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: ~~September 30,~~March 31, ~~2022~~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)		~~(I.R.S. Employer~~ 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 ~~November 8, 2022,~~May 15, 2023, the registrant had ~~5,572,234~~5,614,028 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	3
	Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	5
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	76
	Notes to Condensed Consolidated Financial Statements	8
		7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2224
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	2830
ITEM 4.	Controls and Procedures	28

~~PART II – OTHER INFORMATION~~

~~ITEM 1.~~	~~Legal Proceedings~~	29
~~ITEM 1A.~~	~~Risk Factors~~	29
~~ITEM 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	29
~~ITEM 3.~~	~~Defaults Upon Senior Securities~~	29
~~ITEM 4.~~	~~Mine Safety Disclosures~~	29
~~ITEM 5.~~	~~Other Information~~	29
~~ITEM 6.~~	~~Exhibits~~	30

	~~Signatures~~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		31

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NEXGEL, INC

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF ~~SEPTEMBER 30, 2022~~MARCH 31, 2023 AND DECEMBER 31, ~~2021~~2022

(Unaudited)

(in thousands, except share and per share data)

March 31,
2023

December 31,
2022

ASSETS:
Current Assets:
Cash $ 787 $ 1,101
Marketable securities 5,016 5,508
Accounts receivable, net 380 222
Inventory 968 502
Prepaid expenses and other current assets 129 172
Total current assets 7,280 7,505
Goodwill 311 311
Intangibles, net 16 20
Property and equipment, net 1,282 721
Operating lease - right of use asset 2,022 1,737
Other assets 95 63
Total assets $ 11,006 $ 10,357

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable $ 987 $ 265
Accrued expenses and other current liabilities 112 130
Notes payable, current portion 15 15
Warrant liability 176 242
Operating lease liability, current portion 232 207
Total current liabilities 1,522 859
Operating lease liability, net of current portion 1,864 1,593
Notes payable, net of current portion 266 268
Total liabilities 3,652 2,720

Commitments and Contingencies (Note 15) - -

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; 5,614,028 and 5,577,916 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively 6 6
Additional paid-in capital 19,213 19,189
Accumulated deficit (12,372 ) (11,558 )
Total NexGel stockholders’ equity 6,847 7,637
Non-controlling interest in joint venture 507 -
Total stockholders’ equity

7,354

7,637

Total liabilities and stockholders’ equity $ 11,006 $ 10,357
The accompanying notes are an integral part of these consolidated financial statements.
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NEXGEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
(in thousands, except share and per share data)

September 30, December 31,
2022 2021
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,427 $ 13,350
Marketable securities 5,985 -
Accounts receivable, net 265 209
Inventory 399 291
Prepaid expenses and other current assets 239 77
Total current assets 8,315 13,927
Goodwill 311 311
Intangibles, net 23 33
Property and equipment, net 737 723
Operating lease - right of use asset 1,785 1,926
Other assets 63 63
Total assets $ 11,234 $ 16,983

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable $ 358 $ 254
Accrued expenses and other current liabilities 164 62
Convertible notes payable - 2,037
Notes payable, current portion 14 10
Warrant liability 372 318
Operating lease liability, current portion 207 207
Total current liabilities 1,115 2,888
Long-Term Liabilities:
Operating lease liability, net of current portion 1,632 1,744
Notes payable, net of current portion 269 266
Total long-term liabilities 1,901 2,010
Total liabilities 3,016 4,898

Commitments and Contingencies (Note 14) - -

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; 5,572,234 shares issued and outstanding as of both September 30, 2022 and December 31, 2021 6 6
Additional paid-in capital 19,122 18,891
Accumulated deficit (10,910 ) (6,812 )
Total stockholders’ equity 8,218 12,085
Total liabilities and stockholders’ equity $ 11,234 $ 16,983
cash flows 2023 2022
Three months ended
March 31,
2023 2022
Revenues, net $ 620 $ 396

Cost of revenues 677 418

Gross loss (57 ) (22 )

Operating expenses
Research and development 29 24
Selling, general and administrative 797 766
Total operating expenses 826 790

Loss from operations (883 ) (812)

Other income (expense)
Interest income (expense), net (1) (744)
Loss on debt extinguishment - (150)
Changes in fair value of warrant liability and warrant modification expense 66 (130)
Gain on investment in marketable securities 7
Other income
4
-
Total other income (expense), net 76 (1,024)
Loss before income taxes (807 ) (1,836)
Income tax expense — —
Net loss (807 ) (1,836 )
Less: Income attributable to non-controlling interest in joint venture 7 —
Net loss attributable to NexGel stockholders $ (814 ) $ (1,836 )
Net loss per common share - basic $ (0.15 ) $ (0.33 )
Net loss per common share - diluted $ (0.15 ) $ (0.33 )
Weighted average shares used in computing net loss per common share - basic 5,586,326 5,572,234
Weighted average shares used in computing net loss per common share – diluted 5,586,326 5,572,234

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~
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~~NEXGEL, INC.~~
~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~
~~FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021~~
~~(Unaudited)~~
~~(in thousands, except share and per share data)~~
2022 2021 2022 2021
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Revenues, net $ 568 $ 335 $ 1,524 $ 1,018

Cost of revenues 420 392 1,304 1,113

Gross (loss)/profit 148 (57 ) 220 (95 )

Operating expenses
Research and development 193 - 328 17
Selling, general and administrative 992 553 2,459 1,571
Total operating expenses 1,185 553 2,787 1,588

Loss from operations (1,037 ) (610 ) (2,567 ) (1,683 )

Other expense, net
Interest expense (242 ) (534 ) (1,334 ) (1,052 )
Loss on debt extinguishment - - (150 ) (25 )
Warrant modification expense (57 ) - (57 ) -
Debt discount costs - - - (68 )
Other income - - 2 147
Gain on investments in marketable securities 5 - 5 -
Changes in fair value of warrant liability 104 2 3 10
Total other expense, net (190 ) (532 ) (1,531 ) (988 )
Loss before income taxes (1,227 ) (1,142 ) (4,098 ) (2,671 )
Income tax expense - - - -
Net loss $ (1,227 ) $ (1,142 ) (4,098 ) (2,671 )
Net loss per common share - basic $ (0.22 ) $ (0.38 ) (0.74 ) (0.91 )
Net loss per common share - diluted $ (0.22 ) $ (0.38 ) (0.74 ) (0.91 )
Weighted average shares used in computing net loss per common share - basic 5,572,234 2,979,371 5,572,234 2,942,057
Weighted average shares used in computing net loss per common share – diluted 5,572,234 2,979,371 5,572,234 2,942,057
The accompanying notes are an integral part of these condensed consolidated financial statements.

4
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~~NEXGEL, INC.~~
~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~
~~FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021~~
~~(Unaudited)~~
~~(in thousands, except share data)~~
Shares Amount Capital Deficit Equity
Common Stock Additional
Paid-in Accumulated Total
Stockholders’
Shares Amount Capital Deficit Equity
Balance, January 1, 2022 5,572,234 $ 6 $ 18,891 $ (6,812 ) $ 12,085

Stock-based compensation - - 55 - 55

Net loss - - - (1,836 ) (1,836 )

Balance, March 31, 2022 5,572,234 6 18,946 (8,648 ) 10,304

Stock-based compensation - - 54 - 54

Restricted stock vesting - - 25 - 25

Net loss - - - (1,035 ) (1,035 )

Balance, June 30, 2022 5,572,234 6 19,025 (9,683 ) 9,348

Stock-based compensation - - 55 - 55

Restricted stock vesting - - 42 - 42

Net loss - - - (1,227 ) (1,227 )

Balance, September 30, 2022 5,572,234 $ 6 $ 19,122 $ (10,910 ) $ 8,218
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NEXGEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2023 AND 2022 ~~AND 2021~~
(Unaudited)
(in thousands, except share data)

Common Stock
Additional
Paid-in Accumulated Total
Stockholders’
Shares Amount Capital Deficit Equity
Balance, January 1, 2021 2,838,047 $ 3 $ 2,570 $ (2,502 ) $ 71

Stock-based compensation - - 69 - 69

Restricted stock vesting - - 21 - 21

Issuances of common stock, net of issuance costs 101,800 - 285 - 285

Warrants issued for debt issuance - - (18 ) - (18 )

Beneficial conversion and warrant features of convertible debt - - 1,276 - 1,276

Net loss - - - (704 ) (704 )

Balance, March 31, 2021 2,939,847 3 4,203 (3,206 ) 1,000

Stock-based compensation - - 74 - 74

Restricted stock vesting 39,524 - 21 - 21

Net loss - - - (825 ) (825 )

Balance, June 30, 2021 2,979,371 3 4,298 (4,031 ) 270

Stock-based compensation - - 24 - 24

Restricted stock vesting - - 21 - 21

Beneficial conversion and warrant features of convertible debt - - 1,311 - 1,311

Net loss - - - (1,142 ) (1,142 )

Balance, September 30, 2021 2,979,371 $ 3 $ 5,654 $ (5,173 ) $ 484
equity Shares Amount Capital
Interest

(Accumulated
(Deficit)
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
Balance 5,614,028 $ 6 $ 19,213 $ 507 $ (12,372 ) $ 7,354

equity Shares Amount
Capital
Interest
Deficit)
(Deficit)
Common Stock
Additional
Paid-in Non- controlling
Accumulated
Total
Stockholders’

Shares Amount
Capital
Interest
Deficit
Equity
Balance, January 1, 2022 5,572,234 $ 6 $ 18,891 $ — $ (6,812) $ 12,085
Balance 5,572,234 $ 6 $ 18,891 $ — $ (6,812) $ 12,085

Stock-based compensation — — 55 — — 55

Net loss — — — — (1,836) (1,836)
Net income (loss) — — — — (1,836) (1,836)

Balance, March 31, 2022 5,572,234 $ 6 $ 18,946 $ — $ (8,648) $ 10,304
Balance 5,572,234 $ 6 $ 18,946 $ — $ (8,648) $ 10,304
The accompanying notes are an integral part of these condensed consolidated financial statements.
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NEXGEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
(in thousands)
Cash flows 2023 2022
Three Months Ended March 31,
2023 2022
Operating Activities
Net loss $ (814 ) $ (1,836 )
Adjustments to reconcile net loss to net cash used in operating activities:
Income attributable to non-controlling interest in joint venture 7 -
Depreciation and amortization 31 28
Changes in ROU asset and operating lease liability 11 10
Share-based compensation 24 55
Gain on investment in marketable securities 7 -
Changes in fair value of warrant liability and warrant modification (66 ) 130
Amortization of deferred financing costs - 741
Loss on extinguishment of debt - 150

Changes in operating assets and liabilities:
Accounts receivable (158 ) 77
Inventory (466 ) 11
Prepaid expenses and other assets 11 (90 )
Accounts payable 722 (71 )
Accrued expenses and other current liabilities (18 ) (2 )
Net Cash Used in Operating Activities (709 ) (797 )

Investing Activities
Proceeds from sales of marketable securities 485 —
Capital expenditures (88 ) —
Net Cash Provided by Investing Activities 397 —

Financing Activities
Principle payment of notes payable (2 ) (2,033 )
Net Cash Used in Financing Activities (2 ) (2,033 )
Net Decrease in Cash (314 ) (2,830 )
Cash – Beginning of period 1,101 13,350
Cash – End of period $ 787 $ 10,520
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 $ —
The accompanying notes are an integral part of these condensed consolidated financial statements.

