10-Q: NexGel Reports Q3 2025 Results, Addresses Going Concern

NexGel, Inc. reported increased revenue and improved net loss for the nine months ended September 30, 2025, but acknowledged substantial doubt about its ability to continue as a going concern and disclosed material weaknesses in internal controls.

Summary

• Net revenues for the nine months ended September 30, 2025, increased by 52.7% to $8.625 million, compared to $5.647 million for the same period in 2024.
• Gross profit for the nine months ended September 30, 2025, rose by 120.4% to $3.690 million, with gross profit margin improving to 42.8% from 29.6% in the prior year.
• Net loss attributable to NexGel stockholders for the nine months ended September 30, 2025, improved to $(2.030) million, from $(2.431) million in the prior year.
• Net cash used in operating activities significantly decreased to $(1.592) million for the nine months ended September 30, 2025, from $(3.008) million in the prior year.
• The company had a cash balance of $938 thousand and $920 thousand in restricted cash as of September 30, 2025.
• Working capital decreased to $2.294 million as of September 30, 2025, from $2.644 million at December 31, 2024.
• The company completed an August Financing on July 31, 2025, raising approximately $950,000 gross proceeds from the sale of 413,043 common shares and issuing warrants for 206,521 shares.
• An additional private placement on July 31, 2025, raised $105,000 gross proceeds from the sale of 45,652 shares and issued warrants for 22,826 shares.
• NexGel expanded its partnership with STADA Arzneimittel AG, receiving a $1 million advance in non-dilutive capital on July 14, 2025, with $920 thousand held as restricted cash.
• The Enigma Joint Venture, formed on January 6, 2023, was dissolved on December 23, 2024.
• The company's disclosure controls and procedures were not effective as of September 30, 2025, due to material weaknesses in internal control over financial reporting.

Sentiment

Score: 4

Explanation: While the company showed significant revenue growth and improved net loss and operating cash flow, the explicit 'going concern' warning and disclosed 'material weaknesses' in internal controls present substantial financial and operational risks, tempering positive sentiment from financial improvements.

Positives

• Net revenues for the nine months ended September 30, 2025, increased by 52.7% to $8.625 million, driven by growth in branded consumer products and contract manufacturing.
• Gross profit for the nine months ended September 30, 2025, increased by 120.4% to $3.690 million, with the gross profit margin improving significantly to 42.8%.
• Net loss attributable to NexGel stockholders improved to $(2.030) million for the nine months ended September 30, 2025, compared to $(2.431) million in the prior year.
• Net cash used in operating activities decreased substantially to $(1.592) million for the nine months ended September 30, 2025, from $(3.008) million in the prior year, indicating improved operational cash efficiency.
• The company secured $1 million in non-dilutive capital from STADA Arzneimittel AG, strengthening its financial position for product launches and marketing.
• The CGN JV segment reported income from operations of $177 thousand for the nine months ended September 30, 2025, a significant improvement from a loss of $(405) thousand in the prior year.

Negatives

• The company's cash balance of $938 thousand as of September 30, 2025, combined with a net loss and cash usage in operating activities, raises substantial doubt about its ability to continue as a going concern.
• Disclosure controls and procedures were deemed not effective as of September 30, 2025, due to material weaknesses in internal control over financial reporting.
• Material weaknesses include a lack of proper segregation of duties (one individual with super user access, no review/approval of all accounting journal entries) and ineffective financial reporting processes (improper fair value adjustments, inadequate inventory reserves, unreconciled balance sheet accounts).
• Working capital decreased to $2.294 million as of September 30, 2025, from $2.644 million at December 31, 2024.
• Total liabilities increased to $6.044 million as of September 30, 2025, from $4.903 million at December 31, 2024.
• Revenue for the three months ended September 30, 2025, slightly decreased by 0.20% to $2.934 million compared to $2.940 million in the prior year period.
• The company expects to continue incurring losses for the near-term.

Risks

• Ability to continue as a going concern due to current financial conditions.
• Inadequate capital or inability to raise sufficient capital to execute business plans.
• Inability to comply with current good manufacturing practices.
• Loss or retirement of key executives.
• Need for significant additional outlays of working capital before generating significant revenues, with uncertainty regarding when significant revenues will begin.
• 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 manufacturing processes and equipment.
• Technical problems with research and products.
• Risks associated with mergers and acquisitions, including implementation costs and potential failure to achieve expected gains, revenue growth, or expense savings.
• Price increases for supplies and components.
• Inability to carry out business plans.
• Potential adverse outcome in the legal proceeding against Kiss Nail Products, Inc., which could lead to removal of Silly George products from Amazon.com and a material adverse effect on business and financial results.

