UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-K
(Mark
One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended December
31, 2004
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period
from _____ to
______
Commission
file number 0-22245
NEXMED,
INC
(Exact
Name of Registrant as Specified in Its Charter)
|
Nevada |
87-0449967 |
|
(State
or Other Jurisdiction of Incorporation or Organization) |
(I.R.S.
Employer Identification No.) |
350
Corporate Boulevard, Robbinsville, NJ 08691
(Address
of Principal Executive Offices)
(609)
208-9688
(Registrant’s
telephone number)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of Each Class |
Name
of Exchange on Which Registered |
|
Common
Stock, par value $.001 |
The
NASDAQ National Market |
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 o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2) Yes x
No o
As of
March 11, 2005, 51,701,446 shares of the common stock, par value $.001, of the
registrant were outstanding and the aggregate market value of the common stock
held by non-affiliates, based upon the last sale price of the registrant’s
common stock on June 30, 2004, was approximately $87,814,906.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of our Proxy Statement to be delivered to our stockholders in connection with
the Company’s 2005 Annual Meeting of Stockholders (the “2005 Proxy Statement”)
are incorporated by reference into Part III of this Report.
NEXMED,
INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K FILED WITH
THE
SECURITIES AND EXCHANGE COMMISSION
YEAR
ENDED DECEMBER 31, 2004
ITEMS
IN FORM 10-K
Page
PART
I.
|
Item
3. |
LEGAL
PROCEEDINGS. |
11 |
|
Item
4. |
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
11 |
PART
II.
|
Item
5. |
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
|
|
|
MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES |
11 |
|
Item
6. |
SELECTED
FINANCIAL DATA |
12 |
|
Item
7. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
|
|
Item
7A |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
18 |
|
Item
8. |
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA |
19 |
|
Item
9. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING |
|
|
AND
FINANCIAL DISCLOSURE |
40 |
| Item 9A. |
CONTROLS AND PROCEDURES |
40 |
| Item 9B. |
OTHER INFORMATION |
40 |
PART
III.
|
Item
10. |
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT |
41 |
|
Item
11. |
EXECUTIVE
COMPENSATION |
41 |
|
Item
12. |
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS |
41 |
|
Item
13. |
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS |
42 |
|
Item
14. |
PRINCIPAL
ACCOUNTANT FEES AND SERVICES |
42 |
PART
IV.
|
Item
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES |
42 |
PART
I.
ITEM
1. BUSINESS.
Some of
the statements contained in this Report discuss future expectations, contain
projections of results of operations or financial condition or state other
“forward-looking” information. Those statements include statements regarding the
intent, belief or current expectations of the Company and its management team.
Prospective investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the
forward-looking statements. These risks and uncertainties include but are not
limited to, those risks and uncertainties set forth under the heading “Factors
That Could Affect Our Future Results” of Part I of this Report. In light of the
significant risks and uncertainties inherent in the forward-looking statements
included in this Report, the inclusion of such statements should not be regarded
as a representation by us or any other person that our objectives and plans will
be achieved.
General
NexMed,
Inc. (the “Company,” which may be referred to as “we,” “us,” or “our”) is a
pharmaceutical and medical technology company. We develop and commercialize
therapeutic products based on proprietary delivery systems. We are currently
focusing our efforts on new and patented pharmaceutical products based on a
penetration enhancement drug delivery technology known as NexACT®, which
may enable an active drug to be better absorbed through the skin.
Products
& Technologies
We have
been in existence since 1987. Since 1994, we have positioned ourselves as a
pharmaceutical and medical technology company with a focus on developing and
commercializing therapeutic products based on proprietary delivery
systems.
We are
currently focusing our efforts on new and patented topical pharmaceutical
products based on a penetration enhancement drug delivery technology known as
NexACT®, which
may enable an active drug to be better absorbed through the skin. The
NexACT®
transdermal drug delivery technology is designed to enhance the absorption of an
active drug through the skin, overcoming the skin's natural barrier properties
and enabling high concentrations of the active drug to rapidly penetrate the
desired site of the skin or extremity. Successful application of the
NexACT®
technology would improve therapeutic outcomes and reduce gastrointestinal or
other systemic side effects that often accompany oral and injectable
medications.
We intend
to continue our efforts developing topical treatments including cream, lacquer,
gel, patch and tape, based on the application of NexACT®
technology to drugs: (1) previously approved by the FDA, (2) with proven
efficacy and safety profiles, (3) with patents expiring or expired and (4) with
proven market track records and potential.
We are
focusing on our application of the NexACT®
technology to Alprox-TD® cream
for the treatment of male erectile dysfunction. We are exploring the application
of the NexACT®
technology to other drug compounds and delivery systems, and are in various
stages of developing new topical treatments for female sexual arousal disorder,
nail fungus, premature ejaculation, wound healing, arthritic pain, severe pain
and the prevention of nausea and vomiting associated with post-operative
surgical procedures and cancer chemotherapy.
In
addition, we have been entertaining inquiries from other pharmaceutical
companies that want to work with us utilizing the application of
NexACT®
technology to develop proprietary pharmaceutical products as new drug products
or improved products in order to extend the life cycle of their existing
products.
Alprox-TD® is an
alprostadil-based cream treatment intended for patients with mild, moderate or
severe erectile dysfunction. Our clinical studies have demonstrated that
NexACT®
enhancers promote the rapid absorption of alprostadil and improve clinical
responses. In December 2002, we completed two pivotal Phase 3 studies for
Alprox-TD®, which
tested over 1,700 patients at 85 sites throughout the U.S. The two pivotal
studies were randomized, double-blind, placebo-controlled, and designed to
confirm the efficacy and safety of Alprox-TD® in
patients with varying degrees of erectile dysfunction.
On July
1, 2004, we entered into a license, supply and distribution agreement with
Schering AG, Germany (“Schering”). This agreement provides Schering with
exclusive commercialization rights to Alprox-TD® in
approximately 75 countries including countries in Europe and the Middle East as
well as South Africa, Australia and New Zealand. We will retain the intellectual
property relating to Alprox-TD® and will
manufacture and supply the product to Schering. Under the terms of this
partnership, we will receive future milestone payments as well as a share of the
revenue through transfer price payments based on the supply of
Alprox-TD®. The
overall financial terms are intended, depending upon performance levels, to
approximate an equal sharing of the value of the product. We continue to engage
in discussions with several pharmaceutical companies, and are engaged in draft
contract negotiations with one of them, for the commercialization of
Alprox-TD® in other
markets, including the U.S. However, consummation of such additional
arrangement(s) is subject to the negotiation of complex contractual
relationships, and we may not be able to negotiate such agreement(s) on a timely
basis, if at all, or on terms acceptable to us.
We have
scheduled meetings during the first half of 2005 with various European
regulatory authorities in connection with the Marketing Authorization
Application (comparable to the New Drug Application in the U.S.) for
Alprox-TD® in the
European Union (EU) markets. The purpose of these meetings is to determine the
requirements for filing and what additional studies, if any, may be needed to
file the Marketing Authorization Application. The outcome of these meetings will
allow us to better formulate and finalize our strategy for obtaining approval
for Alprox-TD® in
Europe. We also want to ensure that all European Union requirements are
incorporated into the 12-month open-label safety study that we intend to
initiate and conduct in the U.S.
Prior to
filing a New Drug Application or the Marketing Authorization Application for
Alprox-TD®, we will
be required to initiate a new 12-month open-label safety study. We had
previously initiated an open-label study, which was halted in November 2002 due
to FDA concerns about results of our transgenic mice study. However, we have
determined with the FDA that completion of the open-label study is not a
prerequisite for our New Drug Application submission provided that the 12-month
safety update on 100 patients is filed within four months after the New Drug
Application submission. We are required to have three hundred patients complete
six months of testing in the study at the time of New Drug Application
submission, and 100 patients must complete the 12-month study prior to New Drug
Application approval. Patient completion requirements may be different in the EU
and other markets.
In late
2003, we met with the FDA to evaluate our Alprox-TD® New Drug
Application package and to discuss possible product improvements. At that time,
the FDA suggested that we include a transfer study of Alprox-TD® in
female subjects as part of our New Drug Application submission. During the same
meeting, we proposed to the FDA a new and improved formulation of
Alprox-TD®, to
include in our New Drug Application filing. The FDA has permitted us to switch
to the new formulation if we conduct two bridging studies to confirm the
efficacy of the new formulation. We continue to be engaged in discussions with
the FDA concerning the regulatory plan for Alprox-TD® and
intend to schedule a follow-up meeting in June or July 2005. We intend to obtain
the FDA’s concurrence with our plan prior to initiating the above-mentioned
studies, which will be conducted concurrently with the open-label study and
completed prior to the New Drug Application filing.
The
timeframe for us to begin these studies largely depends on our ability to
substantially pre-fund these studies through additional partnering agreements
for Alprox-TD® or from other sources, and on regulatory concurrence. We believe
that we will be able to file the New Drug Application in the U.S. and in Europe,
approximately ten and six months, respectively, after the completion of patient
enrollment for the open-label study. Pending the outcome of the meetings
discussed above with European regulatory authorities in the first half of 2005,
we anticipate that the timeframe for EU filings may be earlier than for U.S.
filings. However, these timeframes may change if we encounter any delay in
financing, clinical testing or regulatory review. If we are not able to
successfully arrange financing through additional partnering agreements or from
other sources in order to substantially pre-fund the studies described above or
obtain timely and satisfactory regulatory review, we may be required to
discontinue the development of Alprox-TD®. In
addition, it is possible that we may not have successful clinical results or
receive regulatory approval on a timely basis, if at all.
In April
2002, Alprox-TD® was
launched in Hong Kong under the Befar®
trademark. The product, which has been selling in China since October 2001, is
manufactured and marketed by a local affiliate of Vergemont International
Limited, our Asian licensee. We receive from our Asian licensee royalty payments
and payments for manufacturing supplies in connection with the distribution of
Befar® in China
and may receive such payments in other Asian markets once Befar® is
approved for marketing in such other markets. The sale of Befar® has been
slower than anticipated for several reasons. The switching of distributors by
our Asian licensee in China and in Hong Kong during 2003 significantly disrupted
the sale of the product in the two markets. In addition, China has a limited
number of patients who can afford erectile dysfunction treatments. In December
2002 and February 2003, our Asian licensee entered into licensing agreements for
two of our NexACT®-based
products with CJ Pharmaceuticals, one of the five largest pharmaceutical
companies in South Korea. Its parent company, CJ Corporation, is a major
conglomerate in South Korea. Pursuant to the terms of the agreement, CJ
Pharmaceuticals will develop, file for regulatory approval, market and
distribute Befar® and
Femprox® in South
Korea.
We are
exploring the application of the NexACT®
technology to other drug compounds and delivery systems. The furthest advanced
of these products is Femprox®, which
is an alprostadil-based cream product intended for the treatment of female
sexual arousal disorder. We have completed one Phase 2 study for
Femprox® and
intend to continue with its U.S. clinical development pending the availability
of additional partnering agreements. In November 2004, we completed enrollment
of a 400-patient study for Femprox® in
China. where the cost for conducting clinical studies is significantly lower
than in the U.S. We anticipate that top-line results will be available during
the second quarter of 2005. The clinical data from this study will be shared
with potential co-development partners. In addition, the experience gained from
this study will guide us in designing future U.S. studies.
In
September 2004, we filed an Investigational New Drug application with the FDA
for NM100060, our proprietary nail lacquer treatment for onychomycosis. We had
previously completed overseas, a multi-center, randomized, placebo-controlled,
parallel, blinded efficacy and safety study, which enrolled 120 patients with
various severities of big toenail fungal infection. The study was designed to
evaluate the dose-response relationship of the efficacy and safety of the
NM100060 lacquer. The data suggest that all three tested doses of the NM100060
lacquer were well tolerated by the patients, and the primary efficacy rate was
up to 60%. NM100060 is topically applied, and incorporates terbinafine, a
currently marketed oral anti-fungal drug, with the NexACT®
technology, which facilitates the permeation of the drug through the nail and
into the nail bed. As a result, the NM100060 lacquer incorporates a
significantly lower dose of less than 1% of the oral dose. On February 2, 2005,
we announced the initiation of our U.S. Phase 1 testing which we anticipate will
be completed during second quarter 2005. We anticipate that the combined
data from this Phase 1 study along with studies that have been conducted
overseas will allow us, with FDA concurrence, to move into Phase 3 trials by the
end of 2005. We are in
active discussions with potential pharmaceutical partners who are interested in
co-developing the product with us for the U.S. and other international
markets.
During
the last 24 months, we have entered into a series of research and development
agreements with Japanese pharmaceutical companies, to develop new topical
treatments for different indications. These agreements provided for modest
signing payments, followed by additional payments based on the achievement of
certain milestones. We have completed all research and development work
associated with these agreements and have recognized all related revenue and
will recognize no further revenue related to these agreements. We anticipate
that we will enter into additional research and development agreements during
the next twelve months but we cannot assure you that we will be able to conclude
any arrangement on a timely basis, if at all, or on terms acceptable to
us.
Patents
We have
twelve U.S. patents either acquired or received out of a series of patent
applications that we have filed in connection with our NexACT®
technology and our NexACT®-based
products under development, such as Alprox-TD®,
Femprox®, and our
non-steroidal anti-inflammatory cream. To further strengthen our global patent
position on our proprietary products under development, and to expand the patent
protection to other markets, we have filed under the Patent Cooperation Treaty,
corresponding international applications for our issued U.S. patents and pending
U.S. patent applications.
The
following table identifies our twelve U.S. patents issued for NexACT®
technology and/or our NexACT®-based
products under development, and the year of expiration for each
patent:
|
Patent
Name |
Expiration
Date |
| |
|
|
Biodegradable
Absorption Enhancers |
2008 |
|
Biodegradable
Absorption Enhancers |
2009 |
|
Compositions
and Methods for Amelioration of Human Female Sexual
Dysfunction |
2017 |
|
Topical
Compositions for PGE1 Delivery |
2017 |
|
Topical
Compositions for Non-Steroidal Anti-Inflammatory Drug
Delivery |
2017 |
|
Medicament
Dispenser |
2019 |
|
Crystalline
Salts of dodecyl 2-(N, N-Dimethylamino) |
2019 |
|
Topical
Compositions Containing Prostaglandin E1 |
2019 |
|
CIP:
Topical Compositions Containing Prostaglandin E1 |
2019 |
|
Prostaglandin
Composition and Methods of Treatment of Male Erectile
Dysfunction |
2020 |
|
CIP:
Prostaglandin Composition and Methods of Treatment of Male Erectile
Dysfunction |
2020 |
|
Topical
Stabilized Prostaglandin E Compound Dosage Forms |
2023 |
In
addition, we have over 200 International patents and U.S. and International
patent applications pending.
Research
and Development.
Governmental
authorities in the U.S. and other countries heavily regulate the testing,
manufacture, labeling, advertising, marketing and distribution of our proposed
products. None of our proprietary products under development, including the
Alprox-TD® cream
utilizing the NexACT®
technology, has been approved for marketing in the U.S. Before we market any
products we develop, we must obtain FDA and comparable foreign agency approval
through an extensive clinical study and approval process.
The
studies involved in the approval process are conducted in three phases. In Phase
1 studies, researchers assess safety or the most common acute adverse effects of
a drug and examine the size of doses that patients can take safely without a
high incidence of side effects. Generally, 20 to 100 healthy volunteers or
patients are studied in the Phase 1 study for a period of several months. In
Phase 2 studies, researchers determine the drug's efficacy with short-term
safety by administering the drug to subjects who have the condition the drug is
intended to treat, assess whether the drug favorably affects the condition, and
begin to identify the correct dosage level. Up to several hundred subjects may
be studied in the Phase 2 study for approximately 6 to 12 months, depending on
the type of product tested. In Phase 3 studies, researchers further assess
efficacy and safety of the drug. Several hundred to thousands of patients may be
studied during the Phase 3 studies for a period lasting from 12 months to
several years. Upon completion of Phase 3 studies, a New Drug Application is
submitted to the FDA or foreign governmental regulatory authority for review and
approval.
Segment
and Geographic Area Information
You can
find information about our business segment and geographic areas of business in
Note 13 of the Notes to Consolidated Financial Statements.
Employees
As of
March 1, 2005, we had 52 full time employees, 9 of whom have Ph.D degrees, 3 of
whom are executive management and 36 of whom are engaged in research and
development activities. We also rely on a number of consultants. None of our
employees is represented by a collective bargaining agreement. We believe that
we have a good relationship with our employees.
Executive
Officers of the Registrant
The
Executive Officers of the Company are set forth below.
|
Name |
Age* |
Title |
|
Y.
