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What changed in NEXGEL, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NEXGEL, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+77 added−76 removedSource: 10-K (2024-04-10) vs 10-K (2023-03-28)

Top changes in NEXGEL, INC.'s 2023 10-K

77 paragraphs added · 76 removed · 64 edited across 4 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

27 edited+4 added−3 removed89 unchanged
Biggest changeOur common stock and certain of our warrants trade on The Nasdaq Capital Market under the symbols “NXGL” and “NXGLW,” respectively. However, prior to December, 2021 there has historically been no public market for our common stock and an active trading market for our common stock may not develop or may not be sustained in the future.
Biggest changeRisks Relating to our Common Stock and Capital Structure An active trading market may not develop or be sustained, and our stock price may fluctuate significantly once we do trade. Our common stock and certain of our warrants trade on The Nasdaq Capital Market under the symbols “NXGL” and “NXGLW,” respectively.
The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including: ● actual or anticipated fluctuations in our operating results due to factors related to our business; ● success or failure of our business strategies; ● our quarterly or annual earnings, or those of other companies in our industry; ● our ability to obtain financing as needed; ● announcements by us or our competitors of significant acquisitions or dispositions; ● changes in accounting standards, policies, guidance, interpretations or principles; ● the failure of securities analysts to cover our common stock after we commence trading; ● changes in earnings estimates by securities analysts or our ability to meet those estimates; ● the operating and stock price performance of other comparable companies; ● overall market fluctuations; ● results from any material litigation or government investigation; ● changes in laws and regulations (including tax laws and regulations) affecting our business; ● changes in capital gains taxes and taxes on dividends affecting stockholders; and ● general economic conditions and other external factors, including wars such as the current conflict in Ukraine and other geopolitical risks.
The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including: ● actual or anticipated fluctuations in our operating results due to factors related to our business; ● success or failure of our business strategies; ● our quarterly or annual earnings, or those of other companies in our industry; ● our ability to obtain financing as needed; ● announcements by us or our competitors of significant acquisitions or dispositions; ● changes in accounting standards, policies, guidance, interpretations or principles; ● the failure of securities analysts to cover our common stock after we commence trading; ● changes in earnings estimates by securities analysts or our ability to meet those estimates; ● the operating and stock price performance of other comparable companies; ● overall market fluctuations; ● results from any material litigation or government investigation; ● changes in laws and regulations (including tax laws and regulations) affecting our business; 14 Table of Contents ● changes in capital gains taxes and taxes on dividends affecting stockholders; and ● general economic conditions and other external factors, including wars such as the current conflict in Ukraine and other geopolitical risks.
As a result, we cannot assure you that we will be able to adequately protect our intellectual property in any jurisdictions. The loss or infringement of our trademarks or tradenames or other proprietary rights could impair the goodwill associated with our brands and harm our reputation, which could materially harm our business, financial condition, and operating results.
As a result, we cannot assure you that we will be able to adequately protect our intellectual property in any jurisdiction. The loss or infringement of our trademarks, tradenames, or other proprietary rights could impair the goodwill associated with our brands and harm our reputation, which could materially harm our business, financial condition, and operating results.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. 14 Table of Contents We will incur costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. 16 Table of Contents We will incur costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
However, if we or any of our partners, (or if Amazon believes we or any of our partners have violated) its terms of service, Amazon could limit or terminate its relationship with us. Any limitation or termination of our relationship with Amazon could materially adversely affect our business, financial condition and or results of operations.
However, if we or any of our partners, (or if Amazon believes we or any of our partners have violated) its terms of service, Amazon could limit or terminate its relationship with us. Any limitation or termination of our relationship with Amazon could materially adversely affect one of all of our business, financial condition and our results of operations.
Although most of our trademarks are filed in the United States, we may not be successful in asserting trademark or trade name protection or obtaining new trademark registrations. We will attempt to protect our innovative products and product enhancements under a combination of patents, trademarks, and trade secret laws, confidentiality procedures, and contractual provisions.
Although most of our trademarks are filed in the United States, we may not be successful in asserting trademark or trade name protection or obtaining new trademark registrations. 12 Table of Contents We will attempt to protect our innovative products and product enhancements under a combination of patents, trademarks, and trade secret laws, confidentiality procedures, and contractual provisions.
In connection with the Merger, and as we continue to grow our business, our internal controls continue to become more complex and require more resources. Our ability to provide customers with competitive services is dependent on our ability to attract and retain qualified personnel, including our senior management team.
In connection with the Merger, and as we continue to grow our business, our internal controls continue to become more complex and require more resources. 13 Table of Contents Our ability to provide customers with competitive services is dependent on our ability to attract and retain qualified personnel, including our senior management team.
This forum selection provision in our bylaws may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding the forum selection clause included in our bylaws, a court could rule that such a provision is inapplicable or unenforceable.
