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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 OR
 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: 000-52998
 Transdel Pharmaceuticals, Inc.
  Delaware
    
    45-0567010(State or Other Jurisdiction of Incorporation
    
    (I.R.S. Employer Identification No.)or Organization)
 4225 Executive Square, Suite 485La Jolla, CA
    
    92037(Address of Principal Executive Offices)
    
    (Zip Code)
 (858) 457-5300
    Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, $0.001 par value per share
    
    None
 o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 PART IItem 1.
    
    Description of Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    8Item 2.
    
    Properties
    
    
    16Item 3.
    
    Legal Proceedings
    
    
    16Item 4.
    
    Reserved
    
    
    16PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    17Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 8.
    
    Financial Statements and Supplementary Data
    
    
    22Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
    
    
    22Item 9A(T).
    
    Controls and Procedures
    
    
    22Item 9B.
    
    Other Information
    
    
    23PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    24Item 11.
    
    Executive Compensation
    
    
    26Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    29Item 13.
    
    Certain Relationships and Related Transactions and Director Independence
    
    
    30Item 14.
    
    Principal Accountant Fees and Services
    
    
    31PART IVItem 15.
    

Exhibits
and Financial Statement Schedules
    
    
    31SIGNATURES
    
    
    
    
    34EX-10.21EX-23.1EX-31.1EX-32




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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS




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PART I
 
 ITEM 1.
    
    DESCRIPTION OF BUSINESS
 Company Overview
 ®
  Corporate History
      Ketotransdel®
   - 1 -




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Clinical Program for Ketotransdel®
 th
   ®
     Cosmeceutical/Cosmetic Product Development Program
 TM
  - 2 -




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Other Product Development Programs
 ®
 Market and Opportunity
  ®
 The Transdel Technology
  
  
    
    Maximizes solubilization of drugs and components (lipophilic, hydrophilic and amphiphilic);
    
    Uses synergistic mechanisms to enhance penetration so that more effective concentrations
of the beneficial drug or substances reach the dermal and subcutaneous tissue layers of
the skin;
    
    Compatible with a broad range of drugs and molecular sizes;
    
    Biocompatible  Components generally regarded as safe (GRAS);
    
    Thermodynamically stable, insensitive to moisture and resistant to microbial contamination;
    
    Clinical data collected to date supports safety and efficacy;
    
    Potentially result in decreased safety concerns which are
associated with oral drugs, such as stomach irritation;
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
    
    Not associated with limitations of transdermal patches;
    
    The patent for Transdel specifically lists over 500 different
drugs in over 60 therapeutic areas, including both approved and
established drugs;
    
    Ease of application, aesthetically acceptable and odorless; and
    
    Potentially produces patentable new products when combined with
established drugs or new drugs.
 Competition
   Third Party Service Agreements
  Governmental Regulation
    - 4 -




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FDA Approval Process
    
    
    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.
    Section 505(b)(2) New Drug Applications
  - 5 -




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®
 Quality Assurance Requirements
   - 6 -




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Other FDA Matters
  Intellectual Property
  Summary of Recent Events
   Employees
  SEC Filings; Internet Address
   - 7 -




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ITEM 1A.
    
    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-K. 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 Ketotransdel® and our Transdel
technology since inception. No assurance can be given that we will ever generate revenue or become
profitable.
   The report of our independent registered public accounting firm on our 2009 consolidated
financial statements contains a going concern modification, and we will need additional financing
to execute our business plan, fund our operations and to continue as a going concern, which
additional financing may not be available on a timely basis, or at all.
    - 8 -




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We may not be able to correctly estimate our future operating expenses, which could lead to
cash shortfalls.
  
    
    the time and resources required to develop, conduct clinical trials and obtain
regulatory approvals for our drug candidates;
    
    the costs to attract and retain personnel with the skills required for effective
operations; and
    
    the costs of preparing, filing, prosecuting, defending and enforcing patent
claims and other patent related costs, including litigation costs and the results of
such litigation.
 Timing and results of clinical trials to demonstrate the safety and efficacy of products as
well as FDA approval of products are uncertain.
   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.
  
    
    issue warning letters;
    
    impose civil or criminal penalties;
    
    suspend or withdraw our regulatory approval;
    
    suspend or terminate any of our ongoing clinical trials;
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
    
    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.
   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.
  