Joseph Mo, Ph.D. |
57 |
Chairman
of the Board of Directors, President and Chief Executive
Officer |
| |
|
|
|
Vivian
H. Liu |
43 |
Vice
President, Chief Financial Officer and Secretary |
| |
|
|
|
Kenneth
F. Anderson |
58 |
Vice
President, Commercial Development |
| |
|
|
* As of
March 1, 2005
Y. Joseph
Mo, Ph.D., is, and has been since 1995, our Chief Executive Officer and
President and Chairman and a member of our board of directors. His current term
as member of our board of directors expires in 2005. Prior to joining us in
1995, Dr. Mo was President of Sunbofa Group, Inc., a privately-held investment
consulting company. From 1991 to 1994, he was President of the Chemical
Division, and from 1988 to 1994, the Vice President of Manufacturing and
Medicinal Chemistry, of Greenwich Pharmaceuticals, Inc. Prior to that, he served
in various executive positions with several major pharmaceutical companies,
including Johnson & Johnson, Rorer Pharmaceuticals, and predecessors of
SmithKline Beecham. Dr. Mo received his Ph.D. in Industrial and Physical
Pharmacy from Purdue University in 1977.
Vivian H.
Liu is, and has been, our Vice President of Corporate Affairs and Secretary
since September 1995 and Chief Financial Officer since January 2004. In 1994,
while we were in a transition period, Ms. Liu served as our Chief Executive
Officer. From September 1995 to September 1997, Ms. Liu was our Treasurer. From
1985 to 1994, she was a business and investment adviser to the government of
Quebec and numerous Canadian companies with respect to product distribution,
technology transfer and investment issues. Ms. Liu received her MPA in
International Finance from the University of Southern California and her BA from
the University of California, Berkeley.
Kenneth
F. Anderson is and
has been, our Vice President of Commercial Development since November 2000. Mr.
Anderson has extensive experience in the pharmaceutical industry. From 1997 to
September 2000, Mr. Anderson was Senior Vice President, Director of Strategy and
Business Development for Harrison Wilson & Associates, a consulting and
marketing firm specializing in healthcare products and services. From 1980 to
1997, Mr. Anderson was at Bristol-Myers Squibb where he served in various
management positions, including Senior Manager for Marketing and Director for
Worldwide Business Development. From 1969 to 1979, Mr. Anderson was with
Parke-Davis, a division of Warner Lambert. Mr. Anderson received his BA from
Boston University.
WHERE
YOU CAN FIND MORE INFORMATION
We file
annual, quarterly and special reports, proxy statements and other information
with the Securities and Exchange Commission, and we have an Internet website
address at http://www.nexmed.com. We make
available free of charge on our internet website address our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Sections 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. You may also
read and copy any document we file at the Securities and Exchange Commission's
public reference room located at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the Securities and Exchange Commission at 1-800-732-0330 for further
information on the operation of such public reference room. You also can request
copies of such documents, upon payment of a duplicating fee, by writing to the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 or obtain copies of such documents from the Securities and Exchange
Commission's website at http://www.sec.gov.
FACTORS
THAT COULD AFFECT OUR FUTURE RESULTS
RISKS
RELATED TO THE COMPANY
We
have a continuing need for additional financing.
Our cash
position as of March 1, 2005 was approximately $6.2 million, following
successful completion of a private placement in December 2004 of common stock
and warrants, yielding gross proceeds to us of approximately $7 million. We have
been actively seeking financing from the sale of equity or issuance of debt from
private and public sources as well as from collaborative licensing and/or
marketing arrangements with third parties, and since December 31, 2002, we have
raised approximately $42 million gross proceeds through the sale of Preferred
Stock, the exercise of warrants to purchase shares of our common stock and the
issuance by the Company of notes, Common Stock and warrants to purchase shares
of Common Stock. Our anticipated cash requirements for Alprox-TD® through
the anticipated New Drug Application filing, including completion of an
open-label and other studies, will be approximately $15 million. Initiation, but
not completion of an open-label study is a prerequisite for our new drug
application submission. There is no assurance that we will be successful in
obtaining financing on acceptable terms, if at all. If additional financing
cannot be obtained on reasonable terms, future operations may need to be scaled
back or discontinued.
We
continue to incur operating losses.
Our
current business operations began in 1994 and we have a limited operating
history. We may encounter delays, uncertainties and complications typically
encountered by development stage businesses. We have generated minimal revenues
from the limited sales of Befar® in Asia
and our existing research and development agreements with our Japanese partners,
and have not marketed or generated revenues in the U.S. from our products under
development. We are not profitable and have incurred an accumulated deficit of
$102,245,183 since our inception and through December 31, 2004. Our ability to
generate revenues and to achieve profitability and positive cash flow will
depend on the successful commercialization of our products currently under
development. However, even if we eventually generate revenues from sales of our
products currently under development, we expect to incur significant operating
losses over the next several years. Our ability to become profitable will
depend, among other things, on our (1) development of our proposed products, (2)
obtaining of regulatory approvals of our proposed products on a timely basis and
(3) success in manufacturing, distributing and marketing our proposed products.
Our
independent registered public accounting firm has doubt as to our ability to
continue as a going concern.
As a
result of our losses to date, expected losses in the future, limited capital
resources and accumulated deficit, our independent registered public accounting
firm has concluded that there is substantial doubt as to our ability to continue
as a going concern, and accordingly, our independent registered public
accounting firm has modified their report on our December 31, 2004 consolidated
financial statements included herein in the form of an explanatory paragraph
describing the events that have given rise to this uncertainty. These factors
may make it more difficult for us to obtain additional funding to meet our
obligations. Our continuation is dependent upon our ability to generate or
obtain sufficient cash to meet our obligations on a timely basis and ultimately
to attain profitable operations. We anticipate that we will continue to incur
significant losses at least until successful commercialization of one or more of
our products, and we may never operate profitably in the future.
We
will need significant additional funding to continue with our research and
development efforts.
Our
research and development expenses for the years ended December 31, 2004, 2003
and 2002, were $10,684,477, $8,439,340 and $21,615,787, respectively. Since
January 1, 1994, when we repositioned ourselves as a medical and pharmaceutical
technology company, and through December 31, 2004 we have spent $69,819,165 on
research and development. While our expenses for research and development were
significantly lower in 2003 than in 2002, they increased in 2004. Given our
current level of cash reserves and low rate of revenue generation, we will not
be able to fully advance the development of our products unless we raise
additional cash through financing from the sale of our securities and/or through
additional partnering agreements. If we are successful in entering into
additional partnering agreements for our products under development, we may
receive milestone payments, which will offset some of our research and
development expenses.
As
indicated above, our anticipated cash requirements for Alprox-TD® through
the anticipated New Drug Application filing, including completion of an
open-label and other studies, will be approximately $15 million. Initiation, but
not completion of an open-label study is a prerequisite for our New Drug
Application filing.
We will
also need significant funding to pursue our overall product development plans.
In general, our products under development will require significant
time-consuming and costly research and development, clinical testing, regulatory
approval and significant additional investment prior to their commercialization.
The research and development activities we conduct may not be successful; our
products under development may not prove to be safe and effective; our clinical
development work may not be completed; and the anticipated products may not be
commercially viable or successfully marketed. Commercial sales of our products
cannot begin until we receive final FDA approval. The earliest time for such
final approval of the first product which may be approved, Alprox-TD®, is
sometime in late 2006. We intend to focus our current development efforts on the
Alprox-TD® cream
treatment, which is in the late clinical development stage.
We
currently have no sales force or marketing organization and will need, but may
be unable, to attract or afford qualified or experienced marketing and sales
personnel. In order to market Alprox-TD® in areas
not covered under the Schering AG agreement and for our other proprietary
products under development, additional marketing partner(s) will need to spend
significant funds to inform potential customers, including third-party
distributors, of the distinctive characteristics and benefits of our products.
Our operating results and long term success will depend, among other things, on
our ability to establish (1) successful arrangements with domestic and
additional international distributors and marketing partners and (2) an
effective internal marketing organization. We are currently engaged in
discussions with several pharmaceutical companies regarding possible strategic
marketing partnership(s) for the Alprox-TD® cream in
markets not covered under the Schering AG agreement, including the U.S. However,
in each case consummation of the transaction is subject to the negotiation of
complex contractual relationships, and we may not be able to negotiate such
agreements on a timely basis, if at all, or on terms acceptable to
us.
Pre-clinical
and clinical trials are inherently unpredictable. If we do not successfully
complete these trials, we will not be able to market our
products.
Through
pre-clinical studies and clinical trials, we must demonstrate that our products
are safe and effective for their indicated uses. Results from pre-clinical
studies and early clinical trials may not allow us to predict results in
later-stage testing. Our future clinical trials may not demonstrate the safety
and effectiveness of our products or may not result in regulatory approval to
market our products. The failure of the FDA to approve our products for
commercial sales will have a material adverse effect on our prospects.
Patents
and intellectual property rights are important to us but could be
challenged.
Proprietary
protection for our pharmaceutical products is of material importance to our
business in the U.S. and most other countries. We have sought and will continue
to seek proprietary protection for our products to attempt to prevent others
from commercializing equivalent products in substantially less time and at
substantially lower expense. Our success may depend on our ability to (1) obtain
effective patent protection within the U.S. and internationally for our
proprietary technologies and products, (2) defend patents we own, (3) preserve
our trade secrets, and (4) operate without infringing upon the proprietary
rights of others.
While we
have obtained patents and have several patent applications pending, the extent
of effective patent protection in the U.S. and other countries is highly
uncertain and involves complex legal and factual questions. No consistent policy
addresses the breadth of claims allowed in or the degree of protection afforded
under patents of medical and pharmaceutical companies. Patents we currently own
or may obtain might not be sufficiently broad to protect us against competitors
with similar technology. Any of our patents could be invalidated or
circumvented.
There
have been patents issued to others such as Vivus, Inc. and MacroChem Corporation
on the use of alprostadil for the treatment of male or female sexual
dysfunction. While we believe that our patents will prevail in any potential
litigation, the holders of these competing patents could determine to commence a
lawsuit against us and even prevail in any such lawsuit. Litigation could result
in substantial cost to and diversion of effort by us, which may harm our
business. In addition, our efforts to protect or defend our proprietary rights
may not be successful or, even if successful, may result in
substantial cost to us.
We
depend upon third party manufacturers for our chemical manufacturing
supplies.
We depend
on third party chemical manufacturers for alprostadil, the active drugs in
Alprox-TD® and in
other NexACT®-based
products under development, and for the supply of our NexACT®
enhancers that are essential in the formulation and production of our products,
on a timely basis and at satisfactory quality levels. If our
validated third
party chemical manufacturers fail to produce quality products on time and in
sufficient qualities, our results would suffer, as we
would encounter costs and delays in revalidating new third party
suppliers.
We
may not successfully validate our manufacturing facility for GMP
compliance.
In 2002,
we completed the construction of a 31,500 square foot industrial facility,
located in East Windsor, New Jersey, which we are in the process of developing
and validating as a manufacturing facility designed to meet the Good
Manufacturing Practice (GMP) standards as required by the FDA. We anticipate
that our manufacturing facility will have the capacity to meet our anticipated
needs for full-scale commercial production. However, we are initially utilizing
the facility to manufacture Alprox-TD® and
other NexACT®-based
products under development for continuing clinical testing purposes and at the
same time validating the facility for GMP compliance, which is a requirement for
our new drug application filing with the FDA. If we do not successfully pass the
Pre-Approved Inspection conducted by the FDA, our new drug application filing
will be delayed.
We
face severe competition.
We are
engaged in a highly competitive industry. We expect competition from numerous
existing companies, including large international enterprises, and others
entering the industry. Most of these companies have greater research and
development, manufacturing, marketing, financial, technological, personnel and
managerial resources. Acquisitions of competing companies by large
pharmaceutical or healthcare companies could further enhance such competitors'
financial, marketing and other resources. Competitors may complete clinical
trials, obtain regulatory approvals and commence commercial sales of their
products before we could enjoy a significant competitive advantage. Products
developed by our competitors may be more effective than our products.
Certain
treatments for erectile dysfunction, such as needle injection therapy, vacuum
constriction devices, penile implants, transurethral absorption and oral
medications, currently exist, have been approved for sale in certain markets and
are being improved. Currently known products for the treatment of erectile
dysfunction developed or under development by our competitors include the
following: (1) Caverject®, Pfizer,
Inc.'s needle injection therapy; (2) Viagra®, Pfizer,
Inc.'s oral product to treat erectile dysfunction; (3) Cialis®, an oral
formulation marketed in the U.S. through a joint venture between ICOS and Eli
Lilly & Co.; (4) Levitra®, an oral
medication marketed through a collaborative effort of Schering-Plough and
GlaxoSmithKline, Inc. and (5) Muse®, Vivus,
Inc.'s device for intra-urethral delivery of a suppository containing
alprostadil. In addition, products currently under development include the
following: (1) Topiglan®, a
topical treatment containing alprostadil based on a proprietary drug delivery
system under development by MacroChem Corporation; (2) PT-141, an intra-nasal
treatment containing a new peptide under development by Palatin Technologies;
and (3) an intranasal apomorphine treatment under development by Nastech.
We
have been the subject of several lawsuits and may be subject of potential
product liability and other claims, creating risk and expense.
A lawsuit
was filed with the Superior court of New Jersey on April 1, 2003 by a former
employee against the Company for a $800,000 bonus amount that he believes he
should have received upon completion of the construction of the Company's East
Windsor manufacturing facility. The Company has engaged counsel to defend its
position. The Company intends to defend itself vigorously against this claim and
believes it has a valid defense; however, the case is still in the preliminary
stages and the likely outcome cannot be predicted, nor can a reasonable estimate
of the amount of loss, if any, be made.
We are
also exposed to potential product liability risks inherent in the development,
testing, manufacturing, marketing and sale of human therapeutic products.
Product liability insurance for the pharmaceutical industry is extremely
expensive, difficult to obtain and may not be available on acceptable terms, if
at all. We currently have liability insurance to cover claims related to our
products that may arise from clinical trials, with coverage of $1 million for
any one claim and coverage of $3 million in total, but we do not maintain
product liability insurance and we may need to acquire such insurance coverage
prior to the commercial introduction of our products. If we obtain such
coverage, we have no guarantee that the coverage limits of such insurance
policies will be adequate. A successful claim against us if we are uninsured, or
which is in excess of our insurance coverage, if any, could have a material
adverse effect upon us and on our financial condition.
Our
Stock may be delisted from Nasdaq, which may make it more difficult for you to
sell your shares.
Currently,
our common stock trades on the Nasdaq National Market. NASD Marketplace Rule
4450 provides that a company must comply with continuing listing criteria to
maintain its Nasdaq listing. Included in such criteria is a minimum bid price
per share of $1.00. Failure to maintain such price for a period of time and
beyond a grace period could lead to delisting from the Nasdaq National
Market.
If we
were to be delisted from the Nasdaq National Market, our common stock would be
listed on the Nasdaq SmallCap Market, assuming we meet those listing
requirements. If we failed to meet the Nasdaq SmallCap listing requirements, our
stock would be considered a penny stock under regulations of the Securities and
Exchange Commission and would therefore be subject to rules that impose
additional sales practice requirements on broker-dealers who sell our
securities. The additional burdens imposed upon broker-dealers by these
requirements could discourage broker-dealers from effecting transactions in our
common stock, which could severely limit the market liquidity of the common
stock and your ability to sell our securities in the secondary market. In
addition, if we fail to obtain a SmallCap listing, we will be subject to cash
penalties under the Investor Rights Agreement and other investor rights
agreements to which we are a party until a listing is obtained.
INDUSTRY
RISKS
We
are subject to numerous and complex government regulations which could result in
delay and expense.
Governmental
authorities in the U.S. and other countries heavily regulate the testing,
manufacture, labeling, distribution, advertising and marketing of our proposed
products. None of our proprietary products under development has been approved
for marketing in the U.S. Before we market any products we develop, we must
obtain FDA and comparable foreign agency approval through an extensive clinical
study and approval process.
Our
failure to obtain requisite governmental approvals for our products under
development in a timely manner or at all would delay or preclude us from
licensing or marketing our products or limit the commercial use of our products,
which could adversely affect our business, financial condition and results of
operations.
Because
we intend to sell and market our products outside the U.S., we will be subject
to foreign regulatory requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursements. These requirements vary widely
from country to country. Our failure to meet each foreign country's requirements
could delay the introduction of our proposed products in the respective foreign
country and limit our revenues from sales of our proposed products in foreign
markets.
Successful
commercialization of our products may depend on the availability of
reimbursement to the consumer from third-party healthcare payers, such as
government and private insurance plans. Even if we succeed in bringing one or
more products to market, reimbursement to consumers may not be available or
sufficient to allow us to realize an appropriate return on our investment in
product development or to sell our products on a competitive basis. In addition,
in certain foreign markets, pricing or profitability of prescription
pharmaceuticals is subject to governmental controls. In the U.S., federal and
state agencies have proposed similar governmental control and the U.S. Congress
has recently considered legislative and regulatory reforms that may affect
companies engaged in the healthcare industry. Pricing constraints on our
products in foreign markets and possibly in the U.S. could adversely affect our
business and limit our revenues.
We
are vulnerable to volatile market conditions.
The
market prices for securities of biopharmaceutical and biotechnology companies,
including ours, have been highly volatile. The market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. In addition, future
announcements, such as the results of testing and clinical trials, the status of
our relationships with third-party collaborators, technological innovations or
new therapeutic products, governmental regulation, developments in patent or
other proprietary rights, litigation or public concern as to the safety of
products developed by us or others and general market conditions, concerning us,
our competitors or other biopharmaceutical companies, may have a significant
effect on the market price of our common stock.
