.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,
2009




OR




 ̈
            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.)





6330 Nancy Ridge Drive,
Suite 103, San Diego, CA 92121


(Address
of Principal Executive Offices)   (Zip Code)




(858)
222-8041


(Registrant’s
telephone number, including area code)




Securities
registered pursuant to Section 12(b) of the Act:




Title of Each Class
                Name of Exchange on Which
      RegisteredCommon
      Stock, par value $.001
                The
      NASDAQ Capital Market




Securities
registered pursuant to Section 12(g) of the Act:




None




Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.  Yes o No x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes __  No x




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.Yesx No ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such
files).  Yes  ̈    NO
x




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 a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check
one):  Large accelerated filer o Accelerated
filer o  Non-accelerated
filer  o(do not check if a
smaller reporting company)  Smaller reporting company  x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).  Yes  ̈  No
x




As of
March 26, 2010, 126,902,281 shares of the common stock, par value $.001, of the
registrant were outstanding.  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, 2009, was approximately $41.5 million.




DOCUMENTS
INCORPORATED BY REFERENCE




Certain
information required to be disclosed in Part III of this report is incorporated
by reference from the registrant’s Proxy Statement for the 2010 Annual Meeting
of Stockholders, which Proxy Statement will be filed no later than 120 days
after the end of the fiscal year covered by this report.





NEXMED,
INC.


INDEX TO
ANNUAL REPORT ON FORM 10-K FILED WITH


THE
SECURITIES AND EXCHANGE COMMISSION


YEAR
ENDED DECEMBER 31, 2009




ITEMS IN FORM
10-K




PART
      I.Item
      1.
                    BUSINESS.
                    3Item
      1A.
                    RISK
      FACTORS
                    10Item
      1B.
                    UNRESOLVED
      STAFF COMMENTS
                    17Item
      2.
                    PROPERTIES.
                    17Item
      3.
                    LEGAL
      PROCEEDINGS.
                    17Item
      4.
                    RESERVED.
                    17PART
      II.Item
      5.
                    MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES.
                    17Item
      6.
                    SELECTED
      FINANCIAL DATA.Item
      7.
                    MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.
                    18Item
      7A.
                    QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.Item
      8.
                    FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                    24Item
      9.
                    CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.
                    25Item
      9A(T).
                    CONTROLS
      AND PROCEDURES
                    25Item
      9B.
                    OTHER
      INFORMATION
                    25PART
      III.Item
      10.
                    DIRECTORS,  EXECUTIVE
      OFFICERS AND CORPORATE GOVERNANCE.
                    25Item
      11.
                    EXECUTIVE
      COMPENSATION.
                    25Item
      12.
                    SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.
                    26Item
      13.
                    CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.
                    26Item
      14.
                    PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                    26PART
      IV.Item
      15.
                    EXHIBITS
      AND  FINANCIAL STATEMENT SCHEDULES
                    26


2


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 NexMed, Inc. (“we,” “us,” “our” or the
“Company”) and our management team. Any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and 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” in Item 1A 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.





Corporate
History





We are a
Nevada corporation and have been in existence since 1987.  We have
operated in the pharmaceutical industry since 1995, focusing on research and
development in the area of drug delivery.  Our proprietary drug
delivery technology is called NexACT®
..





In 2005
and 2007 we entered into licensing agreements with Novartis International
Pharmaceutical Ltd. (“Novartis”) and Warner Chilcott Company, Inc. (“Warner”),
respectively, pursuant to which we granted to Novartis and Warner rights to
develop and commercialize products we developed using the NexACT®
technology.  Please see the NexACT® Drug
Delivery Technology section below for a detailed discussion about NM100060, our
proprietary topical nail solution for the treatment of onychomycosis (nail
fungal infection), which we licensed to Novartis in 2005 and Vitaros®,, a
topical alprostadil-based cream treatment intended for patients with erectile
dysfunction, which we licensed to Warner in 2007.  Also see Note 4 of
the Notes to the Consolidated Financial Statements for a description
of  the licensing agreements and their current status.





On
December 14, 2009, we acquired Bio-Quant, Inc. (“Bio-Quant”), the largest
specialty biotechnology contract research organization (CRO) based in San Diego,
California and one of the industry's most experienced CROs for non-GLP (good
laboratory practices) in
vitro and in
vivo contract drug discovery and pre-clinical development services,
specializing in oncology, inflammation, immunology, and metabolic diseases.
Bio-Quant has over 300 clients world-wide and performs hundreds of studies a
year both in in vitro
and in vivo
pharmacology, pharmacokinetics (PK) and toxicology to support
pre-investigational new drug (“IND”) enabling packages.




Bio-Quant’s
revenue to date has been derived from pre-clinical contract services, sales of
diagnostic kits and housing services.  To date, approximately 80% of
Bio-Quant’s revenue has been generated from pre-clinical contract
services.  The CRO industry in general continues to be dependent on
the research and development efforts of pharmaceutical and biotechnology
companies as major customers, and we believe this dependence will
continue.  The current uncertain economic conditions have caused
customers to re-evaluate priorities resulting in increases in contracts for the
more promising projects, while scaling back and/or canceling other
projects.




As a
result of our acquisition of Bio-Quant, we now have two operating segments:
designing and developing pharmaceutical products (“The NexACT®drug
delivery technology business”) and providing pre-clinical CRO services (“The
Bio-Quant CRO business”).  The sales of diagnostic kits by Bio-Quant
does not constitute a reporting segment as the assets and revenues are not
material in relation to our operations as a whole.


3


Growth
Strategy





We are
currently focusing our efforts on new and patented pharmaceutical products based
on our patented drug delivery technology known as NexACT® and on
growing the newly acquired CRO business through both organic growth within
Bio-Quant’s current business operations and through the acquisition of
small cash flow positive entities who have complimentary capabilities to those
of Bio-Quant but are not operating at full capacity due to insufficient business
development efforts.  We believe this strategy will allow Bio-Quant to
expand its operations by broadening its service capabilities and going into new
markets.





We intend
to continue our efforts developing topical treatments based on the application
of NexACT®
technology to drugs: (1) previously approved by the U.S. Food and Drug
Administration (“FDA”), (2) with proven efficacy and safety profiles, (3) with
patents expiring in the near term or expired and (4) with proven market track
records and potential.  Further, with the pre-clinical and formulation
expertise derived from the acquisition of Bio-Quant, we have begun to develop
new formulations based on the application of NexACT®
technology to drug compounds in the areas of oncology, inflammation, immunology,
and metabolic diseases.  We will also intend to actively promote the
NexACT technology to Bio-Quant clients as well as other companies seeking
innovative alternatives and solutions to their development
problems.





Our
broader goal is to generate revenues from the growth of our CRO business while
aggressively seeking to monetize the NexACT®technology through out-licensing agreements with pharmaceutical and
biotechnology companies worldwide.  At the same time we are actively
pursuing partnering opportunities for our clinical stage NexACT® based
treatments in the areas of dermatology and sexual dysfunction as discussed
below.The
successful licensing or sale of one or more of these products would generate
additional revenues for funding our growth strategy.





NexACT
Drug Delivery Technology





The
NexACT® drug
delivery technology is designed to enhance the delivery of an active drug to the
patient. Successful application of the NexACT®
technology would improve therapeutic outcomes and reduce systemic side effects
that often accompany existing oral and injectable medications. We have applied
the NexACT®
technology to a variety of compatible drug compounds and delivery systems, and,
on our own or through development partnerships, are in various stages of
developing new topical treatments for male and female sexual dysfunction, nail
fungus, psoriasis, and other dermatological conditions.





Through
the acquisition of Bio-Quant we have expanded our research and development
capabilities with NexACT®into the
areas of oncology, inflammation, immunology, and metabolic
diseases.  As a result, we are conducting additional studies to extend
the validation of the NexACT technology into the oral or subcutaneous delivery
of classes of drugs for these indications.





On
January 12, 2010, we announced results from a pre-clinical study which supported
the ability of the NexACT technology to deliver an oral formulation of Taxol®
(paclitaxel) and to enhance the drug’s bioavailability by approximately ten-fold
through this oral administration. Taxol, a first line chemotherapy drug used to
treat breast, lung and ovarian cancers, is currently administered through an
intravenous infusion that can take up to 24 hours to complete.





On March
17, 2010, we announced results from a pre-clinical study which successfully
demonstrated the ability of the NexACT technology to deliver insulin and other
large molecule drugs such as Taxol subcutaneously, in a depot-like fashion (or
slow release) over a 24 hour period from a single injection. Specifically,
rodents that received insulin injections incorporating the NexACT technology
showed bio-equivalency to Lantus® in
controlling glucose levels in the blood.  Further studies in rodents
showed that NexACT was able to deliver Taxol®
subcutaneously in levels similar to those previously observed in NexACT-based
oral Taxol formulation without any apparent toxicity.  Lantus® ,a
product of Sanofi Aventis, is a commonly prescribed insulin injection for
treating diabetes.




In March
2010, we acquired PrevOncoTM, a marketed anti-ulcer compound, lansoprazole, for
the treatment of solid tumors.  The current data we already have with
human hepatocellular carcinoma (HCC) in vivo in mice are very
promising.  PrevOncoTM has already received Orphan Drug Designation by
the US FDA for HCC.   We are in the process of designing the
initial Phase 2 clinical trial with HCC.   On March 25, 2010, we
filed the IND for PrevOncoTM Phase 2 trials for HCC.We
intend to run the Phase 2 proof of concept of PrevOncoTM in HCC. Following
positive data from the clinical trials we intend to formulate PrevOncoTM with
NexAct for sub-cutaneous delivery.


4





NM100060
Anti-Fungal Treatment





We had an
exclusive global licensing agreement with Novartis International Pharmaceutical
Ltd. (“Novartis”) for NM100060, our proprietary topical nail solution for the
treatment of onychomycosis (nail fungal infection). Under the agreement,
Novartis acquired the exclusive worldwide rights to NM100060 and had assumed all
further development, regulatory, manufacturing and commercialization
responsibilities as well as costs. Novartis agreed to pay us up to $51 million
in upfront and milestone payments on the achievement of specific development and
regulatory milestones, including an initial cash payment of $4 million at
signing.  In addition, we were eligible to receive royalties based
upon the level of sales achieved.





The
completion of patient enrollment in the Phase 3 clinical trials for NM100060
triggered a $3 million milestone payment from Novartis to be paid 7 months after
the last patient enrolled in the Phase 3 studies.  However, the
agreement also provided that clinical milestones paid to us by Novartis would be
reduced by 50% until we received an approved patent claim on the
NM100060.  As such, we initially received only $1.5 million from
Novartis.





On
October 17, 2008, the U.S. Patent and Trademark Office issued the Notice of
Allowance on our patent application for NM100060.  This triggered a $2
million milestone payment from Novartis.  On October 30, 2008 we
received a payment of $3.5 million from Novartis consisting of the balance of
$1.5 million of the patient enrollment milestone and the $2 million patent
milestone.





In July
2008, Novartis completed the Phase 3 clinical trials for
NM100060.  The Phase 3 program required for the filing of the New Drug
Application (“NDA”) in the U.S. for NM100060 consisted of two pivotal,
randomized, double-blind, placebo-controlled studies.  The parallel
studies were designed to assess the efficacy, safety and tolerability of
NM100060 in patients with mild to moderate toenail
onychomycosis.  Approximately 1,000 patients completed testing in the
two studies, which took place in the U.S., Europe, Canada and
Iceland.   On August 26, 2008, we announced that based on First
Interpretable Results of these two Phase 3 studies, Novartis had decided not to
submit the NDA at that time.





In July
2009, Novartis completed final analysis of the comparator study which they had
initiated in March 2007 in ten European countries.  The study results
were insufficient to support marketing approval in Europe.  As such,
on July 8, 2009, we announced the mutual decision reached with Novartis to
terminate the licensing agreement.  In accordance with the terms of
the termination agreement, Novartis has provided us with all of the requested
reports to date for the three Phase 3 studies that they conducted for NM100060
and is assisting and supporting us in connection with the assignment, transfer
and delivery to us of all know-how and data relating to the
product.





In
consideration of such assistance and support, we will pay to Novartis 15% of any
upfront and/or milestone payments that we receive from any future third party
licensee of NM100060, as well as a royalty fee ranging from 2.8% to 6.5% of
annual net sales of products developed from NM100060 (collectively, “Products”),
with such royalty fee varying based on volume of such annual net
sales.  In the event that the Company, or a substantial part of our
assets, is sold, we will pay to Novartis 15% of any upfront and/or milestone
payments received by us or our successor relating to the Products, as well as a
royalty fee ranging from 3% to 6.5% of annual net sales of any Products, with
such royalty fee varying based on volume of such annual net sales.  If
the acquirer makes no upfront or milestone payments, the royalty fees payable to
Novartis will range from 4% to 6.5% of annual net sales of any
Products.





We have completed our analysis of the
two pivotal Phase 3 studies completed by Novartis.  Based on this
analysis, we believe the product’s potential for treating patients with mild
onychomycosis and warrants further studies for regulatory
approval.  We are sharing the clinical database and our conclusion
with potential partners interested in licensing NM100060 for further development
or for Over The Counter (OTC) direct approval due to its safety
profile.





Vitaros®





We also
have under development a topical alprostadil-based cream treatment intended for
patients with erectile dysfunction (“Vitaros®”), which
was previously known as Alprox-TD®.   Our
NDA was filed and accepted for review by the FDA in September and November 2007,
respectively.  During a teleconference with the FDA in early July
2008, our use of the name Vitaros® for the
ED Product was verbally approved by the FDA.


5




On
November 1, 2007, we licensed the U.S. rights of Vitaros® to
Warner Chilcott Company, Inc. (“Warner”).  Warner paid us $500,000
upon signing and agreed to pay us up to $12.5 million on the achievement of
specific regulatory milestones and to undertake the manufacturing investment and
any other investment for further product development that may be required for
product approval.  Additionally, Warner was responsible for the
commercialization and manufacturing of Vitaros®.





On July
21, 2008, we received a not approvable action letter (the “Action Letter”) from
the FDA in response to our NDA.  The major regulatory issues raised by
the FDA were related to the results of the transgenic (“TgAC”) mouse
carcinogenicity study which NexMed completed in 2002.   The TgAC
concern raised by the FDA is product specific, and does not affect the
dermatological products in our pipeline, specifically NM100060.





On
October 15, 2008, we met with the FDA to discuss the major deficiencies cited in
the Action Letter and to reach consensus on the necessary actions for addressing
these deficiencies for our Vitaros®NDA.  Several key regulatory concerns were addressed and
agreements were reached at the meeting. The FDA agreed to: (a) a review by the
Carcinogenicity Advisory Committee (“CAC”) of the 2 two-year carcinogenicity
studies which were recently completed; (b) one Phase 1 study in healthy
volunteers to assess any transfer to the partner of the NexACT®
technology and (c) one animal study to assess the transmission of sexually
transmitted diseases with the design of the study to be
determined.  The FDA also confirmed the revision on the status of our
manufacturing facility from “withhold” to “acceptable”, based on our having
adequately addressed the deficiencies cited in their Pre-Approval Inspection
(“PAI”) of our facility in January 2008.  It is also our understanding
that at this time the FDA does not require a one-year open-label safety study
for regulatory approval.  After the meeting we estimated that an
additional $4 to $5 million would be needed to be spent to complete the above
mentioned requirements prior to the resubmission of the NDA.





On
February 3, 2009, we announced the sale of the U.S. rights for Vitaros®and the
specific U.S. patents covering Vitaros®to
Warner which terminated the previous licensing agreement.   Under the
terms of the agreement, we received gross proceeds of $2.5 million as an
up-front payment and are eligible to receive an additional payment of $2.5
million upon Warner’s receipt of an NDA approval from the FDA.  In
addition, Warner has paid us a total of $350,000 for the manufacturing equipment
for Vitaros®. 
The purchase agreement with Warner gives us the right to reference their work on
Vitaros® in our
future filings outside the U.S., which may benefit us in international
partnering opportunities because the additional data may further validate the
safety of the product and enhance its potential value.  While Warner is not
obligated by the purchase agreement to continue with the development of
Vitaros® and the
filing of the NDA, as of the date of this report, Warner submitted the CAC
assessment package to the FDA during the 4th quarter
of 2009.  Based on previous discussion with the FDA, we had expected them
to make their decision during the first quarter of 2010.  However, as
of the date of this report, we have nothing new to report.





In
Canada, we filed the New Drug Submission (“NDS”) for Vitaros in February 2008
and received a Notice of Non-Compliance (“Notice”) on January 19, 2010. 
The Notice was an end-of-review communication from Health Canada when additional
information was needed to reach final decision on product approval.  The
deficiencies cited in the Notice were related specifically to the product’s CMC
(Chemistry, Manufacturing and Controls), and no pre-clinical or clinical
deficiencies cited in the Notice.  In February 2010, we met with Health
Canada to discuss their concerns and were able to reach agreement with them on
the necessary action steps which would be completed and included in our response
to the Notice due on or before April 14, 2010.  Assuming that we
successfully submit our response before the 90 day deadline, our NDS would then
undergo a 45 day screening process by Heath Canada’s Regulatory Project
Management group to determine the adequacy of our response and if deemed
adequate, our response to the Notice would then go through a 150 day review
cycle by the NDS reviewers.





For
Europe, we are currently pursuing a decentralized filing strategy and our first
Marketing Authorization Application (“MAA”) is planned for the United
Kingdom.  The Medicines and Healthcare Products Regulatory Agency (the
“MHRA”) has confirmed that due to the backlog of MAA filings, they would not be
able to receive and start reviewing our MAA until October 2010.   Our
intention is to pursue filing of the MAA with a local European partner. 
With that goal in mind, we are actively pursuing licensing partners and have
engaged a business development consultant to assist us in that endeavour. 
There is no assurance that we will be able to find a partner, file our MAA on a
timely basis or obtain regulatory approval.


6


Femprox® and
Other Products





Our
product pipeline also includes Femprox®, which
is an alprostadil-based cream product intended for the treatment of female
sexual arousal disorder. We have completed nine clinical studies to date,
including one 98-patient Phase 2 study in the U.S. for Femprox®, and
also a 400-patient study for Femprox® in
China, where the cost for conducting clinical studies was significantly lower
than in the U.S.  We do not intend to conduct additional studies for
this product until we have secured a co-development partner, which we are
actively seeking.





We have
also continued early stage development work for our product pipeline with the
goal of focusing our attention on product opportunities that would replicate the
model of our previously licensed anti-fungal nail treatment.  We have
in our pipeline a viable topical treatment for psoriasis, a common
dermatological condition.
Since the acquisition on December 14, 2009, our Bio-Quant team has been
reviewing and studying the pre-clinical stage topical products in our pipeline
to determine if additional value can be created through further testing
in-house. These products include the above-mentioned treatment for psoriasis,
cancer inflammation and also treatments for pain and wound
healing.


.


Bio-Quant
CRO Business





Bio-Quant
has over 300 clients world-wide and performs hundreds of studies a year both in
in vitro and in vivo pharmacology,
pharmacokinetics (PK) and toxicology to support pre-IND enabling packages.
Bio-Quant performs studies for its clients in the early stages of drug
development and discovery.  To provide the needed flexibility, this
discovery work is best performed by Bio-Quant’s highly experienced and trained
scientists who know how to recognize and address the unusual and unexpected
outcomes that are the norm during discovery. Because the path to success at the
discovery stage is through the process of failing fast and failing often, the
optimal discovery research methodology focuses on the fastest and most
cost-effective methods for getting correct scientific answers to direct further
research.




To date,
approximately 80% of Bio-Quant’s revenue has been generated from pre-clinical
contract services.  The CRO industry in general continues to be
dependent on the research and development efforts of pharmaceutical and
biotechnology companies as major customers, and we believe this dependence will
continue.  The current uncertain economic conditions have caused
customers to re-evaluate priorities resulting in increases in contracts for the
more promising projects, scaling back and/or canceling other GLP projects
towards clinical trials.  The biopharmaceutical industry is reducing
costs and, often, their workforce.  Bio-Quant may benefit from
increased outsourcing on the part of its customers, or it may be harmed by a
reduction in spending if the biopharmaceutical industry scales back on
pre-clinical projects.  Bio-Quant views the current conditions as an
opportunity to attract well qualified candidates to strengthen and improve its
operations.  Another trend in the industry is the decline in
prescription drug sales caused by cost conscious patients opting for less
expensive generic drugs or none at all.  This presents both an
opportunity and a challenge to Bio-Quant, as its customers will need to find
less costly, or more efficient research options often through the establishment
of strategic alliances or partnerships.  Bio-Quant believes it is well
positioned for this development.




With
access to our NexACT technology, we intend to differentiate the Bio-Quant
business from its competitors because it now can offer a proprietary drug
delivery technology as a service to current and potential clients who need
innovative alternatives and solutions to their development
problems.





Bio-Quant
has two labs and housing facilities along with an experienced scientific staff
of 19 employees.





There are
many different types of clients that need these types of studies performed
during these early stages of drug discovery and
development.  Bio-Quant’s clients range from larger global
pharmaceutical companies to midsize and small biotechnology
companies.





