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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-22245
NEXMED, INC
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(Exact Name of Registrant as Specified in Its Charter)
NEVADA 87-0449967
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
350 CORPORATE BOULEVARD, ROBBINSVILLE, NJ 08691
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(Address of Principal Executive Offices)
(609) 208-9688
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(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
- ------------------- ------------------------------------
COMMON STOCK, PAR VALUE $.001 THE NASDAQ NATIONAL MARKET
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 1, 2001, 25,162,654 shares of Common Stock of the registrant
were outstanding and the aggregate market value of Common Stock held by
non-affiliates was approximately $156,516,664.50.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement to be delivered to our shareholders in
connection with the Annual Meeting of Shareholders to be held on May 7, 2001
(the "2001 Proxy Statement") are incorporated by reference into Part III of this
Report.
NEXMED, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED DECEMBER 31, 2000
ITEMS IN FORM 10-K
Page
----
PART I.
Item 1. BUSINESS......................................................................................... 1
Item 2. PROPERTIES....................................................................................... 7
Item 3. LEGAL PROCEEDINGS................................................................................ 7
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................. 7
PART II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ........................... 7
Item 6. SELECTED FINANCIAL DATA.......................................................................... 8
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 8
Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................... 12
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................................... 12
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............. 30
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................................. 30
Item 11. EXECUTIVE COMPENSATION.......................................................................... 30
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................. 30
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................. 30
PART IV.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................. 30
PART I.
ITEM 1. BUSINESS.
Some of the statements contained in this Report discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Those statements include
statements regarding the intent, belief or current expectations of the Company
and its management team. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements. These risks and uncertainties
include but are not limited to, those risks and uncertainties set forth under
the heading "Factors That Could Affect Our Future Results" of Part I of this
Report. In light of the significant risks and uncertainties inherent in the
forward-looking statements included in this Report, the inclusion of such
statements should not be regarded as a representation by us or any other person
that our objectives and plans will be achieved.
GENERAL
NexMed, Inc., (the "Company," which may be referred to as "we," "us," or
"our") is a pharmaceutical and medical technology company. We develop and
commercialize therapeutic products based on proprietary delivery systems. We are
currently focusing our efforts on new and patented pharmaceutical products based
on a penetration enhancement topical delivery technology known as NexACT(R),
which may enable an active drug to be better absorbed through the skin.
Our home page on the internet is at www.nexmed.com. You can learn more
about us by visiting that site. Information contained on our internet site does
not constitute part of this Report or the Company's prior filings with the
Securities and Exchange Commission.
PRODUCTS & TECHNOLOGIES
We are currently focusing our efforts on new and patented pharmaceutical
products based on a penetration enhancement topical delivery technology known as
NexACT(R), which may enable an active drug to be better absorbed through the
skin. The NexACT(R) transdermal drug delivery technology is designed to enhance
absorption of an active drug through the skin, overcoming the skin's natural
barrier properties and enabling high concentrations of the active drug to
rapidly penetrate the desired site of the skin or extremity. Successful
application of the NexACT(R) technology would improve therapeutic outcomes and
reduce gastrointestinal or other systemic side effects that often accompany oral
medications.
We intend to continue our efforts developing topical treatments based on
the application of NexACT(R) technology to drugs: (1) previously approved by the
FDA, (2) with proven efficacy and safety profiles, (3) with patents expiring or
expired and (4) with proven market track records and potential. In furtherance
of these efforts, we will continue to use laboratory space at the Higuchi
Biosciences Center of the University of Kansas pursuant to a research agreement
with the University. We have retained advisors, consultants and employees at the
Higuchi Biosciences Center to assist with our development efforts.
Currently, we are focusing our application of the NexACT(R) technology
to Alprox-TD(R), an alprostadil cream for the treatment of male erectile
dysfunction ("ED") and Femprox(TM), also an alprostadil-based cream, for the
treatment of female sexual arousal disorder ("FSAD"). We are also exploring the
application of the NexACT(R) technology to other drug compounds and working on
the development of new products such as a topical treatment for nail fungus, a
topical non-steroidal anti-inflammatory drug ("NSAID") treatment for pain and
inflammation, and a topical anti-emetic cream for the prevention of nausea and
vomiting associated with post-operative surgical procedures and cancer
chemotherapy.
Alprox-TD(R) is an alprostadil-based topical treatment cream intended to
treat mild to moderate ED. Our clinical studies have demonstrated that NexACT(R)
enhancers may promote the absorption of alprostadil and improve clinical
responses. In September 2000, we completed a Phase II trial on Alprox-TD(R) and
submitted the results to the FDA for review. The U.S. Phase II study which was
conducted at 12 clinical sites in the U.S., was randomized, parallel,
double-blind, placebo-controlled, and designed to investigate the dose-response
relationships of the efficacy and safety of 3 different doses of Alprox-TD(R)
versus a placebo in 161 men with mild to moderate ED. The study results
indicated that three different dose levels of Alprox-TD(R) were
1
shown to be effective over placebo in sexual function endpoint analyses. Pending
FDA concurrence, we intend to initiate Phase III dosing of patients in the U.S.,
which we anticipate will begin in first half of 2001.
In Asia, our subsidiary NexMed International Limited and Vergemont
International Limited entered into a license agreement in 1999 pursuant to which
(1) Vergemont International Limited has an exclusive right to manufacture and to
market in China and Asian Pacific countries, our Alprox-TD(R), Femprox(TM) and
three other of our proprietary products under development, and (2) we will
receive a royalty on sales and supply, on a cost plus basis, the NexACT(R)
enhancers that are essential in the formulation and production of our
proprietary topical products. Under the terms of our subsidiary's agreement with
Vergemont International Limited, Dr. Joseph Mo, our President and Chief
Executive Officer, has actively assisted in the anticipated launch of our
proprietary ED treatment in China which will be marketed under the Befar(R)
trademark. On February 2, 2001, we announced that the China State Drug
Administration gave approval to NexMed Pharmaceuticals (Zhongshan) Ltd., a
subsidiary of Vergemont International Limited, to manufacture, sell and
distribute Befar(R) in China. The launch of Befar(R), is scheduled to take place
during first half of 2001.
Femprox(TM) is an alprostadil-based cream product intended for the
treatment of FSAD. We completed in 1998, an eight-patient Phase I clinical study
for safety and efficacy. Results from our clinical study demonstrated a positive
effect on increasing blood flow to the clitoris and labia in the subjects
tested. We also completed two additional Phase I safety studies in 2000, which
included a total of 64 healthy normal subjects and examined the safety of
different doses of the Femprox(TM) product. No systemic side effects were
evidenced and local side effects were minimal. Subject to FDA concurrence, we
intend to initiate the proposed U.S. Phase II program for Femprox(TM) during
first half of 2001.
Another product we are continuing to develop is the Viratrol(R) device,
a therapeutic medical device for the treatment of herpes simplex diseases
without the use of drugs. The Viratrol(R) device is a hand-held non-invasive
therapeutic device designed to treat herpes simplex diseases. The device
topically delivers a minute electrical current to an infected site and may block
lesions from forming and/or shorten healing time once lesions develop. We have
allocated sufficient funds for our U.S. clinical development program on the
Viratrol(R) device which we intend to initiate during 2001.
FACTORS THAT COULD AFFECT OUR FUTURE RESULTS
PATENTS AND INTELLECTUAL PROPERTY RIGHTS
Proprietary protection for our pharmaceutical products is of material
importance to our business in the United States and most other countries. We
have and will continue to seek proprietary protection for our products to
attempt to prevent others from commercializing equivalent products in
substantially less time and at substantially lower expense. Our success may
depend on our ability to (1) obtain effective patent protection within the
United States and internationally for our proprietary technologies and products,
(2) defend patents we own, (3) preserve our trade secrets, and (4) operate
without infringing upon the proprietary rights of others.
We have five U.S. patents either acquired or received out of a series of
patent applications that we have filed in connection with our continuing
development of a new generation of skin absorption technology based on the
NexACT(R) technology and our NexACT-based products under development, such as
Alprox-TD(R) and Femprox(TM).
We have three U.S. patents issued on the Viratrol(R) device and one
patent application pending with respect to the technology, inventions and
improvements that are significant to the Viratrol(R) device, and intend to file
additional patent applications to continue expanding the coverage on the device.
To further strengthen our global patent position on Alprox-TD(R),
Femprox(TM) and the Viratrol(R) device, and to expand the patent protection to
other markets, we have filed under the Patent Cooperation Treaty, corresponding
international applications for our issued and pending U.S. patents.
While we have obtained patents and have several patent applications
pending, the extent of effective patent protection in the United States and
other countries is highly uncertain and involves complex legal and factual
questions. No consistent policy addresses the breadth of claims allowed in or
the degree of protection afforded under patents of medical and pharmaceutical
companies. Patents we currently own or may obtain might not be sufficiently
broad to protect us against competitors with similar technology. Any of our
patents could be invalidated or circumvented.
2
There have been patents issued to others such as Vivus, Inc. and
MacroChem Corporation on the use of prostaglandin for the treatment of male or
female sexual dysfunction. While we believe that our patents will prevail in any
potential litigation, we can provide no assurance that the holders of these
competing patents will not commence a lawsuit against us or that we will prevail
in any such lawsuit.
OPERATING LOSSES
Our current business operations began in 1994 and we have a limited
operating history. We may encounter delays, uncertainties and complications
typically encountered by development stage businesses. We have not marketed or
generated revenues from our products under development. We are not profitable
and have incurred an accumulated deficit of $24,171,589 since our inception. We
believe that our current cash reserves are adequate to support our continuing
operations for at least the next twelve months. However, we will require
additional financing before achieving positive cash flow and may seek financing
from equity or debt and from private and public sources as well as from
collaborative licensing and/or marketing arrangements with third parties.
However, we have not made arrangements for, and there is no assurance that such
additional external funding will be available to us on acceptable terms, if at
all. If we cannot obtain such additional financing, we may need to modify our
business objectives or reduce or cease certain or all of our product development
programs and other operations. The Company's current ability to generate
revenues and to achieve profitability and positive cash flow will depend on the
successful commercialization of our products currently under development.
However, even if we eventually generate revenues from sales of our products
currently under development, we expect to incur significant operating losses
over the next several years. Our ability to become profitable will depend, among
other things, on our (1) development of our proposed products, (2) obtaining of
regulatory approvals of our proposed products on a timely basis and (3) success
in manufacturing, distributing and marketing our proposed products.
