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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934
 For the quarterly period ended March 31, 2009
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 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)
 
  
  þ o
 o þ
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ




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TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
 Table of Contents
 PagePart I
    
    FINANCIAL INFORMATION
    
    
    2Item 1.
    
    Financial Statements
    
    
    2Condensed Consolidated Balance Sheets  March 31, 2009 (Unaudited) and December 31,
2008
    
    
    2Unaudited Condensed Consolidated Statements of Operations for the three-month
periods ended March 31, 2009 and 2008
    
    
    3Unaudited Condensed Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 2009 and 2008
    
    
    4Notes to the Unaudited Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 4T.
    
    Controls and Procedures
    
    
    16Part II
    
    OTHER INFORMATION
    
    
    17Item 1A.
    
    Risk Factors
    
    
    17Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 6.
    
    Exhibits
    
    
    25EX-31.1EX-31.2EX-32.1
  1




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,193,350
    
    
    $
    5,111,031Prepaid consulting fees
    
    
    109
    
    
    
    29,048Prepaid expenses and other current assets
    
    
    159,242
    
    
    
    193,306Total current assets
    
    
    4,352,701
    
    
    
    5,333,385Equipment, net
    
    
    2,186
    
    
    
    2,450Total assets
    
    $
    4,354,887
    
    
    $
    5,335,835LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    780,860
    
    
    $
    556,390Accrued Phase 3 expenses
    
    
    417,408
    
    
    
    141,952Accrued expenses and payroll liabilities
    
    
    46,895
    
    
    
    65,651Total liabilities
    
    
    1,245,163
    
    
    
    763,993Stockholders 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, 15,602,061 and
15,556,283 shares issued and outstanding as of March 31, 2009 and December 31,
2008, respectively
    
    
    15,602
    
    
    
    15,556Additional paid-in capital
    
    
    15,097,291
    
    
    
    14,938,219Deficit accumulated during the development stage
    
    
    (12,003,169
    )
    
    
    (10,381,933
    )Total stockholders equity
    
    
    3,109,724
    
    
    
    4,571,842Total liabilities and stockholders equity
    
    $
    4,354,887
    
    
    $
    5,335,835
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TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 For thePeriod FromJuly 24, 1998(Inception)Three Months Ended
    
    
    ThroughMarch 31,
    
    
    March2009
    
    
    2008
    
    
    31, 2009Operating expenses:Selling, general and administrative
    
    $
    481,474
    
    
    $
    447,855
    
    
    $
    5,320,786Research and development
    
    
    1,146,551
    
    
    
    219,100
    
    
    
    5,694,960Operating loss
    
    
    1,628,025
    
    
    
    666,955
    
    
    
    11,015,746Other income (expense):Interest expense
    
    
    
    
    
    
    
    
    
    
    (1,575,755
    )Interest income
    
    
    6,789
    
    
    
    19,234
    
    
    
    123,418Gain on forgiveness of liabilities
    
    
    
    
    
    
    
    
    
    
    89,914Gain on settlement
    
    
    
    
    
    
    375,000
    
    
    
    375,000Total other income (expense), net
    
    
    6,789
    
    
    
    394,234
    
    
    
    (987,423
    )Net loss
    
    $
    (1,621,236
    )
    
    $
    (272,721
    )
    
    $
    (12,003,169
    )Basic and diluted loss per common share
    
    $
    (0.10
    )
    
    $
    (0.02
    )Weighted average common shares outstanding
    
    
    15,564,676
    
    
    
    13,644,436
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TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For The PeriodFrom July 24,1998(Inception)ThroughThree Months Ended March 31,
    
    
    March 31,2009
    
    
    2008
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (1,621,236
    )
    
    $
    (272,721
    )
    
    $
    (12,003,169
    )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
    
    
    28,939
    
    
    
    137,627
    
    
    
    571,899Depreciation
    
    
    264
    
    
    
    
    
    
    
    968Non-cash interest on notes payable
    
    
    
    
    
    
    
    
    
    
    1,575,755Stock-based compensation
    
    
    159,118
    
    
    
    144,051
    
    
    
    906,081Changes in operating assets and liabilities:Prepaid consulting costs
    
    
    
    
    
    
    
    
    
    
    (140,000
    )Prepaid expenses and other current assets
    
    
    34,064
    
    
    
    8,226
    
    
    
    (159,242
    )Accounts payable
    
    
    224,470
    
    
    
    (268,752
    )
    
    
    870,774Accrued Phase 3 expenses
    
    
    275,456
    
    
    
    
    
    
    
    417,408Accrued expenses and payroll liabilities
    
    
    (18,756
    )
    
    
    (10,327
    )
    
    
    46,895Net cash used in operating activities
    
    
    (917,681
    )
    
    
    (261,896
    )
    
    
    (5,527,545
    )Cash flows from investing activities:Purchase of fixed assets
    
    
    
    
    
    
    
    
    
    
    (3,154
    )Net cash used in investing activities
    
    
    
    
    
    
    
    
    
    
    (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
    
    
    
    
    
    
    
    
    
    
    49,950Net (costs) proceeds from Private Placements
    
    
    
    
    
    
    (36,229
    )
    
    
    7,779,092Net cash (used in) provided by financing activities
    
    
    
    
    
    
    (36,229
    )
    
    
    9,724,049Net change in cash and cash equivalents
    
    
    (917,681
    )
    
    
    (298,125
    )
    
    
    4,193,350Cash and cash equivalents, beginning of period
    
    
    5,111,031
    
    
    
    3,706,369
    
    
    
    Cash and cash equivalents, end of period
    
    $
    4,193,350
    
    
    $
    3,408,244
    
    
    $
    4,193,350Supplemental disclosure of cash flow information:Issuance of and adjustment to common stock and warrants to consulting firms
for prepaid consulting fees
    
    $
    
    
    
    $
    (52,500
    )
    
    $
    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.
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TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
 
 NOTES TO THE UNAUDITED CONDENSED 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
  5




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TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONDENSED 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.
 Revenue Recognition. Revenue Recognition
  Stock-Based Compensation. Share-Based Payment
 6




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TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 4. Summary of Significant Accounting Policies (continued)
 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.
 Reclassification.
 Note 5. Stockholders Equity
     7




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TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 5. Stockholders Equity (continued)
     Note 6. Stock Option Plan
   8




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TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 6. Stock Option Plan (continued)
  WeightedWeighted
    
    
    Ave.Ave.
    