RISKS
RELATED TO OWNING OUR COMMON STOCK
We
do not expect to pay dividends on our common stock in the foreseeable
future.
Although
our shareholders may receive dividends, if as and when declared by our board of
directors, we do not intend to pay dividends on our Common Stock in the
foreseeable future. Therefore, you should not purchase our Common Stock if you
need immediate or future income by way of dividends from your investment.
We
may issue additional shares of our capital stock that could dilute the value of
your shares of Common Stock.
We are
authorized to issue 90,000,000 shares of our capital stock, consisting of
80,000,000 shares of our Common Stock and 10,000,000 shares of our preferred
stock, of which 1,000,000 are designated as Series A Junior Participating
Preferred Stock and 800 are designated as Series B 8% Cumulative Convertible
Preferred Stock. As of March 11, 2005, 51,701,446 shares of our Common Stock
were issued and outstanding and 17,891,169 shares of our Common Stock were
issuable upon the exercise of outstanding options, warrants, or other
convertible securities (including warrants and convertible notes held by certain
selling shareholders). There were no shares of Preferred Stock outstanding at
March 11, 2005. In light of our need for additional financing, we may issue
authorized and unissued shares of Common Stock at below current market prices or
additional convertible securities that could dilute the earnings per share and
book value of your shares of our Common Stock.
In
addition to provisions providing for proportionate adjustments in the event of
stock splits, stock dividends, reverse stock splits and similar events, certain
warrants provide (with certain exceptions) for an adjustment of the exercise
price if we issue shares of common stock at prices lower than the exercise price
or the then prevailing market price. This means that if we need to raise equity
financing at a time when the market price for our common stock is lower than the
exercise price, or if we need to provide a new equity investor with a discount
from the then prevailing market price, then the exercise price will be reduced
and the dilution to shareholders increased.
ITEM
2. PROPERTIES.
We
currently have our principal executive offices and laboratories in Robbinsville,
NJ. We lease approximately 24,000 square feet of space for approximately $25,500
per month pursuant to a lease which expires in March 2006. We also lease
approximately 5,000 square feet of laboratory space in Monmouth Junction, NJ for
approximately $14,000 per month pursuant to a lease which expires in May
2006.
We own
our 31,500 square foot manufacturing facility in East Windsor, New Jersey. We
purchased the facility for $2.2 million and have invested approximately $7.2
million for construction, equipment and FDA GMP development.
NexMed
International Limited subleases 1,000 square feet of office space in Hong Kong
for approximately $3,000 per month pursuant to a month-to-month
arrangement.
ITEM
3. LEGAL
PROCEEDINGS.
A lawsuit
was filed with the Superior court of New Jersey on April 1, 2003 by a former
employee against the Company for a $800,000 bonus amount that he believes he
should have received upon completion of the construction of the Company's East
Windsor manufacturing facility. The Company has engaged counsel to defend its
position. The Company intends to defend itself vigorously against this claim and
believes it has a valid defense; however, the case is still in the preliminary
stages and the likely outcome cannot be predicted, nor can a reasonable estimate
of the amount of loss, if any, be made.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No
matters were submitted to a vote of security holders during the fourth quarter
of 2004.
PART
II.
ITEM
5. MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES.
Our
Common Stock is traded on the NASDAQ National Market System ( “NASDAQ”) under
the symbol “NEXM.”
The
following table sets forth the range of the high and low sales prices as
reported by NASDAQ for each quarter from January 1, 2003 to December 31,
2004.
| |
|
Price
of Common Stock ($) |
|
| |
|
High |
|
Low |
|
2003 |
|
|
|
|
|
|
First
Quarter |
|
|
2.20 |
|
|
0.75 |
|
|
Second
Quarter |
|
|
5.25 |
|
|
1.09 |
|
|
Third
Quarter |
|
|
4.83 |
|
|
2.56 |
|
|
Fourth
Quarter |
|
|
5.65 |
|
|
3.35 |
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
First
Quarter |
|
|
4.70 |
|
|
2.20 |
|
|
Second
Quarter |
|
|
3.45 |
|
|
1.46 |
|
|
Third
Quarter |
|
|
2.44 |
|
|
1.25 |
|
|
Fourth
Quarter |
|
|
1.69 |
|
|
1.20 |
|
On March
11, 2005, the last reported sales price for our Common Stock on NASDAQ was $1.27
per share, and we had 250 holders of record of our Common Stock.
Dividends
We have
never paid cash dividends on our common stock and do not have any plans to pay
cash dividends in the foreseeable future. Our board of directors anticipates
that any earnings that might be available to pay dividends will be retained to
finance our business.
ITEM
6. SELECTED
FINANCIAL DATA.
The
following selected financial information is qualified by reference to, and
should be read in conjunction with, the Company’s consolidated financial
statements and the notes thereto, and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” contained elsewhere herein.
| Income
Statement Data |
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales and royalties |
|
$ |
9,519 |
|
$ |
6,206 |
|
$ |
63,417 |
|
$ |
68,089 |
|
|
0 |
|
|
Research
and development fees |
|
$ |
349,850 |
|
$ |
104,537 |
|
$ |
84,611 |
|
|
0 |
|
|
0 |
|
|
Net
Loss |
|
$ |
(17,023,648 |
) |
$ |
(17,233,566 |
) |
$ |
(27,641,519 |
) |
$ |
(16,174,861 |
) |
$ |
(8,720,553 |
) |
|
Basic
and Diluted Loss per Share |
|
|
($0.39 |
) |
$ |
(0.60 |
) |
$ |
(1.03 |
) |
$ |
(0.63 |
) |
$ |
(0.40 |
) |
|
Weighted
Average Common Shares
Outstanding
Used for Basic and Diluted
Loss
per Share |
|
|
43,603,546 |
|
|
33,649,774 |
|
|
26,937,200 |
|
|
25,486,465 |
|
|
21,868,267 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data |
|
December
31, |
|
December
31, |
|
December
31, |
|
December
31, |
|
December
31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
|
Total
Assets |
|
$ |
20,272,661 |
|
$ |
23,133,679 |
|
$ |
14,140,127 |
|
$ |
27,314,713 |
|
$ |
39,989,682 |
|
|
Total
Long Term Liabilities |
|
$ |
6,801,826 |
|
$ |
7,335,877 |
|
$ |
5,782,518 |
|
$ |
724,577 |
|
$ |
0 |
|
|
Stockholders’
Equity |
|
$ |
11,401,285 |
|
$ |
12,723,408 |
|
$ |
3,223,492 |
|
$ |
24,107,865 |
|
$ |
38,744,175 |
|
We do not
have any off-balance sheet arrangements.
ITEM
7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
General
We are
focusing our application of the NexACT®
technology to Alprox-TD® cream
for the treatment of male erectile dysfunction. We have explored the application
of the NexACT®
technology to other drug compounds and delivery systems, and are in various
stages of developing new treatments for female sexual arousal disorder, nail
fungus, premature ejaculation, wound healing, arthritic pain, severe pain, and
the prevention of nausea and vomiting associated with post-operative surgical
procedures and cancer chemotherapy.
We intend
to pursue our research, development, and execute a business strategy with the
goal of achieving a level of development sufficient to enable us to attract
potential strategic partners with resources sufficient to further develop and
market our proprietary products both domestically and internationally.
Liquidity
and Capital Resources
We have
experienced net losses and negative cash flow from operations each year since
our inception. Through December 31, 2004, we had an accumulated deficit of
$102,245,183. Our operations have principally been financed through private
placements of equity securities and debt financing. Funds raised in past periods
should not be considered an indication of our ability to raise additional funds
in any future periods.
Pursuant
to a Common Stock and Warrant Purchase Agreement dated December 17, 2004, we
raised over $7 million in gross proceeds. We sold 5,495,310 shares of our common
stock at $1.28 per share. The investors received five-year warrants to purchase
2,198,126 shares of common stock, exercisable beginning six months after closing
at a price of $1.47 per share. In addition, the investors also received one-year
warrants to purchase 549,536 shares of common stock, exercisable at a price of
$2.00 per share. The proceeds from this financing are being used for general
corporate purposes and for our product development programs based on the
NexACT®
technology.
As a
result of our losses to date, expected losses in the future, limited capital
resources and accumulated deficit, our independent registered public accounting
firm has concluded that there is substantial doubt as to our ability to continue
as a going concern for a reasonable period of time, and have modified their
report in the form of an explanatory paragraph describing the events that have
given rise to this uncertainty. These factors may make it more difficult for us
to obtain additional funding to meet our obligations. Our continuation is based
on our ability to generate or obtain sufficient cash to meet our obligations on
a timely basis and ultimately to attain profitable operations. We anticipate
that we will continue to incur significant losses at least until successful
commercialization of one or more of our products. There can be no assurance that
we can operate profitably in the future.
At
December 31, 2004, we had cash and cash equivalents, and marketable securities
and short-term investments of approximately $9.13 million as compared to $10.98
million at December 31, 2003. To date, we have spent approximately $66 million
on the Alprox-TD®
development program, and anticipate that we will spend approximately an
additional $15 million to complete the clinical program and file the new drug
application for Alprox-TD®. During
2004, we expended approximately $15.7 million in cash, which consisted of a $1.3
million to a contract research organization for set-up and initiation costs for
the planned clinical studies for Alprox-TD®,
approximately $500,000 paid to employees for the 2003 bonuses accrued in
December of 2003, approximately $2.1 million in out of pocket development costs
related to other NexACT®
-based
products, including approximately $1.9 million related to the NM100060 lacquer,
approximately $540,000 in legal fees related to ongoing lawsuits as well as
approximately $520,000 in professional fees related to additional compliance
activities mandated by the Sarbanes Oxley Act of 2002, as well as our fixed
monthly overhead costs of approximately $900,000 per month. We project that our
cash reserves are sufficient to sustain operations for 5 months at our current
expenditure level, which includes fixed monthly overhead expenses and the
projected out of pocket project costs related to NexACT®
-based
products other than Alprox-TD®. We
anticipate that our monthly rate of cash expenditures will increase
significantly upon initiating the planned clinical studies for
Alprox-TD® and the
NM100060 lacquer. The timeframe for us to begin these studies largely depends on
our ability to obtain financing through additional partnering agreements for
Alprox-TD® and the
NM100060 lacquer or from other sources, and on regulatory review.
At
December 31, 2004, we recorded significantly less non-cash interest expense
charges from convertible notes than at December 31, 2003, since in 2003 we
wrote-off the discount attributable to the $5 million convertible notes
converted to common stock in 2003.
At
December 31, 2004 we recorded significantly higher non-cash compensation expense
as compared to 2003. The increase is largely attributable to our CEO’s 2003
bonus of approximately $400,000 that was paid in stock in 2004.
At
December 31, 2004, we had $277,660 in payroll related liabilities as compared to
$1,273,303 at December 31, 2003. The decrease is attributable to 2003 bonuses of
$1,074,400 that were accrued in 2003 but paid in 2004. We did not approve
bonuses for 2004, and therefore there are no bonuses accrued at December 31,
2004.
At
December 31, 2004, we had no deferred revenue as compared to $128,708 at
December 31, 2003. The decrease is the result of our recognition of all of the
revenue deferred at December 31, 2003 related to our research and development
projects for our Japanese partners. We have completed all research and
development work associated with these agreements and have recognized all
related revenue.
We have
spent approximately $9.4 million in total for the land, building, manufacturing
and lab equipment, and GMP development as related to our East Windsor
manufacturing facility and estimate that an additional $2 million,
approximately, will be spent prior to the FDA pre-approval inspection for the
facility.
We lease
office space and research facilities under operating lease agreements expiring
through 2007. We also lease equipment from GE Capital under capital leases
expiring through 2006 (Note 6 of the Financial Statements). The following table
summarizes our contractual obligations and the periods in which payments are due
as of December 31. 2004:
| |
|
|
|
Less
than |
|
1
- 3 |
|
3
- 5 |
|
More
than |
|
|
Contractual
Obligations |
|
Total |
|
1
year |
|
years |
|
years |
|
5
years |
|
|
Long-term
debt * |
|
$ |
6,000,000 |
|
$ |
0 |
|
$ |
6,000,000 |
|
$ |
0 |
|
$ |
0 |
|
|
Capital
lease obligations |
|
|
931,915
|
|
|
690,816
|
|
|
241,099
|
|
|
0
|
|
|
0
|
|
|
Operating
leases |
|
|
572,301
|
|
|
469,378
|
|
|
102,923
|
|
|
0
|
|
|
0
|
|
|
Purchase
obligations ** |
|
|
11,541,922
|
|
|
2,560,859
|
|
|
8,981,063
|
|
|
0
|
|
|
0
|
|
|
Other
long-term liabilities*** |
|
|
2,625,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
2,625,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
21,671,138 |
|
$ |
3,721,053 |
|
$ |
15,325,085 |
|
$ |
0 |
|
$ |
2,625,000 |
|
| * |
Long-term
debt consists of two notes that are convertible to common stock at the
option of the noteholders. |
| ** |
Purchase obligations consist of clinical
research agreements that can be cancelled at any time with thirty days
notice. The penalty for our cancellation of one of the agreements totaling
$10,246,000 is 10% of the oustanding contract amount at the time of
cancellation. |
| *** |
Represents
the fully vested payments to be made according to a deferred compensation
agreement. The partially vested present value of $568,000 of this
obligation is reflected on our balance sheet in other long term
liabilities. |
In
February 2001, we entered into a financial arrangement with GE Capital
Corporation for a line of credit, which provided for the financing of up to $5
million of equipment and expired in March 2002. As of March 31, 2002, we had
financed $1,113,459 of equipment purchases under this GE credit line, and as of
December 31, 2004, there was an outstanding balance due GE of $57,832 under this
facility which is payable in monthly installments through various dates in 2005
and which is reflected in the above table under capital lease obligations.
In
January 2002, GE approved a new credit line, which provided for the financing of
up to $3 million of equipment and expired on December 31, 2002. We accessed
$1,111,427 of this credit line, and as of December 31, 2004, there was an
outstanding balance due GE of $375,571 under the January 2002 facility, which is
payable in 42 monthly installments from the date of take-down and which is
reflected in the above table under capital lease obligations.
In July
2003, GE approved a new credit line, which expired in July 2004 and provided for
the financing of up to $1.85 million of equipment. We accessed $738,731 of this
credit line, and as of December 31, 2004, there was an outstanding balance due
GE of $444,473 under the July 2003 facility which is payable in 36 monthly
installments from the date of take-down and which is reflected in the above
table under capital lease obligations.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements.
Critical
Accounting Estimates
Our
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. Note 2 in the Notes to the Consolidated Financial Statements, includes
a summary of the significant accounting policies and methods used in the
preparation of our Consolidated Financial Statements. The preparation of these
financial statements requires our management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. Our accounting
policies affect our more significant judgments and estimates used in the
preparation of its financial statements. Actual results could differ from these
estimates. The following is a brief description of the more significant
accounting policies and related estimate methods that we follow:
Income
Taxes - In
preparing our financial statements, we make estimates of our current tax
exposure and temporary differences resulting from timing differences for
reporting items for book and tax purposes. We recognize deferred taxes by the
asset and liability method of accounting for income taxes. Under the asset and
liability method, deferred income taxes are recognized for differences between
the financial statement and tax bases of assets and liabilities at enacted
statutory tax rates in effect for the years in which the differences are
expected to reverse. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. In
addition, valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
Critical
Estimate: In
consideration of our accumulated losses and lack of historical ability to
generate taxable income to utilize our deferred tax assets, we have estimated
that we will not be able to realize any benefit from our temporary differences
and have recorded a full valuation allowance. If we become profitable in the
future at levels which cause management to conclude that it is more likely than
not that we will realize all or a portion of the net operating loss
carry-forward, we would immediately record the estimated net realized value of
the deferred tax asset at that time and would then provide for income taxes at a
rate equal to our combined federal and state effective rates, which would be
approximately 40% under current tax laws. Subsequent revisions to the estimated
net realizable value of the deferred tax asset could cause our provision for
income taxes to vary significantly from period to period.
Long-lived
assets -- We review
for the impairment of long-lived assets whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss would be recognized when estimated undiscounted future cash
flows expected to result from the use of the asset and its eventual disposition
are less than its carrying amount. If such assets are considered impaired, the
amount of the impairment loss recognized is measured as the amount by which the
carrying value of the asset exceeds the fair value of the asset, fair value
being determined based upon discounted cash flows or appraised values, depending
on the nature of the asset. We have not identified any such impairment
losses.
Critical
Estimate:
Estimated
undiscounted future cash flows are based on sales projections for our products
under development for which the long-lived assets are used. In 2004, we
performed a review for impairment of our manufacturing facility based on
projections of sales of our product candidates, for which the facility is
anticipated to be ultimately utilized. Overestimating the future cash flows
resulting from the commercialization of Alprox TDâ may lead
to overstating the carrying value of the manufacturing facility by not
identifying an impairment loss.