MANUFACTURING
In October 2000, we completed the purchase of a 31,500 square foot
manufacturing facility, located in East Windsor, New Jersey. The facility, which
has been designed to meet our anticipated needs for full-scale commercial
production and will be utilized initially to manufacture Alprox-TD(R) and
Femprox(TM) for continuing clinical testing purposes, is currently being
completed to meet Good Manufacturing Practice (GMP) standards as required by the
FDA.
We depend on third party chemical manufacturers for alprostadil, the
active drug in Alprox-TD(R) and Femprox(TM) and for the supply of our NexACT(R)
enhancers that are essential in the formulation and production of our topical
products, in a timely basis and at satisfactory quality levels. If our third
party chemical manufacturers fail to produce quality products on time and in
sufficient qualities, our results would suffer.
COMPETITION
We are engaged in a highly competitive industry. We expect increased
competition from numerous existing companies, including large international
enterprises, and others entering the industry. Most of these companies have
greater research and development, manufacturing, marketing, financial,
technological, personnel and managerial resources. Acquisitions of competing
companies by large pharmaceutical or healthcare companies could further enhance
such competitors' financial, marketing and other resources. Competitors may
complete clinical trials, obtain regulatory approvals and commence commercial
sales of their products before we could enjoy a significant competitive
advantage. Products developed by our competitors may be more effective than our
products.
Certain treatments for ED, such as needle injection therapy, vacuum
constriction devices, penile implants, transurethral absorption and oral
medications, currently exist, have been approved for sale in certain markets and
are being improved. Currently known products for the treatment of ED developed
or under development by our competitors include the following: (1) Caverject(R),
Pharmacia & Upjohn Company's needle injection therapy; (2) Viagra(R), Pfizer,
Inc.'s oral product to treat ED; and (3) Muse(R), VivUs, Inc.'s device for
intra-urethral delivery of a suppository containing alprostadil. In addition,
the following products are currently under development: (1) Topiglan(R), a
topical treatment containing alprostadil based on a proprietary drug delivery
system under development by MacroChem Corporation; (2) Vasomax(R), an oral
medication to be marketed through a collaborative effort of Zonagen, Inc. and
Schering Plough Pharmaceuticals; (3) Cialis, an oral formulation under
development by the joint venture between ICOS and Eli Lilly & Co; (4) Uprima(R),
an oral medication to be marketed by TAP Pharmaceuticals, a joint venture
between Takeda PharmaceuticalS Japan and Abbott Laboratories; (5) Max-K(R), an
oral medication by Bristol-Meyers Squibb; and (6) Vardenafil, an oral medication
by Bayer AG.
3
RESEARCH AND DEVELOPMENT
Our research and development expenses for the years ended December 31,
2000, 1999, and 1998 were $6,892,283, $2,374,024, and $2,302,148 respectively.
Since January 1, 1994, when we repositioned ourselves as a medical and
pharmaceutical technology company, we have spent $16,623,177 on research and
development. We anticipate that our expenses for research and development will
continue to increase as we enter into advanced clinical development.
We currently employ Dr. Servet Buyuktimkin as Director of Drug Delivery
Research and Dr. Nadir Buyuktimkin as Director of Formulation Research to
conduct research at our laboratories at the Higuchi Biosciences Center of the
University of Kansas. Dr. Servet Buyuktimkin and Dr. Nadir Buyuktimkin are
co-developers and authors of several publications and presentations relating to
our NexACT(R) enhancers. Dr. J. Howard Rytting, a co-developer of the NexACT(R)
enhancers and professor in the Department of Pharmaceutical Chemistry of the
School of Pharmacy of the University of Kansas, is a member of our Scientific
Advisory Board. Pursuant to a research agreement with the University of Kansas,
we are funding Dr. Rytting's research efforts to develop new methodologies
involving penetration enhancement research. Although the University would own
any patents resulting from such efforts, we have the right to an exclusive
license to any technology resulting from such efforts.
We will need significant funding to pursue our research, development and
commercialization plans. We intend to focus our current development efforts on
the Alprox-TD(R) and Femprox(TM) creams and the Viratrol(R) device. These
products are currently in the research and development stage. We believe that
our current cash reserves are sufficient to support our Phase III program on the
Alprox-TD(R) cream. We have not begun to market or generate revenues from the
commercialization of our products under development. Our products under
development will require significant time-consuming and costly research and
development, clinical testing, regulatory approval and significant additional
investment prior to their commercialization. There can be no assurance that (1)
the research and development activities we conduct will be successful, (2)
products under development will prove to be safe and effective, (3) any of the
clinical development work will be completed, or (4) the anticipated products
will be commercially viable or successfully marketed. Commercial sales of our
products cannot begin until we receive final FDA approval. The earliest likely
time for such final approval of the first product which may be approved
(Alprox-TD (R)) is sometime in early 2003. We cannot assure you that (1) we will
obtain regulatory approval or develop any additional products, (2) if
successful, we will attract sufficient capital to complete any development and
commercialization undertaken or (3) any such development and commercialization
will be successful.
GOVERNMENT REGULATIONS
Governmental authorities in the United States and other countries
heavily regulate the testing, manufacture, labeling, distribution, advertising
and marketing of our proposed products. The Alprox-TD(R) and Femprox(TM) creams
utilizing the NexACT(R) technology as well as the Viratrol(R) device have not
been approved for marketing in the United States. Before we market any products
we develop, we must obtain FDA and comparable foreign agency approval through an
extensive clinical study and approval process.
The studies involved in the approval process are conducted in three
phases. In Phase I studies, researchers assess safety or the most common acute
adverse effects of a drug and examine the size of doses that patients can take
safely without a high incidence of side effects. Generally, 20 to 100 healthy
volunteers or patients are studied in the Phase I study for a period of several
months. In Phase II studies, researchers determine the drug's efficacy with
short-term safety by administering the drug to subjects who have the condition
the drug is intended to treat, assess whether the drug favorably effects the
condition, and begin to identify the correct dosage level. Up to several hundred
subjects may be studied in the Phase II study for approximately 6 to 12 months,
depending on the type of product tested. In Phase III studies, researchers
further assess efficacy and safety of the drug. Several hundreds to thousands of
patients may be studied during the Phase III studies for a period of from 12
months to several years. Upon completion of Phase III studies, a New Drug
Application is submitted to the FDA or foreign governmental regulatory authority
for review and approval.
Our failure to obtain requisite governmental approvals timely or at all
will delay or preclude us from licensing or marketing our products or limit the
commercial use of our products, which could adversely affect our business,
financial condition and results of operations.
Because we intend to sell and market our products outside the United
States, we will be subject to foreign regulatory requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursements. These
requirements vary widely from country to country. Our failure to meet each
foreign country's requirements could delay our introduction of our
4
proposed products in the respective foreign country and limit our revenues from
sales of our proposed products in foreign markets.
Successful commercialization of our products may depend on the
availability of reimbursement to the consumer from third-party healthcare
payers, such as government and private insurance plans. Even if we succeed in
bringing one or more products to market, reimbursement to consumers may not be
available or sufficient to allow us to realize an appropriate return on our
investment in product development or to sell our products on a competitive
basis. In addition, in certain foreign markets, pricing or profitability of
prescription pharmaceuticals is subject to governmental controls. In the United
States, federal and state agencies have proposed similar governmental control
and the United States Congress has recently considered legislative and
regulatory reforms that may affect companies engaged in the healthcare industry.
Pricing constraints on our products in foreign markets and possibly the United
States, could adversely effect our business and limited our revenues.
SALES, MARKETING AND DISTRIBUTION
We have engaged in discussions with several large pharmaceutical
companies regarding a strategic partnership for the Alprox-TD(R) cream but we
cannot assure you that we will be able to conclude an arrangement on a timely
basis, if at all, or on terms acceptable to us. With our current cash reserves,
we have elected to proceed with our Phase III program on the Alprox-TD(R) cream,
assuming we receive FDA concurrence, while concurrently pursuing these
discussions.
We will need to devote substantial marketing efforts to achieve market
acceptance for products based on the NexACT(R) technology, the Viratrol(R)
device and any of our other proposed products. We will need to spend significant
funds to inform potential customers, including third-party distributors, of the
distinctive characteristics and benefits of our products. Our operating results
and long term success will depend on our ability to establish (1) successful
arrangements with domestic and international distributors and marketing partners
and (2) an effective internal marketing organization. We currently have no sales
force or marketing organization and will need, but may be unable, to attract and
retain qualified or experienced marketing and sales personnel.
In Asia, our subsidiary NexMed International Limited and Vergemont
International Limited entered into a license agreement in 1999 pursuant to which
(1) Vergemont International Limited has an exclusive right to manufacture and to
market in China and Asian Pacific countries, our Alprox-TD(R), Femprox(TM) and
three other of our proprietary products under development, and (2) we will
receive a royalty on sales and supply, on a cost plus basis, the NexACT(R)
enhancers that are essential in the formulation and production of our
proprietary topical products. Under the term of our subsidiary's agreement with
Vergemont International Limited, Dr. Joseph Mo, our President and Chief
Executive Officer, has actively assisted in the anticipated launch of our
proprietary ED treatment in China which will be marketed under the Befar(R)
trademark. On February 2, 2001, we announced that the China State Drug
Administration gave approval to NexMed Pharmaceuticals (Zhongshan) Ltd., a
subsidiary of Vergemont International Limited, to manufacture, sell and
distribute Befar in China. The launch of Befar is scheduled to take place during
the first half of 2001.
ENVIRONMENTAL LAW COMPLIANCE
Most of our manufacturing and certain research operations are or will be
affected by federal, state and local environmental laws. We have made, and
intend to continue to make, necessary expenditures for compliance with
applicable laws. While we cannot predict with certainty the future operating
costs for environmental compliance, we do not believe they will have a material
effect on our capital expenditures, earnings or competitive position.
SEGMENT AND GEOGRAPHIC AREA INFORMATION
You can find information about our business segment and geographic areas
of business in "Note 14. Segment and Geographic Information" of our Notes to
Consolidated Financial Statements at page 28 below.
EMPLOYEES
As of March 1, 2001, we had 51 full time employees, ten of whom have
Ph.D and/or M.D. degrees and four of whom are executive management and 35 of
whom are engaged in research and development activities. We also rely on a
number of part time employees and consultants. None of our employees is
represented by a collective bargaining agreement. We believe that our
relationship with our employees is good.
5
EXECUTIVE OFFICERS
The Executive Officers of the Company are set forth below.
