SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
|_| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1998
|_| TRANSITION REPORT UNDER 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 Small Business Issuer 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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(Issuer's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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N/A N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
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(Title of Class)
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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 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| Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
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-KSB
or any amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year: $5,709,083
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act.): As of March 31, 1999, the
aggregate market value of the voting stock held by non-affiliates was
$13,548,352. The aggregate market value was computed based on the average of the
bid and asked prices of NexMed, Inc.'s common stock, par value $0.001 per share,
as reported by the National Quotation Bureau for such date. This calculation
does not reflect a determination that persons are affiliates for any other
purpose.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: as of March 31, 1999,
8,401,703 shares of Common Stock, par value $0.001 per share, were outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No |X|
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Part I
Item 1. Description of Business
Business
NexMed, Inc. ("NexMed"), which has been in existence since 1987 and is in
the development stage (see "Company History and General Information" in this
Item 1), 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") is currently focusing its efforts on:
(i) topical treatment products based on a penetration enhancement
technology known as NexACT(R), which may enable the active drug to be
better absorbed through the skin. The NexACT(R) 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. With respect to the marketing and
development of its proprietary products, the Company 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 products
under research and development by the Company are alprostadil creams
incorporating the NexACT(R) technology for the treatment of male and
female sexual dysfunction. The Company is discussing the opportunity to
co-develop its Alprox-TD(TM) topical impotence treatment and one or more
of its other proprietary products under development with large
pharmaceutical companies, and is intending to seek licensing arrangements
during 1999. Under such an arrangement, the Company envisions receiving a
substantial payment upon signing of the agreement, additional payments
based on regulatory milestones achieved, and pending regulatory approval,
royalty payments based on product sales. Although the Company is actively
engaged in ongoing discussions with large pharmaceutical companies, no
assurance can be given that the Company will be able to conclude a
licensing arrangement on a timely basis, if at all, or on terms acceptable
to the Company.
(ii) the Viratrol(R) device, a proprietary 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. The
Company has received
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clearance for marketing the device in Canada from the Health Protection
Branch.
A. Development of Topical Treatment Products
1. Acquisition, Research and Development of Drug Delivery Enhancement Technology
In October 1996, the Company acquired rights and interests, including
patents, patent applications, trade secrets and know-how, relating to absorption
enhancers for topical pharmaceutical formulations from Odontex, Inc.
("Odontex"), a Kansas-based company, in exchange for 75,000 shares of the
Company's Common Stock, $.001 par value per share ("Common Stock"). The Company
has registered the trademark NexACT(R) as the name for the transdermal drug
delivery technology. The NexACT(R) 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 believes that this technology may be incorporated with drugs such as
alprostadil, acyclovir, ibuprofen and ketoprofen, and new topically-applied
products may be developed to treat diseases and disorders such as male and
female sexual dysfunction (impotence), oral and genital herpes simplex,
arthritis and pain management.
The Company acquired two U.S. patents, a pending U.S. patent application
and a pending international patent application from Odontex, which application
is currently pending in Canada, China, the European Patent Office, and the
Russian Federation. In an effort to expand the coverage on the next generation
of the enhancement technology that it is developing, the Company has filed three
additional patent applications in the U.S., and two corresponding international
applications under the Patent Cooperation Treaty.
During the next twelve months, the Company intends to continue its focus
on developing topical treatments based on the NexACT(R) technology at the
Higuchi Biosciences Center of the University of Kansas ("KU"), where the Company
is using laboratory space pursuant to a research agreement with the university.
The drugs to which the Company currently intends to direct the topical delivery
system development efforts of its advisors, consultants and employees at the
Higuchi Biosciences Center (see "Advisors, Consultants, Researchers and
Employees in Absorption Enhancement Field" below) are drugs previously approved
by the FDA, with proven efficacy and safety profiles, with patents expiring or
expired and with proven market records and potential.
2. Products Under Development
Assuming adequate funding, leading candidates for topical treatment
products currently under research and development by the Company include:
(i) Alprox-TD(TM), an alprostadil-based topical treatment cream
intended
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for use by men who are suffering from mild to moderate male erectile
dysfunction ("ED"), also commonly known as impotence. The NexACT(R)
enhancers have been demonstrated to promote the absorption of alprostadil
and to improve the clinical responses in clinical studies. With respect to
the approval of its products in the United States, the Company completed
in February 1998 a 60-patient (30 male and 30 female) Phase I study on the
Alprox-TD(TM) cream. The Company received clearance from the FDA for the
initiation of Phase II, pending the completion of additional toxicology
studies, which the Company expects to complete in June 1999 at an
approximate cost of $400,000. Assuming adequate funding, the Company
expects to complete these studies and thereafter initiate Phase II studies
in the United States in the second half of 1999. In China, the Company
completed Phase III double-blind and open label clinical studies that
evaluated a total of 143 men, and submitted in January 1999, a New Drug
Application to the China State Drug Administration (`CSDA") for approval
to distribute the product in China;
(ii) Femprox(TM), an alprostadil-based cream product for the
treatment of female sexual dysfunction. In February 1998, the FDA cleared
the Company to proceed with an eight-patient, Phase I clinical study for
safety and efficacy, which the Company completed during the fourth quarter
of 1998. The Company is currently awaiting FDA review of the data.
3. Advisors, Consultants, Researchers and Employees in Absorption Enhancement
Field
Dr. Servet Buyuktimkin and Dr. Nadir Buyuktimkin, co-developers and
authors of numerous publications and presentations relating to the Company's
NexACT(R) enhancers, are employed by the Company as Director of Drug Delivery
Research and Director of Formulation Research, respectively, and conduct
research at the Company's laboratories at the Higuchi Biosciences Center of KU.
Dr. J. Howard Rytting, a co-developer of the NexACT(R) enhancers and professor
in the Department of Pharmaceutical Chemistry of the School of Pharmacy of KU,
is a member of the Company's Scientific Advisory Board. In addition, pursuant to
a research agreement between the Company and KU, the Company is funding a
research effort by Dr. Rytting for the development of new methodologies
involving penetration enhancement research. The Company has the right to become
the exclusive licensee of such new technology, for which KU would hold the
patents.
B. Viratrol(R) Herpes Treatment Device
Another of the Company's proposed products, which is still in the
development stage, is the Viratrol(R) device, a hand-held non-invasive
therapeutic device designed to deliver a minute electrical current for the
treatment of herpes simplex diseases. The Company believes that the electrical
current, which is topically delivered by the device to an infected site, blocks
lesions from forming and/or shortens healing time once lesions develop. The
commercial prototype developed by the Company is based on a new generation of
technology and patents resulting from development work undertaken by the Company
subsequent to its acquisition in 1994 of earlier technology for a device
designed
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for similar use. The Company has completed a Phase II study in China on the
Viratrol(R) device, involving 10 patients with recurrent herpes labialis. All of
the subjects experienced full remission of symptoms after one to three days of
the device-application regimen. The Company also initiated a 60-patient,
double-blind study in China, which was expected to conclude in 1998. However,
the Company discontinued the study due to the inability of the contract research
organization that managed the study, to complete and deliver the data to the
Company on a timely basis.
In the U.S., the Company, assuming adequate funding, intends to file an
Investigational Device Exemption ("IDE") with the FDA during 1999 and initiate
Phase I/II studies in the United States. The Company has two issued patents on
the current version of the device and one pending Continuation-in-Part
application and one patent application currently under review by the U.S. Patent
and Trademark Office. In addition, the Company filed in 1998, international
patent applications corresponding to its October 1997 application under the
Patent Cooperation Treaty, in Japan, China, Taiwan, Korea, Israel, Canada,
Mexico, and the European Economic Community. The Company plans to file
additional patents as a strategy to continue expanding the protective coverage
of the device. Patent approval does not assure regulatory approval.
In October 1998, the Company through its wholly-owned subsidiary, NexMed
(U.S.A.), Inc., organized New Brunswick Medical, Inc. ("NBM") a Delaware
corporation. The Company transferred to NBM its rights to develop, manufacture,
and market the Viratrol(R) herpes treatment device in the U.S. in exchange for
9,500 shares of NBM stock. NBM sold 500 shares of its common stock to a private
investor in exchange for $500,000. The Company intends to use NBM as a vehicle
to raise additional funding from private investors and strategic partners, for
the development of Viratrol(R).
C. Joint Venture in China
In September 1997, the Company, through its wholly-owned subsidiary,
NexMed (Asia) Limited, ("NexMed Asia"), received all necessary Chinese
government approvals for the formation of a Chinese joint-venture company,
NexMed Pharmaceuticals (Zhongshan) Ltd. (the "JV"), with Zhongshan Xiaolan
Pharmaceuticals Factory, a subsidiary of the Xiaolan Industrial General
Corporation (the "Factory" or the "JV partner") in Zhonghshan City, China. In
exchange for 70% of the registered capital of the JV, the Company contributed
$2,170,000 during the first year, and is required to make contributions by
September 1999 and 2000 of $700,000 and $630,000, respectively.
In addition to the initial payment, the JV's assets include the Factory's
sales and customer base, distribution network, licenses to manufacture and
market 141 generic drugs in China, 17 registered trademarks for the Chinese
market, import and export licenses for finished products and raw materials, and
equipment and technology for the production of various pharmaceutical dosage
forms, including tablets, capsules, oral solutions and injections.
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Pursuant to the joint-venture agreement, NexMed Asia is obligated to
transfer to the JV the production rights to two new products. Towards the
fulfillment of this obligation, the JV is the sponsor of the Company's ED
clinical development program in China, and pending final regulatory approval by
the CSDA, has the right to manufacture the Company's ED treatment cream for the
China market under the name Befar(TM).
During 1998, the JV obtained an uncollateralized line of credit from a
local financial institution of $2.17 million (RMB 18 million) guaranteed by the
JV partner. The line of credit is renewable annually and bears a fixed interest
rate of 6.3525% per year. The JV has used proceeds from this line of credit to
repay $1.57 million of the outstanding principle and interest on the line of
credit previously advanced to the JV by the JV Partner at 11.1% interest per
year. In addition to using the new line of credit to retire a portion of the
existing line of credit as described above, the JV has used the new bank funds
for working capital and for the retrofitting of the manufacturing facilities and
acquisition of new production equipment for the new pharmaceutical products
under development.
D. International Agreements
1. Agreements for the Sale of NexMed (Asia) Limited and the Licensing of
Proprietary Products in Asia
On March 29, 1999, NexMed International Limited, a British Virgin Islands
company and the Company's wholly-owned subsidiary ("NexMed International"),
entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") with
Vergemont International Limited, a Turks and Caico Islands company with
operations in Hong Kong ("Vergemont"), pursuant to which Vergemont would
purchase all of the issued and outstanding capital stock of NexMed Asia for
$4,000,000. Under the terms of the Stock Purchase Agreement, the purchase price
would be paid as follows: (I) a total of $2,000,000 in cash by April 28, 1999,
and (ii) two (2) promissory notes each for $1,000,000, due on November 12, 1999
and June 30, 2000, respectively. Payment of the promissory notes is
collateralized by a pledge of the stock of NexMed Asia. In addition, the Company
would grant Vergemont warrants to purchase 2,000,000 shares of the Company's
Common Stock exercisable at $2.50 and $3.00 per share, depending on whether the
warrant is exercised before or after June 30, 1999. The Company would pay
Shannon Limited, a Hong Kong based investment consulting firm, a commission of
six (6) percent on the anticipated $4 million in proceeds and warrants to
purchase 200,000 shares of the Company's Common Stock exercisable at $3.00 per
share for a period of two years. Both parties have agreed that if the Company
does not receive a total of $2,000,000 in cash by April 28, 1999, the Company
would return any payment made by Vergemont and the Stock Purchase Agreement
would be null and void.
