**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**







**FORM
      10-KSB**




**(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, 2007**





**OR**


**o**
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**




For
      the
      transition period from _______________________ to _____________________




Commission
      file number: 333-135970




**Transdel
      Pharmaceuticals, Inc.**


(Name
      of
      Small Business Issuer in Its Charter)




Delaware
            
            45-0567010(State
                or Other Jurisdiction of Incorporation
              or
                Organization)
            
            (I.R.S.
                Employer Identification No.)4225
                Executive Square, Suite 460
              La
                Jolla, CA
            
            92037(Address
                of Principal Executive Offices)
            
            (Zip
                Code)





(858)
                457-5300(Issuer’s
                Telephone Number)Securities
                registered under Section 12(b) of the Exchange Act:
              
              None





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





Title
                of Each Class
            
            Name
                of Each Exchange on Which RegisteredCommon
                Stock, $0.001 par value per share
            
            None









Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x   No o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will 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-KSB or any
      amendment to this Form 10-KSB. o




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




The
      issuer’s revenues for the fiscal year ended December 31, 2007 were
      $0.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the closing price of $1.85 on March
      12,
      2008 is $18,061,441.




As
      of
      March 12, 2008, there were 13,727,004 shares of the issuer’s common stock, par
      value $0.001 per share were outstanding.




Transitional
      Small Business Disclosure Format (check one):  Yes
o No
x







**TABLE
      OF CONTENTS**




**PART
                        I**Item
                        1.
                    Description
                        of Business
                    1Item
                        2.
                    Description
                        of Property
                    18Item
                        3.
                    Legal
                        Proceedings
                    18Item
                        4.
                    Submission
                        of Matters to a Vote of Security Holders
                    18**PART
                        II**Item
                        5.
                    Market
                        for Common Equity and Related Stockholder Matters
                    19Item
                        6.
                    Management’s
                        Discussion and Analysis or Plan of Operations
                    19Item
                        7.
                    Financial
                        Statements
                    22Item
                        8.
                    Changes
                        in and Disagreements with Accountants on Accounting and Financial
                        Disclosures
                    42Item8A(T).
                    Controls
                        and Procedures
                    42Item
                        8B.
                    Other
                        Information
                    42**PART
                        III**Item
                        9.
                    Directors
                        and Executive Officers, Promoters, Control Persons and Corporate
                        Goverance; Compliance with Section 16 (a) of the Exchange
                        Act
                    43Item
                        10.
                    Executive
                        Compensation
                    45Item
                        11.
                    Security
                        Ownership of Certain Beneficial Owners and Management and
                        Related
                        Stockholder Matters
                    47Item
                        12.
                    Certain
                        Relationships and Related Transactions and Director Independence
                    48Item
                        13.
                    Exhibits
                    50Item
                        14.
                    Principal
                        Accountant Fees and Services
                    53









**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





Certain
      of the statements included in this Form 10-KSB, including information
      incorporated by reference, are “Forward Looking Statements.” Forward-looking
      statements include, without limitation, any statement that may predict,
      forecast, indicate, or imply future results, performance or achievements, and
      may contain the words “estimate,” “project,” “intend,” “forecast,” “anticipate,”
“plan,” “planning,” “expect,” “believe,” “will,” “shall,” “will likely,”
“should,” “could,” “would,” “may” or words or expressions of similar meaning,
      including when used in the negative. All such forward looking statements involve
      risks and uncertainties, including, but not limited to: statements regarding
      our
      research and development programs; proposed marketing and sales; patents and
      regulatory approvals; the effect of competition and proprietary rights of third
      parties; the need for and availability of additional financing and our access
      to
      capital; the trading of our common stock, licensing or distribution and
      collaboration and marketing arrangements with pharmaceutical companies; and
      the
      period of time for which our existing cash will enable us to fund our
      operations. In addition to the items described in this report under the heading
      “Risk Factors,” many important factors affect our ability to achieve our stated
      objectives and to successfully develop and commercialize any product candidates,
      including, among other things, our ability to: obtain substantial additional
      funds, obtain and maintain all necessary patents or licenses, demonstrate the
      safety and efficacy of product candidates at each stage of development, meet
      applicable regulatory standards and receive required regulatory approvals,
      meet
      obligations and required milestones under agreements, be capable of
      manufacturing and distributing products in commercial quantities at reasonable
      costs, compete successfully against other products and to market products in
      a
      profitable manner.  Therefore, prospective investors are cautioned that the
      forward-looking statements included in this report may prove to be inaccurate.
      In light of the significant uncertainties inherent to the forward-looking
      statements included herein, the inclusion of such information should not be
      regarded as a representation or warranty by us or any other person that our
      objectives and plans will be achieved in any specified time frame, if at
      all.  Except to the extent required by applicable laws or rules, we do not
      undertake any obligation to update any forward-looking statements or to announce
      revisions to any of the forward-looking statements, whether to reflect events
      or
      circumstances after the date initially filed or published, to reflect the
      occurrence of unanticipated events or otherwise.







**PART
      1**





**ITEM
      1.**  **DESCRIPTION
      OF BUSINESS**




**Company
      Overview**




We
      are a
      specialty pharmaceutical company focused on the development and
      commercialization of non-invasive topically delivered medications. Our lead
      topical drug, KetotransdelTM is a topical treatment for acute pain.




We
      believe that there is a multi-billion dollar void in the pain management market
      since the withdrawal of two popular cyclooxygenase-2 selective non-steroidal
      anti-inflammatory drug (“ COX-2
      inhibitors”), Bextra and Vioxx, in 2005 due to the increased risk of adverse
      cardiovascular events associated with these drugs Also, use of everyday
      over-the-counter painkillers such as aspirin, acetaminophen (Tylenol) and
      ibuprofen raise safety concerns. According to the National Center for Health
      Statistics, there are over 100,000 hospitalizations per year for non-steroidal
      anti-inflammatory drug (“NSAID”) related gastrointestinal complications and
      approximately 16,500 NSAID related deaths annually resulting in over $3 billion
      per year in additional health care costs. In 2006, the FDA approved new
      requirements that professional labeling for all over-the-counter and
      prescription NSAIDs, including COX-2 inhibitors, include information about
      the
      potential cardiovascular and gastrointestinal risks. We believe that these
      developments have resulted in demand for a potentially safer method of
      administering NSAIDs and that KetotransdelTM is positioned to satisfy this
      demand.




We
      are
      also investigating other drug candidates and treatments for transdermal delivery
      using the patented TransdelTM platform technology, our proprietary cream
      formulation for products in pain management and other therapeutic areas. Our
      patent on the TransdelTM proprietary cream formulation covers our novel
      transdermal formulation with any active pharmaceutical drug. This patent covers
      composition of matter, methods of manufacture and methods of use of
      TransdelTM.




**Corporate
      History**




We
      were
      incorporated in Delaware in January 2006 as Bywater Resources, Inc. in order
      to
      conduct mineral exploration activities. We changed our name to Transdel
      Pharmaceuticals, Inc. on September 10, 2007. On September 17, 2007, we acquired
      Trans-Pharma Corporation, a privately held Nevada corporation pursuant to an
      Agreement of Merger and Plan of Reorganization by and among Trans-Pharma
      Corporation, Trans-Pharma Acquisition Corp., our wholly-owned acquisition
      subsidiary, and us. Upon the closing of the merger transaction, Trans-Pharma
      Acquisition merged with and into Trans-Pharma Corporation, and Trans-Pharma
      Corporation, as the surviving corporation, became our wholly-owned subsidiary.
      After the merger, we succeeded to the business of Trans-Pharma Corporation
      as
      our sole line of business. On October 24, 2007, Trans-Pharma Corporation as
      our
      wholly-owned subsidiary changed its name to Transdel Pharmaceuticals Holdings,
      Inc.




On
      each
      of September 17, 2007, and October 10, 2007, we completed private placements
      to
      selected institutional and individual investors of our common stock and
      warrants. In connection with the private placements, we raised approximately
      $3.8 million (net of placement fees and other costs aggregating $305,876) from
      the issuance of 2,071,834 shares of common stock and detachable redeemable
      five-year warrants to purchase 517,958 shares of our common stock at a cash
      exercise price of $4.00 per share and a cashless exercise price of $5.00 per
      share. In addition, we issued redeemable three-year warrants to purchase 33,750
      shares of common to placement agents in connection with the September 2007
      and
      October 2007 private placements.




Our
      common stock has been quoted on the OTC Bulletin Board since October 1, 2007
      under the symbol TDLP.OB. Prior to that date, there was no active market for
      our
      common stock. On March 12, 2008, the closing price of our common stock was
      $1.85 per share.




1




Our
      executive offices are located at 4225 Executive Square, Suite 460, La Jolla,
      California 92037 and our telephone number at such office is (858)
      457-5300.





**KetotransdelTM**




KetotransdelTM
      is comprised of a transdermal formulation of ketoprofen, a NSAID, and our
      proprietary TransdelTM drug delivery system and is being developed for the
      treatment of acute pain. KetotransdelTM penetrates the skin barrier to reach the
      targeted underlying tissues where it exerts its prolonged localized
      anti-inflammatory and analgesic effect. The topical delivery of the drug may
      minimize systemic exposure, therefore, resulting in fewer concerns pertaining
      to
      gastrointestinal, renal, cardiovascular and other adverse systemic effects,
      which are associated with orally administered NSAIDs. We believe that this
      product may be considered for patients with site specific localized pain and
      who
      also (i) have a history of gastrointestinal, cardiovascular, kidney or liver
      problems, (ii) are geriatric or pediatric patients and/or (iii) are patients
      at
      risk for drug interactions.




We
      selected ketoprofen as the active ingredient for KetotransdelTM for its clinical
      and medical track record for safety and efficacy with low incidences of kidney,
      liver and skin reactions when administered topically.







**


*The
      structure of ketoprofen*





**Clinical
      results with KetotransdelTM**




KetotransdelTM
      was tested in a double blind, placebo-controlled Phase 1/2 clinical study.
      The
      study tested the efficacy and safety of topical KetotransdelTM for the treatment
      of acute pain and soreness in a delayed-onset muscle soreness model placebo
      versus active. We also measured the level of systemic absorption of topical
      KetotransdelTM.





The
      clinical study for acute pain and muscle soreness demonstrated a significant
      medical benefit from KetotransdelTM in terms of relief of pain and muscle
      soreness. The topical KetotransdelTM has approximately 1/100 th of the
      blood levels of ketoprofen found in the circulatory system as compared to a
      comparable dose of commercially available oral ketoprofen. Thus, we believe
      that
      the topical KetotransdelTM can potentially provide a safer alternative to pain
      management as compared to the orally administered pain medications. No adverse
      reactions to Ketotransdel, such as rash or irritation were
      reported.




**FDA
      Review**




In
      February 2008, we submitted our proposed Phase 3 clinical studies for
      KetotransdelTM for the treatment of acute pain to the Food and Drug
      Administration (“FDA”). Based on the timing of the FDA’s review of our Phase 3
      study, we anticipate starting Phase 3 clinical studies for the topical treatment
      of acute pain during the second quarter of 2008. If and when the FDA approves
      KetotransdelTM for treatment of acute pain, we intend to pursue FDA approval of
      KetotransdelTM for other indications including osteoarthritis.




2




No
      assurance can be given that the FDA will agree with our proposed clinical trials
      or non-clinical studies. The FDA may require that we conduct additional clinical
      trials and non-clinical studies that we do not presently anticipate conducting
      or to repeat studies that we have already conducted.




We
      believe that the clinical success of KetotransdelTM will facilitate the use of
      the TransdelTM delivery technology in other products. We are also investigating
      other drug candidates and treatments for transdermal delivery using the
      TransdelTM platform technology for products in pain management and other
      therapeutic areas. Furthermore, we are in discussions with potential commercial
      partners for future KetotransdelTM sales and marketing strategies and with
      potential Pharma partners for licensing opportunities related to the TransdelTM
delivery system.




**Market
      and Opportunity**




We
      believe that the market for NSAIDs and COX-2 inhibitors in the United States
      may
      exceed $6 billion. This data is illustrated in the table below.


**NSAID/COX-2
        Retail Market Dollars**









*Source:
      Wolters Kluwer Source® Pharmaceutical Audit Suite, PHAST Prescription
      Monthly*




Since
      the
      withdrawal of major COX-2 inhibitors in 2005, oral NSAIDs have captured a share
      of the multibillion retail market for COX-2 inhibitors. Oral NSAIDs remain
      one
      of the most prescribed classes of drugs in the pain management market. Over
      30
      million people worldwide use prescription and over-the-counter NSAIDs daily.




However,
      due to an increased understanding of the cardiovascular and gastrointestinal
      risks associated with NSAIDs, the FDA approved new rules requiring that
      professional labeling for all prescription and over-the-counter NSAIDs include
      information on such risks. We believe that there is a demand for topical pain
      management products that minimize systemic absorption of NSAIDs such as
      KetotransdelTM due to the recognition of cardiovascular, gastrointestinal and
      other risks associated with orally administered NSAIDs.




**The
      TransdelTM Technology**




TransdelTM
      is our proprietary transdermal cream drug delivery platform. It consists of
      a
      cream that enables transdermal penetration of drugs avoiding first pass
      metabolism by the liver and minimizing systemic exposure. The TransdelTM drug
      delivery system facilitates the effective dissolution and delivery of a drug
      across the skin barrier to reach targeted underlying tissues. TransdelTM has the
      following properties that make it an ideal vehicle for topical drug
      administration:




·
            biocompatible
                – it hydrates the skin;·
            enhanced
                skin penetration – it has a balance of hydrophilic and hydrophobic
                properties that allow efficient partitioning of drugs into the
                skin;




3


·
            low
                toxicity and biodegradable – its components are non-immunogenic and
                are generally regarded as safe;·
            thermodynamically
                stable, insensitive to moisture and resistant to microbial contamination;
                and


·
            has
                desired skin adherence, spreadability, and cohesiveness for use as
                a
                topical agent.




Other
      key
      features of TransdelTM technology include:


·
                allows
                    maximal solubilization of drug;·
                clinical
                    data supports safety and efficacy;·
                potentially
                    result in decreased safety concerns which are associated with
                    oral
                    drugs;


·
              rapid
                  and efficient transdermal drug delivery;·
              enables
                  painless administration of medications and avoids stomach irritation;·
              minimizes
                  dermal irritation considered to be superior to other transdermal
                  delivery
                  preparations due to the synergetic effect of its skin penetration
                  enhancers and carriers;·
              highly
                  flexible – allows the delivery of a wide range of different
                  medications;·
              ease
                  of application, aesthetically acceptable and odorless;
                  and·
              potentially
                  produces patentable new products when combined with established
                  drugs or
                  new drugs.





**Competition**




The
      pharmaceutical industry is highly competitive. There are competitors in the
      United States developing patch products and other pain formulations that we
      are
      aware of at this time.




In
      addition to product safety, development and efficacy, other competitive factors
      in the pharmaceutical market include product quality and price, reputation,
      service and access to scientific and technical information. It is possible
      that
      developments by our competitors will make our products or technologies
      uncompetitive or obsolete. In addition, the intensely competitive environment
      of
      the pain management products requires an ongoing, extensive search for medical
      and technological innovations and the ability to market products effectively,
      including the ability to communicate the effectiveness, safety and value of
      branded products for their intended uses to healthcare professionals in private
      practice, group practices and managed care organizations. Because we are smaller
      than many of our national competitors, we may lack the financial and other
      resources needed to develop, produce, distribute, market and commercialize
      any
      our drug candidates or compete for market share in the pain management sector.




**Third
      Party Service Agreements**




We
      contract with various third parties to provide certain critical services
      including conducting clinical and non-clinical studies, manufacturing, certain
      research and development activities, medical affairs and certain regulatory
      activities and financial functions. Our failure to maintain our relationships
      with these third party contractors, may have a material adverse effect on our
      business, financial condition and results of operations.




**Governmental
      Regulation**




Our
      ongoing product development activities are subject to extensive and rigorous
      regulation at both the federal and state levels. Post development, the
      manufacture, testing, packaging, labeling, distribution, sales and marketing
      of
      our products is also be subject to extensive regulation. The Federal Food,
      Drug
      and Cosmetic Act of 1983, as amended, and other federal and state statutes
      and
      regulations govern or influence the testing, manufacture, safety, packaging,
      labeling, storage, record keeping, approval, advertising, promotion, sale and
      distribution of pharmaceutical products. Noncompliance with applicable
      requirements can result in fines, recall or seizure of products, total or
      partial suspension of production and/or distribution, refusal of the government
      to approve New Drug Applications, or NDAs, civil sanctions and criminal
      prosecution.




4




FDA
      approval is typically required before each dosage form or strength of any new
      drug can be marketed. Applications for FDA approval must contain information
      relating to efficacy, safety, toxicity, pharmacokinetics, product formulation,
      raw material suppliers, stability, manufacturing processes, packaging, labeling,
      and quality control. The FDA also has the authority to revoke previously granted
      drug approvals. Product development and approval within this regulatory
      framework requires a number of years and involves the expenditure of substantial
      resources.




Current
      FDA standards of approving new pharmaceutical products are more stringent than
      those that were applied in the past. As a result, labeling revisions,
      formulation or manufacturing changes and/or product modifications may be
      necessary. We cannot determine what effect changes in regulations or legal
      interpretations, when and if promulgated, may have on our business in the
      future. Changes could, among other things, require expanded or different
      labeling, the recall or discontinuance of certain products, additional record
      keeping and expanded documentation of the properties of certain products and
      scientific substantiation. Such regulatory changes, or new legislation, could
      have a material adverse effect on our business, financial condition and results
      of operations. The evolving and complex nature of regulatory requirements,
      the
      broad authority and discretion of the FDA and the generally high level of
      regulatory oversight results in a continuing possibility that from time to
      time,
      we will be adversely affected by regulatory actions despite ongoing efforts
      and
      commitment to achieve and maintain full compliance with all regulatory
      requirements.




**FDA
      Approval Process**




FDA
      approval is typically required before any new drug can be marketed. A NDA is
      a
      filing submitted to the FDA to obtain approval of new chemical entities and
      other innovations for which thorough applied research is required to demonstrate
      safety and effectiveness in use. The NDA must contain complete preclinical
      and
      clinical safety and efficacy data or a reference to such data. Since the active
      pharmaceutical ingredients in our topical drug candidates, such as ketoprofen,
      have already been approved by the FDA, we are able to file NDAs under section
      505(b)(2) of the Hatch-Waxman Act of 1984. Under Section 505(b)(2) we may rely
      on data from pre-clinical and clinical studies that were not conducted by or
      for
      us and for which we have not obtained a right of reference or use from the
      person by or for whom the investigation was conducted. The FDA has determined
      that a 505(b)(2) NDA may be submitted for products that represent changes from
      approved drugs in conditions of use, active ingredient(s), route of
      administration, dosage form, strength, or bioavailability.




