**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**


(Mark
      One)




x
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF
                1934




For
      the
      quarterly period ended **June
      30, 2008**




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.**


(Exact
      Name of Registrant in Its Charter)




Delaware
            
            45-0567010(State
                or Other Jurisdiction of Incorporation
              or
                Organization)
            
            (I.R.S.
                Employer Identification No.)4225
                Executive Square, Suite 485
              La
                Jolla, CA
            
            92037(Address
                of Principal Executive Offices)
            
            (Zip
                Code)




(858)
                457-5300(Registrant’s
                Telephone Number, Including Area Code)4225
                Executive Square, Suite 460
              La
                Jolla, CA 92037(Former
                Name, Former Address and Former Fiscal Year, if Changed Since Last
                Report)




Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No o




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




As
      of
      August 7, 2008, 15,545,184 shares of issuer’s common stock, with $0.001 par
      value per share were outstanding.





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer”, “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act (Check
      One):




Large
                accelerated filero
            Accelerated
                fileroNon-accelerated
                filero
            Smaller
                reporting companyx(Do
                not check if a smaller reporting company)


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**




Table
      of Contents




**Page**Part
                I
            
            FINANCIAL
                INFORMATION
            
            2Item
                1.
            
            Financial
                Statements
            
            2Condensed
                Consolidated Balance Sheets - June 30, 2008 (Unaudited) and December
                31, 2007
            
            2Unaudited
                Condensed Consolidated Statements of Operations for the three and
                six-month periods ended June 30, 2008 and 2007
            
            3Unaudited
                Condensed Consolidated Statements of Cash Flows for the six-month
                periods
                ended June 30, 2008 and 2007
            
            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
            
            15Part
                II
            
            OTHER
                INFORMATION
            
            16Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            16Item
                6.
            
            Exhibits
            
            16




i


**PART
      I**


**FINANCIAL
      INFORMATION**





**Item
      1.**  **Financial
      Statements.**





**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**




**June
                  30,****2008**
            
            **December
                  31,****2007****(Unaudited)****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            6,710,629
            
            $
            3,706,369Prepaid
                consulting fees
            
            
            138,751
            
            
            488,748Prepaid
                expenses and other current assets
            
            
            330,067
            
            
            45,604Total
                current assets
            
            
            7,179,447
            
            
            4,240,721Equipment,
                net
            
            
            2,978
            
            
            —Total
                assets
            
            $
            7,182,425
            
            $
            4,240,721**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            879,416
            
            $
            696,340Accrued
                expenses and payroll liabilities
            
            
            41,363
            
            
            53,901Total
                liabilities
            
            
            920,779
            
            
            750,241Stockholders’
                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, 15,545,184
                and
                13,727,004 shares outstanding as of June 30, 2008 and December 31,
                2007,
                respectively
            
            
            15,545
            
            
            13,727Additional
                paid-in capital
            
            
            14,859,680
            
            
            10,554,298Deficit
                accumulated during the development stage
            
            
            (8,613,579
            )
            
            (7,077,545
            )Total
                stockholders’ equity
            
            
            6,261,646
            
            
            3,490,480Total
                liabilities and stockholders’ equity
            
            $
            7,182,425
            
            $
            4,240,721




2
 **TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**







**Three
                Months Ended June 30,**
            
            **Six
                Months Ended June 30,**
            
            **For
                the Period From July 24, 1998 (Inception) Through June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**
            
            **2008**Operating
                expenses:Selling,
                general and administrative
            
            $
            562,324
            
            $
            151,115
            
            $
            1,010,179
            
            $
            251,336
            
            $
            4,093,760Research
                and development
            
            
            718,083
            
            
            47,547
            
            
            937,183
            
            
            85,047
            
            
            3,494,927Operating
                loss
            
            
            1,280,407
            
            
            198,662
            
            
            1,947,362
            
            
            336,383
            
            
            7,588,687Other
                income (expense):Interest
                expense
            
            
            —
            
            
            (8,394
            )
            
            —
            
            
            (10,601
            )
            
            (1,575,755
            )Interest
                income
            
            
            17,094
            
            
            1,369
            
            
            36,328
            
            
            1,369
            
            
            85,949Gain
                on forgiveness of liabilities
            
            
            —
            
            
            89,914
            
            
            —
            
            
            89,914
            
            
            89,914Gain
                on settlement
            
            
            —
            
            
            —
            
            
            375,000
            
            
            —
            
            
            375,000Total
                other income (expense), net
            
            
            17,094
            
            
            82,889
            
            
            411,328
            
            
            80,682
            
            
            (1,024,892
            )Net
                loss
            
            $
            (1,263,313
            )
            $
            (115,773
            )
            $
            (1,536,034
            )
            $
            (255,701
            )
            $
            8,613,579Basic
                and diluted loss per common share
            