In conjunction with the sale of NexMed Asia to Vergemont, NexMed
International and Vergemont would also enter into a license agreement. Under the
terms
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of the license agreement, Vergemont through its ownership of NexMed Asia, would
have an exclusive right in China and Asian Pacific countries to manufacture and
market the Company's ED treatment cream and four (4) other of the Company's
proprietary products under development. The Company would be paid a royalty on
sales and would supply to NexMed Asia on a cost plus basis, the NexACT(R)
enhancers that are essential in the formulation and production of the Company's
proprietary topical treatments including the Befar(TM) cream. The Company has
agreed that during the next 12 months, Dr. Joseph Mo, the Company's President
and C.E.O., would remain active in managing the JV's operations and the
anticipated approval and launch of Befar(TM), and the Company would be
compensated for his time and expenses.
The assets of NexMed Asia, purchased by Vergemont through its acquisition
of the stock of NexMed Asia, primarily consist of the Company's 70% interest in
the JV. At the time of its formation, the Company's primary goals for the JV
were three-fold: (i) establish a presence in China in order to supervise the
Phase III clinical studies on the Befar(TM) cream, and to initiate sales pending
marketing approval; (ii) design and retrofit part of the existing complex to a
state-of-the-art manufacturing facility that meet Good Manufacturing Practice
("GMP") standards for the production of the Befar(TM) cream, and (iii)
capitalize on the JV's existing marketing force for the sales of generic drugs
and the Company's proprietary products in China and in selected international
markets.
The Company believes that its participation in the JV has largely achieved
its goals. First, the Company has successfully completed Phase III clinical
studies on the Befar(TM) cream in China, and has filed in January 1999, an
application for marketing approval with the CSDA. In addition, the Company has
gained valuable clinical data for the ongoing discussions with potential
co-development partners for selected markets, including the U.S., Japan and
Europe, and for the Company's proposed Phase II studies in the U.S., pending
sufficient financing. Second, the JV has substantially completed the
construction of the new manufacturing facility. Finally, the Company has decided
to concentrate its efforts on its proprietary product development pipeline, in
lieu of devoting additional time and effort to the sale and marketing of generic
drugs. Assuming completion of the sale of NexMed Asia, the Company would have no
further obligation for funding or contributing proprietary production rights to
the JV.
2. Sales and Distribution Joint Venture in Peru
In December 1997, NexMed International concluded an agreement to form a
joint venture with two local partners for the establishment of a sales office
and showroom in Lima, Peru. Under the agreement, the Company owns 70% of the
joint venture and as to date, has advanced $42,000 to it. The Company intends to
utilize the Peruvian office, once operational, as a conduit for the sale and
distribution of pharmaceutical products in Latin America. In February 1999, the
joint venture which will operate as NexMed (Peru) S.A., obtained registration as
an accredited supplier of pharmaceutical products to government agencies in
Peru.
<PAGE>
3. License Agreement in Taiwan
In January 1997, NexMed International entered into a license agreement
with Lotus Medical Supply, Inc. ("Lotus"), a Taiwanese company, whereby Lotus
secured certain manufacturing and marketing rights for the Alprox-TD(TM) cream
in Taiwan. In exchange for those rights, Lotus was obligated to seek regulatory
approval in Taiwan and to conduct all research and testing required for the
purpose of obtaining such regulatory approval. Lotus has not performed its
obligation under the terms of the agreement, and both parties have terminated
the agreement.
4. Agreement Market the Alprox-TD(TM) Cream in Argentina and Uruguay
On October 2, 1997, the Company, through NexMed International, entered
into a Supply and Distribution Agreement with Finadiet S.A.C.I.F.I.,
("Finadiet"), an Argentinean manufacturer and distributor of urological
pharmaceutical products, for the distribution of the Alprox-TD(TM) cream in
Argentina and Uruguay. Under the agreement, Finadiet was obligated to obtain
regulatory approval by July 1998 in exchange for a five-year exclusive sales and
distribution right for the two countries. Finadiet was not able to reach the
regulatory milestone, and both parties have terminated the agreement.
E. Potential Corporate Alliances
The Company is currently in discussions with various U.S. and
international pharmaceutical and medical companies regarding potential corporate
alliances relating to the research and development and marketing of its
proprietary products under development. Although no assurances can be given, the
Company is hopeful that the negotiations will result in the consummation of one
or more definitive agreements.
Research and Development
The Company's research and development expenses for the twelve months of
operation of 1998 and 1997, were $2,302,148 and $2,078,517, respectively. Since
January 1, 1994, when the Company repositioned itself as a medical and
pharmaceutical technology company, the Company has spent $7,356,860 on research
and development.
The Company will need significant funding to pursue its research,
development and commercialization plans (see Part II, Item 6, "Management's
Discussion & Analysis or Plan of Operation"). The potential products upon which
the Company intends to focus its current development efforts, the Alprox-TD(TM)
and Femprox(R) creams and the Viratrol(R) device, are in the research and
development stage. The Company has not begun to market or generate revenues from
the commercialization of its products under development. The Company's products
under development will require significant time-consuming and costly research
and development, clinical testing, regulatory approval and significant
additional investment prior to their commercialization. There can be no
assurance that the research and development activities funded by the Company
will be
<PAGE>
successful, that products under development will prove to be safe and effective,
that any of the clinical development work will be completed, or that the
anticipated products will be commercially viable or successfully marketed. In
addition, there can be no assurance that the Company will be successful in
obtaining regulatory approval or developing any additional products, that if
successful, it will be able to attract sufficient capital to complete any
development and commercialization undertaken or that any such development and
commercialization will be successful.
Competition
Competition in the pharmaceutical and medical products industries is
intense and characterized by extensive research efforts and rapid technological
progress. The Company competes with numerous firms, many of which are large,
multi-national organizations with worldwide distribution. Even if the proposed
products are approved for marketing, the Company will face major competitors in
the transdermal drug-delivery sector of the industry and in the field of herpes
treatment. With regard ED, certain treatments exist, such as needle injection
therapy, vacuum constriction devices, penile implants, transurethral absorption
and oral medications, and the manufacturers of these products are expected to
continue to improve these therapies. Caverject(R), Pharmacia & Upjohn Company's
needle injection therapy product for ED is approved for sale in the U.S. and in
a number of international markets. Additional competitive therapies include
Viagra(R) by Pfizer, Inc., which was approved by the FDA in March 1998, and has
become the leading treatment product for ED, exceeding one billion dollar in
sales since its introduction. Other large pharmaceutical companies may also
become actively engaged in the development of ED treatments. For instance, ICOS
Inc., and Eli Lilly Inc., have formed a joint-venture to develop an oral
medication for ED. Such companies would have substantially greater research and
development capabilities as well as substantially greater marketing, financial
and human resources than the Company. In addition, these companies have
significantly greater experience than the Company in undertaking pre-clinical
and clinical testing, and other regulatory approval procedures.
There are also small companies, academic institutions, governmental
agencies and other research organizations that are conducting research and
developing products in the area of ED. Macrochem Inc., is developing a topical
treatment for ED based on its proprietary drug delivery system. Vivus, Inc. is
developing and marketing the MUSE(R) system, which is a device for the
intra-uretheral delivery of a suppository containing alprostadil, and has
entered partnerships and agreements for the distribution of MUSE(R) in various
international markets. Zonagen Inc., is partnering with Schering Plough
Pharmaceuticals, Inc., to market Vasomax(R), an oral medication for treating ED.
The Company's competitors may develop technologies and products that are
available for sale prior to the Company's proposed products, or that are more
effective than those being developed by the Company. Such developments would
render the Company's products less competitive or possibly obsolete. If the
Company is permitted to commence commercial sales of products, it will also be
competing with respect to marketing capabilities and manufacturing efficiency,
areas in which it has limited experience.
<PAGE>
Licensing for Marketing and Distribution
The Company is discussing licensing arrangements for the right to market
and distribute one or more of the Company's products under development with
large pharmaceutical companies. Although the Company is engaged in ongoing
discussions with potential partners, no assurance can be given that the Company
will be able to attract a partner or conclude a satisfactory licensing
arrangement.
If regulatory approval is obtained for any of the Company's proprietary
products under development, of which there is no assurance, achieving market
acceptance will still require substantial marketing efforts and the expenditure
of significant funds to inform potential customers, including third-party
distributors, of the distinctive characteristics and benefits of these products.
The Company's operating results will depend largely on its ability to establish
successful arrangements with licensing partners. There is no assurance that the
Company will be able to establish adequate distribution or marketing
arrangements or that any such current or prospective licensing partners will be
successful in marketing the Company's products. The Company's long-term success
may also depend, to a significant extent, on its ability to establish an
effective internal marketing organization for which the Company will, among
other things, have to attract and retain experienced marketing and sales
personnel. No assurance can be given that the Company will be able to attract
and retain qualified or experienced marketing and sales personnel or that any
efforts undertaken by such personnel will be successful.
Dependence on Third Party Suppliers and Manufacturers
Other than the equipment and technology acquired, and the facility leased
by the JV, the Company presently does not have any manufacturing capacity of its
own but instead intends to rely on outside manufacturers. To be successful, the
Company must be able to manufacture its products in commercial quantities at
acceptable costs and whether the Company manufactures its own products or
contracts with third parties to do so, such manufacturing must comply with U.S.
GMP or similar requirements of the countries in which the products will be
marketed. Regulatory authorities such as the FDA generally will periodically
inspect manufacturing facilities in order to assure compliance with applicable
GMP or equivalent requirements. Foreign manufacturing facilities also are
inspected if drugs manufactured at such facilities are imported for sale into
the jurisdiction. The inability of a contract supplier or manufacturer to comply
with GMP or similar foreign regulations or other regulatory requirements could
have a material adverse effect on the Company's business in the relevant
jurisdiction and therefore, depending on the size of the market, on the
Company's financial condition and results of operations.
The Company currently has three suppliers of alprostadil. Prices of
alprostadil have fallen and the Company does not anticipate any problems in
obtaining alprostadil or other supplies in commercial quantities for the
manufacture of its proposed products. The Company is currently involved with two
contract manufacturers for production of its key
<PAGE>
NexACT(R)enhancers.
