NexGel, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Dollar amounts below are in thousands unless stated otherwise. NexGel manufactures hydrogel materials for wound care, diagnostics, drug delivery and cosmetics, and is expanding into branded and white-label consumer products and medical devices.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $561 | $417 | $956 | $683 |
| Gross profit (loss) | $101 | $4 | $72 | $(39) |
| Gross margin | 18% | 1% | 8% | (6%) |
| Operating expenses | $819 | $557 | $1,602 | $1,034 |
| Operating loss | $(718) | $(553) | $(1,530) | $(1,073) |
| Net loss | $(1,035) | $(826) | $(2,871) | $(1,529) |
| Basic and diluted loss per share | $(0.19) | $(0.28) | $(0.52) | $(0.52) |
- Q2 revenue rose 35% year over year; first-half revenue increased 40%. Management attributed growth to new products, custom-label manufacturing and branded consumer products.
- Q2 gross margin improved to 18% from 1%; first-half margin improved to 8% from a 6% loss. Management linked the improvement primarily to higher contract-manufacturing volume spread over fixed costs.
- SG&A rose 29% in Q2 and 44% in the first half, largely due to professional, legal, accounting and administrative costs associated with public-company requirements and the December 2021 Nasdaq listing. First-half R&D increased to $135 from $17, reflecting two drug-delivery proof-of-concept studies and continued NEXDrape development.
- First-half operating cash use was $1,495, versus $1,033 a year earlier. Investing cash use was $5,402, including $5,371 invested in marketable securities; financing cash use was $2,033, primarily principal repayments. Cash and cash equivalents fell to $4,420 from $13,350 at year-end 2021.
- At June 30, cash and cash equivalents were $4,420, marketable securities were $5,371, and working capital was $8,300, down from $11,000 at December 31, 2021. Management stated it believed cash and securities would fund its business plan through 2024.
- Current liabilities included $1,240 of convertible notes; the balance sheet also reported $281 of notes payable and $1,876 of operating lease liabilities. Total liabilities were $4,423. The filing reports $1,239.5 of outstanding September 2021 convertible notes at quarter-end.
Material changes, outlook and risks
- Despite revenue and gross-margin improvement, first-half net loss widened to $2,871 from $1,529, with higher operating expenses and interest expense contributing. First-half interest expense was $1,092, versus $518.
- Management expects near-term losses, anticipates further gross-margin improvement as volume grows, and plans to expand contract manufacturing, consumer-product sales, proprietary devices and drug-delivery programs. It may pursue acquisitions and additional debt or equity financing; no specific revenue or earnings guidance was provided.
- Customer concentration is significant: two customers accounted for 40% and 25% of first-half 2022 revenue. Management cited dependence on key customers or suppliers, competition, regulation, manufacturing compliance, product development, capital needs and execution risks.
- The company reported no material litigation known to management and no material changes to previously disclosed risk factors. It stated disclosure controls were effective and reported no material changes in internal control over financial reporting.
- The filing states that the company checked “No” to having filed all required reports during the preceding 12 months. This cover-page response should be confirmed against the company’s filing history.
Important facts for investors to verify
- Whether the reported “No” response regarding timely filing of required reports is accurate and whether any filings were delinquent.
- Convertible-note repayment terms, remaining maturity and cash obligations; the MD&A describes financing cash outflows as convertible-note repayments, while the cash-flow statement labels them principal payments on notes payable.
- Whether the cash, Treasury securities and operating cash burn support the stated plan through 2024, particularly if losses persist or additional financing is needed.
- Progress toward improving gross margins and growing sales, alongside customer concentration and the commercial prospects of the new product and development initiatives.