            $
            (0.09
            )
            $
            (0.01
            )
            $
            (0.11
            )
            $
            (0.04
            )Weighted
                average common shares outstanding
            
            
            14,726,004
            
            
            7,793,441
            
            
            14,226,504
            
            
            6,421,544





3
 **TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**




**Six Months Ended****June
                30,**
            
            **For The Period****From July 24,****1998**
                  **(Inception)****Through****June
                30,****2008**
            
            **2007**
            
            **2008****Cash
                from operating activities:**Net
                loss
            
            $
            (1,536,034
            )
            $
            (255,701
            )
            $
            (8,613,579
            )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
            )Amortization
                of prepaid consulting fees and depreciation
            
            
            303,983
            
            
            —
            
            
            505,235Non-cash
                interest on notes payable
            
            
            —
            
            
            10,601
            
            
            1,575,755Stock-based
                compensation
            
            
            412,089
            
            
            —
            
            
            596,611Changes
                in operating assets and liabilities:Prepaid
                consulting costs
            
            
            —
            
            
            —
            
            
            (140,000
            )Prepaid
                expenses and other current assets
            
            
            (284,463
            )
            
            (96,802
            )
            
            (330,067
            )Accounts
                payable
            
            
            183,076
            
            
            (96,260
            )
            
            969,330Accrued
                expenses and payroll liabilities
            
            
            (12,538
            )
            
            32,177
            
            
            41,363Net
                cash used in operating activities
            
            
            (933,887
            )
            
            (230,985
            )
            
            (3,010,266
            )**Cash
                flows from investing activities:**Purchase
                of equipment
            
            
            (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
            
            
            168,707Proceeds
                from purchase of common stock and exercise of warrants and stock
                options
            
            
            —
            
            
            25,700
            
            
            49,950Net
                proceeds from Private Placements
            
            
            3,941,301
            
            
            —
            
            
            7,779,092Net
                cash provided by financing activities
            
            
            3,941,301
            
            
            1,631,607
            
            
            9,724,049**Net
                change in cash**
            
            
            3,004,260
            
            
            1,400,622
            
            
            6,710,629**Cash,
                beginning of period**
            
            
            3,706,369
            
            
            542
            
            
            —**Cash,
                end of period**
            
            $
            6,710,629
            
            $
            1,401,164
            
            $
            6,710,629**Supplemental
                disclosure of cash flow information:**(Revaluation)
                issuance of common stock and warrants to consulting firms for prepaid
                consulting fees, net
            
            $
            (46,190
            )
            $
            —
            
            $
            503,810Conversion
                of notes payable and accrued interest into common stock
            
            $
            —
            
            $
            —
            
            $
            1,530,177Forgiveness
                of notes payable and accrued interest to shareholders
            
            $
            —
            
            $
            241,701
            
            $
            241,701Conversion
                of notes payable to shareholders
            
            $
            —
            
            $
            —
            
            $
            196,300


4
 **TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**




**Note
      1.    Business Description**





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





**Note
      2. Basis of Presentation**





The
      Company has prepared the accompanying unaudited condensed consolidated financial
      statements in accordance with United States generally accepted accounting
      principles (“GAAP”) for interim financial information and with the rules and
      regulations of the Securities and Exchange Commission (the “SEC”) related to a
      Quarterly Report on Form 10-Q and Article 8 of Regulation S-X. Accordingly,
      they
      do not include all of the information and disclosures required by GAAP for
      annual financial statements.   The consolidated financial statements
      include the accounts of Transdel and its wholly owned subsidiary, Transdel
      Pharmaceuticals Holdings, Inc. (formerly known as Trans-Pharma Corporation).
      All
      significant intercompany balances and transactions have been eliminated in
      consolidation. In the opinion of the Company’s management, the accompanying
      condensed consolidated financial statements contain all the adjustments
      necessary (consisting only of normal recurring accruals) to make the financial
      position of the Company as of June 30, 2008, the results of operations for
      three
      and six months ended June 30, 2008 and 2007, and cash flows for the six months
      ended June 30, 2008 and 2007, fairly stated. The condensed consolidated
      financial statements should be read in conjunction with the audited financial
      statements for the year ended December 31, 2007 contained in Form
      10-KSB filed on March 26, 2008 with the SEC. Interim operating results are
      not
      necessarily indicative of operating results for the full year.





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





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




In
      connection with the Merger, 1,849,993 shares of Transdel common stock remain
      outstanding and all other outstanding shares of Transdel were cancelled. Also,
      at the closing of the Merger, each share of Transdel Holdings common stock
      issued and outstanding immediately prior to the closing of the Merger was
      exchanged for the right to receive 0.15625 of one share of Transdel’s common
      stock. An aggregate of 8,000,000 shares of Transdel’s common stock, which
      included 195,313 shares of restricted stock which were subject to forfeiture
      (see Note 7), were issued to the holders of Transdel Holdings’ common stock. As
      a result of the transaction, the former owners of Transdel Holdings became
      the
      controlling stockholders of Transdel. Accordingly, the merger of Transdel
      Holdings and Transdel is a reverse merger that has been accounted for as a
      recapitalization of Transdel Holdings.





