Item 1. Business
Item 1. Business
Our Company
We were incorporated in Delaware
on January 13, 2009. 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. 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. All of our gel products are manufactured using proprietary and non-proprietary mixing,
coating and cross-linking technologies. Together, these technologies enable us to produce gels that can satisfy rigid tolerance specifications
with respect to a wide range of physical characteristics (e.g., thickness, water content, adherence, absorption, moisture vapor transmission
rate [a measure of the passage of water vapor through a substance] and release rate) while maintaining product integrity. 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. In May 2023, we formed a joint venture with CG Laboratories, Inc. called CG Converting and Packaging, LLC, which is
located in Granbury, Texas and of which we own a 50% interest, allowing us to expand our ability to deliver finished goods to our growing
customer base.
Contract Manufacturing Business
As described above, we have historically
served as a contract manufacturer, supplying our gels to third parties who incorporate them into their own products. Our hydrogels are
currently being marketed in the U.S. and abroad by our customers for the following applications:
●
Drug Delivery . We believe delivering medication through hydrogel
patches has important advantages over traditional methods of drug delivery. Hydrogel patches are less intrusive, painless, allow
for pre-planned medication time periods, can potentially release medication in a manner consistent with the body’s own glandular
activity (by avoiding dosage spikes and/or digestive alteration), and minimize side effects related to the medication via injection
or ingestion.
●
Other Medical Applications . Hydrogel patches are being used
for transdermal applications such as hormone replacement therapy and contraception, treatment of acne, shingles, diabetes, motion
sickness, treatment of angina with nitroglycerin and treatment of smoking addiction using nicotine and palliatives (i.e., pain relievers).
●
Non-Prescription Therapeutic Applications . Hydrogel patches
are also used in the medical community and are also directly marketed to consumers for topical application of over the counter (“OTC”)
drugs such as non-prescription acne treatments, pain relievers, diet preparations, cough suppressants, treatment of warts, calluses
and corns, and pain relief.
●
Moist Wound and Burn Dressings . Hydrogel dressings have long
been used for treating wounds and burns. Clinical trials have demonstrated the benefits of moist wound healing versus traditional
dressings. Some of these benefits include immediate anti-inflammatory effects, allowing for freer cell flow and less scarring, increased
absorption of exudate, and accelerated healing.
●
Components of Medical Devices . Several medical devices utilize
hydrogels as components. These devices include active drug delivery systems such as iontophoresis, warming and cooling devices, medical
electrodes and various medical products for sensitive skin.
●
Cosmetic Applications . Hydrogel patches and applications allow
for delivery systems of cosmetic skin care products to consumers and skin care providers for uses that include moisturizers, face
masks, cooling masks and applicators.
We believe our competitive advantage
in each of the general hydrogel patch applications described above is that our hydrogel patches are gentler to the skin because we do
not use chemical cross-linking agents which are incorporated into other hydrogel patches. Once the gels are manufactured according to
a customer’s specifications, the gels are generally shipped to the customer via a contract carrier (e.g., United Parcel Service,
Inc.).
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Our Facilities
We manufacture our hydrogels
at what we believe to be one of only two facilities that can produce state-of-the–art hydrogel transdermal products and we have
successfully used over two hundred active ingredients combinations in our hydrogels to date. Our facility consists of 13,500 square feet
of manufacturing space, which we currently operate at approximately 15% to 20% capacity. Given the significant unused capacity, we can
expand rapidly to meet increased demand, including for our healthcare and consumer product lines as described in more detail below. At
full capacity, we estimate our existing facility would produce approximately 1.4 billion square inches of product annually. 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 joint venture CG Converting and Packaging, LLC (“JV”). Our facilities are subject to stringent FDA compliance requirements.
We also believe our hydrogel facility creates a high barrier to entry into our hydrogel and consumer product business.