Patents





We hold
ten U.S. patents out of a series of patent applications that we have filed in
connection with our NexACT®
technology and our NexACT® -based
products under development. 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.


7





The following table identifies the ten
U.S. patents issued for NexACT®
technology and/or our NexACT®-based
products under development as of March 31, 2010, and the year of expiration for
each patent:





Patent Name
                
                Expiration DateCompositions
      and Methods for Amelioration of Human Female Sexual
      Dysfunction
                
                2017Topical
      Compositions for PGE1 Delivery
                
                2017Topical
      Compositions for Non-Steroidal Anti-Inflammatory Drug
    Delivery
                
                2017Medicament
      Dispenser
                
                2019Crystalline
      Salts of dodecyl 2-(N, N-Dimethylamino)-propionate *
                
                2019Topical
      Compositions Containing Prostaglandin E1
                
                2019CIP:
      Topical Compositions Containing Prostaglandin E1
                
                2019Topical
      Stabilized Prostaglandin E Compound Dosage Forms
                
                2023Antifungal
      Nail Coat Method of Use
                
                2026Stabilized
      Prostaglandin E Composition
                
                2026




*Composition of matter patent
on our NexACT®
technology




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.





While we
believe that our patents would prevail in any potential litigation, the holders
of competing patents could determine to commence a lawsuit against us and may
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.  Additionally, in February 2009, we sold two patents to Warner and
are obligated to indemnify Warner against challenges those patents which could
result in additional costs to us.





Segment
and Geographic Area Information





You can
find information about our business segments of business in Note 17 of the Notes
to Consolidated Financial Statements in Item 8.





Employees





As of
March 23, 2010, we had 34 full time employees, 5 of whom are executive
management and 20 of whom are engaged in research and development
activities.   We also rely on a number of
consultants.  None of our employees are 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*
                      
                      TitleDr.
      Bassam Damaj
                      
                      41
                      
                      Director,
      President and Chief Executive OfficerVivian
      H. Liu
                      
                      48
                      
                      Director,
      Chairman and Executive Vice PresidentMark
      Westgate
                      
                      40
                      
                      Vice
      President, Chief Financial Officer and TreasurerDr.
      Henry Esber
                      
                      71
                      
                      Director,
      Executive Vice PresidentEdward
      Cox
                      
                      29
                      
                      Vice
      President, Investor Relations and Corporate Development and
      Secretary


*As of
March 1, 2010


8


Effective
December 14, 2009, as contemplated under the terms of the merger agreement
entered into in connection with our acquisition of Bio-Quant, Dr. Damaj was
appointed to serve as the Company’s new President and Chief Executive Officer
and Vivian H. Liu, the Company’s existing Chief Executive Officer, was appointed
to serve as the Company’s Executive Vice President and Chairman of the Board of
Directors..





Bassam B. Damaj has been a
director since December 2009, when he was appointed to the Board pursuant to the
terms of the merger agreement that we entered into in connection with our
acquisition of Bio-Quant, Inc.  He is a co-founder of Bio-Quant, Inc.
and has served as the Chief Executive Officer and Chief Scientific Officer and a
director of Bio-Quant since its inception in June 2000.  He has also
served as the Group Leader for the Office of New Target Intelligence and a Group
Leader for immunological and inflammatory disease programs at Tanabe Research
Laboratories, U.S.A., Inc., as a senior scientist and member of the senior staff
board of the drug discovery department at Pharmacopeia Inc., and as a visiting
scientist at Genentech Inc., Pfizer Inc. and the National Institutes of Health
(NIH).  Dr. Damaj holds a Ph.D. degree in Immunology/Microbiology from
Laval University and completed a postdoctoral fellowship in molecular oncology
from McGill University.





Vivian H. Liu is, and has
been, our Executive Vice President and Chairman of the Board from December
2009.  She has served as a director from June 2007, and was our
President and Chief Executive Officer from June 2007 to December 2009, and our
Secretary from 1995 to December 2009.  Ms. Liu also served as our Vice
President of Corporate Affairs from September 1995 until December 2005, Acting
Chief Executive Officer from December 2005 until January 2006, Executive Vice
President and Chief Operating Officer from January 2006 to June 2007, Chief
Financial Officer from January 2004 until December 2005, Acting Chief Financial
Officer from 1999 to January 2004 and Treasurer from September 1995 through
December 2005.  In 1994, while we were in a transition period, Ms. Liu
served as Chief Executive Officer.  From 1985 to 1994, Ms. Liu 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 B.A. from the University of
California, Berkeley.





Mark Westgatehas been our
Vice President, Chief Financial Officer and Treasurer since December
2005.  From March 2002 to December 2005, Mr. Westgate served as our
Controller.  He has over seventeen years of public accounting and
financial management experience.  From August 1998 to March 2002, Mr.
Westgate served as Controller and Director of Finance for Lavipharm Laboratories
Inc., a company specializing in drug delivery and particle
design.  Prior to joining Lavipharm, he was a supervisor at Richard A.
Eisner & Company, LLP where he performed audits and provided tax advice for
clients in various industries including biotech.  Mr. Westgate is a
Certified Public Accountant and a member of the New York State Society of
Certified Public Accountants.  He holds a B.B.A. in public accounting
from Pace University.





Henry J. Esber has been a
director since December 2009, when he was appointed to the Board pursuant to the
terms of the merger agreement that we entered into in connection with our
acquisition of Bio-Quant, Inc.  He has served as the Senior Vice
President and Chief Business Development Officer and a director of Bio-Quant,
Inc. since January 2006.  From September 2000 to December 2005, Dr.
Esber served as the executive director of business development at Charles River
Laboratories, Inc., a global provider of research models and preclinical,
clinical, and support services.  Prior to that, Dr. Esber was an
executive director at Primedica Corporation and Genzyme Transgenics Corporation,
vice president at Bio-Development Laboratories, vice president at TSI
Corporation, director at EG&G Mason Research Labs and the director of the
Department of Immunology and Clinical Services at Mason Research
Laboratories.  Dr. Esber has also served as an affiliate professor at
Anna Maria College Graduate School and the University of
Connecticut.  Dr. Esber holds a B.S. degree in Pre-Medicine from
Norfolk College of William and Mary (now Old Dominion), a Master of Science
degree in Public Health in Parasitology and Public Health from the University of
North Carolina, Chapel Hill and a Ph.D. degree in Immunology/Microbiology from
West Virginia University Medical Center, Morgantown.





Edward Coxhas been our Vice
President, Investor Relations and Corporate Development since December
2009.  Mr. Cox has been the President and a director of Bio-Quant,
Inc. since January 2007.  Prior to that, from June 2006 to November
2006, Mr. Cox served as a director of TomCo Energy PLC, a private oil mining
company, which has since become listed on the London AIM market.  He
has also acted as a Business Strategist and Consultant for several other
companies, including Tequesta Marine Biosciences.  Mr. Cox holds a
Masters of Science degree in Business from the University of
Florida.


9





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 well as our proxy statements 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 100 F Street, N.E., 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.





ITEM
      1A.
            RISK
      FACTORS.





FACTORS
THAT COULD AFFECT OUR FUTURE RESULTS





RISKS RELATED TO THE
COMPANY





We
continue to require external financing to fund our operations, which may not be
available.





We expect
our current cash reserves to provide us with sufficient cash to fund our
operations into the second half of 2011.  While our newly acquired
subsidiary, Bio-Quant,  is projected to be cash flow positive in 2010,
we do not believe that Bio-Quant will generate sufficient cash to fund the
development of our current products under development and the annual costs to
remain a public company, including legal, audit and listing fees.  We
intend to seek development partners to advance our products under development
because we will also need significant funding to pursue our overall product
development plans. In general, products we plan to develop will require
significant time-consuming and costly research and development, clinical
testing, regulatory approval and significant investment prior to their
commercialization. Even if we are successful in obtaining partners who can
assume the funding for further development of our products, we may still
encounter additional obstacles such as research and development activities may
not be successful, our products may not prove to be safe and effective, clinical
development work may not be completed in a timely manner or at all, and the
anticipated products may not be commercially viable or successfully
marketed.  During 2010 we intend to focus on generating more positive
cash flow by expanding the CRO business through organic growth within
Bio-Quant’s current business operations and through acquiring small cash flow
positive entities who have complimentary capabilities to those of Bio-Quant but
are not operating at full capacity due to insufficient business development
efforts.  There is no assurance that we can expand Bio-Quant’s current
business operations or successfully identify and acquire small cash flow
positive entities as described above.  Should we not be able to find
development partners or successfully increase Bio-Quant’s positive cash flow, we
would require external financing to fund our operations.





Additionally,
we have substantial notes payable issued in connection with the acquisition of
Bio-Quant due within 12 months as discussed in Notes 3 and 9 of the Notes to the
Consolidated Financial Statements, which if not converted to common stock, would
significantly impact liquidity when due in December 2010.





Our
current cash reserves of approximately $3.25 million as of the date of this
report, should provide us with sufficient cash to fund our operations into the
second half of 2011 assuming we convert upon shareholder approval or extend the
maturity date of significant amounts due in 2010 and 2011 under notes
payable.  This projection is based on the monthly operating expenses
of maintaining our public listing together with Bio-Quant’s business growing at
an assumed rate of 11% over 2009 levels with no additional acquisitions in
2010.


10





We
will continue to incur operating losses.





We may encounter delays, uncertainties
and complications typically encountered by businesses with future revenues tied
to products under development. We have not marketed or generated sales revenues
in the U.S. from our products under development. We are not profitable and have
incurred an accumulated deficit of $171,731,862 since our inception through
December 31, 2009. Our ability to generate revenues and to achieve profitability
and positive cash flow will depend on the successful licensing or
commercialization of our products currently under development and the ability to
grow Bio-Quant’s pre-clinical service business to a level sufficient to generate
sufficient operating income to cover the costs of our operations, including
maintaining our public listing.  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,
(3) success in licensing, manufacturing, distributing and marketing our proposed
products and (4) increasing the profitability of Bio-Quant through acquisitions
and organic growth of its current operations.





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, 2009 consolidated financial statements included
in this annual report on Form 10-K 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.





If
we fail to attract and keep senior management and key scientific personnel, we
may be unable to successfully operate our business.





Our success depends in part on our
continued ability to attract, retain and motivate highly qualified management
and scientific personnel and on its ability to develop and maintain important
relationships with healthcare providers, clinicians and
scientists.  We are highly dependent upon our senior management and
scientific staff, particularly Bassam Damaj, Ph.D., our Chief Executive
Officer.  Although we have employment agreements with most of our
executives, these agreements are generally terminable at will at any time, and,
therefore, we may not be able to retain their services as expected. The loss of
services of one or more members of our senior management and scientific staff
could delay or prevent us from obtaining new clients and successfully operating
our business.  Competition for qualified personnel in the
biotechnology and pharmaceuticals field is intense, particularly in the San
Diego, California area, where our offices are located.  We may need to
hire additional personnel as we expand our commercial activities.  We
may not be able to attract and retain qualified personnel on acceptable
terms.





Our ability to maintain, expand or
renew existing business with our clients and to get business from new clients,
particularly in the drug development sector, also depends on our ability to
subcontract and retain scientific staff with the skills necessary to keep pace
with continuing changes in drug development technologies.





We
will need partnering agreements and significant funding to continue with our
research and development efforts, and they may not be available.





We expect
our current cash reserves to provide us with sufficient cash to fund our
operations into the second half of 2011.  We will need additional
sources of cash to fund the development and eventual marketing and sales of our
products under development.  We intend to seek development partners to
advance our products under development because we will also need significant
funding to pursue our overall product development plans. In general, products we
plan to develop will require significant time-consuming and costly research and
development, clinical testing, regulatory approval and significant investment
prior to their commercialization.


11


Our
research and development expenses for the years ended December 31, 2009, 2008
and 2007 were $1,883,458, $5,410,513 and $5,022,671,
respectively.  Through December 31, 2009, we have spent $98,786,673 on
research and development.  Given our current level of cash reserves
and current revenue level of our subsidiary, Bio-Quant, we will not be able to
fully advance our products under development unless we enter into additional
partnering agreements and /or significantly grow Bio-Quant’s CRO business. 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.





We
currently have no sales force or marketing organization and will need, but may
not be able, to attract marketing partners or afford qualified or experienced
marketing and sales personnel for our products under development.





In order to market our proprietary
products under development, we will need to attract additional marketing
partner(s) that 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.  Consummation of partnering arrangements 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 or our
partners do not successfully conduct these trials, we or our partners may be
unable to market our products.





Through pre-clinical studies and
clinical trials, our products must be demonstrated to be safe and effective for
their indicated uses. Results from pre-clinical studies and early clinical
trials may not be indicative of, or allow for prediction of results in
later-stage testing.  Future clinical trials may not demonstrate the
safety and effectiveness of our products or may not result in regulatory
approval to market our products.  Commercial sales in the United
States of our products cannot begin until final FDA approval is
received.  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 and products under development 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.  In addition, we have agreed to indemnify our
partners for certain liabilities with respect to the defense, protection and/or
validity of our patents and would also be required to incur costs or forego
revenue if it is necessary for our partners to acquire third party patent
licenses in order for them to exercise the licenses acquired from
us.





We currently hold ten U.S. patents out
of a series of patent applications that we have filed in connection with our
NexACT®
technology and our NexACT®-based
products under development. 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.  We previously held two patents covering the
first generation of the NexACT®
technology enhancer, which expired in 2008 and 2009.  While we believe
there are significant disadvantages to using the permeation enhancers covered by
these expired patents, third parties may nevertheless develop competitive
products using the enhancer technology now that it is no longer patent
protected..





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 enough to protect us against competitors with
similar technology.  Any of our patents could be invalidated or
circumvented.


12





While we believe that our patents would
prevail in any potential litigation, the holders of 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.


Additionally,
in February 2009, we sold two patents to Warner and are obligated to indemnify
Warner against challenges to those patents, which could result in additional
costs to us.





We
and our licensees depend upon third party manufacturers for chemical
manufacturing supplies.





We and our licensees are dependent on
third party chemical manufacturers for the active drugs in our NexACT®-based
products under development, and for the supply of our NexACT®
enhancers that are essential in the formulation and production of our topical
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 quantities, our results would suffer, as we or our
licensees would encounter costs and delays in revalidating new third party
suppliers.





We
face severe competition.





We are engaged in a highly competitive
industry. We and our licensees can expect competition from numerous companies,
including large international enterprises, and others entering the market for
products similar to ours. 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.





The Bio-Quant CRO business primarily
competes against in-house departments of pharmaceutical, biotechnology and
medical device companies, academic institutions and other contract research
organizations. Competitors in Bio-Quant’s industry range from small,
limited-service providers to full service, global contract research
organizations.  Many of Bio-Quant’s competitors have an established
global presence, including Quintiles Transnational Corp., Covance, Inc., Parexel
International Corporation, Pharmaceutical Product Development, Inc., Icon
Clinical Research, and Kendle International, Inc.  In addition, many
of Bio-Quant’s competitors have substantially greater financial and other
resources than Bio-Quant does and offer a broader range of services in more
geographical areas than Bio-Quant does.  Significant factors in
determining whether Bio-Quant will be able to compete successfully include: its
consultative capabilities; its reputation for on-time quality performance; its
expertise and experience in specific drug discovery, research and development
areas; the scope of its service offerings; its strength in various geographic
markets; the price of its services; and its size.





If Bio-Quant’s services are not
competitive based on these or other factors and Bio-Quant is unable to develop
an adequate level of new business, its business, backlog position, financial
condition and results of operations will be materially and adversely
affected.  In addition, Bio-Quant may compete for fewer clients
arising out of consolidation within the pharmaceutical industry and the growing
tendency of drug companies to outsource to a smaller number of preferred
contract research organizations that have far greater resources and
capabilities.





Bio-Quant’s services may from time to
time experience periods of increased price competition that could have a
material adverse effect on its profitability and
revenues.  Additionally, the CRO industry is not highly
capital-intensive, and the financial costs of entry into the industry are
relatively low.  Therefore, as a general matter, the industry has few
barriers to entry.  Newer, smaller entities with specialty focuses,
such as those aligned to a specific disease or therapeutic area, may compete
aggressively against Bio-Quant for clients.


13


We
may be subject to potential product liability and other claims, creating risks
and expense.





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 for
marketed products as our products have yet to be approved for
commercialization.  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.





INDUSTRY
RISKS





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.





Instability
and volatility in the financial markets and the global economic recession are
likely to have a negative impact on our ability to raise necessary funds and on
our business, financial condition, results of operations and cash
flows.





During
recent months, there has been substantial volatility and a decline
in financial markets due at least in part to the deteriorating global
economic environment. In addition, there has been substantial uncertainty in the
capital markets and access to financing is uncertain.  These conditions are
likely to have an adverse effect on our industry, licensing partners, and
business, including our financial condition, results of operations and cash
flows.




To the
extent that we do not generate sufficient cash from operations, we may need to
incur indebtedness, if available, to finance plans for growth or to continue our
current operations. However, recent turmoil in the credit markets and the
potential impact on the liquidity of major financial institutions may have an
adverse effect on our ability to fund our business strategy through borrowings,
under either existing or newly created instruments in the public or private
markets on terms that we believe to be reasonable, if at all.





Changes
in trends in the pharmaceutical and biotechnology industries, including
difficult market conditions, could adversely affect our operating
results.





Industry
trends and economic and political factors that affect pharmaceutical,
biotechnology and medical device companies also affect our
business.  For example, the practice of many companies in these
industries has been to hire companies like us to conduct discovery, research and
development activities.  If these companies suspend these activities
or otherwise reduce their expenditures on outsourced discovery, research and
development in light of current difficult conditions in credit markets and the
economy in general, or for any other reason, our operations, financial condition
and growth rate could be materially and adversely affected.  In the
past, mergers, product withdrawal and liability lawsuits, and other factors in
the pharmaceutical industry have also slowed decision-making by pharmaceutical
companies and delayed drug development projects.  Continuation or
increases in these trends could have an adverse effect on our
business.  In addition, numerous governments have undertaken efforts
to control growing healthcare costs through legislation, regulation and
voluntary agreements with medical care providers and pharmaceutical
companies.  If future cost-containment efforts limit the profits that
can be derived on new drugs, our clients might reduce their drug discovery and
development spending, which could reduce our revenue and have a material adverse
effect on our results of operations.





The biotechnology, pharmaceutical and
medical device industries generally and drug discovery and development more
specifically are subject to increasingly rapid technological
changes.  Our competitors, clients and others might develop
technologies, services or products that are more effective or commercially
attractive than our current or future technologies, services or products, or
that render our technologies, services or products less competitive or
obsolete.  If competitors introduce superior technologies, services or
products and we cannot make enhancements to our technologies, services or
products to remain competitive, our competitive position, and in turn our
business, revenue and financial condition, would be materially and adversely
affected.


14





We
and our licensees 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 any products we develop are marketed, FDA and comparable foreign
agency approval must be obtained 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 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.





The failure to obtain requisite
governmental approvals for our products under development in a timely manner or
at all would delay or preclude us and our licensees from marketing our products
or limit the commercial use of our products, which could adversely affect our
business, financial condition and results of operations.





Any failure on our part to comply with
applicable regulations could result in the termination of on-going research,
discovery and development activities or the disqualification of data for
submission to regulatory authorities.   As a result of any such
failure, we could be contractually required to perform repeat services at no
further cost to our clients, but at a substantial cost to us.  The
issuance of a notice from regulatory authorities based upon a finding of a
material violation by us of applicable requirements could result in contractual
liability to our clients and/or the termination of ongoing studies which could
materially and adversely affect our results of
operations.  Furthermore, our reputation and prospects for future work
could be materially and adversely diminished.





Because we intend that our products
will be sold and marketed outside the U.S., we and/or our licensees 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. The 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 one or more products is successfully brought to market, reimbursement to
consumers may not be available or sufficient to allow the realization of 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.


15


RISKS RELATED TO OWNING OUR
COMMON STOCK





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 Capital Market.  On January 26, 2010, we received an
expected notice of non-compliance (the “Notice”) from The NASDAQ Stock Market
LLC based upon the bid price of the Company’s common stock closing at less than
$1.00 per share in violation of NASDAQ Listing Rule 5550(a)(2), which could
serve as an additional basis for the delisting of the Company’s securities from
The NASDAQ Capital Market.





We
responded to the Notice on January 27, 2010, requesting additional time to
regain compliance with the bid price listing requirement.  Our January
27, 2010 response also sought an exemption, through May 24, 2010, from
compliance with another existing deficiency (failure to comply with the annual
shareholder meeting and proxy solicitation requirements) to allow the Company to
execute its plans to regain compliance.





At an
appeals hearing held in November 2009 at our request, following a series of
communications between us and NASDAQ regarding various deficiencies, including
those described above and our failure to satisfy the minimum $2.5 million in
stockholders’ equity requirement for continued listing as of August 2009, we
presented to NASDAQ our plan to regain compliance with the applicable listing
requirements.  On February 1, 2010, we received the Hearing Panel’s
determination (the “Determination Letter”).   The Determination
Letter confirmed that NASDAQ would continue the listing of the Company’s
securities on The NASDAQ Stock Market provided that the Company shall have (1)
solicited proxies and held its annual meeting on or before May 24, 2010 and (2)
evidenced compliance with the minimum bid price requirement and all other
requirements for The NASDAQ Stock Market on or before July 15,
2010.  If the Company is not able to demonstrate compliance with all
requirements for continued listing on or before July 15, 2010, its securities
may be delisted.  During this exemption period, the Company must
provide prompt notice to NASDAQ of any significant events that occur, including,
but not limited to, any event that may call into question the Company’s
historical financial information or that may impact the Company’s ability to
maintain compliance with any NASDAQ listing requirement or exemption
deadline.





