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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-26487
WOMEN FIRST HEALTHCARE, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 13-3919601
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12220 EL CAMINO REAL, SUITE 400, SAN DIEGO, 92130
CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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(858) 509-1171
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $ .001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filer pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 29, 2000, the aggregate market value of the registrant's
voting stock held by non-affiliates of the registrant was approximately
$44,283,941, based on the closing price of the Company's Common Stock on the
Nasdaq National Market on February 29, 2000 of $5.875 per share.
As of February 29, 2000, 17,270,552 shares of registrant's Common Stock,
$.001 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after the close of the fiscal
year are incorporated by reference into Part III of this report.
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PART I
ITEM 1. BUSINESS
The discussion of Women First HealthCare, Inc.'s business contained in this
report may include certain projections, estimates and other forward-looking
statements that involve a number of risks and uncertainties. For a discussion of
factors which may affect the outcome projected in such statements, see "Risks
and Uncertainties" on pages 15 through 23 of this Report on Form 10-K. While
these statements represent our current judgment on the future direction of the
business, such risks and uncertainties could cause actual results to differ
materially from any future performance listed below. We undertake no obligation
to release publicly the results of any revisions to these forward-looking
statements to reflect the events and circumstances arising after the date of
this annual report.
OVERVIEW
Women First HealthCare, Inc. is a specialty health care company dedicated
to improving the health and well-being of midlife women. Our mission is to help
midlife women make informed choices about their physical and emotional health
and to provide pharmaceutical products, self-care products, educational programs
and support systems to help these women improve the quality of their lives. We
market these products in the United States through a number of channels
including our dedicated sales force, our direct-to-consumer marketing programs
through our Internet sites, womenfirst.com and aswechange.com, and through our
national As We Change(R) catalog.
The pharmaceutical products we offer include Ortho-Prefest(TM), an oral
combination hormonal replacement therapy (HRT) product which received approval
from the FDA in October 1999 and was introduced to the market in January 2000
under a co-promotion agreement with Ortho-McNeil Pharmaceutical, Inc., a related
party. We also offer the Esclim(TM) estradiol transdermal system, which we have
licensed from Laboratoires Fournier, S.A., Pravachol(R), a leading
cholesterol-lowering drug that we co-promote with Bristol-Myers Squibb U.S.
Pharmaceuticals Group, and Ortho-Est(R), an oral estrogen product used for HRT
that we distribute pursuant to an agreement with Ortho-McNeil Pharmaceutical.
During 1999, we offered Ortho Tri-Cyclen(R), a leading oral contraceptive, under
the co-promotion agreement with Ortho-McNeil Pharmaceutical. Through December
31, 1999, we did not meet the minimum performance levels required to receive
compensation under this co-promotion agreement in relation to Ortho
Tri-Cyclen(R). As a result, we have not recorded revenue under this agreement
through December 31, 1999. Effective as of March 31, 2000, Women First has
discontinued the co-promotion of Ortho Tri-Cyclen(R). Under an amendment, which
is being negotiated, Ortho Tri-Cyclen(R) will be eliminated from the
co-promotion agreement but Women First will continue to co-promote
Ortho-Prefest(TM).
Our self-care products include a broad array of nutritional, herbal,
exercise, fitness, beauty, wellness and other products which we sell through our
national mail-order catalog, As We Change(R), and our Internet retailers,
womenfirst.com and aswechange.com. We are also preparing to launch Women
First(TM) Daily Difference(TM), a line of nutritional products developed in
cooperation with the Tufts University School of Nutrition Science and Policy.
INDUSTRY TRENDS
We believe that the markets for pharmaceutical and self-care products for
midlife women are changing because of the following trends:
- a significant and expanding population of midlife women as the "baby
boom" generation ages,
- the expanding roles of OB/GYNs and the nurse practitioners and
physician's assistants focused on women's health,
- an increasing awareness of the conditions and diseases that affect
midlife women and the development of new products to address them,
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- recognition of the dissatisfaction among midlife women about their health
care,
- the importance of information and education in helping women make
informed decisions regarding their midlife health, and
- increasing opportunities for product licensing, acquisition, co-promotion
and development by specialty pharmaceutical companies.
According to the U.S. Census Bureau, there are approximately 59 million
women in the United States between the ages of 35 and 69. That number is
expected to grow to 67 million women by the year 2010. Every day during this
period, approximately 4,000 to 5,000 women will enter menopause. IMS Health
reports that U.S. pharmaceutical sales were approximately $112.1 billion for
1999, and that approximately 58% of prescription drugs are used by women.
We have conducted market research through an independent research company
with 400 women between the ages of 45 and 55 to determine their satisfaction
with current treatment approaches and alternatives. We also have held
discussions with practicing physicians and other specialists in women's health
care. Our research indicates that these women want menopause to be treated as a
naturally occurring condition rather than a disease and are seeking a source of
credible and comprehensive information about midlife health. We also found that
midlife women want choice and individualized solutions that address their
changing physical and emotional requirements. Our research and the research of
third parties further suggests that:
- most women are not proactive in their health care needs in midlife,
- although most experts agree that the benefits of HRT outweigh the risks
for most women, approximately 15% of eligible women currently take HRT,
- approximately 20-30% of midlife women do not fill their prescriptions for
HRT,
- approximately 20% of women discontinue using HRT within nine months of
initiation, and
- most women feel that physicians do not spend sufficient time with them
and approximately 40% switch physicians because of a perceived lack of
time and sympathy on the part of the physician.
As women transition through menopause, their bodies begin to reduce the
production of the steroid hormones, estrogen and progesterone. Studies have
shown that with the significant loss of estrogen and progesterone production
after menopause, the long-term health care needs of women change significantly.
Among other things, women experience changes in their cardiovascular, skeletal,
neurologic, urologic and reproductive systems and may experience changes in
their sexual and emotional needs. Studies have shown that HRT alleviates the
symptoms commonly associated with menopause and may reduce the risk of
cardiovascular disease and osteoporosis. However, some women experience side
effects associated with HRT including bloating, weight gain, breast tenderness,
headaches, nausea and breakthrough bleeding. In addition, women may discontinue
using HRT due to a perceived risk of breast cancer. According to IMS Health,
retail pharmaceutical sales for HRT in the United States were approximately $1.8
billion in 1999.
According to the American Heart Association, coronary heart disease is the
single largest killer of American women. In 1996 in the United States, all
cardiovascular diseases combined claimed the lives of approximately 506,000
women compared to approximately 453,000 men. The American Heart Association also
estimated in 1996 that approximately 52 million women had cholesterol levels of
200 mg/dL or higher, which is a major risk factor for developing cardiovascular
disease. A survey conducted by Women First in 1999 revealed that nearly half of
women over age 45 who visit their OB/GYN as their primary care provider are not
being screened for cardiovascular disease. The survey, among 4,000 US women,
1,900 of whom were aged 45 or older, also found that 19% would be considered at
high risk for CVD and had not had their cholesterol screened within the last
five years.
In addition, the Association of Professors of Gynecology and Obstetrics
estimates that 25 million women have, or are at a high risk of developing,
osteoporosis. There are approximately 250,000 hip fractures each year in women,
and an estimated 15% of women in their mid-60s will fracture a vertebrae, rising
to 30 - 40% of women by their mid-80s. Notwithstanding the high rate of
incidence of these conditions among midlife
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women, researchers at the National Center on Women and Aging at Brandeis
University found that nearly 60% of the women they surveyed between the ages of
45 and 75 were unaware of significant health risks such as heart disease.
STRATEGY
Our objective is to become a premier marketer of health care products for
midlife women by responding to current industry trends and by establishing Women
First as a widely recognized source of pharmaceutical and self-care products
targeted at this group of women. We are implementing the following strategies in
order to achieve this goal:
- LEVERAGE THE EXPANDING ROLE OF OB/GYNS AS PRIMARY CARE PHYSICIANS. We
believe that the expanding roles of OB/GYNs and the nurse practitioners
and physician's assistants focused on women's health create a market
opportunity for us. We are leveraging this opportunity by providing an
educational platform to increase these clinicians' knowledge of the
diagnosis and treatment of conditions and diseases affecting midlife
women and using this platform to promote hormonal management and
cardiovascular pharmaceutical products. We also plan to use this platform
to promote pharmaceutical products that address other conditions and
diseases often affecting women later in life, such as depression,
osteoporosis and incontinence, as well as nonprescription self-care
products, such as nutritional supplements.
- ENHANCE SALES THROUGH FOCUSED MARKETING EFFORTS. We are focused on
reaching our target market of 59 million midlife women through our sales
and marketing programs to OB/GYNs and the nurse practitioners and
physician's assistants focused on women's health and our
direct-to-consumer Internet and catalog marketing programs. We employ our
150 sales representatives to market our pharmaceutical products
throughout the United States, with a primary emphasis on OB/GYNs, nurse
practitioners and physician's assistants focused on women's health. We
market our self-care products to midlife women through a comprehensive
direct-to-consumer marketing program that includes the As We Change(R)
catalog, as well as the womenfirst.com and aswechange.com Internet sites.
- BECOME A PRIMARY SOURCE FOR WOMEN'S HEALTH CARE EDUCATION. We believe
that as women and clinicians become more informed, they will be more
likely to use or recommend pharmaceutical and self-care products that
address women's needs in midlife. Accordingly, we seek to provide
credible and comprehensive information to women and their clinicians. To
help us achieve this goal, we have organized a Health Advisory Board
comprised of a group of pre-eminent clinicians and scientists with
expertise in women's health to develop the content for a
multi-dimensional educational program called Gateway to Midlife
Health -- A Better Way(TM). Through an unrestricted grant from Women
First, the Mount Sinai School of Medicine and the Women's Health Care
Education Foundation have developed and sponsored the clinician education
portion of the program in cooperation with the Keck School of Medicine of
the University of Southern California. Two additional programs for
OB/GYNs and the nurse practitioners and physician's assistants focused on
women's health have also been offered, "Managing Cardiovascular Risk in
Women -- A Better Way(TM)" and "Lifetime Hormonal Management -- A Better
Way(TM)." The former is sponsored by Bristol-Myers Squibb and Women
First, and the latter is supported through an unrestricted educational
grant from Ortho-McNeil Pharmaceutical and Women First. The "Lifetime
Hormonal Management -- A Better Way(TM)" program is also jointly
sponsored by the Keck School of Medicine of the University of Southern
California and the Women's Health Care Education Foundation, in
cooperation with the Mount Sinai School of Medicine. We believe that
these educational programs will serve as an important resource for
clinicians on the healthcare needs of midlife women, as well as enhance
awareness of Women First among women and their clinicians.
- ESTABLISH "WOMENFIRST.COM" AS A COMPREHENSIVE INTERNET SITE FOR MIDLIFE
WOMEN. We believe that midlife women are actively seeking credible and
comprehensive information regarding their health concerns as well as
opportunities to purchase products related to their particular needs. Our
Internet site, womenfirst.com, contains extensive educational information
for women, while our
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aswechange.com Internet site contains a thoughtfully selected array of
self-care and lifestyle products. These sites provide an effective
platform to market the self-care products we currently offer and, in the
future, to promote the products of other companies that are targeted at
midlife women.
- SEEK PRODUCT CO-PROMOTION, CO-MARKETING AND PRODUCT ACQUISITION
OPPORTUNITIES. We plan to expand the range of products we offer midlife
women by obtaining rights to market and sell branded pharmaceutical and
self-care products to these women. One area of focus is on products that
are not being actively marketed to OB/GYNs or the nurse practitioners and
physician's assistants focused on women's health that complement the
product lines we currently offer or that we can distribute on an
exclusive basis. We continue to engage in discussions with major
pharmaceutical companies to license, acquire or co-promote pharmaceutical
products that have been approved by the FDA or pharmaceutical products in
the late stages of clinical development.
PRODUCTS
Pharmaceutical Products
In January 2000, we began to co-promote Ortho-Prefest(TM) (17
Beta-estradiol/norgestimate), a new oral combination estrogen and progestin HRT
product which received FDA approval in October 1999. Pursuant to our
co-promotion agreement with Ortho-McNeil Pharmaceutical, Women First promotes
Ortho-Prefest(TM) to designated OB/GYNs, primary care physicians, nurse
practitioners and physician's assistants focused on women's health care in the
United States and Puerto Rico. Ortho-Prefest(TM) combines 17 Beta-estradiol, the
principal form of estrogen produced naturally by the ovaries of pre-menopausal
women, with norgestimate, the most widely prescribed low-dose progestin, in a
unique pulsed regimen. Physicians generally prescribe a combination
estrogen/progestin product or a progestin along with estrogen to reduce the risk
of endometrial cancer in women with an intact uterus.
In November 1999, we initiated sales and distribution of the Esclim(TM)
estradiol transdermal system, an estrogen patch system that releases small
amounts of 17 Beta-estradiol, the main estrogen produced in the ovaries, through
the skin on a continuous basis. Esclim(TM) replenishes declining levels of
estradiol using a patented matrix technology. Under our distribution and license
agreement with Laboratoires Fournier S.A., Women First has the exclusive right
to promote, sell, and distribute the Esclim(TM) product line in the United
States and Puerto Rico. The product, a patch that is changed twice a week, is
available in a range of dosage strengths including 0.025, 0.0375, 0.05, 0.075
and 1.0 milligrams. Esclim(TM), which received FDA approval in August 1998, is
the leading transdermal estrogen product in France and has been launched in a
number of European countries and Canada.
We obtained the right to market Pravachol(R) (pravastatin sodium), an
HMG-CoA reductase inhibitor or "statin," to designated OB/GYNs and the nurse
practitioners and physician's assistants associated with OB/ GYN practices
pursuant to a co-promotion agreement with Bristol-Myers Squibb in March 1999,
and began our co-promotional efforts in relation to this product in the second
quarter 1999. Pravachol(R), which is available in three dosage strengths of 10
mg, 20 mg and 40 mg, has been shown to reduce the risk of a first heart attack
and coronary heart disease, as well as the risk of future heart surgery to clear
blocked arteries, in patients with high cholesterol without clinical evidence of
coronary heart disease. It also has been shown to reduce the risk of recurrent
heart attacks, stroke and mini-stroke as well as the risk of heart surgery to
clear blocked arteries in patients with prior heart attacks and normal
cholesterol (less than 240mg/dL). In patients with coronary heart disease and
hypercholesterolemia, Pravachol(R) is indicated to reduce the risk of total
mortality by reducing coronary death. Pravachol(R) has been shown to reduce
these risks by lowering total cholesterol and low density lipoprotein (LDL),
while increasing high density lipoprotein (HDL). Although, based upon our
performance for the first two quarters under the agreement, Bristol-Myers Squibb
has the right to terminate the agreement upon sixty days' prior written notice,
we are currently negotiating to restructure this agreement in order to improve
our ability to recognize revenue from our sales efforts.
We began selling and distributing Ortho-Est(R) (estropipate), a
soybean-derived estrogen product, through wholesale and retail channels pursuant
to an exclusive distribution agreement with Ortho-McNeil Pharmaceutical in July
1998. Ortho-Est(R) is available on the market in the United States in two
strengths, .625mg and
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1.25mg. The Ortho-Est(R) product replenishes declining estrogen levels in
midlife women with estrone, the principal type of estrogen that the body makes
following menopause.
Effective as of March 31, 2000, Women First discontinued the co-promotion
of Ortho Tri-Cyclen(R), a leading oral contraceptive, which had been offered
under a co-promotion agreement with Ortho-McNeil Pharmaceutical.
Self-Care Products
We offer a variety of self-care products to midlife women through our
subsidiary As We Change, LLC, a national mail order catalog and Internet
retailer directed at midlife women, and through our Internet sites,
womenfirst.com and aswechange.com. The As We Change(R) catalog offers women a
range of more than 200 products designed to meet the needs of women at midlife.
Nutritional Products
We plan to introduce Women First(TM) Daily Difference(TM), a line of
nutritional products uniquely formulated to address the specific needs of
midlife women during the second quarter of 2000. Developed by the Tufts
University School of Nutrition Science and Policy, these products will include a
daily nutritional supplement (multivitamin plus calcium), along with specialized
formulations intended to promote healthy bones and joints, vision, the
cardiovascular system, the skin, and the immune system in midlife women. To
assist women in their selection of nutritional supplements, we also are creating
a program to individualize nutritional recommendations to women based on factors
such as family history, lifestyle and physical characteristics. According to
Packaged Facts, the market for nutritional products is a large and growing
market, exceeding $5 billion in annual sales in the United States in 1998.
Other Products
In September 1998, we entered into an exclusive licensing arrangement with
CHPNC, LLC, pursuant to which we have the exclusive right to manufacture, market
and sell a product entitled, "Benefit: Risk Assessment Model." We are funding
the development of this product, a patient health questionnaire and software
program that assesses a woman's risk for developing heart disease, breast cancer
and osteoporosis. This product is based on Dr. Nananda Col's research that was
published in the Journal of the American Medical Association in April 1997 and
incorporated in her book, entitled A Woman Doctor's Guide to Hormone
Therapy -- How to Choose What's Right for You. We have completed the development
of RENEWAL -- a time for you(TM), a program that offers women practical
approaches to achieve a sense of well being in midlife, in conjunction with Dr.
Deepak Chopra and an exercise video, Strong Women Stay Young, which is based on
research published by Dr. Miriam Nelson, a highly respected expert on women's
health issues.
In the fourth quarter of 1999, Women First discontinued the operations of
Women First Pharmacy Services, Inc., and also discontinued the promotion of the
SafeStart(TM) umbilical cord clamp/cutter and certain consumer product
activities.
MARKETING AND SALES
Pharmaceutical Products
In August 1998, there were approximately 29,000 board certified OB/GYNs in
the United States. We have recruited and trained a direct pharmaceutical field
sales organization of 150 sales representatives to market pharmaceutical
products to these practices. We intend to hire additional sales representatives
as warranted by the growth of our business. To optimize our sales efforts, we
have prioritized OB/GYNs based on the frequency with which they prescribe
hormonal replacement therapy products. We have also hired a staff to support the
field sales force, including customer service representatives, sales trainers
and sales and contract administrators. Our co-promotion agreement with
Ortho-McNeil Pharmaceutical provides that Ortho-McNeil Pharmaceutical will
support our marketing and sales activities for the Ortho-Prefest(TM)
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oral combination HRT product by providing sales training, supplying product
samples and promotional materials, jointly developing marketing strategies and
promotional plans with us, and planning and financially supporting educational
programs. Our Pravachol(R) co-promotion agreement provides that Bristol-Myers
Squibb will support our marketing and sales activities through participation in
sales force training, jointly developing marketing strategies and promotional
plans and planning market research.
Internet
We are implementing an "e-commerce" initiative through our womenfirst.com
and aswechange.com Internet sites. We launched womenfirst.com in May of 1999 to
provide extensive health information for women and the clinicians who care for
them. Our content covers more than 50 topics including information on acute and
chronic conditions, nutrition, fitness and alternative health as well as access
to interactive tools for health assessment and real-time medical news. In
December 1999, we developed a marketplace of products for women 40-plus on
womenfirst.com. In March 2000 we launched a Professional Gateway to provide
professional materials for OB/GYNs. Through the aswechange.com site, we provide
access to all of the products sold through our catalog, As We Change(R).
Because of the significant educational content we have placed on the
womenfirst.com Internet site, we believe that the site will be an attractive web
link. Pursuant to an agreement with iVillage Inc., we have provided educational
information on midlife health issues in a Women First designated area on
ivillage.com and implemented a link from the iVillage site to womenfirst.com.
iVillage has hosted one online event related to midlife health, a discussion
with Deepak Chopra, M.D, and has agreed to host two additional such events.
Under a separate agreement with our subsidiary, As We Change, LLC, iVillage has
established links on ivillage.com to the aswechange.com Internet site.
As We Change
Our As We Change, LLC subsidiary offers a broad array of self-care products
including nutritional, herbal, beauty, exercise, wellness and personal care
products. Since its inception in 1996, As We Change has published 14 unique
catalogs, generated more than 192,000 orders and currently has an in-house
database of nearly 177,000 customers and catalog requesters. The catalog
features private label products that are tailored to meet the individual
lifestyle needs of women. Private label products currently account for
approximately half of the catalog offering. As We Change has developed a
sophisticated infrastructure including a call center with telephone and Internet
customer support capability, warehouse and shipping, new product screening and
sourcing, catalog design and production, database and circulation management and
e-commerce.
EDUCATIONAL AND SUPPORT PROGRAMS
The Women First(TM) Clinician Education Program. Our Health Advisory Board
has developed the content for a midlife health education program entitled
"Gateway to Midlife Health -- A Better Way(TM)," to educate OB/GYNs, and the
primary care physicians, nurse practitioners and physician's assistants focused
on women's health with the goal of improving the diagnosis and treatment of
midlife conditions and diseases. Through an unrestricted grant from Women First,
the Mount Sinai School of Medicine and the Women's Health Care Education
Foundation have developed and sponsored the clinician education portion of the
program in cooperation with the Keck School of Medicine of the University of
Southern California. Two additional programs for OB/GYNs and the nurse
practitioners and physician's assistants focused on women's health have also
been offered, "Managing Cardiovascular Risk in Women -- A Better Way(TM)" and
"Lifetime Hormonal Management -- A Better Way(TM)." The former is sponsored by
Bristol-Myers Squibb and Women First, and the latter is supported through an
unrestricted educational grant from Ortho-McNeil Pharmaceutical and Women First.
The "Lifetime Hormonal Management -- A Better Way(TM)" program is also jointly
sponsored by the Keck School of Medicine of the University of Southern
California and the Women's Health Care Education Foundation, in cooperation with
the Mount Sinai School of Medicine. In August 1999, Women First launched a
nationwide program aimed at creating awareness of a woman's risk for developing
cardiovascular disease by offering free cholesterol testing in certain OB/GYN
offices across the country.
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The Women First(TM) Consumer Education Program. We have established
womenfirst.com as a comprehensive Internet site containing extensive information
on healthcare and lifestyle issues of concern to midlife women. Our content
covers more than 50 topics including information on health, nutrition, fitness
and alternative health, as well as access to interactive tools for health
assessment and real-time medical news. The content is clinically referenced,
consistent with Women First's philosophy of providing evidence-based education.
We have also developed a patient handbook called "A Better Way(TM) to
Midlife Health -- Your Personal Guide" that provides information to women about
midlife health issues including menopause. Each booklet includes a journal
section where women can record their symptoms and personal health data to
improve their interaction with their clinician.
MANUFACTURING AND LOGISTICS
We do not plan to establish manufacturing capability. We will source the
products we offer through manufacturing agreements with third-party
manufacturers. The third-party manufacturers will be responsible for receipt and
storage of raw materials, production, packaging, labeling and shipping of
finished goods. With regards to our pharmaceutical products, we currently have
arrangements with Laboratoires Fournier, S.A., for the supply of the Esclim(TM)
estradiol transdermal system and with Ortho-McNeil Pharmaceutical for the supply
of the Ortho-Est(R) oral estrogen product. Bristol-Myers Squibb is responsible
for the supply of the Pravachol(R) product in all distribution channels.
Ortho-McNeil Pharmaceutical is responsible for the supply of the
Ortho-Prefest(TM) oral combination HRT product in all distribution channels. For
more information about our sources of supply, see "Risks and Uncertainties" on
pages 15 through 23 of this Report on Form 10-K.
Initially, we intend to engage independent companies specializing in the
distribution of pharmaceutical and medical products to wholesalers, pharmacies
and hospitals to provide physical distribution and logistics management for the
pharmaceutical and medical device products we distribute. Livingston Healthcare
Services, Inc. currently provides these services.
COMPETITION
The health care industry is highly competitive. Most of our competitors and
those of our collaborative partners are large, well-known pharmaceutical, life
science and health care companies that have considerably greater financial,
sales, marketing and technical resources than we have. Additionally, these
competitors have research and development capabilities that may allow them to
develop new or improved products that may compete with product lines we market
and distribute. The pharmaceutical industry is characterized by continuous
product development and technological change. The pharmaceutical products we
market and distribute could be rendered obsolete or uneconomical by
pharmaceutical products developed by competitors, technological advances
affecting the cost of production, or marketing or pricing action by one or more
competitors. In addition, competitors may elect to devote substantial resources
to marketing their products to midlife women and may choose to develop
educational and information programs like those we have developed to support
their marketing efforts. Our business, financial condition and results of
operations could be materially and adversely affected by any one or more of such
developments.
Pharmaceutical Products
The pharmaceutical products we offer face significant competition.
Ortho-Prefest(TM), the new oral combination HRT product, Ortho-Est(R), the oral
estrogen product, and the Esclim(TM) estradiol transdermal system compete in the
hormone replacement therapy market. The primary competition in this market is
Wyeth-Ayerst Pharmaceuticals, Inc., a division of American Home Products, which
markets Premarin(R), an oral estrogen product, and Prempro(R) and Premphase(R),
combination oral estrogen and progestin products. The HRT products we market
also compete with HRT products marketed by Parke-Davis, a Warner Lambert
Division, Solvay Pharmaceuticals, Inc., Duramed Pharmaceuticals, Inc., and
others, as well as generic HRT products. The HRT products we market also compete
with non-hormonal replacement therapy products marketed by Merck & Co., Inc.,
and Eli Lilly & Company. In addition, the Esclim(TM) estradiol transdermal
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system competes with estrogen and combination estrogen/progestin patch products
marketed by Berlex Laboratories, Watson Laboratories, Inc., Novogyne
Pharmaceuticals and Rhone-Poulenc Rorer Pharmaceuticals, Inc. The Pravachol(R)
product competes with other cholesterol-lowering products marketed by Merck &
Co., Inc., Parke-Davis, Pfizer, Inc., Novartis Pharmaceuticals Corporation and
Bayer Corporation. Each of these competitors has substantially greater
marketing, sales and financial resources than we do.
