NexGel, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparative period is Q1 2021. NexGel manufactures hydrogel products for wound care, diagnostics, drug delivery, and cosmetics, and is expanding from contract manufacturing into branded consumer products. Financial amounts below are in thousands of dollars unless stated otherwise.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 or prior date |
|---|---|---|
| Revenue | $396 | $267 |
| Gross loss / margin | $(22) / approximately (6%) | $(42) / approximately (16%) |
| Operating expenses | $790 | $478 |
| Operating loss | $(812) | $(520) |
| Net loss | $(1,836) | $(704) |
| Net loss per share, diluted | $(0.33) | $(0.25) |
| Cash and cash equivalents | $10,520 at March 31, 2022 | $13,350 at December 31, 2021 |
| Working capital | $9,300 at March 31, 2022 | $11,000 at December 31, 2021 |
- Operating cash use was $797, compared with $345 in Q1 2021. Investing cash use was zero, versus $267. Financing cash outflow was $2,033, primarily reflecting repayment of convertible debt. Cash declined $2,830 during the quarter.
- At March 31, current assets were $11,099 and current liabilities were $1,804. Total liabilities were $3,776 and stockholders’ equity was $10,304.
- Convertible notes had a reported carrying value of $894; the related notes’ stated principal outstanding was approximately $1,478. The Auctus note was repaid in March for $1,680. Other notes payable totaled $279, excluding operating lease liabilities. Operating lease liabilities totaled $1,914.
- Interest expense, net, was $744; the company also recorded a $150 loss on debt extinguishment and a $130 expense from the change in fair value of warrant liabilities. Amortization of deferred financing costs was $741.
Material changes and business developments
- Revenue grew 48%, attributed by management to new-product sales and custom-label and branded-product initiatives. NexGel-branded consumer products contributed $213 of revenue versus $36 a year earlier; contract manufacturing revenue declined to $135 from $226. Other revenue was $48 versus $5.
- Cost of revenue rose 35% to $418, reflecting product growth and higher compensation and benefits. Management attributed the improved gross loss mainly to higher contract-manufacturing volume against fixed costs, partly offset by higher manufacturing labor costs.
- Operating expenses rose 65% to $790. Selling, general and administrative expense increased 63% to $766, chiefly due to higher professional fees, selling costs, employee compensation, and online sales commissions. Management cited costs related to the December 2021 Nasdaq up-listing and expected general and administrative costs for the rest of 2022 to be at current-quarter levels or potentially lower. Research and development expense was $24, versus $7.
- Weighted-average basic shares increased to 5,572,234 from 2,873,008, reflecting the prior-year share base; period-end common shares were 5,572,234. The company also had 3,637,190 warrants outstanding and 434,939 options outstanding.
Outlook, risks, and contingencies
- Management said the December 2021 public offering, which generated approximately $13.2 million in net proceeds, provided sufficient capital to maintain operations as a going concern. The company nevertheless expects near-term losses and says long-term viability depends on growing products and achieving profitability; further debt or equity financing may be needed, with no assurance it will be available on acceptable terms.
- Plans include growing contract manufacturing, expanding branded and white-label consumer products through online and other channels, developing proprietary medical devices, and exploring drug-delivery programs and strategic initiatives, including acquisitions. No quantified revenue or earnings guidance was provided.
- Customer concentration is significant: three customers generated 52%, 12%, and 12% of Q1 2022 revenue. Cash held above the FDIC insurance limit was $10.27 million at quarter-end. Other stated risks include access to capital, customer or supplier loss, competition, regulation and manufacturing compliance, product or technology issues, and cost increases.
- The company reported no known litigation expected to materially affect its financial position or results, and no off-balance-sheet arrangements. Management concluded disclosure controls were effective at a reasonable level of assurance, with no material changes to internal control reported.
- The cover page indicates “No” for having filed all required reports during the preceding 12 months; investors should verify the company’s filing-compliance status.
Important facts for investors to verify
- Confirm the filing-history status indicated on the cover page and whether any required reports were outstanding.
- Review the terms, maturity, conversion and repayment provisions of the remaining September 2021 convertible notes, including the stated principal and balance-sheet carrying value.
- Assess whether revenue growth in branded products can translate into positive gross margins and reduce operating losses and cash burn.
- Monitor customer concentration, cash runway, and any need for additional financing or potential dilution from outstanding warrants and options.
- Evaluate the assumptions behind management’s going-concern statement alongside its expectation of near-term losses and possible future capital needs.