NXGL.NASDAQNexgel, INC
10-Q: NexGel Q2 Revenue Soars 100%, But Going Concern Looms
Sentiment:
Quarterly Report
NexGel, Inc. reported a significant revenue increase of over 100% for Q2 2025, alongside improved gross profit and reduced net loss, yet faces substantial doubt about its ability to continue as a going concern.
Capital raiseOn July 31, 2025, the company entered into subscription agreements for the August Financing, selling 413,043 shares of common stock at $2.30 per share, generating approximately $950,000 in gross proceeds.In connection with the August Financing, warrants to purchase up to 206,521 shares of common stock were issued at an exercise price of $4.25 per share.The company paid the placement agent an 8% cash fee on gross proceeds from non-affiliates and issued warrants exercisable for up to 33,044 shares at $4.25 per share.Additionally, on July 31, 2025, the company agreed to sell 45,652 shares of common stock at $2.30 per share to a consultant, a board member, and an existing stockholder for aggregate gross proceeds of $105,000, with warrants to purchase up to 22,826 additional shares.
Better than expectedRevenue for the three months ended June 30, 2025, increased by 100.3% to $2.884 million compared to $1.440 million in the prior year.Gross profit for the three months ended June 30, 2025, was $1.258 million, significantly higher than $293 thousand in the prior year, with gross profit margin improving from 20.3% to 43.6%.Net loss attributable to NexGel stockholders for the three months ended June 30, 2025, decreased to $(665) thousand from $(885) thousand in the prior year, indicating improved financial performance.
Summary
- Revenues for the three months ended June 30, 2025, increased by 100.3% to $2.884 million, up from $1.440 million in the prior year.
- Gross profit for the three months ended June 30, 2025, was $1.258 million, a significant increase from $293 thousand in the same period last year, with gross profit margin improving to 43.6% from 20.3%.
- Net loss attributable to NexGel stockholders for the three months ended June 30, 2025, improved to $(665) thousand from $(885) thousand in the prior year.
- For the six months ended June 30, 2025, revenues increased by 110.3% to $5.690 million, compared to $2.706 million in the prior year.
- Gross profit for the six months ended June 30, 2025, was $2.446 million, up from $519 thousand in the prior year, with gross profit margin improving to 43.0% from 19.2%.
- Net loss attributable to NexGel stockholders for the six months ended June 30, 2025, improved to $(1.377) million from $(1.738) million in the prior year.
- Cash balance as of June 30, 2025, was $725 thousand, a decrease from $1.807 million at December 31, 2024.
- Working capital decreased to $1.766 million as of June 30, 2025, from $2.644 million at December 31, 2024.
- Management has identified material weaknesses in internal control over financial reporting as of June 30, 2025, including lack of journal entry approval controls and excessive user access rights.
- The company's ability to continue as a going concern is in substantial doubt due to its cash balance, net loss, and net cash usage in operating activities.
Sentiment
Score: 6
Explanation: The sentiment is cautiously optimistic. While the company shows strong revenue growth and improved gross margins, significant concerns remain regarding its 'going concern' status, declining cash, and internal control weaknesses. The recent capital raise and strategic partnership with STADA provide a positive outlook for future growth and liquidity, but the underlying financial stability and operational integrity require close monitoring.
Positives
- Revenue increased by 100.3% for the three months and 110.3% for the six months ended June 30, 2025, driven by growth in contract manufacturing and branded consumer products.
- Gross profit significantly improved, with margins rising to 43.6% (Q2 2025) and 43.0% (YTD 2025), indicating better cost management relative to sales.
- Net loss attributable to stockholders decreased for both the three-month and six-month periods, showing progress towards profitability.
- Net cash used in operating activities decreased significantly to $(807) thousand for the six months ended June 30, 2025, from $(1.792) million in the prior year, indicating improved operational cash flow.
- Expanded partnership with STADA Arzneimittel AG announced on July 14, 2025, including a $1 million non-dilutive advance to support new product launches.
- Successfully completed an August Financing on August 5, 2025, raising approximately $950 thousand in gross proceeds, providing additional working capital.
Negatives
- Substantial doubt exists about the company's ability to continue as a going concern due to its current cash position, accumulated losses, and cash burn from operations.
