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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, 2008
 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 
or Organization)
    
    (I.R.S. Employer Identification No.)
 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
 þ
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
  
 PART IItem 1.
    
    Description of Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    7Item 2.
    
    Properties
    
    
    14Item 3.
    
    Legal Proceedings
    
    
    14Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    15PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    16Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 8.
    
    Financial Statements and Supplementary Data
    
    
    21Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
    
    
    21Item 9A(T).
    
    Controls and Procedures
    
    
    21Item 9B.
    
    Other Information
    
    
    22PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    22Item 11.
    
    Executive Compensation
    
    
    24Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    27Item 13.
    
    Certain Relationships and Related Transactions and Director Independence
    
    
    28Item 14.
    
    Principal Accountant Fees and Services
    
    
    28PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    29SIGNATURES
    
    
    32EX-31.1EX-31.2EX-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 results with Ketotransdel®
   Clinical Program for Ketotransdel®
  Cosmeceutical/Cosmetic Product Development Program
  Other Product Development Programs
   Market and Opportunity
  -2-




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The Transdel Technology
  
  
    
    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;
    
    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.
  
    
    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;
    
    Not associated with limitations of transdermal patches;
    
    Can potentially be used for a number of different injuries or diseases;
    
    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
  -3-




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Third Party Service Agreements
  Governmental Regulation
    FDA Approval Process
  -4-




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
    
    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-




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Quality Assurance Requirements
     Other FDA Matters
  Intellectual Property
  Employees
  -6-




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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.
   We will need additional financing to execute our business plan and fund our operations, which
additional financing may not be available on a timely basis, or at all.
    -7-




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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;
    
    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.
   -8-




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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.
  We may be subject to product liability claims.
   -9-




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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.
  The use of our technologies could potentially conflict with the rights of others.
  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.
    -10-




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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
 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.
  -11-




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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.
  -12-




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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 may be deemed a penny stock, which would make it more difficult for our
investors to sell their shares.
   -13-




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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.
  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.
  
    
    the election of our directors;
    
    amendment of our Certificate of Incorporation or By-laws; and
    
    mergers, sales of assets or other corporate transactions.
  Raising additional funds by issuing securities or through collaboration and licensing
arrangements may cause dilution to existing stockholders, restrict operations or require us to
relinquish proprietary rights.
  
 ITEM 2. PROPERTIES
 Facilities
   
 ITEM 3. LEGAL PROCEEDINGS
  -14-




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  (a)
    
    The votes received for the nominees for the Board of Directors were elected by a
vote of the stockholders as follows:
 Votes
    
    VotesFor
    
    WithheldJuliet Singh
    
    
    13,170,074
    
    
    
    2,000Jeffrey Abrams
    
    
    13,170,074
    
    
    
    2,000Anthony Thornley
    
    
    13,171,074
    
    
    
    1,000
 (b)
    
    the amendment to increase the number of shares of common stock from 1,500,000 to
3,000,000 available for issuance under the 2007 Incentive Stock and Awards Plan was
approved by a vote of the stockholders as follows:
 Votes
    
    Votes
    
    
    
    
    
    BrokerFor
    
    Against
    
    Abstain
    
    Non-Votes11,448,870
    
    
    497,989
    
    
    
    137,018
    
    
    
    
 (c)
    
    the ratification of the selection of KMJ Corbin & Company LLP as the Companys
independent registered public accounting firm for the fiscal year ending December 31,
2008 was approved by a vote of the stockholders as follows:
 Votes
    
    VotesFor
    
    Against
    
    Abstain13,036,056
    
    
    
    
    
    
    136,018
 -15-




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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 2008
    
    High
    
    LowFirst Quarter
    
    $
    2.94
    
    
    $
    1.05Second Quarter
    
    $
    1.98
    
    
    $
    1.10Third Quarter
    
    $
    1.75
    
    
    $
    1.00Fourth Quarter
    
    $
    1.39
    
    
    $
    0.55
 Fiscal Year 2007
    
    High
    
    LowFourth Quarter (starting October 1, 2007)
    