Government Regulation
The testing, manufacture, distribution, advertising and marketing of drug
products are subject to extensive regulation by governmental authorities in most
countries, including the United States. Prior to marketing in a particular
jurisdiction, any pharmaceutical products developed or licensed by the Company
will in most cases have to undergo an extensive regulatory approval process
required by the governmental agencies in the intended market, such as the FDA in
the United States and comparable agencies in other countries. The process
includes ongoing clinical studies to test the safety and efficacy of a new drug
product, and continuous reviews by the regulatory agencies. Phase I studies
assess safety or the most common acute adverse effects of a drug and examine the
size of doses that patients can take safely without a high incidence of side
effects. Generally, 20 to 100 healthy volunteers or patients are studied for a
period of several months. 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 may involve the study of up to
several hundred subjects for approximately 12 months, and its focus is
effectiveness with short-term safety. Phase III studies are for further proof of
efficacy and safety, and may include several thousands of patients and take
18-24 months to complete. Upon completion of Phase III studies, a New Drug
Application is submitted to the appropriate governmental regulatory authority
for review and approval.
Although approval in one major market may assist in obtaining approval
elsewhere, the regulatory review process in each country can be lengthy and
unpredictable, and the Company may encounter delays or rejections of one or more
of its applications when submitted. If questions arise during the regulatory
review process in a given country, approval may take a significantly longer
period of time, and there can be no assurance that any approval will be granted
on a timely basis, if at all. Even if regulatory clearances are obtained, a
marketed product is subject to continual review, and later discovery of
previously unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or
withdrawal of the product from the market as well as possible civil or criminal
sanctions.
The requirements governing the conduct of pre-clinical testing, clinical
trials, product licensing, manufacturing, pricing and reimbursement vary widely
from country to country. None of the Company's products under development has
been approved for marketing in the United States or elsewhere. No assurance can
be given that the Company will be able to obtain regulatory approval in any
country for any such products under development or that, if the products under
development are approved by the FDA or foreign regulatory authorities, the
Company will ever achieve significant revenues or profitable operations. Failure
to obtain requisite governmental approvals or failure to obtain approvals of the
scope requested will delay or preclude the Company or its
<PAGE>
licensees or marketing partners from marketing their products, or limit the
commercial use of the products in one or more markets, and thereby could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Patents, Licenses and Proprietary Rights
In order to justify the substantial investment of time and expense
required to develop and commercialize its products, the Company seeks
proprietary protection for its pharmaceutical products so as to prevent others
from commercializing equivalent products in substantially less time and at
substantially lower expense. The pharmaceutical industry places considerable
importance on obtaining patent and trade secret protection for new technologies,
products and processes. The Company's success will depend in part on the ability
of the Company to obtain effective patent protection for the Company's
proprietary technologies and products, defend such patents, preserve its trade
secrets and operate without infringing upon the proprietary rights of others,
both in the United States and in other countries. The patent position of firms
relying upon medical and pharmaceutical technologies is highly uncertain and
involves complex legal and factual questions. To date, there is no consistent
policy regarding the breadth of claims allowed in such patents or the degree of
protection afforded under the patents.
The Company acquired two patents and one pending U.S. patent application
and one pending international pending application, upon the completion of the
transaction with Odontex. One of the patents expires in 2007 and the other in
2009. In addition, the Company has developed a new generation of absorption
technology for which it has filed additional applications including two in the
U.S. and two under the Patent Cooperation Treaty for specific compositions of
the NexACT(R) enhancers with certain active ingredients. The Company also has
one U.S. application pending for the Femprox(TM) cream, and another pending for
the applicator for the Alprox-TD(TM) cream. The Company also owns two patents on
the Viratrol(R) device, has one continuation-in part application and one patent
application pending with respect to the technology, inventions and improvements
that are significant to the Viratrol(R) device and intends to file additional
patent applications as a strategy to continue expanding the coverage on the
device. One of the patents expires in 2009 and the other in 2015.
The patent application and issuance process can be expected to take
several months, if not years, and could entail considerable expense to the
Company. There can be no assurance that patents, whether as to the Viratrol(R)
device, the NexACT(R) absorption enhancement technology or otherwise, will issue
as a result of any applications or that the existing patent and any patents
resulting from such applications will be sufficiently broad to afford protection
against competitors with similar technology. In addition, there can be no
assurance that such patents will not infringe upon the claims of third-party
patents or be invalidated or circumvented, or that the rights granted thereunder
will provide competitive advantages to the Company. Moreover, the Company does
not have international patents covering all of the claims of its U.S. patents.
<PAGE>
The commercial success of the Company also will depend upon its avoidance
of infringement of patents issued to competitors. A United States patent
application is maintained under conditions of confidentiality while the
application is pending, so the Company cannot determine the inventions being
claimed in pending patent applications filed by third parties. Litigation may be
necessary to defend or enforce the Company's patent and license rights or to
determine the scope and validity of the proprietary rights of others. Defense
and enforcement of patent claims can be expensive and time-consuming, even in
those instances in which the outcome is favorable to the Company, and can result
in the diversion of substantial resources from the Company's other activities.
An adverse outcome could subject the Company to significant liabilities to third
parties, require the Company to obtain licenses from third parties, or require
the Company to alter its products or processes, or cease altogether any related
research and development activities or product sales, any of which may have a
material adverse effect on the Company's business, financial condition and
results of operations.
To the extent that consultants, key employees or other third parties apply
technological information independently developed by them or by others to any of
the proposed projects of the Company, disputes may arise as to the proprietary
rights to such information which may not be resolved in favor of the Company.
The Company may also rely from time to time on trade secrets and proprietary
know-how that it may seek to protect in part by its confidentiality agreements
with its employees, consultants, advisors or others. There can be no assurance
that these agreements will not be breached, that the Company would obtain
adequate remedies for any breach, or that the Company's trade secrets or
proprietary know-how will not otherwise become known or be independently
developed by competitors in such a manner that the Company has no legal
recourse.
Foreign Operations
The Company initially plans to license and market its products outside of
the United States. The Company's results from operations may be affected by
currency exchange rate fluctuations and other factors affecting international
business, including legal or political changes in foreign countries.
Product Pricing and Reimbursement: Health Care Reform and Related Measures
The levels of revenues and profitability of medical and pharmaceutical
technology products and companies may be affected by efforts of governmental and
third-party payers to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing or profitability of
prescription pharmaceuticals is subject to government control. In the United
States, there have been a number of federal and state proposals to implement
similar government control. Pricing constraints on the Company's products, if
approved, could have a material adverse effect on the Company. In addition, the
Company's ability to commercialize potential medical and/or pharmaceutical
technology products may be adversely affected to the extent that such proposals
have a material adverse effect on other companies that are prospective
<PAGE>
collaborators with respect to any of the Company's product candidates. In the
United States and elsewhere, successful commercialization of the Company's
products will depend in part on the availability of reimbursement to the
consumer from third-party health care payers, such as government and private
insurance plans. There can be no assurance that such reimbursement will be
available or will permit price levels sufficient to realize an appropriate
return on the Company's investment and product development. If the Company
succeeds in bringing one or more products to the market, there can be no
assurance that these products will be considered cost-effective and that
reimbursement to the consumer will be available or will be sufficient to allow
the Company to sell its products on a competitive basis.
Employees
As of March 31, 1999, the Company has 15 full-time employees, four of whom
are executive management and 1 part-time employee. The JV has 220 employees, of
whom 185 are in production and 35 are in sales and administration. The Company
believes its employee relationships are satisfactory.
Company History and General Information
The Company was organized under the laws of the state of Nevada in October
1987 under the name Target Capital, Inc. The Company raised initial funds in
1988 through an offering pursuant to Regulation A of the Securities Act, selling
1 million shares of its Common Stock. Subsequently, the Company issued Common
Stock to purchase twenty unpatented mining claims, which claims ultimately
reverted to the government when not exploited by the Company. Its early business
plans did not prove to be productive, and the Company became inactive until
early 1994, when the Company issued a total of 276,375 shares (giving effect to
the 20-for-1 reverse stock split on October 2, 1995) to 10 individuals, and
acquired the patent and royalty rights and the unfinished prototype of a medical
device for the treatment of herpes simplex diseases. The Common Stock was valued
at $.20 per share, with an aggregate value of $55,275. In 1994, the Company
changed its name to BioElectric, Inc. In September 1995, the Company changed its
name to NexMed, Inc., reflecting its broader-based business objectives. The
Company's Common Stock has been quoted on the Over-the-Counter Bulletin Board
since October 1995 under the symbol "NEXM." The Company has been a reporting
company under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), since the effectiveness in May 1997 of the registration statement on Form
10-SB which the Company filed voluntarily in March 1997 pursuant to Section
12(g) of the Exchange Act.
The Company's principal executive offices are located at 350 Corporate
Boulevard, Robbinsville, New Jersey 08691, and its telephone number is (609)
208-9688. The Company's website is "www.nexmed.com".
<PAGE>
Item 2. Description of Property.
In February, 1998, the Company relocated its principal executive offices
to its current location in Robbinsville, NJ. It currently leases 5,540 square
feet of space for $14,492 per month, pursuant to a five-year lease.
Pursuant to a research agreement between the Company and the University of
Kansas, which expires on August 31, 1999, the Company pays $58,500 for access to
and use of laboratory space at the University's Higuchi Biosciences Center
during the 12-month term of the research agreement.
NexMed (Americas) Limited, leases 1,000 square feet of office space in
Mississauga, Ontario, Canada for $850 per month pursuant to a month-to-month
arrangement.
NexMed (Asia) Limited, leases 1,000 square feet of office space in
Causeway Bay, Hong Kong for $4,400 per month pursuant to a two-year lease.
NexMed Pharmaceuticals (Zhongshan) Ltd., the JV, leases 75,000 square feet
of office, production and warehousing space in Xiaolan, China for approximately
$29,915 per month pursuant to a five-year lease.
Item 3. Legal Proceedings.
In January 1997, a complaint was filed against the Company in the District
Court, Third Judicial District, Salt Lake County, State of Utah, by Genie Total
Products, Inc., a Nevada Corporation. It was alleged in the complaint that the
plaintiff entered into a three-year agreement on December 1, 1993 to provide
consulting and marketing services to the Company for a stated monthly amount,
but that no payments were made. The suit, which claimed breach of contract,
unjust enrichment and anticipatory breach of contract, requested damages of
$388,312.50, plus interest, costs and attorney's fees. On November 12, 1997, the
suit was dismissed without prejudice on procedural grounds. The Company
continues to believe that this claim is without merit and, should an amended
complaint be filed, intends to defend its position vigorously.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Part II
Item 5. Market Price for Common Equity and Related Stockholder Matters
The Company's Common Stock has been quoted on the Over-the-Counter
Bulletin Board since October 1995 under the symbol "NEXM." The following table
sets forth,
<PAGE>
based on information received from the National Quotation Bureau, the high and
low bid prices for the Common Stock for the quarters indicated. The quotations
represent bid between dealers and do not include retail mark-up, mark-down or
commissions, and do not represent actual transactions.
<PAGE>
Three Months Ended
-----------------------------------------------------------
1998 March 31 June 30 September 30 December 31
- ---- -------- ------- ------------ -----------
High $1.75 $ 4.125 $3.75 $3.625
Low 1.25 0.875 1.25 1.25
1997
- ----
High 2.875 3.00 2.875 3.125
Low 1.00 1.50 1.00 1.00
As of March 31, 1999, there were 219 holders of record of 8,401,703 shares
of Common Stock.
