Business context and reporting period
This is AquaMed Technologies, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019. The filing identifies the issuer as AquaMed Technologies, not NEXGEL, INC. AquaMed manufactures custom hydrogel products for wound care, diagnostics, drug delivery and cosmetics. It became independent through a June 21, 2019 spin-off from Adynxx; pre-spin-off statements are presented on a carve-out basis.
Financial results and position
Amounts below are in thousands of dollars except per-share data and percentages.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $125 | $864 | $254 | $1,404 |
| Gross profit (loss) | $(66) | $285 | $(174) | $411 |
| Gross margin | (53%) | 33% | (69%) | 29% |
| SG&A | $1,007 | $572 | $1,511 | $1,068 |
| Net loss | $(1,073) | $(287) | $(1,685) | $(657) |
- Six-month operating cash use was $1,159, compared with $751 in the cash flow statement for 2018. The MD&A instead reports 2018 operating cash use of $708; the filing does not reconcile the difference.
- Six-month financing cash inflow was $1,345, described as net distributions from the former parent. Cash was $186 at June 30, 2019, versus nil at year-end 2018.
- At June 30, current assets were $499 and current liabilities $1,098, producing a $599 working capital deficit. Total liabilities were $1,867; stockholders’ deficit was $59.
- The balance sheet includes $976 of operating lease liabilities, of which $207 is current. The filing reports no financing leases and no separate funded debt balance.
- Basic and diluted loss per share were $(0.21) for Q2 and $(0.34) for the six-month period. Weighted-average shares were 5,005,211.
Material changes versus comparable periods
- Revenue fell 86% in Q2 and 82% for the six-month period, which management attributed to lower contract-manufacturing customer orders. Gross results swung from profit to loss, reflecting lower sales volume.
- SG&A increased $435 in Q2 and $443 for the six-month period, primarily due to spin-off restructuring and higher legal, accounting and consulting costs. Stock-based compensation fell to zero from $159 for the six-month period as prior plans were discontinued.
- Operating lease right-of-use assets and liabilities were recognized upon adoption of ASC 842; the company reported no material effect on operations or cash flows.
Outlook, risks and unusual items
- Management expects continued losses and says additional capital is needed. It was evaluating equity offerings, but gave no specific financing commitment or revenue guidance. The filing states that substantial doubt exists about the company’s ability to continue as a going concern beyond one year from issuance.
- Customer concentration is significant: Customer A accounted for 53% of six-month revenue and 60% of June 30 receivables; Customer B accounted for 15% of six-month revenue.
- The manufacturing-facility operating lease runs through 2026; disclosed future minimum payments total $1,365 before $389 of imputed interest.
- Subsequent to quarter-end, the company adopted a 2,000,000-share incentive plan and granted options for 1,000,000 shares to three employees on August 28, 2019; half vested at grant and half are scheduled to vest on the first anniversary.
- Management identified risks including inadequate capital, customer or supplier loss, manufacturing and regulatory compliance, competition, and execution of its business plans. It reported disclosure controls were effective and described ordinary-course legal matters as not expected to materially affect results.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for AquaMed Technologies, Inc., notwithstanding the NEXGEL metadata.
- Investigate the stated report-filing status: the cover page marks “No” for having filed all required reports during the preceding 12 months.
- Reconcile the 2018 operating cash-use figures ($751 in the cash flow statement versus $708 in MD&A) and assess current cash runway and access to financing.
- Monitor customer orders and concentration, particularly the largest customer’s contribution to revenue and receivables.
- Assess the dilution implications of the 1,000,000 options granted and the 2,000,000-share plan reserve.