Name Age Title
---- --- -----
Y. Joseph Mo, Ph.D. 53 Chairman of the Board of Directors,
President and Chief Executive
Officer
James L. Yeager, Ph.D. 54 Director, Vice President, R&D and
Business Development
Vivian H. Liu 39 Vice President, Corporate
Affairs, Chief Financial Officer and
Secretary
Kenneth Anderson 54 Vice President, Commercial
Development
Y. Joseph Mo, Ph.D., is, and has been since 1995, our Chief Executive Officer
and President and Chairman and member of our board of directors. His current
term as member of our board of directors expires in 2002. Prior to joining us in
1995, Dr. Mo was President of Sunbofa Group, Inc., an investment consulting
company. From 1991 to 1994, he was President of the Chemical Division, and from
1988 to 1994, the Vice President of Manufacturing and Medicinal Chemistry, of
Greenwich Pharmaceuticals, Inc. Prior to that, he served in various executive
positions with several major pharmaceutical companies, including Johnson &
Johnson, Rorer Pharmaceuticals, and predecessors of Smithkline Beecham. Dr. Mo
received his Ph.D. in Industrial and Physical Pharmacy from Purdue University in
1977.
James L. Yeager, Ph.D., is, and has been since December 1998, a member of our
board of directors and, since June 1996, Vice President of Research and
Development and Business Development. His current term as member of our board of
directors expires in 2002. Before joining us, Dr. Yeager was Vice President of
Research and Development of Pharmedic Company. During that time he specialized
in building and managing new product development programs. From 1989 to 1992,
Dr. Yeager held international managerial positions with Abbott Laboratories. Dr.
Yeager received his Ph.D. in Industrial and Physical Pharmacy from Purdue
University in 1978.
Vivian H. Liu is, and has been, our Vice President of Corporate Affairs and
Secretary since September 1995 and our Chief Financial Officer since August
1999. In 1994, while we were in a transition period, Ms. Liu served as our Chief
Executive Officer. From September 1995 to September 1997, Ms. Liu was our
Treasurer. From 1985 to 1994, she was a business and investment adviser to the
government of Quebec and numerous Canadian companies with respect to product
distribution, technology transfer and investment issues. Ms. Liu received her
MPA in International Finance from the University of Southern California and her
BA from the University of California, Berkeley.
Kenneth Anderson is and has been, our Vice President of Commercial Development
since November 2000. Mr. Anderson has extensive experience in the pharmaceutical
industry. He held several positions with Bristol-Myers Squibb over a
seventeen-year period where he served in various management positions, including
Senior Manager for Marketing and Director for Worldwide Business Development
from 1980 to 1997. From 1997 to September 2000, Mr. Anderson was Senior Vice
President, Director of Strategy and Business Development for Harrison Wilson &
Associates, a consulting and marketing firm specializing in healthcare products
and services. From 1969 to 1979, Mr. Anderson was with Parke-Davis, a division
of Warner Lambert. Mr. Anderson received his BA from Boston University.
6
ITEM 2. PROPERTIES.
We currently have our principal executive offices and one analytical
laboratory in Robbinsville, NJ. We lease approximately 23,000 square feet of
space for $23,745.30 per month, pursuant to a five-year lease which expires in
February 2003.
In October 2000, we completed the $2.2 million purchase of our 31,500
square foot manufacturing facility in East Windsor, New Jersey. We are in the
process of completing the facility for compliance with Good Manufacturing
Practices as mandated by the FDA.
Pursuant to our research agreement with the University of Kansas, which
is renewable annually, we pay $5,325 per month for access to and use of
laboratory space at the University's Higuchi Biosciences Center.
NexMed (America) Limited, leases 1,000 square feet of office space in
Mississauga, Ontario, Canada for $850 per month pursuant to a month-to-month
arrangement.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending against NexMed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our Common Stock is traded on the NASDAQ National Market System (the
"NASDAQ") under the symbol "NEXM."
The following table sets forth the range of the high and low sales
prices as reported by the NASDAQ for the period from January 1, 1999 to December
31, 2000.
Fiscal Year Ended December 31, 2000 Price of Common Stock
- ----------------------------------- ---------------------
High Low
---------- ---------
First Quarter .................................. $23.5000 $3.4375
Second Quarter ................................. $16.4370 $6.0000
Third Quarter .................................. $20.0000 $8.5000
Fourth Quarter ................................. $20.6250 $3.7500
Fiscal Year Ended December 31 1999
- ----------------------------------
First Quarter .................................. $2.7500 $1.7813
Second Quarter ................................. $2.2150 $0.8750
Third Quarter .................................. $3.5000 $0.9375
Fourth Quarter ................................. $4.7500 $2.8750
On March 1, 2001, the last reported sales price for our Common Stock on
the NASDAQ was $6.75 per share.
We had 208 holders of record of our Common Stock as of March 1, 2001.
7
DIVIDENDS
We have never paid cash dividends and do not have any plans to pay cash
dividends in the foreseeable future. Our board of directors anticipates that any
earnings that might be available to pay dividends will be retained to finance
our business.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial information is qualified by reference
to, and should be read in conjunction with, the Company's consolidated financial
statements and the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere herein.
Fiscal Year Ended December 31,
------------------------------------------------------------------------------
2000 1999 1998 1997 1996
INCOME STATEMENT DATA
Revenue
Product Sales 0 $1,491,746 $5,709,083 0 0
Licensing 0 0 0 $56,175 0
Net Loss $(8,720,553) $(2,490,600) $(4,779,002) $(3,857,466) $(3,118,393)
Basic and Diluted Loss per Share $(0.40) $(0.18) $(0.64) $(0.63) $(0.72)
Weighted Average Common Shares
Outstanding Used for Basic and Diluted
Loss per Share 21,868,267 13,724,052 7,505,588 6,077,475 4,327,548
BALANCE SHEET DATA
Total Assets $39,989,682 $7,633,333 $5,924,628 $2,332,913 $609,479
Total Liabilities $1,245,507 $723,594 $7,594,067 $3,259,172 $141,406
Stockholders' Equity $38,744,175 $6,909,739 $(2,390,437) $(926,259) $468,073
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
We are currently focusing our efforts on:
(i) new and patented pharmaceutical products based on a penetration
enhancement topical delivery technology known as NexACT(R), which may enable the
active drug to be better absorbed through the skin. Currently, we are focusing
on Alprox-TD(R), an alprostadil cream for the treatment of male erectile
dysfunction ("ED") and Femprox(TM), also an alprostadil-based cream, for the
treatment of female sexual arousal disorder ("FSAD"). We have engaged in
discussions with several large pharmaceutical companies regarding a strategic
partnership for the Alprox-TD(R) cream but we cannot assure you that we will be
able to conclude an arrangement on a timely basis, if at all, or on terms
acceptable to us. With our current cash reserves, we have elected to proceed
with our Phase III program on the Alprox-TD(R) cream, assuming we receive FDA
concurrence, while concurrently pursuing these discussions; and
(ii) the Viratrol(R) device, a therapeutic medical device for the
treatment of herpes simplex I without the use of drugs. We believe that the
minute electrical current, which is topically delivered by the device to an
infected site, may block lesions from forming or may significantly shorten
healing time once lesions develop. We are in the process of completing the
commercial product design of the Viratrol(R) herpes treatment device for the
U.S. market.
We intend to (1) pursue our research, development, and marketing
activities and capabilities, both domestically and internationally, with regard
to our proprietary pharmaceutical products and (2) execute a business strategy
with the goal of achieving a level of development sufficient to enable us to
attract potential strategic partners with resources sufficient to further
develop and market our proprietary products.
8
COMPARISON OF RESULTS OF OPERATIONS BETWEEN THE YEAR ENDED DECEMBER 31, 2000 AND
1999.
Revenues. We recorded no revenues during the twelve months of operations
in 2000 as compared to $1,491,746 during the same period in 1999. The 1999
revenues were from NexMed Pharmaceuticals (Zhongshan) Limited, a joint venture
in China which we sold in May 1999.
Cost of Products Sold. Our cost of products was $1,415,002 in 1999 which
is attributable to the manufacturing operations of the China joint venture. With
the sale of the China joint venture, we ceased to record the corresponding cost
of sales in May 1999.
Selling, General and Administrative Expenses. The general and
administrative expenses were $3,209,465 during 2000 as compared to $1,761,796 in
1999. The increase is largely attributable to increase in administrative
expenses resulting from new personnel and programs to support our ongoing U.S.
development activities. During 2000, we added additional personnel in the
Corporate Affairs, Finance and Human Resource departments, and also created the
Information Technology and Commercial Development departments. We also incurred
additional expenses associated with our Nasdaq listings and legal fees for the
implementation of a shareholders rights plan. We expect that total general and
administrative spending in 2001 will continue to increase with our anticipated
growth.
Research and Development Expenses. Our research and development expenses
for 2000 and 1999, were $6,892,283 and $2,374,024, respectively. The increase is
attributable to the scaling-up of our U.S. research and development programs,
including the toxicology studies and clinical trials on Alprox-TD(R) and
Femprox(TM), increase in our research and development staff, from eight
full-time employees in 1999 to thirty-five full employees in 2000, and legal
fees associated with the filings of new patent applications and maintenance of
issued patents. We expect that total research and development spending in 2001
will continue to increase with the initiation and progression of advanced and
costly U.S. clinical activities on the Alprox-TD(R) and Femprox(TM) creams and
our application of the NexACT(R) technology to other drug compounds and our
development of new products such as a topical treatment for nail fungus, a
topical NSAID treatment for pain and inflammation, and a topical anti-emetic
cream for the prevention of nausea and vomiting associated with post-operative
surgical procedures and cancer chemotherapy.
Interest Income and Expense. We recognized $1,255,450 in net interest
income during 2000, compared with a net expense of $315,740 during 1999. This is
the result of the investment of proceeds from private placements and exercise of
warrants and the elimination of interest payments associated with promissory
notes and credit lines.
Gain on Sale of NexMed (Asia) Limited. We realized no gain in 2000 as
compared to a gain of $1,810,296 in 1999 for the divestiture of our Asian
properties in May 1999.
Net Loss. The net loss was $(8,720,553) or a loss of $(0.40) per share
for 2000, compared with ($2,490,600) or ($0.18) per share for 1999. The increase
in net loss is primarily attributable to the acceleration of U.S. development
activities including the ongoing clinical studies and the increase in
infrastructure to support the activities. The 1999 net loss was also offset by
the gain on the sale of NexMed (Asia) Limited.
COMPARISON OF RESULTS OF OPERATIONS BETWEEN THE YEAR ENDED DECEMBER 31, 1999 AND
1998.