Dividends
The Company anticipates that for the foreseeable future, earnings will be
retained for the development of its business. Accordingly, the Company does not
anticipate paying dividends on the Common Stock in the foreseeable future. The
payment of future dividends will be at the sole discretion of the Company's
Board of Directors and will depend on, among other things, future earnings,
capital requirements, general financial condition of the Company and general
business conditions.
Recent Sales of Unregistered Securities
On February 16, 1996, the Company issued a total of 1.6 million shares of
Common Stock, valued at $.50 per share and with a total offering price of
$800,000, to 19 individuals, including certain of the Company's Officers,
Directors, Scientific Advisory Committee members, attorneys and consultants, in
reliance upon Section 4(2) of the Securities Act of 1933, as amended, (the
"Securities Act").
In April 1996, the Company issued 12,500 shares of Common Stock, valued at
$.50 per share and with a total offering price of $6,250, to three noteholders
as part of a unit offering including promissory notes, in reliance upon Section
4(2) of the Securities Act.
In May 1996, the Company completed a Regulation S offering of 500,000
shares of Common Stock to China Venture Investment (H.K.) Ltd. for gross
proceeds of $1 million. In connection with the offering, 75,000 shares of Common
Stock with a total value of $150,000 were issued as a commission to the
placement agent, American Pacific Investments, Ltd., Hong Kong.
In October 1996, the Company acquired technology relating to absorption
enhancers for topical pharmaceutical formulations from Odontex, Inc. in exchange
for 75,000 shares of Common Stock with a total value of $150,000, or $2.00 per
share, issued in reliance upon Section 4(2) of the Securities Act.
<PAGE>
In November 1996, the Company issued a total of 322,500 shares of Common
Stock at a total offering price of $645,000, or $2.00 per share, to five
individual investors pursuant to an exemption from registration under the
Securities Act provided by Rule 506 of Regulation D promulgated thereunder.
In November 1996, the Company issued warrants to purchase 150,000 shares
of Common Stock at $1.00 per share to Pryor, Cashman, Sherman & Flynn, its
outside legal counsel, as consideration for legal services performed relating to
the sale of Common Stock in November 1996 and other matters. The estimated fair
value of the Common Stock was $2.00 per share at that time. The warrants have a
term of ten years and vest in equal installments over a three year period.
In January 1997, the Company issued a $100,000 promissory note bearing
interest at 10% per annum to one noteholder. The note must be repaid by December
31, 1998 and the noteholders may convert the unpaid note into common stock at a
conversion price of $2.50 per share. In conjunction with the issuance of the
note, the Company granted the purchaser of such note 7,500 shares of Common
Stock. The Company has valued these shares at $15,000 ($2.00 per share).
In February 1997, the Company completed a Regulation S offering of 1
million shares of Common Stock to four individuals and an offering of 62,500
shares of Common Stock to five individuals pursuant to an exemption for
registration under the Securities Act provided by Rule 506 of Regulation D
promulgated thereunder. The price of the Common Stock in both offerings was
$2.00 per share and the total offering prices were $2 million and $125,000,
respectively.
In February 1997, the Company issued 13,750 shares of Common Stock with a
total value of $27,500, or $2.00 per share, to one individual as part of a unit
offering including promissory notes, in reliance upon Section 4(2) of the
Securities Act.
In March 1997, the Company issued 5,000 shares of Common Stock pursuant to
exercise of one individual's option to purchase Common Stock at $.25 per share.
In November 1997, in conjunction with the issuance of $1.82 million of
unsecured subordinated notes, due on November 16, 1998 and bearing interest at
six percent, the Company issued to the noteholders 455,000 warrants to purchase
shares of Common Stock, exercisable for 12 months at $4.00 per share, in a
private placement pursuant to Regulation S. In connection with the placement,
the Company issued 455,000 of such warrants as a commission to the placement
agent, China Everbright Investment Agency.
In December 1997, the Company issued warrants to purchase 50,000 shares of
common stock at $4.00 per share to a consultant. The fair value of the Company's
common stock was $2.00 per share at the time of issuance. The warrants have a
term of five years and are immediately exercisable.
<PAGE>
In January 1998, the Company issued 15,000 shares of Common Stock upon the
exercise of options at a price of $0.25 per share, in reliance upon Section 4(2)
of the Securities Act.
In March and April 1998, the Company sold 323,500 shares of Common Stock,
with a total value of $404,375, or $1.25 per share, to seventeen individual
investors pursuant to an exemption from registration under the Securities Act
provided by Rule 506 of Regulation D promulgated thereunder.
In April 1998, the company issued 51,038 shares of Common Stock, at a
price of $1.25 per share in exchange for services rendered, pursuant to an
exemption from registration under the Securities Act provided by Rule 506 of
Regulation D thereunder.
In April 1998, the Company issued 100,000 shares of Common Stock upon the
exercise of options at a price of $0.25 per share, in reliance upon Section 4(2)
of the Securities Act.
In May 1998, the Company sold 1,360,000 shares of Common Stock with a
total value o $2,040,000 or $1.50 per share, to twelve investors, pursuant to an
exemption from registration under the Securities Act provided by Rule 506 of
Regulation D thereunder.
In June 1998, the Company issued 95,000 shares of Common Stock upon the
exercise of options at a price of $0.25 per share, in reliance upon Section 4(2)
of the Securities Act.
In July 1998, the Company issued 50,000 shares of Common Stock upon the
exercise of options at a price of $0.25 per share, in reliance upon Section 4(2)
of the Securities Act.
In September 1998, the Company issued 10,000 shares of Common Stock upon
the exercise of options at a price of $0.25 per share, in reliance upon Section
4(2) of the Securities Act.
In September 1998, the Company sold 106,667 shares of Common Stock with a
total value of $160,000 or $1.50 per share, to nine investors, pursuant to an
exemption from registration under the Securities Act provided by Rule 506 of
Regulation D thereunder.
In October 1998, the Company issued 10,000 shares of Common Stock upon the
exercise of options at a price of $0.25 per share, in reliance upon Section 4(2)
of the Securities Act.
In November 1998, the Company issued 80,000 shares of Common Stock with a
total value of $100,000, or $1.25 per share, to one individual as part of a unit
offering
<PAGE>
including promissory notes, in reliance upon Section 4(2) of the Securities Act.
In November 1998, the Company issued 5,000 shares of Common Stock upon the
exercise of options at a price of $0.25 per share, in reliance upon Section 4(2)
of the Securities Act.
In December 1998, the Company issued 40,400 shares of Common Stock with a
total value of $50,500, or $1.25 per share, to five individuals as part of a
unit offering including promissory notes, in reliance upon Section 4(2) of the
Securities Act.
Item 6. Management's Discussion and Analysis or Plan of Operation
During the next 12 months, depending on the financing available, the
Company intends to concentrate its development efforts and resources on its
proprietary product pipeline, and to execute a business strategy with the goal
of concluding at least one (1) licensing agreement for selected markets in the
U.S. and Europe.
With respect to the development and approval of its products in the U.S.,
the Company expects to complete the ongoing toxicology studies for Alprox-TD(TM)
by June 1999, and assuming sufficient funding, initiate the proposed Phase II
studies on Alprox-TD(TM) during the third quarter of 1999. In addition, assuming
adequate funding, the Company plans to also initiate during 1999, the proposed
Phase II studies on the Femprox(TM) cream and clinical program for the
Viratrol(R) device. The Company estimates that the total cost for the planned
studies for the Alprox-TD(TM) cream, the Femprox(TM) cream and the Viratrol(R)
device will be approximately $9 million.
As part of the Company's strategy for developing, protecting and marketing
its technology, the Company filed in 1998, U.S. and international patent
applications with respect to its products and intends to file additional
applications in 1999. The Company hopes in the next 12 months to secure U.S. and
international strategic partners for its leading proprietary products under
development. In addition, the Company is in discussions with various
pharmaceutical companies regarding the possibility to incorporate the Company's
NexACT(R) technology in their proprietary product development programs.
The Company does not expect to acquire any significant or expensive
large-scale equipment or instruments within the coming 12 months. Currently, the
Company has 15 full-time employees and expects during the next 12 months to hire
5 additional employees, increasing the total cost for salary and benefits to
approximately $1.7 million.
Comparison of Results of Operations between the Year Ended December 31, 1998 and
1997
Revenues. The Company recorded revenues of $5,709,083 from the JV's
product sales in China, during the twelve months of operations in 1998 as
compared to no sales
<PAGE>
during the same period in 1997. The Company recorded no licensing revenues
during the twelve months of 1998 as compared to $50,000 during the same period
in 1997. Assuming completion of the sale of NexMed Asia, including its 70%
interest in the JV, the Company anticipates 1999 revenues from product sales to
decrease significantly, and revenues from licensing activities to increase.
Cost of Products Sold: The cost of products sold were $5,186,308 and zero
in 1998 and 1997, respectively. The cost in large measure is attributable to the
price of the raw materials for the JV's production of mostly generic
antibiotics, and has remained higher than anticipated, due to an increase in
duty rates imposed on some of the imported raw materials. The Company
anticipates the cost of products sold to decrease in 1999, as a result of the
pending divestiture of the JV manufacturing operation through the sale of NexMed
Asia.
Research and Development Expenses. Research and development expenses for
the twelve months of operation of 1998 and 1997, were $2,302,148 and $2,078,517,
respectively. The increase is primarily attributable to the increase in and
scope of clinical studies initiated in the U.S. If sufficient funding is
forthcoming, the Company expects total research spending in 1999 will increase
significantly with the expansion in product development programs and the
initiation of more costly Phase II clinical activities.
General and Administrative Expenses. General and administrative expenses
were $2,635,114 during the twelve months of operation in 1998 as compared to
$1,824,857 during the same period in 1997. The increase is largely attributed to
the expenses of the JV operation in China and the Company's expanded activities
in the U.S. and internationally. Despite the pending divestiture of the JV
through the sale of NexMed Asia, the Company's general and administrative
expenses are expected to increase modestly in 1999, due to the anticipated
increase in the cost of financing, business development and licensing activities
in the U.S., Europe and other international markets. During the twelve months of
1998 and 1997, the Company recorded non-cash charges of approximately $137,883
and $181,984, respectively, for certain options and warrants granted to
consultants.
Interest Income and Expense. The Company recognized $600,337 in interest
expense during the twelve months of 1998, compared with $10,267 in income during
the same period in 1997. The increase is due to the Company's interest payments
for its outstanding notes payable and to the JV's interest expense for its
working line of credit. The JV's interest expense constitutes approximately 25%
of the Company's total interest expense. Pending completion of the sale of
NexMed Asia, interest expense is expected to decrease in 1999.
Net Loss. The net loss applicable to common shareholders was ($4,779,002)
or ($0.64) per share for the twelve months of 1998, compared with a net loss of
($3,857,446) or ($0.63) per share for the same period in 1997. The increase in
net loss is attributable
<PAGE>
to the increase in expenses associated with the Company's U.S. product
development and clinical programs and international commercialization efforts,
as well as with the JV's current operations and new product development
programs.
