10-K/A 1 0001.txt FORM 10-K 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 ----------- (Exact Name of Registrant as Specified in Its Charter) NEVADA 87-0449967 ------ ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 350 CORPORATE BOULEVARD, ROBBINSVILLE, NJ 08691 ----------------------------------------------- (Address of Principal Executive Offices) (609) 208-9688 -------------- (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 ---- 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 -------------- -------------- 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. 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) -------------- -------------- -------------- 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 -------------- -------------- -------------- 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