If we fail to achieve the minimum bid
price requirement of the Nasdaq Capital Market by July 15, 2010 or fail to
maintain compliance with any other listing requirements during this period
(including a failure to comply with the annual shareholder meeting and proxy
solicitation requirements on or before May 24, 2010), we may be delisted and 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 maintain our listing on Nasdaq or any other United
States securities exchange, quotation system, market or over-the-counter
bulletin board, we will be subject to cash penalties under investor rights
agreements to which we are a party until a listing is
obtained.





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 declare 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 280,000,000
shares of our capital stock, consisting of 270,000,000 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, 800 are designated
as Series B 8% Cumulative Convertible Preferred Stock and 600 are designated as
Series C 6% Cumulative Convertible Preferred Stock. As of March 26, 2010,
126,902,281 shares of our Common Stock were issued and outstanding and 6,364,102
shares of our Common Stock were issuable upon the exercise or conversion of
outstanding options and warrants.  As of March 26, 2010, there were no
shares of Series A, Series B or Series C Preferred Stock
outstanding.  In light of our possible future 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.





Additionally, we have substantial notes
payable issued in connection with the acquisition of Bio-Quant due within 12
months as discussed in Notes 3 and 9 of the Notes to the Consolidated Financial
Statements.  These notes can, with approval of our shareholders, be
repaid with the issuance of Common Stock.  As of the date of this
report, we would need to issue approximately 60 million shares, at a
predetermined price of $0.168 per share to repay such notes payable in
full.


16


In addition to provisions providing for
proportionate adjustments in the event of stock splits, stock dividends, reverse
stock splits and similar events, certain outstanding warrants and convertible
instruments provide (with certain exceptions) for an adjustment of the exercise
or conversion price if we issue shares of Common Stock at prices lower than the
then exercise or conversion 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 or conversion 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
      1B.
            UNRESOLVED
      STAFF COMMENTS.





None.





ITEM
      2.
            PROPERTIES.





We
currently have our corporate office, laboratories and housing facilities at 2
locations that we currently lease in San Diego, CA.  In addition we
own a 31,500 square foot manufacturing facility in East Windsor,
NJ.  As discussed in Note 5 of the Notes to the Consolidated Financial
Statements, we signed an agreement to lease the manufacturing facility for 10
years commencing February 1, 2010.  The lease agreement also contains
an option allowing the lessee to purchase the facility during the term of the
lease.





ITEM
      3.
            LEGAL
      PROCEEDINGS.





We are subject to certain legal
proceedings in the ordinary course of business.  We do not expect any
such items to have a significant impact on our financial position.





ITEM
      4.
            RESERVED





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 Capital Market System (“NASDAQ”) under the
symbol “NEXM.”





On March
26, 2010, the last reported sales price for our Common Stock on NASDAQ was $0.43
per share, and we had approximately 12,300 holders of record of our Common
Stock.





The
following table sets forth the range of the high and low sales prices for our
Common Stock as reported by NASDAQ for each quarter from January 1, 2008 to
December 31, 2009.




Price
      of Common Stock ($)High
                
                
                Low2009First
      Quarter
                
                
                0.28
                
                
                
                0.08Second
      Quarter
                
                
                0.54
                
                
                
                0.12Third
      Quarter
                
                
                0.46
                
                
                
                0.15Fourth
      Quarter
                
                
                0.51
                
                
                
                0.12





2008First
      Quarter
                    
                    
                    1.70
                    
                    
                    
                    1.19Second
      Quarter
                    
                    
                    1.37
                    
                    
                    
                    1.04Third
      Quarter
                    
                    
                    1.53
                    
                    
                    
                    0.12Fourth
      Quarter
                    
                    
                    0.16
                    
                    
                    
                    0.05




17




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.





Unregistered
sales of equity securities and use of proceeds




None.




ITEM
      7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.





General




In July
2008, Novartis completed testing for the Phase 3 clinical trials for NM100060 as
discussed in Note 4 of the Notes to the Consolidated Financial
Statements.  On August 26, 2008, we announced that based on First
Interpretable Results of these two Phase 3 studies, Novartis had decided not to
submit the NDA.





The
decision by Novartis to not file the NDA had a negative impact on our liquidity
and financial condition.  As a result, in December 2008, we began to
implement a restructuring program with the goal of reducing costs and
outsourcing basic research and development.  This restructuring
program continued into 2009 as we announced the mutual decision reached with
Novartis to terminate the licensing agreement.





During
2009, under this restructuring program,  we remained open to
opportunities to co-develop products utilizing our NexACT technology and we
actively pursued strategic opportunities that would leverage our NexACT platform
and generate partnership revenues to fund our development efforts.
 Additionally, during 2009, we were actively trying to sell or lease our
facility in East Windsor, NJ which would further reduce our monthly operating
expenses.





In
December, 2009, we entered into an agreement to lease our facility in East
Windsor, NJ for a period of 10 years at $34,450 per month with annual 2.5%
escalations. Further, the tenant has an option to purchase the building for an
initial purchase price of $4.4 million as discussed in Note 5 of the Notes to
the Consolidated Financial Statements.





On
December 14, 2009, we acquired Bio-Quant, Inc. (“Bio-Quant”), the largest
specialty biotech contract research organization (CRO) based in San Diego,
California and one of the industry's most experienced CROs for non-GLP in vitro and in vivo contract drug
discovery and pre-clinical development services, specializing in oncology,
inflammation, immunology, and metabolic diseases. Bio-Quant has over 300 clients
world-wide and performs hundreds of studies a year both in in vitro and in vivo pharmacology,
pharmacokinetics (PK) and toxicology to support pre-IND enabling
packages.  A detailed description of the terms of the acquisition are
described in Note 3 of the Notes to the Consolidated Financial
Statements.





We are
now focusing our efforts on new and patented pharmaceutical products based on
NexACT® and on
growing the newly acquired CRO business through both organic growth within
Bio-Quant’s current business operations and through the acquisition of
small cash flow positive entities who have complimentary capabilities to those
of Bio-Quant but are not operating at full capacity due to insufficient business
development efforts.  We believe this strategy will allow Bio-Quant to
expand its operations by broadening its service capabilities and going into new
markets.





Our broader goal is to generate
revenues from the growth of Bio-Quant’s CRO business while aggressively seeking
to monetize the NexACT®technology through out-licensing
agreements with pharmaceutical and biotechnology companies
worldwide.  At the same time, we are actively pursuing partnering
opportunities for our clinical stage NexACT®based treatments in the areas of
dermatology and sexual dysfunction.The successful licensing or sale of one
or more of these products wouldl generate additional revenues for funding our
long-term growth strategy.


18





Liquidity,
Capital Resources and Financial Condition.




We have
experienced net losses and negative cash flows from operations each year since
our inception.  Through December 31, 2009, we had an accumulated
deficit of $171,731,862.  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.




In
January 2010, we raised gross proceeds of $2.3 million in an offering of
unsecured promissory notes (the “Notes”).  The Notes accrued interest
at a rate of 10% per annum and were due and payable in full six months from the
date of issuance. The principal and accrued interest due under the Notes was
payable, at our election in either cash or shares of Common Stock (the
“Shares”).  The weighted average conversion price of the Shares
issuable under the Notes was $0.37 per Share, with the conversion prices ranging
from $0.36 to $0.40 per Share.




On March
17, 2010, we repaid all outstanding principal and accrued interest under the
Notes through the issuance of an aggregate of approximately 6.2 million
shares.




In March
2010, we raised gross proceeds of $1.4 million in connection with the
re-financing of our convertible mortgage notes as discussed in Note 18 of the
Notes to the Consolidated Financial Statements.




While our
newly acquired subsidiary, Bio-Quant, is projected to be cash flow positive in
2010, we do not believe that Bio-Quant will generate sufficient cash to fund the
development of our current products under development and/or the annual costs to
remain a public company, including legal, audit and listing fees.  We
intend to seek development partners to advance our products under development
because we will also need significant funding to pursue our overall product
development plans. In general, products we plan to develop will require
significant time-consuming and costly research and development, clinical
testing, regulatory approval and significant investment prior to their
commercialization. Even if we are successful in obtaining partners who can
assume the funding for further development of our products, we may still
encounter additional obstacles such as our research and development activities
may not be successful, our products may not prove to be safe and effective,
clinical development work may not be completed in a timely manner or at all, and
the anticipated products may not be commercially viable or successfully
marketed.  During 2010 we intend to focus on generating more positive
cash flow by growing the CRO business through organic growth within Bio-Quant’s
current business operations and through acquiring small cash flow positive
entities who have complimentary capabilities to those of Bio-Quant but are not
operating at full capacity due to insufficient business development
efforts.  We feel that this strategy will allow Bio-Quant to expand its
operations by broadening its service capabilities and going into new
markets. There is no assurance that we can grow Bio-Quant’s current
business operations or successfully identify and acquire small cash flow
positive entities as described above.  Should we not be able to find
development partners or successfully increase Bio-Quant’s positive cash flow, we
would require external financing to fund our operations.





Our
current cash reserves of approximately $3.25 million as of the date of this
report, which includes the $2.3 million received from the issuance of the Notes
and the $1.4 million raised received from the convertible mortgage note
re-financing as discussed above, should provide us with sufficient cash to fund
our operations into the second half of 2011 assuming we convert or extend the
maturity of significant amounts due in 2010 and 2011 under notes
payable.  This projection is based on the monthly operating expenses
of maintaining our public listing together with the Bio-Quant’s business growing
at an assumed rate of 11% over 2009 levels with no additional acquisitions in
2010.


.


As a
result of our losses to date, expected losses in the future, limited capital
resources and the maturity of more than $13 million of debt in 2010 and 2011 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.


19





At
December 31, 2009 we had cash and cash equivalents and short term investments of
approximately $480,000 as compared to $2.8 million at December 31,
2008.   During  2009, we received $3,000,000 from
Warner from the sale of the U.S. rights to Vitaros®and the
related facility license feesas
discussed in Note 4 of the Notes to the Consolidated Financial
Statements.  The receipt of this cash and the $750,000 convertible
note financing as discussed in Note 8 of the Notes to the Consolidated Financial
Statements in 2009 was offset by our cash used in operations during
2009.  We spent approximately $6.1 million consisting of our average
fixed monthly overhead costs of approximately $325,000 per month in addition to
$592,000 towards a cancellation fee as discussed in Note 16 of the Notes to the
Consolidated Financial Statements.  Additionally, we spent
approximately $556,000 in severance and accrued vacation paid as part of our
restructuring program implemented in December 2008, $58,000 for Nasdaq annual
listing fees, $50,000 of principal on convertible notes repaid as discussed in
Note 8 of the Notes to the Consolidated Financial Statements, $585,000 in costs
related to the acquisition of Bio-Quant, $42,000 in legal fees and $175,000 in
consulting fees related to the execution of the Warner Asset Purchase Agreement
as discussed in Note 4 of the Notes to the Consolidated Financial Statements and
$141,300 for legal fees in connection with a patent lawsuit in which we are the
plaintiff suing for patent infringement on our herpes treatment medical
device.




At
December 31, 2009 we had an other receivable of $437,794 representing the
proceeds from the sale of New Jersey state tax losses as described in Note 15 of
the Notes to the Consolidated Financial Statements.   The
proceeds were not received until February 2010.  In previous years the
funding of the sale of such tax credits by the State took place in the same year
as the sale and therefore was not recorded as a receivable.




At
December 31, 2009, we had $139,495 in capital lease payables as a result of
capital leases acquired through the acquisition of Bio-Quant in
2009.  The terms of the lease agreements are described in Note 12 of
the Notes to the Consolidated Financial Statements.





At
December 31, 2009, we had $200,565 in deferred revenue as a result of the
licensing of our patents to Warner in connection with the Asset Purchase
Agreement, as amended, as discussed in Note 4 of the Notes to the Consolidated
Financial Statements.  Additionally, we have received one month’s rent
in advance in connection with the leasing of our facility in New Jersey as
discussed in Note 5 of the Notes to the Consolidated Financial
Statements.





For the
year ended December 31, 2009 we incurred a net gain on disposal of fixed assets
(included in general and administrative expenses in our consolidated statement
of operations) of $34,450 as compared to a net loss of $904,902 in
2008.  The significant loss on disposal of fixed assets in 2008
resulted from an impairment charge of approximately $884,000 to reduce the
carrying amount of our land and building to reflect the current commercial real
estate market as we have initiated efforts to sell this facility.





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 our 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:


20


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.





Critical
Estimate:We
have initiated efforts to sell the facility housing our corporate office,
research and development laboratories and manufacturing plant located in East
Windsor, New Jersey.  We have performed a review for impairment of our
facility based on discussions with our real estate agent regarding the likely
selling price of our facility and the commercial real estate market in
general.  Accordingly, in 2008 we took a write-down of approximately
$884,000 to the carrying value of the facility to approximate the current market
value.  Overestimating the potential selling price of our facility in
a planned sale may lead to overstating the carrying value of the manufacturing
facility by not identifying an impairment loss.





Revenue
recognition:Revenues from
Bio-Quant’s performance of pre-clinical services are recognized according to the
proportional performance method whereby revenue is recognized as performance has
occurred, based on the relative outputs of the performance that has occurred up
to that point in time under the respective agreement, typically the delivery of
report data to our clients which documents the results of our pre-clinical
testing services.





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 as reported to us by our distribution partner,
provided the royalty amounts are fixed or determinable and the amounts are
considered collectible.  Revenues earned under license and 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.





Also,
licensing agreements typically include several elements of revenue, such as
up-front payments, milestones, royalties upon sales of product, and the delivery
of product and/or research services to the licensor. We follow the accounting
guidance of SEC Staff Accounting Bulletin No. 104 (which superseded SEC
Staff Accounting Bulletin No. 101), and ASC 605 (which became
effective for contracts entered into after June 2003). Non-refundable license
fees received upon execution of license agreements where we have continuing
involvement are deferred and recognized as revenue over the estimated
performance period of the agreement. This requires management to estimate the
expected term of the agreement or, if applicable, the estimated life of its
licensed patents.


21





In
addition, ASC 605 requires a company to evaluate its arrangements under which it
will perform multiple revenue-generating activities. For example, a license
agreement with a pharmaceutical company may involve a license, research and
development activities and/or contract manufacturing. Management is required to
determine if the separate components of the agreement have value on a standalone
basis and qualify as separate units of accounting, whereby consideration is
allocated based upon their relative “fair values” or, if not, the consideration
should be allocated based upon the “residual method.” Accordingly, up-front and
development stage milestone payments are and will be deferred and recognized as
revenue over the performance period of such license agreement.





Critical
Estimate:In
calculating the relative outputs of the performance that have occurred under the
proportional performance method for our pre-clinical testing services, we must
determine whether we have delivered sufficient value to recognize a portion of
the contract services revenue and to estimate what percentage of the total costs
has been incurred at any given point in time.In calculating the
progress made toward completion of a research contract or licensing agreement,
we must compare costs incurred to date to the total estimated cost of the
project and/or estimate the performance period.  We estimate the cost
and/or performance period 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 proportion of final
data generated for pre-clinical testing services or the total cost and/or
performance period of a research contract or licensing agreement may cause us to
accelerate the revenue recognized under such contract.  Conversely,
overestimating the proportion of final data for pre-clinical testing services or
the cost of a research contract 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, non-employee
contractors and warrants issued to investors.  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 2 of the Consolidated Financial Statements for the current estimates used
in the Black-Scholes pricing model.  We adopted the provisions of SFAS
123R commencing January 1, 2006.





Comparison
of Results of Operations between the Years Ended December 31, 2009 and
2008





The revenues and expenses of Bio-Quant
included in the consolidated financial statements represent 17 days of activity
in 2009; from the date of the closing of the acquisition through December 31,
2009.  As such, the activity is not significant to review in the
comparison of the results of operations below.  Please see Note 3 of
the Notes to the consolidated financial statements to see a pro-forma
presentation as if the acquisition had taken place in 2008.





Revenues. We recorded
revenues of  $2,973,708 during 2009 as compared to $5,957,491 during
2008.  The higher 2008 revenue is   primarily
attributable to the milestone payments received in 2008 from Novartis under the
licensing agreement for NM100060. As discussed in Note 4 to the Consolidated
Financial Statements, we received $1.5 million from Novartis in March 2008 and
another $3.5 million in October 2008.  These milestones were
recognized as revenue during 2008.   We recognized no revenue
from Novartis in 2009.  We expect revenues to increase significantly
in 2010 with the additional revenue to be generated by the Bio-Quant CRO
business during the entire year in 2010.





Research and
Development Expenses. Our
research and development expenses decreased from $5,410,513 in 2008 to
$1,883,458 in 2009.   Research and development expenses
significantly decreased in 2009 due toreduced spending in 2009 on our
development programs as part of our restructuring
program.  During  2009 we reducedour research and development staff and
infrastructure.We expect to see an increase in
research and development spending in 2010 as a result of the acquisition of
Bio-Quant and the expansion of ourNexACT®technology into the areas of oncology,
inflammation, immunology, and metabolic diseases.


22





General and Administrative
Expenses.  Our general and administrative expenses decreased
from $5,720,832 in 2008 to $4,196,359 in 2009.  The decrease is
primarily due to a reduction in staff costs as a result of our restructuring
program implemented in December 2008 along with a reduction in legal fees
related to our patents as we expended over $100,000 during 2008 for one-time
national filings of patent applications related to Vitaros®.





Interest  Expense.  We
recognized $28,696,006 and $1,006,794 in interest expense in 2009 and 2008,
respectively.  The increased interest expense is the result of imputed
interest expense recognized as a result of beneficial conversions of the
convertible mortgage note as discussed in Note 8 of the Notes to the
consolidated financial statements.  Non cash interest expense was
$28,352,598 and $693,316 for the years ended December 31, 2009 and 2008,
respectively.





Net Loss.  The net
loss was $32,042,562 or $0.36 per share and $5,171,198 or $0.06 per share in
2009 and 2008, respectively.  The significant increase in net loss is
the result of imputed interest expense recognized as a result of beneficial
conversions of the convertible mortgage note as discussed in Note 8 of the Notes
to the consolidated financial statements.





Comparison
of Results of Operations between the Years Ended December 31, 2008 and
2007





Revenues. We recorded
revenues of  $5,957,491 during 2008 as compared to $1,270,367 during
2007.  The increase in revenue in 2008 is primarily attributable to
the milestone payments received in 2008 from Novartis under the licensing
agreement for NM100060. As discussed in Note 4 to the Consolidated Financial
Statements, we received $1.5 million from Novartis in March 2008 and another
$3.5 million in October 2008.  These milestones were recognized as
revenue during 2008.





Research and Development
Expenses. Our research and development expenses increased from $5,022,671
in 2007 to $5,410,513 in 2008.    Research and development
expenses in the third quarter of 2008 increased primarily due to the expense of
approximately $892,000 for a cancellation fee related to the cancellation of a
clinical research agreement for a one-year open-label study for
Vitaros®.  This increase was partially offset by reduced spending in
2008 on our development programs including approximately $1.2 million
attributable to Vitaros®, as
compared to approximately $2 million for Vitaros® during
2007. We have continued to spend modestly on the early stage development of our
topical treatment for psoriasis.  During 2008 we initiated, and spent
approximately $341,000 on the psoriasis project.





General and Administrative
Expenses.  Our general and administrative expenses have
increased from $5,634,479 in 2007 to $5,720,832 in 2008.   The
increase is due to a loss on disposal of fixed assets in 2008 of $904,902 as
compared to $10,121 in 2007.  The significant increase in the loss on
disposal of fixed assets resulted from an impairment charge of approximately
$884,000 to reduce the carrying amount of our land and building to reflect the
current commercial real estate market as we have initiated efforts to sell this
facility.   The increase in loss on disposal of fixed assets was
partially offset by a decrease in salary expense of approximately $180,000 as a
result of no bonuses accrued or paid in 2008 and a reduction in consulting fees
of approximately $239,000, as our Chief Operating Officer hired in late 2007 and
Chief Executive Officer appointed in June 2007 have taken over most of the
responsibilities handled by consultants in 2007. We also reduced the cost of
printing and designing our annual report by approximately $63,000 in
2008.  Additionally we had a one-time expense of approximately
$257,000 in 2007 for New Jersey State sales tax paid as a result of a sales tax
audit covering the period from 2000 to 2007.





Interest  Expense.  We
recognized $1,006,794 and $481,862 in interest expense in 2008 and 2007,
respectively.  The increase is primarily due to the interest on the
$5,750,000 principal amount of convertible notes issued on June 30, 2008 and the
amortization of debt issue costs for warrants issued in connection with a line
of credit obtained in May 2008 compared to interest expense on lesser debt of
$2,000,000 in 2007.