Self-Care Products
Competition for the self-care products we offer is significant. As We
Change competes with a number of catalog companies and Internet retailers
focusing on self-care products. Transitions for Women(R) offers a range of
nutritional and herbal products for midlife women and Self Care(R), Well &
Good(TM), Feel Good(TM), Solutions(R), Intellihealth HealthyHome(TM) and
Harmony(TM) market and sell general lifestyle and personal care products.
Our Daily Difference(TM) nutritional products when launched will face
substantial competition from products such as Centrum(R), marketed by
Whitehall-Robins Healthcare, Natrol(R), marketed by Natrol, Inc., Nature
Made(R), marketed by Nature Made Nutritional Products, One-A-Day(R), marketed by
Bayer Corporation, Theragran(R) and Theragran-M(R), marketed by Bristol-Myers
Squibb, Viactiv(R), marketed by Mead Johnson Nutritionals and Myadec(R),
marketed by Parke-Davis. Each of these competitors has substantially greater
marketing, sales and financial resources than we do.
Other Education and Support Programs
Our educational programs will compete with programs that have been
developed by medical professionals and non-professionals alike. Our Internet
site, womenfirst.com, will compete with other Internet sites focused on women's
health as well as sites focused on health care issues in general, such as
cbs.medscape.com, nlm.nih.gov/medlineplus, healthfinder.gov, reutershealth.com,
drkoop.com, and webmd.com.
LICENSING AND CO-PROMOTION AGREEMENTS
Ortho-Prefest(TM) and Ortho Tri-Cyclen(R). We obtained the right to
co-promote the Ortho-Prefest(TM) and Ortho Tri-Cyclen(R) products in the United
States and Puerto Rico to designated physicians and nurse practitioners in the
field of women's health care pursuant to a co-promotion agreement with
Ortho-McNeil Pharmaceutical effective July 1, 1999 and continuing through
December 31, 2002 unless earlier terminated. We may extend this agreement for
one additional year provided minimum sales goals are met.
Ortho-McNeil will compensate us for sales of Ortho-Prefest(TM) through a
compensation arrangement based on the net sales of the product from
prescriptions written by the clinicians who are called on by us. Ortho-McNeil
also may reduce the payments otherwise required to be paid to us under the
agreement with respect to Ortho-Prefest(TM) if we do not make a specified
portion of the minimum number of sales calls for that product.
Under the co-promotion agreement, we are responsible for our costs in
promoting the product covered by the agreement and our out-of-pocket expenses in
training our sales force, except for the costs of certain promotional materials,
training materials and expenses and product samples which are provided by Ortho-
McNeil. Ortho-McNeil is responsible for the manufacture, labeling, distribution
and selling of the products. The agreement prohibits us from marketing,
promoting, selling or distributing any prescription contraceptive or
prescription hormonal replacement therapy product other than the Ortho
Tri-Cyclen(R), Ortho-Est(R) and Ortho-Prefest(TM) products and other than an
estrogen patch product (subject to specified restrictions) during the term of
the agreement and the three months following the expiration of the term. The
co-promotion agreement also limits the number of products other than Ortho
Tri-Cyclen(R) and Ortho-Prefest(TM) that our sales force may present during the
same sales call as Ortho Tri-Cyclen(R) and Ortho-Prefest(TM). The agreement
expressly permits Ortho-McNeil to enter into a co-promotion agreement with a
third party with respect to Ortho-Prefest(TM) but not with respect to Ortho
Tri-Cyclen(R).
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The co-promotion agreement requires us to make a significant number of
sales calls each year, with the number increasing significantly after the launch
of Ortho-Prefest(TM) in January 2000. The agreement also allows Ortho-McNeil to
terminate the agreement in the event at least a specified portion of the minimum
sales calls are not made for three consecutive quarters. As of December 31,
1999, we had not made the required minimum number of sales calls for two
consecutive quarters. The agreement also may be terminated by either party on a
product by product basis if any product covered by the agreement loses
regulatory approval. In addition, the agreement also may be terminated in the
event that there is a change in control of Women First or if Edward F. Calesa or
David F. Hale is no longer associated with Women First (other than as a result
of death or disability). A change in control includes the acquisition by a third
party unaffiliated with Women First of (1) a majority of our stock or the right
to vote a majority of our stock or (2) sufficient stock to elect a majority of
our Board of Directors or (3) the power to designate a majority of our Board of
Directors. The agreement also may be terminated for other specified reasons.
The agreement requires Ortho-McNeil to compensate us for sales of Ortho
Tri-Cyclen(R) with a performance fee based on the value of Ortho-McNeil's net
increase in its market share of oral contraceptive products for the
prescriptions written by the clinicians called on by us over the increase, if
any, in Ortho-McNeil's market share for oral contraceptive products for the
prescriptions written by the clinicians who are not called on by us. Through
December 31, 1999, we did not meet the minimum performance levels required to
receive compensation under this co-promotion agreement in relation to Ortho
Tri-Cyclen(R). As a result, we have not recorded revenue under this agreement
through December 31, 1999. Effective as of March 31, 2000, Women First has
discontinued the co-promotion of Ortho Tri-Cyclen(R). Under an amendment, which
is being negotiated, Ortho Tri-Cyclen(R) will be eliminated from the
co-promotion agreement but Women First will continue to co-promote
Ortho-Prefest(TM).
Esclim(TM). In July 1999, we entered into a distribution and license
agreement with Laboratoires Fournier S.A. under which we have been granted the
exclusive right (subject to exceptions) to market, use, distribute and sell the
Esclim(TM) estradiol transdermal system in various dosages in the United States
and Puerto Rico. The agreement requires us to pay Fournier a non-refundable
license fee of $1.45 million payable over a two-year period, with $700,000 of
this fee subject to sales objectives being reached. As of December 1999, we have
already paid $750,000 of the total amount of the license fee owed to Fournier
under the agreement. We are also required to pay Fournier a royalty during the
term of the definitive agreement based upon the net sales of the product. The
agreement provides that Fournier is solely responsible for the manufacture of
the product and for quality assurance, quality control and other aspects of
manufacturing the product, except that after payment of the initial license
fees, Fournier has transferred to us responsibility for the New Drug Application
filed with the FDA with respect to the product. We are solely responsible for
U.S. customs clearance, sales, marketing, advertising, distribution of the
product and for handling product complaints.
Pravachol(R). We obtained the right to co-promote the Pravachol(R) product
in the United States to OB/GYNs, primary care physicians designated as OB/GYNs
by Bristol-Myers Squibb U.S. Pharmaceuticals Group, and nurse practitioners and
physician's assistants associated with OB/GYN practices, pursuant to a
three-year co-promotional agreement effective March 1, 1999 with Bristol-Myers
Squibb. Under the agreement, we are responsible for the costs incurred by both
parties in approved promotions of the product to the clinicians covered by the
agreement (less a specified credit) and for the training of our sales force
relating to the Pravachol(R) product. Bristol-Myers Squibb is responsible for
the manufacture, shipping, distribution and warehousing of the product as well
as billing and collection services. Bristol-Myers Squibb has agreed to pay
specified costs associated with product samples and education of the clinicians
covered by the agreement.
Bristol-Myers Squibb compensates us with a performance fee paid quarterly
based upon the number of prescriptions written by the clinicians covered by the
agreement above an applicable baseline number. During the first year, the
quarterly baseline amount increases each quarter. During the second and third
years, the baseline amounts increase by a percentage which reflects growth in
prescriptions for pravastatin in the United States over the prior year. Our
compensation is calculated based on a percentage of net sales from prescriptions
in excess of the applicable baseline amount as adjusted to reflect previous
payments. In addition, we are entitled to receive a residual compensation
payment during the 24-month period following the
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expiration of the agreement as long as Bristol-Myers Squibb does not terminate
the agreement due to our breach of or failure to perform our obligations under
the agreement.
In the event that Pravachol(R) prescriptions written in the United States
by the clinicians covered by the agreement do not exceed specified minimum
prescription amounts that increase quarterly in the first year and yearly from
year to year thereafter, Bristol-Myers Squibb may terminate the agreement. The
minimum amounts require us to achieve a significant increase over the number of
prescriptions for this product currently written by the clinicians covered by
the agreement and substantially exceed the baseline amounts used for purposes of
calculating the performance fee. Bristol-Myers Squibbs' termination rights arise
upon either our failure to meet certain prescription forecasts for two
consecutive quarters or the yearly prescription forecasts for one year.
Moreover, if we experience a change in control, Bristol-Myers Squibb may
terminate the agreement. A change in control includes: (1) the sale of any
securities which transfers over 50% of our assets relating to the product to any
person, (2) any person or entity that derives more than half of its gross
revenues from the sale, licensing or distribution of drug products, nutritional
agents and medical devices or the provision of drug or device management
services becoming the beneficial owner of 20% of the combined voting power of
Women First, or (3) any person becoming the beneficial owner of 50% of the
combined voting power of Women First. The agreement may also be terminated for
other specified reasons. As of December 31, 1999, the end of the first three
consecutive quarter periods under the agreement, we had not achieved the minimum
amounts during the first three quarters of the agreement. Although Bristol-Myers
Squibb has the right to terminate the agreement upon sixty days' prior written
notice based upon our performance, we are currently negotiating to restructure
this agreement in order to improve our ability to recognize revenue from our
sales efforts.
Ortho-Est(R). We obtained the rights to distribute and sell the
Ortho-Est(R) product in the United States and Puerto Rico pursuant to an
exclusive distribution agreement dated as of July 1, 1998 with Ortho-McNeil
Pharmaceutical. The agreement requires us to make minimum aggregate payments of
$33.4 million to Ortho-McNeil over the remaining eight-year term of the
agreement, regardless of the actual sales performance of the Ortho-Est(R)
product. We are required to make a minimum payment of $5.4 million during 2000.
The minimum payments in future years decrease annually based on a ten-year
forecast that was determined at the time the contract was executed. If our
annual purchases of the Ortho-Est(R) product exceed our minimum payments, we are
entitled to the amount of this excess less specified royalties and manufacturing
costs. Ortho-McNeil may terminate the distribution agreement (1) upon one year's
notice so long as Ortho-McNeil provides us with a one-year supply of the
Ortho-Est(R) product and uses reasonable commercial efforts to transfer to us
the manufacturing and distribution rights to the product, (2) immediately if the
cost of FDA revalidation, should it become necessary, exceeds $3 million, or (3)
for other specified reasons.
Benefit: Risk Assessment Model. In September 1998 we entered into a license
agreement with CHPNC, LLC to develop a patient health questionnaire and software
program related to hormonal replacement therapy based upon the book A Woman
Doctor's Guide to Hormone Therapy -- How to Choose What's Right for You. Under
the agreement, we are obligated to pay over the first two years of the agreement
a development fee in the amount of $900,000, of which we paid $275,000 in 1998
and $450,000 in 1999. The development fee is payable to CHPNC regardless of
whether or not the product is released for sale to the public. In addition,
commencing in the third year of the contract, we must make minimum royalty
payments over the remaining term of the contract, which commence at $100,000 and
which increase by an additional $100,000 for each two-year period thereafter.
This license is subject to becoming non-exclusive in the event of certain
defaults and also contains a non-competition provision which prohibits us from
manufacturing, promoting, publishing or selling any product directly competitive
with the Benefit:Risk Assessment Model.
Daily Difference(TM). In April 1999, we entered into a development and
license agreement with Tufts University to formulate nutritional or herbal
products for midlife women, which will be marketed by Women First under the
trade name, Daily Difference(TM). In accordance with this agreement, Tufts
developed general formulations for midlife women as well as specific
formulations to address the needs of women who are at risk for particular
diseases or conditions. The agreement provides that Tufts will also create a
program to individualize nutritional recommendations to women and their
clinicians. The agreement grants us the right to acknowledge the participation
of the Tufts University School of Nutrition Science and Policy in the
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development of the products and to use its name in connection with labeling,
promotion, marketing and sale of the nutritional products. Tufts may revoke our
right to use the Tufts name if Tufts determines that our actions have adversely
affected or may adversely affect Tufts' reputation.
Under the agreement, we were required to pay a fee to Tufts, payable in
four installments over five months, that covered all of Tufts' internal and
external expenses incurred in connection with the project. We are solely
responsible for the manufacturing, marketing and sale of the products. Further,
we must pay a license fee equal to a certain percentage of net sales of each
product developed under this agreement for fifteen years or the term of the
patent, if any, whichever is greater. The license fee will be reduced if Tufts
revokes our right to use its name without cause or if Tufts develops and
licenses nutritional products that compete with our products.
iVillage. In May 1999, we entered into a one-year agreement with iVillage
Inc. to develop educational content for ivillage.com. Under the agreement,
iVillage created a Women First area on ivillage.com, while we provided articles
on midlife health topics for this area. We have agreed to provide iVillage with
two feature articles each month and iVillage has agreed to promote at least one
of these articles as a lead editorial. iVillage has hosted an online event on
midlife health featuring Dr. Deepak Chopra, and has agreed to host two
additional such events. In addition, we have implemented a link from the Women
First area in ivillage.com to womenfirst.com and our womenfirst.com Internet
site includes a prominent link to ivillage.com. Under our agreement with
iVillage, we have agreed that we will not provide educational materials to
certain competitors of iVillage. iVillage has agreed to exclude certain
competitors of ours from advertising within the Women First area of
ivillage.com. There are no financial terms to the agreement.
The minimum payments we are required to make under these and other
agreements may exceed our sales of the products to which these minimum payments
relate, and our failure to achieve specified minimum sales could be a violation
of these agreements. See "Risks and Uncertainties" on pages 15 through 23 of
this Report on Form 10-K.
INTELLECTUAL PROPERTY
We regard the protection of patents, copyrights, trademarks, and other
proprietary rights that we own or license as material to our success and
competitive position. We rely on a combination of laws and contractual
restrictions such as confidentiality agreements to establish and protect our
proprietary rights. Laws and contractual restrictions, however, may not be
sufficient to prevent misappropriation of our technology or deter others from
independently developing products that are substantially equivalent or superior.
Patents. Due to the length of time and expense associated with bringing new
pharmaceutical products to market, we recognize the considerable benefits
associated with acquiring or licensing products that are protected by existing
patents or for which patent protection can be obtained. However, we do not
currently own any issued patents or have any pending patent applications. Some
of the products that we offer incorporate patented technology owned by others,
including the Ortho-Prefest(TM), Esclim(TM), and Pravachol(R) products, but most
of our self-care products are not protected by patents.
Copyrights. We have applied for copyright registration for the Women First
HealthCare logo. The copyrights to the product developed with Dr. Deepak Chopra,
entitled RENEWAL a time for you(TM), are owned jointly by us and Infinite
Possibilities Media LLC. We also own all the copyrights in the Strong Women Stay
Young video. Copyrights for the source code of the womenfirst.com Internet site
that we created with SF Interactive have been assigned to us.
Trademarks and Domain Names. Our subsidiary, As We Change, LLC, owns the
registered U.S. trademark As We Change(R). In addition, we have applied for U.S.
trademark registrations for a number of key trademarks, including Women First
HealthCare(TM), Women First(TM), A Better Way(TM), and Daily Difference(TM). We
have a non-exclusive worldwide license to use the trademarks owned by Dr. Chopra
in connection with the products that we develop with Infinite Possibilities.
Some of our distribution agreements also include rights to use the
manufacturer's trademarks, such as the Ortho-Est(R), Ortho Tri-Cyclen(R),
Ortho-Prefest(TM), Esclim(TM) and Pravachol(R) tradenames during the term of
these agreements. We intend to introduce new trademarks,
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service marks and brand names and to maintain registrations on trademarks that
remain valuable to the business. We have no trademark registrations or
applications pending outside the United States.
We currently hold the Internet domain names "womenfirsthealthcare.com" and
"womenfirst.com," and our subsidiary, As We Change, LLC, holds the Internet
domain name "aswechange.com." Under current domain name registration practices,
no one else can obtain an identical domain name, but can obtain a similar name,
or the identical name with a different suffix such as ".net" or ".org" or with a
country designation such as ".jp" for Japan. The relationship between
regulations governing domain names and the laws protecting trademarks and
similar proprietary rights is evolving. Domain names are regulated by Internet
regulatory bodies while trademarks are enforceable under local law. In addition,
the regulation of domain names in the United States and in foreign countries is
subject to change. There are plans to establish additional top-level domains,
appoint additional domain name registrars or modify the requirements for holding
domain names. As a result, we may not acquire or be able to maintain our domain
names in all of the countries in which we conduct business, and we could be
unable to prevent third parties from acquiring domain names that infringe or
otherwise decrease the value of our domain names or trademarks.
While we intend to take the actions that we believe are necessary to
protect our proprietary rights, we may not be successful in doing so. In
addition, we may be dependent on the owners of the proprietary rights we license
to protect those rights. In addition, we and our licensors may face challenges
to the validity and enforceability of proprietary rights and may not prevail in
any litigation regarding those rights.
We are also subject to the risk of adverse claims and litigation alleging
infringement of the proprietary rights of others. While we are not currently
involved in any such claims, there can be no assurance against future
infringement claims by third parties. The resolution of any such infringement
claims may result in protracted and costly litigation, regardless of the merits
of such claims. Moreover, it may require us to obtain a license to use those
proprietary rights or possibly to cease using those rights altogether. Any of
these events could have a material adverse effect on our business, financial
condition and results of operations.
GOVERNMENT REGULATION
The manufacturing, processing, formulation, clinical investigation,
packaging, labeling, storage, promotion, distribution and advertising of the
products we offer are subject to extensive regulation by one or more federal
agencies including the FDA, DEA, Environmental Protection Agency, Federal Trade
Commission, Occupational Safety and Health Administration, Consumer Product
Safety Commission, the United States Customs Service, and the United States
Postal Service. These activities are also regulated by various agencies of the
states and localities in which our products are sold. For both currently
marketed and future products, failure to comply with applicable regulatory
requirements could limit or prevent our ability to market and distribute such
products, and would harm our business.
Pharmaceuticals. All pharmaceutical firms, including manufacturers from
whom we license or for whom we distribute products, are subject to regulation by
the FDA. Any restriction or prohibition applicable to sales of products we
market could materially adversely affect our business.
We market prescription drug products. Prior to marketing, new prescription
drugs must be approved by the FDA before they may be marketed, except for those
prescription drugs for which the FDA is not requiring applications because of
"grandfather status" under 1938 legislation, "grandfather status" under 1962
legislation or for other reasons. The FDA has the authority to revoke existing
approvals, or to review the status of currently exempt pharmaceuticals and
require application and approval, of prescription drugs if new information
reveals that they are not safe or effective. The FDA also regulates the
promotion, including advertising, of prescription drugs.
Drug products must be manufactured, packaged, and labeled in accordance
with their approvals and in conformity with standards known as current Good
Manufacturing Practices and other requirements. Drug manufacturing facilities
must be registered with and approved by FDA and must list with the FDA the drug
products they intend to distribute. The manufacturer is subject to inspections
by the FDA and periodic inspections by other regulatory agencies. The FDA has
extensive enforcement powers over the activities of
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pharmaceutical manufacturers, including authority to seize and prohibit the sale
of unapproved or non-complying products, and to halt manufacturing operations
that are not in compliance with current Good Manufacturing Practices. Also, the
FDA regulates the distribution of samples of drugs. Both FDA and DEA may impose
criminal penalties arising from non-compliance with applicable regulations.
We do not currently conduct pharmaceutical research and development. If we
obtain rights to develop and market a pharmaceutical product, we will. Prior to
any commercial sale or shipment of a new drug, the FDA generally requires each
of the following steps and possibly others to be conducted: (1) preclinical
testing, including laboratory and usually animal tests; (2) the submission to
the FDA of an Investigational New Drug Application which must become effective
before human clinical trials may commence; (3) adequate and well-controlled
human clinical trials to establish safety and efficacy; (4) the submission to
the FDA of a New Drug Application; and (5) FDA approval of the New Drug
Application. This process generally takes a number of years and may also require
post-marketing testing and surveillance to monitor for adverse effects, which
can involve significant additional expense. In addition, an abbreviated
application process is available for generic drugs. For newer generic drugs,
there can be no assurances that the FDA will approve a particular application.
Medical Devices. We market and obtain approvals for medical device
products. All medical device firms, including manufacturers from whom we license
or whose products we distribute, are subject to regulation by the FDA. The FDA
controls when medical devices may enter the market, and can require their
withdrawal from the market, restrict their marketing and recall or seize
products.
In addition to obtaining FDA approval or clearance to market a medical
device, each device manufacturing facility must be registered with the FDA.
Facilities and quality systems are subject to regular inspections by the FDA for
compliance with FDA's Quality System Regulations. As is the case with drugs,
failure to comply with applicable regulatory requirements after obtaining
approval may result in the suspension of regulatory approval, as well as civil
and criminal sanctions. Any restriction or prohibition applicable to sales of
products we market could materially adversely affect our business.
Dietary Supplements. The manufacturing and production of dietary
supplements historically has been subject to less intensive regulation than
pharmaceutical products. Under the Dietary Supplement Health & Education Act of
1994, the FDA may exercise authority over the labeling and sales of dietary
supplements. In addition, the United States Postal Service regulates claims with
respect to products sold or marketed through the mail and the FTC regulates
dietary supplement advertising.
The FDA and other federal authorities are reviewing alternative approaches
to assure the safety of vitamins, minerals, herbals and other products sold as
dietary supplements. Increased regulatory oversight could subject us and other
manufacturers and distributors of dietary supplements to increased production
and compliance costs and possibly require capital expenditures. Future
regulation affecting dietary supplements could result in a recall or
discontinuance of certain products.
Cosmetics Regulations. We market cosmetic products. The FDA regulates the
labeling on cosmetic products and does not require cosmetics to be approved
before products are released to the marketplace. The FDA does not have the
authority to require manufacturers to register their cosmetic establishments,
file data on ingredients, or report cosmetic-related injuries. The FDA maintains
a voluntary data collection program, however, and companies wishing to
participate in the program may do so. The FDA may inspect cosmetics
manufacturing facilities, collect samples for examination, and take action to
remove adulterated and misbranded cosmetics from the market.
EMPLOYEES
As of February 29, 2000, we employed 239 full-time people, of whom 193 were
employed in sales and marketing, 3 were employed in research and development, 5
were employed in education and program development and 38 were employed in
administration. None of our employees is represented by a labor union, and we
consider our relations with our employees to be good. Our ability to achieve our
financial and operational objectives depends in large part upon the continued
service of our senior management and key
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personnel and our continuing ability to attract and retain highly qualified
managerial personnel. Competition for such qualified personnel in the
pharmaceutical and health care industry is intense.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
SEASONALITY
Catalog sales are typically higher in the fourth calendar quarter due to
larger catalog circulation, merchandising improvements during the year, and some
increase in consumer buying surrounding the holiday season. We anticipate this
trend will continue.
RISKS AND UNCERTAINTIES
WE HAVE RECENTLY STARTED OPERATIONS AND HAVE EXPERIENCED LOSSES SINCE OUR
INCEPTION. OUR BUSINESS MUST EXPAND FOR US TO ATTAIN PROFITABILITY.
We are an early stage company with a history of losses. Through December
31, 1999, we have generated only $27.3 million in net revenues. We have incurred
significant losses since we were founded in November 1996, accumulating a
deficit of $42.9 million through December 31, 1999, and we expect to incur
losses at least through the end of 2000. We may not successfully complete the
transition to successful operations or profitability. Early stage companies such
as ours frequently encounter problems, delays and expenses. These include, but
are not limited to, unanticipated problems and additional costs related to
marketing, competition and product acquisitions and development. These problems
may be beyond our control, and in any event, could adversely affect our results
of operations.
WE HAVE A BROAD BUSINESS MODEL THAT WILL REQUIRE THE DEVELOPMENT OF MANY
DIFFERENT AREAS. IF WE FAIL TO IMPLEMENT ANY OF THE KEY ELEMENTS OF OUR BUSINESS
PLAN, OUR BUSINESS MAY NOT SUCCEED.
We have embarked on an ambitious plan to provide products, educational
programs and support systems to women to help them make better decisions
regarding their health care in midlife. There is a limited market awareness of
our company and the products and services we offer. To be successful, we must
continue to develop, coordinate and balance various elements of our business.
Among other things, we must:
- generate market demand for the products we offer, prepare and disseminate
information about midlife women's health care and establish the Women
First(TM) brand,
- convince OB/GYNs and the nurse practitioners and physician's assistants
focused on women's health to prescribe and recommend the products we
offer,
- maintain and obtain rights to market and distribute products and
integrate them into our business, and
- augment sales and marketing and manage different distribution channels
for the products we offer.