    
    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.
  None of our pharmaceutical product candidates, other than Ketotransdel®, have commenced
clinical trials.
 ®
 Once approved, there is no guarantee that the market will accept our products, and regulatory
requirements could limit the commercial usage of our products.
  - 10 -




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We may be subject to product liability claims.
   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.
  
    
    obtain and maintain patent protection with respect to our products;
    
    prevent third parties from infringing upon our proprietary rights;
    
    maintain trade secrets;
    
    operate without infringing upon the patents and proprietary rights of others; and
    
    obtain appropriate licenses to patents or proprietary rights held by third
parties if infringement would otherwise occur, both in the U.S. and in foreign
countries.
     The use of our technologies could potentially conflict with the rights of others.
  - 11 -




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We will be dependent on outside manufacturers in the event that we successfully develop our
product candidates into commercial 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.
    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.
   Our cosmetic/cosmeceutical product development program may not be successful.
 TM
 - 12 -




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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.
  If we are unable to retain our key personnel or attract additional professional staff, we may
be unable to maintain or expand 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.
  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.
  - 13 -




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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.
   Changes in the healthcare industry that are beyond our control may be detrimental to 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.
  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.
  Public company compliance may make it more difficult to attract and retain officers and
directors.
  - 14 -




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Our stock price may be volatile.
  
    
    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.
  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.
  Our common stock is classified as a penny stock, which makes it more difficult for our
investors to sell their shares.
   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.
  - 15 -




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ITEM 2.
    
    PROPERTIES
 Facilities
   
 ITEM 3.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    RESERVED
 - 16 -




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PART II
 
 ITEM 5.  MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
 Market Information
   Fiscal Year 2009
    
    High
    
    LowFirst Quarter
    
    $
    1.10
    
    
    $
    0.60Second Quarter
    
    $
    1.70
    
    
    $
    0.65Third Quarter
    
    $
    1.99
    
    
    $
    0.80Fourth Quarter
    
    $
    4.00
    
    
    $
    1.06
 Fiscal Year 2008
    
    High
    
    LowFirst Quarter
    
    $
    2.94
    
    
    $
    1.05Second Quarter
    
    $
    1.98
    
    
    $
    1.10Third Quarter
    
    $
    1.75
    
    
    $
    1.00Fourth Quarter
    
    $
    1.39
    
    
    $
    0.55
 Holders
  Dividends
  Recent Sales of Unregistered Securities
  - 17 -




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 This report contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. For this purpose, any statements
contained herein regarding our strategy, future operations, financial position, future revenues,
projected costs and expenses, prospects, plans and objectives of management, other than statements
of historical facts, are forward-looking statements. The words anticipate, believes,
estimates, intends, may, plans, will, would and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements contain these
identifying words. Such statements reflect our current views with respect to future events. We
cannot guarantee that we actually will achieve the plans, intentions, or expectations disclosed in
our forward-looking statements. There are a number of important factors that could cause actual
results or events to differ materially from those disclosed in the expressed or implied
forward-looking statements we make. These important factors include our critical accounting
policies and estimates and the risk factors set forth above in Part I, Item 1A  Risk Factors.
Although we may elect to update forward-looking statements in the future, we specifically disclaim
any obligation to do so, even if our estimates change. Readers should not rely on those
forward-looking statements as representing our views as of any date subsequent to the date of this
Annual Report.
 Overview
    Plan of Operations
  Clinical Program for Ketotransdel®
   ®
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Cosmeceutical/Cosmetic Product Development Program
 TM
  Other Product Development Programs
   Results of Operations
 Comparisons of Years Ended December 31, 2009 and 2008
 Selling, General and Administrative Expenses
  - 19 -




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Year ended December 31,
    
    
    $2009
    
    
    2008
    
    
    VarianceSelling, general and
administrative
    
    $
    1,598,369
    
    
    $
    1,755,731
    
    
    $
    (157,362
    )
  
    
    The primary reason for the decrease in investor relations expense was due to the lower
amount of amortization, approximately $260,000, related to the value of stock-based
compensation for stock and warrants previously issued to investor relations firms. The
decrease in legal fees of approximately $100,000 is due to a lower amount of legal activity
and related expense during the current period in comparison to the same period last year.
Also, travel and entertainment expenses decreased by approximately $20,000.
    
    The increase in personnel expenses of approximately $110,000 is due to an increase in
wages (as of July 1, 2008) and additional stock-based compensation granted to employees and
board members in the second and fourth quarters of 2008 and during the second quarter of
2009. Consulting expenses increased by approximately $70,000 primarily related to
stock-based compensation and monthly fees for business development consulting services.
Insurance costs increased by approximately $30,000 from two product liability policies that
we obtained in the latter part of the second quarter 2008 and in the fourth quarter of 2008
for our Phase 3 clinical trial and our cosmeceutical products as well as other incremental
insurance costs.
 Research and Development Expenses
   Year ended December 31,
    
    
    $2009
    
    
    2008
    
    
    VarianceResearch and development
    
    $
    2,965,707
    
    
    $
    1,990,665
    
    
    $
    975,042
  
    
    During the current period, we recognized an increase of approximately $1.5 million of
expenses related to the current Phase 3 study, primarily related to the investigator
payments owed to the clinical sites for the patients they enrolled in the study and the
fees incurred by our contract research organization for their services provided in
conducting the study. Also, we recognized an increase of approximately $200,000 for
consulting services related to the management of the Phase 3 trial and data analysis on the
Phase 3 results.
    