A
      505(b)(2) applicant must provide the FDA with any additional clinical data
      necessary to demonstrate the safety and effectiveness of the product with the
      proposed change(s). Consequently, although duplication of preclinical and
      certain clinical studies is avoided through the use a 505(b)(2) application,
      specific studies may be required by the FDA. Such studies are typically
      conducted in three sequential phases, although the phases may
      overlap.




·
            Phase
                1 clinical studies frequently begin with the initial introduction
                of the
                compound into healthy human subjects prior to introduction into patients,
                involves testing the product for safety, adverse effects, dosage,
                tolerance, absorption, metabolism, excretion and other elements of
                clinical pharmacology.




·
            Phase
                2 clinical studies typically involve studies in a small sample of
                the
                intended patient population to assess the efficacy of the compound
                for a
                specific indication, to determine dose tolerance and the optimal
                dose
                range as well as to gather additional information relating to safety
                and
                potential adverse effects.




·
            Phase
                3 clinical studies are undertaken to further evaluate clinical safety
                and
                efficacy in an expanded patient population at typically dispersed
                study
                sites, in order to determine the overall risk-benefit ratio of the
                compound and to provide an adequate basis for product
                labeling.




5




Each
      trial is conducted in accordance with certain standards under protocols that
      detail the objectives of the study, the parameters to be used to monitor safety,
      and efficacy criteria to be evaluated. Each protocol must be submitted to the
      FDA. In some cases, the FDA allows a company to rely on data developed in
      foreign countries or previously published data, which eliminates the need to
      independently repeat some or all of the studies.




To
      the
      extent that the Section 505(b)(2) NDA is relying on the findings for an
      already-approved drug, the applicant is required to certify that there are
      no
      patents for that drug or that (i) the patent has expired, (ii) the patent has
      not expired, but will expire on a particular date and approval is sought after
      patent expiration or (iii) the patent is invalid or will not be infringed by
      the
      manufacture, use or sale of the new product.




A
      certification that the new product will not infringe the already approved
      product’s patents or that such patents are invalid is called a paragraph IV
      certification. If the applicant does not challenge the listed patents, the
      Section 505(b)(2) NDA will not be approved until all the listed patents as
      well
      as any additional period of exclusivity have expired.




A
      paragraph IV certification sent to the FDA must also be sent to the relevant
      patent holders once the 505(b)(2) NDA has been accepted for filing by the FDA.
      The patent holders may then initiate a legal challenge to the paragraph IV
      certification. The filing of a patent infringement lawsuit within 45 days of
      receipt of a paragraph IV certification automatically prevents the FDA from
      approving the Section 505(b)(2) NDA until the earliest of 30 months, expiration
      of the patent, settlement of the lawsuit or a decision in the infringement
      case
      that is favorable to the Section 505(b)(2) applicant. Thus, a Section 505(b)(2)
      applicant may invest a significant amount of time and expense in the development
      of its products only to be subject to significant delay and patent litigation
      before its products may be commercialized.




Notwithstanding
      the approval of many products by the FDA pursuant to Section 505(b)(2), over
      the
      last few years, certain brand-name pharmaceutical companies and others have
      objected to the FDA’s interpretation of Section 505(b)(2). If the FDA changes
      its interpretation of Section 505(b)(2), this could delay or even prevent the
      FDA from approving any Section 505(b)(2) NDA that we submit.




As
      a
      condition of approval, the FDA or other regulatory authorities may require
      further studies, including Phase IV post-marketing studies to provide additional
      data. Other post-marketing studies may be required to gain approval for the
      use
      of a product as a treatment for clinical indications other than those for which
      the product was initially tested. Also, the FDA or other regulatory authorities
      require post-marketing reporting to monitor the adverse effects of the drug.
      Results of post-marketing programs may limit or expand the further marketing
      of
      the products.




The
      FDA
      closely regulates the post-approval marketing and promotion of drugs, including
      standards and regulations for direct-to-consumer advertising, off-label
      promotion, industry-sponsored scientific and educational activities and
      promotional activities involving the Internet. A company can make only those
      claims relating to safety and efficacy that are approved by the FDA. Failure
      to
      comply with these requirements can result in adverse publicity, warning letters,
      corrective advertising and potential civil and criminal penalties. Physicians
      may prescribe legally available drugs for uses that are not described in the
      drug's labeling and that differ from those tested by us and approved by the
      FDA.
      Such off-label uses are common across medical specialties. Physicians may
      believe that such off-label uses are the best treatment for many patients in
      varied circumstances. The FDA does not regulate the behavior of physicians
      in
      their choice of treatments. The FDA does, however, impose stringent restrictions
      on manufacturers’ communications regarding off-label use.




In
      2005,
      the FDA asked the manufacturer of Celebrex, as well as all manufacturers of
      prescription and over-the-counter NSAIDs, to revise the labeling for their
      products. Manufacturers of NSAIDs are being asked to revise their labeling
      to
      provide specific information about the potential risk of cardiovascular events
      and gastrointestinal risks of their individual products. We are presently
      analyzing how this pronouncement will effect the labeling of
      KetotransdelTM.




6




**Quality
      Assurance Requirements**




The
      FDA
      enforces regulations to ensure that the methods used in, and facilities and
      controls used for, the manufacture, processing, packing and holding of drugs
      conform with current good manufacturing practices, or cGMP. The cGMP regulations
      the FDA enforces are comprehensive and cover all aspects of operations, from
      receipt of raw materials to finished product distribution, insofar as they
      bear
      upon whether drugs meet all the identity, strength, quality, purity and safety
      characteristics required of them. To assure compliance requires a continuous
      commitment of time, money and effort in all operational areas.




The
      FDA
      conducts pre-approval inspections of facilities engaged in the development,
      manufacture, processing, packing, testing and holding of the drugs subject
      to
      NDAs. If the FDA concludes that the facilities to be used do not meet cGMP,
      good
      laboratory practices or good clinical practices requirements, it will not
      approve the NDA. Corrective actions to remedy the deficiencies must be performed
      and verified in a subsequent inspection. In addition, manufacturers of both
      pharmaceutical products and active pharmaceutical ingredients used to formulate
      the drug also ordinarily undergo a pre-approval inspection, although the
      inspection can be waived when the manufacturer has had a passing cGMP inspection
      in the immediate past. Failure of any facility to pass a pre-approval inspection
      will result in delayed approval and would have a material adverse effect on
      our
      business, results of operations and financial condition.




The
      FDA
      also conducts periodic inspections of facilities to assess their cGMP status.
      If
      the FDA were to find serious cGMP non-compliance during such an inspection,
      it
      could take regulatory actions that could adversely affect our business, results
      of operations and financial condition. The FDA could initiate product seizures
      or request product recalls and seek to enjoin a product’s manufacture and
      distribution. In certain circumstances, violations could lead to civil penalties
      and criminal prosecutions. In addition, if the FDA concludes that a company
      is
      not in compliance with cGMP requirements, sanctions may be imposed that include
      preventing the company from receiving the necessary licenses to export its
      products and classifying the company as an “unacceptable supplier,” thereby
      disqualifying the company from selling products to federal agencies. Imported
      active pharmaceutical ingredients and other components needed to manufacture
      our
      products could be rejected by United States Customs.




We
      believe that we and our suppliers and outside manufacturers are currently in
      compliance with all FDA requirements.




**Other
      FDA Matters**




If
      there
      are any modifications to an approved drug, including changes in indication,
      manufacturing process or labeling or a change in a manufacturing facility,
      an
      applicant must notify the FDA, and in many cases, approval for such changes
      must
      be submitted to the FDA or other regulatory authority. Additionally, the FDA
      regulates post-approval promotional labeling and advertising activities to
      assure that such activities are being conducted in conformity with statutory
      and
      regulatory requirements. Failure to adhere to such requirements can result
      in
      regulatory actions that could have a material adverse effect on our business,
      results of operations and financial condition.




7





**Intellectual
      Property**




We
      obtained a patent from the United States Patent and Trademark Office on our
      TransdelTM technology in 1998, which affords protection of TransdelTM through 2016
      in the United States. This patent covers composition of matter, methods of
      use
      and methods of manufacture. This patent also covers our novel transdermal
      formulation with any active pharmaceutical ingredient. In regard to this U.S.
      patent, we will be pursuing patent strategies that will potentially allow us
      to
      extend the life of the patent beyond 2016. Also, we plan to continue to pursue
      patent strategies that will potentially allow us to file multiple foreign patent
      applications in the future.




**Employees**




As
      of
      March 12, 2008, we employed four individuals, including one in management,
      one
      in research and development, one in financial accounting and one in
      administration. We currently believe that our employee relations are good.


8


**RISK
      FACTORS**





*Investing
      in our common stock involves a high degree of risk. Before investing in our
      common stock you should carefully consider the following risks, together with
      the financial and other information contained in this Form 10-KSB. If any of
      the
      following risks actually occurs, our business, prospects, financial condition
      and results of operations could be adversely affected. In that case, the trading
      price of our common stock would likely decline and you may lose all or a part
      of
      your investment.*




**Risks
      Relating to Our Business**




***We
      have incurred losses in the research and development of KetotransdelTM and our
      TransdelTM technology since inception. No assurance can be given that we will
      ever generate revenue or become profitable.***




Since
      inception we have recorded operating losses. For the fiscal year ended December
      31, 2007, we have a deficit accumulated during the development stage of
      approximately $7.1 million, and for the year ended December 31, 2007, we
      experienced a net loss of approximately $4.3 million. In addition, we expect
      to
      incur increasing operating losses for the foreseeable future as we continue
      to
      incur costs for research and development and clinical trials, and in other
      development activities. Our ability to generate revenue and achieve
      profitability depends upon our ability, alone or with others, to complete the
      development of our proposed products, obtain the required regulatory approvals
      and manufacture, market and sell our proposed products. Development is costly
      and requires significant investment. In addition, we may choose to license
      rights to particular drugs. The license fees for such drugs may increase our
      costs.




As
      we
      continue to engage in the development of KetotransdelTM and develop other
      products, there can be no assurance that we will ever be able to achieve or
      sustain market acceptance, profitability or positive cash flow. Our ultimate
      success will depend on many factors, including whether KetotransdelTM receives
      FDA approval. We cannot be certain that we will receive FDA approval for
      KetotransdelTM, or that we will reach the level of sales and revenues necessary
      to achieve and sustain profitability. Unless we raise additional capital, we
      may
      not be able to execute our business plan or fund business operations long enough
      to achieve positive cash flow. Furthermore, we may be forced to reduce our
      expenses and cash expenditures to a material extent, which would impair our
      ability to execute our business plan.




***Our
      independent registered public accounting firm expressed doubt about our ability
      to continue as a going concern.***




There
      can
      be no assurance that we will ever be able to achieve or sustain profitability
      or
      positive cash flow. Based on our history of losses, our independent registered
      public accounting firm has stated in their report accompanying their audit
      of
      our 2007 year-end consolidated financial statements that there was substantial
      doubt about our ability to continue as a going concern. If we are not able
      to
      generate revenue or raise additional capital, we may not be able to continue
      operating our business.




***We
      will need additional financing to execute our business plan and fund operations,
      which additional financing may not be available.***




We
      have
      very limited funds and we may not be able to execute our current business plan
      and fund business operations long enough to achieve profitability unless we
      are
      able to raise additional funds. Our ultimate success will depend upon our
      ability to raise additional capital. There can be no assurance that additional
      funds will be available when needed from any source or, if available, will
      be
      available on terms that are acceptable to us.




9




We
      may be
      required to pursue sources of additional capital through various means,
      including joint venture projects and debt or equity financings. Future
      financings through equity investments are likely to be dilutive to existing
      stockholders. Also, the terms of securities we may issue in future capital
      transactions may be more favorable for our new investors. Newly issued
      securities may include preferences, superior voting rights and the issuance
      of
      warrants or other derivative securities, which may have additional dilutive
      effects. Further, we may incur substantial costs in pursuing future capital
      and/or financing, including investment banking fees, legal fees, accounting
      fees, printing and distribution expenses and other costs. We may also be
      required to recognize non-cash expenses in connection with certain securities
      we
      may issue, such as convertible notes and warrants, which will adversely impact
      our financial condition.





Our
      ability to obtain needed financing may be impaired by such factors as the
      capital markets, both generally and specifically in the pharmaceutical industry,
      and the fact that we are not profitable, which could impact the availability
      or
      cost of future financings. If the amount of capital we are able to raise from
      financing activities, together with our revenues from operations, is not
      sufficient to satisfy our capital needs, even to the extent that we reduce
      our
      operations accordingly, we may be required to cease operations.




***Timing
      and results of clinical trials to demonstrate the safety and efficacy of
      products as well as FDA approval of products are
      uncertain.***




We
      are
      subject to extensive government regulations. The process of obtaining FDA
      approval is costly, time consuming, uncertain and subject to unanticipated
      delays. Before obtaining regulatory approvals for the sale of any of our
      products, we must demonstrate through preclinical studies and clinical trials
      that the product is safe and effective for each intended use. Preclinical and
      clinical studies may fail to demonstrate the safety and effectiveness of a
      product. Even promising results from preclinical and early clinical studies
      do
      not always accurately predict results in later, large scale trials. A failure
      to
      demonstrate safety and efficacy would result in our failure to obtain regulatory
      approvals. Moreover, if the FDA grants regulatory approval of a product, the
      approval may be limited to specific indications or limited with respect to
      its
      distribution, which could limit revenues.




We
      cannot
      assure you that the FDA or other regulatory agencies will approve any products
      developed by us, on a timely basis, if at all, or, if granted, that such
      approval will not subject the marketing of our products to certain limits on
      indicated use. Any limitation on use imposed by the FDA or delay in or failure
      to obtain FDA approvals of products developed by us would adversely affect
      the
      marketing of these products and our ability to generate product revenue, as
      well
      as adversely affect the price of our common stock.




***If
      we fail to comply with continuing federal, state and foreign regulations, we
      could lose our approvals to market drugs and our business would be seriously
      harmed.***




Following
      initial regulatory approval of any drugs we may develop, we will be subject
      to
      continuing regulatory review, including review of adverse drug experiences
      and
      clinical results that are reported after our drug products become commercially
      available. This would include results from any post-marketing tests or continued
      actions required as a condition of approval. The manufacturer and manufacturing
      facilities we use to make any of our drug candidates will be subject to periodic
      review and inspection by the FDA. If a previously unknown problem or problems
      with a product or a manufacturing and laboratory facility used by us is
      discovered, the FDA or foreign regulatory agency may impose restrictions on
      that
      product or on the manufacturing facility, including requiring us to withdraw
      the
      product from the market. Any changes to an approved product, including the
      way
      it is manufactured or promoted, often requires FDA approval before the product,
      as modified, can be marketed. In addition, we and our contract manufacturers
      will be subject to ongoing FDA requirements for submission of safety and other
      post-market information. If we or our contract manufacturers fail to comply
      with
      applicable regulatory requirements, a regulatory agency may:




·
            issue
                warning letters;




·
            impose
                civil or criminal penalties;






10


·
            suspend
                or withdraw our regulatory
                approval;




·
            suspend
                or terminate any of our ongoing clinical
                trials;




·
            refuse
                to approve pending applications or supplements to approved applications
                filed by us;




·
            impose
                restrictions on our operations;





·
            close
                the facilities of our contract manufacturers;
                or




·
            seize
                or detain products or require a product
                recall.




Additionally,
      regulatory review covers a company’s activities in the promotion of its drugs,
      with significant potential penalties and restrictions for promotion of drugs
      for
      an unapproved use. Sales and marketing programs are under scrutiny for
      compliance with various mandated requirements, such as illegal promotions to
      health care professionals. We are also required to submit information on our
      open and completed clinical trials to public registries and databases. Failure
      to comply with these requirements could expose us to negative publicity, fines
      and penalties that could harm our business.




If
      we
      violate regulatory requirements at any stage, whether before or after marketing
      approval is obtained, we may be fined, be forced to remove a product from the
      market or experience other adverse consequences, including delay, which would
      materially harm our financial results. Additionally, we may not be able to
      obtain the labeling claims necessary or desirable for product
      promotion.




***Delays
      in the conduct or completion of our clinical and non-clinical trials or the
      analysis of the data from our clinical or non-clinical trials may result in
      delays in our planned filings for regulatory approvals, and may adversely affect
      our business.***




We
      cannot
      predict whether we will encounter problems with any of our completed or planned
      clinical or non-clinical studies that will cause us or regulatory authorities
      to
      delay or suspend planned clinical and non-clinical studies. Any of the following
      could delay the completion of our planned clinical studies:




·
            failure
                of the FDA to approve the scope or design of our clinical or non-clinical
                trials or manufacturing plans;




·
            delays
                in enrolling volunteers in clinical
                trials;




·
            insufficient
                supply or deficient quality of materials necessary for the performance
                of
                clinical or non-clinical trials;




·
            negative
                results of clinical or non-clinical studies;
                and




·
            adverse
                side effects experienced by study participants in clinical trials
                relating
                to a specific product.




There
      may
      be other circumstances other than the ones described above, over which we may
      have no control that could materially delay the successful completion of our
      clinical and non-clinical studies.




11







***None
      of our product candidates, other than KetotransdelTM , have commenced clinical
      trials.***





None
      of
      our product candidates, other than KetotransdelTM, have commenced any clinical
      trials and there are a number of FDA requirements that we must satisfy in order
      to commence clinical trials. These requirements will require substantial time,
      effort and financial resources. We cannot assure you that we will ever satisfy
      these requirements. In addition, prior to commencing any trials of a drug
      candidate, we must evaluate whether a market exists for the drug candidate.
      This
      is costly and time consuming and no assurance can be given that our market
      studies will be accurate. We may expend significant capital and other resources
      on a drug candidate and find that no commercial market exists for the drug.
      Even
      if we do commence clinical trials of our other drug candidates, such drug
      candidates may never be approved by the FDA.