If we fail to implement any of these key elements of our business plan, our
business may not succeed.
MANY OF OUR PRODUCT AGREEMENTS REQUIRE US TO MAKE MINIMUM PAYMENTS OR MAKE A
MINIMUM NUMBER OF SALES CALLS. IF OUR SALES OF THESE PRODUCTS DO NOT EXCEED THE
COSTS OF THESE MINIMUMS, OUR MARKETING AND DISTRIBUTION OF THESE PRODUCTS WILL
NOT BE PROFITABLE AND OUR RESULTS OF OPERATIONS WILL BE HARMED.
We have acquired the right to market and sell many of the products we offer
through license or co-promotion agreements with third parties. Some of these
agreements require us to make minimum payments or make a minimum number of sales
calls regardless of our actual sales of product covered by the agreement. The
minimum payments we are required to make or our costs of making the minimum
number of sales calls under these agreements may exceed our sales of the
products to which these minimum payments or minimum sales calls relate, and, as
a result, our marketing and distribution of some or all of these products may
not be profitable. In particular, our distribution agreement for the
Ortho-Est(R) oral estrogen product requires us to
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make minimum aggregate payments of $33.4 million to Ortho-McNeil Pharmaceutical
over the remaining eight-year period of the contract, regardless of the actual
sales performance of this product. Under this agreement, we are required to make
minimum payments of $5.4 million during 2000. The minimum payments in future
years decrease annually based on a ten-year forecast that was determined at the
time the contract was executed.
Our co-promotion agreement with Ortho-McNeil Pharmaceutical relating to the
Ortho Tri-Cyclen(R) oral contraceptive product and the Ortho-Prefest(TM) oral
combination estrogen and progestin hormonal replacement therapy product requires
us to make a significant number of sales calls each year during the term of the
agreement. In addition, the agreement required us to expand our field sales
organization to at least 100 representatives in 1999 and requires us to commit
at least 150 sales representatives to co-promote Ortho-Prefest(TM), in each of
2000, 2001 and 2002. Ortho-McNeil also may reduce the payments otherwise
required to be paid to us under the agreement with respect to the
Ortho-Prefest(TM) product if we do not make a specified portion of the minimum
number of sales calls for that product. Through December 31, 1999, we did not
meet the minimum performance levels required to receive compensation under this
co-promotion agreement in relation to Ortho Tri-Cyclen(R). As a result, we have
not recorded revenue under this agreement through December 31, 1999. Effective
as of March 31, 2000, Women First has discontinued the co-promotion of Ortho
Tri-Cyclen(R). Under an amendment, which is being negotiated, Ortho
Tri-Cyclen(R) will be eliminated from the co-promotion agreement but Women First
will continue to co-promote Ortho-Prefest(TM). The co-promotion agreement also
limits the number of products other than Ortho Tri-Cyclen(R) and
Ortho-Prefest(TM) that our sales force may present during the same sales call as
Ortho Tri-Cyclen(R) and Ortho-Prefest(TM).
We are also obligated to pay future development fees of $175,000 to CHPNC,
LLC prior to September 25, 2000 for the development of the Benefit: Risk
Assessment Model and minimum royalty payments over the remaining term of the
contract, which commence at $100,000 and which increase by an additional
$100,000 for each two-year period thereafter. In July, 1999, we entered into a
distribution and license agreement with Laboratoires Fournier S.A. under which
we have the exclusive right (subject to exceptions) to market, use, distribute
and sell the Esclim(TM) estradiol transdermal system in various dosages in the
United States and Puerto Rico. The definitive agreement requires us to pay
Fournier a non-refundable license fee of $1.45 million payable over a two-year
period, of which $750,000 was paid in 1999. The remaining $700,000 of this fee
is subject to sales objectives being reached in 2000 and 2001. Our failure to
generate sales exceeding the specified minimum payments or the costs of the
minimum sales calls could have a material adverse effect on our business and
could give the other party the right to terminate or modify the contract. For
more information concerning our agreements containing minimum payment and
minimum sales call obligations, see "Item 1: Business -- Licensing and
Co-Promotion Agreements."
MANY OF OUR PRODUCT AGREEMENTS MAY BE TERMINATED IF WE FAIL TO MAKE MINIMUM
PURCHASES, MAKE A MINIMUM NUMBER OF SALES CALLS OR FOR OTHER REASONS. THIS COULD
FORCE US TO DISCONTINUE SALES OF KEY PRODUCTS AND COULD HARM OUR RESULTS OF
OPERATIONS.
Our contracts relating to the products we offer contain various provisions
that allow the other party to terminate the contract, which, if exercised, could
force us to discontinue sales of the product and could have a material adverse
effect on our business. Our co-promotion agreement with Bristol-Myers Squibb
relating to the cholesterol-lowering drug Pravachol(R) provides that
Bristol-Myers Squibb may terminate the agreement in the event that Pravachol(R)
prescriptions written in the United States by designated OB/GYNs and the nurse
practitioners and physician's assistants in their offices do not exceed
specified minimum prescription amounts. These specified minimum amounts increase
quarterly in the first year and yearly from year to year thereafter.
Bristol-Myers Squibb may terminate the agreement in the event that prescriptions
for Pravachol(R) written by the clinicians covered by the agreement do not
exceed these minimum amounts for two consecutive quarters or the yearly
prescription forecasts for one year. These minimum amounts require us to achieve
a significant increase over the number of prescriptions for this product
currently written by the clinicians designated by the agreement and
substantially exceed the baseline amounts used for purposes of calculating the
performance fee under the contract. Furthermore, the co-promotion agreement with
Bristol-Myers Squibb contains a provision that allows Bristol-Myers Squibb to
terminate the agreement upon a change of control of Women First. As a
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<PAGE> 17
result, we could lose our rights to market and sell Pravachol(R) if we fail to
meet our minimum performance obligations or if we are acquired. As of December
31, 1999, the end of the first three consecutive quarter period under the
agreement with Bristol-Myers Squibb, we had not achieved the minimum amounts
required to receive compensation under the agreement. Although Bristol-Myers
Squibb has the right to terminate the agreement upon sixty days' prior written
notice based upon our performance, we are currently negotiating to restructure
this agreement in order to improve our ability to recognize revenue from our
sales efforts.
Our co-promotion agreement with Ortho-McNeil Pharmaceutical allows
Ortho-McNeil to terminate the contract if we fail to make a specified portion of
the required sales calls for three consecutive quarters. As of December 31,
1999, we had not made the required minimum number of sales calls for two
consecutive quarters. Effective as of March 31, 2000, Women First discontinued
the co-promotion of Ortho Tri-Cyclen(R). Under an amendment, which is being
negotiated, Ortho Tri-Cyclen(R) will be eliminated from the co-promotion
agreement but Women First will continue to co-promote Ortho-Prefest(TM).
Ortho-McNeil also may terminate the agreement if there is a change of control of
Women First or if either Edward F. Calesa, the Chairman of the Board, or David
F. Hale, our President and Chief Executive Officer, is no longer associated with
Women First (other than as a result of death or disability).
In addition, our contract with Ortho-McNeil Pharmaceutical relating to the
Ortho-Est(R) oral estrogen product allows Ortho-McNeil to terminate the contract
(1) upon one year's notice so long as Ortho-McNeil provides us with a one-year
supply of the Ortho-Est(R) product and uses reasonable commercial efforts to
transfer the manufacturing and distribution rights to the product to us or (2)
immediately if the cost of FDA revalidation, should it become necessary, exceeds
$3 million. Most of our contracts permit termination by the other party if we
breach our obligations, including our minimum payment commitments, under the
contracts or enter bankruptcy. For more information about how our product
agreements may be terminated, see "Item 1: Business -- Licensing and
Co-Promotion Agreements."
WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE
CAPITAL NEEDS. IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING, WE MAY NOT BE
ABLE TO CONTINUE TO OPERATE OUR BUSINESS.
We will require significant amounts of additional capital to achieve our
goals. We believe that our existing cash balances will be sufficient to meet our
working capital, capital expenditure requirements and minimum purchase
commitments through the end of the year 2000. Our future capital requirements
will depend on many factors including:
- the costs of our sales and marketing activities and our education
programs for clinicians and women,
- competing product and market developments,
- the costs of acquiring or developing new products,
- the costs of expanding our operations, and
- our ability to generate positive cash flow from our sales.
Additional funding may not be available on acceptable terms, if at all. If
adequate funds are not available, we may be required to curtail significantly or
defer one or more of our marketing or educational programs or to limit or
postpone obtaining new products through license, acquisition or co-promotion
agreements. If we raise additional funds through the issuance of equity
securities, the percentage ownership of our then-current stockholders may be
reduced and such equity securities may have rights, preferences or privileges
senior to those of the holders of our common stock. If we raise additional funds
through the issuance of debt securities, these new securities would have certain
rights, preferences and privileges senior to those of the holders of our common
stock, and the terms of these debt securities could impose restrictions on our
operations.
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<PAGE> 18
IF MIDLIFE WOMEN DO NOT USE AND THEIR CLINICIANS DO NOT RECOMMEND THE PRODUCTS
WE OFFER, WE WILL CONTINUE TO EXPERIENCE SIGNIFICANT LOSSES.
The products we license, acquire or co-promote may not achieve market
acceptance. The market acceptance of these products will depend on, among other
factors:
- their advantages over existing competing products,
- their perceived efficacy and safety,
- the actual or perceived side effect profile of hormonal replacement
therapies, and
- the reimbursement policies of the government and third-party payors.
Our model assumes that our marketing programs and the growth in our target
market will result in increased demand for the products we offer. If our
marketing programs do not succeed in generating a substantial increase in demand
for our products, we will be unable to realize our operating objectives. In
addition, our business model seeks to build on the expanding roles of OB/GYNs
and the nurse practitioners and physician's assistants focused on women's
health, and our marketing efforts are concentrated on this group. If the
clinicians we target do not recommend and prescribe the products we offer or if
midlife women do not regularly use these products, we will continue to
experience significant losses and our business will be adversely affected.
Moreover, if we fail to develop the market-wide brand identity for Women First
that we are seeking, our business will be adversely affected.
ANY FAILURE BY US TO OBTAIN RIGHTS TO ADDITIONAL PRODUCTS OR TO ACQUIRE
COMPANIES AND SUCCESSFULLY INTEGRATE THEM WILL LIMIT OUR GROWTH AND MAY HARM OUR
BUSINESS.
We plan to obtain rights to additional products through license,
co-promotion or acquisition agreements and may acquire companies that complement
our business. Our failure to obtain rights to market products or to acquire
products or companies on acceptable terms or to integrate these products or
companies into our organization could harm our business. We may not be able to
identify appropriate licensing, co-promotion or acquisition candidates in the
future. Even if we identify an appropriate candidate, competition for it may be
intense. We may not be able to successfully negotiate the terms of a license,
co-promotion or acquisition agreement on commercially acceptable terms. The
negotiation of agreements to obtain rights to additional products or to acquire
companies could divert our management's time and resources from our existing
business. Moreover, we may be unable to finance an acquisition or integrate a
new product or company into our existing business. If we use shares of our
common stock as consideration for one or more significant acquisitions, our
stockholders could suffer significant dilution of their ownership interests.
OUR QUARTERLY FINANCIAL RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY
FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS,
WHICH COULD CAUSE THE PRICE OF OUR STOCK TO DECLINE SIGNIFICANTLY.
Our quarterly operating results may fluctuate significantly based on
factors such as:
- changes in the acceptance or availability of the products we offer,
- the timing of new product offerings, acquisitions or other significant
events by us or our competitors,
- regulatory approvals and legislative changes affecting the products we
offer or those of our competitors,
- the productivity of our sales force,
- the timing of expenditures for the expansion of our operations, and
- general economic and market conditions and conditions specific to the
health care industry.
Due to our short operating history and the difficulty of predicting demand
for the products we offer, we are unable to accurately forecast our revenues.
For example, we only recently began co-promoting the cholesterol-lowering drug
Pravachol(R), the Ortho-Prefest(TM) oral combination hormonal replacement
therapy
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<PAGE> 19
product and the Esclim(TM) estradiol transdermal system. Accordingly, we have
little basis to estimate our revenues from co-promoting these products. In
addition, we plan to obtain rights to additional products and fund additional
sales and marketing and general and administrative activities, all of which
would increase our operating expenses. Accordingly, we may experience
significant, unanticipated quarterly losses. Because of these factors, our
operating results in one or more future quarters may fail to meet the
expectations of securities analysts or investors, which could have a material
adverse effect on our stock price.
THE HEALTH CARE INDUSTRY AND THE MARKETS FOR THE PRODUCTS WE OFFER ARE VERY
COMPETITIVE. WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY, ESPECIALLY AGAINST
ESTABLISHED INDUSTRY COMPETITORS WITH SIGNIFICANTLY GREATER FINANCIAL RESOURCES.
The health care industry is highly competitive. Most of our competitors and
those of our collaborative partners are large well-known pharmaceutical, life
science and health care companies that have considerably greater financial,
sales, marketing and technical resources than we have. Additionally, these
competitors have research and development capabilities that may allow them to
develop new or improved products that may compete with product lines we market
and distribute. In addition, competitors may elect to devote substantial
resources to marketing their products to midlife women and may choose to develop
educational and information programs like those we have developed to support
their marketing efforts. Our business, financial condition and results of
operations could be materially and adversely affected by any one or more of such
developments.
The pharmaceutical products we offer face significant competition.
Ortho-Prefest(TM), the new oral combination HRT product, Ortho-Est(R), the oral
estrogen product, and the Esclim(TM) estradiol transdermal system compete in the
hormone replacement therapy market. The primary competition in this market is
Wyeth-Ayerst Pharmaceuticals, Inc., a division of American Home Products, which
markets Premarin(R), an oral estrogen product, and Prempro(R) and Premphase(R),
combination oral estrogen and progestin products. The HRT products we market
also compete with HRT products marketed by Parke-Davis, a Warner Lambert
Division, Solvay Pharmaceuticals, Inc., Duramed Pharmaceuticals, Inc., and
others, as well as generic HRT products. The HRT products we market also compete
with non-hormonal replacement therapy products marketed by Merck & Co., Inc.,
and Eli Lilly & Company. In addition, the Esclim(TM) estradiol transdermal
system competes with estrogen and combination estrogen/progestin patch products
marketed by Berlex Laboratories, Watson Laboratories, Inc., Novogyne
Pharmaceuticals and Rhone-Poulenc Rorer Pharmaceuticals, Inc. The Pravachol(R)
product competes with other cholesterol-lowering products marketed by Merck &
Co., Inc., Parke-Davis, Pfizer, Inc., Novartis Pharmaceuticals Corporation and
Bayer Corporation. Each of these competitors has substantially greater
marketing, sales and financial resources than we do.
Competition for the self-care products we offer is significant. As We
Change, LLC competes with a number of catalog companies and Internet retailers
focusing on self-care products. Transitions for Women(R) offers a wide range of
nutritional and herbal products for midlife women and Self Care(R), Well &
Good(TM), Feel Good(TM), Solutions(R) and Intellihealth HealthyHome(TM) and
Harmony(TM) promote general lifestyle and personal care products. Our
educational products will compete with products that have been developed by
medical professionals and non-professionals alike. Our Internet site,
womenfirst.com, will compete with other Internet sites focused on women's health
as well as sites focused on health care issues in general, such as
cbs.medscape.com, nlm.nih.gov/medlineplus, healthfinder.gov, reutershealth.com,
drkoop.com, and webmd.com.
Our failure to adequately respond to the competitive challenges faced by
the products we offer could have a material adverse effect on our business,
financial condition and results of operations.
IF WE DO NOT SUCCESSFULLY MANAGE ANY GROWTH WE EXPERIENCE, WE MAY EXPERIENCE
INCREASED EXPENSES WITHOUT CORRESPONDING REVENUE INCREASES.
Our business plan will, if implemented, result in rapid expansion of our
operations. This expansion may place a significant strain on our management,
financial and other resources. It also will require us to increase expenditures
before we generate corresponding revenues. Our ability to manage future growth,
should it occur,
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<PAGE> 20
will depend upon our ability to identify, attract, motivate, train and retain
highly skilled managerial, financial, business development, sales and marketing
and other personnel. Competition for these employees is intense. Moreover, the
addition of products or businesses will require our management to integrate and
manage new operations and an increasing number of employees and could require us
to expand into new areas such as pharmaceutical development. We may not be able
to implement successfully and maintain our operational and financial systems or
otherwise adapt to growth. Any failure to manage growth, if attained, would have
a material adverse effect on our business.
WE MAY NOT BE ABLE TO OBTAIN REIMBURSEMENT FOR THE PHARMACEUTICAL PRODUCTS WE
OFFER. ANY FAILURE TO OBTAIN REIMBURSEMENT COULD REQUIRE US TO DISCONTINUE SALES
OF A PARTICULAR PRODUCT AND COULD HARM OUR RESULTS OF OPERATIONS.
Our ability to market new and existing pharmaceutical products depends in
part on whether health care payors, including government authorities, private
health insurers, health maintenance organizations and managed care
organizations, will provide sufficient reimbursement for the products we offer.
Third-party payors are increasingly challenging the prices of pharmaceutical
products and demanding data to justify the inclusion of new or existing products
in their formularies. Significant uncertainty exists regarding the reimbursement
status of pharmaceutical products, and we cannot predict whether additional
legislation or regulation affecting third-party coverage and reimbursement will
be enacted in the future, or what effect such legislation or regulation would
have on our business. Reimbursement may not be available for the products we
offer and reimbursement granted may not be maintained. In particular, sales of
the Ortho-Est(R) oral estrogen product and the Esclim(TM) estradiol transdermal
system may be adversely affected by formularies that require substitution of
generics on prescriptions written for these products unless the physician
indicates "dispense as written" on the prescription. Moreover, limits on
reimbursement available from third-party payors may reduce the demand for, or
adversely affect the price of, the products we offer. The unavailability or
inadequacy of third-party reimbursement for the products we offer would have a
material adverse effect on our results of operations.
WE DO NOT CURRENTLY CONDUCT PHARMACEUTICAL RESEARCH AND DEVELOPMENT. THIS MAY
LIMIT THE RANGE OF PRODUCTS WE OFFER.
We do not presently conduct our own pharmaceutical research and development
programs. In addition, we do not presently anticipate conducting our own
discovery research for pharmaceutical products. However, we may obtain rights to
develop and market a product in clinical development. If that occurs, we intend
to rely on third parties to perform the development work. We may not be able to
obtain arrangements for development by third parties on commercially reasonable
terms, if at all, and this may limit the range of products we are able to market
and distribute.
TECHNOLOGICAL CHANGE COULD RENDER THE PHARMACEUTICAL PRODUCTS WE OFFER OBSOLETE.
The pharmaceutical products that we market and distribute could be rendered
obsolete or uneconomical by the development of new drugs or devices to treat the
conditions that they address. Technological advances affecting costs of
production or marketing also could adversely affect our ability to sell
products. In addition, our own licensing, acquisition, co-promotion or
development of additional products could adversely affect the demand for the
products we currently offer if the new product has the same or similar
indications as one or more of the products we currently offer.
WE ARE DEPENDENT ON SINGLE SOURCES OF SUPPLY FOR ALL OF THE PRODUCTS WE OFFER.
IF ONE OF OUR SUPPLIERS FAILS TO SUPPLY ADEQUATE AMOUNTS OF A PRODUCT WE OFFER,
OUR SALES MAY SUFFER AND WE COULD BE REQUIRED TO ABANDON A PRODUCT LINE.
We are dependent on single sources of supply for all of the products we
offer. With respect to these products, we cannot guarantee that these third
parties will be able to provide adequate supplies of products in a timely
fashion. We also face the risk that one of our suppliers could become insolvent,
declare bankruptcy, lose its production facilities in a disaster, be unable to
comply with applicable government regulations or lose
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<PAGE> 21
the governmental permits necessary to manufacture the products it supplies to
us. If we are unable to renew or extend an agreement with a third-party
supplier, if an existing agreement is terminated or if a third-party supplier
otherwise cannot meet our needs for a product, we may not be able to obtain an
alternative source of supply in a timely manner or at all. In these
circumstances, we may be unable to continue to market products as planned and
could be required to abandon or divest ourselves of a product line on terms
which would materially adversely affect us.
WE MAY BE EXPOSED TO PRODUCT AND PROFESSIONAL LIABILITY CLAIMS NOT COVERED BY
INSURANCE THAT WOULD HARM OUR BUSINESS.
We may be exposed to product or professional liability claims. Although we
believe that we currently carry and intend to maintain appropriate product and
professional liability insurance, we cannot guarantee that this insurance will
be sufficient to cover all possible liabilities or that such insurance will
continue to be available in the future at acceptable costs. A successful suit
against us could have an adverse effect on our business and financial condition
if the amounts involved are material.
OUR INABILITY TO OBTAIN NEW PROPRIETARY RIGHTS OR TO PROTECT AND RETAIN OUR
EXISTING RIGHTS COULD IMPAIR OUR COMPETITIVE POSITION AND ADVERSELY AFFECT OUR
SALES.
We believe that the patents, trademarks, copyrights and other proprietary
rights that we own or license, or that we will own or license in the future,
will continue to be important to our success and competitive position. If we
fail to maintain our existing rights or cannot acquire additional rights in the
future, our competitive position may be harmed. Due to the length of time and
expense associated with bringing new pharmaceutical products to market, there
are benefits associated with acquiring or licensing products that are protected
by existing patents or for which patent protection can be obtained. While some
products we offer, such as the Ortho-Prefest(TM) product, the Pravachol(R)
cholesterol-lowering drug and the Esclim(TM) estradiol transdermal system,
incorporate patented technology, most of the self-care products we sell are not
protected by patents. We have applied for registration of a number of key
trademarks and intend to introduce new trademarks, service marks and brand
names. We intend to take the actions that we believe are necessary to protect
our proprietary rights, but we may not be successful in doing so on commercially
reasonable terms, if at all. In addition, parties that license their proprietary
rights to us may face challenges to their patents and other proprietary rights
and may not prevail in any litigation regarding those rights. Moreover, our
trademarks and the products we offer may conflict with or infringe upon the
proprietary rights of third parties. If any such conflicts or infringements
should arise, we would have to defend ourselves against such challenges. We also
may have to obtain a license to use those proprietary rights or possibly cease
using those rights altogether. Any of these events could harm our business.
MUCH OF OUR BUSINESS IS SUBJECT TO REGULATION. REGULATORY BODIES COULD IMPAIR OR
ELIMINATE OUR ABILITY TO CONDUCT PORTIONS OF OUR BUSINESS.
Many of our activities are subject to extensive regulation by one or more
federal, state or local agencies. These regulatory bodies have the power to
restrict or eliminate many of our business activities, and to seek civil and
criminal penalties for noncompliance with applicable laws and regulations.
Changes in existing laws and regulations could adversely affect our business.
For further discussion of these regulatory matters, see "Item 1:
Business -- Government Regulation."
OUR FAILURE TO RETAIN THE PRINCIPAL MEMBERS OF OUR MANAGEMENT TEAM OR TO HIRE
ADDITIONAL QUALIFIED EMPLOYEES WOULD ADVERSELY AFFECT OUR ABILITY TO IMPLEMENT
OUR BUSINESS PLAN.
Our success depends upon the retention of the principal members of our
management, technical and marketing staff, particularly Edward F. Calesa, the
Chairman of the Board, and David F. Hale, our President and Chief Executive
Officer. The loss of the services of Mr. Calesa, Mr. Hale or other key members
of our management team might significantly delay or prevent the achievement of
our development and strategic objectives. Our co-promotion agreement with
Ortho-McNeil Pharmaceutical relating to the Ortho Tri-Cyclen(R) oral
contraceptive and the Ortho-Prefest(TM) oral combination hormonal replacement
therapy product
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contains a provision that would allow Ortho-McNeil to terminate the agreement if
either Mr. Calesa or Mr. Hale is no longer associated with Women First (except
as a result of their death or disability). We have entered into employment
contracts with Mr. Calesa and Mr. Hale. We are the beneficiaries of life
insurance policies on the lives of Mr. Calesa and Mr. Hale in the amount of $2.0
million each. We do not have life insurance policies on the lives of any other
members of our management team. Our success also depends on our ability to
attract additional qualified employees. Companies in the pharmaceutical and
health care industries compete intensely for qualified personnel. We have agreed
not to solicit sales representatives from Johnson & Johnson or any of its
subsidiaries or from any contractor of Ortho-McNeil Pharmaceutical, Inc. that
provides a sales force that calls on physicians. Our inability to retain our
existing personnel or to hire additional qualified employees would have a
material adverse effect on our company.
OUR MANAGEMENT AND EXISTING STOCKHOLDERS HAVE SUBSTANTIAL CONTROL OVER OUR
VOTING STOCK AND CAN MAKE DECISIONS THAT COULD ADVERSELY AFFECT OUR BUSINESS AND
OUR STOCK PRICE.