Consumer Products
Beginning in the third quarter
of 2020, we began selling our own branded products using our hydrogel technology on the Amazon marketplace. In 2022 we expanded access
to our products by launching our own direct to consumer website, Medagel.com. The products we sell under our MedaGel brand primarily
relate to healthcare over-the-counter (“OTC”) remedy solutions, such as blister and pain applications. In December 2023 we
added a second consumer product brand when we completed the purchase of the Kenkoderm brand. The Kenkoderm skincare line was originally
developed by a dermatologist to provide gentle to the skin products for consumer with psoriasis. In May 2024, we added our third consumer
product brand with the purchase of the Silly George brand. Silly George is a beauty brand primarily focused on false eyelashes and other
eye related products. We continue to look for additional potential acquisitions as part of our consumer product “roll-up”
strategy.
Additionally, we have several
more products in our development pipeline. We intend for these products to address various market opportunities including the OTC pharmaceutical
drug delivery market, pain management, beauty and cosmetics, sports related applications, cannabinoids (“CBD” and/or “THC”)
and general podiatry.
Custom and White Label Opportunities
We are leveraging our hydrogel
products and technologies by allowing other OTC brands to incorporate them into their products. We believe our hydrogels, which do not
use chemical cross-linking agents and can be made in paraben free formulations, will be attractive to other OTC brands, especially in
the beauty and cosmetics industry, and their customers. We believe these white labeling opportunities will increase the markets’
awareness of us as a consumer-friendly and reliable supplier of customizable patches. Additionally, we created a process where customers
have the ability to create their own custom hydrogel products. Customers pay a development fee, eliminating our financial risk in the
success or failure of the custom product. As opposed to our contract manufacturing business, where we provide bulk sale of roll stock
hydrogel to our customers who then use it as one component in their products which they themselves then manufacture, test, market and
sell, our custom and white label business will provide customers with a finished product which they will then brand and re-sell.
Medical Devices
We entered into the medical device
development sector which a focus on analyzing, creating and developing devices and solutions that reduce skin pain and irritation, improve
and maintain skin integrity and provide greater comfort and safety for patients at the site of which a medical device interfaces with
the human body.
We conducted proof of concept
studies for the development of our first medical device, which we call NEXDrape and have filed for a patent on this device under the
Patent Cooperation Treaty which provides patent protection in the nations who are members of the treaty. The NEXDrape device is an incise
surgical drape designed for patients with impaired skin. The elderly, diabetics, trauma patients and those with an adhesive sensitivity
can have adverse events from the removal of adhesive drapes. Additionally, patients taking certain medications, such as ELIQUIS ®
and steroids, may experience impaired skin as well. These groups represent a sizable percentage of the incise surgical drape market,
a market we believe to be significant and growing. The incise surgical drape market is currently fragmented with 3M Healthcare being
the market leader. Skin tears, infections, rashes, and post-surgical site pain are some of the problems that can occur as a result of
the removal of adhesive drapes, and have been reported with other currently available surgical drapes.
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We have conducted one animal
and two human cadaver proof of concept studies with respect to NEXDrape. As a result of these studies, we believe NEXDrape will represent
a gentle to the skin alternative to the current adhesive based standard of care and will provide a unique solution for patients with
fragile or compromised skin. Additionally, we believe NEXDrape offers the following benefits over the current incise surgical drape products:
(i) no skin irritation; (ii) able to deliver a wide range of antiseptic and antibiotic agents; (iii) eliminates air bubbles; and (iv)
prevents dermis removal post-surgery, which reduces the risk of patient infection and discomfort. We intend to file a 510(k) premarket
submission with the Food and Drug Administration (“FDA”), which is an application to demonstrate that NEXDrape is as safe
and effective (or substantially equivalent to) a legally marketed surgical drape device. There can be no guarantee that the FDA approves
our application, if submitted.