This forum selection provision in our bylaws may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding the forum selection clause included in our bylaws, a court could rule that such a provision is inapplicable or unenforceable. 17 Table of Contents
Regulatory issues regarding compliance with current Good Manufacturing Practices (cGMP) by manufacturers of medical devices and consumer products can lead to fines and penalties, product recalls, product shortages, interruptions in production, delays in new product approvals and litigation.
Regulatory issues regarding compliance with cGMP by manufacturers of medical devices and consumer products can lead to fines and penalties, product recalls, product shortages, interruptions in production, delays in new product approvals and litigation.
We are dependent on significant customers. Our hydrogel manufacturing business is currently our sole source of revenue, and much of this revenue is generated from a limited number of clients, who account for a substantial percentage of our total revenues. For the year ended December 31, 2022, one major customer accounted for approximately 29% of our revenue.
We are dependent on significant customers. Our hydrogel manufacturing business is currently our primary source of revenue, and much of this revenue is generated from a limited number of clients, who account for a substantial percentage of our total revenues. For the year ended December 31, 2023, one major customer accounted for approximately 20% of our revenue.
The interests of our principal stockholders, officers and directors, who collectively beneficially own approximately 27% of our stock, may not coincide with yours and such stockholders will have the ability to control decisions with which you may disagree. As of March 27, 2023, our principal stockholders, officers and directors beneficially owned approximately 27% of our common stock.
The interests of our principal stockholders, officers and directors, who collectively beneficially own approximately 27% of our stock, may not coincide with yours and such stockholders will have the ability to control decisions with which you may disagree. As of April 10, 2024, our principal stockholders, officers and directors beneficially owned approximately 27% of our common stock.
The success of our new product offerings and enhancements depends on a number of factors, including our ability to: ● accurately anticipate consumer needs; ● innovate and develop new products and product enhancements that meet these needs; ● successfully commercialize new products and product enhancements; ● price our products competitively; ● manufacture and deliver our products in sufficient volumes and in a cost-effective and timely manner; and ● differentiate our product offerings from those of our competitors and successfully respond to other competitive pressures, including technological advancements, evolving industry standards, and changing regulatory requirements. 10 Table of Contents Our failure to accurately predict changes in consumer demand and technological advancements could negatively impact consumer opinion of our products or our business.
The success of our new product offerings and enhancements depends on a number of factors, including our ability to: ● accurately anticipate consumer needs; 11 Table of Contents ● innovate and develop new products and product enhancements that meet these needs; ● successfully commercialize new products and product enhancements; ● price our products competitively; ● manufacture and deliver our products in sufficient volumes and in a cost-effective and timely manner; and ● differentiate our product offerings from those of our competitors and successfully respond to other competitive pressures, including technological advancements, evolving industry standards, and changing regulatory requirements.
In addition, this concentration of ownership may delay or prevent a change in control of our company and make some future transactions more difficult or impossible without the support of our controlling stockholders.
In addition, this concentration of ownership may delay or prevent a change in control of our company and make some future transactions more difficult or impossible without the support of our controlling stockholders. The interests of such stockholders may not coincide with your interests or the interests of other stockholders.
We cannot assure you that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial reporting is effective. If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed and our stock price may decline.
We cannot assure you that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial reporting is effective.
The Dow Chemical Company and the BASF Corporation are the principal manufacturers of the two polymers, polyethylene oxide and polyvinylpyrrolidone, respectively, that we primarily use in the manufacture of hydrogels.
We are reliant upon two manufacturers for key ingredients used to manufacture of our hydrogels. The Dow Chemical Company and the BASF Corporation are the principal manufacturers of the two polymers, polyethylene oxide and polyvinylpyrrolidone, respectively, that we primarily use in the manufacture of hydrogels.
If we are not able to establish and maintain successful arrangements with third parties or build our own sales and marketing infrastructure, our business and financial condition will be adversely affected. 11 Table of Contents Our products risk exposure to product liability claims.
If we are not able to establish and maintain successful arrangements with third parties or build our own sales and marketing infrastructure, our business and financial condition will be adversely affected. Our products risk exposure to product liability claims. We are exposed to potential product liability risks, which are inherent in the testing, manufacturing and marketing of our products.
The interests of such stockholders may not coincide with your interests or the interests of other stockholders. 13 Table of Contents If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted.
If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted.
We do not have any control over these analysts. If one or more of the analysts elect to cover us and downgrade our shares or lower their opinion of our shares, our share price would likely decline.
If one or more of the analysts elect to cover us and downgrade our shares or lower their opinion of our shares, our share price would likely decline.
If securities or industry analysts do not publish research about our business, or publish negative reports about our business, our share price and trading volume could decline. The trading market for our common stock, to some extent, may at some point depend on the research and reports that securities or industry analysts publish about our business.
The trading market for our common stock, to some extent, may at some point depend on the research and reports that securities or industry analysts publish about our business. We do not have any control over these analysts.
