SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
AMENDMENT NO. 1 TO 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
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...................... 1
EXPLANATORY NOTE: This Amendment No. 1 to our Form 10-K for the fiscal year
ended December 31, 2000 (File No. 0-22245), initially filed with the Securities
and Exchange Commission on March 7, 2001, is filed solely to correct certain
information in the Consolidated Statement of Changes in Stockholder's Equity
which appears in Part II, Item 8, Financial Statements and Supplementary Data.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS 2
FINANCIAL STATEMENTS
Consolidated Balance Sheets - December 31, 2000 and 1999 3
Consolidated Statement of Operations and Comprehensive loss for
the years ended December 31, 2000, 1999 and 1998 4
Consolidated Statement of Changes in Stockholders' Equity for
years ended December 31, 1998, 1999 and 2000 5
Consolidated Statement of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 6
NOTES TO FINANCIAL STATEMENTS 7
1
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
2
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
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TOTAL CURRENT ASSETS 36,592,385 7,288,844
Fixed assets, net 3,397,297 344,489
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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
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TOTAL CURRENT LIABILITIES 1,245,507 723,594
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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)
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38,753,316 6,921,318
Less: Deferred compensation (9,141) (11,579)
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TOTAL STOCKHOLDERS' EQUITY 38,744,175 6,909,739
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 39,989,682 $ 7,633,333
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
3
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)
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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.
4
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 (8,720,533) -- -- (8,720,553)
--------------- ----------- ----------- ------------
Balance at December 31,
2000 $(24,171,589) $ (9,141) $ -- $38,744,175
=============== =========== =========== ============
5
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
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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.
6
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.
7
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
8
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
9
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.
10
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.
11
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
12
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.
13
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
============= ================ ============= ================
14
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
15
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.
16
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).
17
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.
18
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 8, 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 8, 2001
- --------------------- President and C.E.O.
Y. JOSEPH MO
/s/ Vivian H. Liu Vice President, Chief Financial March 8, 2001
- --------------------- Officer and Secretary
VIVIAN H. LIU
/s/ James Yeager Director, Vice-President, R&D and March 8, 2001
- --------------------- Business Development
JAMES YEAGER
/s/ Gilbert S. Banker March 8, 2001
- --------------------- Director
GILBERT S. BANKER
/s/ Robert W. Gracy
- --------------------- Director March 8, 2001
ROBERT W. GRACY
/s/ Yu-Chung Wei
- --------------------- Director March 8, 2001
YU-CHUNG WEI
19