***Once
      approved, there is no guarantee that the market will accept our products, and
      regulatory requirements could limit the commercial usage of our
      products.***





Even
      if
      we obtain regulatory approvals, uncertainty exists as to whether the market
      will
      accept our products or if the market for our products is as large as we
      anticipate. A number of factors may limit the market acceptance of our products,
      including the timing of regulatory approvals and market entry relative to
      competitive products, the availability of alternative products, the price of
      our
      products relative to alternative products, the availability of third party
      reimbursement and the extent of marketing efforts by third party distributors
      or
      agents that we retain. We cannot assure you that our products will receive
      market acceptance in a commercially viable period of time, if at all. We cannot
      be certain that any investment made in developing products will be recovered,
      even if we are successful in commercialization. To the extent that we expend
      significant resources on research and development efforts and are not able,
      ultimately, to introduce successful new products as a result of those efforts,
      our business, financial position and results of operations may be materially
      adversely affected, and the market value of our common stock could decline.





***We
      may be subject to product liability claims.***





The
      development, manufacture, and sale of pharmaceutical products expose us to
      the
      risk of significant losses resulting from product liability claims. 
Although we intend to obtain and maintain product liability insurance to offset
      some of this risk, we may be unable to secure such insurance or it may not
      cover
      certain potential claims against us.





We
      may
      not be able to afford to obtain insurance due to rising costs in insurance
      premiums in recent years.  If we are able to secure insurance coverage, we
      may be faced with a successful claim against us in excess of our product
      liability coverage that could result in a material adverse impact on our
      business.  If insurance coverage is too expensive or is unavailable to us,
      we may be forced to self-insure against product-related claims.  Without
      insurance coverage, a successful claim against us and any defense costs incurred
      in defending ourselves may have a material adverse impact on our
      operations.





***If
      our patents are determined to be unenforceable, or if we are unable to obtain
      new patents based on current patent applications or for future inventions,
      we
      may not be able to prevent others from using our intellectual
      property.***





Our
      success will depend in part on our ability to obtain and expand patent
      protection for our specific products and technologies both in the United States
      and other countries. We cannot guarantee that any patents will be issued from
      any pending or future patent applications owned by or licensed to us.
      Alternatively, a third party may successfully circumvent our patents. Our rights
      under any issued patents may not provide us with sufficient protection against
      competitive products or otherwise cover commercially valuable products or
      processes. In addition, because patent applications in the United States are
      maintained in secrecy for eighteen months after the filing of the applications,
      and publication of discoveries in the scientific or patent literature often
      lag
      behind actual discoveries, we cannot be sure that the inventors of subject
      matter covered by our patents and patent applications were the first to invent
      or the first to file patent applications for these inventions. In the event
      that
      a third party has also filed a patent on a similar invention, we may have to
      participate in interference proceedings declared by the United States Patent
      and
      Trademark Office to determine priority of invention, which could result in
      a
      loss of our patent position. Furthermore, we may not have identified all United
      States and foreign patents that pose a risk of infringement.


12





***The
      use of our technologies could potentially conflict with the rights of
      others.***





The
      manufacture, use or sale of our proprietary products may infringe on the patent
      rights of others. If we are unable to avoid infringement of the patent rights
      of
      others, we may be required to seek a license, defend an infringement action
      or
      challenge the validity of the patents in court. Patent litigation is costly
      and
      time consuming and may divert management’s attention and our resources. We may
      not have sufficient resources to bring these actions to a successful conclusion.
      In such case, we may be required to alter our products, pay licensing fees
      or
      cease activities. If our products conflict with patent rights of others, third
      parties could bring legal actions against us claiming damages and seeking to
      enjoin manufacturing and marketing of affected products. If these legal actions
      are successful, in addition to any potential liability for damages, we could
      be
      required to obtain a license in order to continue to manufacture or market
      the
      affected products. We may not prevail in any legal action and a required license
      under the patent may not available on acceptable terms, if at all.





***We
      will be dependent on outside manufacturers in the event that we successfully
      develop our product candidates into commercial drug products; therefore, we
      will
      have limited control of the manufacturing process, access to raw materials,
      timing for delivery of finished products and costs. One manufacturer may
      constitute the sole source of one or more of our products.***





Third
      party manufacturers will manufacture all of our products, in the event that
      we
      successfully develop our product candidates into commercial drug products.
      Currently, certain of our contract manufacturers constitute the sole source
      of
      one or more of our products. If any of our existing or future manufacturers
      cease to manufacture or are otherwise unable to deliver any of our products
      or
      any of the components of our products, we may need to engage additional
      manufacturing partners. Because of contractual restraints and the lead-time
      necessary to obtain FDA approval of a new manufacturer, replacement of any
      of
      these manufacturers may be expensive and time consuming and may disrupt or
      delay
      our ability to supply our products and reduce our revenues.





Because
      all of our products, in the event that we successfully develop our product
      candidates into commercial drug products, will be manufactured by third parties,
      we have a limited ability to control the manufacturing process, access to raw
      materials, the timing for delivery of finished products or costs related to
      this
      process. There can be assurance that our contract manufacturers will be able
      to
      produce finished products in quantities that are sufficient to meet demand
      or at
      all, in a timely manner, which could result in decreased revenues and loss
      of
      market share. There may be delays in the manufacturing process over which we
      will have no control, including shortages of raw materials, labor disputes,
      backlog and failure to meet FDA standards. Increases in the prices we pay our
      manufacturers, interruptions in our supply of products or lapses in quality
      could adversely impact our margins, profitability and cash flows. We are reliant
      on our third-party manufacturers to maintain their manufacturing facilities
      in
      compliance with FDA and other federal, state and/or local regulations including
      health, safety and environmental standards. If they fail to maintain compliance
      with FDA or other critical regulations, they could be ordered to curtail
      operations, which would have a material adverse impact on our business, results
      of operations and financial condition.





We
      also
      rely on our outside manufacturers to assist us in the acquisition of key
      documents such as drug master files and other relevant documents that are
      required by the FDA as part of the drug approval process and post-approval
      oversight. Failure by our outside manufacturers to properly prepare and retain
      these documents could cause delays in obtaining FDA approval of our drug
      candidates.




13




***We
      are dependent on third parties to conduct clinical trials and non-clinical
      studies of our drug candidates and to provide services for certain core aspects
      of our business. Any interruption or failure by these third parties to meet
      their obligations pursuant to various agreements with us could have a material
      adverse effect on our business, results of operations and financial condition.***




We
      rely
      on third parties to conduct clinical and non-clinical studies of our drug
      candidates and provide us with other services. Such third party contractors
      are
      subject to FDA requirements. Our business and financial viability are dependent
      on the regulatory compliance of these third parties, and on the strength,
      validity and terms of our various contracts with these third parties. Any
      interruption or failure by these third party contractors to meet their
      obligations pursuant to various agreements with us may be outside of our control
      and could have a material adverse effect on our business, financial condition
      and results of operations.





***We
      currently have no internal sales and marketing resources and may have to rely
      on
      third parties in the event that we successfully commercialize our
      product.***





In
      order
      to market any of our products in the United States or elsewhere, we must develop
      internally or obtain access to sales and marketing forces with technical
      expertise and with supporting distribution capability in the relevant geographic
      territory. We may not be able to enter into marketing and distribution
      arrangements or find a corporate partner to market our drug candidates, and
      we
      currently do not have the resources or expertise to market and distribute our
      products ourselves. If we are not able to enter into marketing or distribution
      arrangements or find a corporate partner who can provide support for
      commercialization of our products, we may not be able to successfully
      commercialize our products. Moreover, any new marketer or distributor or
      corporate partner for our specific combinations, with whom we choose to contract
      may not establish adequate sales and distribution capabilities or gain market
      acceptance for our products.





***If
      we are unable to retain our key personnel or attract additional professional
      staff, we may be unable to maintain or expand our business.***





Because
      of the specialized scientific nature of our business, our ability to develop
      products and to compete will remain highly dependent, in large part, upon our
      ability to attract and retain qualified scientific, technical and commercial
      personnel. The loss of key scientific, technical and commercial personnel,
      especially our Chief Executive Officer, Juliet Singh, Ph.D. or the failure
      to
      recruit additional key scientific, technical and commercial personnel could
      have
      a material adverse effect on our business. While we have consulting agreements
      with certain key institutions and have an employment agreement with our Chief
      Executive Officer, we cannot assure you that we will succeed in retaining
      personnel or their services under existing agreements. There is intense
      competition for qualified personnel in the pharmaceutical industry, and we
      cannot assure you that we will be able to continue to attract and retain the
      qualified personnel necessary for the development of our business.





**Risks
      Relating to Our Industry**





***If
      we are unable to compete with other companies that develop rival products to
      our
      products, then we may never gain market share or achieve
      profitability.***





The
      pharmaceutical industry is intensely competitive, and we face competition across
      the full range of our activities. If we fail to compete successfully, our
      business, results of operations and financial condition could be adversely
      affected. Our competitors include brand name and generic manufacturers of
      pharmaceuticals specializing in transdermal drug delivery, especially those
      doing business in the United States. In the market for pain management products,
      our competitors include manufacturers of over-the-counter and prescription
      pain
      relievers. Because we are smaller than many of our national competitors, we
      may
      lack the financial and other resources needed to compete for market share in
      the
      pain management sector. Our other potential drug candidates will also face
      intense competition from larger and more well established pharmaceutical and
      biotechnology companies. Many of these competitors have significantly greater
      financial, technical and scientific resources than we do. In addition to product
      safety, development and efficacy, other competitive factors in the
      pharmaceutical market include product quality and price, reputation, service
      and
      access to scientific and technical information. If our products are unable
      to
      compete with the products of our competitors, we may never gain market share
      or
      achieve profitability.


14





***We
      may not be able to keep up with the rapid technological change in the
      biotechnology and pharmaceutical industries, which could make our products
      obsolete and reduce our potential revenues.***





Biotechnology
      and related pharmaceutical technologies have undergone and continue to be
      subject to rapid and significant change. Our future will depend in large part
      on
      our ability to maintain a competitive position with respect to these
      technologies. It is possible that developments by our competitors will render
      our products and technologies obsolete or unable to compete. Any products that
      we develop may become obsolete before we recover expenses incurred in developing
      those products, which may require that we raise additional funds to continue
      our
      operations.





***Our
      ability to generate revenues will be diminished if we fail to obtain acceptable
      prices or an adequate level of reimbursement from third-party
      payors.***





If
      we
      succeed in bringing a specific product to market, we cannot be certain that
      the
      products will be considered cost effective and that reimbursement from insurance
      companies and other third-party payors will be available or, if available,
      will
      be sufficient to allow us to sell the products on a competitive
      basis.





Significant
      uncertainty exists as to the reimbursement status of newly approved health
      care
      products. Third-party payors, including Medicare, are challenging the prices
      charged for medical products and services. Government and other third-party
      payors increasingly are attempting to contain health care costs by limiting
      both
      coverage and the level of reimbursement for new drugs and by refusing, in some
      cases, to provide coverage for uses of approved products for disease indications
      for which the FDA has not granted labeling approval. Third-party insurance
      coverage may not be available to patients for any products we discover and
      develop, alone or with collaborators. If government and other third-party payors
      do not provide adequate coverage and reimbursement levels for our products,
      the
      market acceptance of these products may be reduced.





***Changes
      in the healthcare industry that are beyond our control may be detrimental to
      our
      business.***





The
      healthcare industry is changing rapidly as the public, governments, medical
      professionals and the pharmaceutical industry examine ways to broaden medical
      coverage while controlling the increase in healthcare costs. Potential changes
      could put pressure on the prices of prescription pharmaceutical products and
      reduce our business or prospects. We cannot predict when, if any, proposed
      healthcare reforms will be implemented or their affect on our
      business.





**Risks
      Relating to the Common Stock**





***We
      are subject to financial reporting and other requirements for which our
      accounting and other management systems and resources may not be adequately
      prepared.***





We
      are
      subject to reporting and other obligations under the Securities Exchange Act
      of
      1934, as amended, (the “Exchange Act”) including the requirements of Section 404
      of the Sarbanes-Oxley Act. Section 404 required us to conduct an annual
      management assessment of the effectiveness of our internal controls over
      financial reporting commencing with this annual report on Form 10-KSB, and
      to
      obtain a report by our independent registered public accounting firm addressing
      these assessments commencing with our annual report on Form 10-KSB for the
      fiscal year ended December 31, 2008. These reporting and other obligations
      will
      place significant demands on our management, administrative, operational, and
      accounting resources. We anticipate that we will need to upgrade our systems;
      implement additional financial and management controls, reporting systems and
      procedures; implement an internal audit function; and hire additional
      accounting, internal audit and finance staff. If we are unable to accomplish
      these objectives in a timely and effective fashion, our ability to comply with
      our financial reporting requirements and other rules that apply to reporting
      companies could be impaired and we may not be able to obtain the independent
      registered public accounting firm certifications required by Section 404. Any
      failure to maintain effective internal controls could have a negative impact
      on
      our ability to manage our business and on our stock price.


15





***If
      we fail to maintain an effective system of internal control, we may not be
      able
      to report our financial results accurately or to prevent fraud. Any inability
      to
      report and file our financial results accurately and timely could harm our
      business and adversely impact the trading price of our common stock.***





Effective
      internal control is necessary for us to provide reliable financial reports
      and
      prevent fraud. If we cannot provide reliable financial reports or prevent fraud,
      we will not be able to manage our business as effectively, and our business
      and
      reputation with investors would be harmed. Any such inabilities to establish
      effective controls or loss of confidence would have an adverse affect on our
      financial condition, results of operation and access to capital. We have not
      performed an in-depth analysis to determine if past failures of internal
      controls exist, and may in the future discover areas of our internal control
      that need improvement.





***Public
      company compliance may make it more difficult to attract and retain officers
      and
      directors.***





The
      Sarbanes-Oxley Act and new rules subsequently implemented by the Securities
      and
      Exchange Commission have required changes in corporate governance practices
      of
      public companies. As a public company, we expect these new rules and regulations
      to increase our compliance costs and to make certain activities more time
      consuming and costly. We also expect that these new rules and regulations may
      make it more difficult and expensive for us to obtain director and officer
      liability insurance in the future and we may be required to accept reduced
      policy limits and coverage or incur substantially higher costs to obtain the
      same or similar coverage. As a result, it may be more difficult for us to
      attract and retain qualified persons to serve on our board of directors or
      as
      executive officers.





***Our
      stock price may be volatile.***





The
      market price of our common stock is likely to be highly volatile and could
      fluctuate widely in price in response to various factors, many of which are
      beyond our control, including the following:





·
            changes
                in the pharmaceutical industry and markets;·
            competitive
                pricing pressures;


·
            our
                ability to obtain working capital financing;·
            new
                competitors in our market;


·
            additions
                or departures of key personnel;·
            limited
                “public float” in the hands of a small number of persons whose sales or
                lack of sales could result in positive or negative pricing pressure
                on the
                market price for our common stock;


·
            sales
                of our common stock;·
            our
                ability to execute our business
                plan;


·
            operating
                results that fall below expectations;·
            loss
                of any strategic relationship with our contract manufacturers and
                clinical
                and non-clinical research
                organizations;


·
            industry
                or regulatory developments;·
            economic
                and other external factors; and


·
            period-to-period
                fluctuations in our financial
                results.




16




In
      addition, the securities markets have from time to time experienced significant
      price and volume fluctuations that are unrelated to the operating performance
      of
      particular companies. These market fluctuations may also materially and
      adversely affect the market price of our common stock.





***We
      have not paid dividends in the past and do not expect to pay dividends in the
      future. Any return on investment may be limited to the value of our common
      stock.***





We
      have
      never paid cash dividends on our common stock and do not anticipate doing so
      in
      the foreseeable future. The payment of dividends on our common stock will depend
      on earnings, financial condition and other business and economic factors
      affecting us at such time as our board of directors may consider relevant.
      If we
      do not pay dividends, our common stock may be less valuable because a return
      on
      your investment will only occur if our stock price appreciates.





***Our
      common stock may be deemed a “penny stock”, which would make it more difficult
      for our investors to sell their shares.***





Our
      common stock may be subject to the “penny stock” rules adopted under Section
      15(g) of the Exchange Act. The penny stock rules apply to companies whose common
      stock is not listed on The Nasdaq Stock Market or other national securities
      exchange and trades at less than $4.00 per share or that have tangible net
      worth
      of less than $5,000,000 ($2,000,000 if the company has been operating for three
      or more years). These rules require, among other things, that brokers who trade
      penny stock to persons other than “established customers” complete certain
      documentation, make suitability inquiries of investors and provide investors
      with certain information concerning trading in the security, including a risk
      disclosure document and quote information under certain circumstances. Many
      brokers have decided not to trade penny stocks because of the requirements
      of
      the penny stock rules and, as a result, the number of broker-dealers willing
      to
      act as market makers in such securities is limited. If we remain subject to
      the
      penny stock rules for any significant period, it could have an adverse effect
      on
      the market, if any, for our securities. If our securities are subject to the
      penny stock rules, investors will find it more difficult to dispose of our
      securities.





Furthermore,
      for companies whose securities are traded in the OTC Bulletin Board, it is
      more
      difficult (1) to obtain accurate quotations, (2) to obtain coverage for
      significant news events because major wire services generally do not publish
      press releases about such companies and (3) to obtain needed
      capital.





***Offers
      or availability for sale of a substantial number of shares of our common stock
      may cause the price of our common stock to decline.***





The
      sale
      by our stockholders of substantial amounts of our common stock in the public
      market or upon the expiration of any statutory holding period, under Rule 144,
      or upon expiration of lock-up periods applicable to outstanding shares, or
      issued upon the exercise of outstanding options or warrants, could create a
      circumstance commonly referred to as an “overhang” and in anticipation of which
      the market price of our common stock could fall. The existence of an overhang,
      whether or not sales have occurred or are occurring, also could make more
      difficult our ability to raise additional financing through the sale of equity
      or equity-related securities in the future at a time and price that we deem
      reasonable or appropriate.





***Our
      directors and executive officers can exert significant control over our business
      and affairs and may have actual or potential interests that may depart from
      those of our other stockholders.***





Our
      directors and executive officers together beneficially own a significant
      percentage of our issued and outstanding common stock, which percentage may
      increase in the event that they exercise any options or warrants to purchase
      shares of our common stock that they may hold or in the future are granted
      to
      them. The interests of such persons may differ from the interests of other
      stockholders. Such persons will have significant influence over all corporate
      actions requiring stockholder approval, irrespective of how our other
      stockholders may vote, including the following actions:


17





·
            the
                election of our directors;·
            amendment
                of our Certificate of Incorporation or By-laws;
                and


·
            mergers,
                sales of assets or other corporate
                transactions.