Net Loss.  The net
loss was $5,171,198 or $0.06 per share and $8,787,228 or $0.11 per share in 2008
and 2007, respectively.  The decrease is primarily attributable to the
significant increase in revenues attributable to the milestone payments received
in 2008 from Novartis under the licensing agreement for NM100060.  As
discussed in Note 4 to the Consolidated Financial Statements, we received $1.5
million from Novartis in March 2008 and another $3.5 million in October
2008.  These milestone payments were recognized as revenue during
2008.


23





Quarterly
Results





The
following table sets forth selected unaudited quarterly financial information
for the years ended December 31, 2009 and 2008.  The operating results
are not necessarily indicative of results for any future period.





For
the Three Months Ended





March 31, 2009
                  
                  
                  June 30, 2009
                  
                  
                  September 30, 2009
                  
                  
                  December 31, 2009Total
      Revenues
                  
                  $
                  2,466,670
                  
                  
                  $
                  102,613
                  
                  
                  $
                  109,590
                  
                  
                  $
                  294,835Income
      (Loss) from Operations
                  
                  $
                  773,257
                  
                  
                  $
                  (1,308,589
                  )
                  
                  $
                  (914,438
                  )
                  
                  $
                  (2,370,072
                  )Net
      Income (Loss)
                  
                  $
                  684,772
                  
                  
                  $
                  (1,426,158
                  )
                  
                  $
                  (1,190,616
                  )
                  
                  $
                  (30,543,698
                  )Basic
      & Diluted Income (Loss)Per
      Share
                  
                  $
                  0.01
                  
                  
                  $
                  (0.02
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.34
                  ).March 31, 2008
                  
                  
                  June 30, 2008
                  
                  
                  September 30, 2008
                  
                  
                  December 31, 2008Total
      Revenues
                  
                  $
                  951,787
                  
                  
                  $
                  1,199,612
                  
                  
                  $
                  305,943
                  
                  
                  $
                  3,500,149Loss
      from Operations
                  
                  $
                  (1,520,702
                  )
                  
                  $
                  (1,090,169
                  )
                  
                  $
                  (2,896,791
                  )
                  
                  $
                  333,808Net
      Loss
                  
                  $
                  (1,642,187
                  )
                  
                  $
                  (1,628,723
                  )
                  
                  $
                  (3,040,094
                  )
                  
                  $
                  1,139,806Basic
      & Diluted LossPer
      Share
                  
                  $
                  (0.02
                  )
                  
                  $
                  (0.02
                  )
                  
                  $
                  (0.04
                  )
                  
                  $
                  0.01





ITEM 8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA.





INDEX TO
FINANCIAL STATEMENTS





PAGEReport
      of Independent Registered Public Accounting Firm 2009, 2008 and
      2007
              
              F-1Financial
      Statements:Consolidated
      Balance Sheets - December 31, 2009 and 2008
              
              F-2Consolidated
      Statements of Operations for the years ended December 31, 2009, 2008 and
      2007
              
              F-3Consolidated
      Statements of Changes in Stockholders' Equity for years ended December 31,
      2009, 2008 and 2007
              
              F-4Consolidated
      Statements of Cash Flows for the years ended December 31, 2009, 2008 and
      2007
              
              F-5Notes
      to the Consolidated Financial Statements
              
              F-6




24




Report
of Independent Registered Public Accounting Firm
  To the
Board of Directors
 Stockholders
of NexMed, Inc.
  We have
audited the accompanying consolidated balance sheets of NexMed, Inc. and
subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related
consolidated statements of operations, changes in stockholders’ equity and cash
flows for the years ended December 31, 2009, 2008 and 2007.  These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly we express no such opinion. Our audits of the
financial statements included 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.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of NexMed, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the results of its operations
and its cash flows for the years ended December 31, 2009, 2008 and 2007 in
conformity with accounting principles generally accepted in the United States of
America.
  The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and negative
cash flows from operations and expects to incur future losses. Further, the
Company has substantial notes payable and other obligations that mature within
the next 12 months.  These issues raise substantial doubt about its
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.
 
 On
December 14, 2009, the Company acquired Bio-Quant Inc., a San Diego based
contract research organization.  See Note 3 for further
details.
 
 /s/
Amper, Politziner & Mattia, LLP
 
 March 31,
2010
 Edison,
New Jersey
 
 F-1
 
 December
      31,2009
                            
                            
                            2008AssetsCurrent
      assetsCash
      and cash equivalents
                            
                            $
                            479,888
                            
                            
                            $
                            2,862,960Accounts
      receivable
                            
                            
                            708,898
                            
                            
                            
                            -Other
      receivable
                            
                            
                            437,794
                            
                            
                            
                            -Prepaid
      expenses and other current assets
                            
                            
                            140,521
                            
                            
                            
                            83,761Total
      current assets
                            
                            
                            1,767,101
                            
                            
                            
                            2,977,089Fixed
      assets, net
                            
                            
                            5,616,811
                            
                            
                            
                            5,519,652Goodwill
                            
                            
                            9,084,476
                            
                            
                            
                            -Intangible
      assets, net of accumulated amortization
                            
                            
                            4,145,006
                            
                            
                            
                            -Due
      from related party
                            
                            
                            204,896
                            
                            
                            
                            -Debt
      issuance cost, net of accumulated amortization of $169,304 and
      $129,980
                            
                            
                            115,047
                            
                            
                            
                            91,139Total
      assets
                            
                            $
                            20,933,337
                            
                            
                            $
                            8,557,512Liabilities
      and Stockholders' EquityCurrent
      liabilitiesNotes
      payable - former Bio-Quant shareholders
                            
                            $
                            12,129,010
                            
                            
                            $
                            -Accounts
      payable and accrued expenses
                            
                            
                            1,453,621
                            
                            
                            
                            1,029,486Payroll
      related liabilities
                            
                            
                            279,960
                            
                            
                            
                            296,135Deferred
      revenue
                            
                            
                            118,115
                            
                            
                            
                            -Capital
      lease payable - current portion
                            
                            
                            24,530
                            
                            
                            
                            -Due
      to related parties
                            
                            
                            99,682
                            
                            
                            
                            -Deferred
      compensation - current portion
                            
                            
                            70,000
                            
                            
                            
                            74,245Total
      current liabilities
                            
                            
                            14,174,918
                            
                            
                            
                            1,399,866Long
      term liabilitiesConvertible
      notes payable
                            
                            
                            2,990,000
                            
                            
                            
                            4,690,000Deferred
      revenue
                            
                            
                            82,450
                            
                            
                            
                            -Capital
      lease payable
                            
                            
                            114,965
                            
                            
                            
                            -Deferred
      compensation
                            
                            
                            865,602
                            
                            
                            
                            935,517Total
      liabilities
                            
                            
                            18,227,935
                            
                            
                            
                            7,025,383Commitments
      and contingencies (Note 16)Stockholders'
      equity:Common
      stock, $.001 par value, 120,000,000 shares authorized, 104,821,571 and
      84,350,361 shares issued and outstanding, respectively
                            
                            
                            104,822
                            
                            
                            
                            84,351Additional
      paid-in capital
                            
                            
                            174,332,442
                            
                            
                            
                            141,137,078Accumulated
      deficit
                            
                            
                            (171,731,862
                            )
                            
                            
                            (139,689,300
                            )Total
      stockholders' equity
                            
                            
                            2,705,402
                            
                            
                            
                            1,532,129Total
      liabilities and stockholders' equity
                            
                            $
                            20,933,337
                            
                            
                            $
                            8,557,512
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-2
 NexMed,
Inc.
 Consolidated
Statements of Operations
 For
      the Year EndedDecember
      31,2009
                          
                          
                          2008
                          
                          
                          2007License
      fee revenue
                          
                          $
                          2,681,271
                          
                          
                          $
                          5,957,491
                          
                          
                          $
                          1,270,367Contract
      service revenue
                          
                          
                          292,437
                          
                          
                          
                          -
                          
                          
                          
                          -Total
      Revenue
                          
                          
                          2,973,708
                          
                          
                          
                          5,957,491
                          
                          
                          
                          1,270,367Cost
      of Services
                          
                          
                          128,355
                          
                          
                          
                          -
                          
                          
                          
                          -Gross
      Profit
                          
                          
                          2,845,353
                          
                          
                          
                          5,957,491
                          
                          
                          
                          1,270,367Costs
      and expensesResearch
      and development
                          
                          
                          1,883,458
                          
                          
                          
                          5,410,513
                          
                          
                          
                          5,022,671General
      and administrative
                          
                          
                          4,196,359
                          
                          
                          
                          5,720,832
                          
                          
                          
                          5,634,479Acquisition
      costs
                          
                          
                          585,378
                          
                          
                          
                          -
                          
                          
                          
                          -Total
      costs and expenses
                          
                          
                          6,665,195
                          
                          
                          
                          11,131,345
                          
                          
                          
                          10,657,150Loss
      from operations
                          
                          
                          (3,819,842
                          )
                          
                          
                          (5,173,854
                          )
                          
                          
                          (9,386,783
                          )Other
      income (expense)Interest
      income
                          
                          
                          25,291
                          
                          
                          
                          71,793
                          
                          
                          
                          275,508Other
      income
                          
                          
                          10,201
                          
                          
                          
                          -
                          
                          
                          
                          -Interest
      expense
                          
                          
                          (28,696,006
                          )
                          
                          
                          (1,006,794
                          )
                          
                          
                          (481,862
                          )Total
      other income (expense)
                          
                          
                          (28,660,514
                          )
                          
                          
                          (935,001
                          )
                          
                          
                          (206,354
                          )Loss
      before benefit from income taxes
                          
                          
                          (32,480,356
                          )
                          
                          
                          (6,108,855
                          )
                          
                          
                          (9,593,137
                          )Benefit
      from income taxes
                          
                          
                          437,794
                          
                          
                          
                          937,657
                          
                          
                          
                          805,909Net
      loss
                          
                          $
                          (32,042,562
                          )
                          
                          $
                          (5,171,198
                          )
                          
                          $
                          (8,787,228
                          )Basic
      and diluted loss per share
                          
                          $
                          (.36
                          )
                          
                          $
                          (.06
                          )
                          
                          $
                          (.11
                          )Weighted
      average common shares outstanding used for basic and diluted loss per
      share
                          
                          
                          88,596,829
                          
                          
                          
                          83,684,806
                          
                          
                          
                          82,015,909
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-3
  NexMed,
Inc.
 Consolidated
Statements of Changes in Stockholders’ Equity
 AccumulatedCommon
                      
                      
                      Common
                      
                      
                      Additional
                      
                      
                      
                      
                      
                      Other
                      
                      
                      TotalStock
                      
                      
                      Stock
                      
                      
                      Paid-In
                      
                      
                      Accumulated
                      
                      
                      Comprehensive
                      
                      
                      Stockholders'(Shares)
                      
                      
                      (Amount)
                      
                      
                      Capital
                      
                      
                      Deficit
                      
                      
                      Income
                      
                      
                      EquityBalance
      at January 1, 2007
                      
                      
                      80,285,905
                      
                      
                      $
                      80,287
                      
                      
                      $
                      137,164,658
                      
                      
                      $
                      (125,730,874
                      )
                      
                      $
                      (9,596
                      )
                      
                      $
                      11,504,475Issuance
      of common stock upon exercise of stock options and warrants,
      net
                      
                      
                      1,717,943
                      
                      
                      
                      1,718
                      
                      
                      
                      219,175
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      220,893Issuance
      of compensatory options to employees and consultants
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      776,835
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      776,835Issuance
      of compensatory stock to employees and consultants
                      
                      
                      609,000
                      
                      
                      
                      609
                      
                      
                      
                      89,391
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      90,000Issuance
      of common stock in payment of interest on notes
                      
                      
                      145,614
                      
                      
                      
                      146
                      
                      
                      
                      190,602
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      190,748Issuance
      of compensatory stock to the board of directors
                      
                      
                      304,540
                      
                      
                      
                      305
                      
                      
                      
                      288,693
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      288,998Net
      offering costs from issuance of common stock
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (2,110
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (2,110
                      )Discount
      on Note payable for issuance of warrants
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      512,550
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      512,550Realized
      gain on foreign currency exchange
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      9,596
                      
                      
                      
                      9,596Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (8,787,228
                      )
                      
                      
                      -
                      
                      
                      
                      (8,787,228
                      )Balance
      at December 31, 2007
                      
                      
                      83,063,002
                      
                      
                      $
                      83,064
                      
                      
                      $
                      139,239,795
                      
                      
                      $
                      (134,518,102
                      )
                      
                      
                      -
                      
                      
                      $
                      4,804,757Issuance
      of common stock upon exercise of stock options and
warrants
                      
                      
                      526,909
                      
                      
                      
                      527
                      
                      
                      
                      459,221
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      459,748Issuance
      of compensatory options to employees and consultants
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      138,511
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      138,511Issuance
      of compensatory stock to employees and consultants
                      
                      
                      382,500
                      
                      
                      
                      382
                      
                      
                      
                      704,350
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      704,732Issuance
      of compensatory stock to the board of directors
                      
                      
                      377,950
                      
                      
                      
                      378
                      
                      
                      
                      480,451
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      480,829Discount
      on Note payable for issuance of warrants
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      114,750
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      114,750Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (5,171,198
                      )
                      
                      
                      -
                      
                      
                      
                      (5,171,198
                      )Balance
      at December 31, 2008
                      
                      
                      84,350,361
                      
                      
                      $
                      84,351
                      
                      
                      $
                      141,137,078
                      
                      
                      $
                      (139,689,300
                      )
                      
                      
                      -
                      
                      
                      $
                      1,532,129Issuance
      of compensatory stock to employees and consultants
                      
                      
                      810,375
                      
                      
                      
                      810
                      
                      
                      
                      690,433
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      691,243Issuance
      of compensatory stock to the board of directors
                      
                      
                      253,488
                      
                      
                      
                      254
                      
                      
                      
                      211,174
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      211,428Issuance
      of common stock to the Bio-Quant shareholders as consideration for the
      acquisition
                      
                      
                      4,000,000
                      
                      
                      
                      4,000
                      
                      
                      
                      1,596,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,600,000Issuance
      of common stock in payment of convertible notes payable
                      
                      
                      15,357,347
                      
                      
                      
                      15,357
                      
                      
                      
                      30,697,807
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      30,713,164Issuance
      of common stock to warrant holders for early forfeiture
                      
                      
                      50,000
                      
                      
                      
                      50
                      
                      
                      
                      (50
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      0Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (32,042,562
                      )
                      
                      
                      -
                      
                      
                      
                      (32,042,562
                      )Balance
      at December 31, 2009
                      
                      
                      104,821,571
                      
                      
                      $
                      104,822
                      
                      
                      $
                      174,332,442
                      
                      
                      $
                      (171,731,862
                      )
                      
                      
                      -
                      
                      
                      $
                      2,705,402
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-4
  NexMed,
Inc.
 Consolidated
Statements of Cash Flows
  For
      the Year EndedDecember
      31,2009
                    
                    
                    2008
                    
                    
                    2007Cash
      flows from operating activitiesNet
      loss
                    
                    $
                    (32,042,562
                    )
                    
                    $
                    (5,171,198
                    )
                    
                    $
                    (8,787,228
                    )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
      and amortization
                    
                    
                    387,708
                    
                    
                    
                    486,420
                    
                    
                    
                    621,869Non-cash
      interest, amortization of debt discount and deferred financing
      costs
                    
                    
                    28,352,598
                    
                    
                    
                    693,316
                    
                    
                    
                    408,538Non-cash
      compensation expense
                    
                    
                    902,671
                    
                    
                    
                    1,324,072
                    
                    
                    
                    1,155,832Net
      gain on foreign currency exchange
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    9,596(Gain)
      loss on disposal of property and equipment
                    
                    
                    (31,345
                    )
                    
                    
                    904,902
                    
                    
                    
                    10,121Changes
      in assets and liabilities, net of amounts acquired from Bio-Quant,
      Inc.Increase
      in accounts receivable
                    
                    
                    (132,960
                    )
                    
                    
                    -
                    
                    
                    
                    -(Increase)
      decrease in other receivable
                    
                    
                    (437,794
                    )
                    
                    
                    -
                    
                    
                    
                    183,700Decrease
      in prepaid expense and other assets
                    
                    
                    73,817
                    
                    
                    
                    43,898
                    
                    
                    
                    37,239Increase
      (decrease) in deferred revenue
                    
                    
                    189,980
                    
                    
                    
                    (953,528
                    )
                    
                    
                    (740,389
                    )(Decrease)
      increase in payroll related liabilities
                    
                    
                    (16,175
                    )
                    
                    
                    (397,639
                    )
                    
                    
                    537,207(Decrease)
      increase in deferred compensation
                    
                    
                    (74,160
                    )
                    
                    
                    (50,512
                    )
                    
                    
                    (58,036
                    )(Decrease)
      increase in accounts payable and accrued expenses
                    
                    
                    (686,427
                    )
                    
                    
                    407,818
                    
                    
                    
                    33,918Net
      cash used in operating activities
                    
                    
                    (3,514,649
                    )
                    
                    
                    (2,712,451
                    )
                    
                    
                    (6,587,633
                    )Cash
      flows from investing activitiesCapital
      expenditures
                    
                    
                    (5,526
                    )
                    
                    
                    (28,988
                    )
                    
                    
                    (100,875
                    )Proceeds
      from sale of fixed assets
                    
                    
                    350,000
                    
                    
                    
                    75,000
                    
                    
                    
                    -Purchases
      of short term investments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (3,000,000
                    )Proceeds
      from sale of short term investments
                    
                    
                    
                    
                    
                    
                    750,000
                    
                    
                    
                    3,250,000Net
      cash provided by investing activities
                    
                    
                    344,474
                    
                    
                    
                    796,012
                    
                    
                    
                    149,125Cash
      flows from financing activitiesIssuance
      of convertible notes payable, net of debt issue costs
                    
                    
                    686,678
                    
                    
                    
                    5,643,711
                    
                    
                    
                    -Repayment
      of notes payable
                    
                    
                    (50,000
                    )
                    
                    
                    (4,000,000
                    )
                    
                    
                    (2,000,000
                    )Proceeds
      from exercise of stock options and warrants
                    
                    
                    
                    
                    
                    
                    459,748
                    
                    
                    
                    220,893Issuance
      of notes payable, net of debt issue costs
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,886,532Issuance
      of common stock, net of offering costs
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (2,110
                    )Repayment
      of convertible notes payable
                    
                    
                    
                    
                    
                    
                    (60,000
                    )
                    
                    
                    (3,000,000
                    )Principal
      payments on capital lease obligations
                    
                    
                    (601
                    )
                    
                    
                    -
                    
                    
                    
                    -Net
      cash provided by (used in) financing activities
                    
                    
                    636,077
                    
                    
                    
                    2,043,459
                    
                    
                    
                    (1,894,685
                    )Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    (2,534,098
                    )
                    
                    
                    127,020
                    
                    
                    
                    (8,333,193
                    )Cash
      and cash equivalentsBeginning
      of period
                    
                    
                    3,013,986
                    
                    
                    
                    2,735,940
                    
                    
                    
                    11,069,133End
      of period
                    
                    $
                    479,888
                    
                    
                    $
                    2,862,960
                    
                    
                    $
                    2,735,940Cash
      paid for interest
                    
                    $
                    303,652
                    
                    
                    $
                    324,314
                    
                    
                    $
                    119,307Supplemental
      disclosure of non-cash investing and financing activities:Issuance
      of notes to former Bio-Quant shareholders upon acquisition
                    
                    $
                    12,129,010
                    
                    
                    $
                    -
                    
                    
                    $
                    -Issuance
      of common stock in payment of convertible notes payable
                    
                    $
                    3,475,377
                    
                    
                    $
                    -
                    
                    
                    $
                    -Issuance
      of 4 million shares of common stock to former Bio-Quant shareholders upon
      acquisition
                    
                    $
                    1,600,000
                    
                    
                    $
                    -
                    
                    
                    $
                    -Payment
      of interest in common stock
                    
                    $
                    21,247
                    
                    
                    $
                    -
                    
                    
                    $
                    190,748Amortization
      of debt discount
                    
                    $
                    -
                    
                    
                    $
                    461,295
                    
                    
                    $
                    178,640
  The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-5
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
 1.
                Organization,
      Basis of Presentation and
Liquidity
  NexMed,
Inc. (the “Company”) was incorporated in Nevada in 1987.  The Company
has historically focused its efforts on drug development using its patented drug
delivery technology known as NexACT®  –
see Note 4 for description of licensing agreements of its proprietary
products.
 
 On
December 14, 2009, the merger (the “Merger”) contemplated by the Agreement and
Plan of Merger (the “Merger Agreement”) dated November 20, 2009 by and among
NexMed, Inc. (the “Company”) and BQ Acquisition Corp., a wholly-owned subsidiary
of the Company (“Merger Sub”) with Bio-Quant, Inc. (“Bio-Quant”), was
completed.   Accordingly, the results of operations of the
acquired company have been included in the consolidated results of operations of
the Company from December 14, 2009, the date of the Merger.  Bio-Quant
is one of  the largest specialty biotech contract research
organization (“CRO”) based in San Diego, California and is one of the industry's
most experienced CROs for non-GLP (good laboratory practices) in vitro and in vivo contract drug
discovery and pre-clinical development services, specializing in oncology,
inflammation, immunology, and metabolic diseases. Bio-Quant has over 300 clients
world-wide and performs hundreds of studies a year both in in vitro and in vivo pharmacology,
pharmacokinetic (PK) and toxicology to support pre-regulatory filing
packages.
 
