NEXGEL, INC. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number: 001-41173 NexGel, Inc. (Exact name of registrant as specified in its charter) Delaware 26-4042544 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2150 Cabot Blvd West , Suite B Langhorne , PA 19047 (Address of principal executive office) (Zip Code) Registrant’s telephone number, including area code: (215) 702-8550 Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.001 NXGL The Nasdaq Capital Market LLC Warrants to Purchase Common Stock NXGLW The Nasdaq Capital Market LLC 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 nonaccelerated 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. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of May 13, 2025 the registrant had 7,654,537 shares of common stock outstanding. nEXGEL , INC. TABLE OF CONTENTS PART I – FINANCIAL INFORMATION ITEM 1. Condensed Consolidated Financial Statements (Unaudited) 3 Condensed Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024 3 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2025 and 2024 4 Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2025 and 2024 5 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2025 and 2024 6 Notes to Condensed Consolidated Financial Statements 7 ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 38 ITEM 4. Controls and Procedures 38 PART II – OTHER INFORMATION ITEM 1. Legal Proceedings 39 ITEM 1A. Risk Factors 39 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 39 ITEM 3. Defaults Upon Senior Securities 39 ITEM 4. Mine Safety Disclosures 39 ITEM 5. Other Information 39 ITEM 6. Exhibits 40 Signatures 41 2 Table of Contents PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NEXGEL, INC CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2025 AND DECEMBER 31, 2024 (Unaudited) (in thousands, except share and per share data) March 31, 2025 December 31, 2024 ASSETS: Current Assets: Cash $ 1,192 $ 1,807 Accounts receivable, net 926 933 Inventory 1,846 1,751 Prepaid expenses and other current assets 776 623 Total current assets 4,740 5,114 Goodwill 1,128 1,128 Intangibles, net 775 807 Property and equipment, net 2,129 2,211 Operating lease - right of use asset 1,570 1,628 Other assets 95 95 Total assets $ 10,437 $ 10,983 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 980 $ 761 Accounts payable - related party 499 531 Accounts payable 499 531 Accrued expenses and other current liabilities 334 310 Deferred revenue 286 179 Current portion of note payable 99 97 Warrant liability 28 118 Contingent consideration liability - 178 Financing lease liability, current portion 59 59 Operating lease liabilities, current portion 234 237 Total current liabilities 2,519 2,470 Operating lease liabilities, net of current portion 1,494 1,538 Financing lease liability, net of current portion 293 307 Notes payable, net of current portion 563 588 Total liabilities 4,869 4,903 Commitments and Contingencies (Note 17) - - Preferred stock, par value $ 0.001 per share, 5,000,000 shares authorized, no shares issued and outstanding - - Common stock, par value $ 0.001 per share, 25,000,000 shares authorized; 7,654,037 and 7,638,497 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively 8 8 Additional paid-in capital 23,909 23,743 Accumulated deficit ( 18,708 ) ( 17,996 ) Total NexGel stockholders’ equity 5,209 5,755 Non-controlling interest in joint venture 359 325 Total stockholders’ equity 5,568 6,080 Total liabilities and stockholders’ equity $ 10,437 $ 10,983 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents NEXGEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (Unaudited) (in thousands, except share and per share data) Three Months Ended March 31, 2025 2024 Revenues, net $ 2,806 $ 1,266 Cost of revenues 1,618 1,106 Gross margin (loss) 1,188 160 Operating expenses: Research and development 1 2 Selling, general and administrative 1,964 1,029 Total operating expenses 1,965 1,031 Loss from operations ( 777 ) ( 871 ) Other income (expense): Interest income (expense), net ( 21 ) ( 15 ) Changes in fair value of warrant liability and warrant modification expense 91 ( 53 ) Gain on investment in marketable securities — 34 Other expense ( 39 ) — Other income 68 — Total other income (expense), net 99 ( 34 ) Loss before income taxes ( 678 ) ( 905 ) Income tax expense — — Net loss ( 678 ) ( 905 ) Less: Income (loss) attributable to non-controlling interest in joint venture ( 34 ) 52 Net loss attributable to NexGel stockholders $ ( 712 ) $ ( 853 ) Net loss per common share - basic $ ( 0.09 ) $ ( 0.14 ) Net loss per common share - diluted $ ( 0.09 ) $ ( 0.14 ) Weighted average shares used in computing net loss per common share - basic 7,645,311 5,982,062 Weighted average shares used in computing net loss per common share – diluted 7,645,311 5,982,062 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents NEXGEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (Unaudited) (in thousands, except share data) Common Stock Additional Paid-in Non- controlling Accumulated Total Stockholders’ Shares Amount Capital Interest Deficit Equity Balance, January 1, 2025 7,638,497 $ 8 $ 23,743 $ 325 $ ( 17,996 ) $ 6,080 Share-based compensation and restricted stock vesting 15,540 — 166 — — 166 Net loss — — — 34 ( 712 ) ( 678 ) Balance, March 31, 2025 7,654,037 $ 8 $ 23,909 $ 359 $ ( 18,708 ) $ 5,568 Common Stock Additional Paid-in Non- controlling Accumulated Total Stockholders’ Shares Amount Capital Interest Deficit Equity Balance, January 1, 2024 5,741,838 $ 6 $ 19,406 $ 469 $ ( 14,715 ) $ 5,166 Balance 5,741,838 $ 6 $ 19,406 $ 469 $ ( 14,715 ) $ 5,166 Share-based compensation and restricted stock vesting — — 54 — — 54 Rights offering proceeds, net of expenses 485,786 — 946 — — 946 Issuance of placement agent warrants in conjunction with the rights offering — — ( 56 ) — — ( 56 ) Net loss — — — ( 52 ) ( 853 ) ( 905 ) Balance, March 31, 2024 6,227,624 $ 6 $ 20,350 $ 417 $ ( 15,568 ) $ 5,205 Balance 6,227,624 $ 6 $ 20,350 $ 417 $ ( 15,568 ) $ 5,205 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents NEXGEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (Unaudited) (in thousands) Three Months Ended March 31, 2025 2024 Operating Activities Net loss $ ( 712 ) $ ( 853 ) Adjustments to reconcile net loss to net cash used in operating activities: Income (loss) attributable to non-controlling interest in joint venture 34 ( 52 ) Depreciation and amortization 114 62 Share-based compensation and restricted stock vesting 166 54 Gain on investment in marketable securities — ( 34 ) Changes in fair value of warrant liability and warrant modification expense ( 91 ) 53 Amortization of right of use asset 12 7 Changes in operating assets and liabilities: Accounts receivable, net 7 ( 106 ) Inventory ( 95 ) ( 50 ) Prepaid expenses and other assets ( 153 ) 64 Accounts payable 219 ( 75 ) Accounts payable – related party ( 32 ) ( 105 ) Accrued expenses and other current liabilities 24 ( 287 ) Deferred revenue 107 230 Net Cash Used in Operating Activities ( 400 ) ( 1,092 ) Investing Activities Proceeds from sales of marketable securities — 34 Capital expenditures — ( 152 ) Net Cash Used in Investing Activities — ( 118 ) Financing Activities Proceeds from rights offering, net of expenses — 946 Payment of contingent consideration ( 178 ) — Principal payment on financing lease liability ( 14 ) ( 9 ) Principal payments of notes payable ( 23 ) ( 8 ) Net Cash Provided by (Used in) Financing Activities ( 215 ) 929 Net Decrease in Cash ( 615 ) ( 281 ) Cash – Beginning of period 1,807 2,700 Cash – End of period $ 1,192 $ 2,419 Supplemental Disclosure of Cash Flows Information Cash paid during the year for: Interest $ 18 $ 10 Taxes $ — $ — Supplemental Non-cash Investing and Financing activities Property and equipment financed under notes payable $ — $ 165 Property and equipment financed under financing leases $ — $ 416 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents NEXGEL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) 1. Description of Business and Basis of Presentation NexGel, Inc. (“NexGel” or the “Company”) manufactures high water content, electron beam cross-linked, aqueous polymer hydrogels, or gels, used for wound care, medical diagnostics, transdermal drug delivery and cosmetics. The Company specializes in custom gels by capitalizing on proprietary manufacturing technologies. The Company has 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, we launched 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, the Company and its customers are able to determine tolerances in moisture vapor transmission rate and active ingredient release rates while personalizing color and texture. NexGel was previously known as AquaMed Technologies, Inc. (“AquaMed”) before changing its name to NexGel, Inc. on November 14, 2019. On May 15, 2024, the Company purchased substantially all of the assets from Semmens Online Pty Ltd as Trustee for Semmens Business Trust (the “SG Seller”) related to the SG Seller’s eyeliner, fake eyelashes, lash serum and mascara business operating under the tradename “Silly George” (collectively, the “Silly George Business”). On December 1, 2023, the Company purchased substantially all of the assets Olympus Trading Company, LLC (the “Kenkoderm Seller”) related to the Kenkoderm Seller’s skincare line focused on reducing symptoms associated with psoriasis operating under the tradename “Kenkoderm” (“Kenkoderm acquisition”). On March 1, 2023, the Company acquired a 50 % interest in a newly formed joint venture (“CGN JV”), CG Converting and Packaging, LLC (“CGN”), with C.G. Laboratories Inc. (“CG Labs”) for its converting and packaging business. The CGN JV was effective March 1, 2023. As a result of this transaction, the Company owns 50 % of the CGN JV, with the remaining 50 % held by CG Labs. On January 6, 2023, the Company acquired a 50 % interest in a newly formed joint venture (“Enigma JV”) to pursue branded consumer product retail opportunities and the development of new patch products. The Enigma JV agreement was effective January 6, 2023. As a result of this transaction, the Company owned 50 % of the Enigma JV, with the remaining 50 % held by Moiety. However, the Enigma JV was dissolved on December 23, 2024. Basis of Presentation The condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and are presented in US dollars. The accompanying interim unaudited condensed consolidated financial statements and footnotes of NexGel have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results of the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2025 . These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. 7 Table of Contents Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its consolidated wholly-owned subsidiary, NexGelRx, Inc. and the fifty percent ( 50 %) owned CGN JV (see Note 5). 2. Going Concern The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. As of March 31, 2025, the Company had a cash balance of $ 1.2 million. For the three months ended March 31, 2025, the Company incurred a net loss of $ 712 thousand and had a net usage of cash in operating activities of $ 400 thousand. In addition, the Company had working capital of $ 2.2 million as of March 31, 2025. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management is exploring new product channel sales in adjacent industries, such as cosmetics, athletic products, and proprietary medical devices. The Company has increased focus on sales and developing a sales pipeline for potential customers. This customer base expansion will enable us to provide financial stability for the foreseeable future, expand our current processes, and position us for long-term shareholder value creation. 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 and online advertising and 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. 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 our current business activities, 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 condensed consolidated 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 condensed consolidated 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. 3. Significant Accounting Policies and Estimates Use of Estimates The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates and assumptions include allowances for credit losses, inventory reserves, deferred taxes, share-based compensation and related valuation allowances and fair value of long-lived assets. Actual results could differ from the estimates. Segment Reporting The Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 280, Segment Reporting , requires that an enterprise report selected information about reportable segments in its financial reports issued to its stockholders. The Company has two reportable segments - the NexGel segment and the CGN segment. 8 Table of Contents The NexGel segment is comprised of the manufacturing of ultra-gentle, high-water-content hydrogel products for healthcare and consumer applications, which is based in Langhorne, Pennsylvania. The NexGel segment includes the Kenkoderm and Silly George recent acquisitions and the Enigma JV. However, the Enigma JV was dissolved on December 23, 2024. The CGN segment is comprised of the CGN JV used for the Company’s converting and packaging business, which is based in Granbury, Texas. Reclassifications We have reclassified, combined or separately disclosed certain amounts in the prior years’ condensed consolidated financial statements and accompanying footnotes to conform with the current year’s presentation. These changes consisted of separating Accounts payable – related party from Accounts payable within the March 31, 2024 condensed consolidated statement of cashflows and we have reclassified expenses on our statement of operations realigning certain expenses previously classified as selling, general and administrative to cost of revenue related to our online sales commissions and contract fees. Cash and cash equivalents Cash and cash equivalents is comprised of cash in banks and highly liquid investments, including U.S. treasury bills purchased with an original maturity of three months or less as well as investments in money market funds for which the carrying amount approximates fair value, due to the short maturities of these investments. Margin Line of Credit The Company has a brokerage account through which it can buy and sell U.S. treasury bills. The provisions of the account allow us to borrow on certain securities held in the account and to purchase additional securities based on the account equity (including cash). Amounts borrowed are collateralized by the securities held in the account and bear interest at a negotiated rate payable monthly. Securities pledged to secure margin balances cannot be specifically identified as a portion of all securities held in a brokerage account are used as collateral. As of March 31, 2025 and December 31, 2024 there were no balances outstanding under this short-term credit line. Accounts Receivable, net Trade accounts receivable are stated at the amount the Company expects to collect and do not bear interest. The Company evaluates the collectability of accounts receivable and records a provision to the allowance for credit losses based on factors including the length of time the receivables are past due, the customer’s payment history, the credit quality of the customer and other factors that may affect the customers’ ability to pay. Provisions to the allowances for credit losses are recorded in selling, general and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. The allowance for credit losses was $ 6 thousand as of March 31, 2025 and $ 5 thousand as of December 31, 2024. Inventory and Cost of Revenues The inventory balance is stated at the lower of cost, the value determined by the first-in, first-out method, or net realizable value. The Company evaluates inventories for excess quantities, obsolescence, and shelf-life expiration. This evaluation includes an analysis of historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products, general market conditions, and a review of the shelf-life expiration dates for products. These factors determine when, and if, the Company adjusts the carrying value of inventory to estimated net realizable value. 9 Table of Contents The Company produces proprietary branded products and white label opportunities in our manufacturing of consumer products. In our contract manufacturing, the Company builds its products based on customer orders and immediately ships the products upon completion of the production process. The inventory balance is made up of raw materials, work-in-progress, and finished goods. Inventory is maintained at the Company’s warehouses, third party warehouses and at fulfilment centers owned by Amazon, Walmart and CVS. The “Cost of revenues” line item in the condensed consolidated statements of operations is comprised of the book value of inventory sold to customers during the reporting period. When circumstances dictate that we use net realizable value as the basis for recording inventory, we base our estimates on expected future selling prices less expected disposal costs. Research and Development Our research and development activities focus on new and innovative products designed to support revenue growth. Research and development expenses consist primarily of contracted development and testing efforts associated with development of products. Property and Equipment, net Property and equipment is recorded at historical cost, net of accumulated depreciation and amortization. Depreciation is provided over the assets’ useful lives on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or lease terms. Repairs and maintenance costs are expensed as incurred. Management periodically assesses the estimated useful life over which assets are depreciated or amortized. If the analysis warrants a change in the estimated useful life of property and equipment, management will reduce the estimated useful life and depreciate or amortize the carrying value prospectively over the shorter remaining useful life. The carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the year of disposal and any resulting gains and losses are included in the results of operations during the same year. Impairment of Long-Lived Assets The Company reviews its property and equipment and any identifiable intangibles with definite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Goodwill and Intangible Assets In applying the acquisition method of accounting, amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition, with the remainder recorded as goodwill. Identifiable intangible assets are initially recorded at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Identifiable intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. Intangible assets with indefinite lives are tested for impairment within one year of the acquisition date or annually as of December 31, and whenever indicators of impairment exist. The fair value of intangible assets is compared with their carrying values, and an impairment loss would be recognized for the amount by which a carrying amount exceeds its fair value. 10 Table of Contents Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets are recorded at historical cost and are primarily made up of $ 28 thousand and $ 46 thousand of prepaid insurance, and $ 748 thousand and $ 577 thousand general prepaid expenses and other current assets as of March 31, 2025 and December 31, 2024, respectively. Other Assets Other assets are recorded at historical costs, and as of March 31, 2025 and December 31, 2024, the balance is primarily comprised of spare parts for manufacturing equipment. The Company maintains spare parts for either repair and maintenance, which is expensed as incurred, or replacement of capitalized equipment. Capitalized equipment spare parts are not subject to depreciation until such time that they are placed into service and the part that is being replaced is disposed. Fair Value Measurements The Company utilizes the fair value hierarchy to apply fair value measurements. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair values that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below: Level 1 —Quoted prices for identical assets or liabilities in active markets. Level 2 —Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 —Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable. The Company considers the carrying amounts of its financial instruments (cash, accounts receivable and accounts payable, notes payable and convertible notes payable) in the condensed consolidated balance sheet to approximate fair value because of the short-term or highly liquid nature of these financial instruments. Warrant Liability Warrants to purchase common stock were issued in connection with equity financing raises, which occurred during 2019 through 2024. The fair values of the warrants are estimated as of the date of issuance and again at each year end using a Black-Scholes option valuation model. At issuance, the fair values of the warrant are recognized as an equity issuance cost within additional paid-in-capital. Fair value adjustments to the warrant liability are recognized in other income (expense) in the condensed consolidated statements of operations. Equity Classified Warrants Warrants that meet all necessary criteria to be accounted for as equity in accordance with ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity are presented within additional paid-in capital within Company’s condensed consolidated statements of changes in stockholders’ equity and condensed consolidated balance sheets. Warrants classified as equity are initially measured at fair value. Subsequent changes in fair value are not recognized as long as the warrants continue to be classified as equity. 