6
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Table of Contents
NEXGEL, INC.
~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~
~~FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021~~
~~(Unaudited)~~
~~(in thousands)~~
2022 2021
Nine Months Ended September 30,
2022 2021
Operating Activities
Net loss $ (4,098 ) $ (2,671 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 84 206
Changes in ROU asset and operating lease liability 29 16
Share-based compensation 231 229
Changes in fair value of warrant liability (3 ) (10 )
Amortization of deferred financing costs 1,325 1,058
Warrant modification expense 57 -
Loss on extinguishment of debt 150 25
Gain on investments in marketable securities (5 ) -
Forgiveness of debt - (147 )
Beneficial conversion feature in excess of face value - 52

Changes in operating assets and liabilities:
Accounts receivable (56 ) (121 )
Inventory (108 ) (28 )
Prepaid expenses and other current assets (162 ) 39
Accounts payable 104 (145 )
Accrued expenses and other current liabilities 109 (21 )
Deferred revenue - (38 )

Net Cash Used in Operating Activities (2,343 ) (1,556 )

Investing Activities
Investment in marketable securities (6,980 ) -
Proceeds from sale of marketable securities 1,000 -
Capital expenditures (88 ) (390 )
Net Cash Used in Investing Activities (6,068 ) (390 )

Financing Activities
Issuance of common stock, net of issuance costs - 285
Proceeds from notes payable - 15
Principal payment of notes payable (3,512 ) -
Proceeds from notes payable (PPP) - 127
Proceeds from convertible notes - 2,957
Payment of financing costs - (115 )
Principal payment on convertible notes - (100 )
Net Cash Provided by (Used In) Financing Activities (3,512 ) 3,169
Net Increase (Decrease) in Cash and Cash Equivalents (11,923 ) 1,223
Cash and Cash Equivalents – Beginning of period 13,350 32
Cash and Cash Equivalents – End of period $ 1,427 $ 1,255
Supplemental Disclosure of Cash Flows Information
Cash paid during the year for:
Interest - -
Taxes - -

Supplemental Non-cash Investing and Financing Activities
Fair value of beneficial conversion and warrant features of convertible notes payable $ - $ 2,587
Original issue discounts recognized on convertible notes payable $ - $ 653
Warrants issued for debt and equity financing costs $ - $ 203
Operating lease, ROU assets and liabilities $ - $ 2,050
~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~
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~~NEXGEL, INC.~~
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

1. Description of Business, ~~the Spin-off~~Stock Split and Basis of Presentation
~~Description of Business~~

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. NexGel has historically served as a contract manufacturer, supplying our gels to third parties who incorporate them into their own products, and ~~have~~has recently began producing the Company’s own consumer products using our gels focused on proprietary branded products and white label opportunities. Both the Company’s gels and consumer products are manufactured using proprietary and non-proprietary mixing, coating and cross-linking technologies. Together, these technologies enable NexGel 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, the Company has the manufacturing capability to offer broad choices in the selection of liners onto which the gels are coated. Consequently, NexGel and our 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 March 1, 2023, the Company acquired a 50% interest in a newly formed joint venture (“JV”), CG Converting and Packaging, LLC, with C.G. Laboratories Inc. (“CG Labs”) for its converting and packaging business. The ~~condensed consolidated financial statements include~~agreement is effective March 1, 2023. As a result of this transaction, the ~~accounts~~Company owns 50% of the ~~Company and its consolidated wholly-owned subsidiary, NexGelRx, Inc.~~JV, with the remaining 50% held by CG Labs.

Stock Split
On November 29, 2021, the Company effected a 1-for-35 reverse stock split of our issued and outstanding common stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each issued and outstanding share of our common stock, and the per share exercise price of and number of shares of the Company’s common stock underlying our outstanding equity awards and warrants, was automatically proportionally adjusted based on the 1-for-35 Reverse Stock Split ratio. No fractional shares of common stock were issued in connection with the reverse stock split, and all such fractional interests were rounded up to the nearest whole number.

Except as otherwise provided herein, all share and per-share amounts of our common stock, equity awards and warrants, including the shares of common stock and warrants being offered hereby, have been adjusted to give effect to the Reverse Stock Split for all periods presented. The Reverse Stock Split did not alter the par value of the Company’s common stock, which remains at $0.001 per share, modify any voting rights or other terms of our common stock, or impact the amount of preferred stock the Company is authorized to issue.
Basis of Presentation
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 (the “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 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, ~~2022~~2023. These consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Principals of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its consolidated wholly-owned subsidiary, NexGelRx, Inc. and the JV (see Note 11).
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2. Going Concern

As of ~~September 30, 2022,~~March 31, 2023, the Company had a cash balance of $~~1.4~~787 ~~million~~thousand (including cash equivalents) and $~~6.0~~5.0 million of marketable securities (see Note 3 for details of our marketable securities). For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the Company incurred a net loss of $~~4.1~~814 ~~million~~thousand and had a net usage of cash in operating activities of $~~2.3~~709 ~~million.~~thousand. In addition, the Company had a working capital of $~~7.2~~5.8 million as of ~~September 30, 2022. Additionally, we~~March 31, 2023. We believe we have sufficient cash and marketable securities to operate our business plan through ~~2024.~~
~~On December 27, 2021, the Company sold an aggregate of~~ ~~2,585,000~~ ~~units at a price to the public of $5.50~~ ~~per unit (the “Offering”), each unit consisting of one share of the Company’s common stock, par value $0.001~~ ~~per share (the “Common Stock”), and a warrant to purchase one share of Common Stock at an exercise price of $5.50~~ ~~per share (the “Warrants”), for net proceeds of $14.2~~ ~~million.~~
~~Proceeds from the Offering are expected to be used for working capital, new product development and testing, and general business operations.~~2025.

Management is exploring new product channel sales in adjacent industries, such as cosmetics, athletic products, and proprietary medical devices. The Company has increased ~~focused~~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 have sufficient capital to maintain as a going concern due to the capital raise that occurred on December 27, 2021. We intend to maintain and attempt to grow our existing contract manufacturing business. We also plan to continue building and developing our catalog 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 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 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 consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates and assumptions include an allowances for doubtful accounts, 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.

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Cash

~~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 period’s presentation.
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. Cash equivalents consist of~~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.

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Marketable Securities

The Company classifies its marketable securities as held-to-maturity, which include U.S. treasury bills with original maturities of greater than three months. These securities are carried at ~~cost.~~fair value with any change in fair value recorded as an unrealized gain (loss) in the statement of operations of the year in which such change occurs. The total ~~unrecognized~~unrealized gain related to the marketable securities was inconsequential during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023.
The Company had the following marketable securities as of March 31, 2023 and December 31, 2022:
Schedule of Marketable Securities
March 31, December 31,
September 30, 2022 2023 2022
Marketable Securities
United States treasury bills (due December 29, 2022) $ 494
United States treasury bills (due February 23, 2023) 492 $ - $ 492
United States treasury bills (due April 27, 2023) 20 20
United States treasury bills (due June 15, 2023) 4,387 4,384 4,384
United States treasury bills (due July 13, 2023) 127 127 127
United States treasury bills (due August 10, 2023) 485 485 485
Total $ 5,985 $ 5,016 $ 5,508

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 doubtful accounts based on factors including the length of time the receivables are past due, the current business environment and the Company’s historical experience. Provisions to the allowances for doubtful accounts 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 doubtful accounts was $1019 thousand as of ~~September 30, 2022~~March 31, 2023 and $49 thousand as of December 31, ~~2021.~~2022.

Inventory and Cost of ~~Revenues~~Goods Sold

Inventory 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.

The ~~balance is made up of raw materials, work-in-progress, and finished goods of $285~~ ~~thousand, $~~87 ~~thousand, and $~~27 ~~thousand on September 30, 2022, respectively, and the balance was made up of raw materials, work-in-progress, and finished goods of $266~~ ~~thousand, $~~0~~, and $~~25 ~~thousand on December 31, 2021, respectively. Inventory is maintained at the Company’s warehouse and at an Amazon fulfillment center.~~
~~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.

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The balance is made up of raw materials, work-in-progress, and finished goods. Inventory is maintained primarily at the Company’s warehouse and at an Amazon fulfillment center.

The “Cost of ~~Revenues”~~revenues” line item in the consolidated statements of ~~operations~~income 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.

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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.

Shipping and Handling Revenue and Expense

Shipping and handling revenue and expense are included in our consolidated statements of operations in ~~Revenue~~revenues and ~~Cost~~cost of revenues, respectively. This is primarily through shipping fees incurred in the Amazon marketplace.

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 period of disposal and the resulting gains and losses are included in the results of operations during the same period.
Impairment of Long-Lived Assets

The Company reviews its property and equipment and any identifiable intangibles 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 acquisitions or annually as of December 31, and whenever indicators of impairment exist. The fair value of intangible assets ~~are~~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.

The Company performed the annual assessment and concluded it is more likely than not that the fair value exceeds the carrying ~~value.~~value and no impairments were recognized in the year ended December 31, 2022.
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Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets is recorded at historical cost and is primarily made up of $9828 thousand and $2363 thousand of prepaid insurance, and $~~141~~101 thousand and $54109 thousand general prepaid expenses and other current assets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

Other Assets

Other assets isare recorded at historical costs, and as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the balance is primarily ~~made up~~comprised of spare parts for manufacturing equipment. ~~Spare parts are stated at cost and~~Other assets are not subject to depreciation, until such time that they are placed into service and the part that is being replaced is disposed.