 The
combined Company is currently focusing its efforts on new and patented
pharmaceutical products based on NexACT® and on
growing the newly acquired CRO business through organic growth within
Bio-Quant’s current business operations and through acquiring small cash flow
positive entities who have complimentary capabilities to those of Bio-Quant but
are not operating at full capacity due to insufficient business development
efforts.  This strategy will ensure Bio-Quant’s expansion through
broadening its service capabilities and going into new
markets.
 
 The
Company’s long-term goal is to generate revenues from the growth of its CRO
business while aggressively seeking to monetize the NexACT®technology through out-licensing agreements with pharmaceutical and
biotechnology companies worldwide.  At the same time the Company is
actively pursuing partnering opportunities for its clinical stage NexACT® based
treatments in the areas of dermatology and sexual dysfunction as discussed
below.The
successful licensing of one or more of these products will generate additional
revenues for funding the Company’s long-term growth strategy.
 
 The
Company now operates in two segments – designing and developing pharmaceutical
products and providing pre-clinical CRO services through its subsidiary,
Bio-Quant.
 
 Liquidity
 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 ($171,731,862) at December 31, 2009 and expects that it
will incur additional losses in the future completing the research and
development of its technologies, and integrating the operations of Bio-Quant
into its strategies.  Further, the Company has substantial notes
payable due within 12 months, which if not converted to common stock or
re-financed, would significantly impact liquidity.  These
circumstances raise substantial doubt about the Company's ability to continue as
a going concern.  Management anticipates that the Company will require
additional financing, which it is actively pursuing, to fund operations,
including continued research and development of the Company’s NexACT technology,
integration of the Bio-Quant CRO business, and to fund potential future
acquisitions.  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.  See Note 18 for description of
funds raised to date in 2010.  If the Company is unable to obtain
additional financing, operations will need to be reduced or
discontinued.  The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
 
 F-6
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
 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.
  Cash
and cash equivalents
 Cash
equivalents represent all highly liquid investments with an original maturity
date of three months or less.
  Accounts
Receivable
 Our
policy is that an allowance is recorded for estimated losses resulting from the
inability of our customers to make required payments. Such allowances are
computed based upon a specific customer account review of larger customers and
balances in excess of 90 days old. Our assessment of our customers’ ability to
pay generally includes direct contact with the customer, investigation into our
customers’ financial status, as well as consideration of our customers’ payment
history with us. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. If we determine, based on our assessment,
that it is more likely than not that our customers will be unable to pay, we
will write-off the account receivables.
 
 Fair
value of financial instruments
 The fair
value of a financial instrument represents the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced sale or liquidation. Significant differences can arise between the
fair value and carrying amounts of financial instruments that are recognized at
historical cost amounts. Given our financial condition described in Note 1, it
is not practicable to estimate the fair value of our notes payable at December
31, 2009.
  The
carrying value of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses and deferred compensation 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 our building in East
Windsor New Jersey  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.
 
 F-7
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
 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 future cash flows or
appraised values, depending on the nature of the asset.  The Company
recorded an impairment charge of $884,271 in 2008 to reduce the carrying amount
of its land and building to reflect the current commercial real estate market,
as the Company had initiated efforts to sell its facility.  The
Company leased its facility in December 2009 (See note 5).  This
charge is recorded within general and administrative expenses on the statement
of operations.  No such impairment losses have been recorded by the
Company during 2007 or 2009.
  Other
intangible assets
 Other
intangible assets consists principally of the Trade Name of Bio-Quant and the
Know-How acquired from Bio-Quant, which were recorded at fair value in
connection with the acquisition of Bio-Quant on December 14, 2009. The
Company expects to amortize Know-How over the expected useful life of 10 years
and the Trade Name over the expected useful life of 20 years.
 
 Management
evaluates the recoverability of such other intangible assets whenever events or
changes in circumstances indicate that the carrying value may not be fully
recoverable. The evaluation is based on estimates of undiscounted future cash
flows over the remaining useful life of the assets. If the amount of such
estimated undiscounted future cash flows is less than the net book value of the
asset, the asset is written down to fair value. As of December 31, 2009, no
such write-down was required.
 
 Goodwill
 Goodwill
was recorded in connection with the acquisition of Bio-Quant on December
14, 2009, and will be included in the CRO segment. Goodwill consists of the
excess of cost over the fair value of net assets acquired in business
combinations accounted for as purchases.  See Note 3.
 
 The
Company follows the provision of FASB ASC 805,Business
Combinations,which
requires an annual impairment test for goodwill and intangible assets with
indefinite lives. Under FASB ASC 805, the first step of the impairment test
requires that the Company determine the fair value of each reporting unit, and
compare the fair value to the reporting unit's carrying amount. To the extent a
reporting unit's carrying amount exceeds its fair value, an indication exists
that the reporting unit's goodwill may be impaired and the Company must perform
a second more detailed impairment assessment. The second impairment assessment
involves comparing the implied fair value of the reporting unit's goodwill
to the carrying amount of goodwill to quantify an impairment charge as of the
assessment date.
 
 Application
of the goodwill impairment test requires significant judgments including
estimation of future cash flows, which is dependent on internal forecasts,
estimation of the long-term rate of growth for the businesses, the useful life
over which cash flows will occur, and determination of the Company's weighted
average cost of capital. Changes in these estimates and assumptions could
materially affect the determination of fair value and/or conclusions on goodwill
impairment for each reporting unit. The Company will perform its annual
impairment test on December 31 each year, unless triggering events occur
that would cause the Company to test for impairment at interim periods. At
December 31, 2009, no impairment was recorded.
 
 F-8
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
 Deferred
Financing Costs
 Amounts
paid related to debt financing activities are capitalized and amortized over the
term of the loan. Our expenses incurred related to the convertible notes payable
are being amortized over the three-year term of the notes to interest expense on
a straight-line basis which approximates the effective interest rate
method.
 
 Revenue
recognition
 Bio-Quant’s
revenues are derived from two sources, the delivery of pre-clinical services and
the sale of diagnostic kits.  Both of these sources are part of the
CRO services segment. Revenues from Bio-Quant’s performance of pre-clinical
services are recognized according to the proportional performance method whereby
revenue is recognized as performance occurs, based on the relative outputs of
the performance that have occurred up to that point in time under the respective
agreement, typically the delivery of data to our clients on the results of the
pre-clinical tests or the delivery of the formal report which documents the
results of our pre-clinical testing services. Deferred revenues represent
billings in advance of the recognition of revenue.  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 “Cost of Services” expenses in the
Consolidated Statements of Operations.
  Revenues
from sales of diagnostic kits are recognized upon delivery of products to
customers, less allowances for estimated returns and discounts.
  Revenues
from the drug development technology segment consist principally of licensing
revenues, and revenues under research and development contracts with our
licensing partners.  Revenues earned under licensing and research and
development contracts are recognized in accordance with the cost-to-cost method
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 Statements of Operations.
  Also,
licensing agreements typically include several elements of revenue, such as
up-front payments, milestones, royalties upon sales of product, and the delivery
of product and/or research services to the licensor. We follow the accounting
guidance of ASC 605.  Non-refundable license fees received upon
execution of license agreements where we have continuing involvement are
deferred and recognized as revenue over the estimated performance period of the
agreement. This requires management to estimate the expected term of the
agreement or, if applicable, the estimated life of its licensed
patents.
 
 F-9
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
 In
addition, ASC 605 requires a company to evaluate its arrangements
under which it will perform multiple revenue-generating activities. For example,
a license agreement with a pharmaceutical company may involve a license,
research and development activities and/or contract manufacturing, and royalties
upon commercialization of the product. Management is required to determine if
the separate components of the agreement have value on a standalone basis and
qualify as separate units of accounting, whereby consideration is allocated
based upon their relative “fair values” or, if not, the consideration should be
allocated based upon the “residual method.” Accordingly, up-front and
development stage milestone payments will be deferred and recognized as revenue
over the performance period of such license agreement.
  There
have been no royalties received during the years ended December 31, 2009, 2008
and 2007.
  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.
  The
Company also follows the provisions of “Accounting for Uncertainty in Income
Taxes” which prescribes a model for the recognition and measurement of a tax
position taken or expected to be taken in a tax return, and provides guidance on
de-recognition, classification, interest and penalties, disclosure and
transition. At December 31, 2009 the Company did not have any significant
unrecognized tax benefits.
 
 Loss
per common share
 Basic
earnings (loss) per share is computed by dividing income (loss) 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, 2009, 2008 and 2007, outstanding options to purchase 2,950,702,
3,368,991 and 3,469,841 shares of Common Stock, respectively, with exercise
prices ranging from $0.55 to $12.00 have been excluded from the computation of
diluted loss per share as they are antidilutive.  At December 31,
2009, 2008 and 2007, outstanding warrants to purchase 6,979,130, 12,118,044 and
12,439,954, shares of Common Stock, respectively, with exercise prices ranging
from $0.55 to $4.04 have also been excluded from the computation of diluted loss
per share as they are antidilutive. Promissory notes convertible into 1,495,000
and 2,345,000 shares of Common Stock in 2009 and 2008, respectively have also
been excluded from the computation of diluted loss per share, as they are
antidilutive. Additionally, promissory notes issued in connection with the
Bio-Quant acquisition are convertible, at the Company’s option, into 72,196,488
shares of common stock have been excluded from the computation of diluted loss
per share, as they are ant-dilutive.
 
 F-10
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
 Accounting
for stock based compensation
 The value
of restricted stock grants are calculated based upon the closing stock price of
the Company’s Common Stock on the date of the grant.  For stock
options granted to employees and directors, we recognize compensation expense
based on the grant-date fair value estimated in accordance with the appropriate
accounting guidance, and recognized over the expected service period. We
estimate the fair value of each option award on the date of grant using the
Black-Scholes option pricing model. Stock options and warrants issued to
consultants are accounted for in accordance with accounting guidance.
Compensation expense is calculated each quarter for consultants using the
Black-Scholes option pricing model until the option is fully vested and is
included in research and , development or general and administrative facility
expenses, based upon the services performed by the recipient.
  Additional
disclosures required under FASB ASC 718, “Stock Compensation” are presented in
Note 9.
  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.
The Company’s credit risk with respect to accounts receivable is limited, in
that the CRO segment serves a large number of customers, none of which is
individually in excess of 10% of the revenues of the segment.  We
perform credit evaluations of our customers, but generally do not require
collateral to support accounts receivable.
 
 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, whether revenue recognition criteria
have been met, estimated cost to complete under its research contracts, whether
beneficial conversion features exist under convertible financing instruments,
and valuation allowances for its deferred tax benefit.  Actual results
may differ from those estimates.
  Recent
accounting pronouncements
 In June
2009, the Financial Accounting Standards Board (“FASB”) issued its final
Statement of Financial Accounting Standards (SFAS) No. 168, “The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles a replacement of FASB Statement No. 162.” SFAS No. 168
made the FASB Accounting Standards Codification (the Codification) the single
source of U.S. GAAP used by nongovernmental entities in the preparation of
financial statements, except for rules and interpretive releases of the SEC
under authority of federal securities laws, which are sources of authoritative
accounting guidance for SEC registrants. The Codification is meant to simplify
user access to all authoritative accounting guidance by reorganizing U.S. GAAP
pronouncements into roughly 90 accounting topics within a consistent structure;
its purpose is not to create new accounting and reporting guidance. The
Codification supersedes all existing non-SEC accounting and reporting standards
and was effective for the Company beginning July 1, 2009. Following SFAS No.
168, the Board will not issue new standards in the form of Statements, FASB
Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue
Accounting Standards Updates. The FASB will not consider Accounting Standards
Updates as authoritative in their own right; these updates will serve only to
update the Codification, provide background information about the guidance, and
provide the bases for conclusions on the change(s) in the
Codification.
 
 F-11
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
 In
October 2009, the FASB issued FASB ASU 2009-13, Revenue Recognition (Topic 605)
– Multiple-Deliverable Revenue Arrangements. The consensus in ASU 2009-13
supersedes certain guidance in ASC 605-25, Revenue Recognition – Multiple
Element Arrangements, and requires an entity to allocate arrangement
consideration at the inception of an arrangement to all of its deliverables
based on their relative selling prices (i.e., the relative-selling-price
method). The consensus eliminates the use of the residual method of allocation
(i.e., in which the undelivered element is measured at its estimated selling
price and the delivered element is measured as the residual of the arrangement
consideration) and requires the relative-selling-price method in all
circumstances in which an entity recognizes revenue for an arrangement with
multiple deliverables subject to ASC 605-25. When applying the
relative-selling-price method, the determination of the selling price for each
deliverable must be consistent with the objective of determining vendor-specific
objective evidence of fair value (VSOE); that is, the price at which the entity
does or would sell the element on a stand-alone basis. This determination
requires the use of a hierarchy designed to maximize the entity’s use of
available, objective evidence to support its selling price. The entity must
consider market conditions as well as entity-specific factors when estimating
this selling price. The amendments in ASU 2009-13 require both ongoing
disclosures regarding an entity’s multiple-element revenue arrangements as well
as certain transitional disclosures during periods after adoption. The objective
of the ongoing disclosures is to provide information regarding the significant
judgments and estimates made and their impact on revenue recognition.
Additionally, disclosures will be made when changes in either those judgments or
the application of the relative-selling-price method may significantly affect
the timing or amount of revenue recognition. An entity will be required to
aggregate these disclosures for similar types of arrangements. Adoption will be
required for the year beginning January 1, 2011.
  In
December 2007, the FASB updated “Business Combinations.” Among other
requirements, the update requires an acquirer to recognize the assets acquired,
the liabilities assumed and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited
exceptions. The update also requires a.) costs incurred to effect the
acquisition to be recognized separately from the acquisition as period costs;
b.) the acquirer to recognize restructuring costs that the acquirer expects to
incur, but is not obligated to incur, separately from the business combination;
and c.) an acquirer to recognize assets and liabilities assumed arising from
contractual contingencies as of the acquisition date, measured at their
acquisition-date fair values. Other key provisions of this update include the
requirement to recognize the acquisition-date fair values of research and
development assets separately from goodwill and the requirement to recognize
changes in the amount of deferred tax benefits that are recognizable due to the
business combination in either income from continuing operations in the period
of the combination or directly in contributed capital, depending on the
circumstances. The Company adopted this update as of December 28, 2008 and has
applied its provisions prospectively to business combinations that have occurred
after adoption. In April 2009, the FASB issued “Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise from
Contingencies.” This update requires that assets acquired and liabilities
assumed in a business combination that arise from contingencies be recognized at
fair value if fair value can be reasonably estimated. If fair value cannot be
reasonably estimated, the asset or liability would generally be recognized in
accordance with “Accounting for Contingencies,” and “Reasonable Estimation of
the Amount of a Loss.” Further, the FASB decided to remove the subsequent
accounting guidance for assets and liabilities arising from contingencies, and
carry forward without significant revision the guidance in “Business
Combinations.” This update is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 28, 2008. The Company adopted this update effective December 16, 2008,
and applied this guidance to our acquisition of Bio-Quant (see Note
3).
 
 F-12
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
 In April
2009, the FASB issued “Interim Disclosures about Fair Value of Financial
Instruments.” This update amends “Disclosures about Fair Value of Financial
Instruments,” to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements. This update also amends Interim Financial Reporting, to
require those disclosures in summarized financial information at interim
reporting periods. This update became effective for the interim period ending
June 27, 2009 and did not have a material impact on the Company's consolidated
financial statements.
 
 In September 2006, the FASB issued
guidance which defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. This guidance applies under other
accounting pronouncements that require or permit fair value measurements, the
FASB having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, this guidance does not
require any new fair value measurements. The
provision delayed the effective date of ASC 820 for all non-financial assets and
non-financial liabilities, except for the items that are recognized or disclosed
at fair value in the financial statements on a recurring basis (at least
annually), until the beginning of the Company’s fiscal year beginning on January
1, 2009.The application of this guidance did not have a material effect
on the December 31, 2009 Consolidated Financial Statements.
  3.
                Acquisition
  On
December 14, 2009, the Company entered into the Merger Agreement with Bio-Quant.
Pursuant to the Merger Agreement, at the effective time of the Merger (the
“Effective Time”), each outstanding share of common stock, par value $0.01 per
share, of Bio-Quant was canceled and converted into the right to receive 913.96
shares of common stock, par value $0.001 per share, of the Company (the “NexMed
Shares”), as well as a promissory note (each, a “Note”) in the original
principal amount of $2,771.37.   In connection with the closing
of the Merger, the Company issued an aggregate of 4,000,000 NexMed Shares and
Notes in the aggregate original principal amount of $12,129,010 to the
shareholders of Bio-Quant.
 
 The Notes
bear interest at a rate of 10% per annum, with all principal and interest
accrued thereunder becoming due and payable one year from the closing date of
the Merger.  The terms of the Notes provide that the principal amounts
and all interest thereunder are payable by the Company in cash or, at the
Company’s option, in NexMed Shares, which shall be valued at the fixed price of
$0.168 per share.  The Merger Agreement provides that if the Company
repays the Notes in NexMed Shares, the total number of NexMed Shares issuable to
Bio-Quant shareholders shall not exceed 19.99% of outstanding NexMed Shares at
the Effective Time unless the Company receives stockholder approval to do
so.  If the Company receives such stockholder approval, the total
number of NexMed Shares issued to Bio-Quant shareholders in the Merger will not
exceed 45% of outstanding NexMed Shares immediately prior to the Effective
Time.
 
 F-13
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
 The
acquisition was accounted for under the purchase method of accounting under FASB
ASC 805Business Combinations,. The
Company has determined that it is the “accounting acquirer” in this transaction,
as it meets the predominance of the factors outlined in FASB ASC
805.  Accordingly, the results of operations of the acquired company
have been included in the consolidated results of operations of the Company from
the date of the Merger.
 
 The total
consideration was estimated to be approximately $13.7 million as of December 14,
2009, the date the Merger was consummated, as follows (in
thousands):
  Fair value of 4,000,000 shares of
      common stock issued for Bio-Quant common stock
                    
                    $
                    1,600Fair value
      of  promissory notes issued for Bio-Quant common
      stock
                    
                    
                    12,129Total
      consideration
                    
                    $
                    13,729
 The fair
value of the shares of NexMed common stock issued was based on the closing price
of the Company’s common stock on December 14, 2009, the date the Merger was
consummated, or $0.40 per share.
  The
purchase price was allocated based on the estimated fair value of the tangible
and identifiable intangible assets acquired and liabilities assumed in the
Merger. An allocation of the purchase price was made to major categories of
assets and liabilities in the accompanying consolidated balance sheet based on
management’s best estimates. The fair value of the other current assets and
assumed liabilities were estimated by management based upon the relative short
term nature of the accounts and the fair value of the machinery and equipment
was established based upon expected replacement costs.
 
 Management
obtained the assistance of an independent third party valuation specialist in
performing its purchase price allocation analysis.  The fair value of
Bio-Quant’s tangible and identifiable intangible assets were determined based on
this analysis.  The excess of the purchase price over the estimated
fair value of tangible and identifiable intangible assets acquired and
liabilities assumed was allocated to goodwill.
 
 Accordingly,
the purchase price is allocated to the assets and liabilities of Bio-Quant as
presented below (in thousands):
 
 Cash
      & cash equivalents
                    
                    $
                    151Accounts
      receivable
                    
                    
                    576Prepaids
      and other current assets
                    
                    
                    105Other
      assets
                    
                    
                    27Property
      and equipment
                    
                    
                    783Due
      from related party
                    
                    
                    205Accounts
      payable and accrued expenses
                    
                    
                    (1,041
                    )Related
      party payable
                    
                    
                    (85
                    )Deferred
      revenue
                    
                    
                    (45
                    )Other
      current liabilities
                    
                    
                    (68
                    )Other
      long term liabilities
                    
                    
                    (122
                    )Amortizable
      intangible assets:Know-How
                    
                    
                    3,037Trade
      Name
                    
                    
                    1,123Indefinite
      lived intangible assets:Goodwill
                    
                    
                    9,083Total
      net assets acquired
                    
                    $
                    13,729
 
 F-14
 NexMed,
      Inc.Notes to Consolidated Financial
      Statements
 Intangible
assets of $4,160,000 consist primarily of developed Know-How and the Bio-Quant
Trade Name. Developed Know-How relates to Bio-Quant’s pre-clinical service
expertise including, but not limited to, its extensive inventory of internally
developed cell lines. The Bio-Quant Trade Name represents future revenue
attributable to the reputation and name recognition of Bio-Quant within the
pharmaceutical industry where Bio-Quant is a known expert in pre-clinical
services.
 
 Bio-Quant
is a revenue generating, cash flow positive CRO.  Bio-Quant is
expected to continue its revenue growth and cash generating CRO
business.  The $9,083,000 of goodwill generated from the acquisition
of Bio-Quant consists largely of the ability of the Bio-Quant CRO to continue to
grow its revenues and generate positive cash flow to contribute to the
pharmaceutical product development business segment of the
Company.
 
