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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 2000
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)
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 [x] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: as of November 10, 2000,
24,947,304 shares of Common Stock, par value $0.001 per share, were issued and
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [x]
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Table of Contents
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Page
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Part I. FINANCIAL INFORMATION................................................................................1
Item 1. Financial Statements
Balance Sheets as of September 30, 2000 (Unaudited)........................................2
Statements of Operations for the
Nine Months and Three Months Ended September 30, 2000 and
September 30, 1999 (Unaudited).............................................................3
Statements of Cash Flows for the
Nine Months and Three Months Ended September 30, 2000 and
September 30, 1999 (Unaudited).............................................................4
Notes to Financial Statements (Unaudited)..................................................5
Item 2. Management's Discussion and Analysis or Plan of Operation..................................6
Part II. OTHER INFORMATION...................................................................................9
Item 2. Changes in Securities and Use of Proceeds..................................................9
Item 6. Exhibits and Reports on Form 8-K...........................................................9
Signatures..................................................................................................10
Exhibit 27..................................................................................................11
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
1
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NexMed, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
September 30,
2000
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<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 36,268,265
Restricted Cash 100,000
Certificates of Deposit 2,205,000
Marketable Securities 1,586,878
Prepaid expenses and other assets 965,576
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Total current assets 41,125,719
Furniture and equipment, net 844,171
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Total assets $ 41,969,890
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Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 363,219
Accrued expenses 116,393
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Total current liabilities 479,612
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Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000
shares authorized, none issued and outstanding -
Common stock, $.001 par value, 80,000,000
shares authorized, 24,897,384 issued
and outstanding, respectively 24,896
Additional paid-in capital 62,499,541
Accumulated deficit (21,001,056)
Deferred compensation (9,752)
Unrealized loss marketable securities (23,368)
Cumulative translation adjustments 17
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Total stockholders' equity 41,490,278
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Total liabilities and stockholders' equity $ 41,969,890
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</TABLE>
See notes to unaudited condensed consolidated financial statements
2
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NexMed, Inc.
Condensed Consolidated Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
For the nine months For the three months
ended September 30, ended September 30,
-------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
Product sales $ - $ 1,491,796 $ - $ -
------------ ------------ ------------ -----------
Operating expenses
Cost of product sales - 1,415,002 - -
Selling, general and administrative 1,892,264 1,201,181 748,497 245,195
Research and development 4,472,174 1,009,209 1,592,716 330,012
------------ ------------ ------------ -----------
Total operating expenses 6,364,438 3,625,392 2,341,213 575,207
------------ ------------ ------------ -----------
Loss from operations (6,364,438) (2,133,596) (2,341,213) (575,207)
------------ ------------ ------------ -----------
Other income (expense)
Interest income (expense), net 735,552 (208,028) 463,035 (26,283)
Other income 78,866 - 35,596 -
------------ ------------ ------------ -----------
Total other income (expense) 814,418 (208,028) 498,631 (26,283)
------------ ------------ ------------ -----------
Loss before minority interest (5,550,020) (2,341,624) (1,842,582) (601,490)
Minority interest - 73,932 - -
------------ ------------ ------------ -----------
Net loss $(5,550,020) $(2,267,692) $(1,842,582) $ (601,490)
------------ ------------ ------------ -----------
Other comprehensive income
Foreign currency translation adjustments (138) (44,843) (174) (1)
Unrealized loss on available-for-sale securities (23,368) - (7,073) -
------------ ------------ ------------ -----------
Total other comprehensive income (23,506) (44,843) (7,247) (1)
Comprehensive Loss $(5,573,526) $(2,312,535) $(1,849,829) $ (601,491)
============ ============ ============ ===========
Basic and diluted loss per share $ (0.28) $ (0.27) $ (0.08) $ (0.07)
------------ ------------ ------------ -----------
Weighted average common shares outstanding
used for basic and diluted loss per share 20,834,767 8,538,839 22,418,506 8,879,395
------------ ------------ ------------ -----------
</TABLE>
See notes to unaudited condensed consolidated financial statements
3
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NexMed, Inc.