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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~~— Quoted prices for identical assets or liabilities in active markets.

Level 2 ~~—Quoted~~— 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~~— 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 balance sheet to approximate fair value because of the short-term or highly liquid nature of these financial instruments.

The following table sets forth the fair value of the Company’s financial assets within the fair value hierarchy:
Schedule of Fair Value of Financial Assets
Level 1 Level 2 Level 3 Fair Value Level 1 Level 2 Level 3 Fair Value
September 30, 2022 March 31, 2023
Level 1 Level 2 Level 3 Fair Value Level 1 Level 2 Level 3 Fair Value
Assets
Marketable securities:
United States treasury bills $ 5,985 $ — $ — $ 5,985 $ 5,016 $ - $ - $ 5,016
Total $ 5,985 $ — $ — $ 5,985 $ 5,016 $ - $ - $ 5,016
Level 1 Level 2 Level 3 Fair Value
December 31, 2022
Level 1 Level 2 Level 3 Fair Value
Assets
Marketable securities:
United States treasury bills $ 5,508 $ - $ - $ 5,508
Total $ 5,508 $ - $ - $ 5,508

Warrant Liability
Warrants to purchase common stock were issued in connection with equity financing raises, which occurred ~~on September 2, 2021, March 11, 2021, February 3, 2021, December 24, 2020, March 18, 2020, September 10,~~during 2019 ~~and November 6, 2019.~~through 2021. The fair values of the warrants are estimated as of the date of issuance and again at each ~~period~~year end using a Black-Scholes option valuation model. At issuance, the fair values of the ~~warrants~~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 accompanying condensed consolidated statements of operations.

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Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards Codification (“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 adopted ASC 606 for all applicable contracts using the modified retrospective method, which would have required a cumulative-effect adjustment, if any, as of the date of adoption. The adoption of ASC 606 did not have a material impact on the Company’s consolidated financial statements as of the date of adoption. As a result, a cumulative-effect adjustment was not required.

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The Company currently recognizes revenue predominately from three types of revenue, contract manufacturing, custom and white label finished goods manufacturing and our branded products. Revenues from manufactured and branded products 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.

The Company’s customers consist of other life sciences companies and Amazon retail customers. Revenues are entirely concentrated in the United States. Payment terms 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.

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:
Schedule of Disaggregated Revenue by Sales Type
2022 2021
Three months ending
September 30,
2022 2021
Contract manufacturing $ 277 $ 180
Custom and white label finished goods manufacturing 15 -
NexGel branded consumer products 231 155
Other 45 -
Total $ 568 $ 335
revenue 2023 2022
Three months ended
March 31,
2023 2022
Contract manufacturing $ 380 $ 135
Custom and white label finished goods manufacturing 4 —
NexGel branded consumer products 222 213
Other 14 48
Total $ 620 $ 396

2022 2021
Nine months ending
September 30,
2022 2021
Contract manufacturing $ 736 $ 559
Custom and white label finished goods manufacturing 34 194
NexGel branded consumer products 623 265
Other 131 —
Total $ 1,524 $ 1,018
As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company did not have any contract assets or contract liabilities from contracts with customers. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, there were no remaining performance obligations that the Company had not satisfied.

The Company has four distinct lines of business; Contract Manufacturing, Custom & White Label, Consumer Branded Products, and Medical Devices.
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Contract Manufacturing
Customers order rolls of gel (“rollstock”). The rollstock is shipped to our customers, which they package into finished goods. Historically, this has been the Company’s primary source of revenue.
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 a large order for newly developed product.
Consumer Branded Products
These products are finished goods marketed and sold directly to the customer by the Company through online and retail channels. The Company is responsible for sales, marketing, and distribution. These products carry the Company’s brand names.
Medical Devices
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. 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.
Share-based Compensation

On August 28, 2019, the Company adopted the 2019 Long-Term Incentive Plan, as amended (the “2019 Plan”). See Note 10 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 statements of operations on a straight-line basis over the requisite service period, which is generally the vesting period required to obtain full vesting. Forfeitures are accounted for when they occur.

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In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-07, Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting. These amendments expand the scope of Topic 718, Compensation - Stock Compensation, to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. This new standard iswas effective for the Company on January 1, 2020. The Company early adopted this new standard in the third quarter of 2019 and it did not have a material impact to its consolidated financial statements.
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.

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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 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 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 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 period 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.
Segment Reporting
The Company operates in one business segment as a contract manufacturer of aqueous polymer hydrogels. As a result, the Company’s operations are a single reportable segment, which is consistent with the Company’s internal management reporting.
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 financial position or results of operations upon adoption.

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In June 2016, ~~the~~ FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments~~.Instruments. ASU 2016-13 significantly changes the impairment model for most financial assets and certain other instruments. ASU 2016-13 will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. ASU 2016-13 is effective for the Company’s fiscal year beginning ~~January~~March 1, 2023 and subsequent interim periods. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on the Company’s consolidated financial statements.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.~~ ASU 2017-04 simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Under the amendments in ASU 2017-04, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, ASU 2017-04 requires any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. We adopted ASU 2017-04 effective January 1, 2021.
~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~, which simplifies the accounting for income taxes. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. We adopted ASU 2019-12 effective January 1, 2021 and the adoption of this guidance did not have a material impact on our consolidated financial statements.
4. Leases
The Company has one 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.
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The following table presents information about the amount and timing of the liability arising from the Company’s operating lease as of ~~September 30, 2022~~March 31, 2023 ($ in thousands):
Schedule of Future Minimum Lease Payments
Operating Operating
Lease Lease
Maturity of Lease Liability Liability Liability
2022 $ 52
2023 207 $ 184
2024 207 245
2025 207 245
2026 263 301
2027 315
Thereafter 1,165 1,115
Total undiscounted operating lease payments $ 2,101 $ 2,405
Less: Imputed interest (262 ) (309 )
Present value of operating lease liability $ 1,839 $ 2,096
Weighted average remaining lease term 8.25 years 8.9 years
Weighted average discount rate 3.0 % 3.5 %

Total operating lease expense for the ~~nine~~three months ending ~~September 30,~~March 31, 2023 and 2022, ~~and 2021~~ was $~~155~~65 thousand and $~~192~~61 thousand, respectively, and is recorded in cost of ~~revenues~~goods sold and selling, general and administrative expenses onin the accompanying condensed consolidated statement of operations.

Supplemental cash flows information related to leases was as follows ($ in thousands):
Schedule of Supplemental Cash Flows Information Related to Leases
September 30,
2022
Cash paid for amounts included in the measurement of lease liability:
Operating cash flows from operating lease $ 155
March 31,
2023
Cash paid for amounts included in the measurement of lease liability:
Operating cash flows from operating lease $ 54
5. Inventory

Inventory consists of the following ($ in thousands):
Schedule of Inventory
September 30, December 31,
2022 2021
Raw materials $ 285 $ 266
Work-in-progress 87 -
Finished goods 27 25
Inventory, gross 399 291
Less: Inventory reserve for excess and slow moving inventory — —
Total $ 399 $ 291
March 31, December 31,
2023 2022
Raw materials $ 582 $ 295
Work-in-progress 63 51
Finished goods 323 156
Inventory, gross 968 502
Less: Inventory reserve for excess and slow moving inventory — —
Total $ 968 $ 502
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Inventory is maintained at the Company’s warehouse, an outsourced third-party contract manufacturing vendor, and at an Amazon fulfillment ~~center.~~centers. The Company builds its contract manufacturing products based on customer orders and immediately ships the products upon completion of the production process.

6. Property and Equipment, Net
Property and equipment consist of the following ($ in thousands):
Schedule of Property and Equipment
Useful Life September 30, December 31,
(Years) 2022 2021
Machinery and equipment 3 - 10 $ 972 $ 940
Office furniture and equipment 3 - 10 59 50
Leasehold improvements 6 228 228
Construction in progress - 48 -
Property and equipment, gross 1,307 1,218
Less: accumulated depreciation and amortization (570 ) (495 )
Property and equipment, net $ 737 $ 723
Useful Life March 31, December 31,
(Years) 2023 2022
Machinery and equipment 3 - 10 $ 1,478 $ 973
Office furniture and equipment 3 - 10 158 59
Leasehold improvements 6 233 228
Construction in progress N/A 35 55
Property and equipment, gross 1,904 1,315
Less: accumulated depreciation and amortization (622) (594)
Property and equipment, net $ 1,282 $ 721

Depreciation expense for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was $7427 thousand and $7525 thousand, respectively.

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7. Intangible Assets

The following provides a breakdown of identifiable intangible assets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021 ($ in thousands):~~2022:
Schedule of Breakdown of Identifiable Intangible Assets
September 30, December 31,
2022 2021
Product/Technology Related
Identifiable intangible assets, gross $ 31 $ 31
Accumulated amortization (24 ) (16 )
Product/Technology related identifiable intangible assets, net 7 15
Marketing Related
Customer related intangible asset, gross 17 17
Tradename related intangible asset, gross 7 7
Accumulated amortization (8 ) (6 )
Marketing related identifiable intangible assets, net 16 18
Total identifiable intangible assets, net $ 23 $ 33
March 31, December 31,
2023 2022
Product/Technology Related
Identifiable intangible assets, gross $ 31 $ 31
Accumulated amortization (29 ) (26 )
Product/Technology Related identifiable intangible assets, net 2 5
Marketing Related
Customer related intangible asset, gross 17 17
Tradename related intangible asset, gross 7 7
Accumulated amortization (10 ) (9 )
Marketing related identifiable intangible assets, net 14 15
Total Identifiable intangible assets, net $ 16 $ 20

In connection with the May 29, 2020 acquisition of ~~Sport~~Sports Defense, ~~in 2020,~~ the Company identified intangible assets of $55 thousand representing technology related and customer related intangibles. These assets are being amortized on a straight-line basis over their weighted average estimated useful life of ~~3.7~~5.7 years and amortization expense amounted to $4 thousand and $103 thousand for ~~each of~~ the ~~nine~~three months ~~periods~~ ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021.~~respectively.
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As of ~~September 30, 2022,~~March 31, 2023, the estimated annual amortization expense for each of the next five fiscal years is as ~~follows ($ in thousands):~~follows:
Schedule of Estimated Annual Amortization Expense