 Costs
associated with the merger of $585,378 were expensed for the year ended December
31, 2009.
 
 The
following unaudited pro forma consolidated results of operations for the period
assumes the acquisition of Bio-Quant had occurred as of January 1, 2008,
giving effect to purchase accounting adjustments. The pro forma data is for
informational purposes only and may not necessarily reflect the actual results
of operations had Bio-Quant been operated as part of the Company since
January 1, 2008 (in thousands).
  Consolidated
Pro Forma Statements of Operations
 (unaudited)
 
 Year
      Ended
                    December 31,
      2009
                  
                  Year
      Ended
                    December 31,
      2008As
                    Presented
                  
                  Pro
                    Forma
                  
                  As
      Presented
                  
                  Pro
      FormaRevenues
                  
                  $
                  2,974
                  
                  
                  $
                  8,715
                  
                  
                  $
                  5,957
                  
                  
                  $
                  10,998Net
      Loss
                  
                  
                  (32,043
                  )
                  
                  
                  (32,196
                  )
                  
                  
                  (5,171
                  )
                  
                  
                  (8,686
                  )Net
      loss per basic and diluted shares
                  
                  $
                  (0.36
                  )
                  
                  $
                  (0.36
                  )
                  
                  $
                  (0.06
                  )
                  
                  $
                  (0.10
                  )
  4.
                Licensing
      and Research and Development
Agreements
  Vitaros
  On
November 1, 2007, the Company signed an exclusive licensing agreement with
Warner Chilcott Company, Inc., (“Warner”) for its topical alprostadil-based
cream treatment for erectile dysfunction (“Vitaros®”).  Under
the agreement, Warner acquired the exclusive rights in the United States to
Vitaros® and
would assume all further development, manufacturing, and commercialization
responsibilities as well as costs.  Warner agreed to pay the Company
an up- front payment of $500,000 and up to $12.5 million in milestone payments
on the achievement of specific regulatory milestones.   In
addition, the Company was eligible to receive royalties in the future based upon
the level of sales achieved by Warner, assuming the product is approved by the
U.S. Food and Drug Administration (“FDA”).
 
 F-15
 NexMed,
      Inc.Notes to Consolidated Financial
      Statements
 The
Company has recognized the initial up-front payment as revenue on a straight
line basis over the nine month period ended July 31, 2008 which was the
remaining review time by the FDA for the Company’s new drug application filed in
September 2007 for Vitaros®.  Pursuant
to the agreement, NexMed was responsible for obtaining regulatory approval of
Vitaros®.
Accordingly, for the years ended December 31, 2008 and 2007, the Company
recognized licensing revenue of $388,889 and $111,111, respectively, related to
the Warner agreement.
  On
February 3, 2009, the Company terminated the licensing agreement and sold the
U.S. rights for Vitaros®to
Warner.  Under the terms of the Asset Purchase Agreement, the Company
received an up-front payment of $2.5 million and is eligible to receive an
additional payment of $2.5 million upon Warner’s receipt of a New Drug
Application (NDA) approval for Vitaros®from the FDA.  As such, the
Company is no longer responsible for obtaining regulatory approval of
Vitaros®and
will no longer be eligible to receive royalties in the future based upon the
level of sales achieved by Warner.  In addition, Warner has paid the
Company a total of $350,000 for the manufacturing equipment for Vitaros®.and
recognized a gain of $43,840. While the Company believes that Warner is
currently moving forward in pursuing NDA approval for Vitaros®, Warner
is not obligated by the Asset Purchase Agreement to continue with the
development of Vitaros® or
obtain approval of Vitaros® from the
FDA. The Company allocated $2,398,000 of the $2,500,000 purchase price to the
U.S. rights for Vitaros®and
the related patents acquired by Warner.  The balance of $102,000 was
allocated to the rights of certain technology based patents which Warner
licensed as part of the sale of U.S. rights for Vitaros®.  The
$2,398,000 is recognized as revenue for year ended December 31, 2009, as the
Company has no continuing obligations or rights with respect to Vitaros® in the
U.S. market.  The $102,000 allocated to the patent license is being
recognized over a period of ten years, the estimated useful commercial life of
the patents.  Accordingly, $9,350 is being recognized as revenue for
the year ended December 31, 2009.  The balance of $92,650 is recorded
as deferred revenue on the Consolidated Balance Sheet at December 31,
2009.
  On April
15, 2009, the Company entered into a First Amendment (the “Amendment”) to the
Asset Purchase Agreement.  The Amendment provided that from May 15,
2009 through September 15, 2009, the Company would permit certain
representatives of Warner access to and use of the Company’s manufacturing
facility for the purpose of manufacturing Vitaros®, and in
connection therewith the Company would provide reasonable technical and other
assistance to Warner.  In consideration, Warner would pay to the
Company a fee of $50,000 per month, or $200,000 in the aggregate.  The
arrangement was subject to extension for successive 30 day periods for
additional consideration of $50,000 per month until terminated by either party
prior to the expiration of each successive period.  On September 15,
2009, Warner decided not to extend the facility usage period.  For the
year ended December 31, 2009, the Company recorded $200,000 in revenue for the
fees received from May 15th through
September 15th.
 
 F-16
 NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  NM100060
 On
September 15, 2005, the Company signed an exclusive global licensing agreement
with Novartis International Pharmaceutical Ltd. (“Novartis”) for its anti-fungal
product, NM100060.  Under the agreement, Novartis acquired the
exclusive worldwide rights to NM100060 and would assume all further development,
regulatory, manufacturing and commercialization responsibilities as well as
costs.  Novartis agreed to pay the Company up to $51 million in
upfront and milestone payments on the achievement of specific development and
regulatory milestones, including an initial cash payment of $4 million at
signing.  In addition, the Company was eligible to receive royalties
based upon the level of sales achieved and to receive reimbursements of third
party preclinical study costs up to $3.25 million.   The Company
began recognizing the initial up- front and preclinical reimbursement revenue
from this agreement based on the cost-to-cost method over the 32-month period
estimated to complete the remaining preclinical studies for
NM100060.   On February 16, 2007, the Novartis agreement was
amended.  Pursuant to the amendment, the Company was no longer
obligated to complete the remaining preclinical studies for
NM100060.   Novartis took over all responsibilities and completed
the remaining preclinical studies.  As such, the balance of deferred
revenue of $1,693,917 at December 31, 2006 was recognized as revenue on a
straight line basis over the 18 month period ended June 30, 2008 which was the
performance period for Novartis to complete the remaining preclinical studies.
Accordingly, for the years ended December 31, 2008 and 2007, the Company
recognized licensing revenue of $564,639 and $1,129,276 respectively, related to
the initial $4 million cash payment from the Novartis agreement.
  On March
4, 2008, the Company received a $1.5 million milestone payment from Novartis
pursuant to the terms of the licensing agreement whereby the payment was due
seven months after the completion of patient enrollment for the Phase 3 clinical
trials for NM100060, which occurred in July 2007.  Although the
completion of patient enrollment in the Phase 3 clinical trials for NM100060
triggered a $3 million milestone payment from Novartis, the agreement also
provided that clinical milestones paid to us by Novartis shall be reduced by 50%
until the Company receives an approved patent claim on the NM100060 patent
application filed with the U.S. patent office in November 2004.  The
$1.5 million milestone payment was recognized on a straight-line basis over the
six month period to complete the Phase 3 clinical trial, and
therefore  the $1.5 million milestone payment was recognized as
revenue during the year ended December 31, 2008.
  In July
2008, Novartis completed testing for the Phase 3 clinical trials for NM100060
required for the filing of the NDA in the U.S.  On August 26, 2008,
the Company announced that Novartis had decided not to submit the NDA in the
U.S. based on First Interpretable Results of the Phase 3 trials.
 
 On
October 17, 2008, the Company received a Notice of Allowance for its U.S. patent
covering NM100060.  Pursuant to the license agreement, the payment of
the issuance fee for an approved patent claim on NM100060 triggered the $2
million patent milestone payment from Novartis.  Additionally, $1.5
million, which represents the remaining 50% of the patient enrollment milestone
also became due and payable.  As such the Company received a payment
of $3.5 million from Novartis on October 30, 2008 and recognized it as licensing
revenue for the year ended December 31, 2008.
 In total,
the Company recognized $5,564,639 and $1,129,276 of revenue related to the
Novartis agreements for the years ended December 31, 2008 and 2007,
respectively.
 
 In July
2009, Novartis completed final analysis of the comparator study which they had
initiated in March 2007 in ten European countries.  The study results
were insufficient to support marketing approval in Europe.  As such,
on July 8, 2009, the Company announced the mutual decision reached with Novartis
to terminate the licensing agreement.  Accordingly, pursuant to the
Termination Agreement, Novartis has provided the Company reports associated with
the Phase III clinical trials conducted for NM100060 and is assisting and
supporting the Company in connection with the assignment, transfer and delivery
to the Company of all know-how and data relating to NM100060 in accordance with
the terms of the License Agreement.
 
 F-17
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  In
consideration of such assistance and support, the Company will pay to Novartis
15% of any upfront and/or milestone payments that it receives from any future
third party licensee of NM100060, as well as a royalty fee ranging from 2.8% to
6.5% of annual net sales of products developed from NM100060 (collectively,
“Products”), with such royalty fee varying based on volume of such annual net
sales.  In the event that the Company, or a substantial part of its
assets, is sold, the Company will pay to Novartis 15% of any upfront and/or
milestone payments received by the Company or its successor relating to the
Products, as well as a royalty fee ranging from 3% to 6.5% of annual net sales
of any Products, with such royalty fee varying based on volume of such annual
net sales.  If the acquirer makes no upfront or milestone payments,
the royalty fees payable to Novartis will range from 4% to 6.5% of annual net
sales of any Products.
 
 5.
                Fixed
      Assets
  Fixed
assets at December 31, 2009 and 2008 were comprised of the
following:
  2009
                        
                        
                        2008Land
                        
                        $
                        363,909
                        
                        
                        $
                        363,909Building,
      including impairment charge of $884,271 in 2008
                        
                        
                        6,042,583
                        
                        
                        
                        6,378,587Leasehold
      improvements
                        
                        
                        650,991
                        
                        
                        
                        -Machinery
      and equipment
                        
                        
                        2,517,256
                        
                        
                        
                        2,599,159Computer
      software
                        
                        
                        622,313
                        
                        
                        
                        600,167Furniture
      and fixtures
                        
                        
                        253,846
                        
                        
                        
                        188,93510,450,898
                        
                        
                        
                        10,130,757Less:
      accumulated depreciation and amortization
                        
                        
                        (4,834,087
                        )
                        
                        
                        (4,611,105
                        )$
                        5,616,811
                        
                        
                        $
                        5,519,652
  Depreciation
and amortization expense was $372,714 , $486,420
and  $621,870  for 2009, 2008 and 2007 respectively. Assets
held under capital lease, acquired with Bio-Quant and included in the above
table, amounted to $147,138 at December 31, 2009
  In
December, 2009, the Company entered into an agreement to lease its facility in
East Windsor New Jersey for a period of 10 years at $34,450 per month with
annual 2.5% escalations. Further, the tenant has an option to purchase the
building for an initial purchase price of $4.4 million (plus a 2.5% annual
escalation commencing in year 5 of the sublease). The lease commencement
date was February 1, 2010.  As such, the tenant moved into the
facility on February 1, 2010 and per the terms of the lease agreement, will
commence paying monthly lease payments on May 1, 2010.
  F-18
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  6.
                Intangible
      Assets
  Intangible
assets are listed below with associated accumulated amortization as of December
31, 2009:
  Bio-Quant
      Know-How
                        
                        $
                        3,037,000Bio-Quant
      Trade Name
                        
                        
                        1,123,000Accumulated
      amortization
                        
                        
                        (14,994
                        )Intangible
      assets, net
                        
                        $
                        4,145,006
  The Companyis currentlyamortizingKnow-How over the expected useful life
of 10 years and the Trade Name over the expected useful life of 20 years.Amortization expense
amounted to $14,994 for the year ended December 31,
2009.  Based on the carrying amount of intangible assets,
assuming no future impairment of underlying assets, the estimated future
amortization expense for the next five years ended December 31 and thereafter is
as follows:
  2010
                          
                          $
                          359,8602011
                          
                          
                          359,8602012
                          
                          
                          359,8602013
                          
                          
                          359,8602014
                          
                          
                          359,860Thereafter
                          
                          
                          2,345,706Total
      future amortization expense
                          
                          $
                          4,145,006
  7.
                Deferred
      Compensation
  On
February 27, 2002, the Company entered into an employment agreement with Y.
Joseph Mo, Ph.D., that had a constant term of five years, and pursuant to which
Dr. Mo served as the Company's Chief Executive Officer and
President.  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 a vesting requirement through the date of termination, as set forth in
the employment agreement.  The deferred compensation is payable
monthly for 180 months commencing on termination of employment.  Dr.
Mo’s employment was terminated as of December 15, 2005 and the present value of
the vested portion of the obligation was recognized.    The
monthly deferred compensation payment through May 15, 2021 will be
$9,158.  As of December 31, 2009 and 2008, the Company has
accrued  $935,602 and $1,009,762 respectively, which is included in
deferred compensation.
  F-19
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  8.
                Convertible
      Notes Payable
  On June
30, 2008, the Company issued convertible notes (the “Convertible Notes”) in an
aggregate principal amount of $5.75 million.The Convertible Notes are
collateralized by the Company’s facility in East Windsor, New
Jersey.  $4.75 million of the principal amount of the Convertible
Notes are due on December 31, 2011 (the “Due Date”)and $1 million of the
principal amount of the Convertible Notes were due on December 31,
2008.  On October 16, 2008, the Company sold certain building
equipment and received proceeds of $60,000 which was used to prepay a portion of
the $4.75 million payment due on December 31, 2011.  On December 31,
2008, the Company paid the $1 million principal payment due in cash, such that
at December 31, 2008 the amount outstanding was $4,690,000.
 
 The
Convertible Notes are payable in cash or convertible into shares of Common Stock
with the remaining principal amount initially convertible at $2 pershare on or before the Due
Date at the holders’ option.  The Convertible Notes have a coupon rate
of 7% per annum, which is payable at the Company’s option in cash or, if the
Company’s net cash balance is less than $3 million at the time of payment,
in shares of Common Stock.  If paid in shares of Common Stock, then
the price of the stock issued will be the lesser of $0.08 below or 95% of the
five-day weighted average of the market price of the Common Stock prior to the
time of payment.  Such additional interest consideration is considered
contingent and therefore would only be recognized upon occurrence.
 
 2009 transactions with
respect to this convertible note are as follows:
 As
discussed in Note 4, the Company sold $350,000 of manufacturing equipment to
Warner.  The note holders agreed to release the lien on the equipment
in exchange for a $50,000 repayment of principal to be paid in 2009 when the
equipment is transferred to Warner.  Accordingly, on May 15, 2009, the
Company repaid $50,000 to the note holders upon the transfer of the
manufacturing equipment to Warner.
 
 On May
27, 2009, the Company agreed to convert $150,000 of the outstanding Convertible
Notes to Common Stock at a price of $0.23 per share.  As such, the
Company issued 659,402 shares of Common Stock to the note holders in repayment
of such $150,000 principal amount plus interest.
 
 On June
11, 2009, the Company agreed to convert $150,000 of the outstanding Convertible
Notes to Common Stock at a price of $0.31 per share.  As such, the
Company issued 490,645 shares of Common Stock to the note holders in repayment
of such $150,000 principal amount plus interest.
 
 On July
23, 2009, the Company agreed to convert $300,000 of the outstanding Convertible
Notes to Common Stock at a price of $0.16 per share.  As such, the
Company issued 1,883,385 shares of Common Stock to the note holders in repayment
of such $300,000 principal amount plus interest.
 
 On July
29, 2009, the Company agreed to convert $100,000 of the outstanding Convertible
Notes to Common Stock at a price of $0.15 per share.  As such, the
Company issued 670,426 shares of Common Stock to the note holders in repayment
of such $100,000 principal amount plus interest.
 
 On
September 16, 2009, the Company agreed to convert $350,000 of the outstanding
Convertible Notes to Common Stock at a price of $0.15 per share.  As
such, the Company issued 2,368,722 shares of Common Stock to the note holders in
repayment of such $350,000 principal amount plus interest.
 
 On
October 1, 2009, the Company paid $62,825 in cash for interest on the Note for
the period July 1, 2009 through September 30, 2009.
  F-20
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  On
October 14, 2009, the Company agreed to convert $350,000 of the outstanding
Convertible Notes to Common Stock at a price of $0.16 per share.  As
such, the Company issued 2,193,455 shares of Common Stock to the note holders in
repayment of such $350,000 principal amount plus interest.
 
 On
October 15, 2009, the Company agreed to convert $250,000 of the outstanding
Convertible Notes to Common Stock at a price of $0.15 per share.  As
such, the Company issued 1,671,528 shares of Common Stock to the note holders in
repayment of such $250,000 principal amount plus interest.
 
 On
November 10, 2009, the Company issued convertible notes in the aggregate
principal amount of $750,000 under the same terms as the original note as
described above.
 
 On
November 10, 2009, the Company amended the 2008 Notes such that the conversion
price of $750,000 in principal amount of the Convertible Notes has been changed
from $2.00 to $0.14 per share.
 
 On
November 24, December 7 , 9 and 14, 2009, the note holders converted $500,000,
$125,000, $35,000 and $90,000, respectively, of the outstanding Convertible
Notes pursuant to the November 10, 2009 amendment above.  As such, the
Company issued  5,419,782 shares of Common Stock to the note holders
in repayment of such $750,000 principal amount plus interest.
 
 As a
result of these prepayments and conversions, at December 31, 2009, the principal
amount outstanding of the Convertible Notes was $2,990,000, of which the
conversion price is $2.00 per share for all such principal amount.
 
 The
Company recognized a debt inducement charge for the differential between the
original conversion rate of $2.00 per share and the agreed prices as listed
above.  Non-cash interest expense recognized with respect to this note
for the year ended December 31, 2009 was 28,352,598.
  To the
extent that the Company and convertible note holders agree to effect subsequent
conversions in the future at conversion rates below the original conversion rate
of $2.00, the Company will recognize additional debt inducement
charges.
  Repaid
Notes
  During
2006 and 2007, the Company entered into a series of notes payable aggregating $5
million, of which $3 million was paid in 2008 and $2 million was repaid in
2007.  In connection with these notes and a line of credit which was
cancelled during 2008, the Company issued warrants to purchase 1,200,000 shares
of common stock at prices ranging from $.5535 to $1.52.  The Company
also issued approximately 86,000 shares of common stock in payment of accrued
interest.  Non-cash interest expense associated with these instruments
were $693,316 and $408,538 during the years ended December 31, 2008 and 2007,
respectively.
  F-21
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  9.
                    Notes
      Payable
  On
December 14, 2009, the Company issued $12,129,010 in promissory notes (the
“Notes”) in connection with the acquisition of Bio-Quant as discussedin Note 3 above. The Notes bear
interest at a rate of 10% per annum, with all principal and interest accrued
thereunder becoming due and payable one year from the closing date of the
Merger, or December 14, 2010.  The terms of the Notes provide that the
principal amounts and all interest thereunder are payable by the Company in cash
or, at the Company’s option, in NexMed Shares, which shall be valued at the
fixed price of $0.168 per share.  The Merger Agreement provides that
if the Company repays the Notes in NexMed Shares, the total number of NexMed
Shares issuable to Bio-Quant shareholders shall not exceed 19.99% of outstanding
NexMed Shares at the Effective Time unless the Company receives stockholder
approval to do so.  If the Company receives such stockholder approval,
the total number of additional NexMed Shares issued to Bio-Quant shareholders in
payment of the Notes will be up to approximately 63 million
shares.  The principal amount of the Notes outstanding at December 31,
2009 was $12,129,010 and is reflected as Notes payable in the current
liabilities section of the Consolidated Balance Sheet.  The Company
has determined that it will recognize a beneficial conversion charge based upon
the difference between the quoted market price of the common stock and the fixed
conversion price at the time of the conversion.
 
 On
January 11, 2010, the Company converted $297,568.72 of outstanding principal of
the Notes to Common Stock at $0.168 per share, the fixed conversion price
pursuant to the terms of the Notes.  As such, the Company issued
2,107,500 shares of Common Stock to the note holders in repayment of such
$297,568.72 principal amount plus interest.
 
 On March
17, 2010, the Company converted $1,934,160 of outstanding principal of the Notes
to Common Stock at $0.168 per share, the fixed conversion price pursuant to the
terms of the Notes.  As such, the Company issued 12,940,654 shares of
Common Stock to the note holders in repayment of such $1,934,160 principal
amount plus interest.
 