Concentration
      of stock ownership among a few stockholders may discourage a potential acquirer
      from making a tender offer or otherwise attempting to obtain control of our
      company, which in turn could reduce our stock price or prevent our stockholders
      from realizing a premium over our stock price.





**ITEM
      2. DESCRIPTION OF PROPERTY**





**Facilities**





We
      lease
      approximately 1,403 square feet of office space in La Jolla, California for
      $5,121 per month. The current lease term expires on April 14, 2008 at which
      time
      we anticipate to renew the lease for a period of time sufficient to allow us
      to
      operate our business uninterrupted. This facility serves as our corporate
      headquarters.





We
      believe our current facility is adequate for our immediate and near-term needs.
      Additional space may be required as we expand our activities. We do not
      currently foresee any significant difficulties in obtaining any required
      additional facilities.





**ITEM
      3.  LEGAL PROCEEDINGS**





None.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**




On
      September 10, 2007, our stockholders acting by majority written consent approved
      the adoption of our Amended and Restated Certificate of Incorporation. This
      majority written consent was executed by holders of 5,500,000 shares of our
      common stock, which represented 75% of our outstanding shares of common stock
      then entitled to vote.




On
      September 17, 2007, our stockholders, acting by majority written consent,
      approved (i) the merger of Trans-Pharma Acquisition Corp., our wholly
      subsidiary, with and into Transdel Pharmaceuticals Holdings, Inc. (formally
      Trans-Pharma Corporation), a Nevada corporation, and (ii) our 2007 Incentive
      Stock and Awards Plan. This majority written consent was executed by holders
      of
      5,500,000 shares of our common stock, which represented 75% of our outstanding
      shares of common stock then entitled to vote.




18


**PART
      II**





**ITEM
      5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**





**Market
      Information**





Our
      common stock has been quoted on the OTC Bulletin Board since October 1, 2007
      under the symbol TDLP.OB. Prior to that date, there was no active market for
      our
      common stock.




The
      following table sets forth the high and low bid prices for our common stock
      for
      the periods indicated, as reported by the OTC Bulletin Board. The quotations
      reflect inter-dealer prices, without retail mark-up, mark-down or commission,
      and may not represent actual transactions.





**Fiscal
                Year 2007**
            
            **High**
            
            **Low**Fourth
                Quarter
            
            $
            3.10
            
            $
            2.00





**Holders**





As
      of
      March 12, 2008 we had approximately 102 stockholders of record (excluding an
      indeterminable number of stockholders whose shares are held in street or
“nominee” name) of our common stock.  We have not paid any dividends on our
      common stock since our inception and do not expect to pay dividends on our
      common stock in the foreseeable future.  The closing price of our common
      stock on March 12, 2008 was $1.85 per share.





**ITEM
      6.   MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATIONS**





*The
      following discussion and analysis should be read in conjunction with our
      consolidated financial statements and related notes appearing elsewhere in
      this
      annual report on Form 10-KSB. In addition to historical information, this
      discussion and analysis contains forward-looking statements that involve risks,
      uncertainties, and assumptions. Our actual results may differ materially from
      those anticipated in these forward-looking statements as a result of certain
      factors, including but not limited to those set forth under “Risk Factors” and
      elsewhere in this annual report on Form 10-KSB.*





**Overview**





We
      are a
      specialty pharmaceutical company focused on the development and
      commercialization of non-invasive topically delivered medications. Our lead
      topical drug, KetotransdelTM, utilizes our innovative proprietary TransdelTM cream
      formulation to facilitate the passage of ketoprofen, a NSAID, through the skin
      barrier to reach targeted underlying tissues where the drug exerts its prolonged
      localized anti-inflammatory and analgesic effect. A Phase 1/2 clinical study
      supported the safety and efficacy of KetotransdelTM for acute pain and muscle
      soreness.





**Plan
      of Operations**





For
      the next twelve months, our current operating plan is focused on the research
      and development of our lead drug, KetotransdelTM. In February 2008, we submitted
      our proposed Phase 3 clinical studies with the FDA for KetotransdelTM for
      treatment of acute pain. Based on the FDA’s review of this filing, we anticipate
      starting Phase 3 clinical trials for the topical treatment of acute pain during
      the second quarter of 2008.




19




No
      assurance can be given that the FDA will agree with our proposed clinical trials
      or non-clinical studies. The FDA may require that we conduct additional clinical
      trials and non-clinical studies that we do not presently anticipate conducting
      or to repeat studies that we have already conducted.





If
      and
      when the FDA approves KetotransdelTM for treatment of acute pain, we intend to
      pursue FDA approval of KetotransdelTM for other indications, including
      osteoarthritis. We believe that the clinical success of KetotransdelTM will
      facilitate the use of the TransdelTM delivery technology in other products. We
      are also investigating other drug candidates and treatments for transdermal
      delivery using the TransdelTM platform technology for products in pain management
      and other therapeutic areas. Furthermore, we are in discussions with potential
      commercial partners for future KetotransdelTM sales and marketing strategies and
      with potential Pharma partners for licensing opportunities related to the
      TransdelTM delivery system.





We
      believe that our current staff is sufficient to carry out our business plan,
      however if our operations in the future require it, we will consider the
      employment of additional staff.





**Liquidity
      and Capital Resources**





Since
      inception through December 31, 2007, we have incurred losses of approximately
      $7.1 million. These losses are primarily due to general and administrative
      and
      research and development expenses. Historically, our operations have been
      financed through capital contributions and debt and equity financings.





As
      of
      December 31, 2007, we had $3.7 million in cash. On each of September 17, 2007,
      and October 10, 2007, we completed private placements to selected institutional
      and individual investors of our common stock and warrants. In connection with
      the private placements, we raised approximately $3.8 million (net of placement
      fees and other costs aggregating $305,876) from the issuance of 2,071,834 shares
      of common stock and detachable redeemable warrants to purchase 517,958 shares
      of
      our common stock at a cash exercise price of $4.00 per share and a cashless
      exercise price of $5.00 per share.





Based
      on
      the response from the FDA in regard to the Phase 3 clinical studies, the Company
      will assess our
      financing needs in order to have enough capital to complete the clinical trials
      and through the FDA approval process. Therefore, in order to execute our
      operating plan in fiscal year 2008, which anticipates starting the Phase 3
      clinical trials in the second quarter of 2008, additional financing will be required and there can be no assurance that it
      will
      be available on terms favorable to us or at all. If adequate financing is not
      available we will have to delay, postpone or terminate clinical trials and
      curtail general and administrative operations, which would have a material
      adverse effect on us.





**Critical
      Accounting Policies**





We
      rely
      on the use of estimates and make assumptions that impact our financial condition
      and results. These estimates and assumptions are based on historical results
      and
      trends as well as our forecasts as to how results and trends might change in
      the
      future. Although we believe that the estimates we use are reasonable, actual
      results could differ from those estimates.




We
      believe that the accounting policies described below are critical to
      understanding our business, results of operations and financial condition
      because they involve more significant judgments and estimates used in the
      preparation of our consolidated financial statements. An accounting policy
      is
      deemed to be critical if it requires an accounting estimate to be made based
      on
      assumptions about matters that are highly uncertain at the time the estimate
      is
      made, and any changes in the different estimates that could have been used
      in
      the accounting estimates that are reasonably likely to occur periodically could
      materially impact our consolidated financial statements.


20





Our
      most
      critical accounting policies and estimates that may materially impact our
      results of operations include:





*Stock-Based
      Compensation.* Effective January 1, 2006, we adopted Statement of Financial
      Accounting Standards (“SFAS”) No. 123 (revised 2004), *Share-Based
      Payment* ,
      (“SFAS 123R”), which is a revision of SFAS No. 123, *Accounting
      for Stock-Based Compensation* .
      SFAS
      123R supersedes Accounting Principles Board No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      amends SFAS No. 95, *Statement
      of Cash Flows* .
      SFAS
      123R requires all share-based payments to employees, including grants of
      employee stock options and restricted stock grants, to be recognized in the
      financial statements based upon their fair values. We use the Black-Scholes
      option pricing model to estimate the grant-date fair value of share-based awards
      under SFAS 123R. Fair value is determined at the date of grant. In accordance
      with SFAS 123R, the financial statement effect of forfeitures is estimated
      at
      the time of grant and revised, if necessary, if the actual effect differs from
      those estimates. As of December 31, 2007, management estimates that the effect
      of forfeitures on the financial statements will be insignificant.





Our
      accounting policy for equity instruments issued to consultants and vendors
      in
      exchange for goods and services follows the provisions of SFAS No. 123, Emerging
      Issues Task Force (“EITF”) 96-18, *Accounting
      for Equity Instruments That are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services* and EITF
      00-18, *Accounting
      Recognition for Certain Transactions Involving Equity Instruments Granted to
      Other Than Employees.* As
      such,
      the value of the applicable stock-based compensation is periodically remeasured
      and income or expense is recognized during the vesting terms. The measurement
      date for the fair value of the equity instruments issued is determined at the
      earlier of (i) the date at which a commitment for performance by the consultant
      or vendor is reached or (ii) the date at which the consultant or vendor's
      performance is complete. In the case of equity instruments issued to
      consultants, the fair value of the equity instrument is recognized over the
      term
      of the consulting agreement. In accordance with EITF 00-18, an asset acquired
      in
      exchange for the issuance of fully vested, nonforfeitable equity instruments
      should not be presented or classified as an offset to equity on the grantor's
      balance sheet once the equity instrument is granted for accounting purposes.
      Accordingly, the Company recorded the fair value of the common stock issued
      for
      future consulting services as prepaid consulting fees in its condensed
      consolidated balance sheet.




*Beneficial
      Conversion Feature.* The
      convertible features of the convertible notes provided for a rate of conversion
      that was below market value (see Note 5). Such feature is normally characterized
      as a "beneficial conversion feature" ("BCF"). Pursuant to EITF No. 98-5 " *Accounting
      For Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratio* " and
      EITF No. 00-27," *Application
      of EITF Issue No. 98-5 To Certain Convertible Instruments,* "
      the
      relative fair values of the BCFs have been recorded as a discount from the
      face
      amount of the respective debt instrument. The Company recorded the corresponding
      debt discount related to the BCF as interest expense when the related instrument
      was converted into the Company's common stock.




**Off-Balance
      Sheet Arrangements**




Since
      our
      inception, except for standard operating leases, we have not engaged in any
      off-balance sheet arrangements, including the use of structured finance, special
      purpose entities or variable interest entities. See Footnote 11 in the
      consolidated financial statements included herein for additional information
      on
      our current operating lease.


21


**ITEM
      7.               FINANCIAL
      STATEMENTS**




**Transdel
      Pharmaceuticals, Inc.**


**(A
      Development Stage Company)**





**Index
      to Consolidated Financial Statements**





Report
                of Independent Registered Public Accounting Firm
            23Consolidated
                Balance Sheet at December 31, 2007
            24Consolidated
                Statements of Operations for the Years Ended December 31, 2007 and
                2006
                and for the Period from July 24, 1998 (Inception) Through December
                31,
                2007
            25Consolidated
                Statements of Stockholders’ Equity for the Years Ended December 31, 2007
                and 2006 and for the Period from July 24, 1998 (Inception) Through
                December 31, 2007
            26Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2007 and
                2006
                and for the Period from July 24, 1998 (Inception) Through December
                31,
                2007
            28Notes
                to the Consolidated Financial Statements
            29




22


REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board
      of
      Directors and Stockholders


Transdel
      Pharmaceuticals, Inc.





We
      have
      audited the accompanying consolidated balance sheet of Transdel Pharmaceuticals,
      Inc. and subsidiaries (a development stage company) (the “Company”) as of
      December 31, 2007, and the related consolidated statements of operations,
      stockholders’ equity and cash flows for each of the years in the two-year period
      then ended and for the period from July 24, 1998 (date of inception) to December
      31, 2007. These consolidated financial statements are the responsibility of
      the
      Company’s management. Our responsibility is to express an opinion on these
      consolidated 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
      consolidated financial statements are free of material misstatement. The Company
      is not required to have, nor were we engaged to perform, an audit on its
      internal control over financial reporting. Our audits 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. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall consolidated financial statement
      presentation. We believe that our audits provide for a reasonable basis for
      our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Transdel
      Pharmaceuticals, Inc. and subsidiaries as of December 31, 2007, and the
      consolidated results of their operations and their cash flows for each of the
      years in the two-year period then ended and for the period from July 24, 1998
      (date of inception) to December 31, 2007 in conformity with accounting
      principles generally accepted in the United States of America.





The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern. As more fully described in Note 4,
      the
      Company has incurred recurring losses from operations since inception and has
      a
      deficit accumulated during the development stage at December 31, 2007. These
      items, among other matters, raise substantial doubt about the Company's ability
      to continue as a going concern. Management's plans in regard to these matters
      are also described in Note 4. The consolidated financial statements do not
      include any adjustments to reflect the possible future effects on the
      recoverability and classification of assets or the amount and classification
      of
      liabilities that may result from the outcome of this uncertainty.





/s/
      KMJ
      Corbin & Company LLPKMJ Corbin & Company LLP





Irvine,
      California


March
      25,
      2008




23


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**CONSOLIDATED
      BALANCE SHEET**





**December
                31,****2007****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            3,706,369Prepaid
                consulting fees
            
            
            488,748Prepaid
                expenses and other current assets
            
            
            45,604Total
                assets
            
            $
            4,240,721**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            696,340Accrued
                expenses and payroll liabilities
            
            
            53,901Total
                liabilities
            
            
            750,241Commitments
                and contingenciesStockholders’
                equity:Preferred
                stock, $0.001 par value; 5,000,000 shares
              authorized,
                none outstanding
            
            
            -Common
                stock, $0.001 par value; 50,000,000 shares
              authorized,
                13,727,004 shares outstanding
            
            
            13,727Additional
                paid-in capital
            
            
            10,554,298Deficit
                accumulated during the development stage
            
            
            (7,077,545
            )Total
                stockholders’ equity
            
            
            3,490,480Total
                liabilities and stockholders’ equity
            
            $
            4,240,721





*See
      report of independent registered public accounting firm and accompanying notes
      to these consolidated financial statements*




24





**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**Year
                Ended December 31,**
            
            **For the Period**
              **From July 24,**
              **1998 (Inception)**
              **Through**
              **December 31,****2007**
            
            **2006**
            
            **2007**Operating
                expenses:Selling,
                general and administrative
            
            $
            1,026,644
            
            $
            425,180
            
            $
            3,083,581Research
                and development
            
            
            1,832,744
            
            
            150,000
            
            
            2,557,744Operating
                loss
            
            
            2,859,388
            
            
            575,180
            
            
            5,641,325Other
                income (expense):Interest
                expense
            
            
            (1,563,504
            )
            
            (9,052
            )
            
            (1,575,755
            )Interest
                income
            
            
            48,438
            
            
            -
            
            
            49,621Gain
                on forgiveness of liabilities
            
            
            89,914
            
            
            -
            
            
            89,914Total
                other expense, net
            
            
            (1,425,152
            )
            
            (9,052
            )
            
            (1,436,220
            )Net
                loss
            
            $
            (4,284,540
            )
            $
            (584,232
            )
            $
            (7,077,545
            )Basic
                and diluted loss per common share
            
            $
            (0.48
            )
            $
            (0.16
            )Weighted
                average common shares outstanding, basic and diluted
            
            
            8,846,801
            
            
            3,588,613





*See
      report of independent registered public accounting firm and accompanying notes
      to these consolidated financial statements*




25





**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006 AND FOR THE PERIOD FROM JULY 24,
      1998
      (INCEPTION) THROUGH**


**DECEMBER
      31, 2007**





**Common Stock**
            
            **Additional**
              **Paid-in**
            
            **Deficit**
              **Accumulated**
              **During the**
              **Development**
            
            **Total**
              **Stockholders’****Shares**
            
            **Amount**
            
            **Capital**
            
            **Stage**
            
            **Equity (Deficit)**Balance
                as of July 24, 1998 (Inception)
            
            
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Estimated
                fair value of services contributed by stockholders
            
            
            -
            
            
            -
            
            
            100,000
            
            
            -
            
            
            100,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (100,000
            )
            
            (100,000
            )Balance
                December 31, 1998
            
            
            -
            
            
            -
            
            
            100,000
            
            
            (100,000
            )
            
            -Estimated
                fair value of services contributed by stockholders
            
            
            -
            
            
            -
            
            
            200,000
            
            
            -
            
            
            200,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (204,000
            )
            
            (204,000
            )Balance
                December 31, 1999
            
            
            -
            
            
            -
            
            
            300,000
            
            
            (304,000
            )
            
            (4,000
            )Issuance
                of common stock at $0.006 per share in May and June 2000
            
            
            937,500
            
            
            937
            
            
            5,063
            
            
            -
            
            
            6,000Estimated
                fair value of services contributed by stockholders
            
            
            -
            
            
            -
            
            
            200,000
            
            
            -
            
            
            200,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (213,092
            )
            
            (213,092
            )Balance
                December 31, 2000
            
            
            937,500
            
            
            937
            
            
            505,063
            
            
            (517,092
            )
            
            (11,092
            )Estimated
                fair value of services contributed by stockholders
            
            
            -
            
            
            -
            
            
            200,000
            
            
            -
            
            
            200,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (208,420
            )
            
            (208,420
            )Balance
                December 31, 2001
            
            
            937,500
            
            
            937
            
            
            705,063
            
            
            (725,512
            )
            
            (19,512
            )Estimated
                fair value of services contributed by stockholders
            
            
            -
            
            
            -
            
            
            200,000
            
            
            -
            
            
            200,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (228,217
            )
            
            (228,217
            )Balance
                December 31, 2002
            
            
            937,500
            
            
            937
            
            
            905,063
            
            
            (953,729
            )
            
            (47,729
            )Estimated
                fair value of services contributed by stockholders
            
            
            -
            
            
            -
            
            
            200,000
            
            
            -
            
            
            200,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (207,196
            )
            
            (207,196
            )Balance
                December 31, 2003
            
            
            937,500
            
            
            937
            
            
            1,105,063
            
            
            (1,160,925
            )
            
            (54,925
            )Estimated
                fair value of services contributed by stockholders
            
            
            -
            
            
            -
            
            
            400,000
            
            
            -
            
            
            400,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (508,226
            )
            
            (508,226
            )Balance
                December 31, 2004
            
            
            937,500
            
            
            937
            
            
            1,505,063
            
            
            (1,669,151
            )
            