Condensed Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
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2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $(5,550,020) $(2,267,692)
Adjustments to reconcile net loss to net cash from operating
activities, net of effects of sale of subsidiary
Depreciation and amortization 177,976 27,575
Non-cash compensation expense 63,740 14,333
Amortization of unearned compensation 1,828 -
Net loss on sale of marketable securities 5,714 -
Decrease in notes receivable 2,000,000 -
Decrease in inventories - 8,898
(Increase) in prepaid expenses and other assets (795,581) 26,925
(Decrease)/Increase in account payable
and accrued expenses (77,052) (40,440)
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Net cash used in operating activities (4,173,395) (2,230,401)
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Cash flow from investing activities
Capital expenditures (694,099) (11,964)
Purchase of marketable securities (1,681,539) -
Purchase of certificates of deposit (4,109,000) -
Proceeds from sale of marketable securities 78,089 -
Proceeds from sale of certificates of deposit 1,804,000 -
Proceeds from sale of subsidiary, net - 343,441
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Net cash used in investing activities (4,602,549) 331,477
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Cash flow from financing activities
Issuance of common stock, net of offering
costs 40,088,459 8,026,348
Issuance of notes payable - 1,120,913
Net proceeds from line of credit - 50,000
Net decrease in due to/from related party - (68,517)
Decrease in due to officer (33,092) (600,500)
Repayment of notes payable (133,838) (522,770)
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Net cash from financing activities 39,921,529 8,005,474
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Net increase in cash 31,145,585 6,106,550
Effect of foreign exchange on cash 3,831 (47,792)
Cash, beginning of period 5,118,849 1,681,336
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Cash, end of period $ 36,268,265 $ 7,740,094
============= ============
</TABLE>
See notes to unaudited condensed consolidated financial statements
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NEXMED, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10 - QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for annual financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2000. For further information, refer to the financial statements and notes
thereto dated March 1, 2000 included in the NexMed, Inc. (the "Company") Form 10
- KSB.
2. LOSS PER SHARE
Since the Company incurred net losses in all periods presented, outstanding
options and warrants to purchase shares of Common Stock were not included in
diluted per share calculations, as their effect would be antidilutive.
3. LINE OF CREDIT
The Company modified its line of credit with the Bank to increase its advance
limit to $100,000 from $50,000. Interest on the line of credit is payable
monthly, at the bank's prime rate plus 1%. Additionally, the repayment of the
line of credit is no longer guaranteed by an officer and director of the Company
but by the Company itself. Accordingly, the Company has obtained a $100,000
certificate of deposit, which is held by the bank as collateral on the line of
credit, which is payable upon demand.
4. SUBSEQUENT EVENTS
In October 2000, the Company's former legal counsel exercised 50,000 of 150,000
warrants to purchase 50,000 shares of the Company's common stock at $1.00 per
share.
In October 2000, the Company completed the $2.2 million purchase of its
manufacturing facility in East Windsor, New Jersey.
In November 2000, the Company granted 60,000 options to a new officer, under the
Incentive Plan at an exercise price of $16.25 per share, which was the estimated
fair value of the common stock on the date of grant. 15,000 of such options vest
immediately and the remaining options vest in equal installments over three
years. The options expire in 2010.
In November 2000, the Company granted 43,800 options to nine newly-hired
employees, under the Incentive Plan at an exercise price of $16.25 per share,
which was the estimated fair value of the common stock on the date of grant. All
of such options vest in equal installments over three years and expire in 2010.
In November 2000, the Company granted 15,000 options to a consultant under the
Recognition Plan at an exercise price of $16.25 per share, which was the
estimated fair value of the common stock on the date of grant. The Company will
record expense based upon the fair value of such options as they vest. The
options vest in three installments during 2001 and expire in 2002.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL.
We have been in existence since 1987. Since 1994, we have positioned
ourselves as a pharmaceutical and medical technology company with a focus on
developing and commercializing therapeutic products based on proprietary
delivery systems. We are currently focusing our efforts on:
(i) new and patented pharmaceutical products based on a penetration
enhancement topical delivery technology known as NexACT(R), which may enable the
active drug to be better absorbed through the skin. Currently, we are focusing
on Alprox-TD(R), an alprostadil cream for the treatment of male erectile
dysfunction ("ED") and Femprox(TM), also an alprostadil-based cream, for the
treatment of female sexual arousal disorder ("FSAD").
In late August 2000, we completed a Phase II clinical study on the
Alprox-TD(R) cream. The multicenter study, conducted at 12 clinical sites in the
U.S., was randomized, parallel, double-blind, placebo-controlled and designed to
evaluate the dose-response relationships of the safety and efficacy of three
different doses of the Alprox-TD(R) cream versus a placebo in 161 men with mild
to moderate ED. In September 2000, we submitted to the FDA preliminary data for
this study and intend to soon submit the data in final report form to the FDA
for review and concurrence. With respect to the Femprox(TM) cream, we intend to
begin our Phase II clinical testing by the end of 2000.
We have engaged in discussions with several large pharmaceutical
companies regarding a strategic partnership for the Alprox-TD(R) cream but we
cannot assure you that we will be able to conclude an arrangement on a timely
basis, if at all, or on terms acceptable to us. With our current cash reserves,
we may elect to proceed with our Phase III program on the Alprox-TD(R) cream,
assuming we receive FDA concurrence, while concurrently pursuing these
discussions; and
(ii) the Viratrol(R) device, a therapeutic medical device for the
treatment of herpes simplex I without the use of drugs. We believe that the
minute electrical current, which is topically delivered by the device to an
infected site, may block lesions from forming or may significantly shorten
healing time once lesions develop. We are in the process of completing the
commercial product design of the Viratrol(R) herpes treatment device for the
U.S. market.