 10.
              Related
      Party Transactions
  In
addition to the Bio-Quant notes payable described in Note 9, of which
approximately 63% are held by executives of the Company, the Company had the
following related party transactions:
 
 ·
              At
      December 31, 2009 $14,703 is included in due to related parties in the
      accompanying consolidated balance sheets for amounts owed to the Chief
      Executive Officer and affiliates for certain consulting and supplies
      purchased by the Company.  There are charges of $2,500 related
      to such consulting services in the statement of operations for the 2009
      period since the Merger.
  ·
              Prior
      to Merger, Bio-Quant had promissory notes receivable of approximately
      $380,000 from three entities controlled by the former Bio-Quant
      shareholders.  Management of the Company has determined that the
      fair value of these notes was $204,896, representing the value of
      PrevoncoTM purchased in 2010 by the Company from one of these entities in
      settlement of a like-amount of the promissory note.  PrevoncoTM
      is a marketed anti-ulcer compound, lansoprazole, for the treatment of
      solid tumors. The remainder of the notes receivable have been assigned no
      fair value, as there is significant uncertainty as to whether any amounts
      will be collectible.
  ·
              Prior
      to the Merger, Bio-Quant periodically borrowed and repaid funds from the
      Company’s Chief Executive Officer and his affiliates pursuant to
      promissory notes bearing interest rate of 10% per annum, The balance owed
      by the Company at December 31, 2009 and included in due to related parties
      in the accompanying consolidated balance sheet is $84,979. These amounts
      have been repaid in full during the first quarter of
  2010.
  F-22
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  11.
              Stock
      Options and Restricted Stock
  During
December 1996, the Company 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.  During June 2006, the Company adopted the NexMed, Inc.
2006 Stock Incentive Plan.  A total of 3,000,000 shares were set aside
for the plan and an additional 2,000,000 shares were added to the plan in June
2008.  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 $12.00.  The maximum term under these
plans is 10 years.
  The
following table summarizes information about options outstanding, all of which
are exercisable,  at December 31, 2009:
  Options OutstandingWeighted Average
                                          
                                          
                                          
                                          
                                          AggregateRange of
                                          
                                          Number
                                          
                                          Remaining
                                          
                                          Weighted Average
                                          
                                          
                                          IntrinsicExercise Prices
                                          
                                          Outstanding
                                          
                                          Contractual Life
                                          
                                          Exercise Price
                                          
                                          
                                          Value$
                                          .55
      - 1.85
                                          
                                          
                                          2,491,451
                                          
                                          5.72
      years
                                          
                                          $
                                          0.82
                                          
                                          
                                          $
                                          -2.00
      - 3.99
                                          
                                          
                                          77,350
                                          
                                          2.27
      years
                                          
                                          
                                          3.31
                                          
                                          
                                          
                                          -4.00
      - 5.50
                                          
                                          
                                          371,401
                                          
                                          2.75
      years
                                          
                                          
                                          4.65
                                          
                                          
                                          
                                          -7.00
      - 12.00
                                          
                                          
                                          10,500
                                          
                                          0.53
      years
                                          
                                          
                                          9.14
                                          
                                          
                                          
                                          -2,950,702
                                          
                                          5.24
      years
                                          
                                          $
                                          1.40
                                          
                                          
                                          $
                                          -
  F-23
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  A summary
of stock option activity is as follows:
  Weighted
                                    
                                    Weighted
                                    
                                    TotalAverage
                                    
                                    Average Remaining
                                    
                                    AggregateNumber of
                                    
                                    
                                    Exercise
                                    
                                    Contractual
                                    
                                    IntrinsicShares
                                    
                                    
                                    Price
                                    
                                    Life
                                    
                                    ValueOutstanding
      at January1, 2007
                                    
                                    
                                    3,663,421
                                    
                                    
                                    $
                                    1.52Granted
                                    
                                    
                                    202,100
                                    
                                    
                                    
                                    1.41Exercised
                                    
                                    
                                    (78,480
                                    )
                                    
                                    
                                    1.07Cancelled
                                    
                                    
                                    (317,200
                                    )
                                    
                                    
                                    2.82Outstanding
      at December 31, 2007
                                    
                                    
                                    3,469,841
                                    
                                    
                                    $
                                    1.41Granted
                                    
                                    
                                    -Exercised
                                    
                                    
                                    (55,000
                                    )
                                    
                                    $
                                    0.73Cancelled
                                    
                                    
                                    (45,850
                                    )
                                    
                                    
                                    3.33Outstanding
      at December 31, 2008
                                    
                                    
                                    3,368,991
                                    
                                    
                                    $
                                    1.40Granted
                                    
                                    
                                    -Exercised
                                    
                                    
                                    -Cancelled
                                    
                                    
                                    (418,289
                                    )
                                    
                                    $
                                    1.40Outstanding
      at December 31, 2009
                                    
                                    
                                    2,950,702
                                    
                                    
                                    
                                    
                                    
                                    5.24 years
                                    
                                    $
                                    0Vested
      or expected to vest atDecember
      31, 2009
                                    
                                    
                                    2,950,702
                                    
                                    
                                    $
                                    1.40
                                    
                                    5.24 years
                                    
                                    $
                                    0Exercisable
      at December 31, 2009
                                    
                                    
                                    2,950,702
                                    
                                    
                                    $
                                    1.40
                                    
                                    5.24 years
                                    
                                    $
                                    0Exercisable
      at December 31, 2008
                                    
                                    
                                    3,177,586
                                    
                                    
                                    $
                                    1.40Exercisable
      at December 31, 2007
                                    
                                    
                                    3,122,740
                                    
                                    
                                    $
                                    1.43Options
      available for grant at December 31,  2009
                                    
                                    
                                    1,323,064
  There
were no options granted during 2008 or 2009.  The weighted average
grant date fair value of options granted during 2007 was $1.41.  The
intrinsic value of options exercised during the year ended December 31, 2008 was
$43,270.
  The fair
value of each stock option grant is estimated on the grant date using the
Black-Scholes option-pricing model with the following assumptions used for the
year ended December 31, 2007:
  Dividend
      yield
                      
                      
                      0.00
                      %Risk-free
      yields
                      
                      
                      1.35% - 5.02
                      %Expected
      volatility
                      
                      
                      54.38% - 103.51
                      %Expected
      option life
                      
                      1 - 6 yearsForfeiture
      rate
                      
                      
                      8.22
                      %
  F-24
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  Expected Volatility. The
Company uses analysis of historical volatility to compute the expected
volatility of its stock options.
  Expected Term.The expected
term is based on several factors including historical observations of employee
exercise patterns during the Company’s history and expectations of employee
exercise behavior in the future giving consideration to the contractual terms of
the stock-based awards.
  Risk-Free Interest Rate. The
interest rate used in valuing awards is based on the yield at the time of grant
of a U.S. Treasury security with an equivalent remaining term.
  Dividend Yield. The Company
has never paid cash dividends, and does not currently intend to pay cash
dividends, and thus has assumed a 0% dividend yield.
  Pre-Vesting Forfeitures.
Estimates of pre-vesting option forfeitures are based on Company experience. The
Company will adjust its estimate of forfeitures over the requisite service
period based on the extent to which actual forfeitures differ, or are expected
to differ, from such estimates. Changes in estimated forfeitures will be
recognized through a cumulative catch-up adjustment in the period of change and
will also impact the amount of compensation expense to be recognized in future
periods.
  As of
December 31, 2009, there was not any unrecognized compensation cost related to
non-vested stock options.
  Compensatory Share
Issuances
  The value
of restricted stock grants is calculated based upon the closing stock price of
the Company’s Common Stock on the date of the grant.  The value of the
grant is expensed over the vesting period of the grant in accordance with FASB
ASC 718 as discussed in Note 2.  As of December 31, 2009 there was
$238,169 of total unrecognized compensation cost related to non-vested
restricted stock.  That cost is expected to be recognized during
2010.
  Principal
employee based compensation transactions for the year ended December 31, 2009
were as follows:
  For the
years ended December 31, 2009, 2008 and 2007, the Company issued 253,488,
377,950 and 304,540 shares of common stock, respectively,  to Board of
Directors members for services rendered, and recorded expenses related to such
issuances of $211,428, $480,829 and $288,998, respectively.
  On
September 12, 2008, the Board of Directors approved new stock grants (“New Stock
Grants”) for Hemanshu Pandya, the Company’s then Chief Operating Officer and
Mark Westgate, the Company’s Chief Financial Officer, with each grant comprised
of 500,000 restricted shares of Common Stock.  The two New Stock
Grants will vest in two equal installments on June 30, 2009 and June 30, 2010,
respectively, provided that Mr. Pandya and Mr. Westgate remain in continuous and
uninterrupted service with the Company.  For the years ended December
31, 2009 and 2008, the Company recorded expenses of approximately $70,000 and
$35,000, respectively, for such grant.
  F-25
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  The
following table indicates where the total stock-based compensation expense
resulting from stock options and awards appears in the Statements of
Operations:
  Year EndedDecember 31,2009
                      
                      
                      December 31,2008
                      
                      
                      December 31,2007Research
      and development
                      
                      $
                      86,210
                      
                      
                      $
                      71,833
                      
                      
                      $
                      111,108General
      and administrative
                      
                      
                      816,461
                      
                      
                      
                      1,252,239
                      
                      
                      
                      1,044,724Total
      stock-based compensation expense
                      
                      $
                      902,671
                      
                      
                      $
                      1,324,072
                      
                      
                      $
                      1,155,832
 
 The
stock-based compensation expense has not been tax-effected due to the recording
of a full valuation allowance against U.S. net deferred tax assets.
  12.
              Capital
      Leases
  The
Company has entered into various capital leases for certain equipment used in
its laboratory and cell processing facility as of December 31, 2009. The lease
obligations are payable as follows:
 
 Monthly
                                                        payment
                                                      
                                                      
                                                      Interest
                                                        rate
                                                      
                                                      
                                                      Number
                                                        of
                                                        payments
                                                        per lease
                                                      
                                                      Maturity
                                                        date
                                                      
                                                      Aggregate
                                                        remaining
                                                        principal
                                                        outstanding
                                                        at December
                                                        31, 2009Lease
      1
                                                      
                                                      $
                                                      384
                                                      
                                                      
                                                      
                                                      10
                                                      %
                                                      
                                                      
                                                      60
                                                      
                                                      12/1/2013
                                                      
                                                      $
                                                      14,901Lease
      2
                                                      
                                                      
                                                      136
                                                      
                                                      
                                                      
                                                      19.2
                                                      %
                                                      
                                                      
                                                      36
                                                      
                                                      12/31/2011
                                                      
                                                      
                                                      2,685Lease
      3
                                                      
                                                      
                                                      441
                                                      
                                                      
                                                      
                                                      13.7
                                                      %
                                                      
                                                      
                                                      60
                                                      
                                                      2/1/2013
                                                      
                                                      
                                                      16,717Lease
      4
                                                      
                                                      
                                                      897
                                                      
                                                      
                                                      
                                                      10
                                                      %
                                                      
                                                      
                                                      60
                                                      
                                                      9/1/2013
                                                      
                                                      
                                                      41,155Lease
      5
                                                      
                                                      
                                                      1,483
                                                      
                                                      
                                                      
                                                      13.8
                                                      %
                                                      
                                                      
                                                      60
                                                      
                                                      12/1/2014
                                                      
                                                      
                                                      64,037$
                                                      139,495
  F-26
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  The
leases are secured by a first lien on the underlying equipment. At December 31,
2009, the assets held subject to capital leases totaled $147,138 and the related
accumulated depreciation was $6,149.
  Future
maturities of capital lease obligations at December 31, 2009 are:
  Years Ended
                                                                December 31,
                                                              
                                                              Amount2010
                                                              
                                                              $
                                                              40,1012011
                                                              
                                                              
                                                              40,1012012
                                                              
                                                              
                                                              38,4732013
                                                              
                                                              
                                                              31,3742014
                                                              
                                                              
                                                              17,800Total
                                                              
                                                              
                                                              167,849Less
      portion representing interest
                                                              
                                                              
                                                              28,354Total
      principal due at December 31, 2009
                                                              
                                                              
                                                              139,495Less:
      current maturities
                                                              
                                                              
                                                              24,530Long-term
      portion
                                                              
                                                              $
                                                              114,965
  13.
              Stockholder
      Rights Plan
  On April
3, 2000, the Company declared a dividend distribution of one preferred share
purchase 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, at a
Purchase Price of $100.00 per Unit, subject to adjustment.  Under the
Rights Plan, 1,000,000 shares of the Company’s preferred stock have been set
aside.
  F-27
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  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 , 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, the Company’s former CEO, will
be permitted to increase his ownership to up to 25% of the outstanding shares of
Common Stock, without becoming an Acquiring Person and triggering a Distribution
Date.
  On
January 16, 2007 the Rights Agreement was amended to exempt Southpoint Master
Fund, LP and its affiliates from becoming an Acquiring Person within the meaning
of the Rights Agreement, provided that Southpoint’s aggregate beneficial
ownership of the Company’s Common Stock is less than 20% of the shares of Common
Stock then outstanding.
  On
December 8, 2009 the Rights Agreement was amended to exempt  any
person who receives the Company’s Common Stock in satisfaction of the Notes
issued pursuant to the Bio-Quant Merger Agreement as discussed in Notes 3 and 9
above.
  14.
              Warrants
  A summary
of warrant activity is as follows:
  F-28
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  Weighted
                          
                          WeightedCommon Shares
                          
                          
                          Average
                          
                          AverageIssuable upon
                          
                          
                          Exercise
                          
                          ContractualExercise
                          
                          
                          Price
                          
                          LifeOutstanding
      at January 1, 2007
                          
                          
                          20,125,027
                          
                          
                          $
                          1.33Issued
      (Note 8)
                          
                          
                          450,000
                          
                          
                          $
                          1.52Exercised
                          
                          
                          (2,790,495
                          )
                          
                          $
                          1.83Cancelled
                          
                          
                          (5,344,578
                          )
                          
                          $
                          1.40Outstanding
      at December 31, 2007
                          
                          
                          12,439,954
                          
                          
                          $
                          1.23Issued
      (Note 8)
                          
                          
                          250,000
                          
                          
                          $
                          1.15Exercised
                          
                          
                          (471,910
                          )
                          
                          $
                          0.89Cancelled
                          
                          
                          (100,000
                          )
                          
                          $
                          1.52Outstanding
      at December 31, 2008
                          
                          
                          12,118,044
                          
                          
                          $
                          1.23IssuedExercisedCancelled
                          
                          
                          (5,138,914
                          )
                          
                          $
                          1.58Outstanding
      at December 31, 2009
                          
                          
                          6,979,130
                          
                          
                          $
                          1.03
                          
                          1.03 yearsExercisable
      at December 31, 2009
                          
                          
                          6,979,130
                          
                          
                          $
                          1.23
                          
                          1.22
years
  15.
              Income
      Taxes
  The
Company has incurred losses since inception, which have generated net operating
loss carryforwards of approximately $107 million for federal income tax
purposes.  These carryforwards are available to offset future taxable
income and expire beginning in 2014 through 2028 for federal income tax
purposes. In addition, the Company has general business and research and
development tax credit carryforwards of approximately $2.4
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. It is likely that such a limitation
will occur if most of the Bio-Quant notes are converted to common stock. 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  equity financing obtained
by the Company since its formation.
  In 2007,
2008 and 2009,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 no longer has any significant NJ tax
credit benefits left available to sell at December 31, 2009, and was approved to
sell net operating loss tax benefits of $491,903 in 2009, $1,053,547 in 2008,
and $905,515 in 2007.  The Company generated net revenues of $437,794,
$937,657, and $805,909 in 2009, 2008, and 2007, respectively, as a result of the
sale of the tax credits, which has been recognized as received as an income tax
benefit in the Consolidated Statements of Operations.  There can be no
assurance that this program will continue in future years.
  F-29
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  Deferred
tax assets consist of the following:
  December 31,2009
                      
                      
                      2008Deferred tax assets:Net
      operating tax loss carryforwards
                      
                      $
                      44,000,000
                      
                      
                      $
                      40,500,000Research
      and development tax credits
                      
                      
                      2,400,000
                      
                      
                      
                      2,200,000Deferred
      compensation
                      
                      
                      300,000
                      
                      
                      
                      300,000Bases
      of intangible assets
                      
                      
                      (1,660,000
                      )
                      
                      
                      -Total
      deferred tax asset
                      
                      
                      45,040,000
                      
                      
                      
                      43,000,000Less
      valuation allowance
                      
                      
                      (45,040,000
                      )
                      
                      
                      (43,000,000
                      )Net
      deferred tax asset
                      
                      $
                      —
                      
                      
                      $
                      —
  The net
operating loss carryforwards and tax credit carryforwards resulted in a
noncurrent deferred tax benefit at December 31, 2009, 2008 and 2007 of
approximately $45, $43 million, and $39 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.
  The
acquisition of Bio-Quant was the acquisition of the stock of
Bio-Quant.  Therefore, the Company does not have the amortizable tax
bases in the intangible assets, including goodwill.
  On
January 1, 2007, we adopted the provisions of ASC 740-10-25. ASC 740-10-25
provides recognition criteria and a related measurement model for uncertain tax
positions taken or expected to be taken in income tax returns. ASC 740-10-25
requires that a position taken or expected to be taken in a tax return be
recognized in the financial statements when it is more likely than not that the
position would be sustained upon examination by tax authorities. Tax positions
that meet the more likely than not threshold are then measured using a
probability weighted approach recognizing the largest amount of tax benefit that
is greater than 50% likely of being realized upon ultimate settlement. The
Company’s Federal income tax returns for 2001 to 2008 are still open and subject
to audit.  The Company had no tax positions relating to open income
tax returns that were considered to be uncertain. Accordingly, we have not
recorded a liability for unrecognized tax benefits upon adoption of ASC
740-10-25. There continues to be no liability related to unrecognized tax
benefits at December 31, 2009.
  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,
2009, 2008 and 2007 are as follows:
  F-30
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  For
      the years endedDecember
    31,2009
                      
                      
                      2008
                      
                      
                      2007Federal
      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
                      
                      
                      (8.35
                      )%
                      
                      
                      (15.35
                      )%
                      
                      
                      (8.40
                      )%Provision
      (benefit) for income taxes
                      
                      
                      (8.35
                      )%
                      
                      
                      (15.35
                      )%
                      
                      
                      (8.40
                      )%
  For the
years ended December 31, 2009, 2008 and 2007, 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 offset by the
state tax benefit from the sale of the net operating losses in New Jersey and
other permanent differences.
  16.
              Commitments
      and Contingencies
  Equity
Compensation
  The
Company has made commitments to issue equity awards to certain Officers of the
Company and employees of Bio-Quant.  Such commitments will be
satisfied only upon approval by the shareholders of the Company to increase the
number of authorized shares in the NexMed, Inc. 2006 Stock Incentive Plan (the
“Plan”).  Upon approval of the Plan, the Company will issue
approximately 2,371,000 restricted shares to certain Bio-Quant employees
pursuant to the provisions of the Plan.  Additionally, the Company
will issue 3,750,000 shares to certain of its Officers pursuant to the
provisions of the Plan.
  Operating
Leases
 
 In
January 2007, Bio-Quant entered into a lease agreement for its headquarters
location in San Diego California expiring December 31, 2011. The headquarters
lease term contains a base rent of $18,400 per month with 4% annual escalations,
plus a real estate tax and operating expense charge to be determined
annually.
 
 In
February 2008, Bio-Quant entered into a four year lease agreement for its second
location in San Diego California expiring December 31, 2015 as amended in
February 2010.  The  Lease term has a base rent of $13,065
per month, plus a real estate tax and operating expense charge to be determined
annually.
 
 For the
period from Merger to December 31, 2009, rent expense under all operating
leases was approximately $18,000.
 
 Future
minimum rental payments under the operating leases noted above are
approximately:
 
 Years Ended
                        December 31,
                      
                      Amount2010
                      
                      
                      405,1442011
                      
                      
                      420,1672012
                      
                      
                      172,2362013
                      
                      
                      177,3962014
                      
                      
                      182,724Thereafter
                      
                      
                      188,208$
                      1,545,875
  F-31
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  Employment
Agreements
 
 We have
an employment agreement with Mr. Damaj, our President and Chief Executive
Officer. Pursuant to that agreement, we may terminate Mr. Damaj’s employment
without cause on ten days notice, in which event severance pay equal to twelve
months’ base  salary. Under the employment agreement, if we had
terminated Mr. Damaj effective December 31, 2009, based on his 2009
compensation, he would have been paid an aggregate of $300,000, his 2009 base
salary and $100,000 of which represents twice his accrued 2009
bonus.  The employment agreement further provides that in the event
that within one year after a “Change of Control” (as defined therein) of the
Company occurs, and the President and Chief Executive Officer’s employment is
terminated or resigns for cause, the President and Chief Executive Officer will
be paid a lump sum amount equal to their base salary for a 12-month period
following termination or resignation. Based on this change of control provision,
if there had been a change of control of the Company in 2009 and the President
and Chief Executive Officer’s employment had terminated effective December 31,
2009, either for “Good Reason” or without cause, then the President and Chief
Executive Officer would be entitled to termination pay equal to
$300,000.
 