Revenue
recognition -- Revenues
from product sales are recognized upon delivery of products to customers, less
allowances for returns and discounts. Royalty revenue is recognized upon the
sale of the related products, provided the royalty amounts are fixed or
determinable and the amounts are considered collectible. Revenues earned under
research and development contracts are recognized in accordance with the
cost-to-cost method outlined in Staff Accounting Bulletin No. 101, as amended,
whereby the extent of progress toward completion is measured on the cost-to-cost
basis; however, revenue recognized at any point will not exceed the cash
received. If the current estimates of total contract revenue and contract cost
indicate a loss, a provision for the entire loss on the contract would be made.
All costs related to these agreements are expensed as incurred and classified
within “Research and development” expenses in the Consolidated Statements of
Operations and Comprehensive Loss. Research and development expenses include
costs directly attributable to the conduct of our research and development,
including salaries, payroll taxes, employee benefits, materials, supplies,
depreciation on and maintenance of research equipment, costs related to research
and development fee agreements, the cost of services provided by outside
contractors, including services related to our clinical trials, clinical trial
expenses, the full cost of manufacturing drugs for use in research, pre-clinical
and clinical development, and the allocable portion of facility
costs.
Critical
Estimate:
In
calculating the progress made toward completion of a research contract, we must
compare costs incurred to date to the total estimated cost of the project. We
estimate the cost of any given project based on our past experience in product
development as well as the past experience of our research staff in their areas
of expertise. Underestimating the total cost of a research contract may cause us
to accelerate the revenue recognized under such contract. Conversely,
overestimating the cost may cause us to delay revenue recognized.
Stock
based compensation -- In
preparing our financial statements, we must calculate the value of stock options
issued to employees as well as non-employee contractors. The fair value of each
option and warrant is estimated on the date of grant using the Black-Scholes
option-pricing model. The Black-Scholes option-pricing model is a generally
accepted method of estimating the value of stock options and
warrants.
Critical
Estimate:
The
Black-Scholes option pricing model requires us to estimate the Company’s
dividend yield rate, expected volatility and risk free interest rate over the
life of the option. Inaccurately estimating any one of these factors may cause
the value of the option to be under or over estimated. See Note 7 of the
Consolidated Financial Statements for the current estimates used in the Black
- -Scholes pricing model.
Comparison
of Results of Operations between the Years Ended December 31, 2004 and 2003.
Revenues. We
recorded revenues of $359,369 during the twelve months of operations in 2004 as
compared to $110,743 during the same period in 2003. The revenue consisted of
$9,519 and $6,206, respectively, in royalties on sales of Befar® in Hong
Kong and China received from our Asian licensee and $349,850 and $104,537,
respectively, of revenue recognized on our research and development agreements
with Japanese pharmaceutical companies. The increase in research and development
fee revenue in 2004 is the result of the completion in 2004 of all research and
development work associated with these agreements and the recognition of all
related revenue.
Research
and Development Expenses. Our
research and development expenses for 2004 and 2003 were $10,684,477 and
$8,439,340 respectively. Research and development expenses included $2,811,523
attributable to Alprox-TD®
in 2004,
and $2,279,848 attributable to NM100060 with the balance attributable to other
NexACT®
technology based products and indirect overhead related to research and
development, as compared to $2,885,020 for Alprox-TD®
and
$393,858 for NM 100060 during the same period in 2003. There was a significant
increase in expenses related to NM 100060 as preclinical activity increased with
the filing of the investigational new drug application in 2004 and with the
planned clinical trials to begin in 2005. We anticipate that, assuming available
funding, total research and development spending in 2005 will increase
significantly with the completion of the remaining Alprox-TD clinical studies
which will cost approximately $15 million and the anticipated filing of the new
drug application for Alprox-TD in 2006; the increase in efforts and resources on
the application of the NexACT®
technology to other drug compounds and delivery systems for the development of
new products including the planned clinical development program for NM 100060;
and the filing of investigational new drug applications for some of the
NexACT®-based
products under development which would include the initiation of Phase 1 and 2
clinical studies in the U.S.
General
and Administrative Expenses. Our
general and administrative expenses were $6,979,730 in 2004 as compared to
$5,900,569 in 2003. The increase is largely attributable to increased legal fees
related to lawsuits as well as professional fees related to additional
compliance activities mandated by the Sarbanes Oxley Act of 2002. Additionally,
we have been steadily increasing expenses since the second half of 2003 in order
to return to the general and administrative support levels that are necessary to
operate the Company under the scaled up Alprox-TD®
and other
NexACT®-based
products development programs. We anticipate that General and Administrative
expenses in 2005 will remain consistent with 2004 expenses.
Other
income (expense). Other
income was $82,271 during 2004 as compared to other expense of $152,867 during
the same period in 2003. The other income for 2004 consists of a one-time
payment that the Company received upon cancellation of a research and
development agreement with a Japanese pharmaceutical company partially offset by
a loss on the sale of marketable securities. The 2003 expense was attributable
to the sale at a loss of marketable securities and the disposition of equipment
at a loss in order to generate additional cash.
Interest
Expense. We
recognized $425,128 in interest expense in 2004 as compared to $3,159,338 in
interest expense during 2003. The significant decrease is the result of a
decrease in the amortization of note discounts related to our convertible notes.
Net
Loss. The net
loss was $17,023,648 and $17,233,566 in 2004 and 2003, respectively. The slight
decrease is primarily attributable to increased revenues and a significant
decrease in interest expense offset by an increase in research and development
expenses related to our product development programs for Alprox-TD®
and
NM100060 as well as increased legal fees related to lawsuits and increased
professional fees related to additional compliance activities mandated by the
Sarbanes Oxley Act of 2002. We anticipate that net loss in 2005 will increase
significantly with the increased expenses related to clinical activities and new
drug application filing for Alprox-TD®, and
planned development activities for other NexACT®-based
products under development including the clinical development program for NM
100060.
Net
Loss applicable to Common Stock. The net
loss applicable to common stock was $17,023,648 or $0.39 per share for 2004 as
compared to $20,351,410 or $0.60 per share for 2003. The decrease in net loss
applicable to common stock is primarily attributable to a deemed dividend
related to the beneficial conversion feature of our preferred stock issued in
2003 as well as an increase in the total number of weighted average shares
outstanding from 33,649,744 to 43,603,546.
Comparison
of Results of Operations between the Years Ended December 31, 2003 and 2002.
Revenues. We
recorded revenues of $110,743 during the twelve months of operations in 2003 as
compared to $148,028 during the same period in 2002. The 2003 revenues consisted
of $6,206 in royalties on sales received from our Asian licensee and $104,537 of
revenue recognized on our research and development agreements with Japanese
pharmaceutical companies. During 2003, we received an additional $128,708 from
research and development agreements with Japanese pharmaceutical companies,
which we recognized as revenues in 2004.
Cost
of Products Sold. Our cost
of products sold was nil and $27,030 in 2003 and 2002, respectively and is
attributable to our cost for the manufacturing supplies sold to our Asian
licensee for the production of Befarâ in China.
Our Asian licensee had a sufficient inventory of the manufacturing supplies
during 2003.
Research
and Development Expenses. Our
research and development expenses for 2003 and 2002 were $8,439,340 and
$21,615,787, respectively. Research and development expenses attributable to
Alprox-TD®
and
Femprox®
for 2003
were $2,885,020 and $35,699, respectively with the balance attributable to
NexACT®
technology based products and indirect overhead related to research and
development, as compared to approximately $15,835,000 and $642,000, respectively
in 2002. The
significant decrease was attributable to the completion of the
costly Phase 3
trials for Alprox-TD®
in
December 2002 and a significant reduction in expenses and non-essential
personnel under our cash conservation program implemented in November 2002. The
significant decrease in research and development expenses was partially offset
by an expense of $418,933 in 2003 for bonuses to be paid in 2004 to employees.
Research and development expenses include all costs associated with our research
and development agreements.
General
and Administrative Expenses. Our
general and administrative expenses were $5,900,569 in 2003 as compared to
$6,065,347 during 2002. The decrease was primarily attributable to the
significant reduction in expenses and non-essential personnel under our cash
conservation program implemented in November 2002 which was offset by an expense
of $655,467 in 2003 for bonuses to be paid in 2004 to employees of which
approximately $400,000 was to be paid in the Company’s common stock.
Other
expense. Other
expense was $152,867 in 2003 as compared to $81,008 in 2002. The increase was
attributable to a loss on the disposition of property and equipment of $114,542.
In 2003, we sold some lab equipment that was no longer in use in order to
generate some additional cash inflow.
Interest
Expense. We
recognized $3,159,338 in interest expense during 2003 as compared to $384,286
during 2002. The significant increase in interest expense was a result of an
increase in interest expense charges from convertible notes, including the
write-off of the discount attributable to the conversion of $5 million of our
convertible notes into common stock in 2003, and increased borrowings under our
GE Capital facility.
Net
Loss. The net
loss was $17,233,566 for 2003, as compared to $27,641,519 for 2002. The
significant decrease was primarily attributable to the completion of the two
pivotal Phase 3 trials for Alprox-TD®
in
December 2002 and a significant reduction in expenses and non-essential
personnel under our cash conservation program implemented in November 2002.
Net
Loss applicable to Common Stock. The net
loss applicable to common stock was $20,351,410 or $0.60 per share for 2003, as
compared to $27,641,519 or $1.03 per share for 2002. The decrease in net loss
applicable to common stock was primarily attributable to decreased spending
resulting from the completion of the two pivotal Phase 3 trials for
Alprox-TD®
in
December 2002 and a significant reduction in expenses and non-essential
personnel under our cash conservation program implemented in November 2002. The
decrease in operating expenses was partially offset by the 2003 bonuses and the
deemed dividend related to the beneficial conversion feature of the preferred
stock as discussed in Note 11 of the consolidated financial
statements.
Quarterly
Results
The
following table sets forth selected unaudited quarterly financial information
for the years ended December 31, 2003 and 2004. The operating results are not
necessarily indicative of results for any future period.
For
the Three Months Ended
| |
|
March
31, 2004 |
|
June
30, 2004 |
|
September
30, 2004 |
|
December
31, 2004 |
|
|
Total
Revenues |
|
$ |
104,199 |
|
$ |
189,266 |
|
$ |
63,457 |
|
$ |
2,447 |
|
|
Loss
from Operations |
|
|
($3,890,187 |
) |
|
($4,045,544 |
) |
|
($4,632,220 |
) |
|
($4,736,887 |
) |
|
Net
Loss |
|
|
($3,981,566 |
) |
|
($4,047,634 |
) |
|
($4,716,253 |
) |
|
($4,278,195 |
) |
|
Basic
& Diluted Loss
Per
Share |
|
$ |
(0.10 |
) |
$ |
(0.10 |
) |
$ |
(0.10 |
) |
$ |
(.09 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2003 |
|
|
June
30, 2003 |
|
|
September
30, 2003 |
|
|
December
31, 2003 |
|
|
Total
Revenues |
|
$ |
1,713 |
|
$ |
971 |
|
$ |
64,552 |
|
$ |
43,507 |
|
|
Loss
from Operations |
|
|
($3,088,667 |
) |
|
($3,413,698 |
) |
|
($2,848,266 |
) |
|
($4,878,535 |
) |
|
Net
Loss |
|
|
($3,451,327 |
) |
|
($3,973,247 |
) |
|
($3,181,847 |
) |
|
($6,627,145 |
) |
|
Basic
& Diluted Loss
Per
Share |
|
$ |
(0.12 |
) |
$ |
(0.24 |
) |
$ |
(0.09 |
) |
$ |
(.20 |
) |
ITEM
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not
hold derivative financial investments, derivative commodity investments, engage
in foreign currency hedging or other transactions that expose us to material
market risk.
ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO
FINANCIAL STATEMENTS
| |
|
PAGE |
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
20 |
|
|
Financial Statements |
|
|
|
|
|
Consolidated Balance Sheets - December 31, 2004 and
2003 |
|
|
22 |
|
|
Consolidated Statements of Operations and Comprehensive Loss
for the years ended December 31, 2004, 2003 and 2002 |
|
|
23 |
|
|
Consolidated Statements of Changes in Stockholders' Equity for
years ended December 31, 2004, 2003 and 2002 |
|
|
24 |
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002 |
|
|
25 |
|
|
Notes to the Consolidated Financial Statements |
|
|
26 |
|
|
Schedule II - Valuation and Qualifying Accounts |
|
|
43 |
|
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders of NexMed, Inc.:
We have
completed an integrated audit of NexMed, Inc.’s 2004 consolidated financial
statements and of its internal control over financial reporting as of December
31, 2004 and audits of its 2003 and 2002 consolidated financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audits, are presented
below.
Consolidated
financial
statements and financial statement schedule
In our
opinion, the
consolidated
financial statements listed in the
accompanying
index present
fairly, in all material respects, the financial position of NexMed, Inc. and
its
subsidiaries at December
31, 2004 and 2003, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial
statements. These
financial statements and financial statement schedule are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our
audits. We conducted our audits of these statements in accordance with the
standards of the Public
Company Accounting Oversight Board (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 of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses and
negative cash flows from operations, has limited capital resources and expects
to incur future losses. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regard
to these matters are also described in Note 1. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Internal
control over financial reporting
Also, in
our opinion, management’s assessment, included in Management’s Report on
Internal Control Over Financial Reporting appearing under Item 9A, that the
Company maintained effective internal control over financial reporting as of
December 31, 2004 based on criteria established in Internal
Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal
Control - Integrated Framework issued
by the COSO. The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express opinions on management’s assessment and on the effectiveness
of the Company’s internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. An audit of
internal control over financial reporting includes obtaining an understanding of
internal control over financial reporting, evaluating management’s assessment,
testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
PricewaterhouseCoopers
LLP
New York,
New York
March 15,
2005
NexMed,
Inc.
Consolidated
Balance Sheets
| |
|
December
31, |
|
|
Assets |
|
2004
|
|
2003 |
|
|
Current
assets |
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
7,747,285 |
|
$ |
10,479,214 |
|
|
Marketable
securities and short term investments |
|
|
1,384,000
|
|
|
501,204
|
|
|
Note
receivable |
|
|
—
|
|
|
48,341
|
|
|
Prepaid
expenses and other current assets |
|
|
1,399,514
|
|
|
1,482,426
|
|
| |
|
|
|
|
|
|
|
|
Total
current assets |
|
|
10,530,799
|
|
|
12,511,185
|
|
| |
|
|
|
|
|
|
|
|
Fixed
assets, net |
|
|
9,714,450
|
|
|
10,583,733
|
|
|
Debt
issuance cost, net of accumulated amortization of $12,139 and
$794 |
|
|
27,412
|
|
|
38,761
|
|
| |
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
20,272,661 |
|
$ |
23,133,679 |
|
| |
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity |
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses |
|
$ |
1,147,840 |
|
$ |
773,522 |
|
|
Payroll
related liabilities |
|
|
277,660
|
|
|
1,273,303
|
|
|
Deferred
revenue |
|
|
—
|
|
|
128,708
|
|
|
Capital
lease obligations |
|
|
644,050
|
|
|
898,861
|
|
| |
|
|
|
|
|
|
|
|
Total
current liabilities |
|
|
2,069,550
|
|
|
3,074,394
|
|
| |
|
|
|
|
|
|
|
|
Long
term liabilities |
|
|
|
|
|
|
|
|
Convertible
notes payable |
|
|
6,000,000
|
|
|
6,000,000
|
|
|
Other
long term liabilities |
|
|
568,000
|
|
|
458,000
|
|
|
Capital
lease obligations, net of current portion |
|
|
233,826
|
|
|
877,877
|
|
| |
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
8,871,376
|
|
|
10,410,271
|
|
| |
|
|
|
|
|
|
|
|
Commitments
and contingincies (Note 12) |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Stockholders'
equity: |
|
|
|
|
|
|
|
|
Preferred
stock $.001 par value, 10,000,000 shares authorized, |
|
|
|
|
|
|
|
|
none
issued and outstanding |
|
|
—
|
|
|
—
|
|
|
Common
stock, $.001 par value, 80,000,000 shares authorized, |
|
|
|
|
|
|
|
|
51,687,046
and 40,123,127 shares issued and outstanding, respectively |
|
|
51,688
|
|
|
40,124
|
|
|
Additional
paid-in capital |
|
|
113,604,968
|
|
|
97,924,314
|
|
|
Accumulated
other comprehensive loss |
|
|
(10,188 |
) |
|
(163 |
) |
|
Deferred
compensation |
|
|
—
|
|
|
(19,332 |
) |
|
Accumulated
deficit |
|
|
(102,245,183 |
) |
|
(85,221,535 |
) |
| |
|
|
|
|
|
|
|
|
Total
stockholders' equity |
|
|
11,401,285
|
|
|
12,723,408
|
|
| |
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity |
|
$ |
20,272,661 |
|
$ |
23,133,679 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NexMed,
Inc.
