SEELOS THERAPEUTICS, INC. - Annual Report: 2009 (Form 10-K)

.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

¨	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 Registered
Common 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.	3

Item 1A.	RISK FACTORS	10

Item 1B.	UNRESOLVED STAFF COMMENTS	17

Item 2.	PROPERTIES.	17

Item 3.	LEGAL PROCEEDINGS.	17

Item 4.	RESERVED.	17

PART II.

Item 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.	17

Item 6.	SELECTED FINANCIAL DATA.

Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	18

Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	24

Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.	25

Item 9A(T).	CONTROLS AND PROCEDURES	25

Item 9B.	OTHER INFORMATION	25

PART III.

Item 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.	25

Item 11.	EXECUTIVE COMPENSATION.	25

Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.	26

Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.	26

Item 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	26

PART IV.

Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	26

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.

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 PrevOnco™, 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. PrevOnco™ 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 PrevOnco™ Phase 2 trials for HCC. We intend to run the Phase 2 proof of concept of PrevOnco™ in HCC. Following positive data from the clinical trials we intend to formulate PrevOnco™ with NexAct for sub-cutaneous delivery.

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.

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.

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.

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 Date

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

Dr. Bassam Damaj	41	Director, President and Chief Executive Officer

Vivian H. Liu	48	Director, Chairman and Executive Vice President

Mark Westgate	40	Vice President, Chief Financial Officer and Treasurer

Dr. Henry Esber	71	Director, Executive Vice President

Edward Cox	29	Vice President, Investor Relations and Corporate Development and Secretary

*As of March 1, 2010

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 Westgate has 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 Cox has 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.

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.

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.

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.

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.

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.

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.

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.

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.

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		Low
2009
First Quarter		0.28		0.08
Second Quarter		0.54		0.12
Third Quarter		0.46		0.15
Fourth Quarter		0.51		0.12

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

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.

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.

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 fees as 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:

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.

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 to reduced spending in 2009 on our development programs as part of our restructuring program. During 2009 we reduced our 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 our NexACT® technology into the areas of oncology, inflammation, immunology, and metabolic diseases.

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.

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, 2009
Total Revenues	$	2,466,670		$	102,613		$	109,590		$	294,835
Income (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, 2008
Total Revenues	$	951,787		$	1,199,612		$	305,943		$	3,500,149
Loss from Operations	$	(1,520,702	)	$	(1,090,169	)	$	(2,896,791	)	$	333,808
Net Loss	$	(1,642,187	)	$	(1,628,723	)	$	(3,040,094	)	$	1,139,806
Basic & Diluted Loss Per Share	$	(0.02	)	$	(0.02	)	$	(0.04	)	$	0.01

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS

		PAGE

Report of Independent Registered Public Accounting Firm 2009, 2008 and 2007		F-1

Financial Statements:

Consolidated Balance Sheets - December 31, 2009 and 2008		F-2

Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007		F-3

Consolidated Statements of Changes in Stockholders' Equity for years ended December 31, 2009, 2008 and 2007		F-4

Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007		F-5

Notes to the Consolidated Financial Statements		F-6

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			2008
Assets
Current assets
Cash and cash equivalents	$	479,888		$	2,862,960
Accounts receivable		708,898			-
Other receivable		437,794			-
Prepaid expenses and other current assets		140,521			83,761

Total current assets		1,767,101			2,977,089

Fixed assets, net		5,616,811			5,519,652
Goodwill		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			91,139

Total assets	$	20,933,337		$	8,557,512

Liabilities and Stockholders' Equity
Current liabilities
Notes payable - former Bio-Quant shareholders	$	12,129,010		$	-
Accounts payable and accrued expenses		1,453,621			1,029,486
Payroll related liabilities		279,960			296,135
Deferred revenue		118,115			-
Capital lease payable - current portion		24,530			-
Due to related parties		99,682			-
Deferred compensation - current portion		70,000			74,245

Total current liabilities		14,174,918			1,399,866

Long term liabilities
Convertible notes payable		2,990,000			4,690,000
Deferred revenue		82,450			-
Capital lease payable		114,965			-
Deferred compensation		865,602			935,517

Total liabilities		18,227,935			7,025,383

Commitments 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			84,351
Additional paid-in capital		174,332,442			141,137,078
Accumulated deficit		(171,731,862	)		(139,689,300	)

Total stockholders' equity		2,705,402			1,532,129

Total 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 Ended
	December 31,
	2009			2008			2007

License fee revenue	$	2,681,271		$	5,957,491		$	1,270,367
Contract service revenue		292,437			-			-
Total Revenue		2,973,708			5,957,491			1,270,367
Cost of Services		128,355			-			-
Gross Profit		2,845,353			5,957,491			1,270,367

Costs and expenses
Research and development		1,883,458			5,410,513			5,022,671
General and administrative		4,196,359			5,720,832			5,634,479
Acquisition costs		585,378			-			-

Total costs and expenses		6,665,195			11,131,345			10,657,150

Loss from operations		(3,819,842	)		(5,173,854	)		(9,386,783	)

Other income (expense)
Interest income		25,291			71,793			275,508
Other 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			805,909