    $
    3.10
    
    
    $
    2.00
 Holders
  Dividends
  Recent Sales of Unregistered Securities
     
 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 below 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.
 -16-




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Overview
   Plan of Operations
  Clinical Program for Ketotransdel®
  Cosmeceutical/Cosmetic Product Development Program
  Other Product Development Programs
   -17-




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Results of Operations
 Comparisons of Years Ended December 31, 2008 and 2007
 Selling, General and Administrative Expenses
  Research and Development Expenses
 ®
 Interest Expense
  Interest Income
  Gain on Settlement
  Forgiveness of Liabilities
  Liquidity and Capital Resources
  -18-




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®
   Critical Accounting Policies
    Stock-Based Compensation. Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Statement of Cash Flows
 -19-




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Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services Accounting Recognition for
Certain Transactions Involving Equity Instruments Granted to Other Than Employees.
 Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
 Business Combinations
 Fair Value Measurements Effective Date of FASB Statement No. 157 Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active
 Share-Based Payment
 Accounting for Collaborative Agreements
 -20-




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Noncontrolling Interests in Consolidated
Financial Statements
  
 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
   Managements Annual Report on Internal Control over Financial Reporting
     -21-




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Changes in Internal Control over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Executive Officers and Directors
  Name
    
    Age
    
    PositionJuliet Singh, Ph.D.
    
    
    49
    
    
    Chief Executive Officer, Chairman of the BoardJohn T. Lomoro
    
    
    39
    
    
    Chief Financial OfficerJeffrey J. Abrams, M.D.
    
    
    61
    
    
    DirectorAnthony S. Thornley
    
    
    62
    
    
    DirectorLynn C. Swann
    
    
    56
    
    
    Director
  Biographies
 Juliet Singh, Ph.D.
 -22-




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John T. Lomoro
 Jeffrey J. Abrams, M.D., MPH,
 Anthony S. Thornley
 Lynn C. Swann
  Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
  -23-




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Director Independence
  Board Committees
  Audit Review.
 Executive Compensation.
 Nominating and Corporate Governance.
  
 ITEM 11. EXECUTIVE COMPENSATION
  Summary Compensation Table
 Stock Awards
    
    Option Awards
    
    TotalName
    
    Year
    
    Salary ($)
    
    ($)(1)
    
    ($)(2)
    
    ($)Juliet Singh, Ph.D.,
    
    
    2008
    
    
    
    210,000
    
    
    
    
    
    
    
    140,644
    
    
    
    350,644President and Chief Executive Officer
    
    
    2007
    
    
    
    116,071
    
    
    
    
    
    
    
    32,561
    
    
    
    148,632John T. Lomoro,
    
    
    2008
    
    
    
    160,000
    
    
    
    
    
    
    
    89,832
    
    
    
    249,832Chief Financial Officer
    
    
    2007
    
    
    
    50,000
    
    
    
    
    
    
    
    21,321
    
    
    
    71,321Paul
Finnegan, M.D., M.B.A., F.R.C.P.C. (3)
Former Chief Medical Officer and Chief
Operating Officer
    
    
    2008
    
    
    
    102,955
    
    
    
    
    
    
    
    8,014
    
    
    
    110,969Balbir Brar, DVM, Ph.D.
    