We are also in the process of
developing a product we call NEXDerm which will be an adhesive tape designed to secure central lines and intravenous tubes and devices
to patients before, during and after medical treatment. We believe NEXDerm will be an attractive alternative to Tegaderm™, a 3M
Healthcare product. Based on our discussion with medical professionals, Tegaderm™ is often difficult and painful to remove after
adhesion, particularly for comprised skin patients. NEXDerm, which will incorporate exclusively licensed technology owned by Noble Fiber,
is designed to create a gentle to skin surgical tape impregnated with antimicrobial X-Static ® silver fiber. We believe
NEXDerm, if successfully developed, will offer the following advantages over Tegaderm™: (i) ability to easily reposition the adhesive
tape; (ii) pain-free removal; (iii) gentle to the skin; and (iv) increased infection prevention. As with NEXDrape, we intend to file
a 510(k) premarket submission with the FDA to demonstrate that NEXDerm is as safe and effective (or substantially equivalent to) a legally
marketed surgical drape device. There can be no guarantee that the FDA approves our application, if submitted.
Our current intent with any medical
devices will not be to commercialize due to the expense required but to potentially prepare them to go to market and to identify and
pursue licensing and partnering arrangements with third parties possessing the necessary resources and capabilities to bring the devices
to market.
Sales and Marketing
Contract Manufacturing, Consumer
Products and Customer and White Label Offerings . We continue to focus on sales and marketing efforts in the United States. We use
commission-based, fractional sales personnel to supplement our in-house efforts.
Medical Devices . We do
not intend to spend efforts or resources on selling or marketing our medical device business. Our current intent with any medical devices
will not be to commercialize due to the expense required but to identify and pursue licensing arrangements with third parties possessing
the necessary resources and capabilities to bring the devices to market.
Competition
Contract Manufacturing .
To our knowledge, NexGel is one of two manufacturers using electron beam technology for high performance hydrogels for the wound care,
cosmetic and drug delivery industries. However, the other manufacture does not currently offer its products to the outside consumer market
and, as such, does not currently compete with us directly.
Consumer Products and Medical
Devices. As we expand our consumer products and medical device business, we will face a number of competitors. Our competitors include
numerous manufacturers; distributors; marketers; online, specialty, mass, and other retailers; and physicians that actively compete for
the business of consumers both in the United States and abroad, including companies such as Johnson & Johnson, Pfizer Consumer Healthcare
and Procter & Gamble. Most of our competitors have longer operating histories, significantly greater resources, better developed
and more innovative sales and distribution channels and platforms, greater name recognition, and larger established customer bases than
we do. Therefore, a strategic partnership will be critical to our success in the medical device business. We also face similar challenges
with our own consumer branded products and may pursue similar strategic partnerships, though direct to consumer marketing and selling
is more feasible.
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Custom and White Label Offerings .
As our custom and white label offering business will provide customers with a finished product which they will then brand and re-sell,
the competition will depend, to a great deal, on the type of product the customer request and will not result in direct competition to
us.
Sources and Availability of Raw Materials;
Principal Suppliers
In general, raw materials essential
to our business are readily available from multiple sources. For reasons of quality assurance, availability, or cost effectiveness, certain
components and raw materials are available only from a sole supplier. The principal suppliers for our raw materials are Berry Global,
Inc., DeWolf Chemical, Inc., and Univar, Inc. Our policy is to maintain sufficient inventory of components and raw materials so that
our production will not be significantly disrupted even if a particular component or material is not available for a period of time.
Because we have no direct control
over these suppliers, interruptions or delays in the products and services provided by these parties may be difficult to remedy in a
timely fashion. In addition, if such suppliers are unable or unwilling to deliver the necessary components or raw materials, we may be
unable to redesign or adapt our technology to work without such components or raw materials or find alternative suppliers or manufacturers.
In such events, we could experience interruptions, delays, increased costs, quality control problems, and or be unable to sell the applicable
products, all of which could have a significant adverse impact on our revenue.
Other than as discussed above,
we believe that, due to the size and scale of production of our suppliers, there should be an adequate supply of components and raw materials
from our other suppliers.