Net 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

											Accumulated
	Common		Common		Additional						Other			Total
	Stock		Stock		Paid-In			Accumulated			Comprehensive			Stockholders'
	(Shares)		(Amount)		Capital			Deficit			Income			Equity

Balance at January 1, 2007		80,285,905	$	80,287	$	137,164,658		$	(125,730,874	)	$	(9,596	)	$	11,504,475

Issuance of common stock upon exercise of stock options and warrants, net		1,717,943		1,718		219,175			-			-			220,893
Issuance of compensatory options to employees and consultants		-		-		776,835			-			-			776,835
Issuance of compensatory stock to employees and consultants		609,000		609		89,391			-			-			90,000
Issuance of common stock in payment of interest on notes		145,614		146		190,602			-			-			190,748
Issuance of compensatory stock to the board of directors		304,540		305		288,693			-			-			288,998
Net offering costs from issuance of common stock		-		-		(2,110	)		-			-			(2,110	)
Discount on Note payable for issuance of warrants		-		-		512,550			-			-			512,550
Realized gain on foreign currency exchange												9,596			9,596
Net loss		-		-		-			(8,787,228	)		-			(8,787,228	)

Balance at December 31, 2007		83,063,002	$	83,064	$	139,239,795		$	(134,518,102	)		-		$	4,804,757

Issuance of common stock upon exercise of stock options and warrants		526,909		527		459,221			-			-			459,748
Issuance of compensatory options to employees and consultants		-		-		138,511			-			-			138,511
Issuance of compensatory stock to employees and consultants		382,500		382		704,350			-			-			704,732
Issuance of compensatory stock to the board of directors		377,950		378		480,451			-			-			480,829
Discount on Note payable for issuance of warrants		-		-		114,750			-			-			114,750
Net loss		-		-		-			(5,171,198	)		-			(5,171,198	)

Balance at December 31, 2008		84,350,361	$	84,351	$	141,137,078		$	(139,689,300	)		-		$	1,532,129

Issuance of compensatory stock to employees and consultants		810,375		810		690,433			-			-			691,243
Issuance of compensatory stock to the board of directors		253,488		254		211,174			-			-			211,428
Issuance of common stock to the Bio-Quant shareholders as consideration for the acquisition		4,000,000		4,000		1,596,000			-			-			1,600,000
Issuance of common stock in payment of convertible notes payable		15,357,347		15,357		30,697,807			-			-			30,713,164
Issuance of common stock to warrant holders for early forfeiture		50,000		50		(50	)		-			-			0
Net 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 Ended
	December 31,
	2009			2008			2007
Cash flows from operating activities
Net loss	$	(32,042,562	)	$	(5,171,198	)	$	(8,787,228	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		387,708			486,420			621,869
Non-cash interest, amortization of debt discount and deferred financing costs		28,352,598			693,316			408,538
Non-cash compensation expense		902,671			1,324,072			1,155,832
Net gain on foreign currency exchange		-			-			9,596
(Gain) loss on disposal of property and equipment		(31,345	)		904,902			10,121
Changes 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	)		-			183,700
Decrease in prepaid expense and other assets		73,817			43,898			37,239
Increase (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			33,918
Net cash used in operating activities		(3,514,649	)		(2,712,451	)		(6,587,633	)
Cash flows from investing activities
Capital 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			3,250,000
Net cash provided by investing activities		344,474			796,012			149,125
Cash flows from financing activities

Issuance 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			220,893
Issuance of notes payable, net of debt issue costs		-			-			2,886,532
Issuance 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 equivalents
Beginning of period		3,013,986			2,735,940			11,069,133
End of period	$	479,888		$	2,862,960		$	2,735,940

Cash paid for interest	$	303,652		$	324,314		$	119,307

Supplemental 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		$	-		$	190,748
Amortization 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

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

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.

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 805 Business 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	$	1,600
Fair value of promissory notes issued for Bio-Quant common stock		12,129
Total 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	$	151
Accounts receivable		576
Prepaids and other current assets		105
Other assets		27
Property and equipment		783
Due from related party		205
Accounts 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		3,037
Trade Name		1,123
Indefinite lived intangible assets:
Goodwill		9,083
Total 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, 2008
	As Presented				Pro Forma				As Presented				Pro Forma
Revenues		$	2,974			$	8,715			$	5,957			$	10,998
Net Loss			(32,043	)			(32,196	)			(5,171	)			(8,686	)
Net loss per basic and diluted shares		$	(0.36	)		$	(0.36	)		$	(0.06	)		$	(0.10	)

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.