As of the date of the filing of this Form 10-K, we may be required to issue: ● 524,937 shares of common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $2.351416 per share; ● 3,637,190 shares of common stock issuable upon the exercise of warrants at a weighted average exercise price of approximately $5.16281; and ● 90,432 shares of restricted common stock issuable upon vesting.
As of the date of the filing of this Form 10-K, we may be required to issue: ● 560,650 shares of common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $2.350742 per share; ● 3,442,904 shares of common stock issuable upon the exercise of warrants at a weighted average exercise price of approximately $5.42034; and ● 50,812 shares of restricted common stock issuable upon vesting and another 13,750 shares of vested shares of restricted common stock.
Additionally, any prolonged disruption of Amazon’s website or its delivery and distribution of our consumer products could materially adversely impact our business. 9 Table of Contents We have no contracts in place with our customers in either our contract manufacturing or consumer products business.
Additionally, any prolonged disruption of Amazon’s website or its delivery and distribution of our consumer products could materially adversely impact our business. We have no contracts in place with our customers in either our contract manufacturing or consumer products business. The absence of such contracts could result in periods during which we must continue to pay costs without revenues.
We may be unable to identify future attractive strategic partnerships, which may adversely affect our growth.
We may be unable to identify future attractive strategic partnerships, which may adversely affect our growth. In addition, our ability to consummate or implement our strategic partnerships may be materially and adversely affected.
The absence of such contracts could result in periods during which we must continue to pay costs without revenues. Our sales are made on a purchase order basis, we do not have contracts with our customers in either our contract manufacturing or consumer products business.
Our sales are made on a purchase order basis, we do not have contracts with our customers in either our contract manufacturing or consumer products business.
There can be no assurance that our products will achieve significant market acceptance on a timely basis, or at all. Failure of some or all of our future products to achieve significant market acceptance could have a material adverse effect on our business, financial condition, and results of operations.
There can be no assurance that our products will achieve significant market acceptance on a timely basis, or at all.
Moreover, even if no judgments, fines, damages or liabilities are imposed on us, our reputation could suffer, which could have a material adverse effect on our business, financial condition and results of operations. We are reliant upon two manufacturers for key ingredients of the manufacture of our hydrogels.
We may incur significant expense investigating and defending any product liability claims, even if they do not result in liability. Moreover, even if no judgments, fines, damages or liabilities are imposed on us, our reputation could suffer, which could have a material adverse effect on our business, financial condition and results of operations.
Our suppliers may fail to deliver components and raw materials and parts according to schedules, prices, quality and volumes that are acceptable to us, or we may be unable to manage these components and raw materials effectively.
Failure of some or all of our future products to achieve significant market acceptance could have a material adverse effect on our business, financial condition, and results of operations. 9 Table of Contents Our suppliers may fail to deliver components and raw materials and parts according to schedules, prices, quality and volumes that are acceptable to us, or we may be unable to manage these components and raw materials effectively.
We cannot provide assurance that we will be able to timely locate new customers, if at all, when our existing customers are not placing orders. The periods in which we have no or limited purchase orders for our products would have a material adverse effect on our business and financial condition. We operate in a highly competitive industry.
We cannot provide assurance that we will be able to timely locate new customers, if at all, when our existing customers are not placing orders.
Removed
We are exposed to potential product liability risks, which are inherent in the testing, manufacturing and marketing of our products. We may incur significant expense investigating and defending any product liability claims, even if they do not result in liability.
Added
The periods in which we have no or limited purchase orders for our products would have a material adverse effect on our business and financial condition. 10 Table of Contents We operate in a highly competitive industry. Competition from other hydrogel manufacturers is intense.
Removed
In addition, our ability to consummate or implement our strategic partnerships may be materially and adversely affected. 12 Table of Contents Risks Relating to our Common Stock and Capital Structure An active trading market may not develop or be sustained, and our stock price may fluctuate significantly once we do trade.
Added
Our failure to accurately predict changes in consumer demand and technological advancements could negatively impact consumer opinion of our products or our business.
Removed
The lack of an active market may make it more difficult for stockholders to sell our shares and could lead to our share price being depressed or volatile. We cannot predict the prices at which our common stock may trade.
Added
We cannot predict the prices at which our common stock may trade.
Added
If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed and our stock price may decline. 15 Table of Contents If securities or industry analysts do not publish research about our business, or publish negative reports about our business, our share price and trading volume could decline.

Item 2. Properties

Properties — owned and leased real estate

1 edited+1 added−0 removed0 unchanged
Biggest changeItem 2. Properties We maintain a combined corporate office and manufacturing facility in Langhorne, Pennsylvania, where we lease approximately 16,500 square feet of office and manufacturing space. Our lease expires on January 31, 2031. We believe that our facility is well maintained and are suitable and adequate for our current needs.