Customers
During the year ended December
31, 2024, no customers accounted for 10% of our revenue. During the year ended December 31, 2023 one major customer accounted for approximately
20% of our revenue. We cannot be certain as to this customer’s intentions to use our services during and beyond the fiscal year
ended December 31, 2024 since we do not currently have a contract with this customer. However, we have been supplying this customer for
more than 15 years and have no reason to anticipate any change. Our contract manufacturing business, including with respect to this customer,
operates on a purchase order basis.
Patents, Proprietary Rights and Trademarks
We own or license trademarks
covering our company and our products. We filed for a patent on NEXDrape under the Patent Cooperation Treaty which provides patent protection
in the nations who are members of the treaty. We also rely upon trade secrets and continuing technological innovations to develop and
maintain our competitive position. We also hold certain intellectual property that is not material to our current business and prospects,
including patent rights to one patent in Europe, which covers the use of lignin for inhibiting restenosis and thrombosis formation, and
coated medical devices where the coating includes lignin. This patent is set to expire in the near future, however we believe the expiration
of these patents will not have an adverse impact on our overall business. We hold an exclusive license with right to sub-license from
Specialty Pharmaceutical Products, L.L.C. (which was held by our former parent, Adynxx, Inc.) to two issued patents, one in the U.S.
and one in Europe, which cover technology relating to a transdermal patch containing transcutol. The transdermal patch is effective to
deliver lidocaine to a patient. Neither of these patent rights are material to our current business and prospects. These licensed patent
rights are expected to expire in April 2032.
Government Regulation
Product Regulation . Under
the Federal Food, Drug and Cosmetic Act, medical devices are classified by the FDA into one of three classes - Class I,
Class II or Class III - depending on the degree of risk associated with each medical device and the extent of control needed
to ensure safety and effectiveness. While some applications of hydrogels fall under the jurisdiction of the FDA, hydrogels are generally
classified as Class I exempt devices and the majority of the hydrogel products that we manufacture are thereby exempt from the FDA filing
of any regulatory submissions and/or pre-market notification requirements. To the extent that any FDA regulatory submissions are required,
we will be required to file these submissions and maintain all appropriate documentation. With respect to registering the manufacturing
facility with the FDA under the Code of Federal Regulations, 21 CFR 820.1, Scope: Part A, it is stated that the regulation does not apply
to manufacturers of component parts of finished devices. Currently, hydrogels are sold as component parts to various medical device/cosmetic
manufacturers.
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Quality Assurance Requirements .
The FDA enforces regulations to ensure that the methods used in, and the facilities and controls used for, the manufacture, processing,
packing and holding of drugs and medical devices conform with current good manufacturing practice (“cGMP”). The cGMP regulations
enforced by the FDA are comprehensive and cover all aspects of manufacturing operations, from receipt of raw materials to finished product
distribution, insofar as they bear upon whether drugs meet all the identity, strength, quality and purity characteristics required of
them. The cGMP regulations for devices, called the Quality System Regulation, are also comprehensive and cover all aspects of device
manufacture, from pre-production design validation to installation and servicing, insofar as they bear upon the safe and effective use
of the device and whether the device otherwise meets the requirements of the Federal Food, Drug and Cosmetic Act. To assure compliance
requires a continuous commitment of time, money and effort in all operational areas.
The FDA also conducts periodic
inspections of drug and device registered facilities to assess their current cGMP status. If the FDA were to find serious non-compliant
manufacturing or processing practices during such an inspection, it could take regulatory actions that could adversely affect our business,
results of operations, financial condition and cash flows. With respect to domestic establishments, the FDA could initiate product seizures
or in some instances require product recalls and seek to enjoin a product’s manufacture and distribution. In certain circumstances,
violations could support civil penalties and criminal prosecutions. In addition, if the FDA concludes that a company is not in compliance
with cGMP requirements, sanctions may be imposed that include preventing that company from receiving the necessary licenses to export
its products and classifying that company as an “unacceptable supplier”, thereby disqualifying that company from selling
products to federal agencies.