    The decrease in personnel expenses of approximately $350,000 was primarily related to
stock-based compensation and wages of former employees recognized in the prior year,
partially offset by such expenses for our chief medical officer who joined us in October
2009. Also, during the same period in the prior year, we recognized approximately $410,000
of expenses related to contract manufacturing activities and non-clinical studies for the
Phase 3 clinical program which were not incurred in the current period.
 Interest Income
  - 20 -




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Gain on Settlement
  Liquidity and Capital Resources
       Critical Accounting Policies
  - 21 -




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Stock-Based Compensation.
  Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
   
 ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
 ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
  
 Item 9A
    
    (T). CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  - 22 -




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Managements Annual Report on Internal Control over Financial Reporting
     Changes in Internal Control over Financial Reporting
  Inherent Limitations on Effectiveness of Controls
  
 ITEM 9B.
    
    OTHER INFORMATION
  - 23 -




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PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Executive Officers and Directors
  Name
    
    Age
    
    PositionJohn T. Lomoro
    
    
    40
    
    
    Acting Chief Executive Officer and Chief Financial OfficerJoachim Schupp, M.D.
    
    
    57
    
    
    Chief Medical OfficerTerry Nida
    
    
    61
    
    
    Chief Business OfficerJeffrey J. Abrams, M.D.
    
    
    62
    
    
    Chairman of the BoardAnthony S. Thornley
    
    
    63
    
    
    DirectorLynn C. Swann
    
    
    57
    
    
    Director
  Biographies
 John T. Lomoro
 Joachim Schupp, M.D.
 Terry Nida
 Jeffrey J. Abrams, M.D., MPH,
 - 24 -




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Anthony S. Thornley
 Lynn C. Swann
  Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
  Director Independence
  Board Committees
   - 25 -




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Audit Review.
 Executive Compensation.
 Nominating and Corporate Governance.
   Risk Oversight.
 
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  Summary Compensation Table
 Stock Awards
    
    Option Awards
    
    TotalName
    
    Year
    
    Salary ($)
    
    ($)
    
    ($)(1)
    
    ($)Juliet Singh, Ph.D., (2)
    
    
    2009
    
    
    
    225,000
    
    
    
    
    
    
    
    210,361
    
    
    
    435,361President and Chief Executive Officer
    
    
    2008
    
    
    
    210,000
    
    
    
    
    
    
    
    140,167
    
    
    
    350,167John T. Lomoro,
    
    
    2009
    
    
    
    170,000
    
    
    
    
    
    
    
    105,181
    
    
    
    275,181Chief Financial Officer
    
    
    2008
    
    
    
    160,000
    
    
    
    
    
    
    
    70,083
    
    
    
    230,083Joachim P.H. Schupp, M.D. (3)
Chief Medical Officer
    
    
    2009
    
    
    
    40,269
    
    
    
    
    
    
    
    220,404
    
    
    
    260,673
 
 (1)
    
    Reflects the dollar amount of the grant date fair value of awards
granted during the respective fiscal years, measured in accordance
with guidance from the Financial Accounting Standards Board (FASB).
As a result of changes to the rules relating to these disclosures, the
fiscal year 2008 amounts have been revised from the amounts reported
in our previous Form 10-K to reflect the grant date fair value of the
options granted, rather than the expense recognized for financial
reporting purposes. The assumptions used in the calculations for
these amounts are described in Note 7 to our consolidated financial
statements included herein. - 26 -




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(2)
    
    Effective February 17, 2010, the Board of Directors of the
Company accepted the resignation of Dr. Juliet Singh as Chief
Executive Officer and as a director on the Board.(3)
    
    On October 12, 2009, Joachim P.H. Schupp, M.D. was appointed as
our Chief Medical Officer. In association with his
appointment, Dr. Schupp was awarded an option for 215,000 shares
of common stock at an exercise price of $1.70, which vests
quarterly over a three year period. Prior to his appointment,
Dr. Schupp was retained by the company as a consultant in April
2009. Not included above is the compensation earned by Dr.
Schupp as a consultant for the company which included a monthly
cash retainer and an option for 85,000 shares of common stock at
an exercise price of $1.60 that was awarded to him in June 2009.
This option vests over a one-year period and had a grant date
fair value of approximately $97,000 (as adjusted for
modifications made to this award upon appointment as our Chief
Medical Officer). Outstanding Equity Awards at Fiscal Year-End
  Option Awards (1)Number of
    
    
    Number ofSecurities
    
    
    SecuritiesUnderlying
    
    
    UnderlyingUnexercised
    
    
    Unexercised
    
    
    Option
    
    
    OptionOptions (#)
    