2022 (reminder of the year) $ 4
($ in thousands):
2023 8 $ 4
2024 2 2
2025 2 2
2026 2 2
2027 2
Thereafter 5 4
Total $ 23 $ 16
8. 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
September 30, December 31,
2022 2021
Salaries, benefits, and incentive compensation $ 48 $ 54
Franchise tax accrual 107 -
Other 9 8
Total accrued expenses and other current liabilities $ 164 $ 62
March 31, December 31,
2023 2022
Salaries, benefits, and incentive compensation $ 38 $ 56
Franchise tax accrual 58 52
Other 16 22
Total accrued expenses and other current liabilities $ 112 $ 130
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9. Common Stock
~~Share issuances~~
~~In connection with the Offering on December 27, 2021, the Company sold an aggregate of~~ ~~2,585,000~~ ~~units at a price to the public of $5.50~~ ~~per unit, each unit consisting of one share of our common stock, and a warrant to purchase one share of our common stock at an exercise price of $5.50~~ ~~per share~~. ~~In addition, the Company granted the underwriter with respect to the Offering a~~ 45~~-day option to purchase up to~~ ~~387,750~~ ~~additional shares of our common stock, and/or~~ ~~387,750~~ ~~additional warrants, to cover over-allotments in connection with the Offering, which the Underwriter partially exercised to purchase~~ ~~387,750~~ ~~warrants on December 27, 2021.~~
~~From January 1, 2021 through March 31, 2021, the Company entered into Securities Purchase Agreements with certain accredited investors whereby we sold~~ ~~101,800~~ ~~shares of our common stock at a price per share equal to $2.80~~ ~~for an aggregate purchase price of $285~~ ~~thousand.~~
At ~~September 30, 2022,~~March 31, 2023, the Company has reserved common stock for issuance in relation to the following:
Schedule of Reserved Common Stock For Issuance in Relation
Share-based compensation plan ~~329,937~~542,469
Warrants to purchase common stock ~~3,637,190~~3,557,190
Restricted stock units 121,787
10. 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 485,715shares of common stock to 571,429 shares of common stock, all of which may be delivered pursuant to incentive stock options.
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On March 23, 2023, the board of directors of the Company approved an increase of the number of shares to be reserved under the Company’s 2019 Plan by 300,000 shares of common stock, or from an aggregate number of 571,429 to 871,429 shares of common stock (the “2019 Plan Increase”). The Company expects the 2019 Plan Increase to satisfy the Company’s anticipated equity incentive award requirements for at least two years.
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.

Incentive stock options
On March 8, 2023, the Company granted a contractor, an option to purchase up to 17,532 shares of the Company’s common stock at a per share exercise price of $2.00 under the Company’s 2019 Plan. This option award vests over a period of 12 months.

The following table contains information about the 2019 Plan as of ~~September 30, 2022:~~March 31, 2023:
Schedule of Information about Incentive Plan
Awards Awards Awards

Reserved for
Issuance
Issued & Outstanding
Awards
Exercised

Available for
Grant

2019 Plan⁽¹⁾ 871,429 627,219 7,183 237,027
Awards granted outside of the 2019 Plan⁽²⁾ - 37,037 11,364 -

Awards Awards
Reserved for Awards Awards Available for
Issuance Issued Exercised Grant
2019 Plan 571,429 329,937 7,183 234,309
⁽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.

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The following table summarizes the Company’s incentive stock option activity and related information for the period ended ~~September 30, 2022:~~March 31, 2023:
Schedule of Incentive Stock Option Activity
Weighted Weighted
Weighted Average Weighted Average
Average Contractual Average Contractual
Number of Exercise Term in Number of Exercise Term in
Options Price Years Options Price Years
Outstanding at January 1, 2022 434,939 $ 1.675747 8.56

Outstanding at January 1, 2023 524,937 $ 2.351416 8.38
Granted — — — 17,532 2.00 10.0
Exercised — — — — — —
Forfeited — — — — — —
Cancelled (105,002 ) 1.40 — — — —
Expired — — — — — —
Outstanding at September 30, 2022 329,937 $ 1.763503 7.83
Exercisable at September 30, 2022 318,508 $ 1.726311 7.81
Outstanding at March 31, 2023 542,469 $ 2.340058 8.20
Exercisable at March 31, 2023 351,398 $ 1.777947 7.42

As of ~~September 30, 2022,~~March 31, 2023, vested outstanding stock options had $~~169~~129 thousand intrinsic value as the exercise price is greater than the estimated fair value of the underlying common ~~stock.~~stock, respectively. As of ~~September 30, 2022,~~March 31, 2023, there was approximately $8523 thousand of total unrecognized share-based compensation related to unvested stock options, which the Company expects to recognize over the next 11 months excluding options fully contingent upon certain sales-based milestones being achieved within 1218 ~~months.~~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 ~~year ended September 30, 2022:~~the period ending March 31, 2023:
Schedule of Assumptions used in Share-based Compensation
Volatility ~~171.12~~%-~~183.48~~257.64 %
Risk-free interest rate ~~0.46% -~~ ~~0.86~~4.21 %
Dividend yield 0.0 %
Expected term ~~5.0~~ - ~~5.75~~5.50 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.

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.

Restrictive ~~stock awards~~Stock Awards

Effective as of August 1, 2022, the Company granted a restricted stock award of 84,750shares of the Company’s common stock to ~~the~~ certain officers and employees, all of which shares vest in four equal installments on each of January 1, 2023, January 1, 2024, January 1, 2025 and January 1, 2026. Under ASC 718, Compensation-Stock Compensation (“(“ASC 718”), the Company has measured the value of the84,750shares granted based on a closing price of the closing price of the Company’s stock at the grant date of the RSU Grant ($1.82per share).
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Effective as of January 1, 2022, the Company granted a restricted stock award of 11,364 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 November 4, 2021, all of which shares vested monthly from January 1, 2022 through December 31, 2022. Under ASC 718, the Company has measured the value of the 11,364 shares granted based on the closing price of the Company’s stock at the grant date of the RSU Grant ($4.40 per share).

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~~On March 8, 2021,~~Effective as of January 3, 2023, the Company granted a restricted stock award of ~~39,524~~37,037 shares of the Company’s common stock to Adam Levy for his service as our Chief Executive Officer ~~and Chief Financial Officer from October 1, 2020 through September~~pursuant to the terms of his Executive Employment Agreement dated December 30, ~~2021,~~2022, all of which shares vested ~~immediately.~~monthly from January 3, 2023 through December 31, 2023. Under ASC 718, the Company has measured the value of the ~~39,524~~37,037 shares granted based on the closing price of the Company’s stock at the grant date of the RSU Grant ($~~2.10~~1.35 per share).
Schedule of Restricted Stock Units ~~Grant~~Granted
Weighted
Average
Number of Grant Date
Units Fair Value
Outstanding at January 1, 2023 90,432 $ 1.43
Granted 37,037 1.35
Exercised and converted to common shares (5,682 ) 4.40
Forfeited — —
Outstanding at March 31, 2023 121,787 $ 1.68
Exercisable at March 31, 2023 30,466 $ 1.68
Compensation expense will be recognized ratably over the total vesting schedule. The Company will periodically adjust the cumulative compensation expense for forfeited awards. Stock based compensation of $24 thousand and $55 thousand has been recorded for the year ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there was $116 thousand unrecognized share-based compensation related to unvested RSUs, which the Company expects to recognize over the next 3 years.
Weighted
Average
Number of Grant Date
Units Fair Value
Outstanding at January 1, 2022 — $ —
Granted 96,114 1.60
Exercised and converted to common shares — —
Forfeited — —
Outstanding at September 30, 2022 96,114 $ 1.60
Exercisable at September 30, 2022 8,523 $ 4.40

Warrants

The following table shows a summary of common stock warrants through ~~September 30, 2022:~~March 31, 2023:
Summary of Common Stock Warrants
Weighted Weighted
Average Average
Number of Exercise Contractual
Warrants Price Term in Years
Outstanding at January 1, 2023 3,637,190 $ 5.16281 3.65
Granted — — —
Exercised (30,430) 0.69 —
Forfeited — — —
Cancelled (49,570) 1.18 —
Expired — — —
Outstanding at March 31, 2023 3,557,190 $ 5.256569 3.47
Exercisable at March 31, 2023 3,557,190 $ 5.256569 3.47

Weighted Weighted
Average Average
Number of Exercise Contractual
Warrants Price Term in Years
Outstanding at January 1, 2022 3,637,190 $ 5.16281 4.63
Granted — — —
Exercised — — —
Forfeited — — —
Cancelled — — —
Expired — — —
Outstanding at September 30, 2022 3,637,190 $ 5.16281 3.90
Exercisable at September 30, 2022 3,637,190 $ 5.16281 3.90
As of ~~September 30, 2022,~~March 31, 2023, vested outstanding warrants had $~~158~~90 thousand intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock.

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11. ~~Notes Payable~~Noncontrolling Interest in Joint Venture
On March 1, 2023, the Company acquired a 50% interest in a newly formed joint venture (“JV”), named CG Converting and Packaging, LLC, with C.G. Laboratories Inc. (“CG Labs”) for its converting and packaging business. The JV is owned 50% by the Company and 50% by CG Labs. CG Labs contributed its existing converting and packaging division to the JV, including, but not limited to, its facilities, equipment, employees, and customers. The Company will contribute $500,000 to the JV, on a schedule to be determined, to be used for equipment and facility upgrades as well as general corporate purposes. As of March 31, 2023, the Company has contributed $100,000 of its $500,000 commitment.

~~PPP Loan~~The JV is considered to be a variable interest entity (“VIE”), as defined by authoritative accounting guidance. A VIE must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. All major decisions related to the JV that most significantly impact its economic performance, including but not limited to operating procedures with respect to business affairs. Therefore, we have consolidated the JV.