If sufficient funding is forthcoming, we intend to (1) pursue our
research, development, and marketing activities and capabilities, both
domestically and internationally, with regard to our proprietary pharmaceutical
products and (2) execute a business strategy with the goal of achieving a level
of development sufficient to enable us to attract potential strategic partners
with resources sufficient to further develop and market our proprietary
products.
COMPARISON OF RESULTS OF OPERATIONS BETWEEN THE NINE MONTHS ENDED SEPTEMBER 30,
2000 AND 1999.
Revenues. We recorded no revenues during the nine months of operations
in 2000 as compared to $1,491,796 during the same period in 1999. Our 1999
revenues represent revenues of NexMed Pharmaceuticals (Zhongshan) Ltd., a
joint-venture in China. We sold our interest in the joint-venture in May 1999.
6
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Cost of Products Sold. The cost of products sold was nil and $1,415,002
in 2000 and 1999, respectively. The cost of products sold in 1999 was
attributable to the manufacturing operations of the China joint-venture. We sold
our interest in the joint-venture in May 1999.
General and Administrative Expenses. Our general and administrative
expenses were $1,892,264 during the nine months of operation in 2000 as compared
to $1,201,181 during the same period in 1999. The increase is largely
attributable to G&A expenses for new personnel and programs to support our
ongoing U.S. development activities. G&A personnel increased 100% in the nine
months of operation in 2000 as compared to the same period in 1999. We also
incurred additional expenses related to our Nasdaq listings.
Research and Development Expenses. Our research and development
expenses for the nine months of operation in 2000 and 1999 were $4,472,174 and
$1,009,209, respectively. The increase is attributable to clinical testing
activities for our Alprox-TD(R) and FemproxTM creams and the availability of
funds to accelerate clinical development by initiating concurrent studies and
activities. R&D personnel increased over 300% in the nine months of operation in
2000 as compared to the same period in 1999. We anticipate that R&D expenses
will continue to increase with the initiation of costly later-stage clinical
trials and the hiring of additional R&D personnel to support these programs.
Interest Income and Expense. Interest income was $735,552 during the
nine months of 2000, compared with $(208,028) during the same period in 1999.
The increase is attributable to the improvement in our cash position resulting
from our financing activities and elimination of expenses associated with
borrowing activities.
Net Loss. The net loss applicable to common shareholders was $5,550,020
or a loss of $0.28 per share for the nine months of operation in 2000, compared
with $2,267,692 or a loss of $0.27 per share for the same period in 1999. The
increase is primarily due to the increase in research and development expenses
and additional personnel and related expenses including fringe benefits,
depreciation and amortization of furniture, equipment and leasehold improvements
to accommodate the new personnel.
COMPARISON OF RESULTS OF OPERATIONS BETWEEN THE NINE MONTHS ENDED SEPTEMBER 30,
2000 AND 1999.
Revenues. We recorded no revenues for the third quarter in 2000 and in
1999.
Cost of Products Sold. We recorded no cost of products sold for the
third quarter in 2000 and in 1999.
General and Administrative Expenses. Our general and administrative
expenses were $748,497 during the third quarter in 2000 as compared to $245,195
during the same period in 1999. The increase is largely attributable to the
expenditures for new personnel and programs to support our ongoing development
activities. G&A personnel increased 100% in the third quarter of operation in
2000 as compared to the same period in 1999. We also incurred additional
expenses related to our Nasdaq listings.
Research and Development Expenses. Our research and development
expenses for the three months of operation in 2000 and 1999 were $1,592,716 and
$330,012, respectively. The increase is attributable to our ongoing clinical
testing activities for the Alprox-TD(R) and FemproxTM creams and the
availability of funds to accelerate clinical development by initiating
concurrent studies and activities. R&D personnel increased over 300% in third
quarter of operation in 2000 as compared to the same period in 1999. We
anticipate that R&D expenses
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will continue to increase with the initiation of costly later-stage clinical
trials and the hiring of additional R&D personnel to support these programs.
Interest Income and Expense. Interest income was $463,035 during the
three months of operation in 2000, compared with $(26,283) during the same
period in 1999. The increase is attributable to the improvement in our cash
position resulting from our financing activities and elimination of expenses
associated with borrowing activities.