Revenues. We recorded revenues of $1,491,746 during the twelve months of
operations in 1999 as compared to $5,709,083 during the same period in 1998. The
revenues were from NexMed Pharmaceuticals (Zhongshan) Limited, a joint venture
in China which we sold in May 1999.
Cost of Products Sold. Our cost of products sold was $1,415,002 and
$5,186,308 in 1999 and 1998, respectively and is attributable to the
manufacturing operations of the China joint venture. With the sale of the China
joint venture, we ceased to record the corresponding cost of sales in May 1999.
Selling, General and Administrative Expenses. Our general and
administrative expenses were $1,761,796 during 1999 as compared to $2,635,114 in
1998. The decrease is a result of the sale of our Asian operations including our
holding in the China joint venture.
9
Research and Development Expenses. Our research and development expenses
for 1999 and 1998, were $2,374,024 and $2,302,148, respectively. The increase is
primarily attributable to the initiation of clinical programs during the fourth
quarter of 1999.
Interest Income and Expense. We recognized $315,740 in net interest
expense during 1999, compared with a net expense of $600,337 during 1998. The
decrease is due to our ceasing to record the interest expense for the lines of
credit of the China joint venture.
Gain on Sale of NexMed (Asia) Limited. We realized a gain of $1,810,296
in 1999, compared to $0 in 1998, as a result of the divestiture of our Asian
properties.
Net Loss. The net loss was $(2,490,600) or a loss of $(0.18) per share
for 1999, compared with ($4,779,002) or ($0.64) per share for 1998. The decrease
in net loss is primarily attributable to the gain on the sale of NexMed (Asia)
Limited and reduction in expenses associated with the divestiture of our Asian
operations.
QUARTERLY RESULTS
The following table sets forth selected quarterly financial information
for the years ended December 31, 2000 and 1999. The operating results are not
necessarily indicative of results for any future period.
THREE MONTHS ENDED
------------------- -------------------------- ---------------------------- --------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
--------- -------- ------------- ------------
(in thousands, except per share data)
Total Revenues $ - $ - $ - $ -
Gross profit - - - -
Loss from operations (1,407) (2,617) (2,341) (3,737)
Net Loss (1,238) (2,469) (1,843) (3,171)
Basic and diluted loss
Per share $ (0.07) $ (0.13) $ (0.08) $ (0.14)
=========== ========== ========== =========
THREE MONTHS ENDED
------------------- -------------------------- ---------------------------- --------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
(in thousands, except per share data)
Total Revenues $ 1,098 $ 394 $ - $ -
Gross profit 57 20 - -
Loss from operations (739) (819) (575) (1,926)
Net Loss (769) (897) (601) (223)
Basic and diluted loss
Per share $ (0.09) $ (0.11) $ (0.07) $ (0.01)
========== ========== ========== ==========
------------------------------------------------------------------------------------------------
10
LIQUIDITY AND CAPITAL RESOURCES
We have experienced net losses and negative cash flow from operations
each year since our inception. Through December 31, 2000, we had an accumulated
deficit of $24,171,589. Our operations have principally been financed through
private placements of equity securities and debt financing. Since September
1999, we have completed four private placements of our common stock and warrants
to purchase our common stock, raising gross proceeds of approximately $38.49
million. During the same period, we raised an additional $12.6 million as a
result of exercises of warrants and options to purchase our common stock. The
timing and size of the exercise of the warrants and options are determined by
the decisions of the respective warrant and option holders, and are not
controlled by us. Therefore, funds raised in past periods should not be
considered an indication of additional funds to be raised in any future periods.
We have attempted to reduce cash flow requirements by renting scientific
equipment and research and development facilities and using consultants, where
appropriate. We expect to incur additional future expenses, resulting in
significant losses, as we continue and expand our research and development
activities and undertake additional pre-clinical and clinical trials for our
proprietary topical treatments under development. We also expect to incur
substantial expenses relating to the filing, maintenance, defense and
enforcement of patent and other intellectual property claims.
At December 31, 2000, we had cash and cash equivalents, certificates of
deposit and investments in marketable securities of approximately $35.79 million
compared to $5.12 million at December 31, 1999. We have allocated our cash
reserves for our operational requirements, and for the U.S. clinical studies on
the Alprox-TD(R) and Femprox(TM) creams, the development program on the
Viratrol(R) device, and the completion of our new manufacturing facility for
compliance with Good Manufacturing Practices (GMP) as required by the FDA. In
February 2001, we entered into a financial arrangement with GE Capital
Corporation for a $5 million line of credit for the purchase of equipment (i)
for our new East Windsor, NJ manufacturing facility and (ii) for our expanded
corporate and laboratory facilities in Robbinsville, NJ. We believe that our
current cash reserves are adequate to support our continuing operations for at
least the next twelve months. However, we may require additional financing for
the next phase of our development programs and may seek financing from equity or
debt and from private and public sources as well as from collaborative licensing
and/or marketing arrangements with third parties. There is no assurance that
such funds will be available to us on acceptable terms, if at all.
RECENT ACCOUNTING PRONOUNCEMENTS
On December 3, 1999, the staff of the SEC published Staff Accounting
Bulletin 101, "Revenue Recognition," ("SAB 101") to provide guidance on the
recognition, presentation and disclosure of revenue in financial statements. The
Company's policy of revenue recognition is consistent with this bulletin.
In June 2000, the FASB issued SFAS 138, "Accounting for Certain Hedging
Activities", which amended Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", Statement 138 must be adopted concurrently
with the adoption of Statement 133. The Company will be required to adopt these
statements for the year ending December 31, 2001. Statements 133 and 138
establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. Because we currently hold no derivative financial instruments and do
not currently engage in hedging activities, adoption of these Statements is not
expected to have a material impact on our financial condition or results of
operations.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation," an
interpretation of Accounting Principles Board Opinion No. 25 ("Opinion 25"). FIN
44 clarifies (a) the definition of "employee" for purposes of applying Opinion
25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequence of various modifications
to the terms of previously fixed stock options or awards, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
was effective July 1, 2000, but certain conclusions in FIN 44 cover specific
events that occurred after either December 15, 1998 or January 12, 2000. The
application of FIN 44 did not have a material impact on our financial position,
results of operations or cash flows.
11
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, including statements
regarding our plans, objectives, expectations and intentions. Although we
believe the statements and projections are based upon reasonable assumptions,
actual results may differ from those that we have projected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not hold derivative financial investments, derivative commodity
investments engage in foreign currency hedging or other transactions that expose
us to material market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS 13
FINANCIAL STATEMENTS
Consolidated Balance Sheets - December 31, 2000 and 1999 14
Consolidated Statement of Operations and Comprehensive loss for
the years ended December 31, 2000, 1999 and 1998 15
Consolidated Statement of Changes in Stockholders' Equity for
years ended December 31, 1998, 1999 and 2000 16
Consolidated Statement of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 17
NOTES TO FINANCIAL STATEMENTS 18
12
Report of Independent Accountants
To the Board of Directors and Stockholders of
NexMed, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive loss, of changes in
stockholders' equity and of cash flows present fairly, in all material respects,
the financial position of NexMed, Inc. and its subsidiaries at December 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 15, 2001
13
NEXMED, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
2000 1999
ASSETS
Current assets
Cash and cash equivalents $ 27,702,585 $ 5,118,849
Certificates of deposit 2,976,000 --
Marketable securities 5,111,328 --
Notes receivable -- 2,000,000
Prepaid expenses and other current assets 802,472 169,995
-------------- --------------
TOTAL CURRENT ASSETS 36,592,385 7,288,844
Fixed assets, net 3,397,297 344,489
-------------- --------------
TOTAL ASSETS $ 39,989,682 $ 7,633,333
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 1,245,507 $ 556,664
Notes payable -- 133,838
Due to officer -- 33,092
-------------- --------------
TOTAL CURRENT LIABILITIES 1,245,507 723,594
-------------- --------------
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock $.001 par value, 10,000,000 shares authorized,
none issued and outstanding -- --
Common stock, $.001 par value, 40,000,000 shares authorized,
25,147,384 and 16,127,134 shares issued and outstanding,
respectively 25,147 16,127
Additional paid-in capital 63,009,161 22,356,112
Accumulated other comprehensive (loss) income (109,403) 115
Accumulated deficit (24,171,589) (15,451,036)
-------------- --------------
38,753,316 6,921,318
Less: Deferred compensation (9,141) (11,579)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 38,744,175 6,909,739
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 39,989,682 $ 7,633,333
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
14
NEXMED, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEAR ENDED
DECEMBER 31,
2000 1999 1998
Revenue
Product sales $ -- $ 1,491,746 $ 5,709,083
-------------- -------------- --------------
Costs and expenses
Cost of products sold -- 1,415,002 5,186,308
Selling, general and administrative 3,209,465 1,761,796 2,635,114
Research and development 6,892,283 2,374,024 2,302,148
-------------- -------------- --------------
TOTAL COSTS AND EXPENSES 10,101,748 5,550,822 10,123,570
-------------- -------------- --------------
Loss from operations (10,101,748) (4,059,076) (4,414,487)
-------------- -------------- --------------
Other income (expense)
Gain on sale of NexMed Asia -- 1,810,296 --
Other Income 125,745 -- --
Interest income 1,255,450 92,385 15,878
Interest expenses -- (408,125) (616,215)
-------------- -------------- --------------
Total other income (expense) 1,381,195 1,494,556 (600,337)
-------------- -------------- --------------
Loss before minority interest (8,720,553) (2,564,520) (5,014,824)
Minority interest -- 73,920 235,822
-------------- -------------- --------------
NET LOSS $ (8,720,553) $(2,490,600) $(4,779,002)
============== ============== ==============
Other comprehensive loss
Foreign currency translation adjustments $ 207 $ (16,318) $ (44,284)
Unrealized loss on marketable securities (109,725) -- --
-------------- -------------- --------------
COMPREHENSIVE LOSS $ (8,830,071) $(2,506,918) $(4,823,286)
============== ============== ==============
