NexMed secures $5.75 million bridge financing; Consumer Portfolio, Simtrol, PuriCore boost capital

By Kenneth Lim

Boston, July 1 - NexMed, Inc. raised $5.75 million from a sale of convertibles as the company sought bridge financing ahead of a key product milestone.

Consumer Portfolio Services, Inc. sold $10 million of stock to an investment firm to boost liquidity in a tough market.

Simtrol, Inc. placed out $2.7 million worth of stock and warrants to speed up its expansion efforts, while PuriCore plc took on an additional $3 million of debt to fund its working capital requirements.

NexMed targets milestones

NexMed sold $5.75 million worth of 3.5-year convertible secured notes in a private placement to fund working capital.

The company issued the 7% notes to accounts managed by Tail Wind Advisory and Management Ltd. Tail Wind Fund Ltd. is an existing NexMed investor.

Of the notes, $4.75 million are convertible into NexMed common stock at $2 per share, with the remaining $1 million convertible at $1.75 per share. NexMed common stock (Nasdaq: NEXM) closed at $1.38 on Tuesday, up by 6.15% or $0.08.

The notes, which mature on Dec. 31, 2011, are secured by a mortgage on NexMed's manufacturing facility in East Windsor, N.J.

Proceeds will be used to pay off $3 million in debt, for working capital and general corporate purposes.

Based in East Windsor, N.J., NexMed develops treatments for nail fungus, sexual disorders and other ailments.

"This was a critical round of financing for the company," NexMed chief financial officer Mark Westgate told Prospect News. "We have potentially significant milestones coming up, and we have to bridge ourselves until the milestones start coming in. What we wanted to do was to leverage that building that we own to do this and reduce the dilution for shareholders."

NexMed was comfortable with using its building as security because it is fairly confident that it will be able to achieve the milestones. Specifically, if it receives a notice of allowance from the patent office, it will receive $3.5 million from its partner, Novartis.

"That's part of the reason we were willing to use our building as security," Westgate said. "We expect to reach the first milestone in the next month or two...That milestone will actually give us two milestone payments, the first $2 million is due once we get the notice of allowance, and then another $1.5 million due on the same milestone. What that $1.5 million represents is half of a milestone payment that was due from earlier."

NexMed initially had another option on the table besides issuing convertibles, but the ability to issue securities with a conversion price at a premium to market gave the convertible option the upper hand, Westgate said.

"There were a couple of things we were trying to do," he said. "One was a sale and leaseback of our building, but the credit market is pretty tough and as you can imagine it was tough to raise money out there. But we had another option on the table, and that was to do a convertible note with the building as a security...and we offered that and this was the better deal."

"The [sale and leaseback] terms were just not favorable," he added. "We're a research company, so obviously we don't have any revenue yet. What the potential parties wanted to do was to escrow a significant amount of the proceeds, and that kind of defeated the purpose of the financing."

NexMed does not expect to have to tap the market again soon.

"Our burn rate is about $525,000 a month," Westgate said. "We netted about $2.7 million from a $3 million mortgage, so that gives us about 5.5 months to burn, plus we are very confident that we will meet the milestones, and including the milestone payments it should give us over a year's burn. The goal of this was to get our financing done until the milestones, so we're set now. We certainly have enough money to take us until we receive those milestones and then in the worst case, if the results aren't as good as we like, to have some in reserve."

Consumer Portfolio raises $10 million

Consumer Portfolio Services said it sold $10 million worth of stock to boost its liquidity amid a challenging market environment.

The company sold 3 million common shares and warrants to an affiliate of Levine Leichtman Capital Partners. It may take a further $15 million in financing from Levine if certain terms and conditions are met.

Consumer Portfolio common stock (Nasdaq: CPSS) rose 8.84% or $0.13 to close at $1.60 on Tuesday.

Consumer Portfolio, an Irvine, Calif.-based specialty finance company that buys and services retail auto contracts, said it will use the proceeds to improve liquidity.

"This transaction provides liquidity to the Company in this difficult capital markets environment," Consumer Portfolio president and chief executive Charles E. Bradley Jr. said in a statement.

"While our sector remains under a cloud of negative sentiment, we continue executing our business plan. In the last nine months we have increased the yield on new contract purchases by over 500 basis points and substantially tightened credit. Asset performance remains well within expectations."

Simtrol raises $2.7 million

Simtrol said it raised $2.7 million through a sale of series C preferred stock, warrants and the conversion of notes.

The convertible notes were issued in January as part of a $1.5 million deal.

Simtrol common stock (OTCBB: SMRL) closed at $0.43 on Tuesday, a 16.22% or $0.06 increase.

Simtrol, an Atlanta-based software developer, said the proceeds will be used to speed up its expansion efforts.

"When we completed our convertible debt financing in January 2008, we anticipated that we would require additional capital during the year to accelerate sales, marketing, and operations efforts in key vertical markets," Simtrol chief executive Oliver Cooper said. "Our business plan resonates with investors interested in investments in software solutions which address complex problems in rapidly changing markets."

PuriCore sells note

PuriCore said it sold a $3 million promissory note to fund working capital.

The note pays a coupon of 12% and matures on Dec. 31, 2008. Investors in the note also received 247,100 warrants, each exercisable at 21.25p.

PuriCore common stock (LSE: PURI) closed at 20.25p on Tuesday, down by 4.71% or 1p.

Based in Malvern, Pa., PuriCore markets a portfolio of branded systems that produce hypochlorous acid solutions on site at a customer's location from water, electricity and common salt.

The company announced the fundraising as it withdrew its bids from the bankruptcy auction of patents by Electro-Chemical Technologies Ltd.

"Our initial plan was to expand our patent portfolio by purchasing these assets out of the bankruptcy process at the right price," PuriCore chief executive Greg Bosch said in a statement.

"As these patents are not necessary for growth and development of our existing core businesses and emerging markets, we withdrew from the auction when the bids exceeded our valuation of the assets.

"Separately, the addition of $3 million to our balance sheet is in line with PuriCore's stated strategy of using debt as one means of continuing to fund the working capital requirements of our rapidly growing business. We look forward to delivering positive H1 2008 results and expect to issue a trading update later this month."

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