Consolidated
Statements of Operations and Comprehensive Loss
| |
|
For
the Year Ended |
|
| |
|
December
31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
Product
sales and royalties |
|
$ |
9,519 |
|
$ |
6,206 |
|
$ |
63,417 |
|
|
Research
and development fees |
|
|
349,850
|
|
|
104,537
|
|
|
84,611
|
|
|
Total
revenue |
|
|
359,369
|
|
|
110,743
|
|
|
148,028
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses |
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold |
|
|
—
|
|
|
—
|
|
|
27,030
|
|
|
Research
and development |
|
|
10,684,477
|
|
|
8,439,340
|
|
|
21,615,787
|
|
|
General
and administrative |
|
|
6,979,730
|
|
|
5,900,569
|
|
|
6,065,347
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses |
|
|
17,664,207
|
|
|
14,339,909
|
|
|
27,708,164
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations |
|
|
(17,304,838 |
) |
|
(14,229,166 |
) |
|
(27,560,136 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense) |
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense) |
|
|
82,271
|
|
|
(152,867 |
) |
|
(81,008 |
) |
|
Interest
income |
|
|
85,000
|
|
|
75,574
|
|
|
141,266
|
|
|
Interest
expense |
|
|
(425,128 |
) |
|
(3,159,338 |
) |
|
(384,286 |
) |
|
Total
other expense |
|
|
(257,857 |
) |
|
(3,236,631 |
) |
|
(324,028 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Loss
before benefit from income taxes |
|
|
(17,562,695 |
) |
|
(17,465,797 |
) |
|
(27,884,164 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Benefit
from income taxes |
|
|
539,047
|
|
|
232,231
|
|
|
242,645
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
(17,023,648 |
) |
|
(17,233,566 |
) |
|
(27,641,519 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividend to preferred shareholders |
|
|
|
|
|
|
|
|
|
|
|
from
beneficial conversion feature |
|
|
—
|
|
|
(2,942,656 |
) |
|
—
|
|
|
Preferred
dividend |
|
|
—
|
|
|
(175,188 |
) |
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common stock |
|
|
(17,023,648 |
) |
|
(20,351,410 |
) |
|
(27,641,519 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments |
|
|
(13,671 |
) |
|
3,348
|
|
|
(223 |
) |
|
Unrealized
gain (loss) on marketable securities |
|
|
—
|
|
|
(3,646 |
) |
|
2,562
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss |
|
$ |
(17,037,319 |
) |
$ |
(17,233,864 |
) |
$ |
(27,639,180 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share |
|
$ |
(.39 |
) |
$ |
(.60 |
) |
$ |
(1.03 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
used
for basic and diluted loss per share |
|
|
43,603,546
|
|
|
33,649,774
|
|
|
26,937,200
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NexMed,
Inc.
Consolidated
Statements of Changes in Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive
income (loss) |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
Unrealized |
|
|
|
| |
|
Common |
|
Common |
|
Preferred
|
|
Preferred |
|
Additional |
|
|
|
|
|
Currency |
|
loss
on |
|
Total |
|
| |
|
Stock |
|
Stock |
|
Stock |
|
Stock |
|
Paid-In |
|
Accumulated |
|
Deferred |
|
translation |
|
marketable |
|
Stockholders' |
|
| |
|
(Shares) |
|
(Amount) |
|
(Shares) |
|
(Amount) |
|
Capital |
|
Deficit |
|
Compensation |
|
|
|
securities |
|
Equity |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2002 |
|
|
25,541,934
|
|
|
25,542
|
|
|
—
|
|
$ |
0 |
|
$ |
64,538,838 |
|
$ |
(40,346,450 |
) |
$ |
(6,704 |
) |
$ |
358 |
|
$ |
(103,719 |
) |
$ |
24,107,865 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
private placement, net of commission paid |
|
|
2,666,670
|
|
|
2,667
|
|
|
|
|
|
|
|
|
5,729,204
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,731,871
|
|
|
Issuance
of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
upon
exercise of stock options |
|
|
53,000
|
|
|
53
|
|
|
|
|
|
|
|
|
18,447
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,500
|
|
|
Issuance
of compensatory options and warrants to
consultants |
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
71,840
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
71,840
|
|
|
Issuance
of common stock to Board of Directors |
|
|
32,115
|
|
|
32
|
|
|
|
|
|
|
|
|
56,468
|
|
|
—
|
|
|
(15,000 |
) |
|
—
|
|
|
—
|
|
|
41,500
|
|
|
Issuance
of common stock to employees as bonus |
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
104,392
|
|
|
—
|
|
|
(78,294 |
) |
|
—
|
|
|
—
|
|
|
26,098
|
|
|
Issuance
of warrants as debt issuance cost |
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
66,861
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
66,861
|
|
|
Discount
on convertible note payable |
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
795,701
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
795,701
|
|
|
Amortization
of deferred compensation expense |
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
2,436
|
|
|
—
|
|
|
—
|
|
|
2,436
|
|
|
Unrealized
loss from available-for-sale securities |
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,562
|
|
|
2,562
|
|
|
Cumulative
translation adjustment |
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(223 |
) |
|
—
|
|
|
(223 |
) |
|
Net
loss |
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
(27,641,519 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
|
(27,641,519 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2002 |
|
|
28,293,719
|
|
|
28,294
|
|
|
—
|
|
|
—
|
|
|
71,381,751
|
|
|
(67,987,969 |
) |
|
(97,562 |
) |
|
135
|
|
|
(101,157 |
) |
|
3,223,492
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
private placement, net of commission paid |
|
|
3,126,655
|
|
|
3,127
|
|
|
—
|
|
|
—
|
|
|
10,246,854
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,249,981
|
|
|
Issuance
of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
upon
exercise of options and warrants |
|
|
750,795
|
|
|
751
|
|
|
—
|
|
|
—
|
|
|
916,011
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
916,762
|
|
|
Issuance
of compensatory options and warrants to
consultants |
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
253,402
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
253,402
|
|
|
Issuance
of common stock to Board of Directors |
|
|
15,268
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
54,988
|
|
|
—
|
|
|
(35,000 |
) |
|
—
|
|
|
—
|
|
|
20,003
|
|
|
Stock
based compensation to employees |
|
|
186,938
|
|
|
187
|
|
|
—
|
|
|
—
|
|
|
15,832
|
|
|
—
|
|
|
78,294
|
|
|
—
|
|
|
—
|
|
|
94,313
|
|
|
Issuance
of preferred stock with detachable warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
beneficial conversion feature, net of issue costs |
|
|
—
|
|
|
—
|
|
|
800
|
|
|
1
|
|
|
7,396,623
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,397,424
|
|
|
Issuance
of common stock upon conversion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
preferred stock, including dividends paid in stock |
|
|
5,170,907
|
|
|
5,171
|
|
|
(800 |
) |
|
(1 |
) |
|
(5,171 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(801 |
) |
|
Discount
on convertible notes, including beneficial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion
features and fair value of detachable
warrants |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,141,417
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,141,417
|
|
|
Issuance
of common stock upon conversion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
convertible notes, including interest paid in stock |
|
|
2,603,160
|
|
|
2,603
|
|
|
—
|
|
|
—
|
|
|
5,641,970
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,644,573
|
|
|
Stock
surrendered by officer and retired in payment
of loan |
|
|
(24,315 |
) |
|
(24 |
) |
|
—
|
|
|
—
|
|
|
(119,363 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(119,387 |
) |
|
Realized
loss on sale of securities |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
101,157
|
|
|
101,157
|
|
|
Amortization
of deferred compensation expense |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34,936
|
|
|
—
|
|
|
—
|
|
|
34,936
|
|
|
Unrealized
loss from available-for-sale securities |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,646 |
) |
|
(3,646 |
) |
|
Cumulative
translation adjustment |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,348
|
|
|
—
|
|
|
3,348
|
|
|
Net
loss |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,233,566 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,233,566 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2003 |
|
|
40,123,127
|
|
|
40,124
|
|
|
—
|
|
|
—
|
|
|
97,924,314
|
|
|
($85,221,535 |
) |
|
(19,332 |
) |
$ |
3,483 |
|
|
($3,646 |
) |
|
12,723,408
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
private placement, net of commission paid |
|
|
11,011,978
|
|
|
11,012
|
|
|
—
|
|
|
—
|
|
|
14,194,674
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,205,686
|
|
|
Issuance
of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
upon
exercise of stock options and warrants |
|
|
200,482
|
|
|
200
|
|
|
—
|
|
|
—
|
|
|
187,472
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
187,672
|
|
|
Issuance
of compensatory options and warrants to
consultants |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
330,215
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
330,215
|
|
|
Issuance
of common stock in payment of interest on
convertible
notes |
|
|
130,673
|
|
|
131
|
|
|
—
|
|
|
—
|
|
|
243,202
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
243,333
|
|
|
Issuance
of common stock to employees as bonus |
|
|
101,850
|
|
|
102
|
|
|
—
|
|
|
—
|
|
|
544,427
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
544,529
|
|
|
Issuance
of common stock in settlement of lawsuit |
|
|
118,936
|
|
|
119
|
|
|
—
|
|
|
—
|
|
|
180,664
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
180,783
|
|
|
Amortization
of deferred compensation expense |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,332
|
|
|
—
|
|
|
—
|
|
|
19,332
|
|
|
Realized
loss on sale of securities |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
3,646
|
|
|
3,646
|
|
|
Cumulative
translation adjustment |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,671 |
) |
|
—
|
|
|
(13,671 |
) |
|
Net
loss |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,023,648 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,023,648 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004 |
|
|
51,687,046
|
|
|
51,688
|
|
|
—
|
|
$ |
0 |
|
$ |
113,604,968 |
|
$ |
(102,245,183 |
) |
$ |
0 |
|
$ |
(10,188 |
) |
$ |
0 |
|
$ |
11,401,285 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NexMed,
Inc.
Consolidated
Statements of Cash Flows
| |
|
For
the Year Ended |
| |
|
December
31, |
| |
|
2004 |
|
2003 |
|
2002 |
|
|
Cash
flows from operating activities |
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(17,023,648 |
) |
$ |
(17,233,566 |
) |
$ |
(27,641,519 |
) |
|
Adjustments
to reconcile net loss to net cash |
|
|
|
|
|
|
|
|
|
|
|
used
in operating activities |
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
996,043
|
|
|
1,250,667
|
|
|
882,854
|
|
|
Non-cash
interest, amortization of debt discount and |
|
|
|
|
|
|
|
|
|
|
|
deferred
financing costs |
|
|
254,682
|
|
|
3,166,072
|
|
|
183,582
|
|
|
Non-cash
compensation expense |
|
|
1,074,859
|
|
|
408,636
|
|
|
141,874
|
|
|
Non-cash
insurance expense (income) |
|
|
—
|
|
|
3,501
|
|
|
(2,155 |
) |
|
Net
loss on sale of marketable securities |
|
|
8,421
|
|
|
94,824
|
|
|
142,291
|
|
|
Loss
on disposal of property and equipment |
|
|
18,982
|
|
|
114,542
|
|
|
—
|
|
|
Decrease
(increase) in prepaid expense and other assets |
|
|
82,912
|
|
|
(1,109,109 |
) |
|
381,449
|
|
|
(Decrease)
increase in deferred revenue |
|
|
(128,708 |
) |
|
128,708
|
|
|
—
|
|
|
(Decrease)
increase in payroll related liabilities |
|
|
(995,643 |
) |
|
918,311
|
|
|
354,992
|
|
|
Increase
in other long term liabilities |
|
|
110,000
|
|
|
108,000
|
|
|
350,000
|
|
|
Increase
(decrease) in accounts payable and accrued expenses |
|
|
374,318
|
|
|
(3,395,927 |
) |
|
1,974,719
|
|
|
Net
cash used in operating activities |
|
|
(15,227,782 |
) |
|
(15,545,341 |
) |
|
(23,231,913 |
) |
|
Cash
flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures |
|
|
(145,809 |
) |
|
(441,297 |
) |
|
(4,698,900 |
) |
|
Issuance
of note receivable |
|
|
—
|
|
|
—
|
|
|
(309,575 |
) |
|
Proceeds
from collection of note receivable |
|
|
48,341
|
|
|
198,348
|
|
|
62,886
|
|
|
Purchases
of short term investments and marketable securities |
|
|
(1,897,584 |
) |
|
(504,850 |
) |
|
(3,610,747 |
) |
|
Proceeds
from sale/redemption of certificates of deposits, |
|
|
—
|
|
|
|
|
|
|
|
|
marketable
securities and short term investments |
|
|
1,010,079
|
|
|
545,200
|
|
|
8,763,279
|
|
|
Net
cash provided by (used in) investing activities |
|
|
(984,973 |
) |
|
(202,599 |
) |
|
206,943
|
|
|
Cash
flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock, net of offering costs |
|
|
14,205,686
|
|
|
10,869,392
|
|
|
5,744,371
|
|
|
Proceeds
from exercise of stock options |
|
|
187,672
|
|
|
297,349
|
|
|
6,000
|
|
|
Issuance
of preferred stock, net of offering costs |
|
|
—
|
|
|
7,396,623
|
|
|
—
|
|
|
Issuance
of notes payable, net of debt issue costs |
|
|
—
|
|
|
7,510,445
|
|
|
4,696,399
|
|
|
Repayment
of notes payable |
|
|
—
|
|
|
(950,000 |
) |
|
—
|
|
|
Proceeds
from capital lease financing for equipment |
|
|
—
|
|
|
738,731
|
|
|
1,111,427
|
|
|
Principal
payments on capital lease obligations |
|
|
(898,861 |
) |
|
(673,883 |
) |
|
(411,658 |
) |
|
Net
cash provided by financing activities |
|
|
13,494,497
|
|
|
25,188,657
|
|
|
11,146,539
|
|
|
Effect
of foreign exchange on cash |
|
|
(13,671 |
) |
|
3,348
|
|
|
(223 |
) |
|
Net
(decrease) increase in cash and cash equivalents |
|
|
(2,731,929 |
) |
|
9,444,065
|
|
|
(11,878,654 |
) |
|
Cash
and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year |
|
|
10,479,214
|
|
|
1,035,149
|
|
|
12,913,803
|
|
|
End
of year |
|
$ |
7,747,285 |
|
$ |
10,479,214 |
|
$ |
1,035,149 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest |
|
$ |
120,962 |
|
$ |
142,850 |
|
$ |
196,955 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment acquired through capital lease obligations |
|
$ |
— |
|
$ |
738,731 |
|
$ |
1,111,427 |
|
|
Conversion
of debt to common stock |
|
|
—
|
|
|
5,600,000
|
|
|
—
|
|
|
Payment
of interest in common stock |
|
|
243,333
|
|
|
275,448
|
|
|
—
|
|
|
Conversion
of preferred stock to common stock |
|
|
—
|
|
|
2,019,826
|
|
|
—
|
|
|
Preferred
stock dividend paid in common stock |
|
|
—
|
|
|
175,188
|
|
|
—
|
|
|
Amortization
of debt discount |
|
|
—
|
|
|
2,811,110
|
|
|
126,006
|
|
|
Deemed
dividend to preferred shareholders |
|
|
—
|
|
|
2,942,656
|
|
|
—
|
|
|
Deemed
dividend to warrant holders |
|
|
—
|
|
|
120,717
|
|
|
—
|
|
|
Repayment
of officer loan in stock |
|
|
—
|
|
|
119,387
|
|
|
— |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NexMed,
Inc.
Notes
to Consolidated Financial Statements
| 1. |
|
Organization
and Basis of Presentation |
The
Company was incorporated in Nevada in 1987. In January 1994, the Company began
research and development of a device for the treatment of herpes simplex. The
Company, since 1995, has conducted research and development both domestically
and abroad on proprietary pharmaceutical products, with the goal of growing
through acquisition and development of pharmaceutical products and
technology.
The
accompanying consolidated financial statements have been prepared on a basis
which contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company has an accumulated
deficit of $102,245,183 at December 31, 2004 and expects that it will incur
additional losses in the future completing the research, development and
commercialization of its technologies. These circumstances raise substantial
doubt about the Company's ability to continue as a going concern. Management
anticipates that it will require additional financing, which it is actively
pursuing, to fund operations, including continued research, development and
clinical trials of the Company’s product candidates. Although management
continues to pursue these plans, there is no assurance that the Company will be
successful in obtaining financing on terms acceptable to the Company. If the
Company is unable to obtain additional financing, operations will need to be
discontinued. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
| 2. |
|
Summary
of Significant Accounting Principles |
Significant
accounting principles followed by the Company in preparing its financial
statements are as follows:
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Reclassifications
Reclassifications
of certain amounts for prior years have been recorded to conform to the current
year presentation.
Translation
of foreign currencies
The
functional currency of the Company’s foreign subsidiary located in Hong Kong is
the local currency. Assets and liabilities of the Company’s foreign subsidiaries
are translated to United States dollars based on exchange rates at the end of
the reporting period. Income and expense items are translated at average
exchange rates prevailing during the reporting period. Translation adjustments
are accumulated in a separate component of stockholder’s equity. Transaction
gains or losses are included in the determination of operating results.
Cash
and cash equivalents
For
purposes of the balance sheets and the statements of cash flows, cash
equivalents represent all highly liquid investments with an original maturity
date of three months or less.