    
    2008
    
    
    
    34,308
    
    
    
    298,110
    (4)
    
    
    
    
    
    
    332,418Former Vice President of Research & Development
    
    
    2007
    
    
    
    70,000
    
    
    
    92,517
    (4)
    
    
    28,425
    
    
    
    190,942
 -24-




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(1)
    
    Amount reflects the non-cash compensation cost for the year ended
December 31, 2008 and 2007 of the named executive officers stock,
calculated in accordance with SFAS 123R. Assumptions used in the
calculation of these amounts are included in Note 7 to our
consolidated financial statements included herein.(2)
    
    Amount reflects the non-cash compensation expense for the years ended
December 31, 2008 and 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)
    
    On April 23, 2008, Dr. Finnegan was granted an option to purchase
300,000 shares of common stock at an exercise price of $2.00 per
share. The option vested on a quarterly basis and was to fully vest
on April 23, 2011. However, on November 15, 2008, Dr. Finnegan
ended his employment and as of this date, Dr. Finnegan had vested in
50,000 shares of this grant. Dr. Finnegan had 90 days
subsequent to November 15, 2008 in order to purchase his vested shares, however, this was not
completed by Dr. Finnegan and his option shares expired unexercised.(4)
    
    In August 2007, we issued a restricted stock grant to Dr. Brar for
195,313 shares of our common stock upon closing of the Merger. These
shares were subject to forfeiture in the event that Dr. Brars
employment was terminated for cause or he resigned without good reason
prior to March 17, 2009. On April 4, 2008, our Board of Directors
waived any restrictions or forfeiture conditions on the 195,313 shares
of restricted common stock previously granted to Dr. Brar in
conjunction with his resignation and a separation agreement
entered into between Transdel and Dr. Brar. As a result of the waived
restrictions, in April 2008, we recognized the unamortized value of
this restricted stock. Outstanding Equity Awards at Fiscal Year-End
  Option AwardsNumber of
    
    Number ofSecurities
    
    SecuritiesUnderlying
    
    UnderlyingUnexercised
    
    Unexercised
    
    Option
    
    OptionOptions (#)
    
    Options (#)
    
    Exercise
    
    ExpirationName
    
    Exercisable
    
    Unexercisable
    
    Price ($)
    
    DateJuliet Singh, Ph.D.
    
    
    33,333
    
    
    
    166,667
    
    
    
    2.00
    
    
    
    4/23/201810,000
    
    
    
    
    
    
    
    2.00
    
    
    
    9/16/201783,333
    
    
    
    116,667
    
    
    
    2.00
    
    
    
    9/16/2017John T. Lomoro
    
    
    16,667
    
    
    
    83,333
    
    
    
    2.00
    
    
    
    4/23/201862,500
    
    
    
    87,500
    
    
    
    2.00
    
    
    
    9/16/2017Paul
Finnegan, M.D., M.B.A., F.R.C.P.C.
    
    
    50,000
    
    
    
    
    
    
    
    2.00
    
    
    
    2/15/2009
 Employment Agreements
  2007 Incentive Stock and Awards Plan
  -25-




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Director Compensation
  Fees Earnedor Paid inCash
    
    Stock Awards
    
    Option Awards
    
    TotalName
    
    Year
    
    ($)
    
    ($)(1)
    
    ($)(2)(7)
    
    ($)Juliet Singh, Ph.D. (3)
    
    
    2008
    
    
    $
    
    
    
    $
    
    
    
    $
    10,181
    
    
    $
    10,181Jeffrey J. Abrams,
M.D. (4)
    
    
    2008
    
    
    $
    
    
    
    $
    
    
    
    $
    11,010
    
    
    $
    11,010Anthony S. Thornley (5)
    
    
    2008
    
    
    $
    
    
    
    $
    
    
    
    $
    18,121
    
    
    $
    18,121Lynn C. Swann (6)
    
    
    2008
    
    
    $
    
    
    
    $
    2,188
    
    
    $
    2,050
    
    
    $
    4,238
 
 (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 for 25,000 shares of common stock at an exercise price
of $0.70, which vests quarterly over a 1 year period.(3)
    
    The compensation noted in the table is specifically related to the stock option grant of
10,000 shares that Dr. Singh, our President and Chief Executive Officer, was awarded on
September 17, 2007 for her service on the Board of Directors for fiscal year 2007 and became
fully vested on September 17, 2008. Dr. Singh has not received any additional compensation
for her service on the Board of Directors.(4)
    
    As of December 31, 2008, Dr. Abrams held 90,000 stock options, of which 10,000 were vested.(5)
    
    As of December 31, 2008, Mr. Thornley held 90,000 stock options, of which 10,000 were vested.(6)
    
    As of December 31, 2008, Mr. Swann held 105,000 stock options and 25,000 shares of
restricted common stock, of which none were vested.(7)
    
    Amount reflects the non-cash compensation expense for the years ended December 31, 2008 and
2007 of the named board member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. -26-




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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.
    