Biggest changeItem 2. Properties We maintain a combined corporate office and manufacturing facility in Langhorne, Pennsylvania, where we lease approximately 16,500 square feet of office and manufacturing space which expires on January 31, 2031. In addition, we sublease approximately 6,200 square feet of a 12,000 square foot combined office and manufacturing facility in Granbury, Texas for our JV.
Added
The lease expires in March 2028. We believe that our facilities are well maintained and are suitable and adequate for our current needs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−0 removed2 unchanged
Biggest changeMarket for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on NASDAQ Capital Markets under the symbol “NXGL” and certain warrants to purchase our common stock issued on December 27, 2021 are trade on NASDAQ Capital Markets under the symbol “NXGLW.” Holders As of March 27, 2023, there were over 1,109 shareholders of record and 5,611,282 shares of common stock outstanding.
Biggest changeMarket for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on NASDAQ Capital Markets under the symbol “NXGL” and certain warrants to purchase our common stock issued on December 27, 2021 are trade on NASDAQ Capital Markets under the symbol “NXGLW.” Holders As of April 10, 2024, there were over 1,074 shareholders of record and 6,227,624 shares of common stock outstanding.
No fractional shares of common stock were issued in connection with the reverse stock split, and all such fractional interests were rounded up to the nearest whole number. Sales of Unregistered Securities during the Fiscal Year Ended December 31, 2022 The Company did not sell any unregistered securities during the fiscal year ended December 31, 2022.
No fractional shares of common stock were issued in connection with the reverse stock split, and all such fractional interests were rounded up to the nearest whole number. Sales of Unregistered Securities during the Fiscal Year Ended December 31, 2023 The Company did not sell any unregistered securities during the fiscal year ended December 31, 2023.
Issuer Repurchases of Securities during the Fiscal Year Ended December 31, 2022 The Company did not repurchase any of its securities during the fiscal year ended December 31, 2022.
Issuer Repurchases of Securities during the Fiscal Year Ended December 31, 2023 The Company did not repurchase any of its securities during the fiscal year ended December 31, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

33 edited+8 added−9 removed22 unchanged
Biggest changeSee Notes 2 and 3 of our financial statements above for a more detailed discussion of our marketable securities. 18 Table of Contents Net cash used in investing activities was $5,595 thousand and $269 thousand for the years ended December 31, 2022 and 2021, respectively, consisting of purchases of marketable securities of $6,999 thousand, the sales of marketable securities of $1,500 thousand, and purchases of capital equipment of $96 thousand for year ended December 31, 2022 and purchases of capital equipment of $269 thousand in the prior year.
Biggest changeNet cash used in operating activities was $3,236 and $2,992 for the years ended December 31, 2023 and 2022, respectively. See Notes 2 and 3 of the accompanying consolidated financial statements for a more detailed discussion of our marketable securities.
Additionally, it is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including the recoverability of long-lived assets.
Additionally, it is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including the recoverability of long-lived assets.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis are intended to help prospective investors understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our financial statements and related notes thereto included elsewhere in this information statement.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis are intended to help prospective investors understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this information statement.
Off Balance Sheet Arrangements As of December 31, 2022, we had no off-balance sheet arrangements in the nature of guarantee contracts, retained or contingent interests in assets transferred to entities (or similar arrangements serving as credit, liquidity or market risk support to entities for any such assets), or obligations (including contingent obligations) arising out of variable interests in entities providing financing, liquidity, market risk or credit risk support to us, or that engage in leasing, hedging or research and development services with us.
Off Balance Sheet Arrangements As of December 31, 2023, we had no off-balance sheet arrangements in the nature of guarantee contracts, retained or contingent interests in assets transferred to entities (or similar arrangements serving as credit, liquidity or market risk support to entities for any such assets), or obligations (including contingent obligations) arising out of variable interests in entities providing financing, liquidity, market risk or credit risk support to us, or that engage in leasing, hedging or research and development services with us.
We consider the accounting policies discussed below to be critical to the understanding of our Financial Statements. Actual results could differ from our estimates and assumptions, and any such differences could be material to our Financial Statements. 19 Table of Contents Share-based compensation – We utilize share-based compensation in the form of incentive stock options.
We consider the accounting policies discussed below to be critical to the understanding of our Financial Statements. Actual results could differ from our estimates and assumptions, and any such differences could be material to our Financial Statements. 23 Table of Contents Share-based compensation – We utilize share-based compensation in the form of incentive stock options.
Critical Accounting Policies and Estimates The preparation of our Financial Statements in accordance with generally accepted accounting principles is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain.
Critical Accounting Policies and Estimates The preparation of our accompanying consolidated financial statements in accordance with generally accepted accounting principles is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain.
Medical Devices, which are not yet marketed, are expected to be distributed through strategic partnerships. The Company will manufacture and possibly convert/package the device while the strategic partner brings the product to market. Small market Medical Devices could be launched by the Company, but also be offered to a distributor to reach the full scale of the market.
The Company will manufacture and possibly convert/package the device while the strategic partner brings the product to market. Small market Medical Devices could be launched by the Company, but also be offered to a distributor to reach the full scale of the market.