    
    Remaining
    
    
    AggregateNumber
    
    
    Exercise
    
    
    Contractual
    
    
    Intrinsicof Shares
    
    
    Price
    
    
    Life
    
    
    ValueOutstanding  January 1, 2009
    
    
    1,085,000
    
    
    $
    1.63Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Cancelled
    
    
    (50,000
    )
    
    
    2.00Outstanding  March 31, 2009
    
    
    1,035,000
    
    
    $
    1.62
    
    
    
    9.0
    
    
    $
    111,500Exercisable  March 31, 2009
    
    
    371,583
    
    
    $
    1.82
 Share-Based Payment,
     9




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TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 6. Stock Option Plans (continued)
    Note 7. Stock Warrants
   Number ofShares
    
    
    Weighted-Subject to
    
    
    AverageWarrants
    
    
    ExerciseOutstanding
    
    
    PriceWarrants outstanding  January 1, 2009
    
    
    802,730
    
    
    $
    4.10Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Warrants outstanding  March 31, 2009
    
    
    802,730
    
    
    $
    4.10Weighted average remaining
contractual life of the outstanding
warrants  March 31, 2009
    
    3.56 years
 Note 8. Recent Accounting Pronouncements
  Business Combinations
 10




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TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 8. Recent Accounting Pronouncements (continued)
 Accounting for Collaborative Agreements
 Noncontrolling Interests in Consolidated Financial
Statements
 Determining Whether an
Instrument (or Embedded Feature) is Indexed to an Entitys Own Stock Accounting for Derivative Instruments
and Hedging Activities
  Note 9. Commitments and Contingencies
 Indemnities and Guarantees
  Cato Research Ltd. Agreement
 ® ®
 11




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TRANSDEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 9. Commitments and Contingencies (continued)
 Cosmetic Products Consulting Agreement
  Note 10. Related Party Transaction
 Mediation Settlement
  12




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
 ®
  Plan of Operations
 ®
 Clinical Program for Ketotransdel®
 ® ® ® ® ® ®
 Cosmeceutical/Cosmetic Product Development Program
 TM
 Other Product Development Programs
 ®
 13




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Results of Operations
 Comparisons of the Three Months Ended March 31, 2009 and 2008
 Selling, General and Administrative Expenses
  Research and Development Expenses
 ®
 Interest Income
  Gain on Settlement
  Liquidity and Capital Resources
    14




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®
   Critical Accounting Policies
    Stock-Based Compensation. Share-Based Payment
 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
  15




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Recent Accounting Pronouncements
 Business Combinations
 Accounting for Collaborative Agreements
 Noncontrolling Interests in Consolidated
Financial Statements
 Determining Whether an
Instrument (or Embedded Feature) is Indexed to an Entitys Own Stock Accounting for Derivative Instruments
and Hedging Activities
  
 Item 4T. Controls and Procedures.
    16




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PART II
OTHER INFORMATION
 
 Item 1A. Risk Factors
 You should consider carefully the following information about the risks described below,
together with the other information contained in this quarterly report on Form 10-Q and in our
other filings with the Securities and Exchange Commission, before you decide to buy or maintain an
investment in our common stock. We believe the risks described below are the risks that are
material to us as of the date of this quarterly report. If any of the following risks actually
occur, our business financial condition, results of operations and future growth prospects would
likely be materially and adversely affected. In these circumstances, the market price of our common
stock could decline, and you may lose all or part of the money you paid to buy our common stock.
The risk factors set forth below with an asterisk (*) next to the title are new risk factors or
risk factors containing changes, including any material changes from the risk factors set forth in
our annual report on Form 10-K for the fiscal year ended December 31, 2008, as filed with the
Securities and Exchange Commission on March 26, 2009.
 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.
 ® ® ®
  17




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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.
  18




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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.
  19




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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.
    20




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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.
  21




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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.
  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.
  22




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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.
  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.
  23




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Our common stock may be deemed a penny stock, which would make 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.
  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.
  24




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
 Item 6. Exhibits
 ExhibitNumber
    
    Description31.1*
    
    Section 302 Certification of Principal Executive Officer31.2*
    
    Section 302 Certification of Principal Financial Officer32.1*
    
    Section 906 Certification of Principal Executive Officer and Principal Financial Officer
 
 *
    
    Filed herewith. 25




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SIGNATURES
  Transdel Pharmaceuticals, Inc.Dated: May 8, 2009
    By:
    /s/ Juliet SinghJuliet Singh, Ph.D.Chief Executive Officer
(Principal Executive Officer) 26




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EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1*
    
    Section 302 Certification of Principal Executive Officer31.2*
    
    Section 302 Certification of Principal Financial Officer32.1*
    
    Section 906 Certification of Principal Executive Officer and Principal Financial Officer
 
 *
    
    Filed herewith. 27