            (163,151
            )Capital
                contributions
            
            
            -
            
            
            -
            
            
            14,200
            
            
            -
            
            
            14,200Issuance
                of common stock at $0.006 per share in August 2005
            
            
            2,453,125
            
            
            2,453
            
            
            13,247
            
            
            -
            
            
            15,700Exercise
                of stock options at $0.006 per share in August 2005
            
            
            15,625
            
            
            16
            
            
            84
            
            
            -
            
            
            100Estimated
                fair value of services contributed by stockholders
            
            
            -
            
            
            -
            
            
            400,000
            
            
            -
            
            
            400,000




26


**TRANSDEL
        PHARMACEUTICALS, INC.**
 **(A
        Development Stage Company)**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS’ EQUITY**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006 AND FOR THE PERIOD FROM JULY 24,
        1998
        (INCEPTION) THROUGH**
 **DECEMBER
        31, 2007**




Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (539,622
            )
            
            (539,622
            )Balance
                December 31, 2005
            
            
            3,406,250
            
            
            3,406
            
            
            1,932,594
            
            
            (2,208,773
            )
            
            (272,773
            )Capital
                contributions
            
            
            -
            
            
            -
            
            
            48,600
            
            
            -
            
            
            48,600Exercise
                of stock options at $0.006 per share in June and July 2006
            
            
            375,000
            
            
            375
            
            
            2,025
            
            
            -
            
            
            2,400Estimated
                fair value of services contributed by stockholders
            
            
            -
            
            
            -
            
            
            400,000
            
            
            -
            
            
            400,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (584,232
            )
            
            (584,232
            )Balance
                as of December 31, 2006
            
            
            3,781,250
            
            
            3,781
            
            
            2,383,219
            
            
            (2,793,005
            )
            
            (406,005
            )Issuance
                of common stock at $0.006 per share during January through March
                2007
            
            
            3,984,374
            
            
            3,985
            
            
            21,515
            
            
            -
            
            
            25,500Exercise
                of warrants and stock options at $0.006 per share in April and August
                2007
            
            
            39,063
            
            
            39
            
            
            211
            
            
            **-**
            
            
            250Capital
                contributions
            
            
            **-**
            
            
            **-**
            
            
            105,907
            
            
            **-**
            
            
            105,907Estimated
                fair value of services contributed by stockholders
            
            
            **-**
            
            
            **-**
            
            
            175,000
            
            
            **-**
            
            
            175,000Forgiveness
                of notes payable and interest
            
            
            **-**
            
            
            **-**
            
            
            241,701
            
            
            **-**
            
            
            241,701Issuance
                of restricted stock at a value of $2.00 per share in August 2007
            
            
            195,313
            
            
            195
            
            
            (195
            )
            
            **-**
            
            
            -Issuance
                of common stock in connection with merger on September 17,
                2007
            
            
            1,849,993
            
            
            1,850
            
            
            (1,850
            )
            
            **-**
            
            
            **-**Net
                proceeds from private placement offering issued at $100,000 per unit
                in
                September and October 2007
            
            
            2,071,834
            
            
            2,072
            
            
            3,835,719
            
            
            **-**
            
            
            3,837,791Issuance
                of common stock related to conversion of Senior  Convertible notes
                payable and accrued interest
            
            
            1,530,177
            
            
            1,530
            
            
            1,528,647
            
            
            **-**
            
            
            1,530,177Beneficial
                conversion feature upon conversion of Senior Convertiblenotes
            
            
            -
            
            
            -
            
            
            1,530,177
            
            
            -
            
            
            1,530,177Issuance
                of common stock and warrants for consulting services in September
                2007 at
                a value of $2.00 per share for stock transactions and $100,000 per
                unit
                for stock and warrant transaction
            
            
            275,000
            
            
            275
            
            
            549,725
            
            
            -
            
            
            550,000Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            184,522
            
            
            -
            
            
            184,522Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (4,284,540
            )
            
            (4,284,540
            )Balance
                as of December 31, 2007
            
            
            13,727,004
            
            $
            13,727
            
            $
            10,554,298
            
            $
            (7,077,545
            )
            $
            3,490,480




*See
      report of independent registered public accounting firm and accompanying notes
      to these consolidated financial statement*




27


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**Year Ended December 31,**
            
            **For The Period**
              **From July 24,**
              **1998**
              **(Inception)**
              **Through**
              **December 31,****2007**
            
            **2006**
            
            **2007****Cash
                from operating activities:**Net
                loss
            
            $
            (4,284,540
            )
            $
            (584,232
            )
            $
            (7,077,545
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Estimated
                fair value of contributed services
            
            
            175,000
            
            
            400,000
            
            
            2,475,000Gain
                on forgiveness of liabilities
            
            
            (89,914
            )
            
            -
            
            
            (89,914
            )Amortization
                of prepaid consulting fees
            
            
            201,252
            
            
            -
            
            
            201,252Non-cash
                interest on notes payable
            
            
            1,563,504
            
            
            9,052
            
            
            1,575,755Stock-based
                compensation
            
            
            184,522
            
            
            -
            
            
            184,522Changes
                in operating assets and liabilities:Prepaid
                consulting costs
            
            
            (140,000
            )
            
            -
            
            
            (140,000
            )Prepaid
                expenses and other current assets
            
            
            (39,908
            )
            
            (1,998
            )
            
            (45,604
            )Accounts
                payable
            
            
            612,562
            
            
            121,516
            
            
            786,254Accrued
                expenses and payroll liabilities
            
            
            53,901
            
            
            -
            
            
            53,901Net
                cash used in operating activities
            
            
            (1,763,621
            )
            
            (55,662
            )
            
            (2,076,379
            )**Cash
                flows from financing activities:**Proceeds
                from notes payable to stockholders
            
            
            -
            
            
            -
            
            
            226,300Proceeds
                from notes payable
            
            
            1,500,000
            
            
            -
            
            
            1,500,000Capital
                contributions
            
            
            105,907
            
            
            48,600
            
            
            168,707Proceeds
                from purchase of common stock and exercise of warrants and stock
                options
            
            
            25,750
            
            
            2,400
            
            
            49,950Proceeds
                from Private Placement
            
            
            3,837,791
            
            
            -
            
            
            3,837,791Net
                cash provided by financing activities
            
            
            5,469,448
            
            
            51,000
            
            
            5,782,748**Net
                change in cash**
            
            
            3,705,827
            
            
            (4,662
            )
            
            3,706,369**Cash,
                beginning of period**
            
            
            542
            
            
            5,204
            
            
            ________-**Cash,
                end of period**
            
            $
            3,706,369
            
            $
            542
            
            $
            3,706,369**Supplemental
                disclosure of cash flow information:**Issuance
                of common stock and warrants to consulting firms for prepaid consulting
                fees
            
            $
            550,000
            
            $
            -
            
            $
            550,000Conversion
                of notes payable and accrued interest into common stock
            
            $
            1,530,177
            
            $
            -
            
            $
            1,530,177Forgiveness
                of notes payable and accrued interest to shareholders
            
            $
            241,701
            
            $
            -
            
            $
            241,701Conversion
                of advances to notes payable to shareholders
            
            $
            -
            
            $
            -
            
            $
            196,300





*See
      report of independent registered public accounting firm and accompanying notes
      to these consolidated financial statements*




28


**TRANSDEL
        PHARMACEUTICALS, INC.**
 **(A
        Development Stage Company)**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**Note
      1.    Business Description**





Transdel
      Pharmaceuticals, Inc. (“Transdel”) is a specialty pharmaceutical company focused
      on the development and commercialization of non-invasive topically delivered
      medications. Transdel’s lead topical drug, Ketotransdel TM ,
      utilizes Transdel’s proprietary Transdel TM cream
      formulation to facilitate the passage of ketoprofen, a non-steroidal
      anti-inflammatory drug (“NSAID”), through the skin barrier to reach targeted
      underlying tissue where the drug exerts its prolonged localized
      anti-inflammatory and analgesic effect. Transdel is also investigating other
      drug candidates and treatments for transdermal delivery using the
      Transdel TM platform
      technology for products in pain management and other therapeutic
      areas.





**Note
      2. Basis of Presentation**





The
      accompanying consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States, and with
      the
      rules and regulations of the Securities and Exchange Commission related to
      an
      annual report on Form 10-KSB.  The consolidated financial statements
      include the accounts of Transdel Pharmaceuticals Inc. and its wholly-owned
      subsidiary, Transdel Pharmaceuticals Holdings, Inc. (collectively, the
“Company”)  All significant intercompany balances and transactions have
      been eliminated in consolidation.





**Note
      3. Merger with Public Company and Reorganization**





On
      September 17, 2007, Transdel entered into an Agreement of Merger and Plan of
      Reorganization (the “Merger Agreement”) by and among Transdel, Transdel
      Pharmaceuticals Holdings, Inc., a privately held Nevada corporation (“Transdel
      Holdings”), and Trans-Pharma Acquisition Corp., a newly formed, wholly-owned
      Delaware subsidiary of Transdel (“Acquisition Sub”). Upon closing of the merger
      transaction contemplated under the Merger Agreement (the “Merger”), Acquisition
      Sub merged with and into Transdel Holdings, and Transdel Holdings, as the
      surviving corporation, became a wholly-owned subsidiary of
      Transdel.




In
      connection with the merger, 1,849,993 of Transdel common shares remain
      outstanding and all other outstanding shares of Transdel were cancelled. Also,
      at the closing of the Merger, each share of Transdel Holdings common stock
      issued and outstanding immediately prior to the closing of the Merger was
      exchanged for the right to receive 0.15625 of one share of Transdel’s common
      stock. An aggregate of 8,000,000 shares of Transdel’s common stock, which
      includes 195,313 shares of restricted stock which are subject to forfeiture,
      were issued to the holders of Transdel Holdings’ common stock. As a result of
      the transaction, the former owners of Transdel Holdings became the controlling
      stockholders of Transdel. Accordingly, the merger of Transdel Holdings and
      Transdel is a reverse merger that has been accounted for as a recapitalization
      of Transdel Holdings.





Effective
      on September 17, 2007, and for all reporting periods thereafter, Transdel’s
      operating activities, including any prior comparative period, will include
      only
      those of Transdel Holdings. All references to shares and per share amounts
      in
      the accompanying condensed consolidated financial statements and footnotes
      have
      been restated to reflect the aforementioned share exchange.





29


**TRANSDEL
        PHARMACEUTICALS, INC.**
 **(A
        Development Stage Company)**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      4.    Summary of Significant Accounting Policies**




*Going
      Concern* .
      The
      accompanying consolidated financial statements have been prepared on a
      going-concern basis, which contemplates the realization of assets and the
      satisfaction of liabilities in the normal course of business. The Company has
      incurred recurring operating losses, had negative operating cash flows and
      has
      not recognized any revenues since July 24, 1998 (Inception). In addition, the
      Company had a deficit accumulated during the development stage of $7,077,545
      at
      December 31, 2007. These factors, among others, raise substantial doubt about
      the Company’s ability to continue as a going concern.





The
      Company's continuation as a going concern is dependent on its ability to obtain
      additional financing to fund operations, implement its business model, and
      ultimately, to attain profitable operations. The Company intends to raise
      additional financing to fund its operations. However, there is no assurance
      that
      sufficient financing will be available or, if available, on terms that would
      be
      acceptable to the Company.





The
      consolidated financial statements do not include any adjustments relating to
      the
      recoverability and classification of recorded asset amounts or the amounts
      and
      classification of liabilities that might be necessary should the Company be
      unable to continue as a going concern.





*Development
      Stage Enterprise.* The
      Company is a development stage company as defined in Statement of Financial
      Accounting Standards (“SFAS”) No. 7, *Accounting
      and Reporting by Development Stage Enterprises* .
      The
      Company is devoting substantially all of its present efforts to establish a
      new
      business, and its planned principal operations have not yet commenced. All
      losses accumulated since inception have been considered as part of the Company’s
      development stage activities.





*Research
      and Development.* Research
      and development costs are charged to expense when incurred.





*Cash
      and Cash Equivalents* .
      Cash
      equivalents consist of highly liquid investments with maturities of three months
      or less from the original purchase date.





*Concentrations
      of Credit Risk.* Financial
      instruments that potentially subject the Company to significant concentration
      of
      credit risk consist primarily of cash and cash equivalents. The Company
      maintains its cash balances at a high-quality institution that is insured by
      the
      Federal Deposit Insurance Corporation (“FDIC”) up to $100,000.





*Fair
      Value of Financial Instruments.* The fair
      values of the Company’s cash and cash equivalents, accounts payable and accrued
      expenses approximate carrying values due to their short maturities.





*Beneficial
      Conversion Feature.* The
      convertible features of the convertible notes provided for a rate of conversion
      that was below market value (see Note 5). Such feature is normally characterized
      as a "beneficial conversion feature" ("BCF"). Pursuant to Emerging Issues Task
      Force (“EITF”) No. 98-5 " *Accounting
      For Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratio* " and
      EITF No. 00-27," *Application
      of EITF Issue No. 98-5 To Certain Convertible Instruments,* "
      the
      relative fair values of the BCFs have been recorded as a discount from the
      face
      amount of the respective debt instrument. The Company recorded the corresponding
      debt discount related to the BCF as interest expense when the related instrument
      was converted into the Company's common stock.





30





**TRANSDEL
        PHARMACEUTICALS, INC.**
 **(A
        Development Stage Company)**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      4.    Summary of Significant Accounting Policies
      (continued)**





*Revenue
      Recognition.* The
      Company will recognize revenues in accordance with the Securities and Exchange
      Commission Staff Accounting Bulletin (“SAB”) No. 101, *Revenue
      Recognition* ,
      as
      amended by SAB No. 104. SAB No. 104 requires that four basic criteria must
      be
      met before revenue can be recognized: (1) persuasive evidence of an arrangement
      exists; (2) delivery has occurred; (3) the selling price is fixed and
      determinable; and (4) collectibility is reasonably assured. Determination of
      criteria (3) and (4) will be based on management's judgments regarding the
      fixed
      nature of the selling prices of the products delivered and the collectibility
      of
      those amounts. Provisions for discounts and rebates to customers, estimated
      returns and allowances, and other adjustments will be provided for in the same
      period the related sales are recorded. The Company will defer any revenue for
      which the product has not been delivered or for which services have not been
      rendered or are subject to refund until such time that the Company and the
      customer jointly determine that the product has been delivered or services
      have
      been rendered or no refund will be required.





As
      of
      December 31, 2007, the Company had not generated any revenues and the Company
      does not anticipate that it will generate any revenues until one or more of
      its
      drug candidates are approved by the FDA and effective sales and marketing
      support are in place. The FDA approval process is highly uncertain and the
      Company cannot estimate when it will generate revenues at this time.





*Stock-Based
      Compensation.* Effective January 1, 2006, the Company adopted Statement of Financial
      Accounting Standards No. 123 (revised 2004), *Share-Based
      Payment* ,
      (‘‘SFAS 123R’’), which is a revision of SFAS No. 123, *Accounting
      for Stock-Based Compensation* .
      SFAS
      123R supersedes APB No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      amends SFAS No. 95, *Statement
      of Cash Flows* .
      SFAS
      123R requires all share-based payments to employees, including grants of
      employee stock options and restricted stock grants, to be recognized in the
      financial statements based upon their fair values. The Company recorded total
      stock-based compensation of $184,522, $0 and $184,522 for the years ended
      December 31, 2007 and 2006 and the period from Inception to December 31,
      2007, respectively, for options and restricted stock granted and vested which
      is
      included in general and administrative expenses and research and development
      expenses in the amount of $120,943 and $63,579, respectively. The fair value
      of
      the unvested stock options and restricted stock grants amounted to $1,109,449
      as
      of December 31, 2007.





The
      Company's accounting policy for equity instruments issued to consultants and
      vendors in exchange for goods and services follows the provisions of SFAS No.
      123, “EITF” 96-18, *Accounting
      for Equity Instruments That are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services* and EITF
      00-18, *Accounting
      Recognition for Certain Transactions Involving Equity Instruments Granted to
      Other Than Employees.*  As
      such,
      the value of the applicable stock-based compensation is periodically remeasured
      and income or expense is recognized during their vesting terms. The
      measurement date for the fair value of the equity instruments issued is
      determined at the earlier of (i) the date at which a commitment for performance
      by the consultant or vendor is reached or (ii) the date at which the consultant
      or vendor's performance is complete. In the case of equity instruments issued
      to
      consultants, the fair value of the equity instrument is recognized over the
      term
      of the consulting agreement. In accordance with EITF 00-18, an asset acquired
      in
      exchange for the issuance of fully vested, nonforfeitable equity instruments
      should not be presented or classified as an offset
      to
      equity on the grantor's balance sheet once the equity instrument is granted
      for
      accounting purposes. Accordingly, the Company recorded the fair value of the
      common stock issued for future consulting services as prepaid consulting fees
      in
      its condensed consolidated balance sheet (see Note 6).




31


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**Note
      4.    Summary of Significant Accounting Policies (continued)**





*Basic
      and Diluted Loss per Common Share* . In
      accordance with SFAS No. 128, *Earnings
      Per Share* ,
      and SAB
      No. 98, *Computation
      of Earnings Per Share* ,
      basic
      net loss per common share is computed by dividing net loss for the period by
      the
      weighted average number of common shares outstanding during the period. 
Under SFAS No. 128, diluted net loss per share is computed by dividing the
      net
      loss for the period by the weighted average number of common and common
      equivalent shares, such as stock options and warrants outstanding during the
      period.





Basic
      and
      diluted net loss applicable to common stock per share is computed using the
      weighted average number of common shares outstanding during the period. Common
      stock equivalents (prior to application of the treasury stock, if converted
      method) from stock options, warrants and convertible notes were 1,180,458 and
      68,664 for the years ended December 31, 2007 and 2006, respectively, are
      excluded from the calculation of diluted net loss per share for all periods
      presented because the effect is anti-dilutive.





*Use
      of Estimates.* The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States requires management to make estimates
      and judgments that affect the reported amounts of assets, liabilities and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and reported amounts of revenues and expenses during the reporting
      periods. Significant estimates made by management are, among others, the
      valuation of contributed services, stock options, deferred taxes and stock-based
      compensation issued to employees and non-employees. Actual results could differ
      from those estimates.