Liquidity and Capital Resources Cash Flow (in thousands) Years Ended December 31, 2022 2021 Net cash used in operating activities $ (2,992 ) $ (2,753 ) Net cash used in investing activities (5,595 ) (269 ) Net cash provided by (used in) financing activities (3,662 ) 16,340 Net increase (decrease) in cash and cash equivalents (12,249 ) 13,318 Cash and cash equivalents at beginning of year 13,350 32 Cash and cash equivalent at end of year $ 1,101 $ 13,350 As of December 31, 2022, we had $1.1 million of cash and cash equivalents and $5.5 million of marketable securities, compared to $13.4 million of cash at December 31, 2021.
Liquidity and Capital Resources Cash Flow (in thousands) Years Ended December 31, 2023 2022 Net cash used in operating activities $ (3,236 ) $ (2,992 ) Net cash provided by (used in) investing activities 4,456 (5,595 ) Net cash provided by (used in) financing activities 379 (3,662 ) Net increase (decrease) in cash and cash equivalents 1,599 (12,249 ) Cash and cash equivalents at beginning of year 1,101 13,350 Cash and cash equivalent at end of year $ 2,700 $ 1,101 As of December 31, 2023, we had $2,700 of cash and cash equivalents compared to $1,101 of cash and cash equivalents and $5,508 of marketable securities at December 31, 2022.
Other selling, general and administrative expenses generally consist of costs associated with our selling efforts and general management, including information technology, travel, training and recruiting. Research and development expenses Research and development expenses increased by $336 thousand to $367 thousand for the year ended December 31, 2022 from $31 thousand for the year ended December 31, 2021.
Other expenses decreased by $47, or 13.0%, to $315 for the year ended December 31, 2023 from $362 for the year ended December 31, 2022. Other selling, general and administrative expenses generally consist of costs associated with our selling efforts and general management, including information technology, travel, training and recruiting.
Overview We manufacture high water content, electron beam cross-linked, aqueous polymer hydrogels, or gels, used for wound care, medical diagnostics, transdermal drug delivery and cosmetics. We specialize in custom gels by capitalizing on proprietary manufacturing technologies.
Overview We manufacture high water content, electron beam cross-linked, aqueous polymer hydrogels, or gels, used for wound care, medical diagnostics, transdermal drug delivery and cosmetics. We specialize in custom gels by capitalizing on proprietary manufacturing technologies. We have historically served as a contract manufacturer, supplying our gels to third parties who incorporate them into their own products.
The increase in our overall revenues was primarily due to sales growth in both our contract manufacturing and branded products. The Company has four distinct lines of business; Contract Manufacturing, Custom & White Label, Consumer Branded Products, and Medical Devices. Contract Manufacturing Customers order rolls of gel (“rollstock”).
The increase in our overall revenues was primarily due to sales growth in both our contract manufacturing and branded products, including revenue from the JV from March 1, 2023 through December 31, 2023 of $1,987. The Company has four distinct lines of business; Contract Manufacturing, Custom & White Label, Consumer Branded Products, and Medical Devices/Other.
Consumer Branded Products These products are finished goods marketed and sold directly to the customer by the Company through online and retail channels. The Company is responsible for sales, marketing, and distribution. These products carry the Company’s brand names. Medical Devices Medical Devices are a hybrid business, combining elements of Custom & White Label and Consumer Branded Products.
The Company is responsible for sales, marketing, and distribution. These products carry the Company’s brand names. Medical Devices/Other Medical Devices are a hybrid business, combining elements of Custom & White Label and Consumer Branded Products. Medical Devices, which are not yet marketed, are expected to be distributed through strategic partnerships.
The following table highlights selling, general and administrative expenses by type for the years ended December 31, 2022 and 2021 ($ in thousands): Year Ended December 31, 2022 2021 Selling, general and administrative expenses Compensation and benefits $ 526 $ 381 Share-based compensation 282 285 Depreciation and amortization 16 13 Advertising, marketing, & Amazon fees 436 320 Investor & shareholder services 567 429 Franchise taxes & corporate insurance 405 129 Professional and consulting fees 643 488 Other expenses and professional fees 362 502 Total selling, general and administrative expenses $ 3,237 $ 2,547 Selling, general and administrative expenses increased by $690 thousand, or 27.09%, to $3.24 million for the year ended December 31, 2022, as compared to $2.55 million for the year ended December 31, 2021.
The following table highlights selling, general and administrative expenses by type for the years ended December 31, 2023 and 2022 ($ in thousands): Year Ended December 31, 2023 2022 Selling, general and administrative expenses Compensation and benefits $ 740 $ 526 Share-based compensation 203 282 Depreciation and amortization 126 16 Advertising, marketing, and Amazon fees 620 436 Investor and shareholder services 426 567 Franchise taxes and corporate insurance 224 405 Professional and consulting fees 1,339 643 Other expenses and professional fees 315 362 Total selling, general and administrative expenses $ 3,993 $ 3,237 Selling, general and administrative expenses increased by $756, or 23.4%, to $3,993 for the year ended December 31, 2023, as compared to $3,237 for the year ended December 31, 2022.