 Other
 
 The
Company was a party to clinical research agreements with a clinical research
organization (“CRO”) in connection with a one-year open-label study for
Vitaros®with commitments by the Company that
initially totaled approximately $12.8 million.  These agreements were
amended in October 2005 such that the total commitment was reduced to
approximately $4.2 million.  These agreements provided that if the
Company canceled them prior to 50% completion, the Company will owe the higher
of 10% of the outstanding contract amount prior to the amendment or 10% of the
outstanding amount of the amended contract at the time of
cancellation.  On September 30, 2008, the clinical research agreements
were cancelled as it was determined that the one-year open-label study would no
longer be required by the FDA for regulatory approval of Vitaros®.  As
such, a cancellation fee of approximately $892,000 was accrued at September 30,
2008.  Pursuant to the terms of the clinical research agreement, the
cancellation fee was not payable until December 15, 2008.  On each of
December 31, 2008 and March 31, 2009, the Company paid $300,000 toward the total
cancellation fee.  The balance of approximately $292,000 was paid on
July 7, 2009.
  The
Company is a party to several short-term consulting and research agreements
that, generally, can be cancelled at will by either party.
  We are
subject to certain legal proceedings in the ordinary course of
business.  We do not expect any such items to have a significant
impact on our financial position.
  17.
              Segment
      and Geographic Information
  The
Company has two active business segments: designing and developing
pharmaceutical products and providing pre-clinical CRO services through its
subsidiary, Bio-Quant.
  F-32
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  The
acquisition of Bio-Quant occurred on December 14, 2009 as discussed in Note 3
above.  The revenue and expenses of Bio-Quant for the16 day period
ended December 31, 2009 are not material to present as a separate segment in
2009.  Total assets of the CRO segment at December 31, 2009 are
approximately $15 million.  Pro-forma information for NexMed and
Bio-Quant for the years ended December 31, 2009 and 2008 is shown in Note 3
above.
  18.
              Subsequent
      Events
  In
January 2010, the Company raised gross proceeds of $2.3 million in an offering
of unsecured promissory notes (the “2010 Notes”).  The Notes accrue
interest at a rate of 10% per annum and are due and payable in full six months
from the date of issuance. The principal and accrued interest due under the
Notes is payable, at our election of the Company, in either cash or shares of
Common Stock, par value $0.001 per share (the “Shares”).  The weighted
average conversion price of the Shares potentially issuable under the Notes is
$0.37 per Share, with the conversion prices ranging from $0.36 to $0.40 per
Share.  Upon the maturity of the Notes, up to 6,243,243 Shares could
potentially be issued in satisfaction of the then outstanding principal and
accrued interest.  The Notes may be prepaid at any time without
penalty.
  On
January 26, 2010, the Company agreed to convert $397,988 of the outstanding
Convertible Notes (see Note 8) to Common Stock at a price of $0.50 per
share.  As such, the Company issued 800,000 shares of Common Stock to
the note holders in repayment of such $397,988 principal amount plus
interest.
  On March
17, 2010, the 2010 Notes were repaid in full with the issuance of 6,232,556
shares of common stock to repay such $2.3 million principal amount and
interest.
  On March
2, 2010, the Company held a special meeting of stockholders to approve an
amendment to the Company’s Amended and Restated Articles of Incorporation to
increase the number of shares of Common Stock authorized for issuance by the
Company from 120,000,000 shares to 270,000,000 shares.  The proposal
was approved at the special meeting and the amendment was filed with the Nevada
Secretary of State concurrently with the approval.
 
 On
January 11, 2010, the Company converted $297,568.72 of outstanding principal of
the Notes issued in connection with the Bio-Quant acquisition (see Note 9) to
Common Stock at $0.168 per share, the fixed conversion price pursuant to the
terms of the Notes.  As such, the Company issued 2,107,500 shares of
Common Stock to the note holders in repayment of such $297,568.72 principal
amount plus interest.
 
 On March
17, 2010, the Company converted $1,934,160 of outstanding principal of the Notes
issued in connection with the Bio-Quant acquisition (see Note 9) to Common Stock
at $0.168 per share, the fixed conversion price pursuant to the terms of the
Notes.  As such, the Company issued 12,940,654 shares of Common Stock
to the note holders in repayment of such $1,934,160 principal amount plus
interest.
 
 On March
15, 2010, the Company issued convertible notes (the “2010 Convertible Notes”) in
an aggregate principal amount of $4 million to the holders of the Convertible
Notes discussed in Note 8 above.The 2010 Convertible Notes
are collateralized by the Company’s facility in East Windsor, New Jersey and are
due on December 31, 2012.  The proceeds were used to repay the
Convertible Notes then outstanding as discussed in Note 8 above.  As
such, the Company received approximately $1.4 million in net
proceeds.
  F-33
  NexMed,
      Inc.Notes to Consolidated Financial
      Statements
  The
Convertible Notes are payable in cash or convertible into shares of Common Stock
at $0.58 pershare on
or before the Due Date at the holders’ option.  The Convertible Notes
have a coupon rate of 7% per annum, which is payable at the Company’s option in
cash or, if the Company’s net cash balance is less than $3 million at the time
of payment, in shares of Common Stock.  If paid in shares of Common
Stock, then the price of the stock issued will be the lesser of $0.08 below or
95% of the five-day weighted average of the market price of the Common Stock
prior to the time of payment.  Such additional interest consideration
is considered contingent and therefore would only be recognized upon
occurrence.
 
 The
Company has 126,902,281 shares of Common Stock issued and outstanding as of the
date of this report as a result of the repayment of the promissory notes in 2010
as discussed above.
  F-34




ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.





None.





ITEM 9A(T).
            CONTROLS
      AND PROCEDURES.





In
accordance with Exchange Act Rules 13a-15(e) and 15d-15(e), 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 the end of the period
covered by this report that the Company’s disclosure control and procedures are
effective.  There were no changes in the Company’s internal controls
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, 2009.





As
permitted by the Exchange Act Rules, we did not conduct an evaluation of
the effectiveness of internal controls of our CRO services division as
that division came into existence with the acquisition of Bio-Quant
on December 14, 2009. The effectiveness of internal controls of the CRO
services division will be evaluated as of December 31, 2010.





This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to
provide only management’s report in this annual report.





ITEM 9B.
            OTHER
      INFORMATION.





None.





PART III.





ITEM 10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.





Information
called for by Item 10 is set forth under the heading “Election of Directors” and
“Committees of the Board” in our Proxy Statement for the 2010 Annual Meeting,
which is incorporated herein by reference, and “Executive Officers of the
Registrant” of Part I of this Report.





ITEM 11.
            EXECUTIVE
      COMPENSATION.





Information called for by Item 11 is
set forth under the headings “Executive Compensation” and “Directors
Compensation” in our Proxy Statement for the 2010 Annual Meeting, which is
incorporated herein by reference.


25





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 Proxy Statement for the 2010 Annual Meeting, which is incorporated herein by
reference.





EQUITY
COMPENSATION PLAN INFORMATION





The
following table gives information as of December 31, 2009, 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
                      
                      
                      2,950,702
                      (1)
                      
                      $
                      1.40
                      
                      
                      
                      1,323,064
                      (2)Equity
      compensation plans not approved by security holders
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
                      
                      
                      2,950,702
                      
                      
                      $
                      1.40
                      
                      
                      
                      1,323,064





(1)
Consists of options outstanding at December 31, 2009 under The NexMed Inc. Stock
Option and Long Term Incentive Plan (the "Incentive Plan") and The NexMed, Inc.
2006 Stock Incentive Plan (the "2006 Plan").





(2)
Consists of zero and 1,323,0643 shares of Common Stock that remain available for
future issuance, at December 31, 2009, under the Incentive Plan and 2006 Plan,
respectively.





ITEM 13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.





Information called for by Item 13 is
set forth under the headings “Transactions with Related Persons, Promoters and
Certain Control Persons” and “Corporate Governance” in our Proxy Statement for
the 2010 Annual Meeting, 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 Proxy Statement for the 2010 Annual Meeting, 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




26




3.
              Exhibits





EXHIBITS
                    NO.
                  
                  DESCRIPTION2.1
                  
                  Agreement
      and Plan of Merger by and among the Company, BQ Acquisition Corp.,
      Bio-Quant, Inc., and certain other parties listed therein, dated as of
      November 20, 2009 (incorporated herein by reference to Exhibit 2.1 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      November 23, 2009).3.1
                  
                  Amended
      and Restated Articles of Incorporation of the Company.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).3.4
                  
                  Certificate
      of Amendment to the Company’s Articles of Incorporation, dated June 14,
      2005. (incorporated herein by reference to Exhibit 3.4 to the Company’s
      Form 10-K filed with the Securities and Exchange Commission on March 16,
      2006).3.5
                  
                  Second
      Amended and Restated By-Laws of the Company, effective as of April 18,
      2008 (incorporated herein by reference to Exhibit 3.1 to the Company’s
      Current Report on Form 8-K filed with the Securities and Exchange
      Commission on April 24,
2008).




27





3.6
                  
                  Certificate
      of Amendment to Amended and Restated Articles of Incorporation of the
      Company, dated March 3, 2010.3.7
                  
                  Certificate
      of Correction to Certificate of Amendment to Amended and Restated Articles
      of Incorporation of the Company, dated March 3, 2010.4.1
                  
                  Form
      of Common Stock Certificate (incorporated herein 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 the Company’s 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 the Company’s Current
      Report on Form 8-K filed with the Commission on April 10,
      2000).4.4
                  
                  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).4.5
                  
                  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).4.6
                  
                  Form
      of Warrant dated June 18, 2004 (incorporated herein by reference to
      Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on June 25, 2004).4.7
                  
                  Form
      of Common Stock Purchase Warrant A, dated December 17, 2004 (incorporated
      herein by reference to Exhibit 4.1 to the Company’s Current Report on Form
      8-K filed with the Securities and Exchange Commission on December 23,
      2004).4.8
                  
                  Form
      of Warrant, dated May 17, 2005 (incorporated herein by reference to
      Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on May 19, 2005).4.9
                  
                  Form
      of Warrant, dated January 23, 2006 (incorporated herein by reference to
      Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on January 27,
2006).4.10
                  
                  Form
      of Warrant, dated November 30, 2006 (incorporated herein by reference to
      Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on December 4, 2006).4.11
                  
                  Form
      of Warrant, dated December 20, 2006 (incorporated herein by reference to
      Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on December 21, 2006).4.12
                  
                  Amendment
      No. 1 to Rights Agreement, dated as of January 16, 2007 (incorporated
      herein by reference to Exhibit 4.1 to the Company’s Form 8-K filed with
      the Securities and Exchange Commission on January 22,
    2007).4.13
                  
                  Form
      of Warrant, dated October 26, 2007 (incorporated herein by reference to
      Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on October 31,
2007).4.14
                  
                  Form
      of Warrant (incorporated herein by reference to Exhibit 4.4 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on July 29,
2008).


28





4.15
                  
                  Amendment
      No. 2 to Rights Agreement dated as of December 8, 2009 (incorporated
      herein by reference to Exhibit 4.1 filed with the Company’s Form 8-K filed
      on December 10, 2009).10.1*
                  
                  Amended
      and Restated NexMed, Inc. Stock Option and Long-Term Incentive
      Compensation Plan (incorporated herein 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
      herein 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
                  
                  License
      Agreement dated March 22, 1999 between NexMed International Limited and
      Vergemont International Limited  (incorporated herein by
      reference to Exhibit 10.7 of the Company’s Form 10-KSB filed with the
      Securities and Exchange Commission on March 16, 2000).10.4*
                  
                  The
      NexMed, Inc. Non-Qualified Stock Option Plan (incorporated herein 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).10.5*
                  
                  Employment
      Agreement dated February 26, 2002 by and between NexMed, Inc. and Dr.
      Y.   Joseph Mo (incorporated herein by reference to Exhibit
      10.7 of the Company's Form 10-K filed with the Securities and Exchange
      Commission on March 29, 2002).10.6
                  
                  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).10.7
                  
                  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).10.8
                  
                  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).10.9*
                  
                  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).10.10
                  
                  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).10.11
                  
                  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).10.12
                  
                  Investor
      Rights Agreement, dated as of June 18, 2004, between the Company and the
      Purchasers identified on Schedule 1 thereto (incorporated herein by
      reference to Exhibit 10.2 to the Company’s Form 8-K filed with the
      Securities and Exchange Commission on June 25, 2004).10.13*
                  
                  Stock
      Option Grant Agreement between the Company and Leonard A. Oppenheim dated
      November 1, 2004 (incorporated herein by reference to Exhibit 10.2 to the
      Company’s Form 10-Q filed with the Securities and Exchange Commission on
      November 9,
2004).


29





10.14*
                  
                  Form
      of Stock Option Grant Agreement between the Company and its Directors
      (incorporated herein by reference to Exhibit 10.29 to the Company’s Form
      10-K filed with the Securities and Exchange Commission on March 16,
      2006).10.15
                  
                  Investor
      Rights Agreement, dated as of December 17, 2004, between the Company and
      the Purchasers named therein (incorporated herein by reference to Exhibit
      10.2 to the Company’s Current Report on Form 8-K filed with the Securities
      and Exchange Commission on December 23, 2004).10.16
                  
                  Preferred
      Stock and Warrant Purchase Agreement, dated as of May 16, 2005, between
      the Company and the Purchasers named therein (incorporated herein by
      reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
      filed with the Securities and Exchange Commission on May 19,
      2005).10.17
                  
                  Investor
      Rights Agreement, dated as of May 16, 2005, between the Company and the
      Purchasers named therein (incorporated herein by reference to Exhibit 10.2
      to the Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on December 23, 2004).10.18+
                  
                  License
      Agreement, dated September 13, 2005, between NexMed, Inc., NexMed
      International Limited and Novartis International Pharmaceutical Ltd.
      (incorporated herein by reference to Exhibit 99.1 to the Company’s Current
      Report on Form 8-K filed with the Securities and Exchange Commission on
      September 15, 2005).10.19
                  
                  Common
      Stock and Warrant Purchase Agreement, dated as of January 23, 2006,
      between the Company and the Purchasers named therein (incorporated herein
      by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
      filed with the Securities and Exchange Commission on January 27,
      2006).10.20
                  
                  Investor
      Rights Agreement, dated as of January 23, 2006, between the Company and
      the Purchasers named therein (incorporated herein by reference to Exhibit
      10.2 to the Company’s Current Report on Form 8-K filed with the Securities
      and Exchange Commission on January 27, 2006).10.21*
                  
                  Employment
      Agreement dated December 21, 2005 by and between NexMed, Inc. and Mark
      Westgate (incorporated herein by reference to Exhibit 10.31 to the
      Company’s Form 10-K filed with the Securities and Exchange Commission on
      March 16, 2006).10.22
                  
                  Common
      Stock and Warrant Purchase Agreement, dated January 23, 2006 (incorporated
      herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed with
      the Securities and Exchange Commission on January 27,
    2006).10.23*
                  
                  NexMed,
      Inc. 2006 Stock Incentive Plan (incorporated herein by reference to Annex
      A of the Company’s Definitive Proxy Statement filed with the Securities
      and Exchange Commission on April 6, 2006).10.24
                  
                  Securities
      Purchase Agreement, dated November 30, 2006, between NexMed, Inc., NexMed
      (U.S.A.), Inc. and Metronome LPC 1, Inc. (incorporated herein by reference
      to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on December 4, 2006).10.25
                  
                  Senior
      Secured Note, dated November 30, 2006, in favor of Metronome LPC 1, Inc.
      (incorporated herein by reference to Exhibit 10.2 to the Company’s Form
      8-K filed with the Securities and Exchange Commission on December 4,
      2006).


30





10.26
                  
                  Common
      Stock and Warrant Purchase Agreement, dated December 20, 2006
      (incorporated herein by reference to Exhibit 10.1 to the Company’s Form
      8-K filed with the Securities and Exchange Commission on December 21,
      2006).10.27
                  
                  Registration
      Rights Agreement, dated December 20, 2006 (incorporated herein by
      reference to Exhibit 10.2 to the Company’s Form 8-K filed with the
      Securities and Exchange Commission on December 21,
  2006).10.28
                  
                  Amendment,
      effective as of February 13, 2007, to License Agreement between Novartis
      International Pharmaceutical Ltd., NexMed, Inc. and NexMed International
      Limited, dated September 13, 2005 (incorporated herein by reference to
      Exhibit 99.1 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on February 23, 2007).10.29
      +
                  
                  License
      Agreement dated November 1, 2007 between NexMed, Inc. and Warner Chilcott
      Company, Inc (incorporated herein by reference to Exhibit 10.31 to the
      Company’s Form 10-K filed with the Securities and Exchange Commission on
      March 12, 2008).10.30
                  
                  Securities
      Purchase Agreement, dated October 26, 2007, between NexMed, Inc. and Twin
      Rivers Associates, LLC. (incorporated herein by reference to Exhibit 10.1
      to the Company’s Current Report 8-K filed with the Securities and Exchange
      Commission on October 31, 2007).10.31
                  
                  Senior
      Secured Note dated October 26, 2007, between NexMed, Inc. and Twin Rivers
      Associates, LLC. (incorporated herein by reference to Exhibit 10.2 to the
      Company’s Current Report 8-K filed with the Securities and Exchange
      Commission on October 31, 2007).10.32
                  
                  Form
      of Binding Commitment for Credit Line, dated May 12, 2008 (incorporated
      herein by reference to Exhibit 10.1 to the Company’s Current Report on
      Form 8-K filed with the Securities and Exchange Commission on May 14,
      2008).10.33
                  
                  Side
      Letter, effective June 27, 2008, to License Agreement between Novartis
      International Pharmaceutical Ltd., NexMed, Inc. and NexMed International
      Limited, dated September 13, 2005 (incorporated herein by reference to
      Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on July 1, 2008).10.34
                  
                  Form
      of Purchase Agreement (incorporated herein by reference to Exhibit 10.1 to
      the Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on July 3, 2008).10.35
                  
                  Form
      of Note (incorporated herein by reference to Exhibit 10.2 to the Company’s
      Current Report on Form 8-K filed with the Securities and Exchange
      Commission on July 3, 2008).10.36
                  
                  Form
      of Registration Rights Agreement (incorporated herein by reference to
      Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on July 3, 2008).10.37
                  
                  Form
      of Mortgage, Security Agreement and Assignment of Leases and Rents
      (incorporated herein by reference to Exhibit 10.4 to the Company’s Current
      Report on Form 8-K filed with the Securities and Exchange Commission on
      July 3, 2008).10.38
                  
                  Form
      of Subsidiary Guaranty (incorporated herein by reference to Exhibit 10.5
      to the Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on July 3, 2008).10.39
      *
                  
                  NexMed,
      Inc. Amendment to 2006 Stock Incentive Plan (incorporated by reference to
      Appendix A of the Company’s Definitive Proxy Statement filed with the
      Securities and Exchange Commission on April 18,
  2008).


31





10.40
                  
                  Asset
      Purchase Agreement, dated February 3, 2009, between Warner Chilcott
      Company, Inc. and NexMed, Inc. (incorporated herein by reference to
      Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on February 5,
2009).10.41
                  
                  License
      Agreement, dated February 3, 2009, between Warner Chilcott Company, Inc.
      and NexMed, Inc. (incorporated herein by reference to Exhibit 10.2 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on February 5, 2009).10.42*
                  
                  Amended
      and Restated Employment Agreement, dated December 14, 2009, by and between
      NexMed, Inc. and Vivian H. Liu.10.43*
                  
                  Employment
      Agreement, dated December 14, 2009, by and between NexMed, Inc. and Bassam
      Damaj, Ph.D.10.44
                  
                  Purchase
      Agreement, dated March 15, 2010, by and between NexMed, Inc. and the
      Purchasers named therein.10.45
                  
                  Registration
      Rights Agreement, dated March 15, 2010.10.46
                  
                  Form
      of 7% Convertible Note Due December 31, 2012.10.47
                  
                  NexMed,
      Inc. Subscription Agreement and Instructions.10.48
                  
                  Form
      of Unsecured Promissory Note.21
                  
                  Subsidiaries.23.1
                  
                  Consent
      of Amper, Politziner & Mattia, 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.


+
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment with the Securities and Exchange Commission. Such
portions have been filed separately with the Securities and Exchange
Commission.




32


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.




Dated:  March
      31, 2010
                By:
                /s/
      Bassam DamajBassam
      Damaj
                  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/ Bassam Damaj
                        
                        Director,
      President and Chief Executive Officer
                        
                        March
      31, 2010BASSAM
      DAMAJ
                        
                        (principal
      executive officer)/s/ Mark Westgate
                        
                        Vice
      President, Chief Financial Officer (principal
                        
                        March
      31, 2010MARK
      WESTGATE
                        
                        financial
      officer and principal accounting officer)/s/ Vivian H. Liu
                        
                        Chairman
      of the Board of Directors
                        
                        March
      31, 2010VIVIAN
      H. LIU/s/ Henry EsberHENRY
      ESBER
                        
                        Director
                        
                        March
      31, 2010/s/ Leonard A. OppenheimLEONARD
      A. OPPENHEIM
                        
                        Director
                        
                        March
      31, 2010/s/ Roberto CreaROBERTO
      CREA
                        
                        Director
                        
                        March
      31, 2010/s/ Russell Ray
                        
                        DirectorRUSSELL
      RAY
                        
                        
                        
                        March
      31, 2010/s/ Richard J. BermanRICHARD
      J. BERMAN
                        
                        Director
                        
                        March
      31,
2010


33