Liquidity and Capital Resources
The Company has experienced net losses and negative cash flow from
operations each year since its inception. Through December 31, 1998, the Company
has an accumulated deficit of $12,960,436. The Company has financed its
operations primarily from sales of equity securities and from borrowing.
During 1998, the Company repaid $658,000 in promissory notes and
rolled-over $585,000 into new notes at varying interest rates from 12-15% and
such notes are due on various dates through November 1999. Dr. Y. Joseph Mo, an
officer and director of the Company, has advanced an aggregate of $600,500 to
the Company under an informal agreement at 12% interest and due on various dates
in 1999. In addition, the Company has promissory notes totaling $1,820,000, at
6% per annum, which was due in November 1998. In November 1998, holders of an
aggregate principle amount of $1,000,000 of the 6% notes agreed to extend the
maturity date of their notes until November 16, 1999 at an interest rate of 10%
per annum, and were given the option to convert the notes into Common Stock at
the price of $2.00 per share prior to the new due date. As of March 31, 1999,
the Company is in default of the repayment terms of the remaining 6% notes, in
the aggregate principal of $820,000.
The JV currently has an uncollateralized line of bank credit of $2.17
million (RMB 18 million) guaranteed by the JV partner. The line of credit is
renewable annually and bears a fixed interest rate of 7.623% per year. In
addition, the JV has approximately $217,000 of an unsecured, uncollateralized
revolving line of credit with the JV Partner, which bears an interest rate of
11.1% per year and expires in September 2000.
In October 1998, the Company through its wholly-owned subsidiary, NexMed
(U.S.A.), Inc., organized New Brunswick Medical, Inc., ("NBM") a Delaware
corporation. The Company transferred to NBM its rights to develop, manufacture,
and market the Viratrol(R) herpes treatment device in the U.S. in exchange for
9,500 shares of NBM common stock. NBM sold 500 shares of its common stock to a
private investor in exchange for $500,000, of which $150,000 was loaned to the
same investor in the form of a six-month promissory note that is due on April
11, 1999.
The Company's expenditures and capital requirements will depend on
numerous factors, but will mainly be affected by the progress of its research
and development programs, its pre-clinical and clinical testing, its ability to
raise adequate funding, and its ability to complete corporate partnership
agreements. In the course of its development and operation activities, the
Company has incurred significant losses and expects to incur substantial
additional development costs. Presently, the Company's expense for its U.S.
<PAGE>
operations is approximately $250,000 per month.
In order to meet its immediate funding requirements for its proposed
clinical programs in the U.S., repay short-term indebtedness and maintain
day-to-day operations, the Company estimates that it will require $15 million
over the next 12 months. To meet such needs, the Company is seeking funding from
the sale of NexMed Asia, and also from private equity investments, additional
borrowings, and collaborative licensing arrangements with third parties, of
which there is no assurance that such funds will be available for the Company on
acceptable terms, if at all.
If the Company is able to successfully complete the sale of NexMed Asia,
the Company intends to allocate the $2,000,000 cash payment for repayment of a
significant portion of its outstanding short-term borrowings and trade payables
and for funding of its U.S. overhead expenses until the Company can attract
additional funding from other sources. If the Company is unable to successfully
raise the additional capital on a timely basis or at acceptable terms, it will
be required to significantly curtail its U.S. operations, and delay, reduce, or
eliminate some of its research and development and administrative programs and
planned clinical studies.
If the Company is unable to successfully complete the sale of NexMed Asia
on a timely basis or at all, the Company will remain in default of its
outstanding indebtedness, and be required to significantly curtail its U.S.
operations, and delay, reduce, or eliminate some or all of its research and
development activities, planned clinical studies, and administrative programs.
The Company's working capital and additional funding requirements will
also depend upon numerous factors, including: (i) the progress of the Company's
research and development programs; (ii) the timing and results of pre-clinical
testing and clinical trials; (iii) the timing and costs of obtaining regulatory
approvals; (iv) the completion of licensing arrangements; (v) technological
advances; (vi) the activities of competitors; and (vii) the ability of the
Company to conduct clinical trials, to obtain regulatory approvals and, if such
approvals are obtained, to manufacture and market products.
Other Factors Which May Affect Operating Results
Computer Systems and Year 2000 Issues
Potential Disruption in Operations Due To Year 2000 Problems. The Year
2000 issue concerns the potential exposures related to the automated generation
of business and financial misinformation resulting from the application of
computer programs which have been written using two digits, rather than four, to
define the applicable year of business transactions. The Company recognizes the
importance of minimizing the frequency and significance of any disruptions in
its business and financial affairs that may occur as a result of Year 2000, and
has adopted a compliance review process designed to achieve this objective.
<PAGE>
The Company is:
o assessing and modifying, as necessary, its internal information
technology systems that may be affected by the Year 2000 problem;
o identifying and interrogating third parties, including vendors,
contractors and joint venture partners, to enable the Company to
evaluate and appropriately respond to the state of preparedness by
such parties to address Year 2000 problems; and
o assessing the operating systems to avert operational malfunctions
associated with Year 2000.
Internal Information Technology. The Company has reviewed its key computer
hardware and software and other equipment that may be affected by problems
associated with Year 2000. Such hardware includes desktop and laptop computers,
servers, printers, telecopier machines and telephones. Consequently, the Company
believes that it has adequately addressed Year 2000 concerns as they are related
to its internal information technology and systems and it anticipates minimal,
if any, disruption in the future in this regard.
Third Party Preparedness. While the Company believes the foregoing
initiatives will minimize Year 2000 problems as pertaining to its internal
operations, it may still be adversely impacted by Year 2000 issues as a result
of problems relating to the state of preparedness of third parties outside its
control. The Company intends to evaluate the state of preparedness by such
parties to address Year 2000 problems.
Property Compliance. The Company is completing a survey of all of its
offices to determine whether building support systems such as heat, power,
light, security and elevators will be affected by the advent of the Year 2000.
Compliance Costs. The Company's expenditures on its Year 2000 program
initiatives to date have been nominal, and the Company does not anticipate any
significant future costs with becoming Year 2000 compliant.
Risks. The failure to correct material Year 2000 problems could result in
an interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third parties, the Company is unable
to determine at this time whether the consequences of failing to adequately
address all Year 2000 concerns will have a material impact on the Company's
results of operations, liquidity or financial condition. However, the Company
expects that with appropriate modification of its information and operating
systems as necessary,
<PAGE>
the possibility of significant interruptions of normal operations should be
reduced. The Company is not in a position to assess or evaluate the impact of a
worst case scenario.
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 found businesses. Some of these unanticipated problems may include
development, regulatory, manufacturing, distribution and marketing difficulties
and be beyond the Company's financial or technical abilities to resolve
satisfactorily.
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including statements regarding
the Company's plans, objectives, expectations and intentions. Although the
Company believes the statements and projections are based upon reasonable
assumptions, actual results may differ from those that the Company has
projected.
Item 7. Financial Statements
Report of Independent Accountants
March 19, 1999
To the Board of Directors and Stockholders of
NexMed, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material aspects, the financial position of
NexMed, Inc. and its subsidiaries (the "Company") at December 31, 1998, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. 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 audit. We conducted our audits of these
statements in accordance with generally accepted auditing standards 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 the opinion expressed above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred operating losses since inception.
These and other factors, as discussed in Note 1, raise substantial doubt about
its ability to continue as a going concern. As such, the Company is dependent on
capital infusions from existing and new investors to fund operations.
Management's plans in regard to these matters are also described in Note 1. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
New York, New York
<PAGE>
NexMed, Inc.
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
December 31, 1998
Assets
Current assets
Cash and cash equivalents $ 1,681,336
Accounts receivable, net of allowance for doubtful
accounts of $157,040 1,289,483
Inventories 699,651
Prepaid expenses and other current assets 193,261
-----------
Total current assets 3,863,731
Fixed assets, net 1,867,517
Intangible assets, net of accumulated amortization
of $60,300 193,380
-----------
Total assets $ 5,924,628
===========
Liabilities and Stockholders' Equity
Current liabilities
Line of credit $ 2,174,412
Notes payable 2,524,313
Due to officer 600,500
Due to joint venture partner 217,441
Accounts payable 1,275,982
Accrued interest 639,654
Accrued expenses 161,765
-----------
Total current liabilities 7,594,067
-----------
Minority interest 720,998
-----------
Commitments and contingencies (Notes 1, 3, 7, 8, 9 and 14)
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, 8,401,783 shares issued and
outstanding 8,402
Additional paid-in capital 10,770,214
Cumulative translation adjustment (44,284)
Accumulated deficit (12,960,436)
-----------
(2,226,104)
Less: Deferred compensation (14,333)
Note receivable - related party (150,000)
-----------
Total stockholders' equity (2,390,437)
-----------
Total liabilities and stockholders' equity $ 5,924,628
===========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NexMed, Inc.
Consolidated Statement of Operations
- --------------------------------------------------------------------------------
For the Year Ended
December 31,
1998 1997
Revenue
Product sales $ 5,709,083 $ --
License fees -- 56,175
------------ -----------
5,709,083 56,175
------------ -----------
Costs and expenses
Cost of products sold 5,186,308 --
Selling, general and administrative 2,635,114 1,824,857
Research and development 2,302,148 2,078,517
------------ -----------
Total costs and expenses 10,123,570 3,903,374
------------ -----------
Loss from operations (4,414,487) (3,847,199)
Interest income (15,878) --
Interest expense 616,215 10,267
------------ -----------
Loss before minority interest (5,014,824) (3,857,466)
Minority interest 235,822 --
------------ -----------
Net loss (4,779,002) (3,857,466)
Other comprehensive loss
Foreign currency translation adjustments (44,284) --
------------ -----------
Comprehensive loss $ (4,823,286) $(3,857,466)
============ ===========
Basic and diluted loss per share $ (.64) $ (.63)
============ ===========
Weighted average common shares outstanding
used for basic and diluted
loss per share 7,505,588 6,077,475
============ ===========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NexMed, Inc.
Consolidated Statement of Changes in Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net (loss) $(4,779,002) $(3,857,466)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation and amortization 341,217 31,684
Minority interest (235,822) --
Noncash compensation expense 137,883 181,984
Noncash interest expense 70,100 2,519
Increase in accounts receivable (1,289,483) --
Increase in inventories (699,651) --
Increase in prepaid expense (124,007) (39,254)
Increase in accounts payable and accrued expenses 1,405,189 599,184
----------- -----------
Net cash used in operating activities (5,173,576) (3,049,173)
----------- -----------
Cash flows from investing activities
Capital expenditures (498,758) (147,135)
Increase in notes receivable - related party (150,000) --
Advances to joint ventures 1,870,000 (1,570,000)
----------- -----------
Net cash used in investing activities 1,221,242 (1,717,135)
----------- -----------
Cash flows from financing activities
Net borrowings under line of credit 2,174,412 --
Net decrease in due to joint venture partner (522,075) --
Increase in due to offices 600,500 --
Issuance of common stock, net of offering costs 2,675,625 2,101,220
Sale of stock by subsidiary 500,000 --
Issuance of notes payable 685,735 2,628,700
Repayment of notes payable (658,000) (25,000)
----------- -----------
Net cash from financing activities 5,456,197 4,704,920
----------- -----------
Effect of foreign exchange on cash 44,284 --
----------- -----------
Net (decrease) increase in cash and cash equivalents 1,548,147 (61,388)
Cash and cash equivalents
Beginning of period 133,189 194,577
----------- -----------
End of period $ 1,681,336 $ 133,189
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NexMed, Inc.
