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: June 30, 2023

☐	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 non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 August 11, 2023, the registrant had 5,696,064 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 June 30, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	6
	Notes to Condensed Consolidated Financial Statements	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	30
ITEM 4.	Controls and Procedures	30

PART II – OTHER INFORMATION
ITEM 1.	Legal Proceedings	30
ITEM 1A.	Risk Factors	30
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
ITEM 3.	Defaults Upon Senior Securities	30
ITEM 4.	Mine Safety Disclosures	30
ITEM 5.	Other Information	30
ITEM 6.	Exhibits	31

Signatures		32

	June 30, 2023			December 31, 2022
ASSETS:
Current Assets:
Cash	$	3,691		$	1,101
Marketable securities		612			5,508
Accounts receivable, net		950			222
Inventory		1,079			502
Prepaid expenses and other current assets		366			172
Total current assets		6,698			7,505
Goodwill		311			311
Intangibles, net		13			20
Property and equipment, net		1,413			721
Operating lease - right of use asset		1,967			1,737
Other assets		95			63
Total assets	$	10,497		$	10,357

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	1,058		$	265
Accrued expenses and other current liabilities		202			130
Current portion of note payable		15			15
Warrant liability		165			242
Operating lease liability, current portion		232			207
Total current liabilities		1,672			859
Operating lease liability, net of current portion		1,819			1,593
Notes payable, net of current portion		265			268
Total liabilities		3,756			2,720

Commitments and Contingencies (Note 15)		-			-

STOCKHOLDERS’ EQUITY
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; 5,696,064 and 5,577,916 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		6			6
Additional paid-in capital		19,242			19,189
Accumulated deficit		(13,067	)		(11,558	)
Total NexGel stockholders’ equity		6,181			7,637
Non-controlling interest in joint venture		560			-
Total stockholders’ equity		6,741			7,637
Total liabilities and stockholders’ equity	$	10,497		$	10,357

	2023			2022			2023			2022
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Revenues, net	$	1,167		$	561		$	1,786		$	956

Cost of revenues		992			460			1,669			884

Gross profit		175			101			117			72

Operating expenses
Research and development		55			111			84			135
Selling, general and administrative		882			708			1,679			1,467
Total operating expenses		937			819			1,763			1,602

Loss from operations		(762	)		(718	)		(1,646	)		(1,530	)

Other income (expense)
Interest expense		(9	)		(348	)		(10	)		(1,092	)
Interest income		2			-			2			-
Loss on debt extinguishment		-			-			-			(150	)
Other income		-			2			4			2
Gain on investments		116			-			124			-
Changes in fair value of warrant liability		11			29			77			(101	)
Total other income (expense), net		120			(317	)		197			(1,341	)
Loss before income taxes		(642	)		(1,035	)		(1,449	)		(2,871	)
Income tax expense		-			-			-			-
Net loss	$	(642	)	$	(1,035	)		(1,449	)		(2,871	)
Less: Income attributable to non-controlling interest in joint venture		53			-			60			-
Net loss attributable to NexGel stockholders		(695	)		(1,035	)		(1,509	)		(2,871	)
Net loss per common share - basic	$	(0.12	)	$	(0.19	)		(0.27	)		(0.52	)
Net loss per common share - diluted	$	(0.12	)	$	(0.19	)		(0.27	)		(0.52	)
Weighted average shares used in computing net loss per common share - basic		5,662,338			5,572,234			5,624,275			5,572,234
Weighted average shares used in computing net loss per common share – diluted		5,662,338			5,572,234			5,624,275			5,572,234

	Shares		Amount		Capital		Interest		Deficit			Equity
	Common Stock				Additional Paid-in		Non- controlling		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Interest		Deficit			Equity
Balance, January 1, 2023		5,577,916	$	6	$	19,189	$	-	$	(11,558	)	$	7,637

Restricted stock vesting		5,682		-		24		-		-			24

Exercise of warrants		30,430		-		-		-		-			-

Non-controlling interest in JV		-		-		-		500		-			500

Net income (loss)		-		-		-		7		(814	)		(807	)

Balance, March 31, 2023		5,614,028	$	6	$	19,213	$	507	$	(12,372	)	$	7,354

Stock-based compensation		-		-		29		-		-			29

Exercise of warrants		82,036		-		-		-		-			-

Net income (loss)		-		-		-		53		(695	)		(642	)

Balance, June 30, 2023		5,696,064	$	6	$	19,242	$	560	$	(13,067	)	$	6,741

	2023			2022
	Six Months Ended June 30,
	2023			2022
Operating Activities
Net loss	$	(1,509	)	$	(2,871	)
Adjustments to reconcile net loss to net cash used in operating activities:
Income attributable to non-controlling interest in joint venture		60			-
Depreciation and amortization		68			57
Changes in ROU asset and operating lease liability		21			19
Share-based compensation and restricted stock vesting		53			134
Gain on investment in marketable securities		124			-
Changes in fair value of warrant liability and warrant modification		(77	)		101
Amortization of deferred financing costs		-			1,086
Loss on extinguishment of debt		-			150