The rollstock is shipped to our customers, which they package into finished goods. Historically, this has been the Company’s primary source of revenue. Custom & White Label These products often infuse various ingredients into our base gel to develop unique product offerings to satisfy market demand (e.g. aloe infused into the gel for a beauty mask).
Custom & White Label These products often infuse various ingredients into our base gel to develop unique product offerings to satisfy market demand (e.g. aloe infused into the gel for a beauty mask). The rollstock is converted and packaged into salable units. The finished goods are shipped to the customer, who is ultimately responsible for product distribution.
The rollstock is converted and packaged into salable units. The finished goods are shipped to the customer, who is ultimately responsible for product distribution. Frequently these products started as development deals, in which the customer paid the company a small fee to develop a specific product. Once completed, the customer places a large order for newly developed product.
Frequently these products started as development deals, in which the customer paid the company a small fee to develop a specific product. Once completed, the customer places a large order for newly developed product. Consumer Branded Products These products are finished goods marketed and sold directly to the customer by the Company through online and retail channels.
Net cash used by financing activities for year ended December 31, 2022 was $3.7 million which is attributable to the principal payments of convertible notes of $3.5 million and payments of $151 thousand made on the operating lease liability.
Net cash used in financing activities for year ended December 31, 2022 was $3,662 which is attributable to the principal payments of convertible notes of $3,511 and payments of $151 made on the operating lease liability. 22 Table of Contents At December 31, 2023, current assets totaled $5,052 and current liabilities totaled $2,549, as compared to current assets totaling $7,505 and current liabilities totaling $859 at December 31, 2022.
We have sufficient capital to maintain as a going concern due to the capital raise that occurred on December 27, 2021 and we believe we have sufficient cash and marketable securities to operate our business plan through 2025. We intend to maintain and attempt to grow our existing contract manufacturing business.
We believe we have sufficient cash and marketable securities to operate our business plan into 2025. We intend to maintain and attempt to grow our existing contract manufacturing business.
Gross profit (loss) Our gross profit was $256 thousand for the year ended December 31, 2022 compared to a gross profit of $8 thousand for the year ended December 31, 2021.
Gross profit (loss) Our gross profit was $619 for the year ended December 31, 2023 compared to a gross profit of $256 for the year ended December 31, 2022. The increase in the profit recorded for the year ended December 31, 2023, as compared to December 31, 2022, directly correlates to our higher sales.
The decrease in the working capital as of December 31, 2022 is primarily attributable to the repayment of convertible notes payable of $3.5 million in the current year. We have never declared or paid any cash dividends on our common stock.
As a result, we had working capital of $2,503 at December 31, 2023, compared to a working capital of $6,646 at December 31, 2022. The decrease in the working capital as of December 31, 2023 is primarily attributable to the loss from operations of $3,477. We have never declared or paid any cash dividends on our common stock.
The components of cost of revenues are as follows for the years ended December 31, 2022 and 2021 ($ in thousands): Year Ended December 31, 2022 2021 Cost of revenues Materials and finished products $ 541 $ 520 Compensation and benefits 702 569 Depreciation and amortization 83 86 Equipment, production and other expenses 466 368 Total cost of revenues $ 1,792 $ 1,543 Cost of revenues increased by $249 thousand, or 16.14%, to $1.8 million for the year ended December 31, 2022, as compared to $1.5 million for the year ended December 31, 2021.
Gross profit was approximately 15.1% for the year ended December 31, 2023 compared to a gross profit of 12.5% for the year ended December 31, 2022. 20 Table of Contents The components of cost of revenues are as follows for the years ended December 31, 2023 and 2022 ($ in thousands): Year Ended December 31, 2023 2022 Cost of revenues Materials and finished products $ 2,147 $ 541 Compensation and benefits 451 702 Share-based compensation 14 - Depreciation and amortization 103 83 Equipment, production and other expenses 755 466 Total cost of revenues $ 3,470 $ 1,792 Cost of revenues increased by $1,678, or 93.6 %, to $3,470 for the year ended December 31, 2023, as compared to $1,792 for the year ended December 31, 2022.
This customer base expansion will enable us to provide financial stability for the foreseeable future, expand our current processes, and position us for long-term shareholder value creation.
This customer base expansion will enable us to provide financial stability for the foreseeable future, expand our current processes, and position us for long-term shareholder value creation. We have sufficient capital to maintain as a going concern due to the recent capital raise on February 14, 2024 (discussed further within Note 20).
Compensation and benefits increased by $145 thousand, or 38.06%, to $526 thousand for the year ended December 31, 2022, as compared to $381 thousand for the year ended December 31, 2021. The number of employees increased compared to the prior year and officer compensation increased in conjunction with contract renewals.