Basic and diluted loss per share $ (.40) $ (.18) $ (.64)
============== ============== ==============
Weighted average common shares outstanding used
for basic and diluted loss per share 21,868,267 13,724,052 7,505,588
============== ============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
15
NEXMED, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
ACCUMULATED OTHER
COMPREHENSIVE INCOME
------------------------
UNREALIZED
COMMON STOCK ADDITIONAL FOREIGN LOSS ON
-------------------- PAID-IN CURRENCY MARKETABLE
(SHARES) (AMOUNT) CAPITAL TRANSLATION SECURITIES
Balance at January 1, 1998 6,180,098 $6,180 $ 7,300,453 $ -- $--
Issuance of common stock
for cash 1,790,167 1,790 2,602,585 -- --
Issuance of common stock
upon conversion of note
payable 120,400 120 150,380 -- --
Embedded discount on
convertible notes payable -- -- 70,100 -- --
Issuance of common stock
upon exercise of stock
options 285,000 285 70,965 -- --
Issuance of common stock
for services 51,038 51 63,747 -- --
Issuance of compensatory
options to consultants -- -- 36,960 -- --
Shares cancelled in
settlement (see Note 8) (25,000) (25) 25 -- --
Sale of stock by subsidiary -- -- 475,000 -- --
Issuance of note
receivable-related party
Amortization of deferred
compensation expense -- -- -- -- --
Cumulative translation
adjustment -- -- -- (44,284) --
Net loss -- -- -- -- --
----------- --------- ------------- ---------- ------------
Balance at December 31,
1998 8,401,783 8,402 10,770,214 (44,284) --
Issuance of common stock
upon conversion of note
payable 1,725,434 1,725 2,644,976 -- --
Embedded discount on
convertible notes payable -- -- 64,348 -- --
Issuance of common stock
and warrants for cash 5,671,652 5,672 7,820,640 -- --
Issuance of common stock
upon exercise of warrants,
net 83,332 83 173,352 -- --
Issuance of common stock
for services 11,600 12 50,739 -- --
Issuance of common stock
for purchase of minority 233,333 233 349,767 -- --
Adjustment due to
acquisition of minority
interest -- -- (475,000) -- --
Sale and issuance of
warrants in connection
with -- -- 445,200 -- --
Compensation expense
related to vesting -- -- 499,688 -- --
Unearned Compensation -- -- 12,188 -- --
Amortization of deferred
compensation expense -- -- -- -- --
Cumulative translation
adjustment -- -- -- 44,399 --
Net loss -- -- -- -- --
----------- --------- ------------- ---------- --------
Balance at December 31,
1999 16,127,134 16,127 22,356,112 115 --
Issuance of common stock
and warrants for cash 3,358,256 3,358 27,822,823 -- --
Issuance of common stock
upon exercise of stock
options 686,500 687 581,563 -- --
Issuance of common stock
upon exercise of warrants,
net 4,973,494 4,973 12,175,055 -- --
Issuance of common stock
for services 2,000 2 7,998 -- --
Issuance of compensatory
options to consultants -- -- 65,610 -- --
Amortization of deferred
compensation expense -- -- -- -- --
Unrealized loss from
available-for-sale
securities -- -- -- -- (109,725)
Cumulative translation
adjustment -- -- -- 207 --
Net loss -- -- -- -- --
----------- -------- ------------- ---------- ---------
Balance at December 31,
2000 25,147,384 $25,147 $63,009,161 $ 322 $(109,725)
=========== ======== ============= ========== =========
NOTE TOTAL
ACCUMULATED DEFERRED RECEIVABLE STOCKHOLDERS'
DEFICIT COMPENSATION RELATED PARTY EQUITY
Balance at January 1, 1998 $ (8,181,434) $(51,458) -- (926,259)
Issuance of common stock
for cash -- -- -- 2,604,375
Issuance of common stock
upon conversion of note
payable -- -- -- 150,500
Embedded discount on
convertible notes payable -- -- -- 70,100
Issuance of common stock
upon exercise of stock
options -- -- -- 71,250
Issuance of common stock
for services -- -- -- 63,793
Issuance of compensatory
options to consultants -- (25,800) -- 11,160
Shares cancelled in
settlement (see Note 8) -- -- -- --
Sale of stock by subsidiary -- -- -- 475,000
Issuance of note
receivable-related party (150,000) (150,000)
Amortization of deferred
compensation expense -- 62,925 -- 62,925
Cumulative translation
adjustment -- -- -- (44,284)
Net loss (4,779,002) -- -- (4,779,002)
--------------- ----------- ----------- -------------
Balance at December 31,
1998 (12,960,436) (14,333) (150,000) (2,390,437)
Issuance of common stock
upon conversion of note
payable -- -- -- 2,646,701
Embedded discount on
convertible notes payable -- -- -- 64,348
Issuance of common stock
and warrants for cash -- -- -- 7,826,312
Issuance of common stock
upon exercise of warrants,
net -- -- -- 173,435
Issuance of common stock
for services -- -- -- 50,751
Issuance of common stock
for purchase of minority -- -- 150,000 500,000
Adjustment due to
acquisition of minority
interest -- -- -- (475,000)
Sale and issuance of
warrants in connection
with -- -- -- 445,200
Compensation expense
related to vesting -- -- -- 499,688
Unearned Compensation -- (12,188) -- --
Amortization of deferred
compensation expense -- 14,942 -- 14,942
Cumulative translation
adjustment -- -- 44,399
Net loss (2,490,600) -- -- (2,490,600)
--------------- ----------- ----------- ------------
Balance at December 31,
1999 (15,451,036) (11,579) -- 6,909,739
Issuance of common stock
and warrants for cash -- -- -- 27,826,181
Issuance of common stock
upon exercise of stock
options -- -- -- 582,250
Issuance of common stock
upon exercise of warrants,
net -- -- -- 12,180,028
Issuance of common stock
for services -- -- -- 8,000
Issuance of compensatory
options to consultants -- -- -- 65,610
Amortization of deferred
compensation expense -- 2,438 -- 2,438
Unrealized loss from
available-for-sale
securities -- -- -- (109,725)
Cumulative translation
adjustment -- -- 207
Net loss -- -- -- --
--------------- ----------- ----------- ------------
Balance at December 31,
2000 $(15,451,036) $ (9,141) $ -- $47,464,728
=============== =========== =========== ============
16
NEXMED, INC.
CONSOLIDATED STATEMENT OF CHANGES IN CASH FLOWS
FOR THE YEAR ENDED
DECEMBER 31,
2000 1999 1998
Cash flows from operating activities
Net (loss) $ (8,720,553) $(2,490,600) $(4,779,002)
Adjustments to reconcile net loss to net cash from
operating activities
Depreciation and amortization 257,149 56,378 341,217
Minority interest -- (73,920) (235,822)
Noncash compensation expense 76,048 565,381 137,883
Noncash interest expense -- 277,329 70,100
Net loss on sale of marketable securities 8,812 -- --
Gain on sale of NexMed Asia -- (1,810,296) --
Changes in assets and liabilities affecting
operating cash flows
Increase in accounts receivable -- -- (1,289,483)
Decrease in notes receivable 2,000,000 -- --
Decrease (increase) in inventories -- 8,898 (699,651)
Increase in prepaid expense (632,477) (114,315) (124,007)
(Decrease) increase in accounts payable and
accrued expenses 688,843 (875,345) 1,405,189
-------------- -------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (6,322,178) (4,456,490) (5,173,576)
-------------- -------------- --------------
Cash flows from investing activities
Capital expenditures (3,309,957) (247,745) (498,758)
Proceeds from sale of subsidiary, net -- 343,441 --
Increase in notes receivable-related party -- -- (150,000)
Purchases of certificates of deposits and
marketable securities (23,368,745) -- --
Proceeds from sale/redemption of certificates of
deposits and marketable securities 15,162,880 -- --
Advances to joint ventures -- -- 1,870,000
-------------- -------------- --------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (11,515,822) 95,696 1,221,242
-------------- -------------- --------------
Cash flows from financing activities
Net borrowings under line of credit -- -- 2,174,412
Net decrease in due to joint venture partner -- -- (522,075)
(Decrease) increase in due to officers (33,092) (567,408) 600,500
Issuance of common stock, net of offering costs 40,588,459 8,444,947 2,675,625
Sale of stock by subsidiary -- -- 500,000
Issuance of notes payable -- 1,132,500 527,735
Repayment of notes payable (133,838) (1,228,050) (500,000)
-------------- -------------- --------------
NET CASH FROM FINANCING ACTIVITIES 40,421,529 7,781,989 5,456,197
-------------- -------------- --------------
Effect of foreign exchange on cash 207 16,318 44,284
-------------- -------------- --------------
Net (decrease) increase in cash and cash equivalents 22,583,736 3,437,513 1,548,147
Cash and cash equivalents
Beginning of period 5,118,849 1,681,336 133,189
-------------- -------------- --------------
End of Period $ 27,702,585 $ 5,118,849 $ 1,681,336
============== ============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
17
NEXMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
The Company was incorporated in Nevada in 1987. In January 1994, the Company
began research and development of a device for the treatment of herpes
simplex. The Company, since 1995, has conducted research and development both
domestically and abroad on proprietary pharmaceutical products, with the goal
of growing through acquisition and development of pharmaceutical products and
technology.
The accompanying financial statements have been prepared on a basis which
contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company has an
accumulated deficit of $24,171,589 at December 31, 2000 and expects that it
will incur additional losses in completing the research, development and
commercialization of its technologies. Management anticipates that it will
require additional financing, which it is actively pursuing, to fund
operations and continued research and development. Management believes that
the Company has the ability to obtain such additional financing and that its
cash and cash equivalents, and marketable securities balances at December 31,
2000 will be sufficient to fund existing operations through at least December
31, 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Significant accounting principles followed by the Company in preparing its
financial statements are as follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its majority and wholly owned subsidiaries. All significant intercompany
transactions have been eliminated.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of the Company's foreign subsidiaries is the local
currency. Assets and liabilities of the Company's foreign subsidiaries are
translated to United States dollars based on exchange rates at the end of the
reporting period. Income and expense items are translated at average exchange
rates prevailing during the reporting period. Translation adjustments are
accumulated in a separate component of stockholder's equity. Transaction
gains or losses are included in the determination of income.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash equivalents represent all
highly liquid investments with an original maturity date of three months or
less.
MARKETABLE SECURITIES
Marketable securities consist of high quality corporate and government
securities, which have original maturities of more than three months at the
date of purchase and less than one year from the date of the balance sheet,
and equity investments in publicly-traded companies. The Company classifies
all debt securities and equity securities with readily determinable market
value as "available for sale" in accordance with SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." These investments are
carried at fair market value with unrealized gains and losses reported as a
separate component of stockholders' equity. Gross realized gains and gross
realized losses from the sales of securities classified as available-for-sale
for the year ended December 31, 2000 were $9,653 and $18,465, respectively.
For the purpose of determining realized gains and losses, the cost of
securities sold was based on specific identification. The Company reviews
investments on a quarterly basis for reductions in market value that are
other than temporary. When such reductions occur, the cost of the investment
is adjusted to its fair value through a charge to net income.