Fixed Assets

Fixed assets at December 31, 2009 and 2008 were comprised of the following:

	2009			2008

Land	$	363,909		$	363,909
Building, including impairment charge of $884,271 in 2008		6,042,583			6,378,587
Leasehold improvements		650,991			-
Machinery and equipment		2,517,256			2,599,159
Computer software		622,313			600,167
Furniture and fixtures		253,846			188,935
		10,450,898			10,130,757

Less: 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

Intangible Assets

Intangible assets are listed below with associated accumulated amortization as of December 31, 2009:

Bio-Quant Know-How	$	3,037,000
Bio-Quant Trade Name		1,123,000
Accumulated amortization		(14,994	)

Intangible assets, net	$	4,145,006

The Company is currently amortizing Know-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	$	359,860
2011		359,860
2012		359,860
2013		359,860
2014		359,860
Thereafter		2,345,706

Total future amortization expense	$	4,145,006

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

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 per share 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 discussed in 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 Prevonco™ purchased in 2010 by the Company from one of these entities in settlement of a like-amount of the promissory note. Prevonco™ 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 Outstanding
				Weighted Average			Aggregate
Range of		Number		Remaining	Weighted Average		Intrinsic
Exercise 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	Total
				Average		Average Remaining	Aggregate
	Number of			Exercise		Contractual	Intrinsic
	Shares			Price		Life	Value

Outstanding at January1, 2007		3,663,421		$	1.52
Granted		202,100			1.41
Exercised		(78,480	)		1.07
Cancelled		(317,200	)		2.82

Outstanding at December 31, 2007		3,469,841		$	1.41
Granted		-
Exercised		(55,000	)	$	0.73
Cancelled		(45,850	)		3.33
Outstanding at December 31, 2008		3,368,991		$	1.40
Granted		-
Exercised		-
Cancelled		(418,289	)	$	1.40
Outstanding at December 31, 2009		2,950,702				5.24 years	$	0

Vested or expected to vest at
December 31, 2009		2,950,702		$	1.40	5.24 years	$	0

Exercisable at December 31, 2009		2,950,702		$	1.40	5.24 years	$	0
Exercisable at December 31, 2008		3,177,586		$	1.40
Exercisable at December 31, 2007		3,122,740		$	1.43

Options 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 years
Forfeiture 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 Ended
	December 31, 2009		December 31, 2008		December 31, 2007
Research and development	$	86,210	$	71,833	$	111,108
General and administrative		816,461		1,252,239		1,044,724

Total 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, 2009

Lease 1	$	384		10	%		60	12/1/2013	$	14,901

Lease 2		136		19.2	%		36	12/31/2011		2,685

Lease 3		441		13.7	%		60	2/1/2013		16,717

Lease 4		897		10	%		60	9/1/2013		41,155

Lease 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,	Amount

2010	$	40,101

2011		40,101

2012		38,473

2013		31,374

2014		17,800

Total		167,849

Less portion representing interest		28,354

Total principal due at December 31, 2009		139,495

Less: current maturities		24,530

Long-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		Weighted
	Common Shares			Average		Average
	Issuable upon			Exercise		Contractual
	Exercise			Price		Life

Outstanding at January 1, 2007		20,125,027		$	1.33
Issued (Note 8)		450,000		$	1.52
Exercised		(2,790,495	)	$	1.83
Cancelled		(5,344,578	)	$	1.40
Outstanding at December 31, 2007		12,439,954		$	1.23
Issued (Note 8)		250,000		$	1.15
Exercised		(471,910	)	$	0.89
Cancelled		(100,000	)	$	1.52
Outstanding at December 31, 2008		12,118,044		$	1.23
Issued
Exercised
Cancelled		(5,138,914	)	$	1.58
Outstanding at December 31, 2009		6,979,130		$	1.03	1.03 years
Exercisable 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			2008
Deferred tax assets:
Net operating tax loss carryforwards	$	44,000,000		$	40,500,000
Research and development tax credits		2,400,000			2,200,000
Deferred compensation		300,000			300,000

Bases of intangible assets		(1,660,000	)		-


Total deferred tax asset		45,040,000			43,000,000
Less 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 ended
	December 31,
	2009			2008			2007

Federal statutory tax rate		(35	)%		(35	)%		(35	)%
State taxes, net of federal benefit		(6	)%		(6	)%		(6	)%
Valuation allowance		41	%		41	%		41	%
Sale of state net operating losses		(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,	Amount

2010		405,144
2011		420,167
2012		172,236
2013		177,396
2014		182,724
Thereafter		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 per share 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.

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)

Financial Statements:

The information required by this item is included in Item 8 of Part II of this Form 10-K.

Financial Statement Schedules

Exhibits

EXHIBITS NO.		DESCRIPTION
2.1		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).

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).

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).

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).

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).

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.

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 Damaj
		Bassam 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, 2010
BASSAM DAMAJ	(principal executive officer)

/s/ Mark Westgate	Vice President, Chief Financial Officer (principal	March 31, 2010
MARK WESTGATE	financial officer and principal accounting officer)

/s/ Vivian H. Liu	Chairman of the Board of Directors	March 31, 2010
VIVIAN H. LIU

/s/ Henry Esber
HENRY ESBER	Director	March 31, 2010

/s/ Leonard A. Oppenheim
LEONARD A. OPPENHEIM	Director	March 31, 2010

/s/ Roberto Crea
ROBERTO CREA	Director	March 31, 2010

/s/ Russell Ray	Director
RUSSELL RAY		March 31, 2010

/s/ Richard J. Berman
RICHARD J. BERMAN	Director	March 31, 2010