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. It intends to grow its existing contract manufacturing business and continue developing its catalog of consumer products for branding partners, utilizing in-house capabilities to create and test market additional branded products online. Furthermore, NexGel plans to develop its own proprietary medical devices and explore drug delivery programs. Strategic initiatives, including potential acquisitions and additional capital raises through debt or equity, are continuously evaluated. The company expects to continue incurring losses in the near-term.

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.
• 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.
• 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 in the specialized hydrogel manufacturing sector, serving healthcare, medical diagnostics, transdermal drug delivery, and cosmetics. The company's strategy to expand into branded consumer products through acquisitions like Kenkoderm and Silly George, and its focus on direct-to-consumer sales via online channels, aligns with broader industry trends of vertical integration and digital commerce growth in health and beauty. The partnership with STADA Arzneimittel AG for European product launches indicates an effort to tap into international markets and leverage established distribution networks, a common strategy for smaller players seeking scale. The dissolution of the Enigma JV suggests a refinement of its joint venture strategy, potentially focusing on more synergistic partnerships like CGN JV. The legal dispute over patent infringement highlights competitive pressures in the beauty and personal care segments.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

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 concerns a takedown notice from Kiss Nail Products to Amazon.com, claiming NexGel's Silly George ready-to-use eyelash extension products violate a U.S. patent. NexGel believes the patent is invalid and expects to prevail; however, an unfavorable outcome could lead to product removal from Amazon.com, materially adversely affecting the business and financial results.

Related Party Transactions

• As of September 30, 2025, the company had outstanding balances of $404 thousand due to C.G. Laboratories, Inc., a related party, for contract manufacturing, packaging, and other services.
• As of September 30, 2025, the company had an outstanding balance of $17 thousand due to the CEO of CG Labs.

Stakeholder Impact

• Shareholders face significant risk due to the 'going concern' warning and material weaknesses in internal controls, which could impact stock valuation and investor confidence.
• Employees may experience uncertainty given the company's financial condition and ongoing efforts to achieve profitability.
• Customers may benefit from new product offerings and expanded distribution channels, but potential disruptions from legal proceedings or financial instability could affect product availability.
• Suppliers and creditors face increased risk due to the 'going concern' warning and potential for future capital raises, although the STADA advance provides some short-term liquidity.
• Regulatory bodies (SEC) are directly impacted by the disclosed material weaknesses in internal controls, requiring remediation and ongoing monitoring.

Next Steps

• Implement appropriate controls for accounting journal entry approvals, including CFO approval, to remediate material weaknesses.
• Actively monitor any accounting user with elevated rights or assign another employee outside of an accounting and reporting role with elevated access to address segregation of duties.
• Design controls to ensure the financial reporting process is operating effectively, addressing improper fair value adjustments, inadequate inventory reserves, and balance sheet reconciliations.
• Explore new product channel sales in cosmetics, athletic products, and proprietary medical devices.
• Increase focus on sales and developing a sales pipeline for potential customers.
• Continue building and developing the catalog of consumer products for sale to branding partners.
• Use in-house capabilities to create and test market additional branded products, sold online through social media and online marketplaces.
• Develop proprietary medical devices and explore drug delivery programs for its technology.
• Evaluate strategic initiatives, including potential acquisitions, and additional capital raises through debt or equity.
• Continue legal proceedings against Kiss Nail Products, Inc. to declare their patent invalid.

Key Dates

Recommendation

Despite significant revenue growth and an improved net loss, the explicit 'going concern' warning and the disclosure of 'material weaknesses' in internal controls over financial reporting present fundamental and severe risks to the company's operational integrity and financial viability. The current cash position, while supplemented by recent capital raises, remains tight relative to ongoing losses and the need for future capital. The legal dispute also adds an element of uncertainty. These factors collectively indicate a high level of risk and uncertainty, making the stock a 'sell' for seasoned investors until these critical issues are demonstrably resolved and sustained profitability is achieved.

Keywords

Hydrogel, Wound Care, Medical Diagnostics, Transdermal Drug Delivery, Cosmetics, Contract Manufacturing, Branded Consumer Products, Kenkoderm, Silly George, SEC Filing, 10-Q, Financial Results, Going Concern, Internal Controls, Capital Raise, STADA, Joint Venture