~~On April 22, 2020, the Company, entered into a promissory note with PNC Bank, N.A. (the “PNC Bank”), which provides for a loan in the amount of $~~12. ~~147,300~~Notes Payable (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act. On March 4, 2021, the Company received a second PPP Loan in the amount of $~~127,400~~ ~~thousand under Phase II of the Paycheck Protection Program. On June 2, 2021, the Company received notice from PNC Bank that its initial loan of $147,300~~ ~~had been forgiven in its entirety by the Small Business Administration (“SBA”). On November 16, 2021, the Company received notice from PNC Bank that its second PPP loan of $127,400~~ ~~had been forgiven in its entirety by the SBA.~~

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 $88,000 ~~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 $~~283~~281 thousand and $~~276~~283 thousand as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.
The future annual principal amounts and accrued interest to be paid as of March 31, 2023 are as follows:
Schedule of Debt Instruments
Amount
For the year ending December 31 ($ in thousands):
2023 (remainder of the year) $ 4
2024 5
2025 5
2026 5
2027 6
Thereafter 256
Total $ 281

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~~12.~~13. Convertible Notes Payable
~~On December 24, 2020, the Company issued a $100~~ ~~thousand~~ 6~~% Secured Convertible Promissory Note which was convertible into shares of the Company’s common stock at a price per share of $2.80. The note was fully repaid (including all accrued but unpaid interest) on March 14, 2021.~~
~~On January 19, 2021, the Company issued a $~~15 ~~thousand Secured Convertible Promissory Note which was convertible into shares of the Company’s common stock at a price per share of $1.05. The note was fully repaid (including all accrued but unpaid interest) on March 14, 2021.~~
~~Auctus Fund Financing~~
On March 11, 2021, the Company ~~and~~issued Auctus Fund, LLC, a Delaware limited liability company ~~(“Auctus”) entered into~~ a one-year senior secured convertible promissory note in the principal amount of $~~1,680 thousand~~1.68, million, which ~~includes~~included $180 thousand of interest which was deemed fully earned as of the issuance date (the “Auctus Note”). The Auctus Note was fully repaid (including all principal and interest) on March 15, 2022 with a one-time cash payment of $~~1,680 thousand~~1.68.
~~Investor Private Placement Offering~~ million.

On September 2, 2021, the Company ~~closed a private placement offering with twenty accredited investors (the “September 2 Investors”) whereby the Company~~ issued to ~~the September 2 Investors~~certain holders one-year subordinated secured convertible promissory notes in the aggregate principal amount of $1,814 thousand,, which ~~includes~~included $194 thousand of interest which was deemed fully earned as of the issuance date (the “September 2 Notes”).
On January 25, 2022, the Company repaid aone of the September 2 ~~Investor~~Notes in full with a one-time cash payment of $300 thousand of outstanding principal and accrued but unpaid interest. The Company ~~did incur a~~ ~~105~~%incurred pre-payment penalty of $~~16,800~~17 thousand with respect to the repayment of the ~~investor’s~~ note and the remaining unamortized debt discount in the amount of $133 thousand was written off and both amounts were recorded as a loss on extinguishment of debt of $150 thousand in accompany statement of operations during 2022. The repayment extinguished the note in its entirety.
On September 6, 2022, the outstanding balance on the remaining September 2 ~~Notes remaining outstanding balance~~Notes’ was repaid in full which consisted of principal ~~and interest~~ of $1,478 ~~thousand~~. thousand.

~~13.~~14. 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, 34,286, ~~7,428~~7,429, 7,286, 44,286, ~~35,714~~35,715 and 114,286 warrants, respectively, as equity issuance consideration, in connection with a private placement 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 3 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~~.815. 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 ~~expense, net~~income in the statement of operations.
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On September 6, 2022, the Company agreed to extend the September 10, 2019 and November 6, 2019 warrants an additional six months until March 9, 2023 and May 5, 2023, respectively. The warrants were remeasured as of September 6, 2022 and consequently resulted in a warrant modification expense of $57 ~~thousand.~~

The warrants outstanding and fair values at each of the respective valuation dates are summarized below:
Schedule of Warrant Liability
Warrants Fair Value
Warrant Liability Outstanding per Share Fair Value
Fair Value as of period ending 12/31/2021 265,305 $ 318
Modification of warrants 57
Change in fair value of warrant liability (3 )
Fair Value as of period ending 9/30/2022 265,305 $ 372
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 (30,430 ) (54 )
Change in fair value of warrant liability - (12 )
Fair value as of year ended 3/31/2023 234,875 $ 176

The warrant liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes various assumptions about of future activities and the Company’s stock prices and historical volatility of ~~other comparable public companies used~~Guideline Public Companies as inputs. ~~As of September 30, 2022, none of the warrants have been exercised.~~

~~14.~~15. Commitments and Contingencies

Litigation
The Company may be subject to legal proceedings and claims that arise in the ordinary course of business. 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.

Service Agreement
On March 21, 2023, the Company entered into a Services Agreement with GlaxoSmithKline Consumer Healthcare Holdings (US) LLC (“Haleon”) to supply material for a consumer product to be developed and released in the future. There can be no guaranty that a consumer product will be released or, if released, that it will be successful. GlaxoSmithKline Consumer Healthcare Holdings (US) LLC is a Haleon group company.
~~15.~~16. 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.

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Revenues from ~~two~~three customers that exceeded 10% of total revenues for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 were 3952%, 21%, and 2713%. The accounts receivable from the top ~~two~~three customers ~~by revenue~~ were 60%, 25%, and 5331%~~, respectively,~~ as well as 17~~% and~~ 1910% from ~~two~~one other ~~customers~~customer of the total accounts receivable as of ~~September 30, 2022.~~March 31, 2023.

Revenues from three customers that exceeded 10% of total revenues for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 were 3352%, 3812%, and 2412%. The accounts receivable from the top three customers ~~by revenue~~ were 160%, 170%, and 040%~~, respectively,~~ as well as 1816% and 22% from ~~one~~two other ~~customer~~customers of the total accounts receivable as of ~~September 30, 2021.~~March 31, 2022.

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 ~~September 30, 2022,~~March 31, 2023, the total amount exceeding such limit was $~~1,156~~335 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.

17. Related Party Transactions
Convertible Promissory Note
On September 2, 2021, the Company issued three Secured Convertible Promissory Notes to members of the board of directors in an aggregate amounts of $150,000 to Mr. Stein, $150,000 to Mr. Stefansky (Bezalel Partners, LLC), and $50,000 to Dr. Zeldis as part of the September 2 Notes. The notes were repaid in full in 2022.
Advances
Dr. Jerome Zeldis, a member of the Company board of directors, has an outstanding balance due of $40,000 for services as of March 31, 2023 and December 31, 2022, included in accounts payable in the accompanying consolidated balance sheets.
18. Subsequent Events
Management of the Company has performed a review of events and transactions occurring after the consolidated balance sheet date to determine if there were any such events or transactions requiring adjustment to or disclosure in the accompanying consolidated financial statements.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis ofare intended to help prospective investors understand our business, financial condition, ~~and~~ results of operations, liquidity and capital resources. You should be read this discussion in conjunction with ~~the condensed~~our financial statements and related notes ~~above.~~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;
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● adverse federal, state and local government regulation;

● technological obsolescence of our manufacturing process and equipment;

● 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.

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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.

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 and have recently began producing our own consumer products using our gels focused on proprietary branded products and white label opportunities. Both our gels and our consumer 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 ~~capability~~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.
Joint Venture
On March 1, 2023, the Company acquired of 50% interest in a newly formed joint venture (“JV”), CG Converting and Packaging, LLC, with C.G. Laboratories Inc. (“CG Labs”) for its converting and packaging business. The agreement is effective March 1, 2023. As a result of this transaction, the Company owns 50% of the JV, with the remaining 50% held by CG Labs.

Results of Operations

The following sections discuss and analyze the changes in the significant line items in our statements of operations for the comparison periods identified.

Comparison of the Three Months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

Revenues, net.

For the three months ended ~~September 30, 2022~~March 31, 2023 revenues were ~~$568~~$620 thousand and increased by ~~$233~~$224 thousand, or ~~69.6%~~56.6%, when compared to ~~$335~~$396 thousand for the three months ended ~~September 30, 2021.~~March 31, 2022. The increase in our overall revenues was primarily due to sales growth in ~~branded consumer products and~~both our contract manufacturing ~~products.~~and branded products, including the revenue from CG Labs from March 1, 2023 through March 31, 2023 of $189 thousand.
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The Company has four distinct lines of business; Contract Manufacturing, Custom & White Label, Consumer Branded Products, and Medical Devices.
Contract Manufacturing
Customers order rolls of gel (“rollstock”). The rollstock is shipped to our customers, which they package into finished goods. Historically, this has been the Company’s primary source of revenue.
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 a large order for newly developed product.
Consumer Branded Products
These products are finished goods marketed and sold directly to the customer by the Company through online and retail channels. The Company is responsible for sales, marketing, and distribution. These products carry the Company’s brand names.
Medical Devices
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. 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.

Gross profit (loss). Our gross ~~profit~~loss was ~~$148 thousand for the three months ended September 30, 2022 compared to a gross loss of~~ $57 thousand for the three months ended ~~September 30, 2021. The profit recorded~~March 31, 2023 compared to a gross loss of $22 thousand for the three months ended ~~September 30, 2022, as compared to a~~March 31, 2022. The increase of $35 thousand in gross loss ~~recorded for the three months ended September 30, 2021,~~quarter over quarter was primarily due to the higher volume of contract manufacturing sales against fixed costs partially offset by higher manufacturing labor costs. Gross ~~profit~~loss was approximately ~~26%~~(9.2%) for the three months ended ~~September 30, 2022~~March 31, 2023 compared to a gross loss of ~~(17)%~~(5.6%) for the three months ended September 30, 2021. The Company anticipates continued improvement in gross margins due to both increased revenue against fixed facility expenses and larger productions runs on commercially proven products.March 31, 2022.