Changes in operating assets and liabilities:
Accounts receivable		(728	)		(91	)
Inventory		(577	)		(90	)
Prepaid expenses and other assets		(226	)		(286	)
Accounts payable		793			268
Accrued expenses and other current liabilities		72			28
Net Cash Used in Operating Activities		(1,926	)		(1,495	)

Investing Activities
Proceeds from sales of marketable securities		4,772			-
Investment in marketable securities		-			(5,371	)
Capital expenditures		(253	)		(31	)
Net Cash Provided by Investing Activities		4,519			(5,402	)

Financing Activities
Principle payments of notes payable		(3	)		(2,033	)
Net Cash Used in Financing Activities		(3	)		(2,033	)
Net Decrease in Cash		2,590			(8,930	)
Cash – Beginning of period		1,101			13,350
Cash – End of period	$	3,691		$	4,420
Supplemental Disclosure of Cash Flows Information
Cash paid during the year for:
Interest	$	-		$	-
Taxes	$	-		$	-

Supplemental Non-cash Investing and Financing activities
Property and equipment contributed as capital investment to JV	$	500		$	-
ROU asset and operating lease liabilities recognized upon consolidation of JV	$	334		$	-

	June 30,		December 31,
	2023		2022
Marketable Securities
United States treasury bills (due February 23, 2023)	$	-	$	492
United States treasury bills (due April 27, 2023)		-		20
United States treasury bills (due June 15, 2023)		-		4,384
United States treasury bills (due July 13, 2023)		127		127
United States treasury bills (due August 10, 2023)		485		485
Total	$	612	$	5,508

	Level 1		Level 2		Level 3		Fair Value
			June 30, 2023
	Level 1		Level 2		Level 3		Fair Value
Assets
Marketable securities:
United States treasury bills	$	612	$	-	$	-	$	612
Total	$	612	$	-	$	-	$	612

	Operating
	Lease
Maturity of Lease Liability	Liability
2023	$	122
2024		245
2025		245
2026		301
2027		315
Thereafter		1,115
Total undiscounted operating lease payments		2,343
Less: Imputed interest		(292	)
Present value of operating lease liability	$	2,051
Weighted average remaining lease term		8.6 years
Weighted average discount rate		3.5	%

	June 30,
	2023
Cash paid for amounts included in the measurement of lease liability:
Operating cash flows from operating lease	$	136

	Useful Life	June 30,			December 31,
	(Years)	2023			2022
Machinery and equipment	3 - 10	$	1,530		$	973
Office furniture and equipment	3 - 10		159			59
Leasehold improvements	6		261			228
Construction in progress	N/A		118			55
Total property and equipment			2,068			1,315
Less: accumulated depreciation and amortization			(655	)		(594	)
Property and equipment, net		$	1,413		$	721


($ in thousands):
2023	$	2
2024		2
2025		2
2026		2
2027		2
Thereafter		3
Total	$	13

	2023		2022
	Three months ended
	June 30,
	2023		2022
Contract manufacturing	$	887	$	324
Custom and white label finished goods manufacturing		—		19
NexGel branded consumer products		259		180
Other		21		38
Total	$	1,167	$	561

	2023		2022
	Six months ended
	June 30,
	2023		2022
Contract manufacturing	$	1,267	$	459
Custom and white label finished goods manufacturing		4		19
NexGel branded consumer products		493		392
Other		22		86
Total	$	1,786	$	956

Share-based compensation plan			528,182
Warrants to purchase common stock			3,442,904
Restricted stock units			121,787

	Awards		Awards				Awards
	Reserved for Issuance		Issued & Outstanding		Awards Exercised		Available for Grant
2019 Plan⁽¹⁾		871,429		612,932		7,183		251,314
Awards granted outside of the 2019 Plan⁽²⁾		-		37,037		11,364		-

⁽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.

						Weighted
				Weighted		Average
				Average		Contractual
	Number of			Exercise		Term in
	Options			Price		Years
Outstanding at January 1, 2023		524,937		$	2.351416		8.38
Granted		17,532			2.00		10.0
Exercised		—			—		—
Forfeited		—			—		—
Cancelled		(10,000	)		1.75		—
Expired		(4,287	)		1.40		—
Outstanding at June 30, 2023		528,182		$	2.35886		7.99
Exercisable at June 30, 2023		337,111		$	1.774915		7.21

Volatility	257.64	%
Risk-free interest rate	4.21	%
Dividend yield	0.0	%
Expected term	5.50 years

	Amount
For the year ending December 31 ($ in thousands):
2023 (remainder of the year)	$	3
2024		5
2025		5
2026		5
2027		6
Thereafter		256
Total	$	280

Warrant Liability	Warrants Outstanding			Fair Value per Share	Fair Value
Fair value as of year ended 12/31/2022		265,305			$	242
Exercise of warrants		(194,286	)			(154	)
Change in fair value of warrant liability		-

SEC Form 10-Q filed by NexGel Inc