Consolidated Statement of Changes in Stockholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Common Additional
Stock Stock Paid-In Accumulated
(Shares) (Amount) Capital Deficit
<S> <C> <C> <C> <C>
Balance at December 31, 1996 5,07l,348 $ 5,07l $ 4,847,032 $ (4,323,968)
Issuance of common stock for cash 1,062,500 1,062 2,093,908 --
Issuance of common stock with note payable 7,500 8 14,992 --
Issuance of common stock
upon conversion of note payable 13,750 14 27,486 --
Issuance of common stock
upon exercise of stock options 25,000 25 6,225 --
Issuance of compensatory options to consultants -- -- 129,400 --
Issuance of warrants with notes payable -- -- 137,410 --
Issuance of compensatory warrants to a consultant -- -- 44,000 --
Amortization of deferred compensation expense
Net loss -- -- -- (3,857,466)
--------- ----------- ------------ ------------
Balance at December 31, 1997 6,180,098 6,180 7,300,453 (8,181,434)
Issuance of common stock for cash 1,790,167 1,790 2,602,585 --
Issuance of common stock upon
conversion of notes 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 (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 -- -- -- --
Net loss -- -- -- (4,779,002)
--------- ----------- ------------ ------------
Balance at December 31, 1998 8,401,783 $ 8,402 $ 10,770,214 $(12,960,436)
========= =========== ============ ============
<CAPTION>
Cumulative Note Total
Translation Deferred Receivable Stockholders
Adjustment Compensation Related Party Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ -- $(60,602) $ -- $ 468,073
Issuance of common stock for cash -- -- -- 2,094,970
Issuance of common stock with note payable -- -- -- 15,000
Issuance of common stock
upon conversion of note payable -- -- -- 27,500
Issuance of common stock
upon exercise of stock options -- -- -- 6,250
Issuance of compensatory options to consultants -- (81,600) -- 129,400
Issuance of warrants with notes payable -- -- -- 137,410
Issuance of compensatory warrants to a consultant -- -- -- 44,000
Amortization of deferred compensation expense -- 90,204 -- --
Net loss -- -- -- (3,857,466)
-------- -------- --------- -----------
Balance at December 31, 1997 -- (51,458) -- (926,259)
Issuance of common stock for cash -- -- -- 2,604,375
Issuance of common stock upon
conversion of notes 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 -- -- -- 63,798
Issuance of compensatory options to consultants -- (25,800) -- 11,160
Shares cancelled in settlement -- -- -- --
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) -- -- (44,284)
Net loss -- -- (4,779,002)
-------- -------- --------- -----------
Balance at December 31, 1998 $(44,284) $(14,333) $(150,000) $(2,390,437)
======== ======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NexMed, Inc.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1. Organization and Basis of Presentation
Organization
The Company, formerly known as BioElectric, Inc. and previously as Target
Capital, Inc., 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. Prior to January 1994, the Company
was engaged in other businesses which were not successful.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. Since its
inception, the Company has incurred cumulative net operating losses
of $12,960,436 and expects to incur substantial additional losses in
completing the research, development and commercialization of its
technologies. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations as they come due. Management
is actively pursuing various options which include securing additional
equity and/or debt financing and believes that sufficient funding will be
available to meet its planned business objectives. The financial
statements do not include any adjustments relating to the recoverability
of the carrying amount of recorded assets or the amount of liabilities
that might result from the outcome of these uncertainties.
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.
<PAGE>
NexMed, Inc. 2
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
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.
Equipment
Depreciable assets are stated at cost less accumulated depreciation.
Depreciation is provided on a straight-line basis over the estimated
useful lives of the assets, generally five to ten years.
Inventories
Inventories are stated at the lower of cost (determined on a weighted
average basis) or market value.
Intangible assets
Intangible assets include the costs of trademarks and licenses for the
manufacture of pharmaceutical products and are amortized on a
straight-line basis over their estimated useful life of 10 years.
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 basis 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
Effective December 31, 1997, the Company adopted Financial Accounting
Standards No. 128, "Earnings Per Share" ("FAS 128") which requires
presentation of basic earnings per share ("Basic EPS") and diluted
earnings per share ("Diluted EPS") by all entities that have publicly
traded common stock or potential common stock (options, warrants,
convertible securities or contingent stack arrangements). Basic EPS is
computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period.
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.
<PAGE>
NexMed, Inc. 3
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
At December 31, 1998 and 1997, outstanding options to purchase 2,676,700
and 2,930,000 shares of common stock, respectively, with exercise prices
ranging from $.25 to $3.00 have been excluded from the computation of
diluted loss per share as they are antidilutive. Outstanding warrants to
purchase 200,000 and 1,100,000 shares of common stock, respectively, with
exercise prices ranging from $2.00 to $4.00 have also been excluded from
the computation of diluted loss per share as they are antidilutive.
Additionally, 500,000 common shares issuable upon conversion of notes
payable have also been excluded from the computation of diluted loss per
share 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. In addition, approximately $1,500,000 of the
Company's cash and cash equivalents balance at December 31, 1998 is
located in a Chinese bank. The Company has not experienced any losses on
its cash accounts.
Supplemental cash flow information
The Company paid interest of $10,000 and $19,873 in 1998 and 1997,
respectively.
In December 1998, holders of an aggregate principal amount of $150,500
elected to convert the principal amount of such notes into 120,400 shares
of the Company's common stock.
In February 1997, a holder of a $25,000 note payable elected to convert
the principal and accrued but unpaid interest, in the amount of $2,500
thereon, into 13,750 shares of the Company's common stock.
Comprehensive income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 30, "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
<PAGE>
NexMed, Inc. 4
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
transactions and other circumstances from non-owner sources (including
cumulative translation adjustments, minimum pension liabilities and
unrealized gains/losses on available for sale securities). The adoption of
FAS 130 did not have a material impact on the Company's financial
statements.
Segment reporting
Effective January 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise
and Related Information" ("FAS 131"), which requires disclosure of
information about operating segments in annual financial statements for
reporting periods beginning subsequent to December 15, 1997. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and
in assessing performance. See Note 15 for additional disclosures regarding
segments and geographic information.
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. Under the terms of
the agreement, the Company was required to make an initial contribution of
$2,170,000, and is required to make additional contributions of $700,000
and $630,000 by September 1999 and 2000, respectively, in exchange for a
70% equity interest in the JV. 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 are
included in the consolidated financial statements of the Company as of
January 1, 1998.
During 1996, the Company, through its wholly-owned subsidiary, NexMed
International Limited, entered into an agreement to form a Chinese
joint-venture company with Guangdong Pharmaceuticals and Health Products
Import-Export Company and Zhongshan Shiqi Pharmaceutical Factory (the
"Guangdong JV"). In July 1997, the Company and its Guangdong JV partners
terminated their agreement to form the Guangdong JV. In September 1997,
$300,000 which the Company had advanced to its Guangdong JV partners to
form the Guangdong JV was returned.
4. New Brunswick Medical
In September 1998, the Company through its wholly owned subsidiary, NexMed
(USA), Inc., organized New Brunswick Medical, Inc. ("NBM"), a Delaware
corporation. NexMed (USA), Inc. transferred to NBM its rights to develop,
manufacture and market the Viratrol herpes treatment device in the U.S. in
exchange for 9,500 shares of NBM common stock. In October 1998, NBM sold
500 shares of its common stock to a private investor in exchange for
$500,000. $475,000 of such amounts is included as additional paid-in
capital in the company's consolidated financial statements. The remaining
$25,000, representing the private investors 5% interest in NBM, is
included as minority interest.
<PAGE>
NexMed, Inc. 5
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
Also in October 1998, NBM loaned $150,000 to the private investor who
purchased shares in October (see Note 9).
5. Inventories
Inventories at December 31, 1998 are comprised of the following:
Raw materials $204,274
Work in progress and finished goods 495,377
--------
$699,651
--------
6. Fixed Assets
Fixed assets at December 31, 1998 are comprised of the following:
Machinery and equipment $ 1,304,118
Furniture and fixtures 237,301
Transportation equipment 107,349
Leasehold improvements 20,140
Construction in progress 442,835
-----------
2,111,743
Less: accumulated depreciation (244,226)
-----------
$ 1,867,517
===========
7. Line of Credit
In July 1998, the JV entered into an RMB 13 million (approximately
$1,570,000) revolving line of credit with a Chinese financial institution
and in September 1998, an additional RMB 5 million (approximately
$600,000) was approved under the line of credit. The line of credit is
renewable annually, subject to approval by both parties, and bears
interest at 7.623% per annum. The line is also guaranteed by the JV
Partner.
<PAGE>
NexMed, Inc. 6
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
8. Notes Payable
Notes payable at December 31, 1998 are comprised of the following:
Unsecured notes payable $1,524,313
Unsecured convertible notes payable 1,000,000
---------
$2,524,313
---------
In January 1997, the Company issued a $100,000 convertible promissory note
bearing interest at 10% per annum. The note was initially due on December
31, 1997 and the note holder had the right to convert the unpaid note into
common stock at a conversion price of $2.50 per share. In conjunction with
the issuance of the note, the Company granted the purchaser of such note
7,500 shares of common stock. The Company valued these shares at $15,000
($2.00 per share) which was accounted for as debt discount and amortized
over the life of the note. In January 1998, the Company and the holder of
such note agreed to extend the term until January 1, 1999, increase the
interest rate to 12% per annum and lower the conversion price to $1.25 per
share. The Company has recorded additional interest expense of $60,000,
based upon the difference between the fair value of the common stock
($2.00 per share) and the conversion price. In December 1998, the note
holder elected to convert the principal amount of the note into 80,000
shares of the Company's common stock.
In November 1997, the Company issued a $458,700 promissory note. The
principal amount of the note, together with interest in the amount of
$24,400, was initially due on January 14, 1998. In January 1998, the
Company and the holder of the note agreed to roll-over the outstanding
principal and interest into a new note in the aggregate principal amount
of $483,100, which bore interest at 12% per annum and was payable,
together with accrued but unpaid interest, in July 1998. In June 1998, the
Company repaid $200,000 of the $483,100 promissory note and the Company
and the note holder agreed to roll-over the remaining outstanding
principal and unpaid interest, in the amount of $23,200 into a new note.
The new note in the principal amount of $306,300, bears interest at 12%
per annum and is payable, together with accrued but unpaid interest, in
December 1998. In December 1998, 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 $324,678. This new note bears
interest at 12% per annum and is payable, together with accrued but unpaid
interest, in June 1999. The note holder has the right to request payment
of the note if the Company raises additional equity capital in excess of
$3,000,000.