Net Loss. The net loss applicable to common shareholders was $1,842,582
or a loss of $0.08 per share for the third quarter of 2000, compared with
$601,490 or a loss of $0.07 per share for the same period in 1999. The increase
is primarily due to the increase in research and development expenses and
additional personnel and related expenses including fringe benefits,
depreciation and amortization of furniture, equipment and leasehold improvements
to accommodate the new personnel.
LIQUIDITY AND CAPITAL RESOURCES.
We have experienced net losses and negative cash flow from operations
each year since our inception. Through September 30, 2000, our accumulated
deficit amounted to $21,001,056. Since we became a medical and pharmaceutical
technology company in 1994, we have financed our operations primarily through
private placements of equity and debt securities.
Our expenditures and capital requirements will depend on numerous
factors, but will mainly be affected by the progress of (1) our research and
development programs, (2) our pre-clinical and clinical testing, (3) our ability
to raise adequate funding, and (4) our ability to complete corporate partnership
agreements. In the course of our development and operational activities, we have
incurred significant losses and expect to incur substantial additional
development costs.
In October 2000, we completed the purchase of our new manufacturing
facility in East Windsor, New Jersey. We are currently debt-free and have over
$37 million in cash, cash equivalents and marketable securities. We have
allocated our cash reserves for our operational requirements, and for the U.S.
clinical studies on the Alprox-TD(R) and Femprox(TM) creams and the development
program on the Viratrol(R) device, and the ongoing retrofitting of our new
manufacturing facility for compliance with Good Manufacturing Practices (GMP) as
required by the FDA. We believe that our current cash reserves are adequate to
support our continuing operations for at least the next twelve months. However,
we may require additional financing for the next phase of our development
programs and may seek financing from equity or debt and from private and public
sources as well as from collaborative licensing and/or marketing arrangements
with third parties. There is no assurance that such funds will be available to
us on acceptable terms, if at all.
OTHER FACTORS WHICH MAY AFFECT OPERATING RESULTS.
Our operations are subject to numerous risks associated with the
establishment and development of products based upon innovative or novel
technologies. As a result, we must be evaluated in light of the problems,
delays, uncertainties and complications encountered in connection with newly
founded businesses. Some of these unanticipated problems may include
8
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development, regulatory, manufacturing, distribution and marketing difficulties
and be beyond our financial or technical abilities to resolve satisfactorily.
These and other risks are discussed in further detail in our Form 10-KSB filing
for the period ended December 31, 1999.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS.
This report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, including statements
regarding our plans, objectives, expectations and intentions. Although we
believe the statements and projections are based upon reasonable assumptions,
actual results may differ from those that we have projected.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In July and August 2000, we completed a private placement of an
aggregate of 3,138,256 shares of our common stock and warrants to purchase an
additional 1,282,891 shares to an aggregate of twenty-five accredited
individuals and financial institutions pursuant to an exemption from
registration under the Securities Act of 1933, provided by rule 506 of
Regulation D. Of the 1,282,891 shares that are issuable upon the exercise of
warrants: (i) 717,891 shares are issuable upon the exercise of warrants with an
exercise price of $13.50 a share; and (ii) 565,000 shares are issuable upon the
exercise of warrants with an exercise price of $16.20 a share. All of the
warrants have a term of 18 months. We received approximately $26.85 million in
gross proceeds from the sale of units comprised of our common stock and
warrants, $10,170,00 was received from the July 2000 closing of the private
placement and $16,681,288 was received from the August 2000 closing of the
private placement. We paid a commission to two placement agents in connection
with our August and July 2000 private placement. Shannon Limited, one of the
placement agents, received (i) a cash commission equal to 6% of the gross
proceeds from the private placement received by us (including proceeds received
upon exercise of warrants) through sales to clients of Shannon Limited; and (ii)
12,600 warrants to purchase shares of our Common Stock. Americal Securities,
Inc., was the other placement agent, it received (i) a cash commission equal to
7.5% of the gross proceeds from the private placement received by us (including
proceeds received upon exercise of warrants) through sales to clients of
Americal Securities, Inc.; and (ii) 292,826 warrants to purchase shares of our
Common Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibit is included herein:
Exhibit 27 - Financial Data Schedule is included for EDGAR purposes
only. This Schedule contains summary financial information extracted
from the balance sheets and statements of operations and deficit as of
and for the nine months ended September 30, 2000, and is qualified in
its entirety by reference to such financial statements.
(b) No reports on Form 8-K were filed during the quarter for which this report
is being filed.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEXMED, INC.
Date: November 13, 2000 /s/ Y. Joseph Mo
--------------------- -----------------------------------
Y. Joseph Mo
Chairman of the Board of Directors,
President and C.E.O.
Date: November 13, 2000 /s/ Vivian H. Liu
--------------------- -----------------------------------
Vivian H. Liu
Vice President, Chief Financial Officer
and Secretary
10