11 Table of Contents Revenue Recognition The Company records revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The Company currently recognizes revenue predominately from three sources, contract manufacturing, custom and white label finished goods manufacturing (“Custom and white label”), and our branded consumer products. Contract manufacturing and Custom and white label revenues are recognized at the point where the customer obtains control of the goods and the Company satisfies its performance obligation, which generally is at the time the customer receives the product. Branded consumer product revenue is derived from direct-to-consumer purchases through websites like Amazon and through our Shopify stores. Revenue is recognized upon shipment to the end customer. The Company’s customers consist of other life sciences companies and Amazon retail customers. Revenues are predominately concentrated in the United States, but with the Silly George acquisition, have expanded into Europe and Asia. Payment terms, excluding branded consumer products, vary by the type and location of customer and may differ by jurisdiction and customer but payment is generally required in a term ranging from 30 to 60 days from date of shipment. Branded consumer products are purchased and paid for by the consumer at the time the transaction is completed. Estimates for product returns, allowances and discounts are recorded as a reduction of revenue and are established at the time of sale. Returns are estimated through a comparison of historical return data and are determined for each product and adjusted for known or expected changes in the marketplace specific to each product, when appropriate. Historically, sales return provisions have not been material. Amounts accrued for sales allowances and discounts are based on estimates of amounts that are expected to be claimed on the related sales and are based on historical data. Payments for allowances and discounts have historically been immaterial. Disaggregated revenue by sales type ($ in thousands): Schedule of Disaggregated Revenue by Sales Type Three Months Ended March 31, 2025 2024 Contract manufacturing $ 948 $ 601 Custom and white label finished goods manufacturing - 31 Consumer branded products 1,782 617 Other 76 17 Total $ 2,806 $ 1,266 12 Table of Contents Contract Liabilities As of March 31, 2025 and December 31, 2024, the Company did not have any contract assets or contract liabilities from contracts with customers and there were no remaining performance obligations that the Company had not satisfied except for deferred revenue of $ 286 thousand and $ 179 thousand at March 31, 2025 and December 31, 2024, respectively, that the Company had not satisfied as of the end of the respective period. The following table provides information about contract liabilities from contracts with our customers ($ in thousands). Schedule of Contract Liabilities From Contract With Customers March 31, 2025 December 31, 2024 Deferred revenue $ 286 $ 179 Total Deferred revenue $ 286 $ 179 Significant changes in the contract liabilities balance during the period are as follows: Schedule of Contract Liabilities Balance Contract liabilities Balance, December 31, 2024 $ 179 Non-cancelable contracts with customers entered during the period 107 Revenue recognized related to non-cancelable contracts with customers during the period - Balance, March 31, 2025 $ 286 The Company has four distinct lines of business; Contract Manufacturing, Custom & White Label, Consumer Branded Products, and Medical Devices/Other. Contract Manufacturing 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. Custom and White Label 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. Custom and white label revenue is recognized upon delivery of the finished product. Branded Consumer Products These products are finished goods marketed and sold directly to consumers by the Company through online and retail channels. The Company is responsible for sales, marketing, and distribution. When merchandise is shipped to a customer, our performance obligation is met, and revenue is recognized when control passes to the customer. These products carry the Company’s brand names, which include Medagel, Lumagel Beauty, Kenkoderm and Silly George. Medical Devices 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. Other includes shipping and handling revenue from customers who purchase the Company’s branded consumer products through their Shopify stores. It also includes a small amount of freight revenue from contract manufacturing customers. 13 Table of Contents Shipping and Handling Revenue and Expense Shipping and handling revenue and expense are included in our condensed consolidated statements of operations in revenues and cost of revenues, respectively. The Company accounts for shipping activities, consisting of direct costs to ship products performed after the control passes to the customer. Shipping revenue and expense are primarily generated through the Amazon marketplace and Silly George direct customer sales. Share-based Compensation On August 28, 2019, the Company adopted the 2019 Long-Term Incentive Plan, as amended (the “2019 Plan”). See Note 13 below for further details regarding the 2019 Plan. The 2019 Plan provides certain employees, contractors, and outside directors with share-based compensation in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights and other awards. The fair values of incentive stock option award grants are estimated as of the date of grant using a Black-Scholes option valuation model. Compensation expense is recognized in the condensed consolidated statements of operations on a straight-line basis over the requisite service period, which is generally the vesting period. Income Taxes Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities at the applicable tax rates. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates. Tax benefits are recognized from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by a tax authority and based upon the technical merits of the tax position. The tax benefit recognized in the condensed consolidated financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized upon settlement. An unrecognized tax benefit, or a portion thereof, is presented in the condensed consolidated financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. Leases ASC 842, Leases, requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company used its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. A number of the lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised. The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, and unamortized lease incentives provided by lessors. Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the year when the changes in facts and circumstances on which the variable lease payments are based occur. The Company has elected not to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities. 14 Table of Contents Variable Interest Entity The Company reviews each legal entity formed by parties related to the Company to determine whether or not the Company has a variable interest in the entity and whether or not the entity would meet the definition of a variable interest entity (“VIE”) in accordance with ASC Topic 810, Consolidation . In assessing whether the Company has a variable interest in the entity as a whole, the Company considers and makes judgements regarding the purpose and design of the entity, the value of the licensed assets to the entity, the value of the entity’s total assets and the significant activities of the entity. If the Company has a variable interest in the entity as a whole, the Company assesses whether or not the Company is a primary beneficiary of that VIE, based on a number of factors, including: (i) which party has the power to direct the activities that most significantly affect the VIE’s economic performance, (ii) the parties’ contractual rights and responsibilities pursuant to the collaboration agreement, and (iii) which party has the obligation to absorb losses of or the right to receive benefits from the VIE that could be significant to the VIE. If the Company determines that it is the primary beneficiary of a VIE at the onset of the collaboration, the collaboration is treated as a business combination and the Company consolidates the financial statements of the VIE into the Company’s consolidated financial statements. As of December 31, 2024, and on a quarterly basis thereafter, the Company will evaluate whether it continues to be the primary beneficiary of the consolidated VIE. If the Company determines that it is no longer the primary beneficiary of a consolidated VIE, it deconsolidates the VIE in the period in which the determination is made. Assets and liabilities recorded as a result of consolidating the financial results of the VIE into the Company’s consolidated balance sheet do not represent additional assets that could be used to satisfy claims against the Company’s general assets or liabilities for which creditors have recourse to the Company’s general assets. Recently Issued Accounting Standards From time to time, new accounting pronouncements are issued by the FASB, or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on our condensed consolidated financial position or results of operations upon adoption. In November 2023, the FASB issued ASU 2023-07 , Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . This ASU includes amendments that expand the existing reportable segment disclosure requirements and requires disclosure of (i) significant expense categories and amounts by reportable segment as well as the segment’s profit or loss measure(s) that are regularly provided to the chief operating decision maker (the “CODM”) to allocate resources and assess performance; (ii) how the CODM uses each reported segment profit or loss measure to allocate resources and assess performance; (iii) the nature of other segment balances contributing to reported segment profit or loss that are not captured within segment revenues or expenses; and (iv) the title and position of the individual or name of the group or committee identified as the CODM. This guidance requires retrospective application to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The adoption of this guidance will result in the Company being required to include enhanced disclosures relating to its reportable segments. The Company adopted this new standard during the year ended December 31, 2024. 15 Table of Contents Accounting Pronouncements Issued But Not Yet Adopted In June 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-05, Business Combinations (ASC Topic 805): Joint Venture Formations , which provides guidance on accounting for joint ventures established through new entities. The update mandates the application of the acquisition method of accounting for such transactions, requiring parties to recognize and measure identifiable assets and liabilities based on fair values at the acquisition date and establishes a measurement period for adjustments. The amendments in this Update are effective prospectively for all joint venture formations with a formation date on or after January 1, 2025. The Company is currently evaluating the implications of this update on its accounting practices for joint ventures and expects it will enhance consistency and transparency in financial reporting, without a material impact on its financial position or results of operations. In December 2023, the FASB issued ASU 2023-09 , Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as reconciling items that meet a quantitative threshold. Further, the ASU requires additional disclosures on income tax expense and taxes paid, net of refunds received, by jurisdiction. The new standard is effective for annual periods beginning after December 15, 2024 on a prospective basis with the option to apply it retrospectively. Early adoption is permitted. The adoption of this guidance will result in the Company being required to include enhanced income tax related disclosures. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements. 