18
NEXMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, notes payable and accounts
payable and accrued expenses approximates fair value due to the relatively
short maturity of these instruments.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation of equipment and furniture and fixtures is provided on a
straight-line basis over the estimated useful lives of the assets, generally
three to ten years. Depreciation of buildings is provided on a straight-line
basis over its estimated useful life of 31 years. Amortization of leasehold
improvements is provided on a straight-line basis over the shorter of their
estimated useful life or the lease term. The costs of additions and
betterments are capitalized, and repairs and maintenance costs are charged to
operations in the periods incurred.
LONG-LIVED ASSETS
The Company reviews for the impairment of long-lived assets whenever events
or circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of the asset
and its eventual disposition is less than its carrying amount. If such assets
are considered impaired, the amount of the impairment loss recognized is
measured as the amount by which the carrying value of the asset exceeds the
fair value of the asset, fair value being determined based upon discounted
cash flows or appraised values, depending on the nature of the asset. No such
impairment losses have been identified by the Company.
REVENUE RECOGNITION
Revenues from product sales are recognized upon delivery of products to
customers, less allowances for estimated returns and discounts. Revenues from
license fees are recognized when earned in accordance with the underlying
agreement.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and include the cost
of third parties who conduct research and development, pursuant to
development and consulting agreements, on behalf of the Company.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
income taxes are recorded for temporary differences between financial
statement carrying amounts and the tax bases of assets and liabilities.
Deferred tax assets and liabilities reflect the tax rates expected to be in
effect for the years in which the differences are expected to reverse. A
valuation allowance is provided if it is more likely than not that some or
all of the deferred tax asset will not be realized.
LOSS PER COMMON SHARE
Basic earnings per share ("Basic EPS") is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share ("Diluted
EPS") gives effect to all dilutive potential common shares outstanding during
the period. The computation of Diluted EPS does not assume conversion,
exercise or contingent exercise of securities that would have an antidilutive
effect on earnings.
At December 31, 2000, 1999 and 1998, outstanding options to purchase
3,582,675, 2,457,700 and 2,676,700 shares of common stock, respectively, with
exercise prices ranging from $.25 to $16.25 have been excluded from the
computation of diluted loss per share as they are antidilutive. Outstanding
warrants to purchase 2,291,549, 5,705,726 and 200,000 shares of common stock,
respectively, with exercise prices ranging from $1.00 to $16.20 have also
been excluded from the computation of diluted loss per share as they are
19
NEXMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
antidilutive. Additionally, 500,000 common shares that were issuable upon
conversion of notes payable have been excluded from the computation of
Diluted EPS at December 31, 1998, as they are antidilutive.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
ACCOUNTING FOR STOCK BASED COMPENSATION
As provided by SFAS 123, the Company has elected to continue to account for
its stock-based compensation programs according to the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation expense has been recognized to the
extent of employee or director services rendered based on the intrinsic value
of compensatory options or shares granted under the plans. The Company has
adopted the disclosure provisions required by SFAS 123.
CONCENTRATION OF CREDIT RISK
From time to time, the Company maintains cash in bank accounts that exceed
the FDIC insured limits. The Company has not experienced any losses on its
cash accounts.
SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest of $10,413, $66,576 and $10,000 in 2000, 1999 and
1998, respectively. There was no cash paid for income taxes in each of 2000,
1999 and 1998.
COMPREHENSIVE LOSS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"),
which requires the presentation of the components of comprehensive income in
the Company's financial statements. Comprehensive income is defined as the
change in the Company's equity during a financial reporting period from
transactions and other circumstances from non-owner sources (including
cumulative translation adjustments, minimum pension liabilities and
unrealized gains/losses on available for sale securities). Accumulated other
comprehensive (loss) income included in the Company's balance sheet is
comprised of translation adjustments from the Company's foreign subsidiaries
and unrealized gains and losses on investment in marketable securities.
3. JOINT VENTURE AGREEMENTS
In July 1997, the Company, through its wholly-owned subsidiary, NexMed (Asia)
Limited, entered into an agreement to form a Chinese joint-venture company,
NexMed Pharmaceuticals (Zhongshan) Ltd. (the "JV"), with Zhongshan Xiaolan
Pharmaceuticals Factory (the "JV Partner"). In September 1997, the JV
received all necessary Chinese government approvals to commence operations.
Effective January 1, 1998, the Company completed its first year funding
requirement of $2,170,000 and, as a result, the financial position and
results of operations of the JV were included in the consolidated financial
statements of the Company as of January 1, 1998.
On March 29, 1999, the Company entered into a stock purchase agreement (the
"Purchase Agreement") with Vergemont International Limited ("Vergemont"), for
the sale of all the issued and outstanding capital stock of NexMed (Asia)
Limited, which became effective on May 17, 1999, for $4,000,000, consisting
of $2,000,000 in cash and two promissory notes, each in the amount of
$1,000,000, due on November 12, 1999 and June 30, 2000, respectively. In
addition, the Company granted Vergemont warrants to acquire 2,000,000 shares
of the
20
NEXMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Company's common stock, exercisable at $3.00 per share. In conjunction with
this transaction, the Company agreed to pay a consulting firm a 6% commission
on the $4,000,000 in proceeds, as such proceeds are received, and issued the
consulting firm warrants to acquire 200,000 shares of the Company's common
stock at $3.00 per share.
At the date of sale, the Company's basis in the assets and liabilities of
NexMed (Asia) Limited was $1,504,204. The Company has estimated the fair
value of the warrants issued to Vergemont and the consulting firm to be
approximately $372,000 and $73,000, respectively, resulting in a net gain on
the transaction of $1,810,296. Such gain was initially deferred due to
uncertainty regarding the ultimate realization of the two promissory notes
issued. In February 2000 Vergemont repaid the $2,000,000 in promissory notes.
As a result, the Company has recorded the gain on the sale of NexMed (Asia)
Limited during 1999.
4. NEW BRUNSWICK MEDICAL
In June 1999, the Company acquired the remaining 5% minority interest in its
subsidiary, New Brunswick Medical, Inc. ("NBM") in exchange for total
consideration of approximately $500,000, consisting of 233,333 shares of the
Company's common stock, with an estimated fair value of $350,000, and the
forgiveness of a $150,000 note receivable from the former minority
stockholder.
5. FIXED ASSETS
Fixed assets at December 31, 2000 and 1999 are comprised of the following:
2000 1999
Building $ 2,264,964 $ -
Machinery and equipment 1,073,723 267,601
Furniture and fixtures 144,215 98,863
Leasehold improvements 304,693 113,843
----------- ---------
Less: accumulated depreciation (390,298) (135,818)
----------- ---------
$ 3,397,297 $ 344,489
=========== =========
6. NOTES PAYABLE
From April to September 1999, the Company issued an aggregate of $1,082,500
of convertible promissory notes. The notes bore interest at rates ranging
from 12% to 15% per annum. The notes were convertible at the option of the
holder at prices ranging from $1.00 to $1.50 per share. The Company has
recorded additional interest expense in the amount of $64,348, based upon the
difference between the fair value of the common stock on the date of issuance
and the conversion price per share. During 1999, the note holders converted
such notes into 973,334 shares of the Company's common stock.
In February 1999, the Company issued a $50,000 note payable. The note bore
interest at 15% per annum and was initially due May 1999. The Company repaid
the note in November 1999.
21
NEXMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
In December 1998, the Company issued a promissory note, in the aggregate
principal amount of $324,678. The note bore interest at 12% per annum and was
payable, together with accrued but unpaid interest, in June 1999. In June
1999, the Company repaid the note.
In October 1998, the Company issued a promissory note in the aggregate
principal amount of $120,000. The note bore interest at 15% per annum and was
payable together with accrued interest in January 1999. In January 1999, the
holder of the note agreed to roll-over the outstanding principal and unpaid
interest into a new note, in the aggregate principal amount of $124,500. The
new note bears interest at 15% per annum and is payable, together with
accrued but unpaid interest, in July 1999. In July 1999, the holder of the
note agreed to roll-over the outstanding principal and unpaid interest into a
new note, due on January 25, 2000 in the aggregate principal amount of
$138,838. The Company repaid the note in January 2000.
In July and August 1998, the Company issued promissory notes in the aggregate
principal amount of $131,750. The notes bore interest at rates ranging from
12% to 15% per annum and were initially payable together with accrued
interest on various dates through February 1999. The holders of the notes
agreed to roll-over the outstanding principal and unpaid interest into new
notes, in the aggregate principal amount of $138,718. The new notes bore
interest at rates ranging from 12% to 15% per annum and were payable,
together with accrued but unpaid interest, on various dates through January
2000. The Company repaid the notes in June 1999.
In January 1998, the Company issued a $100,000 promissory note. The note bore
interest at 15% per annum and was due in January 1999. In January 1999, the
holder of the note agreed to roll-over the outstanding principal and unpaid
interest into a new note, in the aggregate principal amount of $115,000. The
new note bore interest at 12% per annum and was payable, together with
accrued but unpaid interest, in June 1999. In May 1999, the Company repaid
the note.
In November 1997, the Company completed a private placement of unsecured
subordinated notes bearing interest at 6% per annum (the "6% Notes"), in the
cumulative principal amount of $1,820,000. The 6% Notes, together with
accrued but unpaid interest, were initially due on November 16, 1998. In
November 1998, holders of an aggregate principal amount of $1,000,000 of the
6% Notes agreed to extend the maturity date of their notes until November 16,
1999. In addition, the interest rate on their notes was increased to 10% per
annum and the holders were given the right to convert their notes into common
stock at $2.00 per share, which was the estimated fair value of the Company's
common stock. During 1999, the holders of such notes converted their
principal and interest into 580,000 shares of the Company's common stock. The
Company was in default of the remaining 6% Notes, in the aggregate principal
amount of $820,000. During 1999, the holders of an aggregate principal amount
of $300,000 of 6% Notes in default agreed to convert their principal and
unpaid interest into 172,100 shares of common stock, based upon the estimated
fair value of the Company's common stock on the date of conversion. Also
during 1999, the Company repaid the remaining $520,000 of 6% Notes.
7. RELATED PARTY TRANSACTIONS
Amounts due to an officer of the Company at December 31, 1999 represents
advances from an officer and director of the Company under an informal
agreement. The advances bore interest at 12% per annum and were repaid in
January 2000.
During 1999 and 1998, the JV paid approximately $120,000 and $253,000 in rent
and management fees, respectively, to the JV Partner.