The components of cost of revenues are as follows for the three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ ($ in thousands):

Three Months Ended
September 30,

2022 2021
Cost of revenues
Materials and finished products $ 113 $ 121
Compensation and benefits 176 157
Depreciation and amortization 20 22
Equipment, production and other expenses 111 92
Total cost of revenues $ 420 $ 392
Three Months Ended
March 31,
2023 2022
Cost of revenues
Materials and finished products $ 355 $ 94
Compensation and benefits 171 171
Depreciation and amortization 20 21
Equipment, production and other expenses 131 132
Total cost of revenues $ 677 $ 418

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Cost of revenues increased by ~~$28~~$259 thousand, or ~~7.1%~~62.0%, to ~~$420~~$677 thousand for the three months ended ~~September 30, 2022,~~March 31, 2023, as compared to ~~$392~~$418 thousand for the three months ended ~~September 30, 2021.~~March 31, 2022. The increase in cost of revenues is primarily aligned with the ~~revenue~~new product line growth and an increase in compensation and benefits in the current year.
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Selling, general and administrative expenses. The following table highlights ~~selling,~~Selling, general and administrative expenses by type for the three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ ($ in thousands):

Three Months Ended
September 30,

2022 2021
Selling, general and administrative expenses
Compensation and benefits $ 118 $ 87
Share-based compensation 85 45
Depreciation and amortization 4 3
Other expenses and professional fees 785 418
Total Selling, general and administrative expenses $ 992 $ 553
Three Months Ended
March 31,
2023 2022
Selling, general and administrative expenses
Compensation and benefits $ 161 $ 112
Share-based compensation 19 18
Depreciation and amortization 10 7
Advertising, marketing, & Amazon fees 94 39
Investor & shareholder services 96 149
Franchise tax & corporate insurance 44 49
Professional & consulting fees 263 226
Other expenses and professional fees 110 166
Total Selling, general and administrative expenses $ 797 $ 766

Selling, general and administrative expenses increased by ~~$439~~$31 thousand, or ~~79.4%~~4.0%, to ~~$992~~$797 thousand for the three months ended ~~September 30, 2022,~~March 31, 2023, as compared to ~~$553~~$766 thousand for the three months ended ~~September 30, 2021.~~March 31, 2022. The increase in ~~selling,~~Selling, general and administrative expenses is primarily attributable to ~~an increase of franchise tax expense, increased research and development investment and~~ the costs for professional fees and other administrative expenses in the current period associated with public company governance requirements. The exceptionally high franchise tax charge of $220 thousand was due to the company’s IPO and related increase in gross assets. In August of 2022 the Company reduced its authorized shares at its annual stockholders’ meeting. The result of this reduction, assuming a similar asset base as the Company currently has will reduce the 2023 franchise tax liability to approximately $28 thousand.factors described below.
Compensation and benefits increased by ~~$31~~$49 thousand, or ~~35.6%~~43.8%, to ~~$118~~$161 thousand for the three months ended ~~September 30, 2022,~~March 31, 2023, as compared to ~~$87~~$112 thousand for the three months ended ~~September 30, 2021.~~March 31, 2022. The number of employees ~~increased~~decreased compared to the prior period and officer compensation increased in conjunction with contract renewals.
Share-based compensation increased by ~~$40~~$1 thousand, or ~~88.9%~~5.6%, to ~~$85~~$19 thousand for the three months ended ~~September 30, 2022,~~March 31, 2023, as compared to ~~$45~~$18 thousand for the three months ended ~~September 30, 2021.~~March 31, 2022. The share-based compensation related to the issuance of stock options and restricted ~~stock~~ awards ~~and options~~ to our ~~CEO, restricted stock awards to all~~officers, employees, and ~~options to board members, employees, and advisors.~~advisors in the prior year period.

~~Other expenses and professional~~Advertising, marketing, Amazon fees increased by ~~$367~~$55 thousand, or ~~87.8%~~141%, to ~~$785~~$94 thousand for the three months ended ~~September 30, 2022 from $418~~March 31, 2023, as compared to $39 thousand for the three months ended ~~September 30,~~March 31, 2022. The increase is due to the increased Amazon selling fees as well as an increase in advertising and marketing.
Investor and shareholder services decreased by $53 thousand, or 35.6%, to $96 thousand for the three months ended March 31, 2023, as compared to $149 thousand for the three months ended March 31, 2022. The decrease is due to initial fees related to the Nasdaq listing in 2022 upon the IPO occurring on December 27, 2021.
Franchise taxes and corporate insurance decreased by $5 thousand, or 10.2%, to $44 thousand for the three months ended March 31, 2023, as compared to $49 thousand for the three months ended March 31, 2022.
Professional and consulting fees increased by $37 thousand, or 16.4%, to $263 thousand for the three months ended March 31, 2023, as compared to $226 thousand for the three months ended March 31, 2022. We continued to incur accounting and consulting fees associated with public company governance requirements.
Other ~~selling,~~Expenses decreased by $56 thousand, or 33.7%, to $110 thousand for the three months ended March 31, 2023 from $166 thousand for the three months ended March 31, 2022. 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. We continued to incur legal, accounting and consulting fees associated with public company governance requirements, however, the increase in professional fees compared to the prior year period was primarily due to the increase in professional fees in connection with our in the NASDAQ up-listing on December 27, 2021.

Research and development expenses. Research and development expenses ~~increased by $193~~were $29 thousand and $24 thousand for the three months ended ~~September 30,~~March 31, 2023 and March 31, 2022, ~~from $0 for the three months ended September 30, 2021. The increase is due to the initiation of two proof of concept studies for drug delivery candidates utilizing our hydrogel technology.~~
~~Comparison of the Nine Months ended September 30, 2022 and 2021~~
~~Revenues, net~~.
For the nine months ended September 30, 2022 revenues were $1,524 thousand and increased by $506 thousand, or 49.7%, when compared to $1,018 thousand for the nine months ended September 30, 2021. The increase in our overall revenues was due to sales growth of new products as well as our initiatives in custom label manufacturing and branded consumer product.respectively.

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~~Gross profit (loss)~~. Our gross profit was $220 thousand for the nine months ended September 30, 2022 compared to a gross loss of $(95) thousand for the nine months ended September 30, 2021. The profit recorded for the nine months ended September 30, 2022, as compared to a loss recorded for the nine months ended September 30, 2021, was primarily due to the higher volume of contract manufacturing sales against fixed costs. Gross profit was approximately 14.4% for the nine months ended September 30, 2022 compared to a gross loss of (9.3)% for the nine months ended September 30, 2021. The components of cost of revenues are as follows for the nine months ended September 30, 2022 and 2021 ($ in thousands):

Nine Months Ended
September 30,

2022 2021
Cost of revenues
Materials and finished products $ 403 $ 351
Compensation and benefits 518 419
Depreciation and amortization 63 65
Equipment, production and other expenses 320 278
Total cost of revenues $ 1,304 $ 1,113
Cost of revenues increased by $191 thousand, or 17.2%, to $1,304 thousand for the nine months ended September 30, 2022, as compared to $1,113 thousand for the nine months ended September 30, 2021. The increase in cost of revenues is primarily aligned with the new product line growth in the current year.
~~Selling, general and administrative expenses~~~~. The following table highlights selling, general and administrative expenses by type for the nine months ended September 30, 2022 and 2021 ($ in thousands):~~

Nine Months Ended
September 30,

2022 2021
Selling, general and administrative expenses
Compensation and benefits $ 379 $ 259
Share-based compensation 219 230
Depreciation and amortization 11 10
Other expenses and professional fees 1,850 1,072
Total Selling, general and administrative expenses $ 2,459 $ 1,571
Selling, general and administrative expenses increased by $888 thousand, or 56.5%, to $2,459 thousand for the nine months ended September 30, 2022, as compared to $1,571 thousand for the nine months ended September 30, 2021. The increase in selling, general and administrative expenses is primarily attributable to our costs for professional fees and other administrative expenses in the current period associated with public company governance requirements.
Compensation and benefits increased by $120 thousand, or 46.3%, to $379 thousand for the nine months ended September 30, 2022, as compared to $259 thousand for the nine months ended September 30, 2021. The number of employees increased compared to the prior period and officer compensation increased in conjunction with contract renewals.
Share-based compensation decreased by $11 thousand, or 4.8%, to $219 thousand for the nine months ended September 30, 2022, as compared to $230 thousand for the nine months ended September 30, 2021. The share-based compensation related to the issuance of restricted stock awards and options to our CEO, restricted stock awards to all employees and options to board members, employees, and advisors.
Other expenses and professional fees increased by $778 thousand, or 72.6%, to $1.9 million for the nine months ended September 30, 2022 from $1.1 million for the nine months ended September 30, 2021. 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. We continued to incur legal, accounting and consulting fees associated with public company governance requirements, however, the increase in professional fees compared to the prior year period was primarily due to the increase in professional fees in connection with our in the NASDAQ up-listing on December 27, 2021.
~~Research and development expenses~~. Research and development expenses increased by $311 thousand to $328 thousand for the nine months ended September 30, 2022 from $17 thousand for the nine months ended September 30, 2021. The increase is due to the initiation of two proof of concept studies for drug delivery candidates utilizing our hydrogel technology as well as continuing development on the NEXDrape medical device.
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Liquidity and Capital Resources
Cash Flow
(in thousands)
September 30, September 30,
2022 2021
Net cash used in operating activities $ (2,343 ) $ (1,556 )
Net cash used in investing activities (6,068 ) (390 )
Net cash provided by (used in) financing activities (3,512 ) 3,169
Net increase (decrease) in cash and cash equivalents (11,923 ) 1,223
Cash and cash equivalents at beginning of period 13,350 32
Cash and cash equivalent at end of period $ 1,427 $ 1,255
March 31, March 31,
2023 2022
Net cash used in operating activities $ (709) $ (797)
Net cash provided by investing activities 397 —
Net cash used in financing activities (2 ) (2,033)
Net increase (decrease) in cash and cash equivalents (314) (2,830)
Cash and cash equivalents at beginning of year 1,101 13,350
Cash and cash equivalent at end of quarter $ 787 $ 10,520

As of ~~September 30, 2022,~~March 31, 2023, we had ~~$1.4~~$787 thousand of cash and $5.0 million of marketable securities, compared to $1.1 million of cash and ~~cash equivalents and $6.0~~$5.5 million of marketable securities ~~compared to $13.4 million of cash~~ at December 31, ~~2021.~~2022. Net cash used in operating activities was ~~$2.3 million~~$709 thousand and ~~$1.6 million~~$797 thousand for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. ~~See Notes 2 and 3 of our financial statements above for a more detailed discussion of our marketable securities.~~

Net cash ~~used in~~provided by investing activities was ~~$6,068~~$397 thousand and ~~$390~~$0 thousand for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively, consisting of ~~investments in~~the sales of marketable securities of ~~$6,980 thousand, the sale of marketable securities for $1,000~~$485 thousand and purchases of capital equipment of $88 thousand for ~~the nine~~three months ended ~~September 30, 2022 and purchases of capital equipment of $390 thousand in~~March 31, 2023. There were no investing activities for the ~~prior year period.~~three months ended March 31, 2022.