Compensation and benefits increased by $214, or 40.7%, to $740 for the year ended December 31, 2023, as compared to $526 for the year ended December 31, 2022. The number of employees increased compared to the prior year with the inclusion of the JV.
Additionally, we have the manufacturing ability to offer broad choices in the selection of liners onto which the gels are coated.
Additionally, we have the manufacturing ability to offer broad choices in the selection of liners onto which the gels are coated. Consequently, we and our customers are able to determine tolerances in moisture vapor transmission rate and active ingredient release rates while personalizing color and texture.
Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Revenues, net For the year ended December 31, 2022 revenues were $2.05 million and increased by $497 thousand, or 32.0%, when compared to $1.55 million for the year ended December 31, 2021.
Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 ($ in thousands) Revenues, net For the year ended December 31, 2023 revenues were $4,089 and increased by $2,041, or 99.7%, when compared to $2,048 for the year ended December 31, 2022.
Share-based compensation decreased by $3 thousand, or 1.1%, to $282 thousand for the year ended December 31, 2022, as compared to $285 thousand for the year ended December 31, 2021. The share-based compensation related to the issuance of restricted stock awards and options to our CEO, restricted stock awards to all employees and options to board members, employees, and advisors.
The decrease in share-based compensation year over year relates to the issuance of stock, restricted stock, and options to our CEO and options to board members in 2023 in comparison to companywide restricted stock awards issued to employees in 2022. 21 Table of Contents Advertising, marketing, and Amazon fees increased by $184, or 42.20%, to $620 for the year ended December 31, 2023, as compared to $436 for the year ended December 31, 2022.
Net cash provided by financing activities for the year ended December 31, 2021 was $16.3 million which is primarily attributable to the issuance of common stock of $13.5 million, proceeds from notes payable of $142 thousand, proceeds from convertible notes of $3.0 million offset by principal payments on convertible notes of $100 thousand.
Net cash provided by financing activities for year ended December 31, 2023 was $379 which is attributable to the proceeds of equipment notes payable of $315, proceeds from margin line of credit of $245, offset by principal payments of notes payments of $6 and payments of $175 made on the operating lease liability.
Results of Operations The following sections discuss and analyze the changes in the significant line items in our statements of operations for the comparison years identified.
The cash earn-out can fluctuate higher or lower based on the quarterly results of the Kenkoderm business during 2024 according to the formula contained in the Asset Purchase Agreement relating to the Kenkoderm acquisition. Results of Operations The following sections discuss and analyze the changes in the significant line items in our statements of operations for the comparison years identified.
The increase in selling, general and administrative expenses is primarily attributable to an increase of franchise tax expense, increased research and development investment, and the costs for professional fees and other administrative expenses in the current year associated with public company governance requirements.
The increase in selling, general and administrative expenses is primarily attributable to an increase of compensation and benefits expense, advertising, marketing, and Amazon fees as well as the costs for professional and consulting fees.
The increase is due to the initiation of two proof of concept studies for drug delivery candidates utilizing our hydrogel technology.
Research and development expenses Research and development expenses decreased by $264 to $103 for the year ended December 31, 2023 from $367 for the year ended December 31, 2022. The decrease is due to the completion of development efforts of two proof of concept studies for drug delivery candidates utilizing our hydrogel technology.
Investor and shareholder services increased by $138 thousand, or 32.2%, to $567 thousand for the year ended December 31, 2022, as compared to $429 thousand for the year ended December 31, 2021. The increase is due to the increase shareholder requirements in 2022 upon the IPO occurring on December 27, 2021.
The increase corresponds to increased Amazon sales, partially offset by optimization of Amazon advertising spend in 2023. Investor and shareholder services decreased by $141, or 24.9%, to $426 for the year ended December 31, 2023, as compared to $567 for the year ended December 31, 2022. The decrease is due to the Company’s management of outsourced services.
Franchise taxes and corporate insurance increased by $276 thousand, or 214.0%, to $405 thousand for the year ended December 31, 2022, as compared to $129 thousand for the year ended December 31, 2021. The exceptionally high franchise tax was due to the Company’s IPO and the associated increase in gross assets.
Franchise taxes and corporate insurance decreased by $181, or 44.7%, to $224 for the year ended December 31, 2023, as compared to $405 for the year ended December 31, 2022. The vast majority of this decrease pertains to the Company’s reduction in authorized shares, which lowered its franchise tax expense.
The increase in cost of revenues is primarily aligned with the revenue growth in the current year. 17 Table of Contents Selling, general and administrative expenses .
The increase in cost of revenues pertains to an increase in materials and finished products and equipment, production, and other expenses. These increases primarily align with the increased revenues. Selling, general and administrative expenses .
Professional and consulting fees increased by $155 thousand, or 31.8%, to $643 thousand for the year ended December 31, 2022, as compared to $488 thousand for the year ended December 31, 2021. We continued to incur accounting and consulting fees associated with public company governance requirements.