We conduct audits of our outside
manufacturers and believe that we and our suppliers and outside manufacturers are currently in compliance with cGMP requirements. We
are currently registered as a device manufacturer and distributor with the FDA and we intend to register as a drug facility with the
FDA when we are required to do so.
Environmental Regulation .
We are subject to various laws and governmental regulations concerning environmental matters and employee safety and health in the U.S.
and other countries. We have made, and continue to make, significant investments to comply with these laws and regulations. We cannot
predict the future capital expenditures or operating costs required to comply with environmental laws and regulations. We believe that
we are currently compliant with applicable environmental, health and safety requirements in all material respects. However, we cannot
assure you that current or future regulatory, governmental, or private action will not have a material adverse effect on our performance,
results or financial condition.
In the future, if a loss contingency
related to environmental matters, employee safety, health or conditional asset retirement obligations is recognized, we would record
a liability for the obligation and it may result in a material impact on net income for the annual or interim period during which the
liability is recorded. The investigation and remediation of environmental obligations generally occur over an extended period of time,
and therefore we do not know if these events would have a material adverse effect on our financial condition, liquidity, or cash flow,
nor can we assure you that such liabilities would not have a material adverse effect on our performance, results or financial condition.
Federal and State Anti-kickback,
Self-referral, False Claims and Similar Laws . Our relationships with physicians, hospitals and the marketers of our products are
subject to scrutiny under various federal anti-kickback, self-referral, false claims and similar laws, often referred to collectively
as healthcare fraud and abuse laws. Healthcare fraud and abuse laws are complex, and even minor, inadvertent violations can give rise
to claims that the relevant law has been violated. Certain states have similar fraud and abuse laws, imposing substantial penalties for
violations. Any government investigation or a finding of a violation of these laws would likely result in a material adverse effect on
the market price of our common stock, as well as our business, financial condition and results of operations. We believe that we are
currently compliant with applicable anti-kickback, self-referral, false claims in all material respects.
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Research and Development Costs
For the years ended December
31, 2024 and 2023, we incurred approximately $78 thousand and $103 thousand, respectively, in research and development costs. We expect
to incur increased costs in the future for our medical device business. Research and development will be an important component in the
growth of our business.
Human Capital
As of December 31, 2024, we had
19 full-time employees. Of these employees, five are involved with finance, sales, marketing, and administration and 14 are involved
with manufacturing and regulatory matters. Our employees are not represented by a labor union or other collective bargaining groups,
and we consider relations with our employees to be good. We currently plan to retain and utilize the services of outside consultants
for additional research, testing, regulatory, accounting and tax services, legal compliance, and other services on an as needed basis.
We recognize and value our people as our most important
asset in achieving our strategic goals. We are continually working on a human
resources strategy that helps drive the right culture, leadership, talent management, performance, reward and recognition, personal development,
and ways of working to ensure we achieve our strategic goals while our people benefit from an exceptional experience. Our efforts in
creating a working environment that draws out the best in our employees and allows them to fulfil their potential and support our goals
focus on the following:
· Attract, identify, develop
and retain high-performing employees across all areas.
· Develop and support
the growth of management and leadership.
· Enable the development
of a high-performance culture in which staff performance can be supported, rewarded, enhanced
and managed effectively.
· Foster a values-based
culture focused on diversity, equity, inclusion, well-being, and positive staff engagement.
· Develop a total reward
approach which is valued by staff and facilitates company objectives.
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. The lease expires in March 2028.
We believe that our facilities
are well maintained and are suitable and adequate for our current needs.
Legal Proceedings
From time to time, we may become
involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are
currently not aware of any such legal proceedings or claims.
There are no material proceedings
in which any of our directors, officers or affiliates or any registered or beneficial shareholder of more than 5% of our common stock
is an adverse party or has a material interest adverse to our interest.
Contractual Obligations
The Company is a smaller reporting
company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and is not required to provide the information under
this item.