Net cash used byin financing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 was ~~$3.5~~$2 thousand and $2.0 million ~~which~~ is attributable to the principal payments of convertible notes of $3.5 million. For the nine months ended September 30, 2021 cash flows from financing activities were $3.2 million which is attributable to the issuance of common stock of $285 thousand and proceeds of a notes payable ~~of $15 thousand and proceeds from the PPP loan of $127 thousand~~ and convertible notes, ~~payable, net of $2.8 million, net of costs and principal payments of convertible notes of $100 thousand.~~respectively.

At ~~September 30, 2022,~~March 31, 2023, current assets totaled ~~$8.3~~$7.3 million and current liabilities totaled ~~$1.1~~$1.5 million, as compared to current assets totaling ~~$13.9~~$7.5 million and current liabilities totaling ~~$2.9 million~~$859 thousand at December 31, ~~2021.~~2022. As a result, we had working capital of ~~$7.2~~$5.8 million at ~~September 30, 2022,~~March 31, 2023, compared to a working capital of ~~$11.0~~$6.6 million at December 31, ~~2021.~~2022. The decrease in the working capital as of ~~September 30, 2022~~March 31, 2023 is primarily attributable to the ~~repayment~~loss from operations of ~~convertible notes payable of $3.5 million in the current period.~~
On December 27, 2021, the Company sold an aggregate of 2,585,000 units at a price to the public of $5.50 per unit (the “Offering”), each unit consisting of one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and a warrant to purchase one share of Common Stock at an exercise price of $5.50 per share (the “Warrants”), pursuant to that certain Underwriting Agreement, dated as of December 21, 2021 (the “Underwriting Agreement”), between the Company and Maxim Group LLC (the “Underwriter”). In addition, pursuant to the Underwriting Agreement, the Company granted the Underwriter a 45-day option to purchase up to 387,750 additional shares of Common Stock, and/or 387,750 additional Warrants, to cover over-allotments in connection with the Offering, which the Underwriter partially exercised to purchase 387,750 Warrants on December 27, 2021. On December 27, 2021, the Company received gross proceeds of approximately $14.2 million, before deducting underwriting discounts and commissions of seven percent (7%) of the gross proceeds and estimated Offering expenses.
Pursuant to the Underwriting Agreement, the Company also agreed to issue to the Underwriter warrants (the “Underwriter’s Warrants”) to purchase up to a total of 155,100 shares of Common Stock (6% of the shares of Common Stock sold in the Offering). The Underwriter’s Warrants are exercisable at $6.1875 per share of Common Stock and have a term of five years. The Underwriter’s Warrants are subject to a lock-up for 180 days from the commencement of sales in the Offering, including a mandatory lock-up period in accordance with FINRA Rule 5110(e), and will be non-exercisable for six (6) months after December 21, 2021.
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On September 2, 2021, the Company entered into a securities purchase agreement pursuant to which the Company issued to twenty investors a 12% senior secured convertible promissory note in the principal amount of $1.8 million, including $194 thousand (which represents the twelve months of guaranteed interest which was earned in full as of September 2, 2021), which is convertible into shares of the Company’s common stock at a price per share of $5.25 subject to certain adjustments as discussed herein in Note 13 in the Notes to Condensed Consolidated Financials. The net proceeds received by the Company were $1.5 million after deducting fees and expenses related to the transaction. The purchasers in the September 2021 securities purchase agreement also received warrants to purchase shares of our common stock. On January 25, 2022, the Company repaid an investor in full with a one-time cash payment of $300 thousand of outstanding principal and accrued but unpaid interest the September 2 Offering. The Company did incur a 105% pre-payment penalty of $16,800 with respect to the repayment of the investor’s note and the repayment extinguished the note in its entirety. Furthermore, the remaining September 2 Notes’ were fully repaid (including all principal and interest) on September 6, 2022 with a one-time cash payment of $1.5 million.
On March 11, 2021, the Company and Auctus entered into a senior secured convertible promissory note in the principal amount of $1,680 thousand, which includes $180 thousand of interest which was deemed fully earned as of the issuance date. The Auctus Note was fully repaid (including all principal and interest) on March 15, 2022 with a one-time cash payment of $1,680$883 thousand.

We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we anticipate that all available ~~funds~~fund 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 ~~believe we~~ have sufficient ~~cash and marketable securities~~capital to ~~operate our business plan through 2024.~~maintain as a going concern due to the capital raise that occurred on December 27, 2021. We intend to maintain and attempt to grow our existing contract manufacturing business. We also plan to continue building and developing ~~our~~its catalog 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.

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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~~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.

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Off Balance Sheet Arrangements

As of ~~September 30, 2022,~~March 31, 2023, 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 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.

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 ~~on September 2, 2021, March 11, 2021, February 3, 2021, December 24, 2020, March 18, 2020, September 10,~~during 2019 ~~and November 6, 2019.~~through 2021. The fair values of the warrants are estimated as of the date of issuance and again at each ~~period~~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 ~~3 year~~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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

As of ~~September 30, 2022,~~March 31, 2023, 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 effective as of ~~September 30, 2022~~March 31, 2023 at a reasonable level of assurance.

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Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter ended ~~September 30, 2022~~March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits ~~investigations~~ and ~~claims that~~legal proceedings which arise in the ordinary course of business. ~~As of the date of this filing, we~~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. We are ~~neither a party to any litigation nor are we~~currently not aware of any such ~~threatened~~legal proceedings or ~~pending litigation that might result~~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 ~~effect~~ to our ~~business.~~interest

ITEM 1A. RISK FACTORS

~~There have been no material changes to our risk factors as previously disclosed in our most recent Form 10-K filing.~~Not required for smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
~~(a)~~ ~~Unregistered Sales of Equity Securities~~
(a) Sales of Unregistered Securities during the three months ended March 31, 2023

~~None.~~The Company did not sell any unregistered securities during the three months ended March 31, 2023.

~~(b)~~ ~~Issuer Purchases of Equity Securities~~
(b) Issuer Repurchases of Securities during the three months ended March 31, 2023

~~None.~~The Company did not repurchase any of its securities during the three months ended March 31, 2023.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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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 ~~June 30, 2021,~~March 31, 2022, 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.

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SIGNATURES
~~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: ~~November 8, 2022~~May 15, 2023 By: /s/ Adam Levy
Name: Adam Levy
Title: Chief Executive Officer
(Principal Executive Officer)

By: /s/ Adam E. Drapczuk III
Name: Adam E. Drapczuk III
Title: Chief Financial Officer
(Principal Financial Officer)

3132

	March 31, 2023			December 31, 2022
ASSETS:
Current Assets:
Cash	$	787		$	1,101
Marketable securities		5,016			5,508
Accounts receivable, net		380			222
Inventory		968			502
Prepaid expenses and other current assets		129			172
Total current assets		7,280			7,505
Goodwill		311			311
Intangibles, net		16			20
Property and equipment, net		1,282			721
Operating lease - right of use asset		2,022			1,737
Other assets		95			63
Total assets	$	11,006		$	10,357

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	987		$	265
Accrued expenses and other current liabilities		112			130
Notes payable, current portion		15			15
Warrant liability		176			242
Operating lease liability, current portion		232			207
Total current liabilities		1,522			859
Operating lease liability, net of current portion		1,864			1,593
Notes payable, net of current portion		266			268
Total liabilities		3,652			2,720

Commitments and Contingencies (Note 15)		-			-

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; 5,614,028 and 5,577,916 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		6			6
Additional paid-in capital		19,213			19,189
Accumulated deficit		(12,372	)		(11,558	)
Total NexGel stockholders’ equity		6,847			7,637
Non-controlling interest in joint venture		507			-
Total stockholders’ equity		7,354			7,637
Total liabilities and stockholders’ equity	$	11,006		$	10,357

	September 30,			December 31,
	2022			2021
ASSETS:
Current Assets:
Cash and cash equivalents	$	1,427		$	13,350
Marketable securities		5,985			-
Accounts receivable, net		265			209
Inventory		399			291
Prepaid expenses and other current assets		239			77
Total current assets		8,315			13,927
Goodwill		311			311
Intangibles, net		23			33
Property and equipment, net		737			723
Operating lease - right of use asset		1,785			1,926
Other assets		63			63
Total assets	$	11,234		$	16,983

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	358		$	254
Accrued expenses and other current liabilities		164			62
Convertible notes payable		-			2,037
Notes payable, current portion		14			10
Warrant liability		372			318
Operating lease liability, current portion		207			207
Total current liabilities		1,115			2,888
Long-Term Liabilities:
Operating lease liability, net of current portion		1,632			1,744
Notes payable, net of current portion		269			266
Total long-term liabilities		1,901			2,010
Total liabilities		3,016			4,898

Commitments and Contingencies (Note 14)		-			-

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; 5,572,234 shares issued and outstanding as of both September 30, 2022 and December 31, 2021		6			6
Additional paid-in capital		19,122			18,891
Accumulated deficit		(10,910	)		(6,812	)
Total stockholders’ equity		8,218			12,085
Total liabilities and stockholders’ equity	$	11,234		$	16,983

cash flows	2023			2022
	Three months ended
	March 31,
	2023			2022
Revenues, net	$	620		$	396

Cost of revenues		677			418

Gross loss		(57	)		(22	)

Operating expenses
Research and development		29			24
Selling, general and administrative		797			766
Total operating expenses		826			790

Loss from operations		(883	)		(812)

Other income (expense)
Interest income (expense), net		(1)			(744)
Loss on debt extinguishment		-			(150)
Changes in fair value of warrant liability and warrant modification expense		66			(130)
Gain on investment in marketable securities		7
Other income		4			-
Total other income (expense), net		76			(1,024)
Loss before income taxes		(807	)		(1,836)
Income tax expense		—			—
Net loss		(807	)		(1,836	)
Less: Income attributable to non-controlling interest in joint venture		7			—
Net loss attributable to NexGel stockholders	$	(814	)	$	(1,836	)
Net loss per common share - basic	$	(0.15	)	$	(0.33	)
Net loss per common share - diluted	$	(0.15	)	$	(0.33	)
Weighted average shares used in computing net loss per common share - basic		5,586,326			5,572,234
Weighted average shares used in computing net loss per common share – diluted		5,586,326			5,572,234

	Shares		Amount		Capital		Deficit			Equity
	Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity
Balance, January 1, 2022		5,572,234	$	6	$	18,891	$	(6,812	)	$	12,085

Stock-based compensation		-		-		55		-			55

Net loss		-		-		-		(1,836	)		(1,836	)