**Note
      5. Notes Payable**





In
      August
      2005, the Company issued seven convertible promissory notes in the aggregate
      amount of $226,300 to various stockholders (collectively, the “Stockholders’
Notes”). The Stockholders’ Notes bore interest at 4% per annum and were to
      mature on August 25, 2010. In connection with the issuance of the Stockholders’
Notes, the Company granted warrants that were exercisable into an aggregate
      35,359 shares of the Company’s common stock. The warrants were determined to
      have an insignificant fair value at the time of the grant.





In
      May
      2007, the holders of the Stockholders’ Notes and related warrants forgave the
      amounts due and forfeited the related warrants. In connection with the
      forgiveness, the Company recorded additional paid-in capital of $241,701 equal
      to the value of the Stockholders’ Notes and related accrued interest. Interest
      expense on the Stockholders’ Notes was $3,150, $12,251 and $15,401 for the years
      ended December 31, 2007 and 2006 and the period from Inception to December
      31,
      2007, respectively.





In
      May
      and June 2007, the Company issued convertible notes payable to various lenders
      for an aggregate amount of $1,500,000 (collectively, the “2007 Notes”). Each of
      the 2007 Notes included interest at 7% per annum and were to mature on December
      16, 2007 ("Maturity Date"). However, as a result of the Merger and Private
      Placement (see Note 6), the entire outstanding principal amount and accrued
      interest was converted into the Company’s common stock at a conversion price
      equal to $1.00 per share, which resulted in the issuance of 1,530,177 shares.
      Also, the Company recorded a debt discount of $1,530,177, which was amortized
      immediately to interest expense upon the conversion of the 2007 Notes. Excluding
      the debt discount, interest expense on the 2007 Notes was $30,177 for the year
      ended December 31, 2007 and the period from Inception to December 31,
      2007.





32


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      6. Common Stock and Capital Contributions**





Prior
      to
      the Merger during fiscal year 2007, the Company issued 3,984,374 shares of
      its
      common stock at a price of $0.006 per share for proceeds of $25,700, which
      includes the issuance of 31,250 shares upon the exercise of a warrant (see
      below). Also, prior to the Merger, the Company received capital contributions
      of
      $105,907 from the Company’s stockholders and recorded capital contributions of
      $175,000 (the estimated fair value of the services contributed) in connection
      with services contributed by stockholders, which is recorded respectively in
      selling, general and administrative and research and development expenses in
      the
      accompanying statements of operations.





Concurrent
      with the Merger, the Company sold 2,071,834 shares of common stock for gross
      proceeds of $4,143,667 through a private placement (the “Private Placement”). In
      addition, the investors received warrants to purchase 517,958 shares of common
      stock for a period of five years at a cash and cashless exercise price of $4.00
      and $5.00 per share, respectively.





In
      connection with the Private Placement, the Company incurred placement agent
      fees
      and other related expenses totaling $305,876 and issued warrants to purchase
      up
      to 33,750 shares of common stock for a period of three years at cash and
      cashless exercise price of $4.00 and $5.00 per share, respectively.





In
      September 2007, the Company entered into three, one-year consulting agreements
      with three separate firms to provide services related to investor
      communications. The terms per one of the agreements, among other items, include
      monthly payments of $7,500 plus expenses and for another agreement a
      non-refundable fee of $140,000. Also, in the aggregate, 275,000 shares of common
      stock were issued in accordance with the terms of the agreements along with
      a
      warrant to purchase 18,750 shares of common stock for a period of five years
      at
      a cash and cashless exercise price of $4.00 and $5.00, respectively. The fair
      value of the stock and warrants were valued at $550,000. The estimated costs
      of
      the consulting agreements, including the stock, warrants and non-refundable
      fee
      will be amortized over the one-year terms. For the year ended December 31,
      2007,
      the Company amortized $201,252 which is included as part of selling, general
      and
      administrative expenses.





Other
      common stock and capital contributions:





-
            In
                fiscal year 1998, the Company recorded capital contributions of $100,000
                (the estimated fair value of the services contributed) in connection
                with
                services contributed by stockholders, which is recorded respectively
                in
                selling, general and administrative and research and development
                expenses
                in the accompanying consolidated statements of
                operations.-
            In
                fiscal year 1999, the Company recorded capital contributions of $200,000
                (the estimated fair value of the services contributed) in connection
                with
                services contributed by stockholders, which is recorded respectively
                in
                selling, general and administrative and research and development
                expenses
                in the accompanying consolidated statements of
                operations.




33




**TRANSDEL
        PHARMACEUTICALS, INC.**
 **(A
        Development Stage Company)**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      6. Common Stock and Capital Contributions (continued)**





-
            In
                fiscal year 2000, the Company issued 937,500 shares of common stock
                at a
                price of $0.006 per share for proceeds of $6,000. Also, recorded
                capital
                contributions of $200,000 (the estimated fair value of the services
                contributed) in connection with services contributed by stockholders,
                which is recorded respectively in selling, general and administrative
                and
                research and development expenses in the accompanying consolidated
                statements of operations.-
            In
                fiscal year 2001, the Company recorded capital contributions of $200,000
                (the estimated fair value of the services contributed) in connection
                with
                services contributed by stockholders, which is recorded respectively
                in
                selling, general and administrative and research and development
                expenses
                in the accompanying consolidated statements of
                operations.-
            In
                fiscal year 2002, the Company recorded capital contributions of $200,000
                (the estimated fair value of the services contributed) in connection
                with
                services contributed by stockholders, which is recorded respectively
                in
                selling, general and administrative and research and development
                expenses
                in the accompanying consolidated statements of
                operations.-
            In
                fiscal year 2003, the Company recorded capital contributions of $200,000
                (the estimated fair value of the services contributed) in connection
                with
                services contributed by stockholders, which is recorded respectively
                in
                selling, general and administrative and research and development
                expenses
                in the accompanying consolidated statements of
                operations.-
            In
                fiscal year 2004, the Company recorded capital contributions of $400,000
                (the estimated fair value of the services contributed) in connection
                with
                services contributed by stockholders, which is recorded respectively
                in
                selling, general and administrative and research and development
                expenses
                in the accompanying consolidated statements of
                operations.-
            In
                fiscal year 2005, the Company issued 2,468,750 shares of common stock
                at a
                price of $0.006 per share for gross proceeds of $15,800. The Company
                received additional capital contributions of $14,200 from the Company’s
                stockholders. Also, recorded capital contributions of $400,000 (the
                estimated fair value of the services contributed) in connection with
                services contributed by stockholders, which is recorded respectively
                in
                selling, general and administrative and research and development
                expenses
                in the accompanying consolidated statements of
                operations.-
            In
                fiscal year 2006, the Company issued 375,000 shares of common stock
                at a
                price of $0.006 per share for gross proceeds of $2,400. The Company
                received additional capital contributions of $48,600 from the Company’s
                stockholders. Also, recorded capital contributions of $400,000 (the
                estimated fair value of the services contributed) in connection with
                services contributed by stockholders, which is recorded respectively
                in
                selling, general and administrative and research and development
                expenses
                in the accompanying consolidated statements of
                operations.





34


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**Note
      7. Stock Option Plans**





The
      Company’s 2005 Stock Plan (“2005 Plan”) provided for grant of options to
      employees, directors and consultants to purchase shares of the Company’s common
      stock, as determined by management and the board of directors, at the fair
      value
      of such shares on the grant date. As of January 1, 2007, there were options
      to
      purchase 15,626 shares of the Company’s common stock outstanding at an exercise
      price of $0.006. In August 2007, 7,813 options were exercised for the issuance
      of the Company’s common stock for total proceeds of $50. Subsequent to this
      exercise, the remaining 7,813 options were cancelled.




On
      September 17, 2007, the Company’s Board of Directors and stockholders adopted
      the 2007 Incentive Stock and Awards Plan (the “Plan”), which provides
      for the issuance of a maximum of an aggregate of 1,500,000 shares of Common
      Stock .
      The
      purpose of the Plan is to provide an incentive to attract and retain directors,
      officers, consultants, advisors and employees whose services are considered
      valuable, to encourage a sense of proprietorship and to stimulate an active
      interest of such persons into the Company’s development and financial success.
      Under the Plan, the Company is authorized to issue incentive stock options
      intended to qualify under Section 422 of the Code, non-qualified stock options
      and restricted stock. The Plan will be administered by the Company’s Board of
      Directors until such time as such authority has been delegated to a committee
      of
      the board of directors.




Pursuant
      to the terms of the Private Placement, for one year following the initial
      closing of the Private Placement the Company may not issue options to purchase
      shares of common stock at an exercise price below $2.00 per share. In addition, for
      a
      period of 18 months following the initial closing of the Private Placement,
      the
      Company may not file a registration statement, including, without limitation,
      a
      registration statement on Form S-8, covering the resale of any shares of common
      stock issued pursuant to an employee benefit plan.




A
      summary
      of the status of the 2005 Plan and the 2007 Plan for the year ended December
      31, 2007 is as follows:





**Number**
              **of Shares**
            
            **Weighted**
              **Ave.**
              **Exercise**
              **Price**Options
                outstanding – Beginning of Period
            
            
            15,626
            
            $
            0.006Granted
            
            
            610,000
            
            
            2.010Exercised
            
            
            (7,813
            )
            
            0.006Cancelled/forfeited
            
            
            (7,813
            )
            
            0.006Options
                outstanding – End of Period
            
            
            610,000
            
            $
            2.010Options
                exercisable – End of Period
            
            
            -
            
            
            -Weighted
                average fair value of the options granted
            
            $
            1.48Weighted
                average remaining contractual life of the outstanding options – End
                of period
            
            
            9.7
                yearsAggregate
                intrinsic value – End of Period
            
            $
            451,300




35


**TRANSDEL
        PHARMACEUTICALS, INC.**
 **(A
        Development Stage Company)**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      7. Stock Option Plans (continued)**





The
      options were granted to the employees and directors at exercise prices that
      ranged from $2.00 to $2.62, the estimated fair market value of the common stock
      on the date of the issuances. All
      options granted to date have a ten-year life and vest over one to three
      years.  The
      Company uses the Black-Scholes option pricing model to estimate the grant-date
      fair value of share-based awards under SFAS 123R. The Black-Scholes model
      requires subjective assumptions regarding future stock price volatility and
      expected time to exercise, along with assumptions about the risk-free interest
      rate and expected dividends, which affect the estimated fair values of the
      Company’s stock-based awards. The expected term of options granted was
      determined in accordance with the simplified approach as defined by SAB No.
      107, *Share-Based
      Payment* ,
      as the
      Company has very limited historical data on employee exercises and post-vesting
      employment termination behavior. The expected volatility is based on the
      historical volatilities of the common stock of comparable publicly traded
      companies based on the Company’s belief that it currently has limited historical
      data regarding the volatility of its stock price on which to base a meaningful
      estimate of expected volatility. The risk-free rate selected to value any
      particular grant is based on the U.S. Treasury rate that corresponds to the
      expected term of the grant effective as of the date of the grant. The Company
      used 0% as an expected dividend yield assumption. These factors could change
      in
      the future, affecting the determination of stock-based compensation expense
      in
      future periods. Utilizing these assumptions, the fair value is determined at
      the
      date of grant.





In
      accordance with SFAS 123R, the financial statement effect of forfeitures is
      estimated at the time of grant and revised, if necessary, if the actual effect
      differs from those estimates. As of December 31, 2007, management estimates
      that
      the effect of forfeitures on the financial statements will be
      insignificant.




As
      of
      December 31, 2007, there was $811,340 of total unrecognized compensation expense
      related to unvested stock-based compensation under the Plan. That expense is
      expected to be recognized over the weighted-average period of 2.9 years.




Furthermore,
      in August 2007, the Company issued a restricted stock grant to an executive
      of
      the Company for 195,313 shares of the Company’s common stock. The restricted
      stock grant will vest 100% on March 17, 2009 (18 months subsequent to the
      closing of the Merger).




Also,
      all
      of these shares are subject to forfeiture in the event that the executive’s
      employment is terminated for cause or the executive resigns without good reason
      prior to March 17, 2009. The fair value of the grant was determined to be
      approximately $391,000 and will be amortized to research and development
      expenses on a straight line basis over the period of time prior to the vesting
      date. As of December 31, 2007, there was $298,109 of total unrecognized
      compensation expense related to the unvested restricted stock grant.




36


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      7. Stock Option Plans (continued)**





The
      fair
      value of options granted during 2007 and 2006 was estimated using the following
      weighted-average assumptions:





**2007**
            
            **2006**Stock
                options:Expected
                term (in years)
            
            
            9.7
            
            
            10.0Expected
                volatility
            
            
            85
            %
            
            85
            %Risk-free
                interest rate
            
            
            4.14
            %
            
            5.23
            %Dividend
                yield
            
            
            -
            
            
            -





**Note
      8.  Stock Warrants**





On
      February 27, 2007, the Company granted a warrant to purchase 31,250 shares
      of
      its common stock in connection with services rendered. The warrant was
      determined to have an insignificant fair value. The warrant vested upon grant,
      had an exercise price of $0.006 per share and expired in February 2012. In
      April
      2007, the Company issued 31,250 shares of its common stock for proceeds of
      $200
      upon exercise of the warrant.





In
      addition to the warrants issued in conjunction with the Private Placement,
      the
      Company issued a warrant to purchase shares of its common stock to a firm in
      connection with a consulting agreement at an exercise price of $4.00 (or
      cashless exercise price of $5.00). The expiration of the outstanding warrants
      occurs through September 2012 at various periods (see Note 6).





A
      summary
      of the status of the warrants for the period ended December 31, 2007, is as
      follows:





**Number of**
              **Shares**
              **Subject to**
              **Warrants**
              **Outstanding**
            
            **Weighted-**
              **Average**
              **Exercise**
              **Price**Warrants
                outstanding – Beginning of Period
            
            
            35,359
            
            $
            0.006Granted
            
            
            601,708
            
            
            3.792Exercised
            
            
            (31,250
            )
            
            0.006Expired
            
            
            (35,359
            )
            
            0.006Warrants
                outstanding – End of Period
            
            
            570,458
            
            $
            4.000Weighted
                average remaining contractual life of the outstanding warrants – End
                of period
            
            
            4.60
                years





37


**TRANSDEL
        PHARMACEUTICALS, INC.**
 **(A
        Development Stage Company)**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**Note
      9. Income Taxes**





On
      July
      13, 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. (“FIN”) 48. Under FIN 48, the impact of an uncertain income
      tax positions on the income tax return must be recognized at the largest amount
      that is more-likely-than-not to be sustained upon audit by the relevant taxing
      authority. An uncertain income tax position will not be recognized if it has
      50%
      or less likelihood of being sustained upon examination. Additionally, FIN 48
      provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. For public companies,
      FIN 48 is effective for fiscal years beginning after December 15,
      2006.





The
      Company adopted the provisions of FIN 48 on January 1, 2007. There were no
      unrecognized tax benefits as of the date of adoption. As a result of the
      implementation of FIN 48, the Company did not recognize an increase in the
      liability for unrecognized tax benefits. There are no unrecognized tax benefits
      included in the balance sheet that would, if recognized, affect the effective
      tax rate.





The
      Company’s practice is to recognize interest and/or penalties related to income
      tax matters in income tax expense. The Company had no accrual for interest
      or
      penalties at December 31, 2007, and has not recognized interest and/or penalties
      in the consolidated statement of operations for the years ended December 31,
      2007 and 2006.





The
      Company is subject to taxation in the United States and California. The
      Company’s tax years for 2000 and forward are subject to examination by the
      United States and state tax authorities due to the carry forward of unutilized
      net operating losses.





The
      adoption of FIN 48 did not impact the Company’s financial condition, results of
      operations or cash flows.  At December 31, 2007, the Company had deferred
      tax assets of $1,186,226. Due to uncertainties surrounding the Company’s ability
      to generate future taxable income to realize these assets, a full valuation
      has
      been established to offset the net deferred tax asset. Additionally, the future
      utilization of the company’s net operating loss to offset future taxable income
      may be subject to an annual limitation, pursuant to Internal Revenue Code
      Section 382, as a result of ownership changes that may have occurred previously
      or that could occur in the future.  The Company has not performed a Section
      382 analysis to determine the limitation of the net operating loss and research
      and development credit carry forwards.





As
      of
      December 31, 2007, the Company had federal and California net operating loss
      carryforwards of approximately $2.8 million and $2.6 million, respectively.
      The
      federal and California tax loss carry forwards will begin to expire in 2020,
      and
      2015, respectively, unless previously utilized.





38




**TRANSDEL
        PHARMACEUTICALS, INC.**
 **(A
        Development Stage Company)**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**Note
      9. Income Taxes (continued)**





Significant
      components of the company’s deferred tax assets are as follows:





**2007**
            
            **2006**Deferred
                tax assets:Federal
                and state net operating loss carryforwards
            
            $
            1,106,112
            
            $
            195,000Stock-based
                compensation
            
            
            60,404
            
            
            -Other
            
            
            19,710
            
            
            -1,186,226
            
            
            195,000Total
                deferred tax assets
            
            
            1,186,226
            
            
            195,000Less
                valuation allowance
            
            
            (1,186,226
            )
            
            (195,000
            )Net
                deferred tax assets
            
            $
            -
            
            $
            -





Realization
      of the deferred tax assets is dependent upon the generation of future taxable
      income, the amount and timing of which are uncertain.  Accordingly, the net
      deferred tax assets have been fully offset by a valuation allowance.  The
      valuation allowance increased by approximately $991,000 in 2007 and by
      approximately $73,000 in 2006.





The
      provision for income taxes using the statutory federal income tax rate of 34%
      as
      compared to the company’s effective tax rate is summarized as
      follows:





**2007**
            
            **2006**Federal
                tax benefit at statutory rate
            
            $
            1,456,744
            
            $
            198,639State
                tax benefit, net
            
            
            239,314
            
            
            38,526Non-deductible
                services
            
            
            (69,563
            )
            
            (159,000
            )Non-deductible
                beneficial conversion costs
            
            
            (621,492
            )
            
            -Employee
                stock-based compensation
            
            
            (12,944)
            )
            
            -Other
                permanent differences
            
            
            (595)
            )
            
            (4,837
            )Increase
                in valuation allowance
            
            
            (991,464)
            )
            
            (73,328
            )Provision
                for income taxes
            
            $
            —
            
            $
            —





A
      portion
      of the net operating loss carry forwards as of December 31, 2007 include
      amounts related to stock option deductions. Under FAS 123R, any excess tax
      benefits from share-based compensation are only realized when income taxes
      payable is reduced, with the corresponding credit posted to Additional Paid
      In
      Capital.