Marketable
securities and short term investments
Marketable
securities consist of high quality corporate and government securities, which
have original maturities of more than three months, at the date of purchase, and
equity investments in publicly-traded companies. The Company classifies all debt
securities and equity securities with readily determinable market value as
“available for sale” in accordance with SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities.” These investments are carried at
fair market value with unrealized gains and losses reported as a separate
component of stockholders’ equity. Gross unrealized losses were none and $3,646
for 2004 and 2003, respectively. All unrealized losses were less than 12 months
in nature. Gross realized gains from the sales of securities classified as
available for sale were none, $17,016, and $143,971 and gross realized losses
were $8,421, $111,840, and $1,680 for 2004, 2003 and 2002 respectively. For the
purpose of determining realized gains and losses, the cost of securities sold
was based on specific identification. The Company reviews investments on a
quarterly basis for reductions in market value that are other than temporary.
When such reductions occur, the cost of the investment is adjusted to its fair
value through a charge to other income (expense) in the periods
incurred.
NexMed,
Inc.
Notes
to Consolidated Financial Statements
A
significant amount of our short term investments are comprised of investment
grade variable rate debt obligations, which are asset-backed and categorized as
available-for-sale. Accordingly, our investments in these securities are
recorded at cost, which approximates fair value due to their variable interest
rates, which typically reset every 28 days. Despite the long-term nature of
their contractual maturities, we have the ability and intent liquidate these
securities within one year. As a result of the resetting variable rates, we had
no cumulative gross unrealized or realized holding gains or losses from these
investments. All income generated from these investments was recorded as
interest income.
Fair
value of financial instruments
The
carrying value of cash and cash equivalents, convertible notes payable and
accounts payable and accrued expenses approximates fair value due to the
relatively short maturity of these instruments.
Fixed
assets
Property
and equipment are stated at cost less accumulated depreciation. Depreciation of
equipment and furniture and fixtures is provided on a straight-line basis over
the estimated useful lives of the assets, generally three to ten years.
Depreciation of buildings is provided on a straight-line basis over the
estimated useful life of 31 years. Amortization of leasehold improvements is
provided on a straight-line basis over the shorter of their estimated useful
life or the lease term. The costs of additions and betterments are capitalized,
and repairs and maintenance costs are charged to operations in the periods
incurred.
Long-lived
assets
The
Company reviews for the impairment of long-lived assets whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. If such assets are considered
impaired, the amount of the impairment loss recognized is measured as the amount
by which the carrying value of the asset exceeds the fair value of the asset,
fair value being determined based upon discounted cash flows or appraised
values, depending on the nature of the asset. No such impairment losses have
been recorded by the Company during 2004, 2003 or 2002.
Revenue
recognition
Revenues
from product sales are recognized upon delivery of products to customers, less
allowances for estimated returns and discounts. Royalty revenue is recognized
upon the sale of the related products, provided the royalty amounts are fixed or
determinable and the amounts are considered collectible.
NexMed,
Inc.
Notes
to Consolidated Financial Statements
Revenues
earned under research and development contracts are recognized in accordance
with the cost-to-cost method outlined in Staff Accounting Bulletin No. 101, as
amended, whereby the extent of progress toward completion is measured on the
cost-to-cost basis; however, revenue recognized at any point will not exceed the
cash received. When the current estimates of total contract revenue and contract
cost indicate a loss, a provision for the entire loss on the contract is made in
the period which it becomes probable. All costs related to these agreements are
expensed as incurred and classified within “Research and development” expenses
in the Consolidated Statement of Operations and Comprehensive
Income.
Research
and development
Research
and development costs are expensed as incurred and include the cost of salaries,
building costs, utilities, allocation of indirect costs, and expenses to third
parties who conduct research and development, pursuant to development and
consulting agreements, on behalf of the Company.
Income
taxes
Income
taxes are accounted for under the asset and liability method. Deferred income
taxes are recorded for temporary differences between financial statement
carrying amounts and the tax bases of assets and liabilities. Deferred tax
assets and liabilities reflect the tax rates expected to be in effect for the
years in which the differences are expected to reverse. A valuation allowance is
provided if it is more likely than not that some or all of the deferred tax
assets will not be realized.
Loss
per common share
Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share gives effect to all dilutive potential
common shares outstanding during the period. The computation of diluted earnings
per share does not assume conversion, exercise or contingent exercise of
securities that would have an antidilutive effect on per share
amounts.
At
December 31, 2004, 2003 and 2002, outstanding options to purchase 5,215,081,
5,414,617, and 4,750,755 shares of common stock, respectively, with exercise
prices ranging from $.55 to $16.25 have been excluded from the computation of
diluted loss per share as they are antidilutive. Outstanding warrants to
purchase 11,436,691, 7,272,261, and 2,044,908 shares of common stock,
respectively, with exercise prices ranging from $1.00 to $4.04 have also been
excluded from the computation of diluted loss per share as they are
antidilutive. Promissory notes convertible into 1,200,000 and 923,077 shares of
common stock (see Note 5) in 2004 and 2003 respectively have also been excluded
from the computation of diluted loss per share, as they are antidilutive.
Accounting
for stock based compensation
As
provided by SFAS 123, Accounting
for Stock-Based Compensation (“SFAS
123”) as amended by SFAS 148, the Company has elected to continue to account for
its stock-based compensation programs according to the provisions of Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”
Accordingly, compensation expense has been recognized to the extent of employee
or director services rendered based on the intrinsic value of compensatory
options or shares granted under the plans. The Company has adopted the
disclosure provisions required by SFAS 123.
NexMed,
Inc.
Notes
to Consolidated Financial Statements
Had the
Company's stock-based compensation been determined by the fair-value based
method of SFAS 123, "Accounting for Stock-Based Compensation," the Company's net
loss and loss per share would have been as follows:
| |
|
For
the year ended |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Net
loss applicable to common stock, as reported |
|
$ |
(17,023,648 |
) |
$ |
(20,351,410 |
) |
$ |
(27,641,519 |
) |
|
Add:
Stock-based compensation expense included |
|
|
|
|
|
|
|
|
|
|
|
in
reported net loss |
|
|
355,800
|
|
|
408,636
|
|
|
141,874
|
|
|
Deduct:
Total stock-based compensation expense determined |
|
|
|
|
|
|
|
|
|
|
|
under
fair-value based method for all awards |
|
|
(1,672,545 |
) |
|
(2,211,685 |
) |
|
(2,591,717 |
) |
|
Proforma
net loss applicable to common stock |
|
$ |
(18,340,393 |
) |
$ |
(22,154,459 |
) |
$ |
(30,091,362 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share: |
|
|
|
|
|
|
|
|
|
|
|
As
reported |
|
$ |
(0.39 |
) |
$ |
(0.60 |
) |
$ |
(1.03 |
) |
|
Proforma |
|
$ |
(0.42 |
) |
$ |
(0.66 |
) |
$ |
(1.12 |
) |
Additional
disclosures required under SFAS 123 are presented in Note 7.
Concentration
of credit risk
From time
to time, the Company maintains cash in bank accounts that exceed the FDIC
insured limits. The Company has not experienced any losses on its cash accounts.
Comprehensive
loss
We have
recorded comprehensive loss in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 130, “Reporting Comprehensive Income” (“SFAS 130”), which
requires the presentation of the components of comprehensive loss in the
Company’s financial statements. Comprehensive loss is defined as the change in
the Company’s equity during a financial reporting period from transactions and
other circumstances from non-owner sources (including cumulative translation
adjustments and unrealized gains/losses on available for sale securities).
Accumulated other comprehensive (loss) income included in the Company’s balance
sheet is comprised of translation adjustments from the Company’s foreign
subsidiaries and unrealized gains and losses on investment in marketable
securities.
Accounting
estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. The Company’s most significant estimates relate to the
valuation of its long-lived assets, estimated cost to complete under its
research contracts, and valuation allowances for its deferred tax benefit.
Actual results may differ from those estimates.
Recent
accounting pronouncements
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No.123(R),
Share-Based Payment. SFAS
123(R) establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods and services. Under SFAS
123(R), companies will no longer be able to account for share-based compensation
transactions using the intrinsic method in accordance with Accounting Principles
Board Opinion (“APB”) No. 25,
Accounting for Stock Issued to Employees.
Instead, companies will be required to account for such transactions using a
fair-value method and to recognize compensation expense over the period during
which an employee is required to provide services in exchange for the award. The
provisions of SFAS 123(R) are effective for periods beginning after
June 15, 2005, and apply to all awards that vest after the required
effective date and to awards that are granted, modified, repurchased, or
cancelled after that date. For an approximate impact on 2005 results please
refer to the pro forma information above in the Accounting for Stock Based
Compensation Note.
NexMed,
Inc.
Notes
to Consolidated Financial Statements
In March
2004, the Emerging Issues Task Force issued EITF 03-6, “Participating Securities
and the Two-Class Method under FASB Statement No. 128”. This statement
provides additional guidance on the calculation and disclosure requirements for
earnings per share. The FASB concluded in EITF 03-6 that companies with multiple
classes of common stock or participating securities, as defined by SFAS No. 128,
should calculate and disclose earnings per share based on the two-class method.
The adoption of this statement does not have an impact to the Company’s
financial statement presentation as the Company is currently in a loss
position.
In
January 2003, the Financial Accounting Standards Board (“FASB”) issued
Interpretation No. 46 "Consolidation of Variable Interest Entities" ("FIN 46").
Variable Interest Entities ("VIEs") are entities where control is achieved
through means other than voting rights. FIN 46 provides guidance on the
identification of and financial reporting for VIEs. A VIE is required to be
consolidated if the company is subject to the majority of the risk of loss from
the VIE's activities or is entitled to receive a majority of the entity's
residual returns, or both. Certain provisions of FIN 46 were effective during
2003; however generally FIN 46 must be applied to the first reporting period
ending after March 15, 2004. The adoption of this Interpretation does not have
any impact on the Company's consolidated financial statements.
| 3. |
|
Research
and Development Agreements |
In
November 2003, the Company entered into an agreement with a Japanese
pharmaceutical company whereby NexMed would provide contract development
services for an innovative topical treatment for a form of herpes. The Company
received $100,000 as a signing payment in 2003, approximately $87,000 of which
the Company recognized as revenue in 2004 and approximately $13,000 of which it
recognized as revenue in 2003. In 2004,
the Company recognized revenueof approximately $217,000 and incurred expenses of
approximately $116,000 related to this agreement. The $217,000 of revenue
consisted of the $87,000 deferred from 2003 and $130,000 in milestone payments
received in 2004. In September of 2004, the Company completed all development
work for this project and will recognize no further revenue.
In
November 2003, the Company entered into an R&D agreement with a Japanese
pharmaceutical company to develop a new local anesthetics gel designed for pain
relief associated with dental procedures, superficial skin surgery and skin
graft harvesting, and needle insertions. The Company recognized revenue of
approximately $41,000 in 2004 and $5,000 in 2003 related to this project. In
2004, the Company incurred expenses of approximately $32,000, completed all
development work and will recognize no further revenue related to this
project.
NexMed,
Inc.
Notes
to Consolidated Financial Statements
In
October 2003, the Company entered into an R&D agreement with a Japanese
pharmaceutical company to develop a tape/patch treatment for chronic pain. The
Company recognized revenue of approximately $21,000 in 2003. The second
milestone payment of approximately $69,000 was received and recognized as
research and development fee revenue in 2004. In 2004, the Company incurred
expenses of approximately $40,500 related to this agreement and completed the
first phase of development. Upon
completion of the first phase of development, the development partner
decided
to suspend all remaining development work on this project due to
new regulatory developments in Japan. As such,
there will be no additional revenue from the Japanese pharmaceutical company
should the
Company continue
to develop this product further.
In August
2003, the Company entered into an R&D agreement with a Japanese
pharmaceutical company to develop NM 20138, a new once-a-day patch treatment for
bronchial asthma, which incorporates an off-patent anti-asthmatic drug compound
and the NexACT®
technology. The Company recognized revenue related to this project of
approximately $21,000 in 2003. The second milestone payment of approximately
$23,000 was received and recognized as research and development fee revenue in
2004. In 2004, the
Company incurred expenses of approximately $62,000 related to this agreement and
completed the first phase of development. Upon completion of the first phase of
development, the partner elected not to take the project to the next stage of
development due to proprietary reasons. As such,
there will be no additional revenue from the Japanese pharmaceutical company
should the Company continue to develop this product further. The Company
negotiated and received a one-time
payment of $90,538 upon cancellation of this agreement, which amount is recorded
in other income (expense) in the Company’s Consolidated Statement of Operations.
Fixed
assets at December 31, 2004 and 2003 were comprised of the
following:
| |
|
2004 |
|
2003 |
|
| |
|
|
|
|
|
|
Land |
|
|
363,909
|
|
|
363,909
|
|
|
Building |
|
|
7,457,791
|
|
|
7,210,118
|
|
|
Machinery
and equipment |
|
|
993,385
|
|
|
1,191,707
|
|
|
Capital
lease - Equipment |
|
|
2,861,335
|
|
|
2,881,220
|
|
|
Computer
software |
|
|
565,158
|
|
|
565,158
|
|
|
Furniture
and fixtures |
|
|
342,724
|
|
|
343,971
|
|
|
Leasehold
improvements |
|
|
637,907
|
|
|
637,907
|
|
| |
|
|
13,222,209
|
|
|
13,193,990
|
|
| |
|
|
|
|
|
|
|
|
Less:
accumulated depreciation |
|
|
(3,507,759 |
) |
|
(2,610,257 |
) |
| |
|
|
|
|
|
|
|
| |
|
$ |
9,714,450 |
|
$ |
10,583,733 |
|
Depreciation
and amortization expense was $996,043, $1,250,667, and $882,855 for 2004, 2003
and 2002 respectively, of which $410,833, $424,778 and $268,716 related to
capital leases for the respective years. Accumulated amortization of assets
under capital leases was $1,207,027 and $796,144 at December 31, 2004 and 2003,
respectively.
NexMed,
Inc.
Notes
to Consolidated Financial Statements
| 5. |
|
Convertible
Notes Payable |
On
December 12, 2003, the Company issued convertible notes (the “Notes”) in an
aggregate principal amount of $6 million. The Notes are payable on May 31, 2007
and are collateralized by the Company’s manufacturing facility in East Windsor,
New Jersey which has a carrying value of approximately $6.9 million. The Notes
were initially convertible into shares of the Company’s common stock at a
conversion price initially equal to $6.50 per share (923,077 shares). Pursuant
to the terms of the Notes, the conversion price was adjusted on June 14, 2004 to
the volume weighted average price of the Company’s stock over the six-month
period ending on such date Since the volume weighted average price of the
Company’s stock during this period was below $5.00, the conversion price was
adjusted to $5.00 (1,200,000 shares). Interest accretes on the Notes on a
semi-annual basis at a rate of 5% per annum, and the Company may pay such
amounts in cash or by effecting the automatic conversion of such
amount into the
Company’s common stock at a 5% premium to the then average market prices.
In April
and October 2004, respectively, the Company issued 32,913 shares and 97,760
shares of its common stock as payment of an aggregate of $243,333 in interest on
the Notes.
For the
years ended December 31, 2004 and 2003, the Company recorded amortization of the
debt discount of none and $2,811,110, respectively and amortization of debt
issuance costs of $11,349 and $82,807, respectively.
In
February 2001, the Company entered into a financial arrangement with GE Capital
Corporation for a line of credit, which provided for the financing of up to $5
million of equipment (i) for its new East Windsor, NJ manufacturing facility and
(ii) for its expanded corporate and laboratory facilities in Robbinsville, NJ.
Equipment financed through this facility was in the form of a 42-month capital
lease. As of December 31, 2002, the Company had financed $1,113,459 of equipment
purchases under the GE credit line. The $5 million credit line expired in March
2002, and as of December 31, 2004, there was an outstanding balance due GE of
$57,832 under this facility. This balance is payable in monthly installments
through various dates in 2005.
In
January 2002, GE approved a new credit line, which provided for the financing of
up to $3 million of equipment and expired on December 31, 2002. During 2002, the
Company accessed $1,111,427 of the credit line. As of December 31, 2004, there
was an outstanding balance due GE of $375,571 under the January 2002 facility.
Balances due are payable in 42 monthly installments from date of take-down.
In July
2003, GE approved a new credit line, which expired on July 2004 and provided for
the financing of up to $1.85 million of equipment. During 2003 and 2004, the
Company accessed $738,731 of this credit line. As of December 31, 2004, there
was an outstanding balance due GE of $444,473 under the July 2003 facility,
payable in 36 monthly installments from the date of take-down.
NexMed,
Inc.
Notes
to Consolidated Financial Statements
During
October 1996 the Company adopted a Non-Qualified Stock Option Plan (“Stock
Option Plan”) and reserved 100,000 shares of common stock for issuance pursuant
to the Plan. During December 1996, the Company also adopted The NexMed, Inc.
Stock Option and Long-Term Incentive Compensation Plan (“the Incentive Plan”)
and The NexMed, Inc. Recognition and Retention Stock Incentive Plan (“the
Recognition Plan”). A total of 2,000,000 shares were set aside for these two
plans. In May 2000, the Stockholders’ approved an increase in the number of
shares reserved for the Incentive Plan and Recognition Plan to a total of
7,500,000. Options granted under the Company’s plans generally vest over a
period of one to five years, with exercise prices of currently outstanding
options ranging between $0.55 to $16.25. The maximum term under these plans is
10 years.