Balance, March 31, 2022		5,572,234		6		18,946		(8,648	)		10,304

Stock-based compensation		-		-		54		-			54

Restricted stock vesting		-		-		25		-			25

Net loss		-		-		-		(1,035	)		(1,035	)

Balance, June 30, 2022		5,572,234		6		19,025		(9,683	)		9,348

Stock-based compensation		-		-		55		-			55

Restricted stock vesting		-		-		42		-			42

Net loss		-		-		-		(1,227	)		(1,227	)

Balance, September 30, 2022		5,572,234	$	6	$	19,122	$	(10,910	)	$	8,218

	Common Stock				Additional Paid-in			Accumulated			Total Stockholders’
	Shares		Amount		Capital			Deficit			Equity
Balance, January 1, 2021		2,838,047	$	3	$	2,570		$	(2,502	)	$	71

Stock-based compensation		-		-		69			-			69

Restricted stock vesting		-		-		21			-			21

Issuances of common stock, net of issuance costs		101,800		-		285			-			285

Warrants issued for debt issuance		-		-		(18	)		-			(18	)

Beneficial conversion and warrant features of convertible debt		-		-		1,276			-			1,276

Net loss		-		-		-			(704	)		(704	)

Balance, March 31, 2021		2,939,847		3		4,203			(3,206	)		1,000

Stock-based compensation		-		-		74			-			74

Restricted stock vesting		39,524		-		21			-			21

Net loss		-		-		-			(825	)		(825	)

Balance, June 30, 2021		2,979,371		3		4,298			(4,031	)		270

Stock-based compensation		-		-		24			-			24

Restricted stock vesting		-		-		21			-			21

Beneficial conversion and warrant features of convertible debt		-		-		1,311			-			1,311

Net loss		-		-		-			(1,142	)		(1,142	)

Balance, September 30, 2021		2,979,371	$	3	$	5,654		$	(5,173	)	$	484

	2022			2021
	Nine Months Ended September 30,
	2022			2021
Operating Activities
Net loss	$	(4,098	)	$	(2,671	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		84			206
Changes in ROU asset and operating lease liability		29			16
Share-based compensation		231			229
Changes in fair value of warrant liability		(3	)		(10	)
Amortization of deferred financing costs		1,325			1,058
Warrant modification expense		57			-
Loss on extinguishment of debt		150			25
Gain on investments in marketable securities		(5	)		-
Forgiveness of debt		-			(147	)
Beneficial conversion feature in excess of face value		-			52

Changes in operating assets and liabilities:
Accounts receivable		(56	)		(121	)
Inventory		(108	)		(28	)
Prepaid expenses and other current assets		(162	)		39
Accounts payable		104			(145	)
Accrued expenses and other current liabilities		109			(21	)
Deferred revenue		-			(38	)

Net Cash Used in Operating Activities		(2,343	)		(1,556	)

Investing Activities
Investment in marketable securities		(6,980	)		-
Proceeds from sale of marketable securities		1,000			-
Capital expenditures		(88	)		(390	)
Net Cash Used in Investing Activities		(6,068	)		(390	)

Financing Activities
Issuance of common stock, net of issuance costs		-			285
Proceeds from notes payable		-			15
Principal payment of notes payable		(3,512	)		-
Proceeds from notes payable (PPP)		-			127
Proceeds from convertible notes		-			2,957
Payment of financing costs		-			(115	)
Principal payment on convertible notes		-			(100	)
Net Cash Provided by (Used In) Financing Activities		(3,512	)		3,169
Net Increase (Decrease) in Cash and Cash Equivalents		(11,923	)		1,223
Cash and Cash Equivalents – Beginning of period		13,350			32
Cash and Cash Equivalents – End of period	$	1,427		$	1,255
Supplemental Disclosure of Cash Flows Information
Cash paid during the year for:
Interest		-			-
Taxes		-			-

Supplemental Non-cash Investing and Financing Activities
Fair value of beneficial conversion and warrant features of convertible notes payable	$	-		$	2,587
Original issue discounts recognized on convertible notes payable	$	-		$	653
Warrants issued for debt and equity financing costs	$	-		$	203
Operating lease, ROU assets and liabilities	$	-		$	2,050

			March 31,		December 31,
	September 30, 2022		2023		2022
Marketable Securities
United States treasury bills (due December 29, 2022)	$	494
United States treasury bills (due February 23, 2023)		492	$	-	$	492
United States treasury bills (due April 27, 2023)				20		20
United States treasury bills (due June 15, 2023)		4,387		4,384		4,384
United States treasury bills (due July 13, 2023)		127		127		127
United States treasury bills (due August 10, 2023)		485		485		485
Total	$	5,985	$	5,016	$	5,508

	Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value
	September 30, 2022										March 31, 2023
	Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value
Assets
Marketable securities:
United States treasury bills	$	5,985	$	—	$	—	$	5,985	$	5,016	$	-	$	-	$	5,016
Total	$	5,985	$	—	$	—	$	5,985	$	5,016	$	-	$	-	$	5,016

	2022		2021
	Three months ending
	September 30,
	2022		2021
Contract manufacturing	$	277	$	180
Custom and white label finished goods manufacturing		15		-
NexGel branded consumer products		231		155
Other		45		-
Total	$	568	$	335

revenue	2023		2022
	Three months ended
	March 31,
	2023		2022
Contract manufacturing	$	380	$	135
Custom and white label finished goods manufacturing		4		—
NexGel branded consumer products		222		213
Other		14		48
Total	$	620	$	396

	2022		2021
	Nine months ending
	September 30,
	2022		2021
Contract manufacturing	$	736	$	559
Custom and white label finished goods manufacturing		34		194
NexGel branded consumer products		623		265
Other		131		—
Total	$	1,524	$	1,018

	Operating			Operating
	Lease			Lease
Maturity of Lease Liability	Liability			Liability
2022	$	52
2023		207		$	184
2024		207			245
2025		207			245
2026		263			301
2027					315
Thereafter		1,165			1,115
Total undiscounted operating lease payments	$	2,101		$	2,405
Less: Imputed interest		(262	)		(309	)
Present value of operating lease liability	$	1,839		$	2,096
Weighted average remaining lease term		8.25 years			8.9 years
Weighted average discount rate		3.0	%		3.5	%

	September 30,
	2022
Cash paid for amounts included in the measurement of lease liability:
Operating cash flows from operating lease	$	155

	September 30,		December 31,
	2022		2021
Raw materials	$	285	$	266
Work-in-progress		87		-
Finished goods		27		25
Inventory, gross		399		291
Less: Inventory reserve for excess and slow moving inventory		—		—
Total	$	399	$	291

	Useful Life		September 30,			December 31,
	(Years)		2022			2021
Machinery and equipment		3 - 10	$	972		$	940
Office furniture and equipment		3 - 10		59			50
Leasehold improvements		6		228			228
Construction in progress		-		48			-
Property and equipment, gross				1,307			1,218
Less: accumulated depreciation and amortization				(570	)		(495	)
Property and equipment, net			$	737		$	723


2022 (reminder of the year)	$	4
($ in thousands):
2023		8	$	4
2024		2		2
2025		2		2
2026		2		2
2027				2
Thereafter		5		4
Total	$	23	$	16

Share-based compensation plan			~~329,937~~542,469
Warrants to purchase common stock			~~3,637,190~~3,557,190
Restricted stock units			121,787

	Awards		Awards				Awards
	Reserved for Issuance		Issued & Outstanding		Awards Exercised		Available for Grant
2019 Plan⁽¹⁾		871,429		627,219		7,183		237,027
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
				Weighted		Average				Weighted		Average
				Average		Contractual				Average		Contractual
	Number of			Exercise		Term in		Number of		Exercise		Term in
	Options			Price		Years		Options		Price		Years
Outstanding at January 1, 2022		434,939		$	1.675747		8.56

Outstanding at January 1, 2023									524,937	$	2.351416		8.38
Granted		—			—		—		17,532		2.00		10.0
Exercised		—			—		—		—		—		—
Forfeited		—			—		—		—		—		—
Cancelled		(105,002	)		1.40		—		—		—		—
Expired		—			—		—		—		—		—
Outstanding at September 30, 2022		329,937		$	1.763503		7.83
Exercisable at September 30, 2022		318,508		$	1.726311		7.81
Outstanding at March 31, 2023									542,469	$	2.340058		8.20
Exercisable at March 31, 2023									351,398	$	1.777947		7.42

Volatility	~~171.12~~%-~~183.48~~257.64	%
Risk-free interest rate	~~0.46% -~~ ~~0.86~~4.21	%
Dividend yield	0.0	%
Expected term	~~5.0~~ - ~~5.75~~5.50 years

	Amount
For the year ending December 31 ($ in thousands):
2023 (remainder of the year)	$	4
2024		5
2025		5
2026		5
2027		6
Thereafter		256
Total	$	281

	Warrants		Fair Value
Warrant Liability	Outstanding		per Share	Fair Value
Fair Value as of period ending 12/31/2021		265,305		$	318
Modification of warrants					57
Change in fair value of warrant liability					(3	)
Fair Value as of period ending 9/30/2022		265,305		$	372

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		(30,430	)			(54	)
Change in fair value of warrant liability		-				(12	)
Fair value as of year ended 3/31/2023		234,875			$	176

	Three Months Ended September 30,
	2022		2021
Cost of revenues
Materials and finished products	$	113	$	121
Compensation and benefits		176		157
Depreciation and amortization		20		22
Equipment, production and other expenses		111		92
Total cost of revenues	$	420	$	392

	Three Months Ended September 30,
	2022		2021
Selling, general and administrative expenses
Compensation and benefits	$	118	$	87
Share-based compensation		85		45
Depreciation and amortization		4		3
Other expenses and professional fees		785		418
Total Selling, general and administrative expenses	$	992	$	553

	Nine Months Ended September 30,
	2022		2021
Cost of revenues
Materials and finished products	$	403	$	351
Compensation and benefits		518		419
Depreciation and amortization		63		65
Equipment, production and other expenses		320		278
Total cost of revenues	$	1,304	$	1,113

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 ~~June 30, 2021,~~March 31, 2022, 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).


	NEXGEL, INC.

Date: ~~November 8, 2022~~May 15, 2023	By:	/s/ Adam Levy
	Name:	Adam Levy
	Title:	Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Adam E. Drapczuk III
	Name:	Adam E. Drapczuk III
	Title:	Chief Financial Officer
		(Principal Financial Officer)