NEXGEL, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; filed March 27, 2023. This filing reports full-year results, not standalone fourth-quarter results. Unless otherwise noted, financial figures below are in U.S. dollars.
Business context
NEXGEL manufactures electron-beam cross-linked hydrogel materials for wound care, drug delivery, medical diagnostics, and cosmetics. Its businesses include contract manufacturing, custom and white-label products, branded consumer products, and medical-device development. Consumer products are sold through online and retail channels, including Amazon and the company’s MedaGel.com site. The company’s facility was operating at about 5% capacity, according to the filing.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $2.048 million | $1.551 million |
| Gross profit / margin | $256,000 / 12.5% | $8,000 / 0.5% |
| Operating expenses | $3.604 million | $2.578 million |
| Operating loss | $3.348 million | $2.570 million |
| Net loss | $4.746 million | $4.310 million |
| Net loss per share, basic and diluted | $0.85 | $1.45 |
| Cash used in operating activities | $2.992 million | $2.753 million |
Gross margin improved as higher sales volume absorbed fixed manufacturing costs and manufacturing labor costs were lower. Revenue grew 32.0%. By sales type, contract manufacturing revenue was $1.033 million (up from $767,000), custom and white-label revenue was $34,000 (down from $194,000), branded consumer-product revenue was $815,000 (up from $488,000), and other revenue was $166,000 (up from $102,000).
Research and development expense rose to $367,000 from $31,000, reflecting proof-of-concept work for drug-delivery candidates. Selling, general and administrative expense increased to $3.237 million from $2.547 million, including higher compensation, marketing and Amazon fees, investor services, franchise taxes, and professional fees.
At year-end, cash was $1.101 million and marketable securities were $5.508 million, principally U.S. Treasury bills. Current assets were $7.505 million and current liabilities were $859,000, yielding working capital of $6.646 million. Cash and cash equivalents declined by $12.249 million during 2022. Investing activities used $5.595 million, largely reflecting purchases of marketable securities; financing activities used $3.662 million, principally repayment of convertible notes.
Total liabilities were $2.720 million. Convertible notes were fully repaid during 2022; remaining notes payable were about $283,000, operating lease liabilities totaled $1.800 million, and warrant liability was $242,000. The company reported a $150,000 loss on debt extinguishment and $1.336 million of interest expense. No income tax expense or benefit was recorded; deferred tax assets were fully offset by a valuation allowance.
Changes, outlook, and risks
- Management said it believed available cash and marketable securities were sufficient to fund its business plan through 2025, but also expected near-term losses and said further debt or equity financing might be needed for growth initiatives or acquisitions. Long-term continuation depends on growing the business and achieving profitability.
- Growth plans include expanding contract manufacturing and consumer products, developing white-label opportunities, and pursuing medical-device and drug-delivery programs. NEXDrape and NEXDerm remain in development; regulatory submissions and commercial success are not assured. The company generally expects to pursue partners to bring medical devices to market.
- Customer concentration is material: one customer represented approximately 29% of 2022 revenue. Sales are generally made on purchase orders, without minimum-purchase commitments or customer contracts. The company also relies heavily on Amazon for consumer-product distribution.
- Key risks include continued losses and capital needs, dependence on major customers and suppliers, limited sales and distribution capabilities, competition, product acceptance, FDA and current-good-manufacturing-practice compliance, and potential product-liability claims. The filing identifies two key polymer suppliers as difficult to replace quickly.
- Gross profit improved, but operating expenses substantially exceeded gross profit. The company’s facility was operating well below capacity, so meaningful growth depends on increasing demand and utilization.
- Subsequent events: in March 2023, NEXGEL acquired a 50% interest in CG Converting and Packaging, LLC and committed to contribute $500,000 on a schedule to be determined. It also entered a services agreement with a Haleon group company for material for a potential future consumer product; release and success are not assured. The board approved a proposed 300,000-share increase to the incentive plan, subject to stockholder approval.
- The independent auditor gave an unqualified opinion on the financial statements. The auditor did not express an opinion on internal-control effectiveness; management reported disclosure controls were effective at a reasonable level of assurance.
Important facts for investors to verify
- Whether the company’s cash and Treasury-bill balance, cash burn, and financing needs remain consistent with management’s stated runway through 2025.
- Whether revenue growth—particularly branded-product and contract-manufacturing sales—continues, and how customer concentration changes.
- Whether gross-margin improvement persists as production volume increases, and whether operating expenses can be controlled relative to revenue.
- Progress, costs, regulatory requirements, and potential partners for NEXDrape, NEXDerm, and other development programs; also the terms and funding schedule of the CG Converting and Packaging joint venture.
- Potential dilution: at filing, 3,637,190 warrants, 524,937 stock options, and 90,432 restricted shares or units were disclosed as issuable upon exercise or vesting, subject to their terms.