A summary
of stock option activity is as follows:
| |
|
|
|
Weighted |
|
| |
|
|
|
Average |
|
| |
|
Number
of |
|
Exercise |
|
| |
|
Shares |
|
Price |
|
| |
|
|
|
|
|
|
Outstanding
at December 31, 2001 |
|
|
3,834,575
|
|
$ |
3.72 |
|
|
Granted |
|
|
1,555,573
|
|
|
1.35
|
|
|
Exercised |
|
|
(53,000 |
) |
|
0.35
|
|
|
Cancelled |
|
|
(586,393 |
) |
|
4.04
|
|
|
Outstanding
at December 31, 2002 |
|
|
4,750,755
|
|
$ |
2.92 |
|
|
Granted |
|
|
1,110,350
|
|
|
2.80
|
|
|
Exercised |
|
|
(326,074 |
) |
|
0.88
|
|
|
Cancelled |
|
|
(120,414 |
) |
|
6.37
|
|
|
Outstanding
at December 31, 2003 |
|
|
5,414,617
|
|
$ |
2.94 |
|
|
Granted |
|
|
731,150
|
|
|
2.41
|
|
|
Exercised |
|
|
(192,986 |
) |
|
0.90
|
|
|
Cancelled |
|
|
(737,700 |
) |
|
3.22
|
|
|
Outstanding
at December 31, 2004 |
|
|
5,215,081
|
|
$ |
2.91 |
|
| |
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2004 |
|
|
3,975,628
|
|
$ |
2.93 |
|
|
Exercisable
at December 31, 2003 |
|
|
4,269,617
|
|
$ |
2.92 |
|
|
Exercisable
at December 31, 2002 |
|
|
3,162,900
|
|
$ |
3.46 |
|
|
Options
available for grant at December 31, 2004 |
|
|
1,167,973
|
|
|
|
|
NexMed,
Inc.
Notes
to Consolidated Financial Statements
The
following table summarizes information about options outstanding at December 31,
2004:
| |
|
Options
Outstanding |
|
Options
Exercisable |
|
|
|
|
|
Weighted
Average |
|
|
|
|
|
|
|
|
Range
of |
|
Number
|
|
Remaining |
|
Weighted
Average |
|
Number
|
|
Weighted
Average |
|
|
Exercise
Prices |
|
Outstanding |
|
Contractual
Life |
|
Exercise
Price |
|
Exercisable |
|
Exercise
Price |
|
|
$
.55 - 1.85 |
|
|
1,458,531
|
|
|
7.74
years |
|
$ |
1.12 |
|
|
944,378
|
|
$ |
0.88 |
|
|
2.00
- 3.99 |
|
|
2,030,650
|
|
|
3.50
years |
|
|
2.52
|
|
|
1,561,100
|
|
|
2.31
|
|
|
4.00
- 5.50 |
|
|
1,614,000
|
|
|
5.86
years |
|
|
4.21
|
|
|
1,358,250
|
|
|
4.09
|
|
|
7.00
- 8.00 |
|
|
15,000
|
|
|
5.40
years |
|
|
8.00
|
|
|
15,000
|
|
|
8.00
|
|
|
12.00
- 16.25 |
|
|
96,900
|
|
|
5.83
years |
|
|
15.79
|
|
|
96,900
|
|
|
15.79
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
5,215,081
|
|
|
|
|
$ |
2.91 |
|
|
3,975,628
|
|
$ |
2.93 |
|
The
weighted average grant date fair value of options granted during 2004, 2003 and
2002 was $2.46, $2.60 and $1.23, respectively.
The fair
value of each option and warrant (note 10) is estimated on the date of grant
using the Black-Scholes option-pricing model. The following assumptions were
used in the model:
| |
|
2004 |
|
2003 |
|
2002 |
|
|
Dividend
yield |
|
|
0.00% |
|
|
0.00% |
|
|
0.00% |
|
|
Risk-free
yields |
|
|
1.35%
- 4.58% |
|
|
1.35%
- 4.58% |
|
|
1.35%
- 3.00% |
|
|
Expected
volatility |
|
|
100% |
|
|
100% |
|
|
100% |
|
|
Expected
option life |
|
|
1 -
10 years |
|
|
1 -
10 years |
|
|
1 -
10 years |
|
Pursuant
to a Common Stock and Warrant Purchase Agreement dated December 17, 2004, the
Company closed a private placement of its securities and raised over $7 million
in gross proceeds. The Company sold 5,495,310 shares of its common stock at
$1.28 per share. The investors also received five-year warrants to purchase
2,198,126 shares of common stock, exercisable beginning six months after closing
at a price of $1.47 per share. In addition, the investors also received one-year
warrants to purchase 549,536 shares of common stock, exercisable at a price of
$2.00 per share.
In June
2004, the Company raised over $8.27 million in gross proceeds from a private
placement of its securities. The Company sold 5,516,668 shares of its common
stock at $1.50 per share. The investors also received five-year warrants to
purchase 1,930,834 shares of common stock, exercisable beginning six months
after closing, at an exercise price of $2.00 per share.
NexMed,
Inc.
Notes
to Consolidated Financial Statements
On July
2, 2003, the Company closed a private placement of its common stock at $3.60 per
share and issued a total of 2,916,669 shares and 1,020,832 four-year warrants to
purchase shares of the Company’s common stock at $5.04 per share. One third of
the warrants are callable by the company if the market price of the Company’s
common stock closes above $10.00 for seven consecutive trading days. The Company
received $10.5 million in gross proceeds.
On March
21, 2003, the Company closed a private placement of its common stock at $1.50
per share. Pursuant to the agreement, the Company issued a total of 210,000
shares and 157,500 three-year warrants to purchase the Company’s common stock at
$2.00 per share and received $315,000 in gross proceeds.
| 9. |
|
Stockholder
Rights Plan |
On April
3, 2000, the Company declared a dividend distribution of one preferred share
purchase right (the "Right") for each outstanding share of the Company's common
stock to shareholders of record at the close of business on April 21, 2000. One
Right will also be distributed for each share of Common Stock issued after April
21, 2000, until the Distribution Date described in the next paragraph. Each
Right entitles the registered holder to purchase from the Company a unit
consisting of one one-hundredths of a share (a "Unit") of Series A Junior
Participating Preferred Stock, $.001 par value per share (the "Preferred
Stock"), at a Purchase Price of $100.00 per Unit, subject to adjustment.
1,000,000 shares of the Company’s preferred stock have been set-aside for the
Rights Plan.
Initially,
the Rights will be attached to all Common Stock certificates representing shares
then outstanding, and no separate Rights Certificates will be distributed. The
Rights will separate from the Common Stock and a Distribution Date will occur
upon the earlier of (i) ten (10) business days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired, or obtained the right to acquire, beneficial ownership of
15% or more of the outstanding shares of Common Stock (the "Stock Acquisition
Date"), or (ii) ten (10) business days following the public announcement of a
tender offer or exchange offer that would, if consummated, result in a person or
group beneficially owning 15% or more of such outstanding shares of Common
Stock, subject to certain limitations.
Under the
terms of the Rights Agreement, Dr. Y. Joseph Mo, who beneficially owned
approximately 12.12% of the outstanding shares of the Company's Common Stock as
of April 2000, will be permitted to continue to own such shares and to increase
such ownership to up to 25% of the outstanding shares of Common Stock, without
becoming an Acquiring Person and triggering a Distribution Date.
NexMed,
Inc.
Notes
to Consolidated Financial Statements
A summary
of warrant activity is as follows:
| |
|
|
|
Weighted |
|
| |
|
Common
Shares |
|
Average |
|
| |
|
Issuable
upon |
|
Exercise |
|
| |
|
Exercise |
|
Price |
|
| |
|
|
|
|
|
|
Outstanding
at January 1, 2002 |
|
|
2,206,549
|
|
$ |
11.59
|
|
|
Issued |
|
|
1,183,850
|
|
|
3.27
|
|
|
Redeemed |
|
|
(1,345,491 |
) |
|
14.31
|
|
|
Outstanding
at December 31, 2002 |
|
|
2,044,908
|
|
|
5.03
|
|
|
Issued |
|
|
5,959,990
|
|
|
2.10
|
|
|
Redeemed |
|
|
(424,811 |
) |
|
3.96
|
|
|
Cancelled |
|
|
(307,826 |
) |
|
14.37
|
|
|
Outstanding
at December 31, 2003 |
|
|
7,272,261
|
|
|
2.32
|
|
|
Issued |
|
|
5,128,496
|
|
|
1.86
|
|
|
Redeemed |
|
|
(7,500 |
) |
|
1.94
|
|
|
Cancelled |
|
|
(956,566 |
) |
|
3.67
|
|
|
Outstanding
at December 31, 2004 |
|
|
11,436,691
|
|
$ |
1.91
|
|
The
Company has incurred losses since inception, which have generated net operating
loss carryforwards of approximately $65.1 million for federal and state income
tax purposes. These carryforwards are available to offset future taxable income
and expire beginning in 2014 through 2024 for federal income tax purposes. In
addition, the Company has general business and research and development tax
credit carryforwards of approximately $1.8 million. Internal Revenue Code
Section 382 places a limitation on the utilization of Federal net operating loss
carryforwards when an ownership change, as defined by tax law, occurs.
Generally, an ownership change, as defined, occurs when a greater than 50
percent change in ownership takes place during any three-year period. The actual
utilization of net operating loss carryforwards generated prior to such changes
in ownership will be limited, in any one year, to a percentage of fair market
value of the Company at the time of the ownership change. Such a change may have
already resulted from the additional equity financing obtained by the Company
since its formation.
In 2002,
2003 and 2004, the Company was approved by the State of New Jersey to sell a
portion of its state tax credits pursuant to the Technology Tax Certificate
Transfer Program. The Company has approximately $4.6 million in NJ tax credits,
and was approved to sell $605,671 in 2004, $261,000 in 2003 and $279,000 in
2002. The Company received net proceeds of $539,047, $232,231, and $242,645 in
2004, 2003 and 2002, respectively, as a result of the sale of the tax
credits.
The net
operating loss carryforwards and tax credit carryforwards resulted in a
noncurrent deferred tax benefit at December 31, 2004 and 2003 of approximately
$28.5 million and $23.1 million, respectively. In consideration of the Company’s
accumulated losses and the uncertainty of its ability to utilize this deferred
tax benefit in the future, the Company has recorded a valuation allowance of an
equal amount on such date to fully offset the deferred tax benefit
amount.
NexMed,
Inc.
Notes
to Consolidated Financial Statements
The
reconciliation of income taxes computed using the statutory U.S. income tax rate
and the provision (benefit) for income taxes for the years ended December 31,
2004, 2003 and 2002 are as follows:
| |
|
For
the years ended
December
31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
|
Federal
statutory tax rate |
|
|
(35%) |
|
|
(35%) |
|
|
(35%) |
|
|
State
taxes, net of federal benefit |
|
|
(6%) |
|
|
(6%) |
|
|
(6%) |
|
|
Valuation
allowance |
|
|
(41%) |
|
|
(41%) |
|
|
(41%) |
|
|
Sale
of state net operating losses |
|
|
(3.16%) |
|
|
(1.33%) |
|
|
(0.87%) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes |
|
|
(3.16%) |
|
|
(1.33%) |
|
|
(0.87%) |
|
For the
years ended December 31, 2004, 2003 and 2002, the Company’s effective tax rate
differs from the federal statutory rate principally due to net operating losses
and other temporary differences for which no benefit was recorded, state taxes
and other permanent differences.
Under the
provisions of the Internal Revenue Code, certain substantial changes in the
Company’s ownership may result in a limitation on the amount of net operating
loss carryforwards.
| 12. |
|
Commitments
and Contingencies |
The
Company is a party to clinical research agreements totaling approximately $12.8
million. These agreements provide that upon cancellation, the Company will owe
10% of the outstanding contract amount at the time of cancellation. At December
31, 2004, this amounts to approximately $1,100,000. The Company anticipates that
the clinical research in connection with the agreements will be completed in
2006.
The
Company is a party to several short-term consulting and research agreements
that, generally, can be cancelled at will by either party.
A lawsuit
was filed with the Superior court of New Jersey on April 1, 2003 by one former
employee against the Company for an unspecified bonus amount that he believes he
should have received upon completion of the construction of the Company's East
Windsor manufacturing facility. The Company has engaged counsel to defend its
position and intends to defend itself vigorously against the above-mentioned
claim and believes it has valid defenses; however, the case is still in the
preliminary stages and the likely outcomes cannot be predicted, nor can a
reasonable estimate of the amount of loss, if any, be made.
NexMed,
Inc.
Notes
to Consolidated Financial Statements
The
Company leases office space and research facilities under operating lease
agreements expiring through 2006. The Company also leases equipment from GE
Capital under capital leases expiring through 2006 (Note 7). Future minimum
payments under noncancellable operating and capital leases with initial or
remaining terms of one year or more, consist of the following at December 31,
2004:
| |
|
Operating |
|
Capital |
|
| |
|
|
|
|
|
|
2005 |
|
|
469,378
|
|
|
690,816
|
|
|
2006 |
|
|
100,823
|
|
|
241,099
|
|
|
2007 |
|
|
2,100
|
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
Total
minimum lease payments |
|
$ |
572,301 |
|
|
931,915
|
|
|
Less:
amount representing interest |
|
|
|
|
|
(54,039 |
) |
|
Present
value of future minimum lease payments |
|
|
|
|
|
877,876
|
|
|
Less:
current portion |
|
|
|
|
|
(644,050 |
) |
| |
|
|
|
|
|
|
|
|
Capital
lease obligations, net of current portion |
|
|
|
|
$ |
233,826 |
|
The
Company also leases office space under short-term lease agreements. Total rent
expense was $484,053, $460,643, and $452,052 in 2004, 2003, and 2002
respectively.
On
February 27, 2002, the Company entered in to an employment agreement with Y.
Joseph Mo, Ph.D., that has a constant term of five years, and pursuant to which
Dr. Mo will serve as the Company's Chief Executive Officer and President. During
his employment with the Company, Dr. Mo will receive an annual base salary of at
least $250,000 (to be raised to $350,000 after the Company sustains gross
revenues of $10 million for two consecutive fiscal quarters), subject to annual
cost of living increases. Under the employment agreement, Dr. Mo is entitled to
deferred compensation in an annual amount equal to one sixth of the sum of his
base salary and bonus for the 36 calendar months preceding the date on which the
deferred compensation payments commence subject to certain limitations,
including annual vesting through January 1, 2007, as set forth in the employment
agreement. The deferred compensation will be payable monthly for 180 months
commencing on termination of employment. As of December 31, 2004 and 2003, the
Company has accrued approximately $568,000 and $458,000 respectively, which is
included in other long-term liabilities, based upon the estimated present value
of the vested portion of the obligation.
NexMed,
Inc.
Notes
to Consolidated Financial Statements
| 13. |
|
Segment
and Geographic Information |
The
Company is active in one business segment: designing, developing, manufacturing
and marketing pharmaceutical products. The Company maintains development and
business development
operations in the United States and Hong
Kong.
Geographic
information as of December 31, 2004, 2003 and 2002 are as
follows:
| |
|
For
the years ended December 31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
|
Net
revenues |
|
|
|
|
|
|
|
|
United
States |
|
$ |
216,891 |
|
$ |
12,718 |
|
$ |
— |
|
|
Hong
Kong |
|
|
142,478
|
|
|
98,025
|
|
|
148,028
|
|
| |
|
$ |
359,369 |
|
$ |
110,743 |
|
$ |
148,028 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, |
|
| |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
Long-lived
assets |
|
|
|
|
|
|
|
|
|
|
|
United
States |
|
$ |
9,714,450 |
|
$ |
10,583,733 |
|
$ |
11,507,564 |
|
|
Hong
Kong |
|
|
—
|
|
|
—
|
|
|
—
|
|
| |
|
$ |
9,714,450 |
|
$ |
10,583,733 |
|
$ |
11,507,564 |
|
ITEM
9. CHANGES
IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A. CONTROLS
AND PROCEDURES
Disclosure
Controls and Procedures and Changes in Internal Control Over Financial
Reporting.
In
accordance with Exchange Act Rules 13a-15 and 15d-15, the Company’s management
carried out an evaluation with participation of the Company’s Chief Executive
Officer and Chief Financial Officer, its principal executive officer and
principal financial officer, respectively, of the effectiveness of the Company’s
disclosure controls and procedures as of the end of the period covered by this
report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded as of December 31, 2004 that the Company’s
disclosure control and procedures are effective. There were no changes in the
Company’s internal control over financial reporting identified in connection
with the evaluation by the Chief Executive Officer and Chief Financial Officer
that occurred during the Company’s fourth quarter that have materially affected
or are reasonably likely to materially affect the Company’s internal control
over financial reporting.
Management’s
Report on Internal Control Over Financial Reporting.
Our
Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal
Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on our evaluation under such framework, our management concluded that our
internal control over financial reporting was effective as of December 31,
2004.
Our
management’s assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2004 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which is included herein.
ITEM
9B. OTHER
INFORMATION.
None.
PART
III.
ITEM
10. DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Other
than as set forth below, information called for by Item 10 is set forth under
the heading “Election of Directors” and “Committees of the Board” in our
2005 Proxy
Statement, which is incorporated herein by reference, and “Executive Officers of
the Registrant” of Part I of this Report.