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 thereon, were due on November 16, 1998. In
conjunction with the issuance of the 6% Notes, the Company granted
warrants to purchase shares of the Company's common stock to the holders
of the 6% Notes and to a placement agent (see Note 12). 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 such notes was increased to 10% and the
holders were given the option to convert their notes into common stock at
a conversion price of $2.00 per share. The
<PAGE>
NexMed, Inc. 7
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
The Company is in default of the repayment terms of the remaining 6%
Notes, in the aggregate principal amount of $820,000.
In January 1998, the Company issued a $100,000 promissory note. The note
bears interest at 15% per annum and is due in January 1999. The note
holder has the right to request payment of the note if the Company raises
additional equity capital in excess of $1,000,000. The Company is in
default of the repayment terms of the note. 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 bears interest at 12% per annum and is payable, together with accrued
but unpaid interest, in June 1999.
In July 1998, the Company's wholly-owned subsidiary, NexMed (Asia)
Limited, issued a promissory note in the principal amount of approximately
$28,000. The note bears interest at 12% and is 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 approximately $29,700. The
new note bears interest at 12% per annum and is payable, together with
accrued but unpaid interest, in January 2000.
In July and August 1998, the Company issued promissory notes in the
aggregate principal amount of $131,750. The notes bear interest at rates
ranging from 12% to 15% per annum and are 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 bear
interest at rates ranging from 12% to 15% per annum and is payable,
together with accrued but unpaid interest, on various dates through
January 2000. The note holders have the right to request payment of the
note if the Company raises additional equity capital in excess of
$1,000,000.
In October 1998, the Company issued a promissory note in the aggregate
principal amount of $120,000. The note bears interest at 15% per annum and
is 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. The note holder
has the right to request payment of the note if the Company raises
additional equity capital in excess of $1,000,000.
In November 1998, the Company issued a convertible promissory note in the
principal amount of $50,500. The note bore interest at 18% per annum and
was convertible into shares of the Company's common stock at a conversion
price of $1.25 per share. The Company has recorded additional interest
expense of $10,100, which is based upon the difference between the fair
value of the common stock ($1.50 per share) and the conversion price. In
December 1998, the note holder elected to convert the principal amount of
the note into 40,400 shares.
<PAGE>
NexMed, Inc. 8
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
9. Related Party Transactions
In October 1998, NBM was issued a $150,000 promissory note from the
private investor who purchased shares of NBM's Common Stock (see Note 4).
The note bears interest at 4% per annum and is due in April 1999.
On various dates during 1998, the Company was advanced an aggregate of
$600,500 from an officer and director of the Company under an informal
agreement. The advances bear interest at 12% per annum and are due at
various dates in 1999.
At December 31, 1998, $217,441 of an unsecured, uncollateralized revolving
line of credit with the JV Partner was outstanding. The line of credit
bears interest at 11.1% per annum and expires in September 2000.
During 1998, the JV paid approximately $253,000 and $106,000 in rent and
management fees, respectively, to the JV Partner.
10. Common Stock
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.
In February 1997, the holder of a $25,000 note payable elected to convert
the principal and interest due into 13,750 shares of common stock.
In February 1997, the Company completed a private placement of 1,062,500
shares of common stock at $2.00 per share in a private placement,
receiving net proceeds of $2,094,970.
<PAGE>
NexMed, Inc. 9
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
11. 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 is 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, by December 31, 1998. 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. During 1998, the period to reach a market capitalization of
$10,000,000 was extended to December 1999 for 130,000 of these options.
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 July 1997, the Board of Directors
increased the number of shares reserved for the Incentive Plan and
Recognition Plan to a total of 4,000,000.
During 1997, the Company granted 475,000 options to employees and
directors under the Incentive Plan at an exercise price of $2.00 per
share, which was the estimated fair value of the common stock on the date
of grant. 400,000 of such options vest in equal installments over five
years and 75,000 of such options vest in equal installments over three
years. All of such options expire in 2007.
During 1997, the Company granted 85,000 options to a director and a
consultant under the Recognition Plan at an exercise price of $2.00 per
share, which was the estimated fair value of the common stock on the date
of grant. 10,000 of such options are immediately exercisable and the
remaining 75,000 options vest in equal installments in December 1997, 1998
and 1999 and expire in 2007. During the year ended December 31, 1997, the
Company recognized $81,600 in deferred compensation expense related to
these options which is being amortized over the vesting period.
During 1997, the Company also granted 50,000 options to a consultant under
the Recognition Plan at an exercise price of $2.00 per share, which was
the estimated fair value of the common stock on the date of grant. The
options are immediately exercisable and expire in 2007. The Company has
recorded $47,800 in expense related to these options during the year ended
December 31, 1997.
During 1998, the Company granted 316,700 options to employees under the
Incentive and Recognition Plans. The exercise prices of the options range
from $2.00 to $3.00 per share based upon the fair market value of the
common stock on the date of grant. 167,700 of such options were
immediately vested, the remaining 149,000 of such options vest over
periods ranging from 3 to 5 years. All of such options expire ten years
from the date of grant.
<PAGE>
NexMed, Inc. 10
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
Also during 1998, the Company granted 80,000 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.
A summary of stock option activity is as follows:
Weighted
Average
Number of Exercise
Shares Price
Outstanding at December 31, 1996 2,515,000 $1.36
Granted 600,000 $2.00
Exercised (25,000) $ .25
Forfeited (100,000) $2.00
Cancelled (60,000) $2.00
--------- -----
Outstanding at December 31, 1997 2,930,000 $1.49
Granted 396,700 $2.51
Exercised (285,000) $ .25
Forfeited (80,000) $ .25
Cancelled (285,000) $2.00
--------- -----
Outstanding at December 31, 1998 2,676,700 $1.73
========= =====
Exercisable at December 31, 1998 1,792,700 $1.66
========= =====
Options available for grant at December 31, 1998 1,873,300
=========
The following table summarizes information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
$ .25 510,000 3.9 years $ .25 380,000 $ .25
1.00 40,000 7.8 years 1.00 40,000 1.00
2.00-3.00 2,126,700 8.1 years 2.10 1,372,700 2.06
--------- ----- --------- -----
2,676,700 $1.73 1,792,700 $1.66
========= ===== ========= =====
</TABLE>
<PAGE>
NexMed, Inc. 11
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
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, 1998 and 1997, would have been increased
by approximately $803,200 and $455,200, respectively, or $.11 and $.07 per
share, respectively.
The fair value of each option and warrant (see Note 12) 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 5.89% - 6.71%
Expected volatility 65.0% - 80.0%
Option terms 1-10 years
12. Warrants
During November 1996, the Board of Directors approved the issuance of
warrants to purchase 150,000 shares of common stock at $1.00 per share to
its outside legal counsel as consideration for legal services performed
relating to the sale of common stock in November 1997 and other matters.
The estimated fair value of the Company's common stock was $2.00 per share
at that time. The warrants have a term of ten years and vest in equal
installments over a three-year period. The issue of these warrants
resulted in additional legal expense of $109,500 in 1996. No warrants have
been exercised as of December 31, 1998.
In conjunction with the issuance of the 6% Notes (see Note 8), the note
holders received warrants to purchase 455,000 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 $68,705 which has been accounted for as
a debt discount and is being amortized over the life of the 6% Notes.
Additionally, the Company issued 455,000 warrants to purchase shares of
the Company's common stock at an exercise price of $4.00 per share to a
placement agent. 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 $68,705, which was classified as debt issuance costs and
amortized over the life of the 6% Notes. These warrants expired in
November 1998.
In December 1997, the Company issued warrants to purchase 50,000 shares of
common stock at $4.00 per share to a consultant. The estimated fair value
of the Company's common stock was $2.00 per share at the time of issuance.
The warrants have a term of five years and are immediately exercisable.
The Company recognized expense of $44,000 for the year ended December 31,
1997 related to these warrants.
<PAGE>
NexMed, Inc. 12
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
13. Income Taxes
The Company has incurred losses since inception which have generated net
operating loss carryforwards of approximately $12,500,000 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. 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 result in a noncurrent deferred tax
benefit at December 31, 1998 of approximately $5,000,000. In consideration
of the Company's accumulated losses and the uncertainly 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, 1998 and 1997, 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.
14. 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 under operating lease agreements expiring
in February 2003. Future minimum payments under noncancellable operating
leases with initial or remaining terms of one year or more, consist of the
following at December 31, 1998:
1999 $ 441,100
2000 401,100
2001 384,000
2002 384,000
2003 211,800
-----------
Total $ 1,822,000
===========
The Company also leases office space under a short-term lease agreement.
Rent expense was $344,200 and $75,200 in 1998 and 1997, respectively.
<PAGE>
NexMed, Inc. 13
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
Litigation
In January 1997, a complaint was filed against the Company by a
corporation claiming breach of contract, unjust enrichment and
anticipatory breach of contract relating to a marketing and consulting
agreement. The corporation requested damages of $388,062, plus interest,
costs and attorney's fees. In November 1997, the claim was dismissed
without prejudice on procedural grounds. Counsel for the plaintiff has
indicated that the plaintiff intends to file an amended compliant. The
Company believes that this claim is without merit and, should an amended
complaint be filed and served, intends to defend its position vigorously
and that any potential loss is not material to the financial position or
results of operations of the Company.
15. 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,
Canada and China. The Company also maintains a manufacturing facility
through the JV in China.
Geographic segment data
Geographic information as of December 31, 1998 and 1997 are as follows:
1998 1997
Net revenues
United States $ -- $ 56,175
China 5,709,083 --
Other foreign countries -- --
----------- -----------
$ 5,709,083 $ 56,175
=========== ===========
Net loss
United States $(3,743,963) $(3,373,414)
China (544,939) --
Other foreign countries (490,100) (484,052)
----------- -----------
$(4,779,002) $(3,857,466)
=========== ===========
Total assets
United States $ 277,119 $ 2,189,300
China 5,539,329 --
Other foreign countries 108,180 143,612
----------- -----------
$ 5,924,628 $ 2,332,912
=========== ===========
<PAGE>
NexMed, Inc. 14
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
16. Subsequent Events
On March 29, 1999, the Company's wholly-owned subsidiary, NexMed
International, entered into a stock purchase agreement (the "Purchase
Agreement") with Vergemont International Limited ("Vergemont") for the
sale of all of the issued and outstanding capital stock of NexMed (Asia)
Limited and warrants to acquire 2,000,000 shares of the Company's common
stock for total consideration of $2,000,000 in cash by April 28, 1999 and
$2,000,000 in promissory notes. Both parties have agreed that if the
Company does not receive a total of $2,000,000 in cash by April 28, 1999,
the Company will return any payment made by Vergemont and the Purchase
Agreement will be null and void. The remaining $2,000,000 of consideration
will be evidenced by two promissory notes, each in the principal amount of
$1,000,000, which are due on November 12, 1999 and June 30, 2000,
respectively. The warrants issued to Vergemont are exercisable at $2.50
per share prior to June 30, 1999 and $3.00 per share after June 30, 1999,
and expire on June 30, 2000. In connection with this transaction, the
Company has agreed to pay a consulting firm a 6% commission on the
anticipated $4,000,000 in proceeds, as such proceeds are received, and to
issue the consulting firm warrants to acquire 200,000 shares of the
Company's common stock at $3.00 per share for a period of two years.