    
    Options (#)
    
    
    Exercise
    
    
    ExpirationName
    
    Exercisable
    
    
    Unexercisable
    
    
    Price ($)
    
    
    DateJuliet Singh, Ph.D. (2)
    
    
    33,333
    
    
    
    166,667
    
    
    
    1.60
    
    
    
    6/18/2019100,000
    
    
    
    100,000
    
    
    
    2.00
    
    
    
    4/23/201810,000
    
    
    
    
    
    
    
    2.00
    
    
    
    9/16/2017150,000
    
    
    
    50,000
    
    
    
    2.00
    
    
    
    9/16/2017John T. Lomoro
    
    
    16,667
    
    
    
    83,333
    
    
    
    1.60
    
    
    
    6/18/201950,000
    
    
    
    50,000
    
    
    
    2.00
    
    
    
    4/23/2018112,500
    
    
    
    37,500
    
    
    
    2.00
    
    
    
    9/16/2017Joachim P.H. Schupp, M.D.
    
    
    
    
    
    
    215,000
    
    
    
    1.70
    
    
    
    10/14/201955,000
    
    
    
    30,000
    
    
    
    1.60
    
    
    
    6/18/2019
 
 (1)
    
     All options vest on a quarterly basis over their respective vesting term.(2)
    
     As noted below, as of February 17, 2010, in accordance with the separation agreement entered into with Dr. Singh, 300,000 stock options
that were unvested as of the resignation date became fully vested. Employment Agreement
   - 27 -




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2007 Incentive Stock and Awards Plan
   Director Compensation
  Fees Earnedor Paid inCash
    
    
    Stock Awards
    
    
    Option Awards
    
    
    TotalName
    
    Year
    
    
    ($)
    
    
    ($)(1)(6)
    
    
    ($)(2)(6)
    
    
    ($)Juliet Singh, Ph.D.
    
    
    2009
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2008
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Jeffrey J. Abrams,
M.D. (3)
    
    
    2009
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2008
    
    
    $
    
    
    
    $
    
    
    
    $
    37,300
    
    
    $
    37,300Anthony S. Thornley (4)
    
    
    2009
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2008
    
    
    $
    
    
    
    $
    
    
    
    $
    37,300
    
    
    $
    37,300Lynn C. Swann (5)
    
    
    2009
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2008
    
    
    $
    
    
    
    $
    17,500
    
    
    $
    48,288
    
    
    $
    65,788
 
 (1)
    
    In November 2008, the Company awarded 25,000 shares of its restricted common stock to Mr.
Swann upon his appointment to the Board of Directors.(2)
    
    In November 2008, each member of the Board of Directors, except Dr. Singh, was awarded an
option for 80,000 shares of common stock at an exercise price of $0.70, which vests
quarterly over a five year period. Also, in November 2008, upon his appointment, the Board
of Directors granted Mr. Swann an option to purchase 25,000 shares of common stock at an
exercise price of $0.70, which vested quarterly over a 1 year period.(3)
    
    As of December 31, 2009, Dr. Abrams held 90,000 stock options, of which 26,000 were vested.(4)
    
    As of December 31, 2009, Mr. Thornley held 90,000 stock options, of which 26,000 were vested.(5)
    
    As of December 31, 2009, Mr. Swann held 105,000 stock options and 25,000 shares of
restricted common stock, of which 41,000 and 25,000 were vested, respectively.(6)
    
    Reflects the dollar amount of the grant date fair value of awards granted during the
respective fiscal years, measured in accordance with FASB guidance. As a result of changes
to the rules relating to these disclosures, the fiscal year 2008 amounts have been revised
from the amounts reported in our previous Form 10-K to reflect the grant date fair value of
the options or stock granted, rather than the expense recognized for financial reporting
purposes. The assumptions used in the calculations for these amounts are described in Note
7 to our consolidated financial statements included herein. - 28 -




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##### Table of Contents



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  Name of
    
    Number of Shares Beneficially
    
    
    PercentageBeneficial Owner
    
    Owned
    
    
    Beneficially Owned (1)Juliet Singh, Ph.D.
    
    
    2,564,125
    (6)
    
    
    15.8
    %Jeffrey J. Abrams, M.D.
    
    
    1,592,500
    (2)
    
    
    10.2
    %The Abrams Family Trust
    
    
    1,562,500
    (3)
    
    
    Anthony S. Thornley
    
    
    103,400
    (4)
    
    
    *Lynn C. Swann
    
    
    70,000
    (5)
    
    
    *John T. Lomoro
    
    
    216,667
    (7)
    
    
    1.4
    %Joachim Schupp, M.D.
    