22
NEXMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
8. COMMON STOCK
In August 2000, the Company completed unit offerings of 3,138,256 shares of
its common stock and warrants to acquire 1,282,891 shares of its common stock
to 25 accredited individuals and financial institutions. The warrants have an
exercise price of $13.50 to $16.20 per share and a term of eighteen months.
The price of the units ranged from $16.54 to $18.00, depending on the date of
closing and/or amount of warrant coverage. The Company raised $26,848,139 in
gross proceeds and $24,879,281 in net proceeds, after deducting commissions
and offering expenses, in connection with these offerings. In addition, the
Company issued warrants to acquire an aggregate of 305,426 shares of its
common stock, with exercise prices ranging from $13.65 to $16.20 per share,
to the placement agents in the offering.
In April 2000, the Company completed a private placement of 220,000 shares of
its common stock at $14.25 per share, raising gross proceeds of $3,135,000
and net proceeds, after deducting commissions and offering expenses, of
$2,946,900.
In September 1999, the Company completed a private placement of its
securities at $3.00 per unit (the "Unit"), raising gross proceeds of
$8,507,478 and net proceeds, after deducting commissions and offering
expenses, of $7,826,312. Each Unit consisted of two shares of common stock
and a warrant to purchase an additional share of common stock at $2.25 per
share (the "Warrant"). Each warrant is redeemable by the Company if the
closing price per share of common stock should reach $4.00 per share for 15
consecutive trading days. In addition, the Company issued warrants to acquire
553,232 shares of its common stock at $2.25 per share to the placement agent
in the offering.
In December 1999, Warrants to acquire 83,332 shares of common stock were
exercised, providing gross proceeds of $187,497 and net proceeds, after
deducting commissions and offering expenses, of $173,435.
In December 1999, the Company issued 11,600 shares of its common stock to
employees and vendors for services rendered. The Company has recorded $50,750
as compensation expense based upon the fair value of the shares on the date
of issuance.
During 1998, the Company issued 1,790,167 shares of its common stock in a
number of private placement transactions, raising proceeds of $2,604,375.
In April 1998, the Company issued 51,038 shares of common stock to
consultants in exchange for services. The Company has recorded approximately
$63,798 of expense based upon the estimated fair value of the Company's
common stock at the time of issuance.
During 1998, options to acquire 285,000 shares of common stock at $.25 per
share were exercised. The Company received net proceeds of $71,250.
During 1998, a stockholder returned 25,000 shares of the Company's common
stock in settlement of an outstanding dispute. The returned shares were
cancelled by the Company.
9. STOCKHOLDER RIGHTS PLAN
On April 3, 2000, the Company declared a dividend distribution of one
preferred share purchase right (the "Right") for each outstanding share of
the Company's common stock to shareholders of record at the close of business
on April 21, 2000. One Right will also be distributed for each share of
Common Stock issued after April 21, 2000, until the Distribution Date,
described in the next paragraph. Each Right entitles the registered holder to
purchase from the Company a unit consisting of one one-hundredths of a share
(a "Unit") of Series A
23
NEXMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Junior Participating Preferred Stock, $.001 par value per share (the
"Preferred Stock"), at a Purchase Price of $100.00 per Unit, subject to
adjustment. 1,000,000 shares of the Company's preferred stock has been
set-aside for the Rights Plan.
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights Certificates
will be distributed. The Rights will separate from the Common Stock and a
Distribution Date will occur upon the earlier of (i) ten (10) business days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 15% or more of the outstanding
shares of Common Stock (the "Stock Acquisition Date"), or (ii) ten (10)
business days following the public announcement of a tender offer or exchange
offer that would, if consummated, result in a person or group beneficially
owning 15% or more of such outstanding shares of Common Stock, subject to
certain limitations.
Under the terms of the Rights Agreement, Dr. Y. Joseph Mo, who beneficially
owned approximately 12.12% of the outstanding shares of the Company's Common
Stock as of April 2000, will be permitted to continue to own such shares and
to increase such ownership to up to 25% of the outstanding shares of Common
Stock, without becoming an Acquiring Person and triggering a Distribution
Date.
10. STOCK OPTIONS
In November 1995, the Company granted options to certain officers and
directors to purchase up to 560,000 shares of its common stock at an exercise
price of $0.25 per share, which was the estimated fair value of the common
stock at that time. The vesting of these options was contingent upon reaching
certain market capitalization levels, as defined in the option agreements.
135,000 options vest if market capitalization reaches $2,000,000 by December
31, 1997 and an additional 135,000, 140,000 and 150,000 options vest if
market capitalization reaches $3,000,000, $5,000,000 and $10,000,000,
respectively. These options expire on December 1, 2002. During 1996, the
market capitalization, as defined, of the Company exceeded $5,000,000,
resulting in the vesting of 410,000 of these options and the recording of
$665,000 of expense. In December 1999, the market capitalization, as defined,
exceeded $10,000,000, resulting in the vesting of 130,000 of these options
and the recording of $499,688 in expense. As of December 31, 2000, 50,000 of
such options remain outstanding.
During October 1996 the Company adopted a Non-Qualified Stock Option Plan
("Stock Option Plan") and reserved 100,000 shares of common stock for
issuance pursuant to the Plan. During December 1996, the Company also adopted
The NexMed, Inc. Stock Option and Long-Term Incentive Compensation Plan ("the
Incentive Plan") and The NexMed, Inc. Recognition and Retention Stock
Incentive Plan ("the Recognition Plan"). A total of 2,000,000 shares were set
aside for these two plans. In May 2000, the Stockholders' approved an
increase in the number of shares reserved for the Incentive Plan and
Recognition Plan to a total of 7,500,000. Options granted under the Company's
plans generally vest over a period of three to five years.
During 1998, the Company granted 80,000 fully-vested options to acquire
shares of the Company's common stock to consultants under the Recognition
Plan. The exercise prices of the options range from $2.00 to $2.50 per share,
based upon the estimated fair value of the Company's common stock on the date
of grant. The Company has recorded a total of $36,960 of expense related to
these options during the year ended December 31, 1998.
24
NEXMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
A summary of stock option activity is as follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PIRCE
Outstanding at January 1, 1998 2,930,000 $1.49
Granted 396,700 2.51
Exercised (285,000) 0.25
Forfeited (80,000) 0.25
Cancelled (285,000) 2.00
------------ ----------
Outstanding at December 31, 1998 2,676,700 1.73
Granted 90,000 2.00
Cancelled (309,000) 2.34
------------ ----------
Outstanding at December 31, 1999 2,457,700 1.66
Granted 1,962,225 5.43
Exercised (686,500) 0.85
Cancelled (150,750) 7.23
------------ ----------
Outstanding at December 31, 2000 3,582,675 $3.67
============ ==========
Exercisable at December 31, 2000 2,244,433 $2.59
============ ==========
Exercisable at December 31, 1999 2,366,700 $1.64
============ ==========
Exercisable at December 31, 1998 1,792,700 $1.66
============ ==========
Options available for grant at December 31, 2000 3,780,825
============
The following table summarizes information about options outstanding at December
31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
$ 0.25 - 1.00 90,000 4.9 years $ 0.58 90,000 $ 0.58
2.00 - 2.50 1,677,200 6.5 years 2.05 1,610,000 2.05
4.00 - 5.00 1,538,125 9.1 years 4.02 499,433 4.01
6.50 - 8.00 97,500 9.5 years 7.77 30,000 7.25
12.00 -16.50 179,850 9.8 years 15.20 15,000 16.25
------------- ---------------- ------------- ----------------
3,582,675 $ 3.67 2,244,433 $ 2.59
============= ================ ============= ================
25
NEXMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Had compensation cost for option grants to employees pursuant to the
Company's stock option plans been determined based upon the fair value at the
grant date for awards under the plan consistent with the methodology
prescribed under FAS 123, the Company's net loss and net loss per share, for
the years ended December 31, 2000, 1999 and 1998, would have been increased
by approximately $1,907,700, $464,000 and $803,200, respectively, or $.10,
$.03 and $.11 per share, respectively. The weighted average grant date fair
value of options granted during 2000, 1999 and 1998 was $3.62, $1.11 and
$.96, respectively.
The fair value of each option and warrant (see Note 10) is estimated on the
date of grant using the Black-Scholes option-pricing model. The following
assumptions were used in the model:
Dividend yield 0.0%
Risk-free yields 4.39% - 6.71%
Expected volatility 65.0% - 80.0%
Option terms 1-10 years
11. WARRANTS
A summary of warrant activity is as follows:
WEIGHTED
COMMON SHARES AVERAGE
ISSUABLE UPON EXERCISE
EXERCISE PRICE
Outstanding at January 1, 1998 1,110,000 $ 3.59
Cancelled (910,000) 4.00
--------------- ----------
Outstanding at December 31, 1998 200,000 1.75
Issued 5,589,058 2.55
Exercise (83,332) 2.25
--------------- ----------
Outstanding at December 31, 1999 5,705,726 2.52
Issued 1,588,317 14.59
Exercised (4,973,494) 2.54
Redeemed (29,000) 2.25
--------------- ----------
Outstanding at December 31, 2000 2,291,549 $10.85
--------------- ----------
In August 2000, the Company issued warrants to acquire an aggregate of
1,588,317 shares of its common stock to the investors and placement agents in
a private placement of its securities (see Note 8). The warrants have
exercise prices ranging from $13.50 to $16.20 per share and expire in
February 2002.
In May 1999, the Company issued warrants to acquire an aggregate of 2,200,000
shares of common stock at $3.00 per share in connection with the sale of
NexMed (Asia) Limited (Note 3). Warrants to acquire 2,000,000 shares were
exercised during 2000 and the remaining 200,000 are outstanding at December
31, 2000.
In September 1999, the Company issued warrants to acquire an aggregate of
2,835,826 shares of common stock at $2.25 per share in connection with a
private placement (Note 8). As of December-31, 1999, warrants to acquire
83,332 shares of common stock were exercised. In January 2000, the Company
received $6,127,862
26
NEXMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
million in gross proceeds from the exercise of the Warrants and issued
2,723,494 shares of is common stock. Each warrant was redeemable by the
Company at $.001 per warrant if not exercised by close of business on January
14, 2000. The Company redeemed a total of 29,000 Warrant shares. In addition,
the Company issued warrants to acquire 553,232 shares of its common stock at
$2.25 per share to the placement agent in the offering. As of December 31,
2000, the placement agent has exercised 200,000 of such warrants and the
remaining 353,232 remain outstanding.
In conjunction with the issuance of the 6% Notes (see Note 6), the note
holders and the placement agent received warrants to purchase an aggregate of
910,000 shares of the Company's common stock at an exercise price of $4.00.