As of February 29, 2000, Edward F. Calesa and his family members jointly
beneficially own approximately 41.2% of our common stock. Johnson & Johnson
Development Corporation, a subsidiary of Johnson & Johnson, owns approximately
12.2% of our common stock. Our present directors, executive officers and
principal stockholders as a group beneficially own approximately 60.2% of the
outstanding common stock. Accordingly, if all or certain of such stockholders
were to act together, they would be able to exercise significant influence over
or control the election of our Board of Directors, the management and policies
of Women First and the outcome of certain corporate transactions or other
matters submitted to our stockholders for approval, including mergers,
consolidations and the sale of all or substantially all of our assets.
Our directors and management, acting together, are able to prevent or
effect a change in control of Women First and are able to amend certain
provisions of our certificate of incorporation and bylaws at any time. The
interests of this group may conflict with the interests of our other holders of
common stock, and this concentration of ownership may discourage others from
initiating potential merger, takeover or other change in control transactions.
THE PUBLIC MARKET FOR OUR COMMON STOCK MAY BE VOLATILE, AND THE PRICE OF OUR
STOCK MAY FLUCTUATE FOR REASONS UNRELATED TO OUR OPERATING PERFORMANCE. A
SIGNIFICANT DECLINE IN THE PRICE OF OUR STOCK COULD LEAD TO A CLASS ACTION
LAWSUIT AGAINST US.
The market prices and trading volumes for securities of emerging companies,
like Women First, historically have been highly volatile and have experienced
significant fluctuations both related and unrelated to the operating performance
of those companies. The price of the common stock may fluctuate widely,
depending on many factors, including factors that may cause our quarterly
operating results to fluctuate as well as market expectations and other factors
beyond our control. In the past, following periods of volatility in the market
price of a company's securities, class action litigation has often been
instituted against that company by some of its stockholders. This type of
litigation, if instituted against us, could result in substantial costs and a
diversion of our management's attention and resources, which could materially
and adversely affect our results of operations and financial condition.
SALES OR THE PERCEPTION OF FUTURE SALES OF OUR COMMON STOCK MAY IMPAIR OUR STOCK
PRICE.
Sales of substantial numbers of shares of our common stock, or the
perception that such sales could occur, could adversely affect the market price
of our common stock and make it more difficult for us to raise funds through
equity offerings in the future. A substantial number of outstanding shares of
common stock and shares of common stock issuable upon exercise of outstanding
stock options will become available for resale in the public market at
prescribed times. As of February 29, 2000, we had 17,270,552 shares of common
stock outstanding. The 5,175,000 shares sold in the company's initial public
offering in July 1999 are now freely tradable under the Securities Act of 1933,
as amended, unless held by our "affiliates" as defined in Rule 144 under the
Securities Act. The remaining 12,095,552 shares of common stock outstanding as
of February 29, 2000 are now eligible for sale under Rule 144 under the
Securities Act, subject to volume and other limitations. As of February 29,
2000, we had 2,256,205 shares of common stock reserved for issuance upon the
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exercise of stock options granted or available for grant under the Women First
HealthCare Long-Term Incentive Plan and the Women First Incentive Stock Plan and
541,128 shares reserved for issuance upon exercise of outstanding warrants. Some
of our stockholders have rights that entitle them to register their common stock
under the Securities Act at our expense. In March 2000, our Board of Directors
ratified the 1999 Non-Qualified Stock Option Plan of Women First HealthCare,
Inc., and approved the reservation of 250,000 shares for issuance under this
Plan.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT AN ACQUISITION
OF OUR COMPANY AT A PREMIUM PRICE.
Provisions of our Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws may make it difficult for a third party to acquire
us and could discourage a third party from attempting to acquire us at a premium
price. These include provisions classifying our board of directors, prohibiting
stockholder action by written consent and requiring advance notice for
nomination of directors and stockholders' proposals. In addition, Section 203 of
the Delaware General Corporation Law also imposes restrictions on mergers and
other business combinations between us and any holders of 15% or more of our
common stock. Moreover, our certificate of incorporation allows our board of
directors to issue, without further stockholder approval, preferred stock that
could have the effect of delaying, deferring or preventing a change in control.
The issuance of preferred stock also could adversely affect the voting power of
the holders of our common stock, including the loss of voting control to others.
Our option plans provide that unvested options will become fully vested and
exercisable upon a change in control of Women First. The provisions of our
certificate of incorporation and bylaws, our option plans, as well as certain
provisions of Delaware law, may have the effect of discouraging or preventing an
acquisition, or disposition, of our business. Some of our key contracts contain
provisions that would allow the other party to the agreement to terminate the
agreement upon a change in control. These provisions also may diminish the
opportunities for a stockholder to participate in certain tender offers,
including tender offers at prices above the then-current fair market value of
our common stock.
ITEM 2. PROPERTIES
We are headquartered in facilities consisting of approximately 16,800
square feet in San Diego, California, pursuant to a lease expiring in August
2003. As We Change, LLC is headquartered in facilities consisting of
approximately 12,880 square feet in San Diego, California, pursuant to a lease
expiring in September 2002.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Our Common Stock, $ .001 par value per share, has traded on The Nasdaq
National Market under the symbol "WFHC" since June 29, 1999. The following table
sets forth the high and low sale prices for the Common Stock as reported by the
Nasdaq National Market in each of the quarters of fiscal 1999 following the
completion of our initial public offering.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ------- -------
<S> <C> <C>
Second Quarter (beginning June 29, 1999)................. $13.750 $11.000
Third Quarter............................................ $14.625 $ 6.250
Fourth Quarter........................................... $ 9.188 $ 4.125
</TABLE>
As of February 29, 2000, there were 17,270,552 shares of Common Stock
outstanding held by approximately 76 holders of record.
(b) In March 1999, Women First filed a registration statement under the
Securities Act of 1933 to sell up to 4.5 million shares of common stock in its
Initial Public Offering ("IPO"). The effective date of the registration
statement was June 28, 1999, under Commission File No. 333-74367. The offering
was managed by Allen & Company Incorporated and Needham & Company, Inc. and
closed on July 1, 1999 after Women First sold an aggregate of 4.5 million shares
of common stock at an initial public offering price per share of $11.00. On July
21, 1999, Women First sold an additional 675,000 shares of common stock at an
initial public offering price per share of $11.00 upon the underwriters'
exercise in full of their over-allotment option. The IPO, including the
underwriters' exercise of their over-allotment option, resulted in gross
proceeds to us of $56.9 million, $4.0 million of which was applied toward the
underwriting discount. Other expenses related to the offering totaled
approximately $1.5 million. Our net proceeds totaled $51.4 million, all of which
were deposited into our accounts in July 1999. Since the completion of our
offering in July 1999, the net offering proceeds have been applied to
approximately $7.5 million to repay short-term notes issued in March 1999,
$750,000 to develop and acquire rights to additional products, $411,000 to
purchase machinery, equipment and leasehold improvements, and $14.4 million for
working capital and other general corporate purposes. John Simon, a Director of
Women First, is a managing director with Allen & Company Incorporated.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected financial information set forth below with respect to our
consolidated financial statements has been derived from our audited financial
statements. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes
included elsewhere in this report.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1, 1996
(INCEPTION)
THROUGH
1999 1998 1997 DECEMBER 31, 1996
----------- ---------- ---------- -----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net revenue.............................. $ 22,502 $ 4,834 $ -- $ --
Costs and expenses:
Cost of sales......................... 12,327 2,648 -- --
Marketing and sales................... 26,827 5,478 791 --
General and administrative............ 10,793 5,912 975 --
Research and development.............. 1,697 573 -- --
Write-down of assets and other
charges............................. 1,639 -- -- --
----------- ---------- ---------- ----------
Total costs and expenses......... 53,283 14,611 1,766 --
----------- ---------- ---------- ----------
Loss from operations..................... (30,781) (9,777) (1,766) --
Interest income, net..................... 646 395 39 --
----------- ---------- ---------- ----------
Net loss................................. (30,135) (9,382) (1,727) --
Accretion of beneficial conversion
feature related to convertible
preferred stock....................... (3,362) -- -- --
----------- ---------- ---------- ----------
Net loss available to common
stockholders.......................... $ (33,497) $ (9,382) $ (1,727) $ --
=========== ========== ========== ==========
Net loss per share (basic and diluted)... $ (2.67) $ (1.22) $ (0.23) $ --
=========== ========== ========== ==========
Weighted average shares used in computing
net loss per share (basic and
diluted).............................. 12,547,154 7,685,993 7,551,484 6,806,353
=========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------
1999 1998 1997 1996
------- ------- ---- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............................ $32,719 $ 4,438 $567 $1,000
Working capital...................................... 30,499 3,364 394 967
Total assets......................................... 43,648 12,504 776 1,033
Total stockholders' equity........................... 36,719 8,436 531 1,000
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
report. This discussion may contain forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from the
results discussed in such forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Item 1:
Business -- Risks and Uncertainties." We undertake no obligation to release
publicly the results of any revisions to these forward-looking statements or to
reflect events or circumstances arising after the date hereof.
OVERVIEW
Women First HealthCare is a specialty health care company dedicated to
improving the health and well-being of midlife women. Our mission is to help
midlife women make informed choices about their physical and emotional health
and to provide pharmaceutical products, self-care products, educational programs
and
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<PAGE> 26
support systems to help midlife women improve the quality of their lives. We
market these products in the United States through a number of channels
including our dedicated sales force and our direct-to-consumer marketing
programs through our catalog operation and the Internet. On July 1, 1999, we
completed our initial public offering of 4,500,000 shares of our common stock,
providing us with proceeds, net of underwriting fees and offering expenses, of
approximately $44.5 million. Also, in July 1999, the underwriters exercised in
full their over-allotment option, and we issued an additional 675,000 shares of
common stock providing us with net proceeds of approximately $6.9 million.
RESULTS OF OPERATIONS
We were engaged in development stage operations from November 1, 1996 (the
date of our inception) through December 31, 1997 and did not earn any revenue
during this period. Operations during this period consisted primarily of
formulating a marketing plan, conducting market research, developing strategic
relationships, acquiring equipment, performing administrative functions and
raising capital. In January 1998 and May 1998, we entered into agreements to
sell an aggregate of 2,200,000 shares of Series A Preferred Stock for gross
proceeds of $22 million. Upon completing the initial phase of the financing, we
began to implement our plans for growth by actively recruiting management, staff
and sales personnel, consummating distribution agreements, launching products
and developing educational programs and support systems. We began selling and
distributing the Ortho-Est(R) oral estrogen product in July 1998 and acquired As
We Change, LLC on October 21, 1998.
In March 1999, we entered into a co-promotion agreement with Bristol-Myers
Squibb U.S. Pharmaceuticals Group relating to the Pravachol(R)
cholesterol-lowering drug, and in May 1999, we entered into a co-promotion
agreement with Ortho-McNeil Pharmaceutical, Inc. relating to the Ortho
Tri-Cyclen(R) oral contraceptive product and Ortho-Prefest(TM), a new oral
combination hormonal replacement therapy (HRT) product. We began selling and
distributing the Esclim(TM) estradiol transdermal system in November 1999.
Our product co-promotion agreements with Bristol-Myers Squibb and
Ortho-McNeil Pharmaceutical require us to achieve minimum performance levels to
receive compensation or to prevent contract termination. Through December 31,
1999 we did not meet the minimum performance levels required to receive
compensation under the co-promotion agreement with Bristol-Myers Squibb relating
to the Pravachol(R) cholesterol-lowering drug. In addition, Bristol-Myers Squibb
has the right to terminate the agreement upon sixty days' prior written notice
based upon our performance for the first three quarters under the agreement.
Bristol-Myers Squibb has not notified us of its intent to terminate the
agreement. While we are currently negotiating with Bristol Myers-Squibb to
restructure our agreement in order to improve our ability to recognize revenue
from our sales efforts, there can be no assurances that such negotiations will
prove successful. During 1999, we offered Ortho Tri-Cyclen(R), a leading oral
contraceptive, under the co-promotion agreement with Ortho-McNeil
Pharmaceutical. Through December 31, 1999, we did not meet the minimum
performance levels required to receive compensation under this co-promotion
agreement in relation to Ortho Tri-Cyclen(R). As a result, we have not recorded
revenue under this agreement through December 31, 1999. Effective as of March
31, 2000, Women First has discontinued the co-promotion of Ortho Tri-Cyclen(R).
Under an amendment, which is being negotiated, Ortho Tri-Cyclen(R) will be
eliminated from the co-promotion agreement but Women First will continue to
co-promote Ortho-Prefest(TM).
We have incurred significant losses since we were founded in November 1996.
We had an accumulated deficit of $42.9 million as of December 31, 1999, and we
expect to incur losses at least through the end of 2000. We believe that due to
our limited operating history we are unable to accurately predict our future
results of operations. Accordingly, our operating results should not be relied
upon as an indication of future performance. We review the operating results of
our business as a specialty health care company with one operating segment. The
results of operations include the results of our operations since our inception
and the actual results of operations of As We Change, LLC from its acquisition
date on October 21, 1998 in accordance with the purchase method of accounting.
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<PAGE> 27
In the third quarter of 1999, we took actions designed to enhance our
ability to focus our resources on our core programs: pharmaceutical sales and
marketing to obstetricians and gynecologists (OB/GYNs) and the nurse
practitioners and physician's assistants focused on women's health in order to
leverage the midlife woman's key medical relationships; and direct-to-consumer
marketing through our catalog operation and the Internet. As a result of these
actions, we recognized asset write-downs and other charges amounting to $1.6
million in 1999.
YEARS ENDED DECEMBER 31, 1999 AND 1998
Net Revenue. For 1999, total net revenue was $22.5 million as compared to
$4.8 million for 1998. Revenue for 1999 was derived primarily from
pharmaceutical product sales of the Ortho-Est(R) oral estrogen product and the
Esclim(TM) estradiol transdermal system of $12.0 million, and sales from our
subsidiary As We Change, LLC, a national mail-order catalog and Internet
retailer of $6.8 million. In addition, in September 1999, in accordance with our
co-promotion agreement with Ortho-McNeil Pharmaceutical, Inc., a related party,
pursuant to which we have agreed to co-promote Ortho-Prefest(TM), an oral
combination HRT product, Ortho-McNeil agreed to provide us with up to $5.5
million to be used to fund the development of an educational program with an
independent provider of continuing medical education programs regarding HRT and
the application of hormonal management to clinical situations. We recorded
related party revenue of $2.3 million in 1999 for work completed under this
contract. For 1998, revenue was derived primarily from sales of the Ortho-Est(R)
oral estrogen pharmaceutical product beginning in July 1998 of $3.7 million and
sales from As We Change beginning October 21, 1998 of $899,000.
Costs and Expenses. Costs and expenses increased $38.7 million to $53.3
million for 1999 from $14.6 million for 1998. The increase in costs and expenses
was due primarily to the growth in commercial operations in 1999 and the
write-down of assets and other charges recognized in the third quarter 1999
discussed below.
Cost of sales was $12.3 million, or 54.8% of net revenue, for 1999 as
compared to $2.6 million, or 54.8% of net revenue, for 1998. Cost of sales
consists primarily of the amounts we pay for products under supply agreements.
The increase in costs was primarily due to increases in the fixed and contingent
payments under our distribution agreement with Ortho-McNeil Pharmaceutical and
costs incurred under our distribution and license agreement with Laboratoires
Fournier S.A. regarding our distribution of the Esclim(TM) estradiol transdermal
system.
Marketing and sales expense increased $21.3 million to $26.8 million for
1999 from $5.5 million for 1998. The increase in these expenditures was
primarily due to increases in the number of employees and the corresponding
increased salary expense, deferred compensation and recruiting costs resulting
from the establishment of a direct sales organization, the acquisition of As We
Change, LLC, costs associated with our education programs including the costs of
our programs focused on hormonal replacement therapy and cardiovascular health,
increased travel and business entertainment expense and increased expenses for
market research, product literature and professional samples.
General and administrative expense increased $4.9 million to $10.8 million
for 1999 from $5.9 million for 1998. The increase in these expenses for 1999
over the prior year was primarily due to increases in the number of employees
and the increased salary expense, employee benefits expense and management
incentive bonus expense, increased recruiting and relocation costs, and
increased amortization expense from the purchase of intangible assets associated
with the acquisition of As We Change, LLC.
Research and development expense was $1.7 million for 1999 compared to
$573,000 in 1998. Research and development expense consists primarily of
salaries and payments for contracted development programs. In 1999 and 1998, we
made payments of $450,000 and $275,000, respectively, for the contracted
development of a patient health questionnaire and software product, the
"Benefit: Risk Assessment Model." Also included in research and development
expense in 1999 were costs associated with our development and license agreement
with Tufts University regarding development of the line of Women First(TM) Daily
Difference(TM) nutritional supplements.
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<PAGE> 28
Write-down of Assets and Other Charges. In 1999, we took actions designed
to enhance our ability to focus our resources on our core programs:
pharmaceutical sales and marketing to obstetricians and gynecologists (OB/GYNs)
and the nurse practitioners and physician's assistants focused on women's health
in order to leverage the midlife woman's key medical relationships; and
direct-to-consumer marketing through our catalog operation and the Internet. As
a result of these actions, we recognized asset write-downs and other charges
amounting to $1.6 million in 1999. These charges consisted primarily of
inventory write-downs and other costs associated with the closure of the
operations of Women First Pharmacy Services, Inc. and our decision to direct our
sales efforts away from certain consumer activities. Included in the inventory
write-downs were charges for the discontinuation of the SafeStart(TM) umbilical
cord clamp/cutter product and our decision not to actively market the ViAmor(TM)
vaginal moisturizer product and other self-care products through consumer
channels.
Loss from Operations. For the reasons discussed above, the loss from
operations increased $21.0 million to $30.8 million for 1999 from $9.8 million
for 1998.
Interest Income (Expense), net. Interest income, net increased $252,000 to
$646,000 for 1999 from $394,000 for 1998. Interest income, net consists
primarily of earnings on our cash and cash equivalents and interest expense on
our short-term notes issued in March 1999. The increase in interest income, net
for 1999 compared to the prior year was primarily due to increased average cash
balances as a result of our initial public offering in July 1999.
Accretion of beneficial conversion feature related to convertible preferred
stock. A $3.4 million charge for 1999 has been recognized as an increase of the
net loss available to common stockholders equal to the intrinsic value of the
beneficial conversion feature of the Series A Preferred Stock issued in February
1999. The intrinsic value in these shares of Series A Preferred Stock represents
the difference between the conversion price of the Series A Preferred Stock
issued in February 1999 and the fair value of our common stock at the time of
issuance.
Income Taxes. We have incurred approximately $34.0 million of net operating
losses through 1999 for both federal and California tax purposes that are
available to be carried forward, subject to certain change in control
limitations. The federal and California tax loss carryforwards will begin to
expire in 2018 and 2003, respectively, unless previously utilized. We have
recognized a valuation allowance for the deferred tax asset because we are
uncertain of our ability to utilize these losses in the future.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Net Revenue. For 1998, total net revenue was $4.8 million, which was
derived primarily from sales of the Ortho-Est(R) oral estrogen pharmaceutical
product beginning in July 1998 of $3.7 million and sales from our subsidiary As
We Change, LLC, a national mail-order catalog and Internet retailer, beginning
October 21, 1998 of $899,000. We were in the development stage during 1997 and
recorded no revenue through March 31, 1998.
Costs and Expenses. Costs and expenses increased $12.8 million to $14.6
million for 1998 from $1.8 million for 1997. The increase in costs and expenses
was due primarily to the establishment of commercial operations in 1998 compared
to limited development stage operations in 1997.
Cost of sales was $2.6 million for 1998 as compared to none for 1997. We
began to incur expenses related to sales of the Ortho-Est(R) oral estrogen
product in July 1998 and the acquisition of As We Change, LLC in October 1998.
We do not manufacture the products we offer. Accordingly, our cost of sales
reflects amounts we pay for products under supply agreements.
Marketing and sales expense increased $4.7 million to $5.5 million for 1998
from $791,000 for 1997 primarily due to increases in the number of employees and
the corresponding increased salary expense resulting from the establishment of a
direct sales organization, increased outside services for market research,
recruiting, consulting and other professional fees, increased travel and
business entertainment, and the acquisition of As We Change, LLC in October
1998.
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<PAGE> 29
General and administrative expenses increased $4.9 million to $5.9 million
for 1998 from $975,000 for 1997 primarily due to increases in the number of
employees and the corresponding increased salary expense, the adoption of a
management incentive bonus plan, increased outside services for consulting and
other professional fees, increased occupancy costs due to the establishment of
the corporate office in San Diego, increased travel and business entertainment,
and increased depreciation and amortization expense from increased capital
expenditures and the purchase of intangible assets associated with the
acquisition of As We Change, LLC.
Our research and development expense consists primarily of salaries and
payments for contracted development programs. Research and development expense
was $573,000 for 1998 compared to none in 1997. In 1998, we made payments of
$275,000 for the contracted development of a patient health questionnaire and
software product, the "Benefit: Risk Assessment Model."
Loss from Operations. For the reasons discussed above, loss from operations
increased $8.0 million to $9.8 million for 1998 from $1.8 million for 1997.
Interest Income, net. Interest income increased $356,000 to $395,000 for
1998 from $39,000 for 1997 primarily due to interest income earned on the
investment of unused cash proceeds from the issuance of Series A Preferred
Stock.
Income Taxes. We incurred approximately $7.8 million of net operating
losses in 1998 for both federal and California tax purposes that are available
to be carried forward, subject to certain change in control limitations. The
federal and California tax loss carryforwards will begin to expire in 2018 and
2003, respectively, unless previously utilized. We recognized a valuation
allowance for the deferred tax asset because we are uncertain of our ability to
utilize these losses in the future, and we have determined that it is more
likely than not that we will not generate taxable income sufficient to recover
the deferred tax assets. For 1997, we were an S Corporation for federal and
state income taxes. Accordingly, all losses for 1997 were passed through to the
stockholders and we did not record a provision for taxes.
FACTORS AFFECTING RESULTS OF OPERATIONS
We incurred operating losses of $30.8 million and $9.8 million in 1999 and
1998, respectively. Due to our short operating history, our revenues have varied
and are difficult to forecast on a quarterly or annual basis. However, many of
our expenses are fixed, especially in the short term. In particular, we are
obligated to make significant minimum payments under some of our agreements,
including an annual minimum purchase ($5.4 million for 2000, decreasing annually
for the balance of the contract) for the Ortho-Est(R) oral estrogen product. In
addition, we are an early stage company and have experienced significant
increases in operating expenses associated with obtaining rights to market and
distribute additional products and the expansion of our sales and marketing and
general and administrative activities, and we expect that these increases will
continue in the future. As a result of this variability in revenues and
increased expenses, our results of operations have varied during our short
operating history and we expect that they will continue to fluctuate
significantly in the future. In addition, other factors may cause fluctuations
in our revenues and results of operations, including the following:
- the success of our sales force in distributing and/or co-promoting our
current product line and changes in market acceptance of those products,
- our ability to introduce new products through co-promotion or
distribution agreements or otherwise,
- legislative changes that affect our products and the way we market them
and our ability to comply with new or existing regulations,
- the amount and timing of expenditures for the expansion of our
operations,
- changes in the competitive environment that could cause us to change our
pricing or marketing strategy, and
- changes in the economic and market environment generally or in the health
care industry.
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<PAGE> 30
To the extent our revenues do not increase in line with our expenses, we
may be unable to reduce spending commitments in a timely manner to compensate
for any unexpected revenue shortfall and may experience significant
unanticipated losses. As a result of these factors, our operating results in one
or more future periods may fail to meet the expectations of securities analysts
or investors. Failure to meet these expectations could have a material adverse
effect on our stock price.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, our working capital totaled $30.5 million compared to
$3.4 million at December 31, 1998. Cash and cash equivalents were $32.7 million
at December 31, 1999 compared to $4.4 million at December 31, 1998.
Our primary source of liquidity has been proceeds from private placements
of our equity securities and the initial public offering of common stock. In
January and May 1998, we issued 1,050,000 shares of Series A Preferred Stock
(equivalent to 1,921,500 shares of common stock) and warrants and 50,000 shares
of Series A Preferred Stock (equivalent to 91,500 shares of common stock) and
warrants for net proceeds of $10.0 million and $453,000, respectively. In
October 1998, we issued 550,000 shares of Series A Preferred Stock (equivalent
to 1,006,500 shares of common stock) and warrants for additional net proceeds of
$5.3 million. In February 1999, we issued an additional 550,000 shares of Series
A Preferred Stock (equivalent to 1,006,500 shares of common stock) and warrants
for additional net proceeds of $5.3 million.
In addition, in March 1999, we issued $7.5 million of short-term notes and
warrants to purchase 60,756 shares of common stock in a private placement for
net proceeds of $7.5 million. In August 1999, the Company repaid $7.2 million
representing all principal outstanding plus accrued interest on the short-term
notes issued in March 1999, with the exception of $250,000 in principal, which
was repaid in October 1999.
On July 1, 1999, we completed our initial public offering of 4,500,000
shares of our common stock, providing us with proceeds, net of underwriting fees
and offering expenses, of approximately $44.5 million. All shares of convertible
preferred stock outstanding on June 28, 1999 automatically converted into
4,388,329 shares of common stock upon the sale of common stock in the offering.