    
    105,833
    (7)
    
    
    *Terry Nida
    
    
    
    
    
    
    Joseph Grasela(8)
    
    
    1,171,875
    
    
    
    7.5
    %John C. Grasela(8)
    
    
    1,171,875
    
    
    
    7.5
    %All executive officers and directors as a group (5 persons)
    
    
    2,088,400
    
    
    
    13.0
    %
 
 *
    
    less than 1%(1)
    
    Based on 15,652,061 shares of our common stock issued and outstanding as of March 15, 2010.(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.
Includes 30,000 shares of common stock issuable upon the exercise of
stock options.(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 and 30,000 shares of common stock issuable upon the exercise of warrants and stock options, respectively.(5)
    
    Includes 45,000 shares of common stock issuable upon the exercise of stock options and 25,000 shares of restricted stock.(6)
    
    Includes 610,000 shares of common stock issuable upon the exercise of stock options.(7)
    
    Total amount includes shares of common stock issuable upon the exercise of stock options.(8)
    
    Joseph Grasela and John C. Grasela are adult siblings living in separate households. - 29 -




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##### Table of Contents



EQUITY COMPENSATION PLAN INFORMATION (1)
 Number of Shares
    
    
    Weighted-
    
    
    Number of Sharesto be Issued Upon
    
    
    Average
    
    
    Remaining AvailableExercise of
    
    
    Exercise Price
    
    
    for Future IssuanceOutstanding
    
    
    of Outstanding
    
    
    Under EquityStock Options
    
    
    Stock Options
    
    
    Compensation PlansEquity compensation
plans approved by
security holders
    
    
    1,605,000
    
    
    $
    1.64
    
    
    
    1,074,687Equity compensation
plans not approved
by security holders
    
    
    5,000
    
    
    
    2.00
    
    
    
    Total
    
    
    1,610,000
    
    
    $
    1.64
    
    
    
    1,074,687
 
 (1)
    
    See footnote 7 in the consolidated financial statements included herein for information
related to the equity compensation plans. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
   Director and Officer Indemnification Agreements
  Executive and Director Compensation
  Separation Agreement and General Release
  - 30 -




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##### Table of Contents



Company Policy Regarding Related Party Transactions
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  2009
    
    
    2008Audit Fees
    
    $
    74,250
    
    
    $
    98,750
 Audit Fees
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    List of the following documents filed as part of the report:
 (1)
    
    See the index to our consolidated financial statements on page F-1 for
a list of the financial statements being filed herein.(2)
    
    All financial statement schedules are omitted because they are not
applicable or the required information is shown in the consolidated
financial statements or other notes thereto.(3)
    
    See the Exhibits under Item 15(b) below for all Exhibits being filed or incorporated by reference herein.
 (b)
    
    Exhibits:
 Exhibit No.
    
    Description2.1
    
    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 Commission September
13, 2007)
 - 31 -




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##### Table of Contents



Exhibit No.
    
    Description10.1
    
    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)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)
 - 32 -




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##### Table of Contents



Exhibit No.
    
    Description10.16
    
    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)10.18
    
    Form of May 2008 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 May 15, 2008)10.19
    
    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 May 15, 2008)10.20
    
    Clinical Trial Services Agreement by and between Transdel
Pharmaceuticals, Inc. and Cato Research Ltd. (incorporated herein
by reference to Exhibit 10.1 in the Quarterly Report on Form 10-Q
of Transdel Pharmaceuticals, Inc. filed with the Securities and
Exchange Commission on August 11, 2008)10.21
    
    Separation Agreement and General Release between Juliet Singh and
Transdel Pharmaceuticals, Inc. dated February 17, 201014
    
    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, 2007)21
    
    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)23.1
    
    Consent of KMJ Corbin & Company LLP31.1
    
    Section 302 Certification of
Principal Executive Officer and Principal Financial Officer32
    
    Section 906 Certification of Principal Executive Officer and Principal Financial Officer
 (c)
    
    Financial Statement Schedules
  - 33 -




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##### Table of Contents



SIGNATURES
  TRANSDEL PHARMACEUTICALS, INC.By:
    /s/ John LomoroName:
    John LomoroTitle:
    Acting Chief Executive Officer and
Chief Financial OfficerDate:
    March 31, 2010  Signature
    
    Title
    
    Date/s/ John T. Lomoro

John T. Lomoro
    
    Acting Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Accounting and
Financial Officer)
    
    March 31, 2010/s/ Jeffrey J. Abrams

Jeffrey J. Abrams, M.D.
    