The assets of NexMed (Asia) Limited consist primarily of the Company's
China operations and JV.
In conjunction with the sale of NexMed (Asia) Limited, NexMed
International and Vergemont would enter into a license agreement for the
manufacture and marketing of certain of the Company's products under
development. The Company would be paid a royalty on sales and would supply
the active ingredient to NexMed (Asia) Limited on a cost plus basis. In
addition, the Company's President would continue to consult with Vergemont
and serve as its representative in the JV for which the Company would be
compensated by Vergemont.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; compliance
with Section 16(a) of the Exchange Act.
Executive Officers and Directors
The Executive Officers and Directors of the Company are set forth below.
Name Age Title
- ---- --- -----
Y. Joseph Mo, Ph.D. 51 Chairman of the Board of
Directors, President and
Chief Executive Officer
James L. Yeager, Ph.D. 52 Director, Vice President, R&D
and Business Development
Joseph M. Warusz 42 Vice President, Chief
Financial Officer
Vivian H. Liu 37 Vice President, Corporate
Affairs and Secretary
Gilbert S. Banker, Ph.D. 67 Director
Robert W. Gracy, Ph.D. 58 Director
Yu-Chung Wei 36 Director
The Company has three classes of Directors. At each annual meeting of
shareholders, the successors to the class of Directors whose terms expire at
that meeting shall be elected for a three-year term.
Y. Joseph Mo, Ph.D. Dr. Mo has been Chairman of Board of Directors,
President and Chief Executive Officer of the Company since joining the Company
in 1995. Prior to joining the Company, Dr. Mo was president of Sunbofa Group,
Inc., an investment consulting company. From 1991 to 1994, he was President of
the Chemical Division, and from 1988 to 1994 the Vice President of Manufacturing
and Medicinal Chemistry, of Greenwich Pharmaceuticals, Inc. Prior thereto, he
served in various executive positions with several major pharmaceutical
companies, including Johnson & Johnson, Rorer Pharmaceuticals, and predecessors
of SmithKline Beecham. Dr. Mo received his Ph.D. in Industrial and Physical
Pharmacy from Purdue University in 1977.
James L. Yeager, Ph.D. Dr. Yeager has been Vice President, Research &
Development and Business Development since June 1996, and a Director of the
Company
<PAGE>
since December 1998. Prior to joining the Company, Dr. Yeager was the Vice
President of Research and Development for Pharmedic Company, during which time
he specialized in the building and managing of new product development programs.
From 1989 to 1992, Dr. Yeager held international managerial positions with
Abbott Laboratories. Dr. Yeager received his Ph.D. in Industrial and Physical
Pharmacy from Purdue University in 1978. Dr. Yeager is also a member of the
Company's Scientific Advisory Committee. Dr. Yeager commenced full-time
employment with the Company on January 1, 1998.
Joseph M. Warusz. Mr. Warusz has been Vice President and Chief Financial
Officer of the Company since August 1998. Prior to joining the Company, Mr.
Warusz was for 15 years, in various financial positions at Bristol Myers Squibb,
including Director of International Finance and Assistant Controller. From 1979
to 1983, Mr. Warusz worked at Peat Marwick Main and Company. Mr. Warusz received
his MBA in Financial Management from Drexel University, and a Bachelor of
Science in Business Administration from Drexel University.
Vivian H. Liu. Ms. Liu has been Vice President, Corporate Affairs and
Secretary of the Company since September 1995. In 1994, while the Company was in
a transitional period, Ms. Liu served as its Chief Executive Officer. In
addition, from September 1995 to September 1998, Ms. Liu had the title of
Treasurer. From 1985 to 1994, she was a business and investment adviser to the
government of Quebec and numerous Canadian companies with respect to product
distribution, technology transfer and investment issues. Ms. Liu received her
Masters Degree in International Finance from the University of Southern
California, and a Bachelor of Arts degree in International Trade from the
University of California, Berkeley.
Gilbert S. Banker, Ph.D. Dr. Banker has been a Director of the Company
since September 1995. Since 1992, Dr. Banker has been Dean and a distinguished
professor of the College of Pharmacy at the University of Iowa. From 1985 to
1992, he was Dean and Professor of the College of Pharmacy at the University of
Minnesota. Prior to that time, he was the Department Head of Industrial and
Physical Pharmacy at Purdue University for 18 years. Dr. Banker has authored
numerous publications, lectures internationally and consults to several major
pharmaceutical companies. Dr. Banker received his Ph.D. in Industrial Pharmacy
from Purdue University in 1957. Dr. Banker is also a member of the Company's
Scientific Advisory Committee.
Robert W. Gracy, Ph.D. Dr. Gracy has been a Director of the Company since
January 1998. Dr. Gracy is the Dean for Research and Biotechnology and Associate
Dean for Basic Science at the University of North Texas Health Science Center in
Fort Worth, Texas. Since 1985, Dr. Gracy has received over $5 million in
research grants and contracts. His current projects focus on three aspects of
the biochemical changes associated with aging: changes at the cellular level,
wound and tissue repair, and vision impairment. Dr. Gracy is a consultant to
number of the major pharmaceutical companies. Dr. Gracy lectures internationally
and has published over 140 papers regarding his research. Dr. Gracy received his
Ph.D. in Biochemistry from the University of California,
<PAGE>
Riverside in 1968 and completed a postdoctoral in Molecular Biology at the
Albert Einstein College of Medicine in New York in 1970. Dr. Gracy is also a
member of the Company's Scientific Advisory Committee.
Yu-Chung Wei. Mr. Wei has been a Director of the Company since March 1998.
Mr. Wei is Chairman of the Board of Directors and Chief Executive Officer of
Alfa Romeo (Taiwan) Motor Company. From 1993 to 1994, he served as Special
Advisor to Tai-Lung Holding Co., Ltd., a Taiwan-based investment conglomerate.
From 1989 to 1993, Mr. Wei held various managerial positions at Kidder, Peabody
Incorporated and Merrill Lynch & Co., Inc., in New York City. Mr. Wei received
his MBA in Finance and Management Information Systems from Pace University in
New York.
Dr. Gracy and Mr. Wei are Class I Directors with terms that expire at the
2001 annual meeting of shareholders and Dr. Banker is a Class II Director with
terms that expire at the 2000 annual meeting of shareholders, and Drs. Mo and
Yeager are Class III Directors with terms that expire at the May 10, 1999 annual
meeting of shareholders
Scientific Advisory Committee
The members of the Company's Scientific Advisory Committee are Gilbert S.
Banker, Ph.D., J.R. Chen, Ph.D., S. Dan Dimitrijevich, Ph.D., Robert W. Gracy,
Ph.D., J. Howard Rytting, Ph.D. and James L. Yeager, Ph.D. The Scientific
Advisory Committee provides advice and assistance to the Company with regard to
issues that arise within the committee members' expertise. Although Scientific
Advisory Committee members are not compensated for their services in such
capacity, certain members have received stock options for services rendered to
the Company on an individual basis. Summaries of the backgrounds of Scientific
Advisory Committee members who are not Executive Officers or Directors of the
Company are set forth below.
J.R. Chen, Ph.D. Dr. Chen is the President and Chief Executive Officer of
Sage Pharmaceuticals, Inc., a manufacturer and distributor of pharmaceutical and
health care products, including generic and proprietary formulations and skin-
and wound-care products, which he founded in 1991. Dr. Chen has 20 years of
experience in the field of drug development. Dr. Chen received his Ph.D. in
Physical Pharmacy from the University of Iowa.
S. Dan Dimitrijevich, Ph.D. Dr. Dimitrijevich is an Associate Research
Professor at the Department of Biochemistry and Molecular Biology and Department
of Surgery, and a Faculty member of the Cardiovascular Research Institute at the
University of North Texas Health Science Center at Fort Worth. Since 1969, Dr.
Dimitrijevich has carried out original research in synthetic organic chemistry
of carbohydrates, nucleosides and nucleotides and was involved in the New Drug
Application for the antiviral drug Ribovirin/Virazole. Dr. Dimitrijevich
received his Ph.D. in Carbohydrate Chemistry from the University of Bath,
England in 1969, and from 1969 to 1974, completed research fellowships at the
Department of Chemistry, University of Alberta, Canada, the
<PAGE>
Institute of Molecular Biology at Syntex Research in Palo Alto, California, and
the Glycoprotein Research Unit at the University of Durham, England.
J. Howard Rytting, Ph.D. Dr. Rytting is a Professor of Pharmaceutical
Chemistry at the University of Kansas, and the Editor-in-Chief of the
International Journal of Pharmaceutics. Dr. Rytting has published over 100
articles and over 100 abstracts regarding his research in the areas of solution
thermodynamics and its applications to drug designs and delivery, and the
stability of oral, rectal, transdermal and intestinal drug delivery. He was
designated a Fellow of the American Association of Pharmaceutical Scientists in
1990. Dr. Rytting received his Ph.D. in Physical Chemistry from Brigham Young
University in 1969.
Section 16(a) Beneficial Ownership Reporting Compliance
Upon effectiveness on May 13, 1997 of the Company's registration statement
on Form 10-SB, filed pursuant to Section 12(g) of the Exchange Act, the Company
voluntarily became a reporting company. During 1998, Robert W. Gracy did not
file a Form 4 Report that was due on November 10, 1998, until November 16, 1998.
Gilbert S. Banker filed a Form 4 Report on March 11, 1998 that was due on March
10, 1998. In addition, Gilbert S. Banker filed a Form 4 Report on January 11,
1999 which did not include one sales transaction that occurred on December 30,
1998. A Form 4A Report was subsequently filed on March 11, 1999.
Item 10. Executive Compensation
The information required by Item 10 is incorporated by reference from the
Company's definitive proxy statement for its Annual Meeting of Shareholders on
May 10, 1999.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for its Annual Meeting of Shareholders on
May 10, 1999.
Item 12. Certain Relationships and Related Transactions
The information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its Annual Meeting of Shareholders on
May 10, 1999.
Item 13. Exhibits, List and Reports on Form 8-K
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEXMED, INC.
Date: April 12, 1999 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 Exchange Act, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Date: April 12, 1999 By: /s/ Y. Joseph Mo
-------------------------------------
Y. Joseph Mo
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
Date: April 12, 1999 By: /s/ Joseph M. Warusz
-------------------------------------
Joseph M. Warusz
Vice President and Chief Financial
Officer (Principal Financial Officer)
Date: April 12, 1999 By: /s/ Gilbert S. Banker
-------------------------------------
Gilbert S. Banker
Director
Date: April 12, 1999 By: /s/ Robert W. Gracy
-------------------------------------
Robert W. Gracy
Director
Date: April 12, 1999 By: /s/ Yu-Chung Wei
-------------------------------------
Yu-Chung Wei
Director
Date April 12, 1999 By: /s/ James L. Yeager
-------------------------------------
James L. Yeager
Director, Vice-President, R&D and
Business Development