    
    2,130,792
    (6)
    
    
    13.5
    %Jeffrey J. Abrams, M.D.
    
    
    1,576,500
    (2)
    
    
    10.1
    %The Abrams Family Trust
    
    
    1,562,500
    (3)
    
    
    10.0
    %Anthony S. Thornley
    
    
    87,400
    (4)
    
    
    *Lynn C. Swann
    
    
    35,250
    (5)
    
    
    *John T. Lomoro
    
    
    108,333
    (7)
    
    
    *Joseph Grasela(8)
    
    
    1,171,875
    
    
    
    7.5
    %John C. Grasela(8)
    
    
    1,171,875
    
    
    
    7.5
    %Paul
Finnegan, M.D., M.B.A., F.R.C.P.C.
    
    
    
    
    
    
    Balbir Brar, D.V.M., Ph.D.
    
    
    398,438
    
    
    
    2.6
    %All executive officers and directors as a group (5 persons)
    
    
    3,938,275
    
    
    
    24.8
    %
 
 *
    
    less than 1%(1)
    
    Based on 15,570,184 shares of our common stock issued and outstanding as of March 3, 2009.(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 14,000 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 14,000 shares of common stock issuable upon the exercise of warrants and stock options, respectively.(5)
    
    Includes 10,250 shares of common stock issuable upon the exercise of stock options and 25,000 shares of restricted stock.(6)
    
    Includes 176,667 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.  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
    
    
    1,085,000
    
    
    $
    1.63
    
    
    
    1,694,687Equity compensation
plans not approved
by security holders
    
    
    5,000
    
    
    
    2.00
    
    
    
    Total
    
    
    1,090,000
    
    
    $
    1.64
    
    
    
    1,694,687
 
 (1)
    
    See footnote 7 in the consolidated financial statements included herein for information
related to the equity compensation plans. -27-




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##### Table of Contents



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
   Director and Officer Indemnification Agreements
  Executive and Director Compensation
  Company Policy Regarding Related Party Transactions
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  2008
    
    2007Audit Fees
    
    $
    98,750
    
    
    $
    67,100
 Audit Fees
  -28-




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a)
    
    Financial Statements and Financial Statement Schedules:The following documents are 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)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)
 -29-




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##### Table of Contents



Exhibit No.
    
    Description10.8
    
    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)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)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)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, 2007)
 -30-




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##### Table of Contents



Exhibit No.
    
    Description21
    
    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)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
 (c)
    
    Financial Statement Schedules
  -31-




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##### Table of Contents



SIGNATURES
  TRANSDEL PHARMACEUTICALS, INC.By:
    /s/ Juliet SinghName:
    Juliet Singh, Ph.D.Title:
    Chief Executive OfficerDate:
    March 26, 2009  Signature
    
    Title
    
    Date/s/ Juliet Singh

Juliet Singh, Ph.D.
    
    President,
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
    
    March 26, 2009/s/ John T. Lomoro

John T. Lomoro
    
    Chief
Financial Officer (Principal Accounting
and
Financial Officer)
    
    March 26, 2009/s/ Jeffrey J. Abrams

Jeffrey J. Abrams, M.D.
    