- Cash balance decreased to $725 thousand as of June 30, 2025, from $1.807 million at December 31, 2024.
- Working capital decreased to $1.766 million as of June 30, 2025, from $2.644 million at December 31, 2024.
- Identified material weaknesses in internal control over financial reporting, specifically regarding accounting journal entry approvals and super user access to financial systems, which could impact financial reporting reliability.
- A legal dispute with Kiss Nail Products, Inc. regarding a patent infringement claim on Silly George eyelash extension products could materially adversely affect business and financial results if the company does not prevail.
- Net cash used in financing activities for the six months ended June 30, 2025, was $(255) thousand, a shift from cash provided by financing activities in the prior year, indicating reliance on new capital raises.
Risks
- Ability to continue as a going concern is in substantial doubt.
- Inadequate capital or inability to raise sufficient capital to execute business plans.
- Challenges in complying with current good manufacturing practices.
- Potential loss or retirement of key executives.
- Requirement for significant additional outlays of working capital before generating significant revenues.
- Uncertainty regarding when significant revenues will be generated.
- Adverse economic conditions and/or intense competition.
- Loss of a key customer or supplier.
- Entry of new competitors in the market.
- Adverse federal, state, and local government regulation.
- Technological obsolescence of manufacturing processes and equipment.
- Technical problems with research and products.
- Risks associated with mergers and acquisitions, including time and cost of implementation and potential failure to achieve expected gains, revenue growth, or expense savings.
- Price increases for supplies and components.
- Inability to carry out business plans.
- Litigation risk from the Complaint for Declaratory Judgment against Kiss Nail Products, Inc. regarding patent infringement.
- Concentration of revenues with a small group of customers (one customer approximated 10% of total revenue for the six months ended June 30, 2025).
- Concentration of accounts receivable with a few customers (three customers accounted for 12%, 14%, and 35% of total accounts receivable as of June 30, 2025).
- Cash balances maintained at major U.S. financial institutions may exceed FDIC insurance limits, exposing the company to credit risk.
Future Outlook
Management is actively exploring new product channel sales in adjacent industries such as cosmetics, athletic products, and proprietary medical devices. The company plans to increase its focus on sales and developing a sales pipeline to expand its customer base, aiming for financial stability and long-term shareholder value creation. It intends to maintain and grow its existing contract manufacturing business, continue building its catalogue of consumer products for branding partners, and use in-house capabilities to create and test market additional branded products online. Furthermore, the company plans to develop its own proprietary medical devices and explore drug delivery programs. Additional capital raises through debt or equity may be necessary to achieve these objectives, and the company expects to continue incurring losses in the near-term future. The ability to continue as a going concern long-term is dependent on achieving profitable operations.
Management Comments
- 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 to provide financial stability and position 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.
- The company plans to develop its own proprietary medical devices and explore drug delivery programs for its technology.
- 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.
Industry Context
NexGel operates within the specialized hydrogel manufacturing sector, serving diverse applications including wound care, medical diagnostics, transdermal drug delivery, and cosmetics. The company's strategic shift towards branded consumer products, exemplified by the acquisitions of Kenkoderm (skincare for psoriasis) and Silly George (eyelash/beauty products), positions it in the competitive health and beauty consumer market. The recent partnership with STADA Arzneimittel AG, a European leader in consumer health, indicates a move towards expanding its reach in the pharmaceutical and consumer health sectors, leveraging its core hydrogel technology for new product categories like digestive enzymes and scar/stretch mark solutions. This diversification aims to capitalize on growing demand for specialized consumer health and beauty products while maintaining its contract manufacturing base.