The
Company has adopted a code of ethics that applies to its Chief Executive
Officer, Chief Financial Officer, and to all of its other officers, directors
and employees. The code of ethics is available at the Corporate Governance
section of the Investor’s Info. page on the Company’s website at http://www.nexmed.com. The
Company intends to disclose future amendments to, or waivers from, certain
provisions of its code of ethics, if any, on the above website within four
business days following the date of such amendment or waiver.
ITEM
11. EXECUTIVE
COMPENSATION.
Information
called for by Item 11 is set forth under the heading “Executive Compensation” in
our 2005 Proxy Statement, which is incorporated herein by
reference.
ITEM
12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
Other
than as set forth below, information called for by Item 12 is set forth under
the heading “Security Ownership of Certain Beneficial Owners and Management” in
our 2005 Proxy Statement, which is incorporated herein by
reference.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table gives information as of December 31, 2004, about shares of our
common stock that may be issued upon the exercise of options, warrants and
rights under all of our existing equity compensation plans (together, the
"Equity Plans"):
| |
(a)
|
(b)
|
(c)
|
|
Plan
category |
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights |
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column (a))
|
|
Equity
compensation plans approved by security holders |
5,215,081
(1) |
$2.91 |
1,167,973
(2) |
|
Equity
compensation plans not approved by security holders |
-- |
-- |
-- |
|
Total
|
5,215,081 |
|
1,167,973
|
(1)
Consists of options outstanding at December 31, 2004 under The NexMed Inc. Stock
Option and Long Term Incentive Plan (the "Incentive Plan") and The NexMed Inc.
Recognition and Retention Stock Incentive Plan (the "Recognition
Plan").
(2)
Consists of 885,173 and 282,800 shares of common stock that remain available for
future issuance, at December 31, 2004, under the Incentive Plan and Recognition
Plan, respectively.
ITEM
13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.
Information
called for by Item 13 is set forth under the heading “Certain Relationships and
Related Transactions” in our 2005 Proxy Statement, which is incorporated herein
by reference.
ITEM
14. PRINCIPAL ACCOUNTANT
FEES AND SERVICES.
Information
called for by item 14 is set forth under the heading “Principal Accountant Fees
and Services” in our 2005 Proxy Statement, which is incorporated herein by
reference.
PART
IV.
ITEM
15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
| (a) |
1. Financial
Statements: |
The
information required by this item is included in Item 8 of Part II of this Form
10-K.
| 2. |
Financial
Statement Schedules |
Schedule
II - Valuation and Qualifying Accounts.
SCHEDULE
II
NEXMED,
INC.
SCHEDULE
OF VALUATION AND QUALIFYING ACCOUNTS
|
Description |
|
Balance
at
Beginning
of
Year |
|
Charged
to
Costs
and
Expenses |
|
Charged
to
Other
Accounts |
|
Deductions |
|
Balance
at
End
of Year |
|
|
Year
ended December 31, 2004
Valuation
allowance - deferred tax asset |
|
$ |
23,098,077 |
|
$ |
5,422,293 |
|
|
-- |
|
|
-- |
|
$ |
28,520,370 |
|
|
Year
ended December 31, 2003
Valuation
allowance - deferred tax asset |
|
$ |
17,901,534 |
|
$ |
5,196,543 |
|
|
-- |
|
|
-- |
|
$ |
23,098,077
|
|
|
Year
ended December 31, 2002
Valuation
allowance - deferred tax asset |
|
$ |
8,699,708 |
|
$ |
9,201,826 |
|
|
-- |
|
|
-- |
|
$ |
|
|
All other
schedules have been omitted because the information is not applicable or is
presented in the Financial Statements or Notes thereto.
3. Exhibits
|
EXHIBITS
NO. |
DESCRIPTION |
|
3.1 |
Amended
and Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 2.1 filed with the Company's Form 10-SB filed with
the Securities and Exchange Commission on March 14,
1997). |
| |
|
|
3.2 |
Amended
and Restated By-laws of the Company (incorporated herein by reference to
Exhibit 3.1 to the Company’s Form 10-Q filed with the Securities and
Exchange Commission on May 14, 2003). |
|
3.3 |
Certificate
of Amendment to Articles of Incorporation of the Company, dated June 22,
2000 (incorporated herein by reference to Exhibit 3.2 to the Company’s
Form 10-K filed with the Securities and Exchange Commission on March 31,
2003). |
| |
|
|
4.1 |
Form
of Common Stock Certificate (incorporated by reference to Exhibit 3.1
filed with the Company's Form 10-SB filed with the Securities and Exchange
Commission on March 14, 1997). |
| |
|
|
4.2
|
Rights
Agreement and form of Rights Certificate (incorporated herein by reference
to Exhibit 4 to our Current Report on Form 8-K filed with the Commission
on April 10, 2000). |
| |
|
|
4.3 |
Certificate
of Designation of Series A Junior Participating Preferred Stock
(incorporated herein by reference to Exhibit 4 to our Current Report on
Form 8-K filed with the Commission on April 10, 2000). |
| |
|
|
4.4 |
Certificate
of Designation of the Company's Series B 8% Cumulative Convertible
Preferred Stock (incorporated herein by reference to Exhibit 4.1 to the
Company’s Form 10-Q filed with the Securities and Exchange Commission on
May 14, 2003). |
| |
|
|
4.5 |
Form
of Warrant dated April 21, 2003 (incorporated herein by reference to
Exhibit 4.2 to the Company’s Form 10-Q filed with the Securities and
Exchange Commission on May 14, 2003). |
| |
|
|
4.6 |
Form
of Common Stock Purchase Warrant dated July 2, 2003 (incorporated herein
by reference to Exhibit 4.3 to the Company’s Registration Statement on
Form S-3 filed with the Securities and Exchange Commission on July 17,
2003). |
| |
|
|
4.7 |
Form
of Warrant dated June 18, 2004 (incorporated by reference to Exhibit 4.1
to the Company’s Form 8-K filed with the Securities and Exchange
Commission on June 25, 2004). |
| |
|
|
10.1* |
Amended
and Restated NexMed, Inc. Stock Option and Long-Term Incentive
Compensation Plan (incorporated by reference to Exhibit 10.1 filed with
the Company's Form 10-Q filed with the Securities and Exchange Commission
on May 15, 2001). |
| |
|
|
10.2* |
The
NexMed, Inc. Recognition and Retention Stock Incentive Plan incorporated
by reference to Exhibit 99.1 filed with the Company's Form 8-K filed with
the Securities and Exchange Commission on May 28,
2004). |
| |
|
|
10.3* |
Form
of Agreement dated November 15, 1995 between NexMed, Inc. and each of Y.
Joseph Mo, Ph.D., Vivian H. Liu and Gilbert S. Banker, Ph.D, which are
collectively commonly referred to by NexMed, Inc. as the Non-Qualified
Performance Incentive Program (filed as Exhibit 4.2 to our Registration
Statement on Form 8-A filed with the Securities and Exchange Commission on
December 22, 1999, including any amendment or report filed for the purpose
of updating such information, and incorporated herein by reference).
|
| |
|
|
10.4
|
License
Agreement dated March 22, 1999 between NexMed International Limited and
Vergemont International Limited (incorporated by reference to Exhibit 10.7
of the Company’s Form 10-KSB filed with the Securities and Exchange
Commission on March 16, 2000). |
| |
|
|
10.5* |
The
NexMed, Inc. Non-Qualified Stock Option Plan (incorporated by reference to
Exhibit 6.6 filed with the Company's Form 10-SB/A filed with the
Securities and Exchange Commission on June 5,
1997). |
|
10.6* |
Employment
Agreement dated February 26, 2002 by and between NexMed, Inc. and Dr. Y.
Joseph Mo (incorporated by reference to Exhibit 10.7 of the Company's Form
10-K filed with the Securities and Exchange Commission on March 29, 2002
). |
| |
|
|
10.7 |
Letter
Agreement dated February 6, 2001, by and among NexMed, Inc. and General
Electric Capital Corporation (incorporated by reference to Exhibit 10.8 of
the Company's Form 10-K filed with the Securities and Exchange Commission
on March 29, 2002). |
| |
|
|
10.8 |
Letter
Agreement dated January 2, 2002, by and among NexMed, Inc. and General
Electric Capital Corporation (incorporated by reference to Exhibit 10.8 of
the Company's Form 10-K filed with the Securities and Exchange Commission
on March 29, 2002). |
| |
|
|
10.9 |
Registration
Rights Agreement between the Company and The Tailwind Fund Ltd. and
Solomon Strategic Holdings, Inc. dated June 11, 2002 (incorporated herein
by reference to Exhibit 10.2 to the Company's Form 10-Q filed with the
Securities and
Exchange
Commission on August 14, 2002). |
| |
|
|
10.10 |
Mortgage,
Security Agreement and Assignment of Leases and Rents by NexMed (U.S.A.),
Inc., a wholly owned subsidiary of the Company, in favor of The Tailwind
Fund Ltd. and Solomon Strategic Holdings, Inc. dated June 11, 2002
(incorporated herein by reference to Exhibit 10.4 to the Company's Form
10-Q filed with the Securities and Exchange Commission on August 14,
2002). |
| |
|
|
10.11 |
Preferred
Stock and Warrant Purchase Agreement, dated as of April 21, 2003, between
the Company and the Purchasers identified on Schedule 1 to the Purchase
Agreement (incorporated herein by reference to Exhibit 10.1 to the
Company’s Form 10-Q filed with the Securities and Exchange Commission on
May 14, 2003). |
| |
|
|
10.12 |
Investor
Rights Agreement, dated as of April 21, 2003, between the Company and the
Purchasers identified on Schedule 1 to the Investor Rights Agreement
(incorporated herein by reference to Exhibit 10.2 to the Company’s Form
10-Q filed with the Securities and Exchange Commission on May 14,
2003). |
| |
|
|
10.13 |
Common
Stock and Warrant Purchase Agreement, dated as of July 2, 2003, between
the Company and the Purchasers identified on Schedule 1 to the Purchase
Agreement (incorporated herein by reference to Exhibit 10.1 to the
Company’s Registration Statement on Form S-3 filed with the Securities and
Exchange Commission on July 17, 2003). |
| |
|
|
10.14 |
Investor
Rights Agreement, dated as of July 2, 2003, between the Company and the
Purchasers identified on Schedule 1 to the Investor Rights Agreement
(incorporated herein by reference to Exhibit 10.2 to the Company’s
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission on July 17, 2003). |
| |
|
|
10.15 |
Letter
Agreement dated July 12, 2003, between NexMed, Inc. and General Electric
Capital Corporation (incorporated herein by reference to Exhibit 10.1 to
the Company's Form 10-Q filed with the Securities and Exchange Commission
on August 12, 2003). |
| |
|
|
10.16* |
Employment
Agreement dated September 26, 2003 by and between NexMed, Inc. and James
L. Yeager (incorporated herein by reference to Exhibit 10.1 to the
Company's Form 10-Q filed with the Securities and Exchange Commission on
November 12, 2003). |
| |
|
|
10.17* |
Employment
Agreement dated September 26, 2003 by and between NexMed, Inc. and Kenneth
F. Anderson (incorporated herein by reference to Exhibit 10.2 to the
Company's Form 10-Q filed with the Securities and Exchange Commission on
November 12, 2003). |
|
10.18* |
Employment
Agreement dated September 26, 2003 by and between NexMed, Inc. and Vivian
H. Liu (incorporated herein by reference to Exhibit 10.3 to the Company's
Form 10-Q filed with the Securities and Exchange Commission on November
12, 2003). |
| |
|
|
10.19* |
Amendment
dated September 26, 2003 to Employment Agreement by and between
Dr. Y. Joseph Mo and NexMed, Inc. dated February 26, 2002 (incorporated
herein by reference to Exhibit 10.4 to the Company's Form 10-Q filed with
the Securities and Exchange Commission on November 12,
2003). |
| |
|
|
10.20 |
Purchase
Agreement, dated as of December 12, 2003, between the Company and the
Purchasers named therein (incorporated herein by reference to Exhibit 10.1
to the Company’s Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on January 13,
2004). |
| |
|
|
10.21 |
Registration
Rights Agreement, dated as of December 12, 2003, between the Company and
the Purchasers named therein (incorporated herein by reference to Exhibit
10.2 to the Company’s Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on January 13, 2004).
|
| |
|
|
10.22 |
Form
of 5% Convertible Note due May 31, 2007 (incorporated herein by reference
to Exhibit 10.3 to the Company’s Registration Statement on Form S-3 filed
with the Securities and Exchange Commission on January 13,
2004). |
| |
|
|
10.23 |
First
Amendment of Mortgage, Security Agreement and Assignment of Leases and
Rents by NexMed (U.S.A.), Inc., in favor of The Tail Wind Fund Ltd. and
Solomon Strategic Holdings, Inc., dated as of December 12, 2003
(incorporated herein by reference to Exhibit 10.4 to the Company’s
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission on January 13, 2004). |
| |
|
|
10.24 |
Subsidiary
Guaranty by NexMed (U.S.A.), Inc., a wholly owned subsidiary of the
Company, in favor of The Tailwind Fund Ltd. and Solomon Strategic
Holdings, Inc. dated December 12, 2003. |
| |
|
|
10.25 |
Common
Stock and Warrant Purchase Agreement, dated as of June 18, 2004, between
NexMed, Inc. and the Purchases set forth on Schedule 1 thereto
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed
with the Securities and Exchange Commission on June 25,
2004). |
| |
|
|
10.26 |
Investor
Rights Agreement, dated as of June 18, 2004, between the Company and the
Purchasers identified on Schedule 1 thereto (incorporated by reference to
Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and
Exchange Commission on June 25, 2004). |
| |
|
|
10.27 |
License,
Supply and Distribution Agreement between the Company and Schering AG,
Germany, dated July 1, 2004 (incorporated by reference to Exhibit 10.1 to
the Company’s Form 10-Q filed with the Securities and Exchange Commission
on November 9, 2004). |
| |
|
|
10.28* |
Stock
Option Grant Agreement between the Company and Leonard A. Oppenheim dated
November 1, 2004 (incorporated by reference to Exhibit 10.2 to the
Company’s Form 10-Q filed with the Securities and Exchange Commission on
November 9, 2004). |
| |
|
|
10.29* |
Form
of Stock Option Grant Agreement between the Company and its
Directors. |
| |
|
|
21 |
Subsidiaries. |
| |
|
|
23 |
Consent
of PricewaterhouseCoopers LLP, independent registered public accounting
firm. |
|
31.1 |
Chief
Executive Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
| |
|
|
31.2 |
Chief
Financial Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
| |
|
|
32.1 |
Chief
Executive Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
| |
|
|
32.2 |
Chief
Financial Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
*Management
compensatory plan or arrangement required to be filed as an exhibit pursuant to
Item 15(c) of Form 10-K.
SIGNATURES
Pursuant
to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
| |
|
NEXMED, INC. |
| |
|
|
| |
|
| Date: March 16,
2005 |
By: |
/s/ Y. Joseph Mo |
| |
Y. Joseph Mo |
| |
Chairman
of the Board of Directors, President and Chief Executive
Officer |
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURE |
|
TITLE |
|
DATE |
| |
|
|
|
|
|
/s/
Y. Joseph Mo |
|
Chairman
of the Board of Directors, President and Chief
Executive Officer |
|
March
16, 2005 |
| Y.
JOSEPH MO |
|
|
|
|
| |
|
|
|
|
|
/s/
Vivian H. Liu |
|
Vice
President, Chief Financial Officer and Secretary |
|
March
16, 2005 |
| VIVIAN
H. LIU |
|
|
|
|
| |
|
|
|
|
|
/s/
Mark Westgate |
|
Controller
and principal accounting officer |
|
March
16, 2005 |
| MARK
WESTGATE |
|
|
|
|
| |
|
|
|
|
|
/s/
Richard J. Berman |
|
Director |
|
March
16, 2005 |
|
RICHARD
J. BERMAN |
|
|
|
|
| |
|
|
|
|
|
/s/
Arthur D. Emil |
|
Director |
|
March
16, 2005 |
| ARTHUR
D. EMIL |
|
|
|
|
| |
|
|
|
|
|
/s/
Sami A. Hashim |
|
Director |
|
March
16, 2005 |
| SAMI
A. HASHIM |
|
|
|
|
| |
|
|
|
|
|
/s/
Leonard A. Oppenheim |
|
Director |
|
March
16, 2005 |
| LEONARD
A. OPPENHEIM |
|
|
|
|
| |
|
|
|
|
|
/s/
Martin Wade III |
|
Director |
|
March
16, 2005 |
| MARTIN
WADE III |
|
|
|
|
EXHIBIT
INDEX
|
EXHIBITS
NO. |
DESCRIPTION |
|
10.29 |
Form
of Stock Option Grant Agreement between the Company and its
Directors |
| |
|
|
21 |
Subsidiaries. |
| |
|
|
23 |
Consent
of PricewaterhouseCoopers LLP, independent registered public accounting
firm. |
| |
|
|
31.1 |
Chief
Executive Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
| |
|
|
31.2 |
Chief
Financial Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
| |
|
|
32.1 |
Chief
Executive Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
| |
|
|
32.2 |
Chief
Financial Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |