UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended March 31, 1997
|_| Transaction report under Section 13 or 15 (d) of the Exchange Act For the
transition period from ____________ to ____________
Commission file number 0-22245
NEXMED, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Nevada 87-0449967
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6087 Triangle Drive, Commerce, CA 90040
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(213) 890-0881
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
N/A
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section13 or 15 (d) of the Exchange Act during the past 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 |_| No |X| (this is the first report required to be filed)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: At May 12, 1997, 6,160,098
shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
2
<PAGE>
NexMed, Inc.
(A development stage company)
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31,
1997 December 31,
(unaudited) 1996
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,801,916 $ 194,577
Prepaid expenses and other assets 11,250 30,000
----------- -----------
Total current assets 1,813,166 224,577
Furniture and equipment, net 132,184 84,902
Advance to Joint Venture 300,000 300,000
----------- -----------
Total assets $ 2,245,350 $ 609,479
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Notes payable $ 100,000 $ 50,000
Accounts payable and accrued expenses 16,802 91,406
----------- -----------
Total current liabilities 116,802 141,406
----------- -----------
Commitments and contingencies
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, 6,160,098 and 5,071,348 issued
and outstanding, respectively 6,160 5,071
Additional paid-in capital 7,066,263 4,847,032
Accumulated deficit (4,835,526) (4,323,968)
----------- -----------
2,236,897 528,135
Less: deferred compensation (108,349) (60,062)
----------- -----------
Total stockholders' equity 2,128,548 468,073
----------- -----------
Total liabilities and stockholders' equity $ 2,245,350 $ 609,479
=========== ===========
</TABLE>
The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to unaudited condensed consolidated financial statements
3
<PAGE>
NexMed, Inc.
(A development stage company)
Condensed Consolidated Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
For the three months January 1, 1994
ended March 31, (inception of
----------------------------- development stage)
1997 1996 to March 31, 1997
---- ---- -----------------
<S> <C> <C> <C>
Revenue $ 50,000 $ -- $ 50,000
Operating expenses
Selling, general and administrative 276,653 620,297 2,499,562
Research and development 287,428 340,300 2,160,191
----------- ----------- -----------
Total operating expenses 564,081 960,597 4,659,753
----------- ----------- -----------
Loss from operations (514,081) (960,597) (4,609,753)
Interest income (expense), net 2,523 (5,700) (3,968)
----------- ----------- -----------
Net loss $ (511,558) $ (966,297) $(4,613,721)
=========== =========== ===========
Loss per common share $ (0.09) $ (0.29)
----------- -----------
Weighted average common shares outstanding 5,798,298 3,284,848
----------- -----------
</TABLE>
See notes to unaudited condensed consolidated financial statements
4
<PAGE>
NexMed, Inc.
(A development stage company)
Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
<TABLE>
<CAPTION>
Common Common Additional Total
Stock Stock Paid-in Accumulated Deferred Stockholders'
(Shares) (Amount) Capital Deficit Compensation Equity
--------- ------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at inception 296,465 $ 296 $ 224,865 $ (221,805) $ -- $ 3,356
Issuance of common stock 498,508 499 697,410 697,909
Net loss -- -- -- (719,382) -- (719,382)
--------- ------ ---------- ----------- ----------- -----------
Balance at December 31, 1994 794,973 795 922,275 (941,187) -- (18,117)
Issuance of common stock 1,691,375 1,691 273,296 274,987
Net loss -- -- -- (264,388) -- (264,388)
--------- ------ ---------- ----------- ----------- -----------
Balance at December 31, 1995 2,486,348 2,486 1,195,571 (1,205,575) -- (7,518)
Issuance of common stock 2,585,000 2,585 2,559,761 -- -- 2,562,346
Issuance of compensatory
options and warrants -- -- 426,700 -- (108,200) 318,500
Compensation expense -- -- -- -- 48,138 48,138
Vesting of performance based
options -- -- 665,000 -- -- 665,000
Net loss -- -- -- (3,118,393) -- (3,118,393)
--------- ------ ---------- ----------- ----------- -----------
Balance at December 31, 1996 5,071,348 5,071 4,847,032 (4,323,968) (60,062) 468,073
Issuance of common stock 1,083,750 1,084 2,136,386 -- -- 2,137,470
Exercise of options 5,000 5 1,245 -- -- 1,250
Issuance of compensatory
options -- -- 81,600 -- (81,600) --
Compensation expense -- -- -- -- 33,313 33,313
Net loss -- -- -- (511,558) -- (511,558)
--------- ------ ---------- ----------- ----------- -----------
Balance at March 31, 1997 6,160,098 $6,160 $7,066,263 $(4,835,526) $ (108,349) $ 2,128,548
========= ====== ========== =========== =========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements
5
<PAGE>
NexMed, Inc.
(A development stage company)
Condensed Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the three months January 1, 1994
ended March 31, (inception of
-------------------- development stage)
1997 1996 to March 31, 1997
---- ---- -----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (511,558) $(966,297) $(4,613,721)
Adjustments to reconcile net loss to
net cash from operating activities
Depreciation 5,784 -- 10,042
Stock issued for patents and other rights -- -- 532,775
Non-cash compensation expense 48,313 801,563 2,075,500
Decrease in prepaid expenses and other assets 18,750 75,300 (9,425)
Increase (decrease) in account payable
and accrued expenses (72,104) 31,238 19,301
----------- --------- -----------
Net cash used in operating activities (510,815) (58,196) (1,985,528)
----------- --------- -----------
Cash flow from investing activities
Capital expenditures (53,066) -- (142,226)
Advances to Joint Venture -- -- (300,000)
----------- --------- -----------
Net cash used in investing activities (53,066) -- (442,226)
----------- --------- -----------
Cash flow from financing activities
Issuance of common stock, net of offering
costs 2,094,970 -- 4,101,888
Proceeds from the exercise of options 1,250 -- 1,250
Issuance of notes payable 100,000 100,000 265,000
Repayment of notes payable (25,000) (25,500) (140,000)
----------- --------- -----------
Net cash from financing activities 2,171,220 74,500 4,228,138
----------- --------- -----------
Net increase in cash 1,607,339 16,304 1,800,384
Cash, beginning of period 194,577 13,359 1,532
----------- --------- -----------
Cash, end of period $ 1,801,916 $ 29,663 $ 1,801,916
=========== ========= ===========
</TABLE>
Non cash activity: In February 1997, a holder of a $25,000 note payable elected
to convert the principal and interest due into 13,750 shares of common stock.
See notes to unaudited condensed consolidated financial statements
6
<PAGE>
NexMed, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10-01
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the financial
statements and notes thereto included in the NexMed, Inc. Form 10-SB/A.
2. Issuance of Common Stock
In February 1997, NexMed, Inc. (the "Company") issued 1,062,500 shares of common
stock at $2 per share in a private placement. The Company received net proceeds
of $2,094,970 from the issuance.
7
<PAGE>
Item 2. Plan of Operation.
NexMed, Inc. ("NexMed"), which has been in existence since 1987 and is in
the development stage, has, since 1994, positioned itself as a medical and
pharmaceutical technology company with a focus on developing and commercializing
therapeutic products based on proprietary delivery systems. NexMed (together
with its subsidiaries, the "Company") currently intends to focus its efforts on:
(i) topical treatment products based on a penetration enhancement
technology known as NexACT(TM), which may enable the active drug to be
better absorbed through the skin. The NexACT(TM) technology is designed to
enhance absorption through the skin, overcoming the skin's natural barrier
properties and enabling the rapid penetration of high concentrations of
the active drug directly to the site of the skin or extremity at which the
active drug's effect is desired, thereby resulting in improved therapeutic
outcomes and reduced gastrointestinal or other systemic side effects that
often accompany oral medications. The Company currently intends to direct
its topical delivery system development efforts on drugs previously
approved by the Food and Drug Administration ("FDA") with proven efficacy
and safety profiles, with patents expiring or expired and with proven
market records and potential. Currently, the primary topical treatment
product under research and development by the Company is an alprostadil
cream for the treatment of male erectile dysfunction (impotence). The
Company has recently filed a trademark application for the alprostadil
cream incorporating the NexACT(TM) enhancers under the name Alprox-TD(TM).
Also under research and development are ibuprofen and ketoprofen cream
formulations for sports medicine and arthritis treatment and an acyclovir
anti-viral cream for the treatment of herpes simplex;
(ii) the Viratrol(TM) device, a therapeutic medical device for the
treatment of herpes simplex diseases which does not require the use of any
drugs. The Company believes that the electrical current, which is
topically delivered by the device to an infected site, blocks lesions from
forming or shortens healing time once lesions develop; and
(iii) through the formation of a joint-venture with Asian partners,
research and development, production and distribution in China and other
international markets
8
<PAGE>
of medical and pharmaceutical products, including generic pharmaceuticals
currently approved and sold in China and products incorporating new and
advanced technologies. The Company is currently in negotiations with
Zhongshan (ShiQi) Pharmaceutical Manufacturing Factory regarding the
formation of a Chinese joint venture company to be known as NexMed
(Zhongshan) Pharmaceuticals, Ltd. (the "JV").
In 1997, the Company intends to expand its research, development and
marketing activity and capability, both domestically and internationally, with
regard to its proprietary pharmaceutical products, and intends to execute a
business strategy with the goal of achieving a level of development and
commercialization sufficient to enable the Company to attract potential
strategic partners with resources sufficient to further develop and market its
products. The Company also intends to undertake the commercialization of new and
off-patent products in particular international markets through strategic
partners, licensees, importers and brokers. With respect to the United States,
the Company intends to commence the FDA application and approval process for the
Alprox-TD(TM) cream and the Viratrol(TM) herpes treatment device.
The first step in the Company's plan for 1997 with regard to the research,
development and commercialization of the Alprox-TD(TM) cream and the
Viratrol(TM) device is the completion of the clinical studies currently in
progress on each of the two proposed products in China. It is expected that
these studies will be concluded in the second half of 1997. The Company expects
that the data from such studies should permit the Company to submit an
application for manufacturing and marketing approval of the Alprox-TD(TM) cream
in China and other Asian and South American and other developing-world
countries.
With respect to the approval of its products in the United States, the
Company plans, by the third quarter of 1997, to generate pre-clinical data
necessary to file with the FDA an Investigational New Drug ("IND") application
for the Alprox-TD(TM) cream and, by the end of 1997, an Investigational Device
Exemption ("IDE") for the Viratrol(TM) device. In addition, the Company expects
to start Phase I and II clinical studies on the Alprox-TD(TM) cream in the
United States, pending FDA approval. Phase I studies assess the most common
acute adverse effects of a drug and examine the size of doses that patients can
take safely without a high incidence of side effects. Generally, 20 to 100
healthy volunteers or patients are studied for a period of several months. The
focus of Phase I is safety. If no major problems, such as toxicity, are
discovered in Phase I, the next step is a Phase II study in which the drug's
efficacy is determined by means of its administration to subjects who have the
condition the drug is intended to treat. Researchers then assess whether the
drug has a favorable effect on the condition and also begin to identify the
correct dosage level (dose ranging). Phase II involves the study of up to
several hundred subjects for several months to two years. The focus of Phase II
is effectiveness with short-term safety.
As part of the Company's strategy for developing, protecting and marketing
its technology, the Company intends during 1997 to file additional patent
applications with
9
<PAGE>
respect to its products and hopes to secure at least one U.S. and two
international strategic partners for the Viratrol(TM) device and/or products
incorporating NexACT(TM) technology. Furthermore, the Company, through its
wholly-owned subsidiary, NexMed International Limited ("NexMed International"),
a British Virgin Islands company based in Hong Kong, anticipates finalizing the
JV agreement and establishing the proposed JV, subject to approval from Chinese
regulatory authorities. The JV, if formed, is expected to have the rights to
market certain generic drugs and Chinese herbal products approved for sale in
China and other countries, in which case the Company, through NexMed
International, plans to establish an international generic drug and
health-product trading business.
Concurrently with the foregoing marketing efforts, the Company plans to
expand its laboratory research capability by commencing the funding and
operation of new biosciences laboratories in Fort Worth, Texas, in collaboration
with the University of North Texas Health Science Center, at which Robert W.
Gracy, Ph.D., one of the Company's Directors and a member of the Company's
Scientific Advisory Committee, and S. Dan Dimitrijevich, Ph.D., also a
Scientific Advisory Committee member, are faculty members.
As a result of the closings of two private placements in February 1997, in
which the Company has received net proceeds of $2,094,970, management believes
that the Company has sufficient cash to sustain its current day-to-day
operations for the next 12 months, including operations at the headquarters
office in Los Angeles, its topical formulation development laboratories in
Lawrence, Kansas, NexMed International's Hong Kong office and proposed new
biosciences laboratories in Fort Worth, Texas. The Company believes that it has
adequate funding to complete any additional pre-clinical studies required for
the filing of an IND application with the FDA for the Alprox-TD(TM) cream in
order to initiate clinical studies for the proposed product in the U.S.
NexMed International expects to enter into licensing agreements and
receive certain licensing payments from international licensing partners during
the upcoming 12 months. In January 1997, the Company, through NexMed
International, entered into a license agreement with Lotus Medical Supply, Inc.
("Lotus"), a Taiwanese company (the "Lotus License Agreement"), whereby Lotus
secured certain exclusive rights in Taiwan to make use of and sell products
which incorporate the Company's penetration enhancement technology or other
know-how regarding absorption of alprostadil. Lotus has the obligation to seek
regulatory approval in Taiwan and to conduct all research and testing required
to be performed for the purpose of obtaining such regulatory approval. In
February 1997, NexMed International received a licensing fee payment in
connection with the signing of the Lotus License Agreement, and in the future,
additional minimum payments and royalties will be due if certain milestones with
regard to the regulatory approval process are reached, of which there can be no
assurance. Most of the development expenses incurred in Taiwan will be paid for
by Lotus, and the Company expects that it will need to spend only a small amount
for research and development in Taiwan on alprostadil. In addition, since
November 1996, the Company has received
10
<PAGE>
inquiries from pharmaceutical companies worldwide regarding the licensing of its
products, which the Company believes may lead to the conclusion of additional
licensing agreements in the coming 12 months and the receipt of additional
licensing fees.
The Company has also received inquiries from major pharmaceutical
companies regarding the work of the topical formulation development laboratories
in Lawrence, Kansas, including requests regarding the utilization of the
Company's patented NexACT(TM) penetration enhancement technology and the
co-development of proprietary new drugs that have absorption or penetration
difficulties. The Company believes that such inquiries could lead to the receipt
of contract development fees from certain of these potential client companies
within the next 12 months.
The Company expects to spend no more than $200,000 for the Biosciences
laboratories in Fort Worth, Texas within the next 12 months. The Company intends
to establish the laboratories as part of a special small-company incubator
program sponsored by the city of Fort Worth. For the first 24 months of
operation, companies participating in this program would expect to receive
minimum payments toward overhead expenses for their operations. The Company also
plans to apply for grants from local and state governments.
Although management believes that the Company has adequate resources for
day-to-day operations for the next 12 months, the Company has incurred
cumulative net operating losses of $4,613,721 since its inception as a medical
and pharmaceutical technology company in 1994 and expects to incur substantial
additional losses in completing the research, development and commercialization
of its technologies. Accordingly, the Company will require additional funding to
reach certain goals. Assuming the acceptance of the proposed IND application by
the FDA later in 1997, the Company would need to raise an additional $4 million
in order to initiate the proposed Phase I and II studies on the Alprox-TD(TM)
cream in the U.S. In addition, if the outcome of the clinical studies conducted
in China on the Viratrol(TM) device is satisfactory, the Company would expect,
upon filing of the IDE, to begin clinical studies in the United States this year
at a projected budget of $500,000. Furthermore, of the $8 million anticipated to
be contributed by the Company in connection with the new JV Agreement, it is
anticipated that $4.8 million, including $2 million for the first payment, would
have to be paid over the first 12 months following receipt of necessary
governmental approvals, with the balance payable in the 24 months thereafter.
Finally, as previously discussed, the Company intends to work with marketing and
distribution companies in Asia, the Middle East, South America and other regions
to market new and off-patent pharmaceutical products at a proposed budget of
$500,000. In order to meet the aforementioned additional funding requirements
for the next 12 months, the Company will need to raise $10 million, which it
will seek to do through a private placement in the third quarter of 1997.
The Company does not expect to acquire any significant or expensive
large-scale equipment or instruments within the coming 12 months. The Company
believes that the
11
<PAGE>
renovation work proposed for the JV plant in China in order to upgrade certain
of its operations to U.S. Good Manufacturing Practices ("GMP") standards will be
covered by a proposed $2 million loan from local Chinese banks.
Over the next 12 months, the Company expects to increase the current
number of employees in its U.S. operations from 10 to approximately 20. It is
expected that most of the new employees will be middle-management and laboratory
scientists and that the additional cost which the Company expects to incur over
the next 12 months with regard to salary and benefits will be approximately
$200,000. The Company believes that the increase in the number of employees
should not significantly affect cash needs.
The Company's operations are subject to numerous risks associated with the
establishment and development of products based upon innovative or novel
technologies. As a result, the Company must be evaluated in light of the
problems, delays, uncertainties and complications encountered in connection with
newly founded businesses. Some of these unanticipated problems may include
development, regulatory, manufacturing, distribution and marketing difficulties
that may be beyond the Company's financial or technical abilities to resolve
satisfactorily.
This report contains forward-looking information, including statements
regarding the Company's plans, objectives, expectations and intentions. All
forward-looking statements are subject to risks and uncertainties that could
cause the Company's actual results and experience to differ materially from such
projections. Reference should be made to the Company's filing on Form 10-SB/A
with the Securities and Exchange Commission and, in particular, the sections
entitled "Description of Business" and "Plan of Operation."
12
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11.1 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 15, 1997 /s/ Y. Joseph Mo
-------------------------------
Y. Joseph Mo
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1997 /s/ Vivian H. Liu
-------------------------------
Vivian H. Liu,
Vice President, Treasurer and
Secretary (Principal Financial and
Accounting Officer)
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
NexMed, Inc.
Computation of Per Share Earnings
<TABLE>
<CAPTION>
Weighted
Average
Days Shares
Shares Outstanding Outstanding
------ ----------- -----------
<S> <C> <C> <C> <C>
FOR THE QUARTER ENDED MARCH 31, 1996
Opening balance - January 1, 1996 2,486,348 91 2,486,348
Shares issued with notes payable 12,500 67 9,167
Shares issued for services 1,600,000 45 789,333
----------
Weighted average shares outstanding 3,284,848
Net loss for the period $ (966,297)
----------
Net loss per common share $ (0.29)
==========
FOR THE QUARTER ENDED MARCH 31, 1997
Opening balance - January 1, 1997 5,071,348 90 5,071,348
Shares issued with notes payable 7,500 90 7,500
Shares issued for cash 1,062,500 60 708,333
Shares issued upon conversion of notes payable 13,750 55 8,433
Shares issued upon exercise of stock options 5,000 48 2,683
----------
Weighted average shares outstanding 5,798,298
Net loss for the period $ (511,558)
----------
Net loss per common share $ (0.09)
==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,801,916
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,813,166
<PP&E> 142,226
<DEPRECIATION> (10,042)
<TOTAL-ASSETS> 2,245,350
<CURRENT-LIABILITIES> 116,802
<BONDS> 0
0
0
<COMMON> 6,160
<OTHER-SE> 2,122,388
<TOTAL-LIABILITY-AND-EQUITY> 2,245,350
<SALES> 0
<TOTAL-REVENUES> 50,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 564,081
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,523)
<INCOME-PRETAX> (511,558)
<INCOME-TAX> 0
<INCOME-CONTINUING> (511,558)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (511,558)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> 0
</TABLE>
