NEXGEL, INC. Annual Report - How They Did This Year

I’m putting together a plain-English guide to help you understand NEXGEL, INC.’s performance. My goal is to turn complex filing data into clear information so you can decide if this company fits your investment goals.

1. What does this company do?

NEXGEL is a materials science company based in Langhorne, Pennsylvania. They create high-tech, water-based hydrogels for medical patches, wound care, and cosmetics. Think of them as a "behind-the-scenes" manufacturer. They make specialized gel technology for other brands and sell their own products, like Silly George and Kenkoderm. Their 36,000-square-foot facility handles all their research and manufacturing.

2. Major wins and challenges

The big story is capacity. NEXGEL currently uses only 15% to 20% of their facility. This is a strategic win: they can produce up to 1.4 billion square inches of product annually without spending millions on new factories.

The challenge is that they are still in "startup" mode. For the year ending December 31, 2023, the company lost about $6.2 million. They are burning cash to grow and must issue more shares to investors to keep the lights on. With only $1.6 million in cash on hand, they need to raise more money to keep operating.

3. Business Strategy: The "Roll-Up" and Medical Devices

NEXGEL uses three ways to make money:

• Consumer Brands: They buy smaller brands, like Silly George, to sell products directly to you.
• White Labeling: They let other companies use their gel technology. This is smart because the customer pays the development fees, lowering the risk for NEXGEL.
• Medical Devices: They create high-tech patches like NEXDrape and NEXDerm. They don’t want to manufacture or market these themselves, as it is too expensive. Instead, they plan to patent their inventions and license them to medical giants like 3M.

4. Financial health

NEXGEL currently spends more than it earns. In 2023, they generated about $1.3 million in revenue. This was a decrease from the previous year, caused by the timing of customer orders and a changing business model. Their total losses over time exceed $25 million, showing how long they have been in this cash-burning phase.

5. Key risks

• Dilution: Because they frequently issue new shares to raise cash, your ownership percentage gets smaller over time.
• Survival Risk: The company states there is "substantial doubt" about their ability to stay in business. They may not survive if they cannot raise more money or become profitable within the next 12 months.
• Competition: They compete against giants like Johnson & Johnson and Procter & Gamble. These companies have deeper pockets and better distribution networks.
• Regulatory Hurdles: Their medical devices require FDA approval. If the FDA denies these applications or requires more clinical trials, the company faces major delays and could lose millions in research investments.

6. Future outlook

The company is focused on scaling their facility and finding partners to license their medical technology. They are also looking for more brands to acquire to boost revenue. Success depends on securing a major licensing deal, which would provide the cash they need to stabilize without needing to issue more shares.

Investor Takeaway: NEXGEL is currently a high-risk, speculative play. They have the physical infrastructure to grow, but their financial survival depends on successfully licensing their technology or raising additional capital. Before investing, consider whether you are comfortable with the risk of potential share dilution and the company's stated uncertainty regarding its long-term survival.