Professional and consulting fees increased by $696, or 108.2%, to $1,339 for the year ended December 31, 2023, as compared to $643 for the year ended December 31, 2022. We incurred significant expenses related to our European Medical Device Regulation project in preparation for entering European markets.
Removed
We have historically served as a contract manufacturer, supplying our gels to third parties who incorporate them into their own products and have recently began producing our own consumer products using our gels focused on proprietary branded products and white label opportunities. Both our gels and our consumer products are manufactured using proprietary and non-proprietary mixing, coating and cross-linking technologies.
Added
Beginning in 2020, we created two new lines of business for the company. First, our own line of branded consumer products sold direct to consumers. Second, we expanded into custom and white label opportunities, which focuses on combining our gels with proprietary branded products and white label opportunities.
Removed
Consequently, we and our customers are able to determine tolerances in moisture vapor transmission rate and active ingredient release rates while personalizing color and texture. 16 Table of Contents 2021 Initial Public Offering On December 27, 2021, the Company sold an aggregate of 2,585,000 units at a price to the public of $5.50 per unit (the “Offering”), each unit consisting of one share of the Company’s common stock and a warrant to purchase one share of common stock at an exercise price of $5.50 per share Pursuant to the Offering, the Company received gross proceeds of approximately $14.2 million, before deducting underwriting discounts and commissions of seven percent (7%) of the gross proceeds and estimated Offering expenses.
Added
All of our gel products are manufactured using proprietary and non-proprietary mixing, coating and cross-linking technologies.
Removed
The increase in the profit recorded for the year ended December 31, 2022, as compared to December 31, 2021, was primarily due to the higher volume of contract manufacturing sales against fixed costs and lower manufacturing labor costs.
Added
Joint Venture On March 1, 2023, the Company acquired a 50% interest in its newly formed JV for its converting and packaging business. The JV agreement is effective March 1, 2023.
Removed
Gross profit was approximately 12.5% for the year ended December 31, 2022 compared to a gross profit of 0.5% for the year ended December 31, 2021. The Company anticipates continued improvement in gross margins due to both increased revenue against fixed facility expenses and larger productions runs on commercially proven products.
Added
As a result of this transaction, the Company owns 50% of the JV, with the remaining 50% held by CG Labs. 19 Table of Contents Acquisition On December 1, 2023, we purchased substantially all of the assets Olympus Trading Company, LLC (the “Seller”) related to the Seller’s skincare line focused on reducing symptoms associated with psoriasis operating under the tradename “Kenkoderm” (“Kenkoderm acquisition”).
Removed
Advertising, marketing, Amazon fees increased by $116 thousand, or 36.3%, to $436 thousand for the year ended December 31, 2022, as compared to $320 thousand for the year ended December 31, 2021. The increase is due to the increased Amazon selling fees as well as an increase in advertising and marketing.
Added
Under the terms of the Kenkoderm acquisition, the Company paid the Seller a cash payment of $546,500. Additionally, the Company shall pay the Seller a cash earn-out of the same amount each quarter, payable in the subsequent month flowing quarter end, of $136,625.
Removed
In August of 2022, the Company reduced its authorized shares at its annual meeting. The result of this reduction, assuming a similar asset base as the Company currently has, will reduce the 2023 franchise tax liability to approximately $24 thousand.
Added
Contract Manufacturing Customers order rolls of gel (“rollstock”). The rollstock is shipped to our customers, which they package into finished goods. Historically, this has been the Company’s primary source of revenue.
Removed
However, the increase in professional fees compared to the prior year was in connection with our NASDAQ up-listing on December 27, 2021. Other expenses decreased by $140 thousand, or 27.9%, to $362 thousand for the year ended December 31, 2022 from $502 thousand for the year ended December 31, 2021.
Added
Share-based compensation decreased by $79, or 28.0%, to $203 for the year ended December 31, 2023, as compared to $282 for the year ended December 31, 2022.
Removed
Net cash used in operating activities was $3.0 million and $2.80 million for the years ended December 31, 2022 and 2021, respectively.
Added
Net cash provided by investing activities was $4,456 million and net cash used in investing activities was $5,595 for the year ended December 31, 2023 and 2022, respectively, consisting of the sales of marketable securities of $5,699, offset by purchases of capital equipment of $696 and the Kenkoderm acquisition of $547 for the year ended December 31, 2023 and consisting of investments in marketable securities of $6,999, the sale of marketable securities for $1,500, and purchases of capital equipment of $96 for the year ended December 31, 2022.
Removed
At December 31, 2022, current assets totaled $7.5 million and current liabilities totaled $859 thousand, as compared to current assets totaling $13.9 million and current liabilities totaling $2.9 million at December 31, 2021. As a result, we had working capital of $6.6 million at December 31, 2022, compared to a working capital of $11.0 million at December 31, 2021.

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