    Chairman
of the Board
    
    March 31, 2010/s/ Anthony S. Thornley

Anthony S. Thornley
    
    Director
    
    March 31, 2010/s/ Lynn C. Swann

Lynn C. Swann
    
    Director
    
    March 31, 2010
 - 34 -




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##### Table of Contents



FINANCIAL STATEMENTS
 Transdel Pharmaceuticals, Inc.
(A Development Stage Company)
 Index to Consolidated Financial Statements
 Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets at December 31, 2009 and 2008
    
    
    F-3Consolidated Statements of Operations for the Years Ended December 31,
2009 and 2008 and for the Period from July 24, 1998 (Inception)
Through December 31, 2009
    
    
    F-4Consolidated Statements of Stockholders Equity for the Years Ended
December 31, 2009 and 2008 and for the Period from July 24, 1998
(Inception) Through December 31, 2009
    
    
    F-5Consolidated Statements of Cash Flows for the Years Ended December 31,
2009 and 2008 and for the Period from July 24, 1998 (Inception)
Through December 31, 2009
    
    
    F-8Notes to the Consolidated Financial Statements
    
    
    F-9
 F-1




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F-2




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
 
 CONSOLIDATED BALANCE SHEETS
 December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,589,773
    
    
    $
    5,111,031Prepaid consulting fees
    
    
    
    
    
    
    29,048Prepaid expenses and other current assets
    
    
    80,917
    
    
    
    193,306Total current assets
    
    
    1,670,690
    
    
    
    5,333,385Computer equipment, net
    
    
    1,394
    
    
    
    2,450Total assets
    
    $
    1,672,084
    
    
    $
    5,335,835LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    681,014
    
    
    $
    556,390Accrued Phase 3 expenses
    
    
    343,633
    
    
    
    141,952Accrued expenses and payroll liabilities
    
    
    70,226
    
    
    
    65,651Total current liabilities
    
    
    1,094,873
    
    
    
    763,993Commitments 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, 15,652,061 and 15,556,283 shares
outstanding as of December 31, 2009 and 2008,
respectively
    
    
    15,652
    
    
    
    15,556Additional paid-in capital
    
    
    15,497,128
    
    
    
    14,938,219Deficit accumulated during the development stage
    
    
    (14,935,569
    )
    
    
    (10,381,933
    )Total stockholders equity
    
    
    577,211
    
    
    
    4,571,842Total liabilities and stockholders equity
    
    $
    1,672,084
    
    
    $
    5,335,835
 See accompanying notes to these consolidated financial statements.
 F-3




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the PeriodFrom July 24,1998 (Inception)ThroughYear Ended December 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009Operating expenses:Selling, general and administrative
    
    $
    1,598,369
    
    
    $
    1,755,731
    
    
    $
    6,437,681Research and development
    
    
    2,965,707
    
    
    
    1,990,665
    
    
    
    7,514,116Operating loss
    
    
    4,564,076
    
    
    
    3,746,396
    
    
    
    13,951,797Other income (expense):Interest expense
    
    
    
    
    
    
    
    
    
    
    (1,575,755
    )Interest income
    
    
    10,440
    
    
    
    67,008
    
    
    
    127,069Gain on settlement
    
    
    
    
    
    
    375,000
    
    
    
    375,000Gain on forgiveness of liabilities
    
    
    
    
    
    
    
    
    
    
    89,914Total other income (expense), net
    
    
    10,440
    
    
    
    442,008
    
    
    
    (983,772
    )Net loss
    
    $
    (4,553,636
    )
    
    $
    (3,304,388
    )
    
    $
    (14,935,569
    )Basic and diluted loss per common share
    
    $
    (0.29
    )
    
    $
    (0.22
    )Weighted average common shares outstanding, basic and diluted
    
    
    15,612,993
    
    
    
    14,822,062
 See accompanying notes to these consolidated financial statements.
 F-4




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 AND FOR THE PERIOD FROM JULY 24, 1998
(INCEPTION) THROUGH DECEMBER 31, 2009
 DeficitAccumulatedAdditional
    
    
    During the
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Development
    
    
    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
 F-5




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 AND FOR THE PERIOD FROM JULY 24, 1998
(INCEPTION) THROUGH DECEMBER 31, 2009
 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 Convertible notes
payable
    
    
    
    
    
    
    
    
    
    
    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
    )
    
    
    3,490,480Net proceeds from private placement
offering issued at $110,000 per unit in
May 2008 and final costs of 2007 private
placement offering
    
    
    1,818,180
    
    
    
    1,818
    
    
    
    3,939,483
    
    
    
    
    
    
    
    3,941,301Adjustment and issuance of common stock,
warrant and stock options related to
consulting services agreements
    
    
    (13,901
    )
    
    
    (14
    )
    
    
    (117,979
    )
    
    
    
    
    
    
    (117,993
    )Issuance of restricted stock at a value
of $0.70 per share in November 2008
    
    
    25,000
    
    
    
    25
    
    
    
    (25
    )
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    562,442
    
    
    
    
    
    
    
    562,442Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,304,388
    )
    
    
    (3,304,388
    )Balance as of December 31, 2008
    
    
    15,556,283
    
    
    