Comparison to Industry Standards
- NA
Management Changes
| Role | Previous Person | New Person | Effective Date | Reason |
|---|---|---|---|---|
| Board Member | NA | Steven A. Ciardiello | 2025-07-31 | Appointment to the Board and Audit Committee. |
Corporate Governance
| Change Type | Description | Effective Date | Impact Assessment |
|---|---|---|---|
| Internal Control Weakness | Management concluded that its internal control over financial reporting was not effective as of June 30, 2025, due to a lack of designed controls for accounting journal entry approvals. | 2025-06-30 | Reasonably likely to adversely affect the ability to record, process, summarize, and report financial information reliably. Remediation efforts are underway, expected to be completed by December 31, 2025. |
| Internal Control Weakness | Management identified one individual in the accounting department with super user access and security administration rights to the financial reporting systems. | 2025-06-30 | Reasonably likely to adversely affect the ability to record, process, summarize, and report financial information reliably. Remediation efforts are underway, expected to be completed by December 31, 2025. |
| Internal Control Weakness | The financial reporting process was not operating effectively, with noted improper fair value adjustments to contingent consideration, failure to record adequate inventory reserves, and various balance sheet accounts not being properly reconciled. | 2025-06-30 | Reasonably likely to adversely affect the ability to record, process, summarize, and report financial information reliably. Remediation efforts are underway, expected to be completed by December 31, 2025. |
Legal Proceedings
- On April 9, 2025, NexGel, Inc. filed a Complaint for Declaratory Judgment against Kiss Nail Products, Inc. in the United States District Court for the Eastern District of Pennsylvania.
- The dispute relates to a takedown notice from Kiss Nail Products to Amazon.com, claiming that NexGel's ready-to-use eyelash extension products sold under the Silly George brand violate a United States patent owned by Kiss Nail Products.
- NexGel believes the patent is invalid and expects to prevail; however, an inability to prevail could result in the removal of certain products from Amazon.com, leading to a material adverse effect on the business and financial results.
Related Party Transactions
- As of June 30, 2025, the company had outstanding balances of $447 thousand due to C.G. Laboratories, Inc. (CG Labs), a related party, for contract manufacturing, packaging, and other services.
- As of December 31, 2024, the company had outstanding balances of $494 thousand due to C.G. Laboratories, Inc. (CG Labs) 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.
Stakeholder Impact
- Shareholders: Potential for increased value from strong revenue growth and strategic partnerships, but face risks from the 'going concern' warning, cash burn, and potential dilution from recent and future capital raises. Rule 10b5-1 trading plans by CEO and a board member indicate potential future share sales.
- Employees: Compensation and benefits increased, and share-based compensation was issued to officers, employees, and advisors, indicating continued investment in human capital.
- Customers: Expanded product offerings through acquisitions (Kenkoderm, Silly George) and new product development (STADA partnership) could benefit customers with a broader range of health and beauty solutions.
- Creditors: The 'going concern' warning and declining cash balance may raise concerns for creditors, although recent capital raises provide some short-term liquidity.
- Suppliers: Increased cost of revenues, particularly for materials and finished products, suggests higher demand from suppliers, but the company's financial health could impact supplier relationships if not managed effectively.
Next Steps
- Explore new product channel sales in adjacent industries (cosmetics, athletic products, proprietary medical devices).
- Increase focus on sales and developing a sales pipeline for potential customers.
- Maintain and grow the existing contract manufacturing business.
- Continue building and developing the catalogue of consumer products for sale to branding partners.
- Utilize in-house capabilities to create and test market additional branded products online through social media, television, and online marketplaces.
- Develop proprietary medical devices and explore drug delivery programs for its technology.
- Evaluate strategic initiatives, including potential acquisitions.
- Remediate identified material weaknesses in internal control over financial reporting by December 31, 2025, by implementing journal entry approval controls and actively monitoring/reassigning elevated user access.
