NexGel, Inc. — FY 2019 Form 10-K
Reporting period: Year ended December 31, 2019; comparative figures are for 2018. NexGel became independent in a June 2019 spin-off. Pre-spin-off results are presented on a carve-out basis, so comparisons may not represent results as a standalone company for the full periods. The filing does not provide clear standalone fourth-quarter financial results.
Business context
NexGel manufactures custom, high-water-content hydrogels used in wound care, diagnostics, drug delivery, and cosmetics. It historically operated primarily as a contract manufacturer and is pursuing a shift toward proprietary consumer products and white-label opportunities. At year-end it had six full-time employees and no employees dedicated solely to sales.
Financial performance and liquidity
| Metric ($ in thousands, except per-share data) | 2019 | 2018 |
|---|---|---|
| Revenue | $717 | $2,213 |
| Gross profit (loss) | $(137) | $514 |
| Gross margin | (19%) | 23% |
| Selling, general and administrative expenses | $1,787 | $2,402 |
| Operating loss | $(1,924) | $(1,888) |
| Net loss | $(1,923) | $(1,888) |
| Net loss per share, basic and diluted | $(0.14) | $(0.38) |
| Cash used in operating activities | $(1,814) | $(1,544) |
| Cash at year-end | $261 | $0 |
| Working capital deficit | $288 | $46 |
Revenue fell about 68% year over year. The company attributed the decline primarily to losing a customer that generated more than $1 million of 2018 sales, with the balance due to lower customer orders. Lower production volume contributed to the shift from gross profit to gross loss. SG&A fell $615,000, partly due to lower staffing, share-based compensation, and other expenses, including professional fees.
Financing activities provided $2.075 million in 2019, including $730,000 net from common-stock issuance and $1.345 million in net distributions from former parent Adynxx. There was no investing cash flow. At year-end, total assets were $1.890 million, total liabilities $1.511 million, and stockholders’ equity $380,000. The balance sheet included $917,000 of operating lease liabilities and a $56,000 warrant liability; the filing reports no conventional borrowings.
Material changes, outlook, and risks
- Customer concentration: Four customers represented approximately 78% of 2019 revenue (38%, 17%, 13%, and 10%). Sales are generally made on purchase orders, not long-term contracts. The company also identifies reliance on a limited number of suppliers as a risk.
- Going concern: Management expects continued losses and says additional capital is needed. The auditor’s report and management disclosure state that substantial doubt exists about the company’s ability to continue as a going concern. No assurance is given that sufficient financing will be available or that profitability will be achieved.
- Plans: Management intends to maintain and grow contract manufacturing, develop consumer-product offerings for branding partners, and test its own branded products. It expects to raise capital and increase revenue; no quantified revenue, earnings, or margin guidance is provided.
- Subsequent financing: From February through March 2020, NexGel initiated a private placement of 15.5 million shares at $0.04 per share, for $620,000, intended for working capital, product development and testing, and general operations.
- COVID-19: The filing warns of possible revenue declines, labor or supply shortages, difficulty raising capital, and adverse effects on asset recoverability. The extent of impact was unknown when the report was filed.
- Capital and trading: NexGel’s common stock had no public market and was not listed on an exchange. 2019 private placements and the subsequent financing involved substantial share issuance; additional authorized shares and a proposed reverse split were disclosed as not yet effected at the filing date.
- Unusual accounting item: NexGel disclosed that warrants issued in September 2019 had not been recognized in an earlier quarterly filing. The correction increased warrant liabilities and decreased additional paid-in capital by $14,000 at September 30, 2019; it did not affect interim net loss.
- Controls and filing status: Management concluded disclosure controls were effective at year-end; the auditor did not opine on internal control over financial reporting. The cover page indicates “No” for filing all required reports during the prior 12 months; investors should confirm the circumstances.
Key facts investors should verify
- Whether the company obtained sufficient financing after the reported $620,000 2020 private placement, and its current cash runway and liquidity needs.
- Whether major customers retained or increased orders, and progress in reducing customer and supplier concentration.
- Whether the consumer-product strategy has generated commercial sales, and the costs and timing required to scale it.
- The status and potential dilution from outstanding warrants, equity awards, subsequent share issuances, authorized-share changes, and the proposed reverse split.
- The going-concern assessment, COVID-19 effects, and any impairment or other material estimates affected by operating conditions.
- The basis for the cover-page “No” response regarding timely Exchange Act filings and any related filing history.