4. Business Segments The Company’s CODM evaluates the financial performance of the Company’s segments based upon segment adjusted operating income or (loss) as the profitability measure. Items outside of adjusted operating income or (loss) are not reported by segment, since they are excluded from the single measure of segment profitability reviewed by the CODM. Summarized financial information concerning the Company’s reportable segments for each of the quarters ended March 31, 2025 and 2024 statement of operations and balance sheet at March 31, 2025 and December 31, 2024 is presented below. Schedule of Reportable Segments For Quarter Ended March 31, 2025 ($ in thousands) NexGel CGN JV Total Revenue: Contract Manufacturing $ 167 $ 781 $ 948 Custom and White Label Finished Goods - - - Branded Consumer Products 1,782 - 1,782 Other income 49 27 76 Total revenue 1,998 808 2,806 Cost of sales 1,043 575 1,618 Operating expenses 1,827 138 1,965 Income (loss) from operations $ ( 872 ) $ 95 $ ( 777 ) For Quarter Ended March 31, 2024 ($ in thousands) NexGel CGN JV Total Revenue: Contract Manufacturing $ 190 $ 411 $ 601 Custom and White Label Finished Goods 31 - 31 Branded Consumer Products 617 - 617 Other income 12 5 17 Total revenue 850 416 1,266 Cost of sales 759 347 1,106 Operating expenses 870 161 1,031 Loss from operations $ ( 779 ) $ ( 92 ) $ ( 871 ) 16 Table of Contents As of March 31, 2025 ($ in thousands) NexGel CGN JV Total Assets: Current assets: Cash $ 1,180 $ 12 $ 1,192 Accounts receivable, net 185 741 926 Inventory 1,189 657 1,846 Prepaid expenses and other current assets 635 141 776 Total current assets 3,189 1,551 4,740 Goodwill 1,128 - 1,128 Intangibles, net 676 99 775 Property and equipment, net 748 1,381 2,129 Operating lease – right of use asset 1,294 276 1,570 Other assets 95 - 95 Total Assets $ 7,130 $ 3,307 $ 10,437 Liabilities Current liabilities: Accounts payable $ 782 $ 198 $ 980 Accounts payable – related party 3 496 499 Accounts payable 3 496 499 Accrued expenses and other current liabilities 322 12 334 Deferred revenue 107 179 286 Current portion of note payable 12 87 99 Warrant liability 28 - 28 Contingent consideration liability Financing lease liability, current portion - 59 59 Operating lease liabilities, current portion 207 27 234 Total current liabilities 1,461 1,058 2,519 Operating lease liabilities, net of current portion 1,237 257 1,494 Financing lease liability, net of current portion - 293 293 Notes payable, net of current portion 265 298 563 Total liabilities $ 2,963 $ 1,906 $ 4,869 17 Table of Contents As of December 31, 2024 ($ in thousands) NexGel CG Labs Total Assets: Current assets: Cash $ 1,781 $ 26 $ 1,807 Accounts receivable, net 218 715 933 Inventory 1,101 650 1,751 Prepaid expenses and other current assets 578 45 623 Total current assets 3,678 1,436 5,114 Goodwill 1,128 - 1,128 Intangibles 685 122 807 Property and equipment, net 790 1,421 2,211 Operating lease – right of use asset 1,345 283 1,628 Other assets 95 - 95 Total Assets $ 7,721 $ 3,262 $ 10,983 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 560 $ 201 $ 761 Accounts payable – related party 3 528 531 Accounts payable – related party 3 528 531 Accrued expenses and other current liabilities 284 26 310 Deferred revenue - 179 179 Current portion of note payable 12 85 97 Warrant liability 118 - 118 Contingent consideration liability 178 - 178 Finance lease liability, short term - 59 59 Operating lease liability, current portion 207 30 237 Total current liabilities 1,362 1,108 2,470 Operating lease liability, net of current portion 1,278 260 1,538 Finance lease liability, long term - 307 307 Notes payable, net of current portion 268 320 588 Total liabilities $ 2,908 $ 1,995 $ 4,903 5. Acquisition Silly George Acquisition On May 15, 2024, the Company entered into and closed a transaction related to an Asset Purchase Agreement dated May 15, 2024 (the “SG Purchase Agreement”) with Semmens Online Pty Ltd as Trustee for Semmens Business Trust, an Australian proprietary limited company (the “SG Seller”), whereby the Company purchased the Silly George assets (the “Silly George acquisition”). The Company believes the Silly George assets will be accretive and synergistic to its existing health and beauty customer product brands. 18 Table of Contents Under the terms of the SG Purchase Agreement on May 15, 2024, the Company paid the SG Seller a cash payment of $ 400 thousand and issued $ 200 thousand in shares of the Company’s common stock based on the 10-Day VWAP (as defined in the SG Purchase Agreement), or 89,892 of shares of the Company’s common stock. Additionally, the Company will pay the Seller a cash earn-out based on 20 % of the Net Profit (as defined in the SG Purchase Agreement) related to the Silly George assets for the fiscal quarterly period beginning June 30, 2024 and ending on June 30, 2028. Per the scope exception under ASC 815, the Company has not accrued the contingent consideration. The table below shows an analysis for the Silly George acquisition ($ in thousands): Schedule of Business Acquisitions Provisional purchase consideration at preliminary fair value: Purchase price $ 600 Consideration paid $ 600 Trademark related intangibles $ 600 Intangible assets acquired $ 600 Kenkoderm Acquisition On December 1, 2023, the Company closed a transaction related to an Asset Purchase Agreement dated November 30, 2023 (the “Kenkoderm Purchase Agreement”) with Olympus Trading Company, LLC, a Virginia limited liability company, whereby the Company purchased all assets related to the Kenkoderm Seller’s skincare line focused on reducing symptoms associated with psoriasis operating under the tradename “Kenkoderm” (“Kenkoderm acquisition”). The Company believes the Kenkoderm brand fits its health and wellness lines of product. Under the terms of the Kenkoderm Purchase Agreement, the Company paid the Kenkoderm Seller a cash payment of $ 547 thousand on December 1, 2023. Additionally, the Company will pay the Kenkoderm Seller a cash earn-out of the same amount each quarter, payable in the subsequent month following quarter end, of $ 137 thousand, subject to adjustment. The cash earn-out can fluctuate higher or lower based on the quarterly results of the Kenkoderm business during 2024 according to the formula contained in the Kenkoderm Purchase Agreement. The fair value of the purchase consideration issued to the Kenkoderm Seller was allocated to the net tangible assets acquired. The Company accounted for the Kenkoderm acquisition as the purchase of a business under GAAP under the acquisition method of accounting, and the assets and liabilities acquired were recorded as of the acquisition date, at their respective fair values and consolidated with those of the Company. The fair value of the net assets acquired was approximately $ 169 thousand. The excess of the aggregate fair value of the net tangible assets has been allocated to goodwill. The table below shows an analysis for the Kenkoderm acquisition ($ in thousands): Schedule of Business Acquisitions Purchase consideration at fair value: Purchase price $ 547 Contingent consideration liability 439 Amount of consideration $ 986 Assets acquired and liabilities assumed at fair value Inventory $ 56 Product/technology related intangibles 77 Marketing related intangibles 36 Net tangible assets acquired $ 169 Total net assets acquired $ 169 Consideration paid 986 Goodwill $ 817 19 Table of Contents Interest in Joint Venture – CGN On March 1, 2023, the Company acquired a 50 % interest in the CGN JV (see Note 1). The CGN JV is owned 50 % by the Company and 50 % by CG Labs. CG Labs contributed its existing converting and packaging division to the CGN JV, including, but not limited to, its facilities, equipment, employees, and customers. The Company will contribute $ 500 thousand to the CGN JV, on a schedule to be determined, to be used for equipment and facility upgrades as well as general corporate purposes for the CGN JV. The CGN JV is considered to be a VIE and we have consolidated the CGN JV because we believe we are the primary beneficiary because we meet the power and the economics criteria, as laid out in ASC 323. The Company recorded assets acquired and liabilities assumed in connection with the formation of the CGN JV based on their estimated fair values as of March 1, 2023. The table below set forth the CGN JV purchase price allocation ($ in thousands): Schedule of Business Acquisitions Purchase consideration at fair value: Cash contributed by the Company $ 500 Noncontrolling interest portion of CG Labs contributed business 500 Amount of consideration $ 1,000 Assets acquired and liabilities assumed at fair value Cash contributed by the Company $ 500 Fixed assets 213 Product/technology related intangibles 217 Marketing related intangibles 70 Net tangible assets acquired $ 1,000 Interest in Joint Venture – Enigma On January 6, 2023, the Company acquired a 50 % interest in a newly formed joint venture (the “Enigma JV”) to pursue branded consumer product retail opportunities and the development of new patch products. The Enigma JV agreement was effective January 6, 2023. As a result of this transaction, the Company owned 50 % of the Enigma JV, with the remaining 50 % held by Moiety. However, the Enigma JV was dissolved on December 23, 2024. As of December 31, 2024, the Company has contributed $ 20 thousand and $ 37 thousand has been contributed by the non-controlling interest portion of Enigma JV contributed business. The Enigma JV is considered to be a VIE and we have consolidated the Enigma JV because we believe we are the primary beneficiary because we meet the power and the economics criteria, as laid out in ASC 323. 20 Table of Contents The allocation of the purchase price to identifiable assets is based on the preliminary valuations performed to determine the fair value of the net assets as of the acquisition date. The measurement period for the valuation of net assets acquired ends as soon as information on the facts and circumstances that existed as of the acquisition dates becomes available, but not to exceed 12 months following the acquisition date. Adjustments in purchase price allocations may require a change in the amounts allocated to net assets acquired during the periods in which the adjustments are determined. The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the Silly George acquisitions been completed as of January 1, 2024 or to project potential operating results as of any future date or for any future periods ($ in thousands except share and per share amounts): Schedule of Unaudited Pro-Forma Results of Operations 2025 2024 For the Three Months Ended March 31, 2025 2024 Revenues, net $ 2,806 $ 1,727 Net loss allocable to common shareholders $ ( 712 ) $ ( 871 ) Net loss per share $ ( 0.09 ) $ ( 0.14 ) Weighted average number of shares outstanding 7,645,311 6,071,954 6. Variable interest entities The following table presents the assets and liabilities of the CGN JV and Enigma JV, included in the condensed consolidated balance sheet as of March 31, 2025 and December 31, 2024. The assets and liabilities presented below include only the third-party assets and liabilities of the consolidated VIE and excludes any intercompany balances, which were eliminated upon consolidation. The Enigma JV was dissolved on December 23, 2024. Schedule of Consolidated Variable Interest Entities March 31, 2025 December 31, 2024 ASSETS: Current Assets: Cash $ 12 $ 26 Accounts receivable, net 827 764 Inventory 672 646 Prepaid expenses and other current assets 141 45 Total current assets 1,652 1,481 Intangibles, net 100 122 Property and equipment, net 1,381 1,421 Operating lease - right of use asset 276 283 Total assets $ 3,409 $ 3,307 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 1,026 $ 912 Accounts payable – related party 496 528 Accounts payable 496 528 Accrued expenses and other current liabilities 12 51 Deferred revenue 179 179 Current portion of note payable 87 85 Finance lease liability, short term 59 59 Operating lease liability, current portion 27 30 Total current liabilities 1,886 1,844 Operating lease liability, net of current portion 257 260 Finance lease liability, long term 293 307 Notes payable, net of current portion 298 320 Total liabilities and stockholders’ equity $ 2,734 $ 2,731 21 Table of Contents The amounts above represent the combined assets and liabilities of the VIE described above, for which we are the primary beneficiary. The assets of each of these consolidated VIEs can only be used to settle the obligations of the VIE. All of the liabilities are non-recourse to us as of March 31, 2025 and December 31, 2024. 