39




**TRANSDEL
        PHARMACEUTICALS, INC.**
 **(A
        Development Stage Company)**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      10. Recent Accounting Pronouncements**





The
      following pronouncements have been issued by the FASB:





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* .
      SFAS
      No. 157 defines fair value, establishes a framework for measuring fair value
      in
      GAAP and expands disclosures about fair value measurements. This Statement
      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 Statement does not require any new fair value measurements.
      SFAS No. 157 is effective for fiscal years beginning after December 15, 2007.
      The Company plans to adopt SFAS No. 157 beginning in the first quarter of 2008.
      The adoption of this pronouncement is not expected to have material effect
      on
      the Company’s consolidated financial statements *.*





On
      February 15, 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities - Including
      an
      Amendment of FASB Statement No. 115.* SFAS No.
      159 permits an entity to choose to measure many financial instruments and
      certain other items at fair value. Most of the provisions in SFAS No. 159 are
      elective; however, the amendment to FASB Statement No. 115, *Accounting
      for Certain Investments in Debt and Equity Securities* ,
      applies
      to all entities with available-for-sale and trading securities. Some
      requirements apply differently to entities that do not report net income. The
      fair value option established by SFAS No. 159 permits all entities to choose
      to
      measure eligible items at fair value at specified election dates. A business
      entity will report unrealized gains and losses on items for which the fair
      value
      option has been elected in earnings at each subsequent reporting date. SFAS
      No.
      159 is effective as of the beginning of an entity’s first fiscal year that
      begins after November 15, 2007.  The adoption of this pronouncement is not
      expected to have material effect on the Company’s consolidated financial
      statements *.*





In
      June
      2007, the FASB ratified a consensus opinion reached on EITF Issue No. 07-3, *Accounting
      for Nonrefundable Advance Payments for Goods or Services Received for Use in
      Future Research and Development Activities.* The
      guidance in EITF Issue No. 07-3 requires the Company to defer and capitalize
      nonrefundable advance payments made for goods or services to be used in research
      and development activities until the goods have been delivered or the related
      services have been performed. If the goods are no longer expected to be
      delivered nor the services expected to be performed, the Company would be
      required to expense the related capitalized advance payments. The consensus
      in
      EITF Issue No. 07-3 is effective for fiscal years, and interim periods within
      those fiscal years, beginning after December 15, 2007 and is to be applied
      prospectively to new contracts entered into on or after December 15, 2007.
      Early
      adoption is not permitted. Retrospective application of EITF Issue No. 07-3
      is
      also not permitted. The Company intends to adopt EITF Issue No. 07-3 effective
      January 1, 2008. The impact of applying this consensus will depend on the terms
      of the Company’s future research and development contractual arrangements
      entered into on or after December 15, 2007.




In
      December 2007, the FASB issued SFAS No. 141R, "Business Combinations." SFAS
      No.
      141R provides companies with principles and requirements on how an acquirer
      recognizes and measures in its financial statements the identifiable assets
      acquired, liabilities assumed, and any noncontrolling interest in the acquiree
      as well as the recognition and measurement of goodwill acquired in a business
      combination. SFAS No. 141R also requires certain disclosures to enable users
      of
      the financial statements
      to evaluate the nature and financial effects of the business combination.
      Acquisition costs associated with the business combination will generally be
      expensed as incurred. SFAS No. 141R is effective for business combinations
      occurring in fiscal years beginning after December 15, 2008. Early adoption
      of
      SFAS No. 141R is not permitted. We are currently evaluating the impact SFAS
      No.
      141R will have on any future business combinations.




40


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      10. Recent Accounting Pronouncements (continued)**





Other
      recent accounting pronouncements issued by the FASB (including the EITF) and
      the
      American Institute of Certified Public Accountants did not or are not believed
      by management to have a material impact on the Company’s present or future
      consolidated financial statements.





**Note
      11. Commitments and Contingencies**





Commitments





The
      Company leases its office facilities under a noncancelable operating lease,
      which expires in April 2008. For fiscal year 2008, the Company’s lease
      commitment is approximately $18,000. Rent expense for the years ended
      December 31, 2007, 2006 and since inception, was $29,478, $0 and $29,478,
      respectively.





Indemnities
      and Guarantees





The
      Company has made certain indemnities and guarantees, under which it may be
      required to make payments to a guaranteed or indemnified party, in relation
      to
      certain actions or transactions. The Company indemnifies its directors,
      officers, employees and agents, as permitted under the laws of the State of
      Delaware. The duration of the guarantees and indemnities varies, and is
      generally tied to the life of the agreement. These guarantees and indemnities
      do
      not provide for any limitation of the maximum potential future payments the
      Company could be obligated to make. Historically, the Company has not been
      obligated nor incurred any payments for these obligations and, therefore, no
      liabilities have been recorded for these indemnities and guarantees in the
      accompanying balance sheet.





**Note
      12. Subsequent Event**





On
      February 5, 2008, the Company and a previously retained law firm reached an
      agreement, in mediation, related to certain alleged claims the Company had
      against the law firm. Although the law firm did not admit to any liability
      or
      wrongdoing, they desired to resolve the dispute and therefore, agreed to pay
      the
      Company $750,000. In exchange for the settlement, the Company, the law firm
      and
      any other parties involved in the mediation, released and waived any future
      claims against each other, whether known or unknown at the time of the
      settlement. The net amount received by the Company was $375,000 after fees
      paid
      to the Company’s counsel and an executive and director of the Company. The fees
      paid to the executive and director, which were previously approved by the Board
      of Directors, are due to their monetary contributions and uncompensated time
      commitment over a period of approximately four years related to pursuing this
      matter and other amounts paid on the Company’s behalf prior to the
      Merger.





41




**ITEM
      8.** **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURES**





None.




**Item 8A
        (T). **Controls
        and Procedures.****


We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our reports under the Exchange Act
      is
      recorded, processed, summarized and reported within the time periods specified
      in the Commission’s rules and forms and that such information is accumulated and
      communicated to our management, including our Chief Executive Officer and Chief
      Financial Officer, as appropriate, to allow for timely decisions regarding
      required disclosure. In designing and evaluating the disclosure controls and
      procedures, management recognizes that any controls and procedures, no matter
      how well designed and operated, can provide only reasonable assurance of
      achieving the desired control objectives, and management is required to apply
      its judgment in evaluating the cost-benefit relationship of possible controls
      and procedures.




As
      required by Commission Rule 13a-15(b), we carried out an evaluation, under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer and the Chief Financial Officer, of the effectiveness of
      the
      design and operation of our disclosure controls and procedures as of the end
      of
      the quarter covered by this annual report on Form 10-KSB. Based on the
      foregoing, our Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures were effective at the reasonable
      assurance level.




There
      has
      been no change in our internal control over financial reporting during our
      most
      recent fiscal quarter that has materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial reporting.




**Management’s
      Annual Report on Internal Control over Financial Reporting**




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting. Internal control over financial reporting
      is a
      process designed by, or under the supervision of, the chief executive officer
      and chief financial officer and effected by our board of directors, management
      and other personnel, to provide reasonable assurance regarding the reliability
      of financial reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles.




Our
      evaluation of internal control over financial reporting includes using the
      framework issued by the Committee of Sponsoring Organizations of the Treadway
      Commission (“COSO”), an integrated framework for the evaluation of internal
      controls issued by COSO, to identify the risks and control objectives related
      to
      the evaluation of our control environment.




Based
      on
      our evaluation under the frameworks described above, our management has
      concluded that our internal control over financial reporting was effective
      as of
      December 31, 2007.




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




**ITEM
        8B.** **OTHER
        INFORMATION**




**Unregistered
      Sales of Equity Securities and Use of Proceeds**




Except
      as
      previously included in our Current Reports on Form 8-K filed with the Securities
      and Exchange Commission, we have not sold any equity securities during the
      period covered by this annual report on Form 10-KSB that were not registered
      under the Securities Act of 1933, as amended.




42




**PART
      III**





**ITEM
      9.** **DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS, AND CORPORATE GOVERNANCE;
      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT**





**Executive
      Officers and Directors**




The
      following table sets forth information regarding our executive officers and
      directors.




Name
            
            Age
            
            PositionJuliet
                Singh, Ph.D.
            
            48
            
            Chief
                Executive Officer, DirectorBalbir
                Brar, D.V.M. Ph.D.
            
            71
            
            Vice
                President, Research and DevelopmentJohn
                T. Lomoro
            
            38
            
            Chief
                Financial OfficerJeffrey
                J. Abrams, M.D.
            
            60
            
            DirectorAnthony
                S. Thornley
            
            61
            
            Director





Our
      directors hold office for one-year terms until the earlier of their death,
      resignation or removal or until their successors have been elected and
      qualified. Our officers are elected annually by the board of directors and
      serve
      at the discretion of the board.




**Biographies**




**Juliet
      Singh, Ph.D.** ,
      has
      been a director and our chief executive officer since the merger with Transdel
      Pharmaceuticals Holdings, Inc. on September 17, 2007. Dr. Singh was the Chief
      Executive Officer of Transdel Pharmaceuticals Holdings, Inc. since 2005. From
      2000 to 2003, Dr. Singh was a corporate officer-vice president of regulatory
      affairs and quality assurance of Collateral Therapeutics, Inc., a developer
      of
      non-surgical gene therapy products for the treatment of cardiovascular disease,
      which was acquired by Schering AG in 2002. From 1996 to 2000, Dr. Singh was
      the
      director of worldwide regulatory affairs for Allergan Corporation, where she
      oversaw the registration of BOTOXTM in the United States, Canada, Europe Asia,
      and South America. Prior to joining Allergan, Dr. Singh was the assistant
      director of regulatory affairs for Baxter Healthcare Corp., where she provided
      leadership in obtaining worldwide regulatory approval for recombinant factor
      VIII. Dr. Singh holds a Ph.D. in endocrinology from the University of
      California, Davis.




**John
      T. Lomoro,** has
      been
      our chief financial officer since the merger with Transdel Pharmaceuticals
      Holdings, Inc. on September 17, 2007 and the chief financial officer of
      Trans-Pharma since September 2007. From 2004 to 2007, Mr. Lomoro was the
      director of North American accounting for Carl Zeiss Vision Inc., a privately
      held international optical lens manufacturing and distribution company. From
      2003 to 2004, Mr. Lomoro was the manager of financial reporting and planning
      for
      dj Orthopedics, Inc., a publicly traded medical device manufacturing company.
      From 2002 to 2003, Mr. Lomoro was a corporate accounting manager at Wireless
      Knowledge, Inc. Mr. Lomoro’s experience also includes approximately five years
      in public accounting as an audit manager at Ernst & Young LLP. Mr. Lomoro
      received a B.S. degree in accounting from St. Cloud State University of
      Minnesota and is a certified public accountant.





**Balbir
      Brar, D.V.M., Ph.D.** ,
      has
      been our vice president of research and development since the merger with
      Transdel Pharmaceuticals Holdings, Inc. on September 17, 2007. Dr. Brar was
      a
      consultant to Transdel Pharmaceuticals Holdings, Inc. since 2004. From 1989
      to
      2002, Dr. Brar was the Vice President of drug safety and research and
      development at Allergan Corporation, where he oversaw the construction of a
      $75
      million research and development facility and developed drug safety evaluation
      programs. He made major contributions to the development and world wide
      registration of six new drugs including BOTOXTM at Allergan Corporation. From
      1986 to 1989, Dr. Brar was a Senior Director of Safety evaluations for Smith
      Kline Beecham, where he participated in obtaining regulatory approval for Smith
      Kline Beecham’s first major topical drug Tazarotene. From 1981 to 1986, Dr. Brar
      was the section head of toxicology at Revlon Pharmaceuticals, where he provided
      pre-clinical safety data for a number of investigational new drugs. Dr. Brar
      holds a Doctor of Veterinary Medicine from the Punjab University, India, and
      a
      M.S. and Ph.D. from Rutgers, The State University of New Jersey.




43




**Jeffrey
      J. Abrams, M.D., MPH,** has been
      a director since the merger with Transdel Pharmaceuticals Holdings, Inc. on
      September 17, 2007. Dr. Abrams has been a director of Transdel Pharmaceuticals
      Holdings, Inc. since 1998. Prior to joining Transdel Pharmaceuticals Holdings,
      Inc., Dr. Abrams was a practicing primary care clinician for over twenty years.
      Dr. Abrams received a B.A. from the State University of New York at Buffalo,
      an
      M.D. from the Albert Einstein College of Medicine and an M.P.H. from San Diego
      State University.




**Anthony
      S. Thornley** ,
      has
      been a director since November 6, 2007. Mr. Thornley currently serves on the
      Board of Directors at Callaway Golf Incorporated, Cavium Networks Inc. and
      Airvana Inc. From February 2002 to June 2005, he served as President and Chief
      Operating Officer of QUALCOMM Incorporated, a wireless communication technology
      and integrated circuit company. From July 2001 to February 2002 he served as
      Chief Financial Officer and Chief Operating Officer of QUALCOMM, and from March
      1994 to February 2002, he was the Chief Financial Officer of QUALCOMM. Prior
      to
      joining QUALCOMM, Mr. Thornley was with Nortel Networks, a telecommunications
      equipment manufacturer, for sixteen years in various financial and information
      systems management positions, including Vice President Finance and IS, Public
      Networks, Vice President Finance NT World Trade and Corporate Controller Nortel
      Limited. He has also worked for Coopers and Lybrand in public accounting. Mr.
      Thornley received his BS degree in Chemistry from the University of Manchester,
      England.




There
      are
      no family relationships among our directors and executive officers.




**Section
      16(a) Beneficial Ownership Reporting Compliance**





No
      person
      who, during the fiscal year ended December 31, 2007, was one of our directors
      or
      officers, or beneficial owner of more than ten percent of our Common Stock
      (which is the only class of securities registered under Section 12 of the
      Exchange Act), failed to file on a timely basis reports required by Section
      16
      of the Exchange Act during such fiscal year. The foregoing is based solely
      upon
      our review of Forms 3 and 4 relating to the most recent fiscal year as furnished
      to us under Rule 16a-3(d) under the Exchange Act, and Forms 5 and amendments
      thereto furnished to us with respect to our most recent fiscal year, and any
      representation received by us from any reporting person that no Form 5 is
      required.





**Code
      of Ethics**




On
      December 6, 2007, we adopted an amended and restated code of ethics and business
      conduct that applies to our principal executive officer, principal financial
      officer, or persons performing similar functions and all other employees. A
      copy
      of the amended and restated code of ethics and business conduct was filed as
      Exhibit 14 to the Registration Statement on Form SB-2 filed with the Securities
      and Exchange Commission on December 7, 2007.





**Board
      Committees**




We
      intend
      to appoint such persons to the Board of Directors and committees of the Board
      of
      Directors as are expected to be required to meet the corporate governance
      requirements imposed by a national securities exchange, although we are not
      required to comply with such requirements until we elect to seek listing on
      a
      securities exchange. We intend that a majority of our directors will be
      independent directors. Additionally, the Board of Directors is expected to
      appoint an audit committee, nominating committee and compensation committee,
      and
      to adopt charters relative to each such committee, in the near future.




**Director
      Independence**




We
      believe that Anthony S. Thornley is an “independent director,” as that term is
      defined by applicable listing standards of The Nasdaq Stock Market and
      Securities and Exchange Commission rules, including the rules relating to the
      independence standards of an audit committee and the non-employee director
      definition of Rule 16b-3 promulgated under the Exchange Act.





44




**ITEM
      10.              
EXECUTIVE COMPENSATION**





The
      following table sets forth for the periods presented certain information
      concerning all compensation earned by or awarded or paid to our principal
      executive officer, our two most highly compensated executive officers other
      than
      the principal executive officer who were serving as executive officers on
      December 31, 2007.





**Summary
      Compensation Table**




Name
            
            Year
            
            Salary ($)
            
            Stock Awards
              ($)(1)
            
            Option Awards
              ($)(2)
            
            Total
              ($)Juliet
                Singh, Ph.D.,
            
            
            2007
            
            
            116,071
            
            
            -
            
            
            32,561(4
            )
            
            148,632President
                and Chief Executive Officer
            
            
            2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -John
                T. Lomoro,
            
            
            2007
            
            
            50,000
            
            
            -
            
            
            21,321(5
            )
            
            71,321Chief
                Financial Officer
            
            
            2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balbir
                Brar, DVM, Ph.D.,
            
            
            2007
            
            
            70,000
            
            
            92,517(3
            )
            
            28,425(6
            )
            
            190,942Vice
                President
            
            
            2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -




(1)
            Amount
                reflects the compensation cost for the year ended December 31, 2007
                of the named executive officer’s stock, calculated in accordance with
                SFAS 123R. See Note 7 to our consolidated financial statements
                included herein for a discussion of assumptions made by us in determining
                the grant date fair value and compensation costs of this equity award.(2)
            Amount
                reflects the compensation cost for the year ended December 31, 2007
                of the named executive officer’s options, calculated in accordance with
                SFAS 123R and using a Black-Scholes-Merton valuation model.
                Assumptions used in the calculation of these amounts are included
                in Note
                7 to our consolidated financial statements included herein.(3)
            In
                August 2007, Transdel Pharmaceuticals Holdings, Inc. awarded 1,250,000
                shares of its restricted common stock to Dr. Brar. On September 17,
                2007,
                in connection with the merger with Transdel Pharmaceuticals, Inc.
                the
                restricted stock grant was exchanged for a restricted stock grant
                of
                195,313 shares of our common stock. These shares are subject to forfeiture
                in the event that the Dr. Brar’s employment is terminated for cause or he
                resigns without good reason prior to March 17, 2009.(4)
            On
                September 17, 2007, Dr. Singh was granted an option to purchase 200,000
                shares of our common stock at an exercise price of $2.00 per share,
                such
                option fully vests on September 17, 2010. On September 17, 2007,
                Dr. Singh
                was also granted an option to purchase 10,000 shares of our common
                at an
                exercise price of $2.00 per share, such option fully vests on September
                17, 2008.(5)
            On
                September 17, 2007, Mr. Lomoro was granted an option to purchase
                150,000
                shares of our common stock at an exercise price of $2.00 per share,
                such
                option fully vests on September 17, 2010.(6)
            On
                September 17, 2007, Dr. Brar was granted an option to purchase 200,000
                shares of our common stock at an exercise price of $2.00 per share,
                such
                option fully vests on September 17,
                2010.




45




**Outstanding
      Equity Awards at Fiscal Year-End**




The
      following table sets forth certain information concerning outstanding stock
      awards held by the Named Executive Officers as of December 31,
      2007.