In July 1999, the underwriters exercised in full their over-allotment option,
and we issued an additional 675,000 shares of common stock providing us with net
proceeds of approximately $6.9 million.
In addition to operating expenses, our primary use of funds has been and
will continue to be to fund capital expenditures, to obtain the rights to market
and distribute products and to acquire companies.
Net cash used in operating activities was $25.1 million for 1999 and was
$9.0 million for 1998. Net cash used in investing activities was $3.3 million
for 1999 and was $2.8 million for 1998, consisting of cash payments for the
acquisition of As We Change, LLC and net capital expenditures. Net cash provided
by financing activities was $56.7 million for 1999 and was $15.7 million for
1998, primarily consisting of the net proceeds from the issuance of equity
securities.
For 1999, we made net capital expenditures of $2.3 million for computer
equipment, development of our Internet site and acquisition of licenses and
other assets including license fees associated with the Esclim(TM) estradiol
transdermal sysytem and production of RENEWAL a time for you(TM), a program that
we developed in conjunction with Dr. Deepak Chopra. We made net capital
expenditures of $749,000 during 1998, primarily for furniture and fixtures,
leasehold improvements, equipment, and licenses.
In October 1998, we acquired all of the outstanding membership interests in
As We Change, LLC. Total acquisition costs were $4.4 million, consisting of $1.8
million cash paid at acquisition date, $1.1 million deferred payment made March
31, 1999, 594,000 shares of Series B Preferred Stock (equivalent to 362,329
shares of common stock) and $107,000 of acquisition related expenses. We issued
a total of 44,000 of these shares (equivalent to 26,835 shares of common stock)
in April 1999 pursuant to an earn-out based on 1998 operating results of As We
Change, LLC. We will be required to issue an additional 54,900 shares of common
stock in April 2000 based on the 1999 operating results of As We Change, LLC.
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<PAGE> 31
While we intend to continue pursuing the potential addition of a product or
the acquisition of a product line, we currently have no firm commitments. In
July 1999, we entered into a distribution and license agreement with
Laboratoires Fournier S.A. under which we have the exclusive right (subject to
exceptions) to market, use, distribute and sell the Esclim(TM) estradiol
transdermal system in various dosages in the United States and Puerto Rico. The
agreement requires us to pay Fournier a non-refundable license fee of $1.45
million payable over a two-year period, of which $750,000 was paid in 1999 and
$700,000 will be paid subject to sales objectives being reached in 2000 and
2001.
We have experienced a substantial increase in our expenditures since our
inception consistent with growth in our operations and staffing, and anticipate
that this growth will continue for the next several years. Our co-promotion
agreement with Ortho-McNeil Pharmaceutical required us to expand our field sales
organization to at least 100 representatives in 1999 and requires us to commit
at least 150 sales representatives to co-promote Ortho-Prefest(TM) under the
agreement in each of 2000, 2001 and 2002. We expect that our operating expenses
will continue to increase as we obtain rights to market and distribute
additional products and we expand our sales and marketing activities and our
educational programs for clinicians and women.
We also are obligated to make significant minimum payments under certain of
our agreements with our collaborative partners. The minimum purchase commitment
for the Ortho-Est(R) oral estrogen product is $5.4 million for 2000 and
decreases annually over the remaining eight-year term of the contract for an
aggregate commitment of $33.4 million. We are also obligated under other
agreements, other than the Fournier agreement which is described above, to make
payments of $175,000 in 2000.
We believe that based on our current performance and present plans, our
existing cash balances will be sufficient to fund our operations, make planned
capital expenditures and meet our minimum purchase commitments through the end
of fiscal 2000. Thereafter, if cash generated by operations is insufficient to
satisfy our liquidity requirements, we may need to sell additional equity or
debt securities or obtain credit facilities. We currently do not have any lines
of credit. The sale of additional equity or convertible debt securities may
result in additional dilution to our stockholders. We cannot give you any
assurances that we will be able to raise any such capital on terms acceptable to
Women First or at all. The extent of our needs for additional liquidity will
depend on our future operating performance, which is itself dependent on a
number of factors, many of which we cannot control, including prevailing
economic conditions, availability of other sources of liquidity, and financial,
business, regulatory and other factors affecting our business and operations.
YEAR 2000 COMPLIANCE
In late 1999, we completed our remediation and testing of systems to become
Year 2000 ready. As a result of our planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change. Expenditures required to
make us Year 2000 compliant were not material to our consolidated financial
position or results of operations. We are not aware of any material problems
resulting from Year 2000 issues, either with our products, our internal systems,
or the products and services of third parties. We will continue to monitor our
mission critical computer applications and those of our suppliers and vendors
throughout the year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our distribution and license agreement with Laboratoires Fournier S.A.
requires us to pay for the purchase of the Esclim(TM) estradiol transdermal
product in euros. As a result, our operating results for this product are
exposed to changes in exchange rates between the U.S. dollar and the European
euro.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on page F-1 below for a list
of the financial statements being filed with this report.
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<PAGE> 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item will be set forth in the section
headed "Proposal 1 -- Election of Directors" in Women First's definitive Proxy
Statement for the Annual Meeting of Stockholders of the Company (the "Proxy
Statement") which is expected to be filed not later than 120 days after the end
of Women First's fiscal year ended December 31, 1999, and is incorporated in
this report by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth in the section
headed "Executive Compensation" in Women First's definitive Proxy Statement and
is incorporated in this report by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be set forth in the section
headed "Security Ownership of Certain Beneficial Owners and Management" in Women
First's definitive Proxy Statement and is incorporated in this report by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be set forth in the sections
headed "Certain Relationships and Related Transactions" and "Compensation
Committee Interlocks and Insider Participation" in Women First's definitive
Proxy Statement and is incorporated in this report by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS:
See attached Index to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES:
Financial statement schedules are omitted because they are not
required, are not applicable, or the information is included in the
consolidated financial statements or notes included in this Form 10-K.
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<PAGE> 33
3. EXHIBITS:
<TABLE>
<S> <C>
3.2(1) Fourth Amended and Restated Certificate of Incorporation.
3.4(1) Second Amended and Restated Bylaws.
4.1(2) Form of Specimen Common Stock Certificate.
10.1(3) Employment Agreement dated January 8, 1998 by and between
Women First HealthCare, Inc. and Edward F. Calesa.
10.2(3) Employment Agreement dated January 14, 1998 by and between
Women First HealthCare, Inc. and David F. Hale.
10.3(4) Amended and Restated 1998 Long-Term Incentive Plan.
10.4(5) Management Incentive Compensation Plan.
10.5(3) Lease Agreement dated April 3, 1998 by and between Women
First HealthCare, Inc. and Prentiss Properties Acquisition
Partners, L.P.
10.6(3) Agreement dated as of July 1, 1998 between Ortho-McNeil
Pharmaceutical Corporation and Women First HealthCare, Inc.*
10.7(5) Amendment No. 1 to Distribution Agreement dated as of
November 25, 1998 between Ortho-McNeil Pharmaceutical, Inc.
and Women First HealthCare, Inc.*
10.8(3) Agreement effective as of March 1, 1999 between
Bristol-Myers Squibb and Women First HealthCare, Inc.*
10.10(3) Employment Agreement dated as of October 21, 1998 between
MenoMorphosis, LLC and Julie G. Martin.
10.11(3) Employment Agreement dated as of October 21, 1998 between
MenoMorphosis, LLC and Dale F. Steele.
10.12(3) Employment Agreement dated as of October 21, 1998 between
MenoMorphosis, LLC and Nancy J. Casey.
10.13(6) Co-Promotion Agreement dated as of May 27, 1999 between
Ortho-McNeil Pharmaceutical, Inc. and Women First
HealthCare, Inc.*
10.14(1) Distribution and License Agreement dated as of July 19, 1999
between Women First HealthCare, Inc. and Laboratoires
Fournier S.A.*
10.15(4) 1999 Non-Qualified Stock Option Plan.
21.1(4) Subsidiaries.
23.1(4) Consent of Ernst & Young LLP.
27.1(4) Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999.
(2) Incorporated by reference to Amendment No. 4 to the Company's Registration
Statement on Form S-1 filed June 24, 1999.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-1 filed March 12, 1999.
(4) Filed herewith.
(5) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-1 filed May 24, 1999.
(6) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form S-1 filed June 2, 1999.
* Women First has been granted confidential treatment with respect to portions
of this exhibit.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed by the Registrant during the fourth
quarter of the fiscal year ended December 31, 1999.
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WOMEN FIRST HEALTHCARE, INC.
March 30, 2000
By: /s/ DAVID F. HALE
------------------------------------
David F. Hale,
President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
/s/ EDWARD F. CALESA Chairman of the Board and March 30, 2000
- ----------------------------------------------------- Director
/s/ DAVID F. HALE President and Chief Executive March 30, 2000
- ----------------------------------------------------- Officer and Director
(Principal Executive Officer)
/s/ DEBRA P. CRAWFORD Vice President, Chief Financial March 30, 2000
- ----------------------------------------------------- Officer, Treasurer, and
Secretary
(Principal Financial Officer
and Principal Accounting
Officer)
/s/ MEREDITH A. BROKAW Director March 30, 2000
- -----------------------------------------------------
/s/ GARY V. PARLIN Director March 30, 2000
- -----------------------------------------------------
/s/ RICHARD L. RUBIN Director March 30, 2000
- -----------------------------------------------------
/s/ JOHN SIMON Director March 30, 2000
- -----------------------------------------------------
</TABLE>
34
<PAGE> 35
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 36
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Women First HealthCare, Inc.
We have audited the accompanying consolidated balance sheets of Women First
HealthCare, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Women First HealthCare, Inc. at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
San Diego, California
February 18, 2000
F-2
<PAGE> 37
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 32,719,263 $ 4,438,445
Accounts receivable, net.................................. 1,916,174 1,114,283
Inventory................................................. 1,459,733 1,205,597
Receivable from related party............................. 682,484 124,570
Prepaid expenses and other current assets................. 649,926 548,999
------------ -----------
Total current assets.............................. 37,427,580 7,431,894
Property and equipment, net................................. 1,035,240 690,912
Intangible assets, net...................................... 3,745,110 3,922,847
Other assets................................................ 1,439,629 458,010
------------ -----------
Total assets...................................... $ 43,647,559 $12,503,663
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,481,581 $ 1,473,674
Payable to related party.................................. 482,321 --
Accrued salaries and employee benefits.................... 1,972,889 1,307,167
Deferred business acquisition payment..................... -- 1,059,897
Other accrued liabilities................................. 1,991,439 227,415
------------ -----------
Total current liabilities......................... 6,928,230 4,068,153
Commitments
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized
Series A convertible preferred stock, $.01 par value;
no shares issued and outstanding at December 31, 1999
and 1,650,000 shares issued and outstanding at
December 31, 1998.................................... -- 16,500
Series B convertible preferred stock, $.01 par value;
no shares issued and outstanding at December 31, 1999
and 398,540 shares issued and outstanding and 195,460
shares to be issued at December 31, 1998............. -- 5,940
Common stock, $.001 par value at December 31, 1999 and
$.01 par value at December 31, 1998; 40,000,000 shares
authorized; 17,596,195 shares issued, 54,900 shares to
be issued, and 17,255,878 shares outstanding at
December 31, 1999 and 8,026,310 shares issued and
7,685,993 shares outstanding at December 31, 1998...... 17,310 76,860
Treasury stock............................................ (99,660) (96,597)
Additional paid-in capital................................ 80,761,285 18,430,788
Deferred compensation..................................... (1,080,135) (615,598)
Accumulated deficit....................................... (42,879,471) (9,382,383)
------------ -----------
Total stockholders' equity........................ 36,719,329 8,435,510
------------ -----------
Total liabilities and stockholders' equity........ $ 43,647,559 $12,503,663
============ ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 38
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Net revenue........................................ $ 20,152,104 $ 4,834,196 $ --
Net revenue with related party..................... 2,349,484 -- --
------------ ----------- -----------
22,501,588 4,834,196 --
Costs and expenses:
Cost of sales (including purchases from related
party of $7,532,257 and $2,027,889 for the
years ended December 31, 1999 and December 31,
1998)......................................... 12,327,262 2,648,114 --
Marketing and sales.............................. 26,826,642 5,478,056 790,703
General and administrative....................... 10,793,273 5,912,066 975,244
Research and development......................... 1,696,758 572,688 --
Write-down of assets and other charges........... 1,638,616 -- --
------------ ----------- -----------
Total costs and expenses................. 53,282,551 14,610,924 1,765,947
------------ ----------- -----------
Loss from operations............................... (30,780,963) (9,776,728) (1,765,947)
Interest income, net............................... 645,585 394,345 38,513
------------ ----------- -----------
Net loss........................................... (30,135,378) (9,382,383) (1,727,434)
Accretion of beneficial conversion feature related
to convertible preferred stock................... (3,361,710) -- --
------------ ----------- -----------
Net loss available to common stockholders.......... $(33,497,088) $(9,382,383) $(1,727,434)
============ =========== ===========
Net loss per share (basic and diluted)............. $ (2.67) $ (1.22) $ (0.23)
============ =========== ===========
Weighted average shares used in computing net loss
per share (basic and diluted).................... 12,547,154 7,685,993 7,551,484
============ =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 39
WOMEN FIRST HEALTHCARE, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------- -------------------- --------------------- TREASURY PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL
---------- -------- --------- -------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996... -- $ -- -- $ -- 6,806,353 $ 68,063 $ -- $ 1,931,937
Issuance of common stock for
cash........................ -- -- -- -- 1,219,957 12,200 -- 346,278
Purchase of treasury stock for
cash........................ -- -- -- -- (340,317) (3,403) (96,597) --
Payment received on
subscription receivable..... -- -- -- -- -- -- -- --
Net loss...................... -- -- -- -- -- -- -- --
---------- -------- -------- ------- ---------- -------- -------- -----------
Balance at December 31, 1997... -- -- -- -- 7,685,993 76,860 (96,597) 2,278,215
Effect of change in tax status
from S Corporation to C
Corporation................. -- -- -- -- -- -- -- (1,727,434)
Issuance of Series A preferred
stock for cash.............. 1,650,000 16,500 -- -- -- -- -- 15,725,657
Issuance of Series B preferred
stock in conjunction with
acquisition of subsidiary... -- -- 398,540 3,985 -- -- -- 956,976
Shares to be issued of Series
B preferred stock in
conjunction with acquisition
of subsidiary............... -- -- 195,460 1,955 -- -- -- 469,337
Deferred compensation related
to stock options............ -- -- -- -- -- -- -- 728,037
Amortization of deferred
compensation................ -- -- -- -- -- -- -- --
Net loss...................... -- -- -- -- -- -- -- --
---------- -------- -------- ------- ---------- -------- -------- -----------
Balance at December 31, 1998... 1,650,000 16,500 594,000 5,940 7,685,993 76,860 (96,597) 18,430,788
Issuance of Series A preferred
stock for cash.............. 550,000 5,500 -- -- -- -- -- 5,280,718
Conversion of preferred stock
to common stock............. (2,200,000) (22,000) (594,000) (5,940) 4,388,329 4,388 -- 23,552
Issuance of common stock in
initial public offering..... -- -- -- -- 5,175,000 5,175 -- 51,399,289
Issuance of common stock upon
exercise of options......... -- -- -- -- 6,556 6 -- 5,486
Shares to be issued of common
stock in conjunction with
acquisition of subsidiary... -- -- -- -- 54,900 55 -- 288,170
Deferred compensation related
to stock options............ -- -- -- -- -- -- -- 1,624,718
Amortization of deferred
compensation................ -- -- -- -- -- -- -- --
Discount on notes payable
related to grant of common
stock warrants.............. -- -- -- -- -- -- -- 274,617
Change in par value of common
stock from $.01 to $.001.... -- -- -- -- -- (69,174) (3,063) 72,237
Net loss...................... -- -- -- -- -- -- -- --
Accretion of beneficial
conversion feature related
to convertible preferred
stock....................... -- -- -- -- -- -- -- 3,361,710
---------- -------- -------- ------- ---------- -------- -------- -----------
Balance at December 31, 1999... -- $ -- -- $ -- 17,310,778 $ 17,310 $(99,660) $80,761,285
========== ======== ======== ======= ========== ======== ======== ===========
<CAPTION>
TOTAL
SUBSCRIPTION DEFERRED ACCUMULATED STOCKHOLDERS'
RECEIVABLE COMPENSATION DEFICIT EQUITY
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996... $(1,000,000) $ -- $ -- $ 1,000,000
Issuance of common stock for
cash........................ -- -- -- 358,478
Purchase of treasury stock for
cash........................ -- -- -- (100,000)
Payment received on
subscription receivable..... 1,000,000 -- -- 1,000,000
Net loss...................... -- -- (1,727,434) (1,727,434)
----------- ----------- ------------ ------------
Balance at December 31, 1997... -- -- (1,727,434) 531,044
Effect of change in tax status
from S Corporation to C
Corporation................. -- -- 1,727,434 --
Issuance of Series A preferred
stock for cash.............. -- -- -- 15,742,157
Issuance of Series B preferred
stock in conjunction with
acquisition of subsidiary... -- -- -- 960,961
Shares to be issued of Series
B preferred stock in
conjunction with acquisition
of subsidiary............... -- -- -- 471,292
Deferred compensation related
to stock options............ -- (728,037) -- --
Amortization of deferred
compensation................ -- 112,439 -- 112,439
Net loss...................... -- -- (9,382,383) (9,382,383)
----------- ----------- ------------ ------------
Balance at December 31, 1998... -- (615,598) (9,382,383) 8,435,510
Issuance of Series A preferred
stock for cash.............. -- -- -- 5,286,218
Conversion of preferred stock
to common stock............. -- -- -- --
Issuance of common stock in
initial public offering..... -- -- -- 51,404,464
Issuance of common stock upon
exercise of options......... -- -- -- 5,492
Shares to be issued of common
stock in conjunction with
acquisition of subsidiary... -- -- -- 288,225
Deferred compensation related
to stock options............ -- (1,624,718) -- --
Amortization of deferred
compensation................ -- 1,160,181 -- 1,160,181
Discount on notes payable
related to grant of common
stock warrants.............. -- -- -- 274,617
Change in par value of common
stock from $.01 to $.001.... -- -- -- --
Net loss...................... -- -- (30,135,378) (30,135,378)
Accretion of beneficial
conversion feature related
to convertible preferred
stock....................... -- -- (3,361,710) --
----------- ----------- ------------ ------------
Balance at December 31, 1999... $ -- $(1,080,135) $(42,879,471) $ 36,719,329
=========== =========== ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 40
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(30,135,378) $(9,382,383) $(1,727,434)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 697,214 161,898 16,275
Amortization of intangibles............................... 474,665 79,751 4,652
Amortization of deferred compensation..................... 1,160,181 112,439 --
Amortization of warrants issued with debt................. 274,617 -- --
Write-down of assets and other charges.................... 1,638,616 -- --
Changes in operating assets and liabilities, net of effect
of acquisition:
Accounts receivable..................................... (801,891) (1,113,718) --
Inventory............................................... (1,288,046) (1,013,306) --
Receivable from related party........................... (557,914) (124,570) --
Prepaid expenses and other current assets............... (100,927) (230,513) (71,251)
Accounts payable........................................ 1,007,907 1,135,189 126,374
Payable to related party................................ 482,321 -- --
Accrued salaries and employee benefits.................. 665,722 1,262,782 --
Other accrued liabilities............................... 1,408,457 71,355 118,652
------------ ----------- -----------
Net cash used in operating activities....................... (25,074,456) (9,041,076) (1,532,732)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (658,108) (697,068) (81,884)
Deposit on facilities....................................... -- (335,000) --
Acquisition of subsidiary, net of cash acquired............. (1,059,897) (1,745,802) --
Acquisition of licenses and other assets, net............... (1,622,896) (52,066) (76,562)
------------ ----------- -----------
Net cash used in investing activities....................... (3,340,901) (2,829,936) (158,446)
FINANCING ACTIVITIES
Issuance of Series A preferred stock........................ 5,286,218 15,742,157 --
Issuance of common stock.................................... 51,409,957 -- 358,478
Issuance of short-term notes payable to related parties..... 2,000,000 -- --
Issuance of short-term notes payable........................ 5,490,000 -- --
Repayment of short-term notes payable to related parties.... (2,000,000) -- --
Repayment of short-term notes payable....................... (5,490,000) -- --
Payment received on subscription receivable................. -- -- 1,000,000
Purchase of treasury stock.................................. -- -- (100,000)
------------ ----------- -----------
Net cash provided by financing activities................... 56,696,175 15,742,157 1,258,478
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents........ 28,280,818 3,871,145 (432,700)
Cash and cash equivalents at beginning of the period........ 4,438,445 567,300 1,000,000
------------ ----------- -----------
Cash and cash equivalents at end of the period.............. $ 32,719,263 $ 4,438,445 $ 567,300
============ =========== ===========
Supplemental disclosure of cash flow activities:
Interest paid............................................... $ 284,415 $ -- $ --
Supplemental schedule of non cash investing and financing
activities:
Issuance of Series B preferred stock in conjunction with
acquisition of subsidiary................................. $ -- $ 1,432,253 $ --
Issuance of common stock in conjunction with acquisition of
subsidiary................................................ 288,225 -- --
</TABLE>
See accompanying notes.
F-6
<PAGE> 41
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Women First HealthCare, Inc. is a specialty health care company dedicated
to improving the health of midlife women. Offices are located in California and
New Jersey. Women First HealthCare, Inc., originally incorporated under the name
Healthy Living for Women, Inc., was incorporated in Delaware on November 1,
1996. Primary operations did not begin until 1997. As We Change, a national
mail-order catalog and Internet retailer, and Women First Pharmacy Services,
Inc., a home delivery pharmacy, are wholly owned subsidiaries of Women First
HealthCare, Inc. As used herein, the "Company" collectively refers to the
consolidated entity of Women First HealthCare, Inc. and its subsidiaries. On
July 1, 1999, the Company completed its initial public offering. Also, in July
1999, the underwriters exercised in full their over-allotment option. See note
9.
Principles of Consolidation
The consolidated financial statements presented herein include the
financial statements of Women First HealthCare, Inc. and the actual results of
As We Change from its purchase acquisition date on October 21, 1998 (note 2) and
the results of Women First Pharmacy Services, Inc. since its incorporation in
September 1998. All significant intercompany transactions and balances have been
eliminated in consolidation. As of December 31, 1999, all operations of Women
First Pharmacy Services, Inc. had ceased.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly-liquid financial instruments purchased
with an original maturity of three months or less to be cash equivalents. Cash
equivalents totaling $32,719,000 at December 31, 1999 consisted primarily of
U.S. Treasury obligations held in a money market account.
Concentration of Credit Risk
The Company sells its pharmaceutical products primarily to established
distributors and large retailers in the pharmaceutical industry. Credit is
extended based on an evaluation of the customer's financial condition, and
collateral generally is not required. Self-care products are typically sold to
individuals for cash or payment by major credit card. Credit losses have
historically been minimal. The Company is also dependent on single sources of
supply for products it offers for sale and would need to obtain alternative
sources if the supplier could not meet the Company's needs.
Inventory
Inventory is stated at the lower of cost or market and is determined on a
first-in, first-out basis. The Company periodically reviews inventory for the
timely identification and measurement of obsolete, slow-moving, or otherwise
impaired inventory. The Company accrues for net losses on firm uncancellable
purchase commitments for inventory. In 1999, the Company recognized a write-down
in inventory of $1,072,000 associated with the Company's decision to discontinue
certain consumer product activities. See note 7.
F-7
<PAGE> 42
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Long-lived Assets
Property and equipment are stated at cost and are depreciated over the
estimated useful lives of the assets, ranging from three to seven years, using
the straight-line method. Leasehold improvements are stated at cost and
amortized over the shorter of the estimated useful lives of the assets or the
lease term. Costs incurred in connection with the development or purchase of
certain licenses are capitalized and amortized over the estimated useful life of
the license, generally five to ten years.
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. An impairment loss would be measured and recognized if the sum
of the expected future undiscounted cash flows is less than the carrying amount
of the asset. If the carrying amount of the asset is determined to be impaired,
an impairment loss to write-down the carrying value of the asset to fair value
would be recognized in the period of impairment. The Company determines fair
value by using quoted market prices when available. When the market price is not
available an estimated fair value will be determined through other valuation
techniques. In 1999, the Company recognized impairment losses of $481,000 on
previously capitalized software development and production costs associated with
certain consumer activities.
Stock Options
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), establishes the use of the fair value
based method of accounting for stock-based compensation arrangements, under
which compensation cost is determined using the fair value of stock-based
compensation determined as of the grant date, and is recognized over the periods
in which the related services are rendered. SFAS 123 also permits companies to
elect to continue using the implicit value accounting method specified in
Accounting Principles Board Opinion No. 25 to account for stock-based
compensation related to option grants to employees. The Company has elected to
retain the implicit value based method for such grants, and has disclosed the
pro forma effect of using the fair value based method to account for its
stock-based compensation. Options or stock awards issued to non-employees have
been determined in accordance with SFAS 123 and EITF 96-18. Deferred charges for
options granted to non-employees are periodically remeasured as the options
vest.