7. Operating Leases The Company has an operating lease for a commercial manufacturing facility and administrative offices located in Langhorne, Pennsylvania that runs through January 2031. There are two options that can extend the lease term for five years each. The exercise of the lease options to renew is solely at the Company’s discretion. The Company also has a sublease for office and manufacturing space in Granbury, Texas that runs through February 2028. There is an option that can extend the lease term for an additional five years through February 2033. The exercise of the lease options to renew is solely at the Company’s discretion. The following table presents information about the amount and timing of the liability arising from the Company’s operating lease as of March 31, 2025 ($ in thousands): Schedule of Future Minimum Operating Lease Payments Maturity of Lease Liability Operating Lease Liability 2025 $ 184 2026 301 2027 315 2028 324 2029 332 Thereafter 459 Total undiscounted operating lease payments 1,915 Less: Imputed interest ( 187 ) Present value of operating lease liability $ 1,728 Weighted average remaining lease term 6.2 years Weighted average discount rate 3.0 % Total operating lease expense for both the three months ended March 31, 2025 and 2024, was $ 71 thousand, and is recorded in cost of goods sold and selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. Supplemental cash flows information related to leases was as follows: Schedule of Supplemental Cash Flows Information Related to Leases March 31, 2025 Cash paid for amounts included in the measurement of lease liability ($ in thousands): Operating cash flows from operating lease $ 61 8. Financing Lease In February 2024, the CGN JV entered into a lease agreement for certain equipment under separate non-cancelable equipment loan and security agreements. The agreement matures in January 2030. The agreements require monthly payments of principal and interest through maturity and are secured by the assets under the lease. As of December 31, 2024, $ 417 thousand is included in the property and equipment on the balance sheet. The weighted average interest rate was 9.1 % at March 31, 2025. 22 Table of Contents The following table presents information about the amount and timing of the liability arising from the Company’s financing lease as of March 31, 2025 ($ in thousands): Schedule of Future Minimum Financing Lease Payments Maturity of Lease Liability Financing Lease Liability 2025 $ 67 2026 91 2027 90 2028 91 2029 90 Thereafter 8 Total undiscounted financing lease payments’ 437 Less: Imputed interest ( 85 ) Present value of financing lease liability $ 352 Weighted average remaining lease term 4.8 years Weighted average discount rate 9.1 % 9. Inventory Inventory consists of the following ($ in thousands): Schedule of Inventory March 31, December 31, 2025 2024 Raw materials $ 980 $ 723 Work-in-progress 10 25 Finished goods 856 1,003 Inventory, gross 1,846 1,751 Less: Inventory reserve for excess and slow moving inventory - - Total $ 1,846 $ 1,751 Inventory is maintained at the Company’s warehouses and at fulfillment centers owned by Amazon, Walmart and CVS. The Company builds its contract manufacturing products based on customer orders and immediately ships the products upon completion of the production process. 10. Property and Equipment, Net Property and equipment consist of the following ($ in thousands): Schedule of Property and Equipment Useful Life March 31, December 31, (Years) 2025 2024 Machinery and equipment 3 - 10 $ 2,118 $ 2,118 Office furniture and equipment 3 - 10 187 187 Leasehold improvements 6 419 419 Construction in progress N/A 532 532 Property and equipment, gross 3,256 3,256 Less: accumulated depreciation and amortization ( 1,127 ) ( 1,045 ) Property and equipment, net $ 2,129 $ 2,211 23 Table of Contents Depreciation expense for the three months ended March 31, 2025 and 2024 was $ 82 thousand and $ 38 thousand, respectively. 11. Intangible Assets The following provides a breakdown of identifiable intangible assets as of March 31, 2025 and December 31, 2024 ($ in thousands): Schedule of Breakdown of Identifiable Intangible Assets March 31, December 31, 2025 2024 Product/Technology Related Identifiable intangible assets, gross $ 325 $ 325 Accumulated amortization ( 216 ) ( 191 ) Product/technology related identifiable intangible assets, net 109 134 Marketing Related Customer related intangible asset, gross 17 17 Tradename related intangible asset, gross 113 113 Trademark related intangibles 600 600 Accumulated amortization ( 64 ) ( 57 ) Marketing related identifiable intangible assets, net 666 673 Total identifiable intangible assets, net $ 775 $ 807 In connection with the May 15, 2024 Silly George acquisition, the Company identified intangible assets of $ 600 thousand representing trademark related intangibles with indefinite lives. Intangible assets with indefinite lives are tested for impairment within one year of the acquisition date or annually as of December 31, and whenever indicators of impairment exist. These assets are being amortized on a straight-line basis over their weighted average estimated useful life of 1.7 years and amortization expense amounted to $ 32 and $ 24 thousand for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, the estimated annual amortization expense for each of the next five fiscal years is as follows ($ in thousands): Schedule of Estimated Annual Amortization Expense 2025 (remainder of year) $ 93 2026 64 2027 13 2028 2 2029 2 Thereafter 1 Subtotal 175 Indefinite lived intangible assets (subject to impairment analysis) 600 Total $ 775 24 Table of Contents 12. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following ($ in thousands): Schedule of Accrued Expenses and Other Current Liabilities March 31, December 31, 2025 2024 Salaries, benefits, and incentive compensation $ 249 $ 242 Other 85 68 Total accrued expenses and other current liabilities $ 334 $ 310 13. Common Stock At March 31, 2025, the Company has reserved common stock for issuance in relation to the following: Schedule of Reserved Common Stock For Issued Securities in Relation Share-based compensation plan 588,397 Warrants to purchase common stock 4,765,205 Restricted stock units 55,874 Management of the Company has performed a review of events and transactions occurring after the condensed consolidated balance sheet date to determine if there were any such events or transactions requiring adjustment to or disclosure in the accompanying condensed consolidated financial statements, noting no such events or transactions except as set forth below: On February 15, 2024, the Company entered into subscription agreements with investors and certain members of its board of directors and management for the sale by the Company of an aggregate of 242,891 units at a price to the public of $ 4.22 per unit (the “February Offering”), with each unit consisting of two shares of the Company’s common stock and a warrant to purchase one share of common stock at an exercise price of $ 4.00 per share (the “February Warrants”). The closing of the February Offering occurred on March 1, 2024 (the “February Closing Date”). On the February Closing Date, the Company issued 485,782 shares of common stock and issued February Warrants to purchase up to 242,891 shares of common stock. Subject to certain ownership limitations, each of the February Warrants became exercisable on the February Closing Date and will expire five years after the February Closing Date. The warrants may only be exercised on a cashless basis if there is no registration statement registering, or the prospectus contained in the registration statement is not available for, the issuance or resale of shares of common stock underlying the warrants to or by the holder. The holder of a warrant is prohibited from exercising of any such warrants to the extent that such exercise would result in the number of shares of common stock beneficially owned by such holder and its affiliates exceeding 4.99 % of the total number of shares of common stock outstanding immediately after giving effect to the exercise, which percentage may be increased or decreased at the holder’s election not to exceed 9.99 %. The net proceeds to the Company from the February Offering were $ 0.9 million, after deducting the placement agent’s fees and other estimated offering expenses payable by the Company, and excluding the proceeds, if any, from the exercise of the warrants. The Company has and intends to continue to use the net proceeds from the February Offering RDO for working capital and for general corporate purposes. The Company retained Alere Financial Partners, LLC (A division of Cova Capital Partners, LLC) (the “February Placement Agent”) to act as the placement agent for the February Offering. The Company paid the February Placement Agent a cash fee of 6 % of the aggregate gross proceeds in the February Offering received from non-affiliates of the Company and 3 % of the aggregate gross proceeds in the February Offering received from affiliates of the Company. Additionally, on the February Closing Date, the Company issued to the February Placement Agent warrants exercisable for a period of five years to purchase up to 6 % of the number of shares sold in this offering, or up to 27,725 shares, at a per share exercise price of $ 4.00 . 