The warrants are immediately exercisable and have a term of one year. The
estimated fair value of the Company's common stock was $2.00 per share at the
time of issuance. The Company has valued the warrants at $137,410 which has
been accounted for as a debt discount and is being amortized over the life of
the 6% Notes.
12. INCOME TAXES
The Company has incurred losses since inception which have generated net
operating loss carryforwards of approximately $10,000,000 for federal and
state income tax purposes. These carryforwards are available to offset future
taxable income and expire beginning in 2011 for federal income tax purposes.
In addition, the Company has general business and research and development
tax credit carryforwards of approximately $550,000. Internal Revenue Code
Section 382 places a limitation on the utilization of Federal net operating
loss carryforwards when an ownership change, as defined by tax law, occurs.
Generally, an ownership change, as defined, occurs when a greater than 50
percent change in ownership takes place during any three-year period. The
actual utilization of net operating loss carryforwards generated prior to
such changes in ownership will be limited, in any one year, to a percentage
of fair market value of the Company at the time of the ownership change. Such
a change may have already resulted from the additional equity financing
obtained by the Company since its formation.
The net operating loss carryforwards and tax credit carryforwards result in a
noncurrent deferred tax benefit at December 31, 2000 of approximately
$4,500,000. In consideration of the Company's accumulated losses and the
uncertainty of its ability to utilize this deferred tax benefit in the
future, the Company has recorded a valuation allowance of an equal amount on
such date to fully offset the deferred tax benefit amount.
For the years ended December 31, 2000, 1999 and 1998, the Company's effective
tax rate differs from the federal statutory rate principally due to net
operating losses and other temporary differences for which no benefit was
recorded, state taxes and other permanent differences.
27
NEXMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
13. COMMITMENTS AND CONTINGENCIES
The Company is a party to several short-term consulting and research
agreements which, generally, can be cancelled at will by either party. The
Company leases office space and research facilities under operating lease
agreements expiring through 2005. Future minimum payments under
noncancellable operating leases with initial or remaining terms of one year
or more, consist of the following at December 31, 2000:
2001 $345,533
2002 325,908
2003 109,569
2004 27,129
2005 22,104
--------
TOTAL $808,139
========
The Company also leases office space under a short-term lease agreements.
Total rent expense was $325,666, $310,326 and $344,200 in 2000, 1999 and
1998, respectively.
14. SEGMENT AND GEOGRAPHIC INFORMATION
In 1998, the Company adopted FAS 131, "Disclosures about Segments of an
Enterprise and Related Information". FAS 131 establishes standards for
reporting information regarding operating segments and related disclosures
about products and services, geographic areas and major customers.
The Company is active in one business segment: designing, developing,
manufacturing and marketing pharmaceutical products. The Company maintains
development and marketing operations in the United States, Hong Kong and
Canada. Through May 1999, the Company also maintained a manufacturing
facility in China through the JV (Note 3).
28
NEXMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Geographic information as of December 31, 2000, 1999 and 1998 are as follows:
2000 1999 1998
NET REVENUES
United States .......... $ -- $ -- $ --
China .................. -- 1,491,774 5,709,083
Other foreign countries -- -- --
-------------- -------------- --------------
$ -- $ 1,491,774 $ 5,709,083
============== ============== ==============
NET LOSS
United States .......... $(8,630,255) $(4,041,824) $(3,743,963)
China .................. -- (172,509) (544,939)
Other foreign countries (90,298) 1,736,437 (490,100)
-------------- -------------- --------------
$(8,720,553) $(2,477,896) $(4,779,002)
============== ============== ==============
TOTAL ASSETS
United States .......... $39,516,217 $ 5,497,834 $ 277,119
China .................. -- -- 5,539,329
Other foreign countries 473,465 2,084,798 108,180
-------------- -------------- --------------
$39,989,682 $ 7,582,632 $ 5,924,628
============== ============== ==============
15. SUBSEQUENT EVENTS
In February 2001, the Company entered into a $5,000,000 line of credit
facility for the purchase of equipment with GE Capital Corporation.
29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information called for by Item 10 is set forth under the heading
"Election of Directors" in the Company's Proxy Statement for the annual meeting
of stockholders to be held in May 2001 (the "2001 Proxy Statement"), which is
incorporated herein by this reference and "Executive Officers" of Part I of this
Report.
ITEM 11. EXECUTIVE COMPENSATION.
Information called for by Item 11 is set forth under the heading
"Executive Compensation" in the 2001 Proxy Statement, which is incorporated
herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information called for by Item 12 is set forth under the heading
"Security Ownership of Certain Beneficial Owners and Management" in the 2001
Proxy Statement, which is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information called for by Item 13 is set forth under the heading
"Certain Relationships and Related Transactions" in the 2001 Proxy Statement,
which is incorporated herein by this reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
The information required by this item is included in Item 8 of Part II
of this Form 10-K.
2. Financial Statement Schedules
Report of Independent Accountants on Financial Statement Schedule for
the three years in the period ended December 31, 2000.
Schedule II - Valuation and Qualifying Accounts.
30
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Stockholders of NexMed, Inc.
In connection with our audits of the consolidated financial statements of
NexMed, Inc. as of December 31, 1999, and 2000 and for each of the three years
in the period ended December 31,2000, which financial statements are included in
the Form 10-K, we have also audited the financial statement schedule listed in
Part II herein.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
February 15, 2001
S-1
SCHEDULE II
NEXMED, INC.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Year Expenses Accounts Deductions End of Year
----------- ------- -------- -------- ---------- -----------
YEAR ENDED DECEMBER 31, 2000
Valuation allowance - deferred tax asset $2,495,647 $2,080,416 $4,576,063
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts 157,040 ($157,040) 0
Valuation allowance - deferred tax asset 2,413,290 82,357 2,495,647
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts 0 157,040 157,040
Valuation allowance - deferred tax asset 1,413,076 1,000,214 2,413,290
S-2
All other schedules have been omitted because the information is not
applicable or is presented in the Financial Statements or Notes
thereto.
3. Exhibits
EXHIBITS
NO. DESCRIPTION
---- -----------
3.1 Amended and Restated Articles of Incorporation of
the Company (incorporated by reference to Exhibit
2.1 filed with the Company's Form 10-SB filed with
the Securities and Exchange Commission on March
14, 1997).
3.2 By-laws of the Company (incorporated by reference
to Exhibit 2.2 filed with the Company's Form 10-SB
filed with the Securities and Exchange Commission
on March 14, 1997).
3.3 Amendment to By-laws of the Company (incorporated
by reference to Exhibit 2.3 filed with the
Company's Form 10-SB filed with the Securities and
Exchange Commission on March 14, 1997).
4.1 Form of Common Stock Certificate (incorporated by
reference to Exhibit 3.1 filed with the Company's
Form 10-SB filed with the Securities and Exchange
Commission on March 14, 1997).
4.2 Rights Agreement and form of Rights Certificate
(incorporated herein by reference to Exhibit 4 to
our Current Report on Form 8-K filed with the
Commission on April 10, 2000).
4.3 Certificate of Designation of Series A Junior
Participating Preferred Stock (incorporated herein
by reference to Exhibit 4 to our Current Report on
Form 8-K filed with the Commission on April 10,
2000).
9 Form of Irrevocable Proxy (incorporated by
reference to Exhibit 5.1 filed with the Company's
Form 10-SB/A filed with the Securities and
Exchange Commission on May 13, 1997).
10.1 The NexMed, Inc. Stock Option and Long-Term
Incentive Compensation Plan (incorporated by
reference to Exhibit 6.4 filed with the Company's
Form 10-SB/A filed with the Securities and
Exchange Commission on June 5, 1997).*
10.2 The NexMed, Inc. Recognition and Retention Stock
Incentive Plan incorporated by reference to
Exhibit 6.5 filed with the Company's Form 10-SB/A
filed with the Securities and Exchange Commission
on June 5, 1997).*
10.3 Form of Agreement dated November 15, 1995 between
NexMed, Inc. and each of Y. Joseph Mo, Ph.D.,
Vivian H. Liu and Gilbert S. Banker, Ph.D, which
are collectively commonly referred to by NexMed,
Inc. as the Non-Qualified Performance Incentive
Program (filed as Exhibit 4.2 to our Registration
Statement on Form 8-A filed with the Securities
and Exchange
31
Commission on December 22, 1999, including any
amendment or report filed for the purpose of
updating such information, and incorporated herein
by reference). *
10.4 License Agreement dated March 22, 1999 between
NexMed International Limited and Vergemont
International Limited (We have requested
confidential treatment for a portion of this
exhibit, which portion has been omitted and filed
separately with the Securities and Exchange
Commission).
10.5 The NexMed, Inc. Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 6.6 filed
with the Company's Form 10-SB/A filed with the
Securities and Exchange Commission on June 5,
1997).*
10.6 Form of Unit Purchase Agreement between the
Company and each investor who purchased units
relating the Company's private placement dated
August and July 2000 (incorporated by reference to
Exhibit 4.2 filed with the Company's Form S-3
filed with the Securities and Exchange Commission
on September 29, 2000).
21 Subsidiaries.
23 Consent of PricewaterhouseCoopers LLP, independent
accountants.
* Management compensatory plan or arrangement required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K.
b. Reports on Form 8-K
The Company filed one report on Form 8-K during the fourth quarter
ended December 31, 2000.
Information regarding the item reported on is as follows:
November 6, 2000 - the Company announced the clinical results for a
completed U.S. Phase II study for Alprox-TD(R).
32
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
NEXMED, INC.
Dated: March 3, 2001 By: /s/ Y. Joseph Mo
-----------------------------
Y. Joseph Mo
Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Y. JOSEPH MO
- ---------------------------- Chairman of the Board of Directors March 3, 2001
Y. JOSEPH MO President and C.E.O.
/s/ VIVIAN H. LIU
- ---------------------------- Vice President, Chief Financial March 3, 2001
VIVIAN H. LIU Officer and Secretary
/s/ JAMES YEAGER
- ---------------------------- Director, Vice-President, R&D and March 3, 2001
JAMES YEAGER Business Development
/s/ GILBERT S. BANKER
- ---------------------------
GILBERT S. BANKER Director March 3, 2001
/s/ ROBERT W. GRACY
- --------------------------- Director March 3, 2001
ROBERT W. GRACY
/s/ YU-CHUNG WEI
- ---------------------------
YU-CHUNG WEI Director March 3, 2001
33
Exhibit Index
Exhibit No. Description
----------- -----------
21 Subsidiaries.
23 Consent of PricewaterhouseCoopers LLP, independent
accountants.
34