NexGel, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with FY2022. Unless noted, financial amounts are in thousands of dollars. NexGel manufactures hydrogel products for healthcare and consumer uses, with contract manufacturing, branded consumer products, custom/white-label offerings, and medical-device development. Its 50%-owned CG Labs converting and packaging joint venture is consolidated as a variable interest entity.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $4,089 | $2,048 |
| Gross profit / margin | $619 / 15.1% | $256 / 12.5% |
| Operating loss | $(3,477) | $(3,348) |
| Net loss | $(3,188); $(3,157) attributable to NexGel stockholders | $(4,746) |
| Net loss per share, basic and diluted | $(0.56) | $(0.85) |
| Cash used in operating activities | $(3,236) | $(2,992) |
| Cash and cash equivalents at year-end | $2,700 | $1,101 |
| Working capital | $2,503 | $6,646 |
| Total liabilities | $4,789 | $2,720 |
- Revenue rose 99.7%, primarily from growth in contract manufacturing and branded products, and $1,987 of CG Labs revenue from March through December. Contract manufacturing revenue was $2,748, branded consumer products $1,242, custom/white-label $15, and other $84.
- Cost of revenue increased 93.6% to $3,470, broadly tracking sales growth. SG&A increased 23.4% to $3,993, including higher professional and consulting, compensation, and advertising/marketplace costs. R&D fell to $103 from $367 following completion of two proof-of-concept studies.
- Net loss narrowed, but operating loss widened. FY2023 included $289 of net other income, including a $191 realized gain on marketable securities and a $96 net benefit from warrant-liability fair value changes; FY2022 included $1,336 of net interest expense and a $150 debt-extinguishment loss.
- Investing activities provided $4,456, principally from $5,699 of marketable-security sales, offset by $696 of equipment purchases and $547 for Kenkoderm. Financing activities provided $379, including equipment-note and margin-line proceeds.
- At year-end, marketable securities were zero versus $5,508 in FY2022. Current assets were $5,052 and current liabilities $2,549. Notes payable totaled $593, including current and long-term portions; operating lease liabilities totaled $1,960. A $245 margin-line balance was included in current accrued liabilities and was expected to be repaid upon maturity of short-term Treasury bills classified as cash.
Material changes and unusual items
- NexGel acquired a 50% interest in CG Labs effective March 1, 2023 and consolidated its results. CG Labs contributed converting and packaging operations; NexGel contributed $500 to the venture.
- On December 1, 2023, NexGel acquired substantially all assets of the Kenkoderm psoriasis skincare business for $547 cash, with additional quarterly earn-out payments during 2024 that may vary with business results. The recorded contingent consideration liability was $439; preliminary goodwill was $817.
- After year-end, the February 15, 2024 registered direct offering generated approximately $1.025 million gross proceeds. It issued 485,782 common shares and warrants for up to 242,891 shares; proceeds were designated for working capital and general corporate purposes.
- Potential dilution is significant: at filing, the company disclosed 3,442,904 outstanding warrants, 560,650 stock options, and restricted stock/units. The February 2024 offering added further warrants and shares.
Outlook, risks, and contingencies
- Management expects near-term losses to continue. It stated that cash and marketable securities were sufficient to operate the business plan into 2025, taking account of the subsequent capital raise, while noting that additional debt or equity financing may be needed. Long-term viability depends on growing sales and reaching profitable operations; the filing identifies substantial doubt-related going-concern risks and says the financial statements include no adjustments that might be required if the company cannot continue as a going concern.
- Plans include maintaining contract manufacturing, expanding consumer products and sales channels, developing branded and white-label products, pursuing drug-delivery programs, and exploring medical devices and strategic initiatives. Medical devices such as NEXDrape and NEXDerm remain in development; FDA 510(k) submissions are planned, with no assurance of clearance. Management expects to pursue licensing or partnerships rather than fund full commercialization itself.
- Key exposures include customer concentration (one customer generated about 20% of FY2023 revenue and had 69% of year-end receivables), purchase-order sales without minimum-purchase contracts, reliance on Amazon for consumer sales, and dependence on key polymer suppliers. The company also cites competition, regulatory and cGMP compliance, product acceptance, limited sales capabilities, financing needs, and potential dilution.
- The auditor issued an unqualified opinion on the financial statements. The auditor did not audit internal control over financial reporting; management concluded disclosure controls were effective at a reasonable-assurance level. NexGel reported no material litigation known to management and no material cybersecurity incidents.
Important facts for investors to verify
- Reconcile the stated ability to fund operations into 2025 with continuing operating cash burn, the going-concern disclosures, and the net proceeds and dilution from the February 2024 offering.
- Track quarterly cash burn, working capital, debt and margin-line repayment, and any additional financing requirements.
- Verify the durability of the concentrated customer relationship and the status of customer orders, given the lack of minimum-purchase contracts and the customer’s large share of receivables.
- Assess whether revenue growth and gross-margin improvement can persist, particularly as the company integrates CG Labs and expands branded sales.
- Monitor Kenkoderm performance and 2024 earn-out payments, as well as the carrying value of acquisition goodwill and other intangible assets.
- Check the status, cost, regulatory pathway, and partnership prospects for NEXDrape, NEXDerm, and other development programs, and evaluate potential dilution from outstanding and newly issued securities.