equipment of $152 for three months ended March 31, 2024.

Previous wording

Net cash provided by financing activities for the nine months ended September 30, 2024 was $2,079 consisting of net proceeds from the February Offering and August Offering of $1,950, an investment of $37 by a joint venture partner, and from the margin line of credit of $345, offset by principal payments of notes payable of $36, a change in contingent consideration liability of $164, and by principal payment on financing lease liability of $53. Net cash used in financing activities for the nine months ended September 30, 2023 was attributable to the proceeds from the margin line of credit of $89 thousand and principal payments of notes payable and convertible notes of $4.

Current wording

Net cash used in financing activities for March 31, 2025 was $37 is attributable to the principal payments of notes payable and principal payments of financing lease liabilities and payment of contingent consideration of $178. Net cash provided by financing activities for the three months ended March 31, 2024 was $929 consisting of net proceeds from the RDO of $946, offset by principal payments of notes payable of $8 and by principal payment on financing lease liability of $9.

Previous wording

At September 30, 2024, current assets totaled $4,610 and current liabilities totaled $3,048 as compared to current assets totaling $5,052 and current liabilities totaling $2,549 at December 31, 2023. As a result, we had working capital of $1,562 at September 30, 2024, compared to a working capital of $2,503 at December 31, 2023. The change in the working capital as of September 30, 2024 is primarily attributable to the loss from operations of $2,713, cash paid for asset acquisition of $400, capital expenditures of $374, offset by net proceeds of $1,950 from the February Offering and August Offering.

Current wording

At March 31, 2025, current assets totaled $4,740 and current liabilities totaled $2,519, as compared to current assets totaling $5,114 and current liabilities totaling $2,470 at December 31, 2024. As a result, we had working capital of $2,221 at March 31, 2025, compared to a working capital of $2,644 at December 31, 2024. The change in the working capital as of March 31, 2025 is primarily attributable to the loss from operations of $777.

Previous wording

Our recent capital raise expected to close on or about November 13, 2024 provides working capital necessary to continue our strategic objectives (discussed further within Note 19). 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.

Current wording

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.