Key Dates
| Date | Description |
|---|---|
| 2019-09-10 | Company issued 35,714 warrants as equity issuance consideration. |
| 2019-11-06 | Company issued 114,286 warrants as equity issuance consideration. |
| 2019-11-14 | Company changed its name from AquaMed Technologies, Inc. to NexGel, Inc. |
| 2020-03-18 | Company issued 44,286 warrants as equity issuance consideration. |
| 2020-05-26 | Board approved an increase of authorized shares under the 2019 Long-Term Incentive Plan to 485,715. |
| 2020-05-28 | Company entered into the Economic Injury Disaster Loan (EIDL Loan) from the SBA. |
| 2020-12-24 | Company issued 7,286 warrants as equity issuance consideration. |
| 2021-02-03 | Company issued 7,429 warrants as equity issuance consideration. |
| 2021-03-11 | Company issued 34,285 warrants as equity issuance consideration. |
| 2021-05-03 | Board approved an increase of authorized shares under the 2019 Long-Term Incentive Plan to 571,429. |
| 2021-09-02 | Company issued 22,019 warrants as equity issuance consideration. |
| 2022-12-01 | Company made its first payment on the EIDL loan. |
| 2023-01-06 | Company acquired a 50% interest in the newly formed Enigma Joint Venture. |
| 2023-03-01 | Company acquired a 50% interest in the newly formed CG Converting and Packaging, LLC (CGN JV). |
| 2023-12-01 | Company closed the Kenkoderm acquisition. |
| 2023-12-23 | The Enigma Joint Venture was dissolved. |
| 2023-12-31 | Executive Employment Agreement with Adam Levy dated. |
| 2024-02-11 | Promissory note agreement for certain leasehold improvements began for the NexGel Segment. |
| 2024-02-15 | Company entered into subscription agreements for the February Offering. |
| 2024-02-29 | CGN JV entered into a lease agreement for certain equipment. |
| 2024-03-01 | Closing of the February Offering occurred. |
| 2024-03-13 | Promissory note agreements for certain equipment began for the CGN JV. |
| 2024-05-15 | Company purchased substantially all assets related to the Silly George business (Silly George acquisition). |
| 2024-06-30 | Fiscal quarterly period for Silly George earn-out began. |
| 2024-12-31 | Board approved an additional 780,000 shares of common stock to be reserved under the 2019 Plan. |
| 2025-01-01 | Effective date for FASB ASU 2023-05 (Joint Venture Formations). |
| 2025-01-02 | Company granted options to Adam Levy (150,000 shares) and Joe McGuire (100,000 shares). Company granted fully vested restricted stock awards to two Board members (5,000 shares total) and Joseph McGuire (4,082 shares). |
| 2025-04-09 | Company filed a Complaint for Declaratory Judgment against Kiss Nail Products, Inc. |
| 2025-06-17 | Company's 2025 Annual Meeting of Stockholders, where the 780,000 share increase for the 2019 Plan was approved. |
| 2025-06-24 | Scott R. Henry and Adam R. Levy entered into Rule 10b5-1 trading plans. |
| 2025-06-25 | Company granted options to four non-employee Board members (30,000 shares each) and restricted stock awards to two Board members (5,000 shares each). |
| 2025-07-14 | Company announced expanding its partnership with STADA Arzneimittel AG. |
| 2025-07-31 | Company entered into subscription agreements for the August Financing and an Additional Private Placement. Steven A. Ciardiello was appointed to the Board. |
| 2025-08-05 | Closing of the August Financing occurred. |
| 2025-08-12 | Date of filing of the Quarterly Report on Form 10-Q. |
| 2025-12-31 | Expected completion of remediation efforts for internal control weaknesses. |
| 2026-02-27 | Adam R. Levy's Rule 10b5-1 trading plan termination date. |
| 2026-12-31 | Scott R. Henry's Rule 10b5-1 trading plan termination date. |
| 2028-02-01 | Sublease for office and manufacturing space in Granbury, Texas runs through. |
| 2028-06-30 | Fiscal quarterly period for Silly George earn-out ends. |
| 2030-01-01 | CGN JV lease agreement for certain equipment matures. |
| 2031-01-01 | Operating lease for commercial manufacturing facility and administrative offices in Langhorne, Pennsylvania runs through. |
| 2033-02-01 | Option to extend the Granbury, Texas sublease through. |
Recommendation
holdWhile NexGel demonstrated strong revenue growth and improved gross profit margins, the persistent 'going concern' doubt, declining cash reserves, and identified material weaknesses in internal controls present significant risks. The recent capital raise and strategic partnership with STADA provide crucial liquidity and growth avenues, but the long-term viability remains contingent on successful execution and addressing fundamental financial and operational challenges. A 'hold' recommendation reflects the balanced view of growth potential against substantial inherent risks.
Keywords
Hydrogel, Wound Care, Medical Diagnostics, Transdermal Drug Delivery, Cosmetics, Contract Manufacturing, Branded Consumer Products, Skincare, Eyelashes, Health & Beauty, SEC Filing, 10-Q, Financial Results, Pharmaceutical, Biotechnology
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