    15,556
    
    
    
    14,938,219
    
    
    
    (10,381,933
    )
    
    
    4,571,842
 See accompanying notes to these consolidated financial statements.
 F-6




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 AND FOR THE PERIOD FROM JULY 24, 1998
(INCEPTION) THROUGH DECEMBER 31, 2009
 Issuance of common stock and
stock options related to
consulting services agreements
    
    
    45,778
    
    
    
    46
    
    
    
    121,409
    
    
    
    
    
    
    
    121,455Exercise of stock options at
$0.99 per share in August 2009
    
    
    50,000
    
    
    
    50
    
    
    
    49,450
    
    
    
    
    
    
    
    49,500Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    388,050
    
    
    
    
    
    
    
    388,050Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,553,636
    )
    
    
    (4,553,636
    )Balance as of December 31, 2009
    
    
    15,652,061
    
    
    $
    15,652
    
    
    $
    15,497,128
    
    
    $
    (14,935,569
    )
    
    $
    577,211
 See accompanying notes to these consolidated financial statements.
 F-7




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For The PeriodFrom July 24,1998(Inception)ThroughYear Ended December 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (4,553,636
    )
    
    $
    (3,304,388
    )
    
    $
    (14,935,569
    )Adjustments to reconcile net loss to net cash used in operating activities:Estimated fair value of contributed services
    
    
    
    
    
    
    
    
    
    
    2,475,000Gain on forgiveness of liabilities
    
    
    
    
    
    
    
    
    
    
    (89,914
    )Amortization of prepaid consulting fees
    
    
    29,048
    
    
    
    341,708
    
    
    
    572,008Depreciation
    
    
    1,056
    
    
    
    704
    
    
    
    1,760Non-cash interest on notes payable
    
    
    
    
    
    
    
    
    
    
    1,575,755Stock-based compensation
    
    
    509,505
    
    
    
    562,442
    
    
    
    1,256,468Changes in operating assets and liabilities:Prepaid consulting costs
    
    
    
    
    
    
    
    
    
    
    (140,000
    )Prepaid expenses and other current assets
    
    
    112,389
    
    
    
    (147,702
    )
    
    
    (80,917
    )Accounts payable
    
    
    124,624
    
    
    
    (139,951
    )
    
    
    770,928Accrued Phase 3 expenses
    
    
    201,681
    
    
    
    141,952
    
    
    
    343,633Accrued expenses and payroll liabilities
    
    
    4,575
    
    
    
    11,750
    
    
    
    70,226Net cash used in operating activities
    
    
    (3,570,758
    )
    
    
    (2,533,485
    )
    
    
    (8,180,622
    )Cash flows from investing activities:Purchase of fixed assets
    
    
    
    
    
    
    (3,154
    )
    
    
    (3,154
    )Net cash used in investing activities
    
    
    
    
    
    
    (3,154
    )
    
    
    (3,154
    )Cash flows from financing activities:Proceeds from notes payable to stockholders
    
    
    
    
    
    
    
    
    
    
    226,300Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    1,500,000Capital contributions
    
    
    
    
    
    
    
    
    
    
    168,707Net proceeds from purchase of common stock and exercise of warrants and
stock options
    
    
    49,500
    
    
    
    
    
    
    
    99,450Proceeds from Private Placements
    
    
    
    
    
    
    3,941,301
    
    
    
    7,779,092Net cash provided by financing activities
    
    
    49,500
    
    
    
    3,941,301
    
    
    
    9,773,549Net change in cash and cash equivalents
    
    
    (3,521,258
    )
    
    
    1,404,662
    
    
    
    1,589,773Cash and cash equivalents, beginning of period
    
    
    5,111,031
    
    
    
    3,706,369
    
    
    
    Cash and cash equivalents, end of period
    
    $
    1,589,773
    
    
    $
    5,111,031
    
    
    $
    1,589,773Supplemental disclosure of cash flow information:Issuance of and adjustment to common stock and warrants to consulting firms
for prepaid consulting fees
    
    $
    
    
    
    $
    117,993
    
    
    $
    432,007Conversion of notes payable and accrued interest into common stock
    
    $
    
    
    
    $
    
    
    
    $
    1,530,177Forgiveness of notes payable and accrued interest to shareholders
    
    $
    
    
    
    $
    
    
    
    $
    241,701Conversion of advances to notes payable to shareholders
    
    $
    
    
    
    $
    
    
    
    $
    196,300
 See accompanying notes to these consolidated financial statements.
 F-8




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Business Description
  Note 2. Basis of Presentation
  Note 3. Merger with Public Company and Reorganization
    Note 4. Summary of Significant Accounting Policies
 New Accounting Standard
 Going Concern
 F-9




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 4. Summary of Significant Accounting Policies (continued)
   Development Stage Enterprise.
  ® ®
 Research and Development.
 Cash and Cash Equivalents
 Concentrations of Credit Risk.
 Computer Equipment.
 Fair Value of Financial Instruments.
 Revenue Recognition.
 F-10




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 4. Summary of Significant Accounting Policies (continued)
  Stock-Based Compensation.
  Basic and Diluted Loss per Common Share
  Use of Estimates.
 Reclassification.
 Note 5. Notes Payable
   F-11




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 5. Notes Payable (continued)
  Note 6. Stockholders Equity
       F-12




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 6. Stockholders Equity (continued)
      
    
    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.
    