**Option Awards**
            
            **Stock Awards**Name
            
            Number of
              Securities
              Underlying
              Unexercised
              Options (#)
              Exercisable
            
            Number of
              Securities
              Underlying
              Unexercised
              Options (#)
              Unexercisable
            
            Option
              Exercise
              Price ($)
            
            Option
              Expiration
              Date
            
            Number
              of Shares of Stock
              That Have
              Not
              Vested (#)
            
            Market
              Value of
              Shares of
              Stock
              That Have
              Not
              Vested ($)Juliet
                Singh, Ph.D.
            
            
            —
            
            
            200,000
            
            
            2.00
            
            
            9/16/2017
            
            
            —
            
            
            ——
            
            
            10,000
            
            
            2.00
            
            
            9/16/2017
            
            
            —
            
            
            —John
                T. Lomoro
            
            
            —
            
            
            150,000
            
            
            2.00
            
            
            9/16/2017
            
            
            —
            
            
            —Balbir
                Brar, D.V.M., Ph.D.
            
            
            —
            
            
            200,000
            
            
            2.00
            
            
            9/16/2017
            
            
            195,313
            
            
            537,111





**Employment
      Agreements**




We
      have
      entered into an employment agreement with Juliet Singh, Ph.D. to serve as our
      chief executive officer. Pursuant to this employment agreement, Dr. Singh is
      entitled to receive an annual base salary of $195,000, subject to annual reviews
      by our board of directors. Dr. Singh is also entitled to a performance-based
      bonus to be comprised of cash and/or equity compensation. If we terminate Dr.
      Singh’s employment without cause, we will continue to pay Dr. Singh, as
      severance, her then current annual base salary for one year, payable in
      accordance with standard payroll procedures and the pro-rata amount of any
      accrued annual bonus.





**2007
      Incentive Stock and Awards Plan**




On
      September 17, 2007, our board of directors and stockholders adopted the 2007
      Incentive Stock and Awards Plan (the “2007 Plan”). The purpose of the 2007 Plan
      is to provide an incentive to attract and retain directors, officers,
      consultants, advisors and employees whose services are considered valuable,
      to
      encourage a sense of proprietorship and to stimulate an active interest of
      such
      persons into our development and financial success. Under the 2007 Plan, we
      are
      authorized to issue incentive stock options intended to qualify under Section
      422 of the Internal Revenue Code of 1986, as amended, non-qualified stock
      options, stock appreciation rights, performance shares, restricted stock and
      long term incentive awards. The 2007 Plan will be administered by our board
      of
      directors until such time as such authority has been delegated to a committee
      of
      the board of directors.




As
      of March 12, 2008, there were outstanding options to purchase 610,000
      shares of our common stock, 195,313 shares of restricted stock subject to
      forfeiture outstanding under the 2007 Plan, and 694,687 shares of our common
      stock available for issuance under the 2007 Plan.




46





**Director
      Compensation**




The
      following table summarizes the compensation awarded to our directors in
      2007:


**Name**
              
              **Fees Earned or Paid in**
                **Cash**
                **($)**
              
              **Option Awards**
                **($)(1)**
              
              **Total**
                **($)**Juliet
                  Singh, Ph.D.
              
              
              —
              
              $
              4,136
              
              $
              4,136Jeffrey
                  J. Abrams, M.D.
              
              
              —
              
              $
              4,136
              
              $
              4,136Anthony
                  S. Thornley
              
              
              —
              
              $
              1,290
              
              $
              1,290




(1)


Based
      upon the aggregate grant date fair value calculated
      in accordance with SFAS 123R and using a Black-Scholes-Merton valuation
      model. Assumptions used in the calculation of these amounts are included in
      Note
      7 to our consolidated financial statements.





**ITEM
      11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
      RELATED STOCKHOLDER MATTERS**





The
      following tables set forth certain information as of March 12, 2008, regarding
      the beneficial ownership of our common stock by (i) each person or entity who,
      to our knowledge, owns more than 5% of our common stock; (ii) our Chief
      Executive Officer; (iii) each director; and (iv) all of our executive officers
      and directors as a group. Unless otherwise indicated in the footnotes to the
      following table, each person named in the table has sole voting and investment
      power with respect to shares of common stock and that person’s address is c/o
      Transdel Pharmaceuticals, Inc. 4225 Executive Square, Suite 460, La Jolla,
      California 92037. Shares of common stock subject to options, warrants, or other
      rights currently exercisable or exercisable within 60 days of March 12, 2008,
      are deemed to be beneficially owned and outstanding for computing the share
      ownership and percentage of the stockholder holding such options, warrants
      or
      other rights, but are not deemed outstanding for computing the percentage of
      any
      other stockholder.




Name of
              Beneficial Owner
            
            Number of Shares Beneficially
              Owned
            
            Percentage
              Beneficially Owned(1)The
                Abrams Family Trust
            
            
            1,562,500
                (2
            )
            
            11.4
            %Juliet
                Singh, Ph.D.
            
            
            1,953,125
            
            
            14.2
            %Jeffrey
                J. Abrams, M.D.
            
            
            -
                (3
            )
            
            -Anthony
                S. Thornley
            
            
            62,500
                (4
            )
            
            *Joseph
                Grasela(5)
            
            
            1,171,875
            
            
            8.5
            %John
                C. Grasela(5)
            
            
            1,171,875
            
            
            8.5
            %John
                T. Lomoro
            
            
            -
            
            
            -Balbir
                Brar, D.V.M., Ph. D.
            
            
            398,438
            
            
            2.9
            %All
                executive officers and directors as a group (5 persons)
            
            
            3,976,563
            
            
            29.0
            %





*  less
      than
      1%




(1)
            Based
                on 13,727,004 shares of our common stock issued and outstanding as
                of
                March 12, 2008.




(2)
            Jeffrey
                J. Abrams, M.D., a director, is a trustee of the Abrams Family Trust.
                Dr.
                Abrams has sole voting and investment control with respect to the
                shares
                of common stock owned by the Abrams Family
                Trust.




47




(3)
            Dr.
                Abrams is a trustee of the Abrams Family Trust, which owns 1,562,500
                shares of our common stock.




(4)
            Includes
                12,500 shares of common stock issuable upon the exercise of
                warrants.




(5)
            Joseph
                Grasela and John C. Grasela are adult siblings living in separate
                households.





The
      following table summarizes our compensation plans under which our equity
      securities are authorized for issuance as of December 31, 2007:





**EQUITY
      COMPENSATION PLAN INFORMATION (1)**





**Number of Shares**
              **to be Issued Upon**
              **Exercise of**
              **Outstanding**
              **Stock Options**
            
            **Weighted-**
              **Average**
              **Exercise Price**
              **of Outstanding**
              **Stock Options**
            
            **Number of Shares**
              **Remaining Available**
              **for Future Issuance**
              **Under Equity**
              **Compensation Plans**Equity
                compensation plans approved by security holders
            
            
            610,000
            
            $
            2.01
            
            
            694,687Equity
                compensation plans not approved by security holders
            
            
            -
            
            
            -
            
            
            -Total
            
            
            610,000
            
            $
            2.01
            
            
            694,687





(1)
      See
      footnote 7 in the consolidated financial statements included herein for
      information related to the equity compensation plans.





**ITEM
      12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE**





On
      August
      25, 2005, we borrowed $36,500 from Dr. Abrams, a director, and issued Dr. Abrams
      a convertible promissory note in the original principal amount of $36,500 and
      warrants to purchase 5,703 shares of the Company’s common stock at an exercise
      price of $0.006 per share. On May 7, 2007, Dr. Abrams forgave the principle
      amount of the convertible promissory note and all accrued interest thereon
      and
      agreed to the cancellation of the warrant. Dr. Abrams did not receive any shares
      of common stock or other consideration in exchange for the forgiving the
      promissory note or the cancellation of the warrant.




On
      August
      25, 2005, we borrowed $5,000 from Dr. Singh, a director and our chief executive
      officer, and issued Dr. Singh a convertible promissory note in the original
      principal amount of $5,000 and warrants to purchase 781 shares of Transdel
      Pharmaceuticals Holdings, Inc.’s common stock at an exercise price of $0.006 per
      share. On May 7, 2007, Dr. Singh forgave the principle amount of the convertible
      promissory note and all accrued interest thereon and agreed to the cancellation
      of the warrant. Dr. Singh did not receive any shares of common stock or other
      consideration in exchange for the forgiving the promissory note or the
      cancellation of the warrant.




On
      January 10, 2007, Balbir Brar, D.V.M., Ph.D., our vice president of research
      and
      development, purchased 140,625 shares of our common stock pursuant to a
      restricted stock purchase Agreement for an aggregate purchase price of $9,000.





On
      February 27, 2007, the Abrams Family Trust, of which Dr. Abrams is a trustee,
      purchased 937,500 shares of our common stock pursuant to a restricted stock
      purchase agreement for an aggregate purchase price of $6,000.




48




On
      March
      20, 2007, Dr. Singh purchased 1,250,000 shares of our common stock pursuant
      to a
      Restricted Stock Purchase Agreement for an aggregate purchase price of $8,000,
      which was paid by the cancellation of indebtedness in the amount of $8,000
      owed
      to Dr. Singh.




49




**ITEM
      13.              
EXHIBITS**





**Exhibit No.**
            
            **Description**2.1
            
            Agreement
                and Plan of Merger, dated as of September 17, 2007, by and among
                Transdel
                Pharmaceuticals, Inc., Transdel Pharmaceuticals Holdings, Inc. and
                Trans-Pharma Acquisition Corp. Incorporation (incorporated herein
                by
                reference to Exhibit 2.1 the Current Report on Form 8-K of Transdel
                Pharmaceuticals, Inc. filed with the Securities and Exchange Commission
                on
                September 21, 2007).3.1
            
            Amended
                and Restated Certificate of Incorporation (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 September 13,
                2007)3.2
            
            Amended
                and Restated Bylaws (incorporated herein by reference to Exhibit
                3.2 to
                the Company’s Current Report on Form 8-K filed with the Securities and
                Exchange Commissions September 13, 2007)10.1
            
            Form
                of September 2007 and October 2007 Private Offering Subscription
                Agreement
                (incorporated herein by reference to Exhibit 10.1 the Current Report
                on
                Form 8-K of Transdel Pharmaceuticals, Inc. filed with the Securities
                and
                Exchange Commission on September 21, 2007)10.2
            
            Form
                of Warrant to purchase Common Stock (incorporated herein by reference
                to
                Exhibit 10.2 the Current Report on Form 8-K of Transdel Pharmaceuticals,
                Inc. filed with the Securities and Exchange Commission on September
                21,
                2007)10.3
            
            Registration
                Rights Agreement dated October 10, 2007, by and between Transdel
                Pharmaceuticals, Inc. and each of the investors signatory thereto
                (incorporated herein by reference to Exhibit 10.3 the Current Report
                on
                Form 8-K of Transdel Pharmaceuticals, Inc. filed with the Securities
                and
                Exchange Commission on September 21, 2007)10.4
            
            Placement
                Agent Agreement, dated September 17, 2007, between Transdel
                Pharmaceuticals Holdings, Inc. and Granite Financial Group, LLC
                (incorporated herein by reference to Exhibit 10.5 the Current Report
                on
                Form 8-K of Transdel Pharmaceuticals, Inc. filed with the Securities
                and
                Exchange Commission on September 21, 2007)10.5
            
            Placement
                Agent Agreement, dated September 17, 2007, between Transdel
                Pharmaceuticals Holdings, Inc. and WFG Investments, Inc. (incorporated
                herein by reference to Exhibit 10.6 the Current Report on Form 8-K
                of
                Transdel Pharmaceuticals, Inc. filed with the Securities and Exchange
                Commission on September 21, 2007)10.6
            
            Placement
                Agent Agreement, dated September 17, 2007, by and between Transdel
                Pharmaceuticals Holdings, Inc. and Palladium Capital Advisors, LLC
                (incorporated herein by reference to Exhibit 10.7 the Current Report
                on
                Form 8-K of Transdel Pharmaceuticals, Inc. filed with the Securities
                and
                Exchange Commission on September 21, 2007)10.7
            
            Form
                of Directors and Officers Indemnification Agreement (incorporated
                herein
                by reference to Exhibit 10.8 the Current Report on Form 8-K of Transdel
                Pharmaceuticals, Inc. filed with the Securities and Exchange Commission
                on
                September 21, 2007)10.8
            
            Assignment
                of Employment Agreement, dated September 17, by and among Transdel
                Pharmaceuticals Holdings, Inc., Transdel Pharmaceuticals, Inc. and
                Juliet
                Singh, Ph.D. (incorporated herein by reference to Exhibit 10.9 the
                Current
                Report on Form 8-K of Transdel Pharmaceuticals, Inc. filed with the
                Securities and Exchange Commission on September 21,
                2007)10.9
            
            Employment
                Agreement, dated June 27, 2007, by and between Transdel Pharmaceuticals
                Holdings, Inc. and Juliet Singh, Ph.D. (incorporated herein by reference
                to Exhibit 10.10 the Current Report on Form 8-K of Transdel
                Pharmaceuticals, Inc. filed with the Securities and Exchange Commission
                on
                September 21, 2007)




50




10.10
            
            Transdel
                Pharmaceuticals, Inc. 2007 Incentive Stock and Awards Plan (incorporated
                herein by reference to Exhibit 10.11 the Current Report on Form 8-K
                of
                Transdel Pharmaceuticals, Inc. filed with the Securities and Exchange
                Commission on September 21, 2007)10.11
            
            Form
                of 2007 Incentive Stock Option Agreement (incorporated herein by
                reference
                to Exhibit 10.12 the Current Report on Form 8-K of Transdel
                Pharmaceuticals, Inc. filed with the Securities and Exchange Commission
                on
                September 21, 2007)10.12
            
            Form
                of 2007 Non-Qualified Stock Option Agreement (incorporated herein
                by
                reference to Exhibit 10.13 the Current Report on Form 8-K of Transdel
                Pharmaceuticals, Inc. filed with the Securities and Exchange Commission
                on
                September 21, 2007)10.13
            
            Stock
                Purchase Agreement, dated as of September 17, 2007, by and between
                Transdel Pharmaceuticals, Inc. and Rolf Harms. (incorporated herein
                by
                reference to Exhibit 10.14 to the Registration Statement on Form
                SB-2 of
                Transdel Pharmaceuticals, Inc. filed with the Securities and Exchange
                Commission on December 7, 2007)10.14
            
            Agreement
                of Conveyance, Transfer and Assignment of Assets and Assumption of
                Obligations, dated as of September 17, 2007, by and between Transdel
                Pharmaceuticals, Inc. and Bywater Resources Holdings Inc. (incorporated
                herein by reference to Exhibit 10.15 to the Registration Statement
                on Form
                SB-2 of Transdel Pharmaceuticals, Inc. filed with the Securities
                and
                Exchange Commission on December 7, 2007)10.15
            
            Form
                of Lock-Up Agreement (incorporated herein by reference to Exhibit
                10.4 to
                the Current Report on Form 8-K of Transdel Pharmaceuticals, Inc.
                filed
                with the Securities and Exchange Commission on September 21,
                2007)10.16
            
            Research
                and Development Services Agreement, dated October 11, 2007, by and
                between
                DPT Laboratories, Ltd. And Transdel Pharmaceuticals Holdings, Inc.
                (incorporated herein by reference to Exhibit 10.17 to the Registration
                Statement on Form SB-2 of Transdel Pharmaceuticals, Inc. filed with
                the
                Securities and Exchange Commission on December 7, 2007) (portions
                of this
                exhibit have been omitted pursuant to a request for confidential
                treatment).10.17
            
            Project
                Scope Document, effective May 30, 2007, by and between DPT
                Laboratories, Ltd. and Transdel Pharmaceuticals Holdings, Inc.
                (incorporated herein by reference to Exhibit 10.18 to the Registration
                Statement on Form SB-2 of Transdel Pharmaceuticals, Inc. filed with
                the
                Securities and Exchange Commission on December 27, 2007) (portions
                of this
                exhibit have been omitted pursuant to a request for confidential
                treatment).14
            
            Amended
                and Restated Code of Ethics and Business Conduct (incorporated herein
                by
                reference to Exhibit 14 to the Registration Statement on Form SB-2
                of
                Transdel Pharmaceuticals, Inc. filed with the Securities and Exchange
                Commission on December 7, 200721
            
            List
                of Subsidiaries (incorporated herein by reference to Exhibit 21 the
                Current Report on Form 8-K of Transdel Pharmaceuticals, Inc. filed
                with
                the Securities and Exchange Commission on September 21,
                2007)




51




31.1
            
            Section
                302 Certification of Principal Executive Officer31.2
            
            Section
                302 Certification of Principal Financial Officer32
            
            Section
                906 Certification of Principal Executive Officer and Principal Financial
                Officer





52




**ITEM
      14.              
PRINCIPAL ACCOUNTANT FEES AND SERVICES**




Aggregate
      fees for professional services rendered to the company by KMJ Corbin &
Company LLP for the years ended December 31, 2007 and 2006,
      were:





**2007**
            
            **2006**Audit
                Fees
            
            $
            67,100
            
            $
            —




The *Audit Fees* for the
      years ended December 31, 2007 and 2006 were for professional services
      rendered for audits and quarterly reviews of our consolidated financial
      statements, and assistance with reviews of registration statements and documents
      filed with the SEC. There were no tax fees or other fees billed by our principal
      accountant.





53




**SIGNATURES**




In
      accordance with the requirements of Section 13 of 15(d) of the Exchange Act,
      the
      registrant caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized.




TRANSDEL
                PHARMACEUTICALS, INC.By:
            /s/
              Juliet SinghName:
                Juliet Singh, Ph.D.Title:
                Chief Executive OfficerDate:
                March 26, 2008




In
      accordance with the requirements of the Exchange Act, 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/
              Juliet Singh
            
            
            
            March
                26, 2008Juliet
                Singh, Ph.D.
            
            President,
                Chief Executive Officer and Director
              (Principal
                Executive Officer)/s/
                John T. Lomoro
            
            
            
            March
                26, 2008John
                T. Lomoro
            
            Chief
                Financial Officer (Principal Accounting and Financial
                Officer)/s/
                Jeffrey J. Abrams
            
            
            
            March
                26, 2008Jeffrey
                J. Abrams, M.D.
            
            Director/s/
                Anthony S. Thornley
            
            
            
            March
                26, 2008Anthony
                S. Thornley
            
            Director





54