25 Table of Contents 14. Share-based Compensation The 2019 Plan provides for the granting of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights (“SARs”), restricted stock units, performance awards, dividend equivalent rights and other awards, which may be granted singly, in combination, or in tandem, and which may be paid in cash, shares of common stock of the Company or a combination of cash and shares of common stock of the Company. The Company initially reserved a total of 57,143 shares of the Company’s common stock for awards under the 2019 Plan. Effective as of May 26, 2020 and May 3, 2021, respectively, the Board approved an increase of the number of authorized shares of common stock reserved under the 2019 Plan from 57,143 shares of common stock to 485,715 and from 485,715 shares of common stock to 571,429 shares of common stock, all of which may be delivered pursuant to incentive stock options. On December 31, 2024, the Board approved an additional 780,000 shares of common stock to be reserved under the 2019 Plan, such that total of number of shares underlying the Plan is 1,651,429 of which 975,907 shares have already been awarded or exercised. The Company intends to submit this 780,000 increase under the 2019 for stockholder approval as part of the 2025 Proxy Statement. Subject to adjustments pursuant to the 2019 Plan, the maximum number of shares of common stock with respect to which stock options or SARs may be granted to an executive officer during any calendar year is 14,286 shares of common stock. The following table contains information about the 2019 Plan as of March 31, 2025: Schedule of Information about Incentive Plan Awards Awards Awards Reserved for Issued & Awards Available for Issuance Outstanding Exercised Grant 2019 Plan (1) 1,651,429 814,985 160,922 675,522 Awards issued in excess of 2019 Plan (2) - 100,821 74,705 - (1) Includes incentive stock options and restricted stock units discussed below. (2) Includes shares of restricted common stock granted outside of the 2019 Plan to our Chief Executive Officer, Adam Levy. Incentive stock options On January 2, 2025, the Company granted options to purchase up to 150,000 shares of the Company’s common stock at a per share exercise price of $ 3.83 to Adam Levy for his service as our Chief Executive Officer pursuant to the terms of his Executive Employment Agreement dated December 31, 2024, all of which vests over a period of four years beginning December 31, 2025. On January 2, 2025, the Company granted options to purchase up to 100,000 shares of the Company’s common stock at a per share exercise price of $ 3.83 to Joe McGuire for his service as our Chief Financial Officer pursuant to the terms of his Executive Employment Agreement dated December 31, 2024, which 25 % vest beginning September 1, 2025 and the remainder over a period of three years. The following table summarizes the Company’s incentive stock option activity and related information for the period ended March 31, 2025: Schedule of Incentive Stock Option Activity Weighted Weighted Average Average Contractual Number of Exercise Term in Options Price Years Outstanding at January 1, 2025 588,397 $ 2.67 7.81 Granted 250,000 3.83 5.0 Exercised ( 6,458 ) 2.05 — Forfeited — — — Cancelled ( 58,542 ) 2.01 — Expired ( 14,286 ) 5.25 — Outstanding at March 31, 2025 759,111 $ 3.06 8.21 Exercisable at March 31, 2025 349,111 $ 2.09 7.30 26 Table of Contents As of March 31, 2025, vested outstanding stock options had $ 419 thousand intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock, respectively. As of March 31, 2025, there was approximately $ 715 thousand of total unrecognized share-based compensation related to unvested stock options, which the Company expects to recognize over the next 3 months excluding options fully contingent upon certain sales-based milestones being achieved within 18 to 36 months of commercial release. The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period. The following assumptions were used to calculate share-based compensation expense for the three months ended March 31, 2025 and 2024: Schedule of Assumptions used in Share-based Compensation 2025 2024 Volatility 78.21 % 258.01 % Risk-free interest rate 4.38 % 4.42 % Dividend yield 0.0 % 0.0 % Expected term 5.00 years 5.00 years The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. Accordingly, the Company has elected to use the “simplified method” to estimate the expected term of its share-based awards. The simplified method computes the expected term as the sum of the award’s vesting term plus the original contractual term divided by two. The company estimated the expected volatility input for the Black-Scholes model using the historical volatility of its own publicly traded common stock over a period commensurate with the expected term of the option. Restrictive stock awards Effective as of January 2, 2025, the Company granted an aggregated restricted stock award of 26,116 shares of the Company’s common stock to Adam Levy for his service as our Chief Executive Officer pursuant to the terms of his Executive Employment Agreement dated December 31, 2024. The shares vest monthly from January 2, 2025 through December 31, 2025. Under ASC 718, Compensation—Stock Compensation, the Company has measured the value of the 26,116 shares granted based on the closing price of the Company’s stock at the grant date of the RSU Grant ($ 3.83 per share). Effective as of January 1, 2025, the Company granted fully vested restricted stock awards of 2,500 shares of the Company’s common stock to two board members. Under ASC 718, Compensation—Stock Compensation, the Company has measured the value of the aggregated 5,000 shares granted based on the closing price of the Company’s stock at the grant date of the RSU Grant ($ 3.83 per share). Effective as of January 2, 2025, the Company granted an aggregated restricted stock award of 4,082 fully vested shares of the Company’s common stock to Joseph McGuire for reimbursed expenses in the prior year. Under ASC 718, Compensation—Stock Compensation, the Company has measured the value of the 4,082 shares granted based on the closing price of the Company’s stock at the grant date of the RSU Grant ($ 4.62 per share). 27 Table of Contents Effective as of January 1, 2024, the Company granted an aggregated restricted stock award of 22,222 shares of the Company’s common stock to Adam Levy for his service as our Chief Executive Officer pursuant to the terms of his Executive Employment Agreement dated December 31, 2023. The shares vest monthly from April 1, 2024 through December 31, 2024. Under ASC 718, Compensation—Stock Compensation, the Company has measured the value of the 22,222 shares granted based on the closing price of the Company’s stock at the grant date of the RSU Grant ($ 2.25 per share). Schedule of Restricted Stock Units Granted Weighted Average Number of Grant Date Units Fair Value Outstanding at January 1, 2025 55,874 $ 2.16 Granted 35,198 3.92 Exercised and converted to common shares ( 9,082 ) 4.19 Forfeited — — Outstanding at March 31, 2025 81,990 $ 2.69 Exercisable at March 31, 2025 30,404 $ 2.41 Compensation expense will be recognized ratably over the total vesting schedule. The Company will periodically adjust the cumulative compensation expense for forfeited awards. The Company recognizes the reversal of any previously recognized compensation expense on forfeited awards in the period the awards are forfeited. Share-based compensation of $ 166 thousand and $ 54 thousand has been recorded for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, there was $ 75 thousand unrecognized share-based compensation related to unvested RSUs, which the Company expects to recognize through December 2025. Warrants The following table shows a summary of common stock warrants through March 31, 2025: Schedule of Common Stock Warrants Weighted Weighted Average Average Number of Exercise Contractual Warrants Price Term in Years Outstanding at January 1, 2025 4,765,205 $ 5.18 2.42 Granted — — — Exercised — — — Forfeited — — — Cancelled — — — Expired — — — Outstanding at March 31, 2025 4,765,205 $ 5.18 2.18 Exercisable at March 31, 2025 4,765,205 $ 5.18 2.18 28 Table of Contents As of March 31, 2025 and 2024, vested outstanding warrants had $ 2 thousand and $ 0 thousand, respectively, intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock. 15. Notes Payable CGN Segment The CGN JV has entered into a $ 231 thousand promissory note agreement for certain equipment. The equipment was installed in December 2023. The promissory note has a term of five years beginning on March 13, 2024. The promissory note accrues interest at 8 % and requires interest only payments through March 13, 2024 and monthly payments of $ 4 thousand thereafter. The principal balance amounted to $ 188 thousand and $ 198 thousand as of March 31, 2025 and December 31, 2024, respectively. The CGN JV has entered into a $ 237 thousand promissory note agreement for certain equipment. The funding advances of $ 153 thousand and $ 84 thousand have been issued in February 2024 and December 2023, respectively. The promissory note has a term of five years beginning on March 13, 2024. The promissory note accrues interest at 8 % and requires interest only payments through March 13, 2024 and monthly payments of $ 5 thousand thereafter. The principal balance amounted to $ 197 thousand and $ 207 thousand as of March 31, 2025 and December 31, 2024, respectively. NexGel Segment The Company has entered into a $ 13 thousand promissory note agreement for certain leasehold improvements. The leasehold improvements were installed in February 2024. The promissory note has a term of two years beginning on February 11, 2024. The promissory note accrues interest at 0 % and requires monthly payments of less than $ 1 thousand. The principal balance amounted to $ 6 thousand and $ 8 thousand as of March 31, 2025 and December 31, 2024, respectively. Economic Injury Disaster Loan On May 28, 2020, the Company entered into the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the principal amount of the EIDL Loan is up to $ 260,500 , with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75 % per annum. Installment payments, including principal and interest, are due monthly beginning May 28, 2021 (twelve months from the date of the SBA Note) in the amount of $ 1,270 . The balance of principal and interest is payable thirty years from the date of the SBA Note. In connection therewith, the Company received an $ 8 thousand advance, which does not have to be repaid. On March 26, 2021, the SBA announced that all EIDL loans issued in 2020 will start repayment 24 months from the date of the SBA Note. The SBA has since extended the repayment start to 30 months from the date of the SBA Note. The Company made its first payment in December 2022. The balances of the principal and accrued interest amounted to $ 271 and $ 272 thousand as of March 31, 2025 and December 31, 2024, respectively. The future annual principal amounts and accrued interest to be paid as of March 31, 2025 are as follows: Schedule of Debt Instruments Amount For the year ending December 31 ($ in thousands): 2025 (remaining of the year) $ 73 2026 96 2027 103 2028 111 2029 34 Thereafter 245 Total 662 Less: current portion of notes payable 99 Long-term portion of notes payable $ 563 29 Table of Contents 16.  Warrant Liability On September 2, 2021, March 11, 2021, February 3, 2021, December 24, 2020, March 18, 2020, September 10, 2019, and November 6, 2019, the Company issued 22,019 , 34,285 , 7,429 , 7,286 , 44,286 , 35,714 and 114,286 warrants, respectively, as equity issuance consideration, in connection with equity offering of the Company’s common stock. The warrants entitle the holder to purchase one share of our common stock at an exercise price equal to $ 0.49 to $ 5.25 per share at any time on or after their issuance date and on or prior to the close of business three to five years after the issuance date (the “Termination Date”). The Company determined that these warrants are free standing financial instruments that are legally detachable and separately exercisable from the common stock included in the public share offering. Management also determined that the warrants required classification as a liability pursuant to ASC 815, Derivatives and Hedging . In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income (expense) in the condensed consolidated statements of operations. The warrants outstanding and fair values at each of the respective valuation dates are summarized below: Schedule of Warrant Liability Warrant Liability Warrants Outstanding Fair Value per Share Fair Value Fair value as of year ended 12/31/2024 57,777 $ 118 Change in fair value of warrant liability - ( 90 ) Fair value as of year ended 3/31/2025 57,777 $ 28 The following assumptions were used to calculate the warrant liability as of March 31, 2025 and 2024, respectively: Schedule of Assumptions Used in Warrant Liability 2025 2024 Exercise price 2.80 to $ 5.25 $ 2.80 to $ 5.25 Share price $ 4.46 $ 1.99 - $ 2.73 Volatility 72.11 % - 79.26 % 237.08 % - 277.25 % Risk-free interest rate 4.03 % 4.21 % - 5.03 % Dividend yield 0.0 % 0.0 % Expected term 0.5 to 1.4 years 1.5 to 5.0 years The warrant liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes various assumptions about future activities and the Company’s stock prices and historical volatility of Guideline Public Companies as inputs. 