Revenue Recognition
The Company records sales for its pharmaceutical and self-care products at
time of shipment. Adjustments to its pharmaceutical product sales are made for
estimated sales discounts it offers due to wholesaler chargebacks,
Medicaid-sponsored payor allowance discounts, and early payment discounts.
Adjustments to self-care product sales include an estimate of returns and
allowances. The Company provides for returns at the time of sale based on
estimated merchandise returns.
The Company will accept for credit or exchange pharmaceutical products that
have become unusable due to passage of the expiration date, drug recall, or
discontinuance by the Company. For self-care products, the Company will issue a
full refund for returned products within 60 days of delivery. In 1999, the
Company had product returns of approximately $488,000.
Contract and other revenue under the Company's co-promotion and development
agreements are recognized when realized and earned based upon work performed or
upon completion of certain performance requirements of the contracts, or when
received if amounts are non-refundable and there are no future performance
obligations. In 1999 and 1998, the Company recognized $3,149,000 and $150,000,
respectively, of contract revenue which is included in net revenue in the
accompanying Statements of Operations.
F-8
<PAGE> 43
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Catalog Costs
Catalog production expenses are capitalized as incurred and amortized over
the period the catalog generates revenue, generally eight months. Catalog
production expenses of $2,105,000 and $258,000 were recorded in marketing and
sales expense in the accompanying Statements of Operations in 1999 and 1998,
respectively.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Income Taxes
The Company provides for income taxes under the asset and liability method
of Statement of Financial Accounting Standards No. 109. Deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amount of assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
Comprehensive Income
Under Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income," the reporting and display of comprehensive income and its
components is required in the financial statements. For the periods presented in
the accompanying financial statements, the Company has no items for which
comprehensive loss would differ from the reported net loss.
Segment Reporting
Under Statement of Financial Accounting Standards No. 131 "Disclosures
about Segments of an Enterprise and Related Information," companies are required
to report descriptive and financial information about their operating segments.
The Company's management approach is to review the operating results of the
business as one operating segment which is a specialty health care company.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted net loss per share, which would include
additional potential common shares issued related to outstanding options,
warrants and conversion of preferred stock, if dilutive, is unchanged from basic
loss per share due to the Company's net losses making the effect of these common
share equivalents anti-dilutive. Excluded from the determination of net loss per
share are 2,687,036 and 5,748,975 potentially dilutive common shares at December
31, 1999 and December 31, 1998, respectively.
Fair Value of Financial Instruments
The carrying amount of accounts receivable, accounts payable, accrued
salaries and employee benefits and other accrued liabilities are considered to
be representative of their respective fair values because of the short-term
nature of these financial instruments.
F-9
<PAGE> 44
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. ACQUISITION OF AS WE CHANGE
On October 21, 1998, the Company acquired all of the outstanding membership
interests in MenoMorphosis, LLC dba As We Change. The acquisition of As We
Change was accounted for as a purchase by the Company. The operations of As We
Change are included in the Company's consolidated financial statements from the
date of acquisition.
A summary of the As We Change acquisition costs and allocation to the
assets acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Total acquisition costs:
Cash paid at acquisition date.......................... $1,800,000
Deferred payments made in March 1999................... 1,059,897
Issuance of Series B Preferred Stock................... 1,432,253
Shares to be issued of common stock as of
December 31, 1999................................... 288,225
Acquisition related expenses........................... 107,153
----------
$4,687,528
==========
Allocated to assets and liabilities as follows:
Tangible assets acquired............................... $ 722,037
Tangible liabilities assumed........................... (325,332)
Intangible assets acquired (note 6).................... 4,290,823
----------
$4,687,528
==========
</TABLE>
The Series B Preferred Stock, which subsequently converted to common stock
upon the Company's initial public offering, was valued as of the acquisition
date at the estimated fair value as determined by an independent valuation. The
acquisition agreement provided for the holders of the preferred stock to be able
to defer the receipt of certain shares of the stock until January 1999. In
addition, the agreement provided for additional shares of Series B Preferred
Stock (or if the Series B Preferred Stock had become subject to mandatory
conversion, such number of shares of common stock as would be issued upon
conversion) to be issued based upon 1998 and 1999 operating results. Based on
the 1998 As We Change net revenue and operating loss, 44,000 shares of Series B
Preferred Stock (subsequently converted to 26,835 shares of common stock) were
earned. Based on the 1999 As We Change net revenue and operating results, 54,900
shares of common stock were earned, the value of which was $288,225 and was
accounted for as an increase to goodwill in 1999.
The following unaudited pro forma data reflect for the years ended December
31, 1998 and 1997 the combined results of operations of the Company and As We
Change, subject to certain purchase accounting adjustments, as if the
acquisition had occurred at the beginning of the periods:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997
------------ -----------
<S> <C> <C>
Net product sales................................ $ 7,281,168 $ 2,679,830
Net loss......................................... $(10,177,805) $(3,331,930)
Net loss per share............................... $ (1.32) $ (0.44)
</TABLE>
F-10
<PAGE> 45
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Trade receivables.................................. $2,494,405 $1,292,033
Allowance for doubtful accounts.................... (83,176) (40,000)
Allowance for cash discounts, returns, rebates and
other chargebacks................................ (495,055) (137,750)
---------- ----------
$1,916,174 $1,114,283
========== ==========
</TABLE>
The Company charged $845,195 and $220,383 for doubtful accounts, cash
discounts, returns and rebates for the periods ending December 31, 1999 and
1998, respectively. Deductions of $444,714 and $42,633 for writeoffs and
discounts taken were made during the respective periods.
4. INVENTORY
Inventory consists of the following components:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Pharmaceutical products............................ $ 837,462 $ 415,815
Self-care products................................. 512,969 589,138
Video cassettes.................................... 109,302 200,644
---------- ----------
$1,459,733 $1,205,597
========== ==========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---------- --------
<S> <C> <C>
Furniture and fixtures............................... $ 537,108 $409,602
Office equipment..................................... 768,536 379,129
Leasehold improvements............................... 192,290 122,762
---------- --------
1,497,934 911,493
Accumulated depreciation............................. (462,694) (220,581)
---------- --------
$1,035,240 $690,912
========== ========
</TABLE>
F-11
<PAGE> 46
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. INTANGIBLE ASSETS
Intangible asset balances and estimated lives consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C> <C>
Trademark............................... 15 years $1,512,546 $1,500,000
Assembled workforce..................... 10 years 170,000 170,000
Customer list........................... 3 years 580,000 580,000
Non-compete agreements.................. 4 years 280,000 280,000
Goodwill................................ 15 years 1,760,823 1,472,598
---------- ----------
4,303,369 4,002,598
Accumulated amortization................ (558,259) (79,751)
---------- ----------
$3,745,110 $3,922,847
========== ==========
</TABLE>
The intangible assets resulted primarily from the 1998 acquisition of As We
Change as discussed in note 2. The Company also capitalizes trademark filing
costs which are amortized over the estimated economic life of the trademarks,
generally 15 years.
7. WRITE-DOWN OF ASSETS AND OTHER CHARGES
In the third quarter 1999, the Company recognized a write-down of assets
and other charges amounting to $1.6 million consisting primarily of inventory
write-downs and other costs associated with the closure of the Company's
pharmacy operations and the Company's decision to discontinue certain consumer
product activities.
8. SHORT-TERM NOTES PAYABLE
In March 1999, the Company issued $7.5 million of short-term notes and
warrants to purchase 60,756 shares of common stock in a private placement. The
warrants are exercisable for a period of five years with an exercise price of
$9.35. The Company recorded a charge to interest expense of approximately
$275,000 for these warrants which was amortized over the life of the short-term
notes. The charge was determined using the Black-Scholes valuation method. In
August 1999, the Company repaid $7.2 million representing all principal
outstanding plus accrued interest on the short-term notes issued in March 1999,
with the exception of $250,000 in principal, which was repaid in October 1999.
9. STOCKHOLDERS' EQUITY
Common Stock
In May 1997, the Board of Directors authorized a 5,000 for 1 stock split of
the Company's common stock and changed the par value from $1.00 per share to
$.01 per share. In December 1997, the Board of Directors authorized a 1.85965947
for 1 stock split of the Company's common stock. In June 1998, the Board of
Directors approved a 3 for 1 stock split of the Company's common stock. In March
1999, the Board of Directors approved a .61 for 1 stock split of the Company's
common stock. All share amounts in the accompanying consolidated financial
statements have been restated to reflect the effects of these changes as if they
had occurred as of the inception of the Company on November 1, 1996. Also in
March 1999, the Board of Directors authorized a change in the Company's par
value of common stock from $.01 per share to $.001 per share. In 1997, the
Company acquired treasury stock from a terminated employee. No gain or loss was
recorded with respect to this transaction.
F-12
<PAGE> 47
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
On July 1, 1999, the Company completed its initial public offering of
4,500,000 shares of the Company's common stock, providing the Company with
proceeds, net of underwriting fees and offering expenses, of approximately $44.5
million. All shares of convertible preferred stock outstanding on June 28, 1999
automatically converted into 4,388,329 shares of common stock upon the sale of
common stock in the offering. In July 1999, the underwriters exercised in full
their over-allotment option, and the Company issued an additional 675,000 shares
of common stock providing the Company with net proceeds of approximately $6.9
million.
Series A Preferred Stock
In January and May 1998, the Company entered into an agreement to sell
2,200,000 shares of its Series A Preferred Stock at $10 per share. In January
1998, the Company issued 1,050,000 shares for net proceeds of $10.0 million. In
May 1998, the Company issued an additional 50,000 shares for net proceeds of
$453,000. The Company had the contractual right to issue the remaining shares at
$10 per share upon the attainment of certain operational milestones.
In October 1998, the Company attained the initial set of milestones and
issued 550,000 shares of Series A Preferred Stock for net proceeds of $5.3
million. In January 1999, the subsequent milestone event was reached and in
February 1999 the Company issued an additional 550,000 shares of Series A
Preferred Stock for net proceeds of $5.3 million. In connection with the
issuance of the Series A Preferred Stock, the Company issued warrants to
purchase an aggregate of 480,372 shares of common stock at $5.46 per share,
subject to certain adjustments. The warrants expire on January 8, 2005.
The Company recorded a $3.4 million charge to equity for the intrinsic
value of the beneficial conversion feature related to the February 1999 issuance
of Series A Preferred Stock under the guidance of EITF D-60. The $3.4 million
charge has been recognized as an increase of the net loss available to common
stockholders.
In conjunction with the completion of the Company's initial public offering
on July 1, 1999, the Series A Preferred Stock automatically converted to common
stock at a conversion rate of 1.83 shares of common stock for each share of
Series A Preferred Stock.
Series B Convertible Preferred Stock
In 1998, the Company issued 398,540 shares of Series B Preferred Stock in
conjunction with the acquisition of As We Change and had 195,460 shares to be
issued as of December 31, 1998. The shares to be issued related to those
stockholders who elected to receive Series B Preferred Stock in 1999, and for
the shares of stock to be issued related to the 1998 earn-out criteria.
In conjunction with the completion of the Company's initial public offering
on July 1, 1999, each share of Series B Preferred Stock automatically converted
into common stock at the Series B conversion rate of .61 shares of common stock
for each share of Series B Preferred Stock.
Stock Options
In March 1998, the Board of Directors approved a Long Term Incentive Plan
under which 1,830,000 shares of common stock were reserved for issuance upon
exercise of options granted by the Company. In February 1999, the shareholders
approved an increase in the number of shares available in the Long Term
Incentive Plan to 2,249,985. The Long Term Incentive Plan provides for the grant
of incentive and nonstatutory stock options to employees, directors, and
independent consultants of the Company. The exercise price of incentive stock
options must be at least equal to the fair market value on the date of grant,
and the exercise price of nonstatutory stock options may be no less than 85% of
the fair market value on the date of grant. The maximum term of all options
granted is ten years.
F-13
<PAGE> 48
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
A summary of option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Granted.............................................. 629,586 $ .29
Cancelled............................................ (306,285) $ .29
--------- -----
Outstanding at December 31, 1997....................... 323,301 $ .29
Granted.............................................. 1,805,552 $ .84
Cancelled............................................ (300,837) $ .30
--------- -----
Outstanding at December 31, 1998....................... 1,828,016 $ .83
Granted.............................................. 522,187 $6.73
Exercised............................................ (6,556) $ .84
Cancelled............................................ (197,739) $3.17
--------- -----
Outstanding at December 31, 1999....................... 2,145,908 $2.04
========= =====
</TABLE>
A summary of options outstanding at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS REMAINING LIFE WEIGHTED AVERAGE OPTIONS EXERCISE PRICE OF
EXERCISE PRICES OUTSTANDING IN YEARS EXERCISE PRICE EXERCISABLE OPTIONS EXERCISABLE
- --------------- ----------- ---------------- ---------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
$0.29 27,450 7.33 $ 0.29 27,450 $ 0.29
$0.84 1,724,785 8.39 $ 0.84 925,465 $ 0.84
$4.81 - $7.06 225,468 9.31 $ 5.47 23,421 $ 4.83
$8.00 - $13.81 168,205 9.55 $10.03 9,956 $10.39
--------- ---- ------ ------- ------
2,145,908 8.57 $ 2.04 986,292 $ 1.01
</TABLE>
Included in the options outstanding at December 31, 1999 are 27,450 options
granted under a predecessor plan. No additional options are available to be
granted under the predecessor plan.
Adjusted pro forma information regarding net loss and net loss per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The fair
value for these options was estimated at the date of grant using the "Minimum
Value" method for options pricing with the following assumptions for 1998:
risk-free interest rate of 4.25%; dividend yield of 0%; and a weighted-average
expected life of the options of five years. The assumptions for the period from
January 1, 1999 through June 30, 1999 were: risk-free interest rate of 5.25%;
dividend yield of 0%; and a weighted-average expected life of the options of
five years. The Black-Scholes option pricing model was used for the period from
July 1, 1999 (completion of the Company's initial public offering) through
December 31, 1999 with the following assumptions: risk-free interest rate of
5.875%; dividend yield of 0%; volatility factor of 50%; and a weighted-average
expected life of the options of five years.
For purposes of the adjusted pro forma disclosures, the estimated fair
value of the options are amortized to expense over the vesting period. The
weighted-average fair value of options granted during 1999 and 1998 was $4.74
and $.51, respectively. The Company's adjusted pro forma information is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Adjusted pro forma net loss...................... $(33,514,695) $(9,437,407)
Adjusted pro forma net loss per share............ $ (2.67) $ (1.23)
</TABLE>
F-14
<PAGE> 49
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
The adjusted pro forma net loss and net loss per share for 1997 were not
materially different than actual 1997 amounts.
Deferred Compensation
Through December 31, 1999, the Company recorded deferred compensation for
the difference between the exercise price of stock options granted and the
deemed fair value for financial statement presentation purposes of the Company's
common stock at the date of grant. The deferred compensation is amortized over
the vesting period of the related options which is generally four years. Gross
deferred compensation recorded during the years ended December 31, 1999 and 1998
totaled $1,624,718 and $728,037, respectively, and related amortization expense
totaled $1,160,181 and $112,439 in 1999 and 1998, respectively.
10. CO-PROMOTION AGREEMENT
Effective March 1, 1999, the Company obtained the right to co-promote the
cholesterol-lowering drug Pravachol(R) to OB/GYNs, primary care physicians
designated as OB/GYNs by Bristol-Myers Squibb, and nurse practitioners and
physician's assistants associated with OB/GYN practices pursuant to a
co-promotion agreement with Bristol-Myers Squibb U.S. Pharmaceuticals Group.
Under the agreement, Bristol-Myers Squibb has agreed to pay specified costs
associated with product samples and physician education. In addition, as
compensation for services rendered, the Company will receive a percentage of net
sales in excess of a baseline as set forth in the agreement. The term of the
contract is for a period of three years from March 1, 1999 through March 31,
2002. Bristol-Myers Squibb may terminate the agreement early upon failure of the
Company to meet certain minimums. As the Company did not attain the minimums
required in the agreement and there is no certainty that such minimums will be
met by the March 31, 2000 end of the first annual period, the Company did not
recognize revenue in 1999 related to this agreement.
11. DISTRIBUTION AND LICENSE AGREEMENT
On July 19, 1999, the Company entered into a distribution and license
agreement with Laboratoires Fournier S.A. under which the Company has the
exclusive right to market, use, distribute and sell the Esclim(TM) estradiol
transdermal system. The agreement requires the Company to pay Fournier a non-
refundable license fee of $1.45 million payable over a two-year period, with
$700,000 of this fee subject to certain sales objectives being reached. The
Company is also required to pay Fournier a royalty, which includes manufacturing
costs, based upon the net sales of the product. The agreement runs seven years
from the date of the first commercial sale of the product which occurred on
November 16, 1999.
12. RELATED PARTY AGREEMENTS AND TRANSACTIONS
In July 1998, the Company signed an exclusive distribution agreement with
Ortho-McNeil Pharmaceutical, Inc. ("Ortho") a subsidiary of Johnson & Johnson, a
principal stockholder of the Company, whereby the Company would market and
distribute throughout the U.S. and Puerto Rico certain pharmaceutical products
to be manufactured by Ortho over a period of ten years with annual renewals
available after that period. The Company makes both fixed and contingent
payments to Ortho for products purchased. In addition, the Company may be
required to make monthly adjustment payments to or may receive payments from
Ortho based on progress toward projected annual purchases. During 1999 and 1998,
$7,532,000 and $2,028,000 was charged to cost of sales and $516,000 and $170,000
was charged to marketing and sales for professional samples in the accompanying
Statement of Operations for products purchased from Ortho. The agreement
requires minimum payments of $5.4 million, $4.3 million, $4.2 million, $4.0
million, and $3.9 million during 2000, 2001, 2002, 2003 and 2004, respectively,
and $11.6 million thereafter. Ortho may terminate the agreement on one year's
notice so long as Ortho provides the Company with a one-year supply of product
and
F-15
<PAGE> 50
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
uses reasonable commercial efforts to transfer to the Company the manufacturing
and distribution rights to the product or upon other specific events.
On May 27, 1999, the Company entered into a co-promotion agreement with
Ortho, pursuant to which the Company agreed to co-promote Ortho Tri-Cylen(R), a
leading oral contraceptive, and Ortho-Prefest(TM), a new oral combination
hormonal replacement therapy (HRT) product, which received approval by the FDA
in October 1999. Effective as of March 31, 2000, Women First discontinued the
co-promotion of Ortho Tri-Cyclen(R). Under an amendment, which is being
negotiated, Ortho Tri-Cyclen(R) will be eliminated from the co-promotion
agreement but Women First will continue to co-promote Ortho-Prefest(TM). The
Company does not anticipate any write-offs related to the discontinued product.
Ortho will compensate the Company for sales of Ortho-Prefest(TM), the new oral
combination HRT product through a compensation arrangement based on certain net
sales of the product as set forth in the agreement. The agreement runs through
December 31, 2002 and may be extended by the Company for one additional year if
minimum sales goals are met. The Company did not recognize revenue under this
agreement in 1999.
In September 1999, in accordance with the Company's co-promotion agreement
with Ortho, Ortho and the Company entered into a contract whereby the Company
will manage the development of educational programs related to hormonal
management. The Company recognized $2.3 million of revenue for work completed
under the contract during 1999.
On March 18, 1999, the Company issued to executive officers, directors, or
principal stockholders of the Company an aggregate of $2,000,000 principal
amount of short-term notes and warrants to purchase 16,224 shares of common
stock. The Company repaid the notes in August 1999. See note 8.
13. COMMITMENTS
In September 1998, the Company entered into an agreement whereby the
Company is funding the development of a patient health questionnaire and
software product. The Company recorded $625,000 and $275,000 of research and
development expenses related to this agreement in 1999 and 1998, respectively.
The Company is obligated to pay an additional $175,000 for funding of this
research and development in 2000. A royalty payment based on future revenues
from products utilizing the scientific research and development was established
with minimum annual royalty payments over the next twelve years, which commence
at $100,000 and increase by an additional $100,000 for each two-year period
thereafter up to $500,000 per year.
Leases
The Company leases certain office space and equipment under operating
leases. Lease expense was $718,000, $476,000 and $131,000 under these leases in
1999, 1998 and 1997, respectively.
Minimum future annual obligations for operating leases for years ending
after December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000..................................................... $ 694,000
2001..................................................... 667,000
2002..................................................... 583,000
2003..................................................... 290,000
2004..................................................... 6,000
----------
$2,240,000
==========
</TABLE>
F-16
<PAGE> 51
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
14. INCOME TAXES
At December 31, 1999, the Company had federal and state tax net operating
loss carryforwards of approximately $34.0 million. The federal and California
tax loss carryforwards will begin to expire in 2018 and 2003, respectively,
unless previously utilized. Pursuant to Internal Revenue Code Sections 382, use
of the Company's net operating loss and credit carryforwards may be limited as a
result of a cumulative change in ownership of more than 50% which occurred in
1999. However, the Company does not believe such limitations will have a
material impact upon the utilization of these carryforwards.
Significant components of the Company's deferred tax assets as of December
31, 1999 and 1998 are shown below. A valuation allowance has been recognized as
realization of such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
Deferred income tax assets
Net operating losses............................. $ 13,852,000 $ 3,380,000
Amortization and depreciation.................... 174,000 152,000
Accruals and reserves............................ 1,609,000 --
Other, net....................................... 87,000 81,000
------------ -----------
Total deferred tax assets.......................... 15,722,000 3,613,000
Valuation allowance................................ (15,722,000) (3,613,000)
------------ -----------
$ -- $ --
============ ===========
</TABLE>
F-17
<PAGE> 1
EXHIBIT 10.3
WOMEN FIRST HEALTHCARE, INC.
AMENDED AND RESTATED
1998 LONG-TERM INCENTIVE PLAN
1. Introduction and Purpose. The Plan is submitted to the Board of
Directors for adoption subject to approval by the Company's
stockholders. The Plan is fully effective as of the date approved by the
shareholders. The Plan supersedes in its entirety the Women First
HealthCare, Inc. 1998 Long-Term Incentive Plan.
The purpose of the Plan is to promote the interests of the Company, and
its shareholders by encouraging Key Associates to acquire stock or
increase their proprietary interest in the Company. By thus providing
the opportunity to acquire Company stock and receive incentive payments,
the Company seeks to attract and retain such Key Associates upon whose
judgment, initiative, and leadership the success of the Company largely
depends.
The Plan shall be governed by, and construed in accordance with the laws
of the State of Delaware, without regard to the conflicts of law
provisions thereof.
2. Definitions. Whenever the following terms are used in this Plan, they
will have the meanings specified below unless the context clearly
indicates the contrary.
a) "Associate" means any person who is an employee (as defined in
accordance with Section 3401(c) of the Code) of the Company or
any Subsidiary.
b) "Board of Directors" or "Board" means the Board of Directors of
the Company, as constituted from time to time.
c) "Change-in-Control" occurs in the following instances (1) a
tender or exchange for all or part of the Common Stock (except
an offer by the Company itself); (2) Company shareholder
approval of a merger in which the shareholders of the Company
prior to such consolidation or merger own less than fifty
percent (50%) of the Company's voting power immediately after
such consolidation or merger, excluding any consolidation or
merger effected exclusively to change the domicile of the
Company; (3) Company shareholder approval of a consolidation or
sale, exchange or other disposition of all, or substantially
all, of the Company's assets; (4) change in the composition of
the Board over a two consecutive year period so that individuals
who were directors at the beginning of that period no longer
constitute a majority of the Board (unless the election or
nomination of each new director was approved by at least
two-thirds of the directors who had been directors at the
beginning of the period and who were still in office at the time
of the election or nomination).
d) "Code" means the Internal Revenue Code of 1986, as amended.
<PAGE> 2
e) "Committee" means the committee appointed to administer the Plan
pursuant to Section 4.
f) "Company" means Women First HealthCare, Inc. a Delaware
corporation.
g) "Common Shares" or "Common Stock" means the shares of the
Company's common stock and any class of common shares into which
such common shares may hereafter be converted.
h) "Consultant" means any consultant or adviser if: (i) the
consultant or adviser renders bona fide services to the Company
or any Subsidiary; (ii) the services rendered by the consultant
or adviser are not in connection with the offer or sale of
securities in a capital-raising transaction and do not directly
or indirectly promote or maintain a market for the Company's
securities; and (iii) the consultant or adviser is a natural
person who has contracted directly with the Company or any
Subsidiary of the Company to render such services.
i) "Dividend Equivalent" means the additional amount of Common
Stock issued in connection with an Option, as described in
Section 14.
j) "Eligible Person" means a Key Associate eligible to receive an
Incentive Award.
k) "Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
l) "Fair Market Value" means the market price of Common Shares,
determined by the Committee as follows:
i) If none of the provisions ii) through iv) listed below
are applicable, the Fair Market Value shall be
determined by the Committee in good faith on such basis,
as it deems appropriate.
ii) If the Common Shares were traded over-the-counter on the
date in question but were not traded on the Nasdaq
system or the Nasdaq National Market System, then the
Fair Market Value shall be equal to the mean between the
last reported representative bid and asked prices quoted
for such date by the principal automated inter-dealer
quotation system on which the Common Shares are quoted
or, if the Common Shares are not quoted on any such
system, by the "Pink Sheets" published by the National
Quotation Bureau, Inc.
iii) If the Common Shares were traded over-the-counter on the
date in question and were traded on the Nasdaq system or
the Nasdaq National Market System, then the Fair Market
Value shall be equal to the last-transaction price
quoted for such date by the Nasdaq system or the Nasdaq
National Market System.