    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.
 F-13




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 6. Stockholders Equity (continued)
 
    
    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.
 Note 7. Stock Option Plan
    Weighted
    
    
    WeightedAve.
    
    
    Ave.Number
    
    
    Exercise
    
    
    Remaining
    
    
    Aggregateof Shares
    
    
    Price
    
    
    Contractual Life
    
    
    Intrinsic ValueOutstanding  January 1, 2009
    
    
    1,085,000
    
    
    $
    1.63Granted
    
    
    620,000
    
    
    
    1.63Exercised
    
    
    (50,000
    )
    
    
    0.99Cancelled
    
    
    (50,000
    )
    
    
    2.00Outstanding  December 31, 2009
    
    
    1,605,000
    
    
    $
    1.64
    
    
    
    8.8
    
    
    $
    216,000Exercisable  December 31, 2009
    
    
    649,677
    
    
    $
    1.79
    
    
    
    8.3
    
    
    $
    59,733Vested and expected to vest  December 31, 2009
    
    
    1,534,633
    
    
    $
    1.65
    
    
    
    8.7
    
    
    $
    200,640
 F-14




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 7. Stock Option Plans (continued)
       F-15




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 7. Stock Option Plan (continued)
  2009
    
    
    2008Weighted-average fair value of options granted
    
    $
    1.15
    
    
    $
    0.64Expected term (in years)
    
    
    6.0
    
    
    
    6.1Expected volatility
    
    
    75-85
    %
    
    
    85
    %Risk-free interest rate
    
    
    2.97
    %
    
    
    2.73
    %Dividend yield
    
    
    
    
    
    
    
    2009
    
    
    2008Weighted-average fair value of options granted
    
    $
    1.40
    
    
    $
    0.69Expected term (in years)
    
    
    5.5
    
    
    
    5.5Expected volatility
    
    
    75
    %
    
    
    85
    %Risk-free interest rate
    
    
    2.71
    %
    
    
    1.13
    %Dividend yield
    
    
    
    
    
    
    
 F-16




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 8. Stock Warrants
   Number ofShares
    
    
    Weighted-Subject to
    
    
    AverageWarrants
    
    
    ExerciseOutstanding
    
    
    PriceWarrants outstanding  January 1, 2009
    
    
    802,730
    
    
    $
    4.10Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Warrants outstanding  December 31, 2009
    
    
    802,730
    
    
    $
    4.10Weighted average remaining contractual
life of the outstanding warrants 
December 31, 2009
    
    2.81 years
 Note 9. Income Taxes
     F-17




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 9. Income Taxes (continued)
    2009
    
    
    2008Deferred tax assets:Federal and state net operating loss carryforwards
    
    $
    3,928,340
    
    
    $
    2,295,402Stock-based compensation
    
    
    307,911
    
    
    
    134,688Tax credits
    
    
    482,638
    
    
    
    271,618Other
    
    
    16,999
    
    
    
    14,386Total deferred tax assets
    
    
    4,735,888
    
    
    
    2,716,094Less valuation allowance
    
    
    (4,735,888
    )
    
    
    (2,716,094
    )Net deferred tax assets
    
    $
    
    
    
    $
    
   2009
    
    
    2008Federal tax benefit at statutory rate
    
    $
    (1,548,236
    )
    
    $
    (1,123,492
    )State tax benefit, net
    
    
    (261,667
    )
    
    
    (181,563
    )Research and development credits
    
    
    (211,019
    )
    
    
    (271,618
    )Employee stock-based compensation
    
    
    
    
    
    
    56,929Other differences
    
    
    1,128
    
    
    
    (10,124
    )Increase in valuation allowance
    
    
    2,019,794
    
    
    
    1,529,868Provision for income taxes
    
    $
    
    
    
    $
    
  Note 10. Recent Accounting Pronouncements
  F-18




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 11. Commitments and Contingencies
 Commitments
  Indemnities and Guarantees
  Cato Research Ltd. Agreement
  Cosmetic Products Consulting Agreement
  Cosmeceutical License Agreement
  F-19




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 12. Related Party Transaction
 Mediation Settlement
  Note 13. Subsequent Events
 Management Reorganization
    Stock Option Grant
  F-20