    Director
    
    March 26, 2009/s/ Anthony S. Thornley

Anthony S. Thornley
    
    Director
    
    March 26, 2009/s/ Lynn C. Swann

Lynn C. Swann
    
    Director
    
    March 26, 2009
 -32-




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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, 2008 and 2007
    
    F-3Consolidated Statements of Operations for the Years Ended December 31,
2008 and 2007 and for the Period from July 24, 1998 (Inception)
Through December 31, 2008
    
    F-4Consolidated Statements of Stockholders Equity for the Years Ended
December 31, 2008 and 2007 and for the Period from July 24, 1998
(Inception) Through December 31, 2008
    
    F-5Consolidated Statements of Cash Flows for the Years Ended December 31,
2008 and 2007 and for the Period from July 24, 1998 (Inception)
Through December 31, 2008
    
    F-7Notes to the Consolidated Financial Statements
    
    F-8
 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 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,111,031
    
    
    $
    3,706,369Prepaid consulting fees
    
    
    29,048
    
    
    
    488,748Prepaid expenses and other current assets
    
    
    193,306
    
    
    
    45,604Total current assets
    
    
    5,333,385
    
    
    
    4,240,721Computer equipment, net
    
    
    2,450
    
    
    
    Total assets
    
    $
    5,335,835
    
    
    $
    4,240,721LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    698,342
    
    
    $
    696,340Accrued expenses and payroll liabilities
    
    
    65,651
    
    
    
    53,901Total current liabilities
    
    
    763,993
    
    
    
    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, 15,556,283 and 13,727,004 shares
outstanding as of December 31, 2008 and 2007,
respectively
    
    
    15,556
    
    
    
    13,727Additional paid-in capital
    
    
    14,938,219
    
    
    
    10,554,298Deficit accumulated during the development stage
    
    
    (10,381,933
    )
    
    
    (7,077,545
    )Total stockholders equity
    
    
    4,571,842
    
    
    
    3,490,480Total liabilities and stockholders equity
    
    $
    5,335,835
    
    
    $
    4,240,721
 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 31,2008
    
    
    2007
    
    
    2008Operating expenses:Selling, general and administrative
    
    $
    1,755,731
    
    
    $
    1,026,644
    
    
    $
    4,839,312Research and development
    
    
    1,990,665
    
    
    
    1,832,744
    
    
    
    4,548,409Operating loss
    
    
    3,746,396
    
    
    
    2,859,388
    
    
    
    9,387,721Other income (expense):Interest expense
    
    
    
    
    
    
    (1,563,504
    )
    
    
    (1,575,755
    )Interest income
    
    
    67,008
    
    
    
    48,438
    
    
    
    116,629Gain on settlement
    
    
    375,000
    
    
    
    
    
    
    
    375,000Gain on forgiveness of liabilities
    
    
    
    
    
    
    89,914
    
    
    
    89,914Total other income (expense), net
    
    
    442,008
    
    
    
    (1,425,152
    )
    
    
    (994,212
    )Net loss
    
    $
    (3,304,388
    )
    
    $
    (4,284,540
    )
    
    $
    (10,381,933
    )Basic and diluted loss per common share
    
    $
    (0.22
    )
    
    $
    (0.48
    )Weighted average common shares outstanding, basic and diluted
    
    
    14,822,062
    
    
    
    8,846,801
 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, 2008 AND 2007 AND FOR THE PERIOD FROM JULY 24, 1998
(INCEPTION) THROUGH DECEMBER 31, 2008
 DeficitAccumulated
    
    
    TotalAdditional
    
    
    During the
    
    
    StockholdersCommon Stock
    
    Paid-in
    
    
    Development
    
    
    EquityShares
    
    
    Amount
    
    
    Capital
    
    
    Stage
    
    
    (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, 2008 AND 2007 AND FOR THE PERIOD FROM JULY 24, 1998
(INCEPTION) THROUGH
DECEMBER 31, 2008
 DeficitAccumulated
    
    
    TotalAdditional
    
    
    During the
    
    
    StockholdersCommon Stock
    
    Paid-in
    
    
    Development
    
    
    EquityShares
    
    
    Amount
    
    
    Capital
    
    
    Stage
    
    
    (Deficit)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 CASH FLOWS
 For The PeriodFrom July 24,1998(Inception)ThroughYear Ended December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (3,304,388
    )
    