2
<PAGE> 3
iv) If the Common Shares were traded on a stock exchange on
the date in question, then the Fair Market Value shall
be equal to the closing price reported by the applicable
composite transactions report for such date: and
In all cases, the determination of Fair Market Value by the
Committee shall be conclusive and binding on all persons.
m) "Holder" means a person, estate, trust or entity holding an
Incentive Award.
n) "Incentive Award" means any Nonqualified Stock Option, Incentive
Stock Option, Common Stock, Restricted Stock, Stock Appreciation
Right, Dividend Equivalent, Stock Payment or Performance Award
granted under the Plan.
o) "Incentive Stock Option" means an Option as defined under
Section 422 of the Code, including an Incentive Stock Option
granted pursuant to Section 8 of the Plan.
p) "Key Associate" shall mean (i) any individual who is an
Associate, (ii) a member of the Board of Directors, including
(without limitation) an Outside Director, or an affiliate of a
member of the Board of Directors, a member of the Board of
Directors of a Subsidiary and (iv) a Consultant. Service as a
member of the Board of Directors, a member of the board of
directors of a Subsidiary or as a Consultant shall be considered
employment for all purposes of the Plan.
q) "Nonqualified Stock Option" means an Option other than an
Incentive Stock Option granted pursuant to Section 8 of the
Plan.
r) "Option" means either a Nonqualified Stock Option or Incentive
Stock Option.
s) "Outside Director" shall mean a member of the Board of Directors
who is not an Associate.
t) "Performance Award" means an award whose value may be linked to
stock value, or other specific performance criteria which may be
set by the board of Directors, but which is paid in cash, stock,
or a combination of both.
u) "Plan" means the Amended and Restated 1998 Long-Term Incentive
Plan, which may be amended from time to time.
v) "Restricted Stock" means Common Stock sold or granted to an
Eligible Person, which is nontransferable and subject to
substantial risk of forfeiture until restrictions lapse.
w) "Rule 16b-3" means that certain Rule 16b-3 under the Exchange
Act, as such rule may be amended from time to time.
3
<PAGE> 4
x) "Stock Appreciation Right" or "Right" means a right granted
pursuant to Section 11 of the Plan to receive a number of shares
of Common Stock or, in the discretion of the Committee, an
amount of cash or a combination of shares and cash, based on the
increase in the fair market value or book value of the shares
subject to the right.
y) "Stock Payment" means a payment in shares of the Common Stock to
replace all or any portion of the compensation (other than base
salary) that would otherwise become payable to a Key Associate
in cash.
z) "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, if
each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the
other corporations in such chain. A Corporation that attains the
status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
aa) "Total and Permanent Disability" means that the Holder is unable
to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can
be expected to result in death or which has lasted, or can be
expected to last, for a continuous period of not less than one
year.
3. Shares of Common Stock Subject to the Plan.
a) Subject to the provisions of Sections 3(c) and 15 of the Plan,
the aggregate number of shares of Common Stock that may be
issued or transferred pursuant to Incentive Awards or covered by
Stock Appreciation Rights unrelated to Options under the Plan
shall not exceed 2,949,985. No Eligible Person shall be granted,
in any calendar year, Options to purchase, or Stock Appreciation
Rights with respect to, as applicable, more than 250,000 shares
of Common Stock.
b) The shares to be delivered under the Plan will be made
available, at the discretion of the Board of Directors or the
Committee, either from authorized but unissued shares of Common
Stock or from previously issued shares of Common Stock
reacquired by the Company.
c) If Incentive Awards are forfeited or if Incentive Awards
terminate for any other reason before being exercised, then any
shares of Common Stock subject to such Incentive Awards shall
again become available for award under the Plan. If Stock
Appreciation Rights are exercised, then only the number of
Common Shares (if any) actually issued in settlement of such
Stock Appreciation Rights shall reduce the number of Common
Shares available under Section 3(a) and the balance shall again
become available for award under the Plan. If Restricted Stock
is cancelled
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<PAGE> 5
or forfeited then such Restricted Stock shall again become
available for award under the Plan.
4. Administration of the Plan.
a) The Plan shall be administered by the Committee. The Committee
shall be appointed by the Board and shall consist shall consist
solely of two or more Outside Directors each of whom is both an
"outside director," within the meaning of Section 162(m) of the
Code, and a "non-employee director" within the meaning of Rule
16b-3.
b) Notwithstanding Section 4(a), the Board or the Committee may (i)
delegate to one or more members of the Board who are not Outside
Directors the authority to grant Incentive Awards under the Plan
to eligible persons who are either (1) not then "covered
employees," within the meaning of Section 162(m) of the Code and
are not expected to be "covered employees" at the time of
recognition of income resulting from such award or (2) not
persons with respect to whom the Company wishes to comply with
Section 162(m) of the Code and/or (ii) delegate to a committee
of one or more members of the Board who are not "non-employee
directors," within the meaning of Rule 16b-3, the authority to
grant Incentive Awards under the Plan to Eligible Persons who
are not then subject to Section 16 of the Exchange Act.
c) The Committee has and may exercise such powers and authority as
may be necessary or appropriate for the Committee to carry out
its functions as described in the Plan. The Committee has
authority in its discretion to determine the Eligible Persons to
whom, and the time or times at which, Incentive Awards may be
granted and the number of shares or Rights subject to each
award. Subject to the express provisions of the Plan, the
Committee also has authority to interpret the Plan, and to
determine the terms and provisions of the respective Incentive
Award agreements (which need not be identical) and to make all
other determinations necessary or advisable for Plan
Administration. The Committee has authority to prescribe, amend,
and rescind rules and regulations relating to the Plan. All
interpretations, determinations and actions by the Committee
will be final, conclusive, and binding upon all parties.
d) No member of the Board of Directors or the Committee will be
liable for any action or determination made in good faith by the
Committee with respect to the Plan or any Incentive and
Performance Award under it.
5. Eligibility and Date of Grant. The date of grant of an Incentive Award
will be the date the Committee takes the necessary action to approve the
grant; provided, however, that if the minutes or appropriate resolutions
of the Committee provide that an Incentive Award is to be granted as of
a date in the future, the date of grant will be such future date.
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<PAGE> 6
6. Outside Director Participation. Outside Directors shall receive Option
grants under the Plan as described below:
a) Upon the conclusion of each regular annual meeting of the
Company's shareholders, each incumbent Outside Director who will
continue serving as a member of the Board thereafter may receive
a grant of a Nonstatutory Option for such number of Common
Shares (subject to adjustment under Section 15 and prorated for
partial year service) as the Board shall determine in its sole
discretion.
b) New Outside Directors shall receive a one-time grant of a
Nonstatutory Option for a number of Common Shares as determined
in the sole discretion of the Board; provided, however, that
such grant shall not be made in any calendar year in which the
same individual receives an Option under (a) above. Such Option,
if any, shall be granted on the date when such Outside Director
first joins the Board of Directors of the Company or the board
of directors of a Subsidiary.
c) Total grants under this Section 6 (less forfeitures) shall not
exceed 15% of the maximum number of Common Shares available for
grant under Section 3(a) of the Plan (subject to adjustment
under Section 15).
7. Nonqualified Stock Options. The Committee may approve the grant of
Nonqualified Stock Options to Eligible Persons, subject to the following
terms and conditions:
a) The purchase price of Common Stock under each Nonqualified Stock
Option may not be less than eighty-five percent (85%) of the
Fair Market Value of the Common Stock on the date the
Nonqualified Stock Option is granted.
b) No Nonqualified Stock Option may be exercised after ten years
from the date of grant.
c) No fractional shares will be issued pursuant to the exercise of
a Nonqualified Stock Option nor will any cash payment be made in
lieu of fractional shares.
8. Incentive Stock Options. The Committee may approve the grant of
Incentive Stock Options to Eligible Persons who are Employees, subject
to the following terms and conditions.
a) The exercise price of each share of Common Stock under an
Incentive Stock Option will be at least equal to the Fair Market
Value of a share of the Common Stock on the date of grant:
provided, however, that if the Associate, at the time an
Incentive Stock Option is granted to him or her, owns stock
representing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company (as defined
in Section 424 of the Code), then the exercise price of each
share of Common Stock subject to such Incentive Stock Option
shall be at least one hundred and ten percent (110%) of the Fair
Market Value of such share of Common Stock, as determined in the
manner stated above.
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<PAGE> 7
b) No Incentive Stock Option may be exercised after ten (10) years
from the date of grant: provided, however, that the Associate,
at the time an Incentive Stock Option is granted to him or her,
owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company (as
defined in Section 424 of the Code), the Incentive Stock Option
granted shall not be exercisable after the expiration of 5 years
from the date of grant.
c) No fractional shares will be issued pursuant to the exercise of
an Incentive Stock Option nor will any cash payment be made in
lieu of fractional shares.
9. Option Rules. The purchase price under each Option may be paid in (a)
cash, (b) cash equivalents or notes acceptable to the Committee, (c) by
arrangement with a broker which is acceptable to the Committee where
payment of the Option price is made pursuant to an irrevocable direction
to the broker to deliver all or part of the proceeds from the sale of
the Option shares to the Company, (d) by the surrender of shares of
Common Stock owned by the Holder exercising the Option having a Fair
Market Value on the date of exercise equal to the purchase price (and
which, in the case of shares of Common Stock acquired from the Company,
have been owned by the Holder for more than 6 months on the date of
surrender) or (e) in any combination of the foregoing. Each Option
granted to an Eligible Person shall be exercisable in such manner and at
such times as the Committee shall determine. The Committee may modify,
accelerate the exercisability of, extend or assume outstanding Options
or may accept the cancellation of outstanding Options (whether granted
by the Company or by another issuer) in return for the grant of new
Options for the same or a different number of shares and at the same or
a different purchase price. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Holder,
alter or impair his or her rights or obligations under such Option.
Notwithstanding anything to the contrary, each Option shall vest at the
rate of at least 20% per year over 5 years from the date of grant. Each
Option shall provide for a period of exercise of at least 6 months in
the event of a termination of employment as a result of death or
disability and at least 30 days in the case of termination other than
death or disability.
10. Restricted Stock. The Committee may approve the grant of Restricted
Stock unrelated to Nonqualified Stock Options or Stock Appreciation
Rights to Eligible Persons, subject to the following terms and
conditions:
a) The Committee in its discretion will determine the purchase
price.
b) All shares of Restricted Stock sold or granted pursuant to the
Plan (including any shares of Restricted Stock received by the
Holder as a result of stock dividends, stock splits, or any
other forms of capitalization), will be subject to the following
restrictions:
i) The shares may not be sold, transferred, or otherwise
alienated or hypothecated until the restrictions are
removed or expire.
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<PAGE> 8
ii) The Committee may require the Holder to enter into an
escrow agreement providing that the certificates
representing Restricted Stock sold or granted pursuant
to the Plan will remain in the physical custody of an
escrow holder until all restrictions are removed or
expire.
iii) Each certificate representing Restricted Stock sold or
granted pursuant to the Plan will bear a legend making
appropriate reference to the Restrictions imposed on the
Restricted Stock.
iv) The Committee may impose restrictions on any shares sold
pursuant to the Plan as it may deem advisable, including
without limitation, restrictions designed to facilitate
exemption from or compliance with the Securities
Exchange Act of 1934, as amended, with requirements of
any stock exchange upon which such shares or shares of
the same class are then listed and with any blue sky or
other securities laws applicable to such shares;
provided, however, the restrictions imposed on any
Restricted Stock must comply with California Securities
Rule 260.140.42.
c) The restrictions imposed under subparagraph (b) above upon
Restricted Stock will lapse in accordance with a schedule or
other conditions as determined by the Committee, subject to the
provisions of Section 17, subparagraph (d).
d) Subject to the provisions of subparagraph (b) above and Section
17, subparagraph (d), the Holder will have all rights of a
shareholder with respect to the Restricted Stock granted or
sold, including the right to vote the shares and receive all
dividends and other distributions paid or made with respect
thereto.
e) Notwithstanding the provisions of subparagraph (b) above and
Section 17, subparagraph (d), Restricted Stock granted or sold
may be held by the trustee of a revocable inter vivos trust (or
other trust if such transfer associated therewith does not cause
income to be recognized pursuant to Section 83 of the Code and
if the trust takes subject to the forfeiture provisions of the
Restricted Stock), approved by the Company, established in whole
or in part by the Holder and/or the Holder's spouse. So long as
the Holder is still an Associate, transfer to such trust shall
not violate the provisions of subparagraph (b) above and
ownership by such trust shall not invoke any right or obligation
of the Company under Section 17, subparagraph (d).
11. Stock Appreciation Rights. The Committee may approve the grant of Rights
related or unrelated to Options to Eligible Persons, subject to the
following terms and conditions:
a) A Stock Appreciation Right may be granted
i) at any time if unrelated to an Option:
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<PAGE> 9
ii) either at the time of Option grant, or at any time
thereafter during the Option term if related to a
Nonqualified Stock Option: or
iii) only at the time of Option grant if related to an
Incentive Stock Option.
b) A Stock Appreciation Right granted in connection with an Option
will entitle the Holder of the related Option, upon execution of
the Stock Appreciation Right, to surrender such Option or any
portion thereof to the extent unexercised, with respect to the
number of shares as to which such Stock Appreciation Right is
exercised, and to receive payment of an amount computed pursuant
to Section 11(d). Such Option will, to the extent surrendered,
then cease to be exercisable.
c) Subject to Section 11(g), a Stock Appreciation Right granted in
connection with an Option hereunder will be exercisable at such
time or times as the Committee in its discretion may determine,
and only to the extent that a related Option is exercisable, and
will not be transferable except to the extent that such related
Option is exercisable.
d) Upon the exercise of a Stock Appreciation Right related to an
Option, the Holder will be entitled to receive payment of an
amount determined by multiplying:
i) The difference obtained by subtracting the purchase
price of a share of Common Stock specified in the
related Option from the Fair Market Value of a share of
Common Stock on the date of exercise of such Stock
Appreciation Right, by
ii) The number of shares as to which such Stock Appreciation
Right has been exercised.
e) The Committee may grant Stock Appreciation Rights unrelated to
Options to Eligible Persons that will be exercisable at such
times as the Committee shall determine. Section 11(d) shall be
used to determine the amount payable at exercise under such
Stock Appreciation Right if Fair Market Value is used, except
that Fair Market Value shall not be used if the Committee
specifies in the grant of the Right that book value or other
measure as deemed appropriate by the Committee is to be used,
and the initial share value specified in the award shall be used
in lieu of "price of a Common Stock specified in the related
Option," as provided in Section 11(d).
f) Payment of the amount determined under Section 11(d) or (c) may
be made solely in whole shares of Common Stock in a number
determined at their Fair Market Value on the date of exercise of
the Stock Appreciation Right or alternatively at the sole
discretion of the Committee, solely in cash or in a combination
of cash and shares as the Committee deems advisable. If the
Committee decides to make full
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<PAGE> 10
payment in shares of Common Stock, and the amount payable
results in a fractional share, payment for the fractional share
will be made in cash.
g) The Committee shall, at the time a Stock Appreciation Right is
granted, impose such conditions on the exercise of the Stock
Appreciation Right as may be required to satisfy the
requirements of Rule 16b-3 under the Securities Exchange Act of
1934 (or any other comparable provisions in effect at the time
or times in question). In addition, a Stock Appreciation Right
granted under the Plan may provide that it will be exercisable
only in the event of a Change-in-Control.
12. Performance Awards. The Committee may approve Performance Awards to
Eligible Persons. Such awards may be based on Common Stock performance
over a period determined in advance by the Committee or any other
measures as determined appropriate by the Committee. Payment will be in
cash unless replaced by a Stock Payment in full or in part as determined
by the Committee.
13. Stock Payment. The Committee may approve Stock Payments of Common Stock
to Eligible Persons for all or any portion of the compensation (other
than base salary) that would otherwise become payable to an employee in
cash.
14. Dividend Equivalents. A Holder may also be granted at no additional cost
"Dividend Equivalents" based on the dividends declared on the Common
Stock on record dates during the period between the date an Option is
granted and the date such Option is exercised, or such other equivalent
period, as determined by the Committee. Such Dividend Equivalents shall
be converted to additional shares or cash by such formula as may be
determined by the Committee.
Dividend Equivalents shall be computed, as of each dividend record date,
both with respect to the number of shares under the Option and with
respect to the number of Dividend Equivalent shares previously earned by
the Holder (or his or her successor in interest) and not issued during
the period prior to the dividend record date.
15. Adjustment Provisions.
a) Subject to Section 15(b), if the outstanding shares of Common
Stock are increased, decreased, or exchanged for a different
number or kind of shares or other securities, or if additional
shares or new or different shares or other securities are
distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, sale of all or
substantially all of the property of the Company,
reorganization, recapitalization, reclassification, stock
dividend stock split, reverse stock split or other distribution
with respect to such shares of Common Stock, or other
securities, an appropriate and proportionate adjustment shall be
made in (i) the maximum number and kind of shares provided in
Section 3 of the Plan, (ii) the number and kind of shares or
other securities subject to the then outstanding Incentive
Awards, and (iii) the price for each share or other unit
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<PAGE> 11
of any other securities subject to the then outstanding
Incentive Awards without change in the aggregate purchase price
or value as to which Incentive Awards remain exercisable or
subject to restrictions.
b) In addition, upon a Change-in-Control all Options, Stock
Appreciation Rights, and Performance Awards then outstanding
under the Plan will be fully vested and exercisable and all
restrictions on Restricted Stock will immediately cease. The
Committee or any agreement of merger or reorganization may offer
the Holder the right to exchange such vested Incentive Awards
for fully vested and equivalent value awards under a successor
plan.
16. General Provisions.
a) With respect to any shares of Common Stock issued or transferred
under any provision of the Plan such shares may be issued or
transferred subject to such conditions, in addition to those
specifically provided in the Plan, as the Committee may direct;
provided that any such conditions must comply with California
Corporate Securities Rules 260.140.41 and 260.140.42.
b) Nothing in the Plan or in any instrument executed pursuant to
the Plan will confer upon any Holder any right to continue in
the employ of the Company or any of its Subsidiaries or affect
the right of the Company to terminate the employment of any
Holder at any time and for any reason.
c) No shares of Common Stock will be issued or transferred pursuant
to an Incentive Award unless and until all then applicable
requirements imposed by federal and state securities and other
laws, rules, and regulations and by any regulatory agencies
having jurisdiction, and by any stock exchanges upon which the
Common Stock may be listed, have been fully met. As a condition
precedent to the issue of shares pursuant to the grant or
exercise of an Incentive Award, the Company may require the
Holder to take any reasonable action to meet such requirements.
d) No Holder (individually or as a member of a group) and no
beneficiary or other person claiming under or through such
Holder will have any right, title, or interest in or to any
shares of Common Stock allocated or reserved under the plan or
subject to any Incentive Award except as to such shares of
Common Stock, if any, that have been issued or transferred to
such Holder.
e) The Company may make such provisions, as it deems appropriate to
withhold any taxes, which it determines it is required to
withhold in connection with any Incentive or Performance Award.
f) No Incentive Award and no right under the Plan contingent or
otherwise, will be assignable or subject to any encumbrance,
pledge (other than a pledge to secure a loan from the Company),
or charge of any nature except that, under such rules and
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<PAGE> 12
regulations as the Company may establish pursuant to the terms
of the Plan, a beneficiary may be designated with respect to an
Incentive Award in the event of death of a Holder of such
Incentive Award. If such beneficiary is the executor or
administrator of the estate of the Holder of such Incentive
Award, any rights with respect to such Incentive Award may be
transferred to the person or persons or entity (including a
trust) entitled thereto under the will of the Holder of such
Incentive Award or, in the case of intestacy, under the laws
relating to intestacy. Except as determined by the Committee, no
Incentive Award shall be transferable by any Eligible Person
other than by will of the laws of descent and distribution or
pursuant to a qualified domestic relations order. In considering
transferability of an Incentive Award, the Committee may also
consider the registration limitation of SEC Form S-8 and on that
basis may in its discretion determine whether to prohibit
transferability, permit alternative registration of the
Incentive Award, treat the Incentive Award as SEC Rule 144
"restricted stock," or take such other measures as the Committee
deems appropriate.
g) The Committee may permit a Holder to satisfy all or part of his
or her withholding or income tax obligations by having the
Company withhold a portion of any Common Stock that otherwise
would be issued to him having a value equal to the statutory
minimum amount required to be withheld, or by surrendering all
or a portion of any Common Stock that he or she previously
acquired (and which, in the case of shares of Common Stock
acquired from the Company, have been owned by the Holder for
more than 6 months on the date of surrender). Such Common Stock
shall be valued at its Fair Market Value on the date when taxes
otherwise would be withheld in cash. Any payment of taxes by
assigning Common Stock to the Company may be subject to
restrictions, including any restrictions required by rules of
the Securities and Exchange Commission.
h) All Incentive Awards, to the extent then outstanding, shall
become 100% vested in the event of death or total and permanent
disability.
17. Amendment and Termination.
a) The Board of Directors may, in its discretion, amend, suspend,
or terminate the Plan at any time. An amendment of the Plan
shall be subject to the approval of the Company's shareholders
to the extent it affects the application of the accelerated
vesting provisions herein, Section 15, or to the extent required
by applicable laws, regulations and or rules.
b) The Committee may, with the consent of a Holder, make such
modifications in the terms and conditions of the Incentive Award
as it deems advisable or cancel the Incentive Award (with or
without consideration) with the consent of the Holder.
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<PAGE> 13
c) No amendment, suspension, or termination of the Plan will,
without the consent of the Holder, alter, terminate, impair, or
adversely affect any right or obligation under any Incentive
Award previously granted under the Plan.
d) In the event a Holder of Restricted Stock ceases to be a Key
Associate all such Holder's Restricted Stock which remains
subject to substantial risk of forfeiture at the time his or her
employment terminates will be repurchased by the Company at the
original price at which such Restricted Stock had been purchased
unless the Committee determines otherwise.
e) In the event a Holder of a Performance Award ceases to be a Key
Associate, all such Holder's Performance Awards will terminate
except in the case of retirement, death, or Total and Permanent
Disability. The Committee, in its discretion, may authorize full
or partial payment of Performance Awards in all cases involving
retirement, death, or permanent and total disability.
f) The Committee may in its sole discretion determine, with respect
to an Incentive Award that any Holder who is on unpaid leave of
absence for any reason will be considered as still in the employ
of the Company, provided that rights to such Incentive Award
during an unpaid leave of absence will be limited to the extent
to which such right was earned or vested at the commencement of
such leave of absence.
18. Effective Date of Plan and Duration of Plan. This Plan will become
effective upon approval by the shareholders of the Company within twelve
(12) months following the date of its adoption by the Board of
Directors. Unless previously terminated by the Board of Directors, the
Plan will terminate ten (10) years after its approval by the
shareholders of the Company.
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<PAGE> 1
EXHIBIT 10.15
1999 NON-QUALIFIED STOCK OPTION PLAN OF
WOMEN FIRST HEALTHCARE, INC.
Women First HealthCare, Inc., a Delaware corporation (the
"Company"), has adopted The 1999 Non-Qualified Stock Option Plan of Women First
HealthCare, Inc. (the "Plan") for the benefit of its eligible employees and
consultants.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for eligible key
Associates (as defined below) and consultants to further the growth, development
and financial success of the Company by personally benefiting through the
ownership of Company stock.
(2) To enable the Company to obtain and retain the services of
eligible key Associates and consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company.
(3) To provide a material inducement to eligible key Associates
to become employees of the Company.
ARTICLE I.
DEFINITIONS
1.1 General. Wherever the following terms are used in this Plan
they shall have the meaning specified below, unless the context clearly
indicates otherwise.
1.2 Associate. "Associate" shall mean any employee (as defined
in accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
1.3 Award Limit. "Award Limit" shall mean one hundred thousand
(100,000) shares of Common Stock, as adjusted pursuant to Section 7.3.
1.4 Board. "Board" shall mean the Board of Directors of the
Company.
1.5 Change in Control. "Change in Control" shall mean a change
in ownership or control of the Company effected through either of the following
transactions:
(a) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled by, or
is under common control with, the Company) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of securities possessing more than 20% of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange offer made
directly to the Company's stockholders which the Board does not recommend such
stockholders to accept; or
<PAGE> 2
(b) there is a change in the composition of the Board over a two
consecutive year period so that individuals who were Directors at the beginning
of that period no longer constitute a majority of the Board (unless the election
or nomination of each new Director was approved by at least two-thirds of the
Directors who had been directors at the beginning of the period and who were
still in office at the time of the election or nomination).
1.6 Code. "Code" shall mean the Internal Revenue Code of 1986,
as amended.
1.7 Committee. "Committee" shall mean the Compensation Committee
of the Board, or another committee, or a subcommittee of the Board, appointed as
provided in Section 6.1.