17. Commitments and Contingencies Litigation The Company may be subject to legal proceedings and claims that arise in the ordinary course of business. Except as described in Part II, Item 1 “Legal Proceedings” of this Form 10-Q, management is not currently aware of any matters that will have a material effect on the financial position, results of operations, or cash flows of the Company. 30 Table of Contents 18. Concentrations of Risk The Company’s revenues are concentrated in a small group of customers with some individually having more than 10% of total revenues. For the three months ended March 31, 2025, the Company had revenue from one customer that approximated 10 % of total revenue. For the three months ended March 31, 2024, the Company had revenue from one customer that approximated 10 % of total revenue. The Company had two customers with accounts receivable balances that were 26 % and 49 % of total accounts receivable as of March 31, 2025. The Company had two customers with accounts receivable balances that were 24 % and 44 % of total accounts receivable as of March 31, 2024. The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. Cash balances are maintained principally at major U.S. financial institutions and are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to regulatory limits. Such cash balances are currently in excess of the FDIC insurance limit of $ 250 thousand. As of March 31, 2025, the total amount exceeding such limit was $ 97 thousand. The Company has not experienced any credit losses associated with its cash balances in the past. The Company invests its cash equivalents in U.S. treasury bills with original maturities of three months or less. Marketable securities are comprised of U.S. treasury bills with original maturities greater than three months. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash, cash equivalents, and marketable securities and performs periodic evaluations of the credit standing of such institutions. 19. Related Party Transactions Accounts payable – related party As of March 31, 2025 and December 31, 2024, the Company had outstanding balances of $ 482 thousand and $ 494 thousand, respectively, due to C.G. Laboratories, Inc., a related party. Additionally, as of March 31, 2025 and December 31, 2024, the Company had an outstanding balance of $ 17 thousand and $ 37 thousand due to Russell Crum, the CEO of CG Labs. These balances primarily relate to transactions for contract manufacturing, packaging, and other services provided by CG Laboratories, Inc. 20. Subsequent Events In accordance with ASC 855 “Subsequent Events”, the Company evaluated subsequent events after March 31, 2025, through the date these Condensed Consolidated Financial Statements were issued and has no transactions or events requiring disclosure. 31 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis are intended to help prospective investors understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this information statement. The statements in this discussion regarding industry outlook, expectations regarding our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Special Note Regarding Forward-Looking Statements.” Actual results may differ materially from those contained in any forward-looking statements. The NexGel Financial Statements, discussed below, reflect the NexGel financial condition, results of operations, and cash flows. The financial information discussed below and included in this information statement, however, may not necessarily reflect what the NexGel financial condition, results of operations, or cash flows would have been had NexGel been operated as a separate, independent entity during the years presented, or what the NexGel financial condition, results of operations, and cash flows may be in the future. Forward-Looking Statements This Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will actually be achieved. Forward-looking statements are based on information we have when those statements are made or our management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to: ● our ability to continue as a going concern; ● inadequate capital; ● inadequate or an inability to raise sufficient capital to execute our business plan; ● our ability to comply with current good manufacturing practices; ● loss or retirement of key executives; ● our plans to make significant additional outlays of working capital before we expect to generate significant revenues and the uncertainty regarding when we will begin to generate significant revenues, if we are able to do so; ● adverse economic conditions and/or intense competition; ● loss of a key customer or supplier; ● entry of new competitors; ● adverse federal, state and local government regulation; ● technological obsolescence of our manufacturing process and equipment; 32 Table of Contents ● technical problems with our research and products; ● risks of mergers and acquisitions including the time and cost of implementing transactions and the potential failure to achieve expected gains, revenue growth or expense savings; ● price increases for supplies and components; and ● the inability to carry out our business plans. 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. There may be other factors that may cause our actual results to differ materially from the forward-looking statements, including factors disclosed under the section titled and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this information statement. You should evaluate all forward-looking statements made in this information statement in the context of these risks and uncertainties. No assurance can be given that any goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements which speak only as of the date they are made. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this information statement or to reflect the occurrence of unanticipated events, except as required by law. Overview 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. We have four distinct lines of business; Contract Manufacturing, Custom & White Label, Consumer Branded Products, and Medical Devices/Other, which are described below. Contract Manufacturing 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. 33 Table of Contents Custom & White Label 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. Consumer Branded Products 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. Medical Devices/Other 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. Other includes freight charged to customers who purchase the Company’s branded consumer products through their Spotify stores. Results of Operations The following sections discuss and analyze the changes in the significant line items in the accompanying condensed consolidated statements of operations for the comparison periods identified. Comparison of the Three Months ended March 31, 2025 and 2024 ($ in thousands) Revenues, net . 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. 34 Table of Contents 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 $1,028 in gross profit quarter over quarter was primarily due to the increase in consumer branded products. Gross profit was 42.3% for the three months ended March 31, 2025 compared to a gross profit of 12.6% for the three months ended March 31, 2024. The components of cost of revenues are as follows for the three months ended March 31, 2025 and 2024 ($ in thousands): Three Months Ended March 31, 2025 2024 Cost of revenues Materials and finished products $ 1,148 $ 611 Share-based compensation 5 3 Compensation and benefits 101 181 Depreciation and amortization 71 31 Commission and contract fees 139 117 Equipment, production and other expenses 154 163 Total cost of revenues $ 1,618 $ 1,106 Cost of revenues increased by $512, or 46.3%, to $1,618 for the three months ended March 31, 2025, as compared to $1,106 for the three months ended March 31, 2024. The increase in cost of revenues is primarily aligned with sales of branded consumer products, as Silly George was acquired after the comparable 2024 time period. Selling, general and administrative expenses . The following table highlights Selling, general and administrative expenses by type for the three months ended March 31, 2025 and 2024 ($ in thousands): Three Months Ended March 31, 2025 2024 Selling, general and administrative expenses Compensation and benefits $ 355 $ 252 Share-based compensation 161 51 Depreciation and amortization 42 31 Advertising, marketing, and Amazon fees 641 136 Investor and shareholder services 63 62 Franchise tax and corporate insurance 29 58 Professional and consulting fees 506 364 Other expenses and professional fees 167 75 Total selling, general and administrative expenses $ 1,964 $ 1,029 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. 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. 35 Table of Contents 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. Advertising, marketing, Amazon fees increased by $505, or 371.3%, to $641 for the three months ended March 31, 2025, as compared to $136 for the three months ended March 31, 2024. The increase primarily pertains to an increase in consumer branded product sales year over year. 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. 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. 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. 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. Research and development expenses . Research and development expenses were $1 and $2 for the three months ended March 31, 2025 and March 31, 2024, respectively. Liquidity and Capital Resources ($ in thousands) Cash Flow (in thousands) March 31, March 31, 2025 2024 Net cash used in operating activities $ (400 ) $ (1,092 ) Net cash provided by (used in) investing activities - (118 ) Net cash provided by (used in) financing activities (215 ) 929 Net increase (decrease) in cash and cash equivalents (615 ) (281 ) Cash and cash equivalents at beginning of year 1,807 2,700 Cash and cash equivalent at end of quarter $ 1,192 $ 2,419 As of March 31, 2025, we had $1,192 of cash and 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. 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. 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. 36 Table of Contents 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. We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we anticipate that all available funds and any earnings generated in our business will be used to finance the growth of our business and will not be paid out as dividends to our shareholders. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our Board of Directors may deem relevant. Management is exploring new product channel sales in consumer products, such as cosmetics, athletic products, and proprietary medical devices. The Company has increased its focus on sales and developing a sales pipeline for potential customers. This customer base expansion will enable us to provide financial stability for the foreseeable future, expand our current processes, and position us for long-term shareholder value creation. 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. 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. Off Balance Sheet Arrangements As of March 31, 2025, we had no off-balance sheet arrangements in the nature of guarantee contracts, retained or contingent interests in assets transferred to entities (or similar arrangements serving as credit, liquidity or market risk support to entities for any such assets), or obligations (including contingent obligations) arising out of variable interests in entities providing financing, liquidity, market risk or credit risk support to us, or that engage in leasing, hedging or research and development services with us. Critical Accounting Policies and Estimates The preparation of our accompanying condensed consolidated financial statements in accordance with generally accepted accounting principles is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider the accounting policies discussed below to be critical to the understanding of our Financial Statements. Actual results could differ from our estimates and assumptions, and any such differences could be material to our Financial Statements. 37 Table of Contents Share-based compensation – We utilize share-based compensation in the form of incentive stock options. The fair values of incentive stock option award grants are estimated as of the date of grant using a Black-Scholes option valuation model. Compensation expense is recognized in the statements of operations on a straight-line basis over the requisite service period, which is generally the vesting period required to obtain full vesting. The expected term of the awards granted is estimated using the simplified method which computes the expected term as the sum of the award’s vesting term plus the original contractual term divided by two. Warrant Liability – Warrants to purchase common stock were issued in connection with equity financing raises which occurred during 2019 through 2024. The fair values of the warrants are estimated as of the date of issuance and again at each year end using a Black-Scholes option valuation model. At issuance, the fair value of the warrant is recognized as an equity issuance cost within additional paid-in-capital. Fair value adjustments to the warrant liability are recognized in other income (expense) in the statements of operations. The expected term of the awards granted are based on either the three-year or five-year contractual expiration date. Black Scholes Inputs - The fair value of each stock option award and warrant issued was estimated on the date of grant using a Black-Scholes option-valuation model, which requires management to make certain assumptions regarding: (i) fair value of the common stock that underlies the stock option; (ii) the expected volatility in the market price of our common stock; (iii) dividend yield; (iv) risk-free interest rates; and (iv) the period of time employees are expected to hold the award prior to exercise (referred to as the expected term). Under the Black-Scholes option-valuation model, entities typically estimate the expected volatility based on historical volatilities of the entity’s own common stock. Based on the lack of historical data of volatility for the Company’s common stock, the Company based its estimate of expected volatility on a weighted average of the historical volatility of comparable public companies that manufacture similar products and are similar in size, stage of life cycle, and financial leverage. The fair value of the common stock that underlies the stock option is estimated by the Company considering the price of the most recent issuance of the Company’s common stock. The dividend yield is based upon the assumption that the Company will not declare a dividend over the life of the options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for bonds with maturities consistent with the expected term of the related award. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required. ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures. As of March 31, 2025, we conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”), as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Disclosure Controls evaluation was done under the supervision and with the participation of management, including our chief executive officer and chief financial officer. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our chief executive officer and chief financial officer have concluded that our Disclosure Controls and Procedures were not effective as of March 31, 2025, due to material weaknesses in our internal control over financial reporting, which are described below. Specifically, management has concluded that its internal control over financial reporting was not effective as of March 31, 2025 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America due to the following: (i) we have not designed controls to ensure all accounting journals entries are reviewed and approved and (ii) we identified one individual in our accounting department who has “super user” access and security administration rights to the financial reporting systems. To remediate these material weaknesses, we are working to do the following: (i) implementing appropriate controls for accounting journal entry approvals, including the approval of our Chief Financial Officer, and (ii) either actively monitoring any accounting user with elevated rights or assigning another employee outside of an accounting and reporting role with elevated access. We expect to complete these remediation efforts by June 30, 2025 or, at the latest, by September 30, 2025. Additionally, we have not designed controls to ensure the financial reporting process is operating effectively. We noted improper fair value adjustments to contingent consideration, failure to record adequate inventory reserves and various balance sheet accounts not being properly reconciled. We intend to design controls to ensure the financial information is accurate, complete, and recorded in the correct period. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 38 Table of Contents PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On April 9, 2025, we filed a Complaint for Declaratory Judgment against Kiss Nail Products, Inc. (“Kiss Nail Products”) in the United States District Court for the Eastern District of Pennsylvania ( NexGel, Inc. v. Kiss Nails Products, Inc. ). The dispute relates a takedown notice sent by Kiss Nail Products to Amazon.com claiming that our ready-to-use eyelash extension products sold under our Silly George brand violate a United States patent owned by Kiss Nail Products. Based on advice from our patent legal counsel, we believe the patent owned by Kiss Nails Products is invalid and expect to prevail in our action for declaratory judgment to declare the patent invalid. However, if we are unable to prevail in our action, certain of our ready-to-use eyelash extension products may be removed from Amazon.com, which would result in a material adverse effect to our business and financial results. From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as described above, we are currently not aware of any such legal proceedings or claims. There are no material proceedings in which any of our directors, officers or affiliates or any registered or beneficial shareholder of more than 5% of our common stock is an adverse party or has a material interest adverse to our interest ITEM 1A. RISK FACTORS In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2024 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. There have been no material changes during fiscal year 2025 to the risk factors that were included in the Form 10-K. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS (a) Sales of Unregistered Securities during the three months ended March 31, 2025 The Company did not sell any unregistered securities during the three months ended March 31, 2025. (b) Issuer Repurchases of Securities during the three months ended March 31, 2025 The Company did not repurchase any of its securities during the three months ended March 31, 2025. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ITEM 5. OTHER INFORMATION Rule 10b5-1 Trading Plans . During the three months ended March 31, 2025, no director or officer of the Company adopted , modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. 39 Table of Contents ITEM 6. EXHIBITS See “Index to Exhibits” for a description of our exhibits. Index to Exhibits Exhibit No. Description 3.1 Certificate of Incorporation of AquaMed Technologies, Inc. (incorporated by reference to Exhibit 3.1 to Form S-1, filed with the SEC on January 9, 2019). 3.2 Certificate of Amendment to Certificate of Incorporation of AquaMed Technologies, Inc. (incorporated by reference to Exhibit 3.2 to Form S-1, filed with the SEC on January 9, 2019). 3.3 Amended and Restated Certificate of Incorporation of AquaMed Technologies, Inc. (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to Form S-1, filed with the SEC on March 11, 2019). 3.4 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of AquaMed Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed with the SEC on November 14, 2019) 3.5 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of NexGel, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed with the SEC on May 29, 2020) 3.6 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of NexGel, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed with the SEC on August 2, 2021) 3.7 Amended and Restated Bylaws of AquaMed Technologies, Inc. (incorporated by reference to Exhibit 3.5 to Amendment No. 1 to Form S-1, filed with the SEC on March 11, 2019). 31.1* Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002. 31.2* Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002. 32.1* Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101* The following materials from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter March 31, 2025, formatted in iXBRL (Inline eXtensible Business Reporting Language), (i) Balance Sheets, (ii) Statements of Operations, (iii) Statements of Stockholders’ Equity, (iv) Statements of Cash Flows, and (v) Notes to the Financial Statements. 104* Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit). * Filed herewith. ** Certain exhibits and schedules have been omitted and the Company agrees to furnish supplementary to the Securities and Exchange Commission a copy of any omitted exhibits upon request. 40 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEXGEL, INC. Date: May 13, 2025 By: /s/ Adam Levy Name: Adam Levy Title: Chief Executive Officer (Principal Executive Officer) By: /s/ Joseph F. McGuire Name: Joseph F. McGuire Title: Chief Financial Officer (Principal Financial Officer) 41