    $
    (4,284,540
    )
    
    $
    (10,381,933
    )Adjustments to reconcile net loss to net cash used in operating activities:Estimated fair value of contributed services
    
    
    
    
    
    
    175,000
    
    
    
    2,475,000Gain on forgiveness of liabilities
    
    
    
    
    
    
    (89,914
    )
    
    
    (89,914
    )Amortization of prepaid consulting fees
    
    
    341,708
    
    
    
    201,252
    
    
    
    542,960Depreciation
    
    
    704
    
    
    
    
    
    
    
    704Non-cash interest on notes payable
    
    
    
    
    
    
    1,563,504
    
    
    
    1,575,755Stock-based compensation
    
    
    562,442
    
    
    
    184,522
    
    
    
    746,963Changes in operating assets and liabilities:Prepaid consulting costs
    
    
    
    
    
    
    (140,000
    )
    
    
    (140,000
    )Prepaid expenses and other current assets
    
    
    (147,702
    )
    
    
    (39,908
    )
    
    
    (193,306
    )Accounts payable
    
    
    2,001
    
    
    
    612,562
    
    
    
    788,256Accrued expenses and payroll liabilities
    
    
    11,750
    
    
    
    53,901
    
    
    
    65,651Net cash used in operating activities
    
    
    (2,533,485
    )
    
    
    (1,763,621
    )
    
    
    (4,609,864
    )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
    
    
    
    
    
    
    1,500,000
    
    
    
    1,500,000Capital contributions
    
    
    
    
    
    
    105,907
    
    
    
    168,707Net proceeds from purchase of common stock and exercise of warrants and
stock options
    
    
    
    
    
    
    25,750
    
    
    
    49,950Proceeds from Private Placements
    
    
    3,941,301
    
    
    
    3,837,791
    
    
    
    7,779,092Net cash provided by financing activities
    
    
    3,941,301
    
    
    
    5,469,448
    
    
    
    9,724,049Net change in cash and cash equivalents
    
    
    1,404,662
    
    
    
    3,705,827
    
    
    
    5,111,031Cash and cash equivalents, beginning of period
    
    
    3,706,369
    
    
    
    542
    
    
    
    Cash and cash equivalents, end of period
    
    $
    5,111,031
    
    
    $
    3,706,369
    
    
    $
    5,111,031Supplemental disclosure of cash flow information:Issuance of and adjustment to common stock and warrants to consulting firms
for prepaid consulting fees
    
    $
    (117,993
    )
    
    $
    550,000
    
    
    $
    432,007Conversion 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
accompanying notes to these consolidated financial statements.
 F-7




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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
 Development Stage Enterprise. Accounting and Reporting by Development
Stage Enterprises
  F-8




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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)
  Research and Development.
 Cash and Cash Equivalents
 Concentrations of Credit Risk.
 Computer Equipment.
 Fair Value of Financial Instruments.
 Beneficial Conversion Feature. Accounting For Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratio Application of EITF Issue No. 98-5 To Certain
Convertible Instruments,
 Revenue Recognition. Revenue Recognition
  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)
 Stock-Based Compensation. Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Statement
of Cash Flows
 Accounting
for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services, Accounting Recognition for Certain
Transactions Involving Equity Instruments Granted to Other Than Employees.
 Basic and Diluted Loss per Common Share Earnings Per Share Computation of Earnings Per Share
  Use of Estimates.
 Note 5. Notes Payable
   F-10




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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-11




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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.
    
    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.
 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 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
    WeightedWeighted
    
    
    Ave.Ave.
    