1.8 Common Stock. "Common Stock" shall mean the common stock of
the Company, par value $.001 per share, and any equity security of the Company
issued or authorized to be issued in the future, but excluding any preferred
stock and any warrants, options or other rights to purchase Common Stock. Debt
securities of the Company convertible into Common Stock shall be deemed equity
securities of the Company.
1.9 Company. "Company" shall mean Women First HealthCare, Inc.,
a Delaware corporation.
1.10 Corporate Transaction. "Corporate Transaction" shall mean
any of the following stockholder-approved transactions to which the Company is a
party:
(a) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State in which the Company is incorporated, to form a holding company
or to effect a similar reorganization as to form whereupon this Plan and all
Options are assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation or
dissolution of the Company in a transaction not covered by the exceptions to
clause (a) above; or
(c) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred or issued to a person or persons different from those who held such
securities immediately prior to such merger.
1.11 Director. "Director" shall mean a member of the Board.
1.12 Disability. "Disability" shall mean, with respect to any
Optionee, (i) the suffering of any mental or physical illness, disability or
incapacity that shall in all material aspects preclude such Optionee from
performing his or her employment or consultant duties, or (ii) the absence of
such Optionee from his or her employment or consultant duties by reason of any
mental or physical illness, disability or incapacity for a period of six (6)
months during any twelve
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<PAGE> 3
(12) month period; provided, however, in either case, that such illness,
disability or incapacity shall be reasonably determined to be of a permanent
nature by the Committee.
1.13 Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
1.14 Fair Market Value. "Fair Market Value" of a share of Common
Stock as of a given date shall be: (i) the closing sale price of a share of
Common Stock on the principal exchange on which the Common Stock is then
trading, if any, on such date, or, if shares were not traded on such date, then
on the next preceding trading day during which a sale occurred; (ii) if the
Common Stock is not traded on an exchange but is quoted on Nasdaq or a successor
quotation system, (1) the last sales price (if the Common Stock is then quoted
on the Nasdaq National Market or the Nasdaq SmallCap Market) or (2) the mean
between the closing representative bid and asked prices (in all other cases) for
a share of the Common Stock on such date, or, if shares were not traded on such
date, then on the next preceding trading day during which a sale occurred, as
reported by Nasdaq or such successor quotation system; (iii) if the Common Stock
is not publicly traded on an exchange and not quoted on Nasdaq or a successor
quotation system, the mean between the closing bid and asked prices for a share
of Common Stock on such date, or, if shares were not traded on such date, then
on the next preceding trading day during which a sale occurred, as determined in
good faith by the Committee; or (iv) if the Common Stock is not publicly traded,
the fair market value of a share of Common Stock established by the Committee
acting in good faith.
1.15 Independent Director. "Independent Director" shall mean a
member of the Board who is not an Associate of the Company.
1.16 Non-Qualified Stock Option. "Non-Qualified Stock Option"
shall mean a stock option which does not constitute an "incentive stock option"
under Section 422 of the Code.
1.17 Officer. "Officer" shall mean a President, Secretary,
Treasurer, Chairman of the Board, Vice President, Assistant Secretary or
Assistant Treasurer of the Company, as such positions are described in the
Company's Bylaws, or any other person designated an "officer" of the Company by
the Board of Directors in accordance with the Company's Bylaws.
1.18 Option. "Option" shall mean a Non-Qualified Stock Option
granted under Article III of this Plan. All Options granted under this Plan
shall be Non-Qualified Stock Options.
1.19 Optionee. "Optionee" shall mean an Associate or consultant
granted an Option under this Plan.
1.20 Plan. "Plan" shall mean The 1999 Non-Qualified Stock Option
Plan of Women First HealthCare, Inc.
1.21 QDRO. "QDRO" shall mean a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
3
<PAGE> 4
1.22 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
under the Exchange Act, as such Rule may be amended from time to time.
1.23 Subsidiary. "Subsidiary" shall mean (i) any corporation in
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain and (ii) any
partnership or limited liability company in which the Company (A) directly or
indirectly holds a managing partner or managing member interest or (B) is
entitled to 50 percent or more of the profits or assets upon dissolution.
1.24 Termination of Consultancy. "Termination of Consultancy"
shall mean the time when the engagement of an Optionee as a consultant to the
Company or a Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, by resignation, discharge, death,
Disability or retirement; but excluding terminations where there is a
simultaneous commencement of employment with the Company or any Subsidiary. The
Committee, in its absolute discretion, shall determine the effect of all matters
and questions relating to Termination of Consultancy, including, but not by way
of limitation, the question of whether a Termination of Consultancy resulted
from a discharge for good cause, and all questions of whether particular leaves
of absence constitute Terminations of Consultancy. Notwithstanding any other
provision of this Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate a consultant's service at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
1.25 Termination of Employment. "Termination of Employment"
shall mean the time when the employee-employer relationship between an Optionee
and the Company or any Subsidiary is terminated for any reason, with or without
cause, including, but not by way of limitation, a termination by resignation,
discharge, death, Disability or retirement; but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of an Optionee by
the Company or any Subsidiary, (ii) at the discretion of the Committee,
terminations which result in a temporary severance of the employee-employer
relationship, and (iii) at the discretion of the Committee, terminations which
are followed by the simultaneous establishment of a consulting relationship by
the Company or a Subsidiary with the former employee. The Committee, in its
absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of limitation,
the question of whether a Termination of Employment resulted from a discharge
for good cause, and all questions of whether particular leaves of absence
constitute Terminations of Employment; provided, however, that, unless otherwise
determined by the Committee in its discretion, a leave of absence, change in
status from an employee to an independent contractor or other change in the
employee-employer relationship shall constitute a Termination of Employment if,
and to the extent that, such leave of absence, change in status or other change
interrupts employment for the purposes of Section 422(a)(2) of the Code and the
then applicable regulations and revenue rulings under said Section.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate an Associate's employment at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
4
<PAGE> 5
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan.
(a) The shares of stock subject to Options granted under the
Plan shall be Common Stock. The aggregate number of such shares which may be
issued upon exercise of such Options shall not exceed two hundred fifty thousand
250,000 shares of Common Stock. The shares of Common Stock issuable upon
exercise of such Options may be either previously authorized but unissued shares
or treasury shares.
(b) The maximum number of shares which may be subject to Options
granted under the Plan to any individual in any fiscal year shall not exceed the
Award Limit.
2.2 Unexercised Options and Other Rights. If any Option expires
or is canceled without having been fully exercised, the number of shares subject
to such Option but as to which such Option was not exercised prior to its
expiration or cancellation may again be optioned or granted hereunder, subject
to the limitations of Section 2.1. Furthermore, any shares subject to Options
which are adjusted pursuant to Section 7.3 and become exercisable with respect
to shares of stock of another corporation shall be considered cancelled and may
again be available for the granting of Options hereunder, subject to the
limitations of Section 2.1. Shares of Common Stock which are delivered by the
Optionee or withheld by the Company upon the exercise of any Option under this
Plan, in payment of the exercise price thereof, may again be available for the
granting of Options hereunder, subject to the limitations of Section 2.1.
ARTICLE III.
GRANTING OF OPTIONS
3.1 Eligibility. Only the following classes of persons shall be
eligible to receive grants of Options under this Plan: (i) except as provided in
(ii) below, key Associates who are not Officers or Directors of the Company,
(ii) newly hired Associates (including Associates who will become Officers or
Directors of the Company) and who have not previously been employed by the
Company and with respect to whom Options are to be granted as an inducement
essential to such Associates' entering into employment contracts with the
Company; and (iii) consultants who are not Officers or Directors of the Company.
3.2 Non-Qualified Options. No Option granted under this Plan
shall constitute an "incentive stock option" under Section 422 of the Code.
5
<PAGE> 6
3.3 Granting of Options.
(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of this Plan:
(i) Determine which eligible Associates are key
Associates and select from among the key Associates and consultants such
of them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to the selected key
Associates and consultants;
(iii) Determine the terms and conditions of such
Options, consistent with this Plan.
(b) Upon the selection of a key Associate or consultant to be
granted an Option, the Committee shall instruct the Secretary of the Company to
issue the Option and may impose such conditions on the grant of the Option as it
deems appropriate. Without limiting the generality of the preceding sentence,
the Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition on the grant of an Option to an Associate or consultant
that the Associate or consultant surrender for cancellation some or all of the
unexercised Options which have been previously granted to him under this Plan or
otherwise. An Option, the grant of which is conditioned upon such surrender, may
have an option price lower (or higher) than the exercise price of such
surrendered Option, may cover the same (or a lesser or greater) number of shares
as such surrendered Option, may contain such other terms as the Committee deems
appropriate, and shall be exercisable in accordance with its terms, without
regard to the number of shares, price, exercise period or any other term or
condition of such surrendered Option.
ARTICLE IV.
TERMS OF OPTIONS
4.1 Option Agreement. Each Option shall be evidenced by a
written Stock Option Agreement, which shall be executed by the Optionee and an
authorized officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan.
4.2 Option Price. The price per share of the shares subject to
each Option shall be set by the Committee; provided, however, that such price
shall not be less than 85% of the Fair Market Value of a share of Common Stock
on the date the Option is granted.
4.3 Option Term. The term of each Option shall be ten (10) years
unless otherwise set by the Committee in its discretion; provided, however, that
such term shall not be more than ten (10) years from the date the Option is
granted. Notwithstanding anything contained herein, unless the Committee
provides otherwise pursuant to the terms of the Option, if
6
<PAGE> 7
an Option (or portion thereof) is not exercisable solely by reason of Section
4.4(c) on the date on which such Option would otherwise terminate pursuant to
the terms of such Option, such Option (or portion thereof) shall not terminate
until three (3) months after such Option (or portion thereof) thereafter ceases
to be subject to Section 4.4(c).
4.4 Option Vesting.
(a) The period during which the right to exercise an Option in
whole or in part vests in the Optionee shall be set by the Committee and the
Committee may determine that an Option may not be exercised in whole or in part
for a specified period after it is granted. At any time after grant of an
Option, the Committee may, in its sole and absolute discretion and subject to
whatever terms and conditions it selects, accelerate the period during which an
Option vests.
(b) No portion of an Option which is unexercisable at
Termination of Employment or Termination of Consultancy shall thereafter become
exercisable, except as may be otherwise provided by the Committee either in the
Stock Option Agreement or by action of the Committee following the grant of the
Option.
(c) Notwithstanding anything contained herein, no Option (or
portion thereof) shall be exercisable by any person to the extent that the
Company's federal income tax deduction with respect to the exercise of such
Option (or portion thereof) would be subject to disallowance pursuant to Section
162(m) of the Code, or any successor thereto.
4.5 Consideration. In consideration of the granting of an
Option, the Optionee shall agree, in the written Stock Option Agreement, to
remain in the employ of (or to consult for) the Company or any Subsidiary for a
period of at least one year after the Option is granted (or such shorter period
as may be fixed in the Stock Option Agreement or by action of the Committee or
the Board following grant of the Option). Nothing in this Plan or in any Stock
Option Agreement hereunder shall confer upon any Optionee any right to continue
in the employ of (or to consult for) the Company or any Subsidiary, or shall
interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Optionee at
any time for any reason whatsoever, with or without good cause.
ARTICLE V.
EXERCISE OF OPTIONS
5.1 Partial Exercise. An exercisable Option may be exercised in
whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Committee may require that, by the terms of the
Option, a partial exercise be with respect to a minimum number of shares.
5.2 Manner of Exercise. All or a portion of an exercisable
Option shall be deemed exercised upon delivery of all of the following to the
Secretary of the Company or his or her office:
7
<PAGE> 8
(a) A written notice complying with the applicable rules
established by the Committee stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) Such representations and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act of 1933, as amended, and any other
federal or state securities laws or regulations. The Committee or Board may, in
its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation, placing
legends on share certificates and issuing stop-transfer notices to agents and
registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 7.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised.
However, at the discretion of the Committee, the terms of the Option may (i)
allow a delay in payment up to thirty (30) days from the date the Option, or
portion thereof, is exercised; (ii) allow payment, in whole or in part, through
the delivery of shares of Common Stock owned by the Optionee (which, in the case
of shares of Common Stock acquired from the Company, have been owned by the
Optionee for more than six (6) months on the date of delivery), duly endorsed
for transfer to the Company with a Fair Market Value on the date of delivery
equal to the aggregate exercise price of the Option or exercised portion
thereof; (iii) allow payment, in whole or in part, through surrender of shares
of Common Stock then issuable upon exercise of the Option having a Fair Market
Value on the date of Option exercise equal to the aggregate exercise price of
the Option or exercised portion thereof; (iv) allow payment, in whole or in
part, through the delivery of property of any kind which constitutes good and
valuable consideration; (v) allow payment, in whole or in part, through the
delivery of a full recourse promissory note bearing interest (at no less than
such rate as shall then preclude the imputation of interest under the Code) and
payable upon such terms as may be prescribed by the Committee or the Board; (vi)
allow payment, in whole or in part, through the delivery of a notice that the
Optionee has placed a market sell order with a broker with respect to shares of
Common Stock then issuable upon exercise of the Option, and that the broker has
been directed to pay a sufficient portion of the net proceeds of the sale to the
Company in satisfaction of the Option exercise price and any applicable
withholding or other employment taxes; or (vii) allow payment through any
combination of the consideration provided in the foregoing subparagraphs (ii),
(iii), (iv), (v) and (vi). In the case of a promissory note, the Committee may
also prescribe the form of such note and the security to be given for such note.
The Option may not be exercised, however, by delivery of a promissory note or by
a loan from the Company when or where such loan or other extension of credit is
prohibited by law.
5.3 Conditions to Issuance of Stock Certificates. The Company
shall not be required to issue or deliver any certificate or certificates for
shares of stock purchased upon the exercise of any Option or portion thereof
prior to fulfillment of all of the following conditions:
8
<PAGE> 9
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification of
such shares under any state or federal law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body which the Committee or Board shall, in its absolute discretion, deem
necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may establish from time to time for
reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
5.4 Rights as Stockholders. The holders of Options shall not be,
nor have any of the rights or privileges of, stockholders of the Company in
respect of any shares purchasable upon the exercise of any part of an Option
unless and until certificates representing such shares have been issued by the
Company to such holders.
5.5 Ownership and Transfer Restrictions. The Committee, in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Stock Option Agreement and may be referred to on the certificates evidencing
such shares.
ARTICLE VI.
ADMINISTRATION
6.1 Compensation Committee. The Compensation Committee (or
another committee or a subcommittee of the Board assuming the functions of the
Committee under this Plan) shall consist solely of two or more Independent
Directors appointed by and holding office at the pleasure of the Board, each of
whom is a "non-employee director" (as defined by Rule 16b-3). Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee may be filled by the Board.
6.2 Duties and Powers of Committee. It shall be the duty of the
Committee to conduct the general administration of this Plan in accordance with
its provisions. The Committee shall have the power to interpret this Plan and
the agreements pursuant to which Options are granted, and to adopt such rules
for the administration, interpretation, and application of this Plan as are
consistent therewith and to interpret, amend or revoke any such rules. Any grant
of
9
<PAGE> 10
Options under this Plan need not be the same with respect to each Optionee. The
Committee may delegate to one or more members of the Board who are not
Independent Directors the authority to grant awards under the Plan to eligible
persons who are not "officers" within the meaning of Rule 16b-3 promulgated
under the Exchange Act. In its absolute discretion, the Board may at any time
and from time to time exercise any and all rights and duties of the Committee
under this Plan except with respect to matters which under Rule 16b-3, or any
regulations or rules issued thereunder, are required to be determined in the
sole discretion of the Committee.
6.3 Majority Rule. The Committee shall act by a majority of its
members in attendance at a meeting at which a quorum is present or by a
memorandum or other written instrument signed by all members of the Committee.
6.4 Compensation; Professional Assistance; Good Faith Actions.
Members of the Committee shall receive such compensation for their services as
members as may be determined by the Board. All expenses and liabilities that
members of the Committee incur in connection with the administration of this
Plan shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's Officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Optionees, the Company and all other interested persons. No member of the
Committee or the Board shall be personally liable for any action, determination
or interpretation made in good faith with respect to this Plan or Options, and
all members of the Committee and the Board shall be fully protected by the
Company in respect of any such action, determination or interpretation.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
7.1 Not Transferable.
(a) No Option under this Plan may be sold, pledged, assigned, or
transferred in any manner other than by will or the laws of descent and
distribution or pursuant to a QDRO, unless and until such Option has been
exercised, the shares underlying such Option have been issued, and all
restrictions applicable to such shares have lapsed. No Option or interest or
right therein shall be liable for the debts, contracts or engagements of the
Optionee or his or her successors in interest or shall be subject to disposition
by transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means whether such disposition be voluntary or involuntary or by operation
of law by judgment, levy, attachment, garnishment or any other legal or
equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect, except to the extent that such
disposition is permitted by the preceding sentence.
(b) During the lifetime of the Optionee, only he or she may
exercise an Option (or any portion thereof) granted to him or her under the
Plan, unless the Option has been disposed
10
<PAGE> 11
of pursuant to a QDRO. After the death of the Optionee, any exercisable portion
of an Option may, prior to the time when such portion becomes unexercisable
under the Plan or the applicable Stock Option Agreement, be exercised by his or
her personal representative or by any person empowered to do so under the
deceased Optionee's will or under the then applicable laws of descent and
distribution.
7.2 Amendment, Suspension or Termination of this Plan. Except as
otherwise provided in this Section 7.2, this Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. No amendment, suspension or termination
of this Plan shall, without the consent of the Optionee, alter or impair any
rights or obligations under any Options theretofore granted, unless the Option
itself otherwise expressly so provides. No Options may be granted during any
period of suspension or after termination of this Plan.
7.3 Changes in Common Stock or Assets of the Company,
Acquisition or Liquidation of the Company and Other Corporate Events.
(a) In the event that the Committee determines that any dividend
or other distribution (whether in the form of cash, Common Stock, other
securities, or other property), recapitalization, reclassification,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, liquidation, dissolution, or sale, transfer, exchange or other
disposition of all or substantially all of the assets of the Company (including,
but not limited to, a Corporate Transaction), or exchange of Common Stock or
other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Committee's sole discretion, affects the
Common Stock such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to an Option, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of:
(i) the number and kind of shares of Common Stock (or
other securities or property) with respect to which Options may be
granted under the Plan, (including, but not limited to, adjustments of
the limitations in Section 2.1 on the maximum number and kind of shares
which may be issued and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or
other securities or property) subject to outstanding Options, and
(iii) the grant or exercise price with respect to any
Option.
(b) Upon a Corporate Transaction or Change in Control, all
Options outstanding under the Plan shall be fully vested and exercisable as to
all shares covered thereby, notwithstanding anything to the contrary in (i)
Section 4.4 or (ii) the provisions of any such Option; provided that the
Committee may offer Optionees the right to exchange their vested
11
<PAGE> 12
Options for fully vested and exercisable options covering the stock of the
successor or survivor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices.
(c) In the event of any transaction or event (other than a
Corporate Transaction) described in Section 7.3(a) or any unusual or
nonrecurring transactions or events affecting the Company, any affiliate of the
Company, or the financial statements of the Company or any affiliate, or of
changes in applicable laws, regulations, or accounting principles, the Committee
in its discretion is hereby authorized to take any one (1) or more of the
following actions whenever the Committee determines that such action is
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to any Option under this Plan, to facilitate such transactions or events or to
give effect to such changes in laws, regulations or principles:
(i) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee may provide,
either by the terms of the agreement or by action taken prior to the
occurrence of such transaction or event and either automatically or upon
the Optionee's request, for either the purchase of any such Option for
an amount of cash equal to the amount that could have been attained upon
the exercise of such Option, or realization of the Optionee's rights had
such Option been currently exercisable or payable or fully vested or the
replacement of such Option with other rights or property selected by the
Committee in its sole discretion;
(ii) In its sole and absolute discretion, the Committee
may provide, either by the terms of such Option or by action taken prior
to the occurrence of such transaction or event that it cannot be
exercised after such event;
(iii) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee may provide,
either by the terms of such Option or by action taken prior to the
occurrence of such transaction or event, that for a specified period of
time prior to such transaction or event, such Option shall be
exercisable as to all shares covered thereby, notwithstanding anything
to the contrary in (i) Section 4.4 or (ii) the provisions of such
Option;
(iv) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee may provide,
either by the terms of such Option or by action taken prior to the
occurrence of such transaction or event, that upon such event, such
Option be assumed by the successor or survivor corporation, or a parent
or subsidiary thereof, or shall be substituted for by similar options
covering the stock of the successor or survivor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices; and
(v) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee may make
adjustments in the number and type of shares of Common Stock (or other
securities or property) subject to outstanding Options
12
<PAGE> 13
and/or in the terms and conditions of (including the grant or exercise
price), and the criteria included in, outstanding Options and Options
which may be granted in the future.
(d) Subject to Section 7.6, the Committee may, in its
discretion, include such further provisions and limitations in any Option as it
may deem equitable and in the best interests of the Company.
7.4 Tax Withholding. The Company shall be entitled to require
payment in cash or deduction from other compensation payable to each Optionee of
any sums required by federal, state or local tax law to be withheld with respect
to the issuance, vesting or exercise of any Option. The Committee may in its
discretion and in satisfaction of the foregoing requirement allow such Optionee
to satisfy withholding tax obligations by electing to have the Company withhold
from the shares of Common Stock to be issued upon exercise of an Option that
number of shares having a Fair Market Value equal to the minimum amount required
to be withheld based on the statutory withholding rates for federal and state
tax purposes that apply to supplemental taxable income. The Fair Market Value of
the shares of Common Stock to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by Optionees
to have shares of Common Stock withheld for this purpose shall be made in such
form and under such conditions as the Committee may deem necessary or advisable.
7.5 Loans. The Committee may, in its discretion, extend one or
more loans to key Associates or consultants in connection with the exercise or
receipt of an Option granted under this Plan. The terms and conditions of any
such loan shall be set by the Committee.
7.6 Limitations Applicable to Section 16 Persons.
Notwithstanding any other provision of this Plan, this Plan, and any Option
granted to any individual who is then subject to Section 16 of the Exchange Act,
shall be subject to any additional limitations set forth in any applicable
exemptive rule under Section 16 of the Exchange Act (including any amendment to
Rule 16b-3 of the Exchange Act) that are requirements for the application of
such exemptive rule. To the extent permitted by applicable law, the Plan and
Options granted hereunder shall be deemed amended to the extent necessary to
conform to such applicable exemptive rule.
7.7 Effect of Plan Upon Options and Compensation Plans. The
adoption of this Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Subsidiary. Nothing in this Plan shall be
construed to limit the right of the Company (i) to establish any other forms of
incentives or compensation for Associates, Independent Directors or consultants
of the Company or any Subsidiary or (ii) to grant or assume options or other
rights otherwise than under this Plan in connection with any proper corporate
purpose including but not by way of limitation, the grant or assumption of
options in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any corporation,
partnership, firm or association.
7.8 Compliance with Laws. This Plan, the granting and vesting of
Options under this Plan and the issuance and delivery of shares of Common Stock
and the payment of money under this Plan or under Options granted hereunder are
subject to compliance with all
13
<PAGE> 14
applicable federal and state laws, rules and regulations (including but not
limited to state and federal securities law and federal margin requirements) and
to such approvals by any listing, regulatory or governmental authority as may,
in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any securities delivered under this Plan shall be subject
to such restrictions, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all applicable legal requirements. To the extent permitted by applicable law,
the Plan and Options granted hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
7.9 Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this Plan.
7.10 Governing Law. This Plan and any agreements hereunder shall
be administered, interpreted and enforced under the internal laws of the State
of Delaware without regard to conflicts of laws thereof.
14
<PAGE> 1
EXHIBIT 21.1
List of subsidiaries
<TABLE>
<CAPTION>
State of Incorporation
Name or organization Does Business As
- ---- ---------------------- ----------------
<S> <C> <C>
Women First Pharmacy Delaware Women First
Services, Inc. Pharmacy Services
As We Change, LLC Delaware As We Change
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-82285) pertaining to the 1998 Long-Term Incentive Plan and Incentive
Stock Plan of Women First HealthCare, Inc. of our report dated February 18,
2000, with respect to the consolidated financial statements of Women First
HealthCare, Inc. included in the Annual Report (Form 10-K) for the year ended
December 31, 1999.
ERNST & YOUNG LLP
San Diego, California
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 32,719,263
<SECURITIES> 0
<RECEIVABLES> 2,598,658
<ALLOWANCES> 83,176
<INVENTORY> 1,459,733
<CURRENT-ASSETS> 37,427,580
<PP&E> 1,497,934
<DEPRECIATION> 462,694
<TOTAL-ASSETS> 43,647,559
<CURRENT-LIABILITIES> 6,928,230
<BONDS> 0
0
0
<COMMON> 17,310
<OTHER-SE> 36,702,019
<TOTAL-LIABILITY-AND-EQUITY> 43,647,559
<SALES> 19,352,104
<TOTAL-REVENUES> 22,501,588
<CGS> 12,327,262
<TOTAL-COSTS> 12,327,262
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</TABLE>