    
    Remaining
    
    
    AggregateNumber
    
    
    Exercise
    
    
    Contractual
    
    
    Intrinsicof Shares
    
    
    Price
    
    
    Life
    
    
    ValueOutstanding  January 1, 2008
    
    
    610,000
    
    
    $
    2.01Granted
    
    
    925,000
    
    
    
    1.56Exercised
    
    
    
    
    
    
    Cancelled/forfeited
    
    
    (450,000
    )
    
    
    2.00Outstanding  December 31, 2008
    
    
    1,085,000
    
    
    $
    1.63
    
    
    
    9.3
    
    
    $
    80,000Exercisable  December 31, 2008
    
    
    288,333
    
    
    $
    2.02
    
    
    
    8.9
    
    
    $
    Vested and expected to vest  December 31, 2008
    
    
    1,058,500
    
    
    $
    1.66
    
    
    
    9.3
    
    
    $
    72,050
 F-13




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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)
 Share-Based Payment
       2008
    
    2007Weighted-average fair value of options granted
    
    $
    0.65
    
    
    $
    1.48Expected term (in years)
    
    
    6.1
    
    
    
    6.0Expected volatility
    
    
    85
    %
    
    
    85
    %Risk-free interest rate
    
    
    2.73
    %
    
    
    4.14
    %Dividend yield
    
    
    
    
    
    
    
  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 Plan (continued)
   2008Weighted-average fair value of option granted
    
    $
    0.69Expected term (in years)
    
    
    5.5Expected volatility
    
    
    85
    %Risk-free interest rate
    
    
    1.13
    %Dividend yield
    
    
    
 Note 8. Stock Warrants
   Number ofShares
    
    
    Weighted-Subject to
    
    
    AverageWarrants
    
    
    ExerciseOutstanding
    
    
    PriceWarrants outstanding  January 1, 2008
    
    
    570,458
    
    
    $
    4.00Granted
    
    
    232,272
    
    
    
    4.35Exercised
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Warrants outstanding  December 31, 2008
    
    
    802,730
    
    
    $
    4.10Weighted average remaining contractual
life of the outstanding warrants 
December 31, 2008
    
    3.81 years
 Note 9. Income Taxes
   F-15




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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)
      2008
    
    
    2007Deferred tax assets:Federal and state net operating loss carryforwards
    
    $
    2,295,402
    
    
    $
    1,106,112Stock-based compensation
    
    
    134,688
    
    
    
    60,404Tax credits
    
    
    271,618
    
    
    
    Other
    
    
    14,386
    
    
    
    19,710Total deferred tax assets
    
    
    2,716,094
    
    
    
    1,186,226Less valuation allowance
    
    
    (2,716,094
    )
    
    
    (1,186,226
    )Net deferred tax assets
    
    $
    
    
    
    $
    
  F-16




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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)
  2008
    
    
    2007Federal tax benefit at statutory rate
    
    $
    1,123,492
    
    
    $
    1,456,744State tax benefit, net
    
    
    181,563
    
    
    
    239,314Non-deductible services
    
    
    
    
    
    
    (69,563
    )Non-deductible beneficial conversion costs
    
    
    
    
    
    
    (621,492
    )Research and development credits
    
    
    271,618
    
    
    
    Employee stock-based compensation
    
    
    (56,929
    )
    
    
    (12,944
    )Other differences
    
    
    10,124
    
    
    
    (595
    )Increase in valuation allowance
    
    
    (1,529,868
    )
    
    
    (991,464
    )Provision for income taxes
    
    $
    
    
    
    $
    
  Note 10. Recent Accounting Pronouncements
  Business Combinations
 Fair Value Measurements Effective Date of FASB Statement No. 157 Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active
 F-17




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##### Table of Contents



TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 10. Recent Accounting Pronouncements (continued)
 Share-Based Payment
 Accounting for Collaborative Agreements
 Noncontrolling Interests in Consolidated Financial
Statements
  Note 11. Commitments and Contingencies
 Commitments
  Indemnities and Guarantees
  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 (continued)
 Cato Research Ltd. Agreement
  Cosmetic Products Consulting Agreement
  Note 12. Related Party Transaction
 Mediation Settlement
  F-19