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




5


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**




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




*Going
      Concern* .
      The
      accompanying unaudited condensed consolidated financial statements have been
      prepared on a going-concern basis, which contemplates the realization of assets
      and the satisfaction of liabilities in the normal course of business. The
      Company has incurred recurring operating losses, had negative operating cash
      flows and has not recognized any revenues since July 24,
      1998 (“Inception”). In addition, the Company had an accumulated deficit
      during the development stage of $8,613,579 at June 30, 2008. These factors
      raise
      substantial doubt about the Company’s ability to continue as a going
      concern.





The
      Company’s continuation as a going concern is dependent on its ability to obtain
      additional financing to fund operations, implement its business model, and
      ultimately, to attain profitable operations. The Company intends to obtain
      additional financing to fund its operations through equity or debt financing
      or
      a corporate partnership for its lead topical drug, Ketotransdel TM .
      However, there is no assurance that sufficient financing will be available
      or,
      if available, on terms that would be acceptable to the Company.





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





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





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





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





*Concentrations
      of Credit Risk.* Financial instruments that potentially subject the Company to a concentration
      of
      credit risk consist primarily of cash and cash equivalents. In order to minimize
      the Company’s risk related to the cash equivalents, they are maintained in a
      money market demand account. Due to the short-term nature of this investment,
      the Company believes that there is no material exposure to interest rate risk.
      The Company maintains its cash and cash equivalents at a high-quality
      institution that is insured by the Federal Deposit Insurance Corporation
      (“FDIC”). At June 30, 2008, the Company had approximately $6,610,629 on deposit
      in excess of the federally insured limit of $100,000. The Company performs
      an
      ongoing evaluation of this institution to limit its concentration of risk
      exposure.





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





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


6


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**




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





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





As
      of
      June 30, 2008, the Company had not generated any revenues and the Company does
      not anticipate that it will generate any revenues until one or more of its
      drug
      candidates are approved by the U.S. Food and
      Drug Administration (“FDA”) and effective sales and marketing support
      are in place. The FDA approval process is highly uncertain and the Company
      cannot estimate when it will generate revenues at this time.





*Stock-Based
      Compensation.* Effective January 1, 2006, the Company adopted SFAS No. 123 (revised
      2004), *Share-Based
      Payment* ,
      (‘‘SFAS
      No. 123R’’), which is a revision of SFAS No. 123, *Accounting
      for Stock-Based Compensation* .
      SFAS
      No. 123R supersedes Accounting Principles Board Opinion (“APB”) No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      amends SFAS No. 95, *Statement
      of Cash Flows* .
      SFAS
      123R requires all share-based payments to employees, including grants of
      employee stock options and restricted stock grants, to be recognized in the
      financial statements based upon their fair values. The Company recorded total
      stock-based compensation of $412,089, $0 and $596,611 for the six months ended
      June 30, 2008 and 2007 and for the period from Inception to June 30, 2008,
      respectively, for options and restricted stock granted and vested which is
      included in general and administrative expenses and research and development
      expenses in the amount of $129,366 and $282,723, respectively, for the six
      months ended June 30, 2008 and $192,945 and $403,666, respectively, for the
      period from Inception to June 30, 2008. The fair value of the unvested stock
      option grants amounted to approximately $885,000 as of June 30,
      2008.




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





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





Basic
      and
      diluted net loss applicable to common stock per share is computed using the
      weighted average number of common shares outstanding during the period. Common
      stock equivalents (prior to application of the treasury stock, if converted
      method) from stock options, warrants and convertible notes were 1,812,730 and
      1,523,076 for the six months ended June 30, 2008 and 2007, respectively, are
      excluded from the calculation of diluted net loss per share for all periods
      presented because the effect is anti-dilutive.  7


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**




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





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





**Note
      5. Notes Payable**





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





In
      May
      2007, the holders of the Stockholders’ Notes and related warrants forgave the
      amounts due and forfeited the related warrants. In connection with the
      forgiveness, the Company recorded additional paid-in capital of $241,701 equal
      to the value of the Stockholders’ Notes and related accrued interest. Interest
      expense on the Stockholders’ Notes was $3,150 and $15,401 for six months ended
      June 30, 2007 and the period from Inception to June 30, 2008,
      respectively.





In
      May
      and June 2007, the Company issued convertible notes payable to various lenders
      for an aggregate amount of $1,500,000 (collectively, the “2007 Notes”). Each of
      the 2007 Notes included interest at 7% per annum and were to mature on December
      16, 2007 (“Maturity Date”). However, as a result of the Merger and Private
      Placement (see Note 6), the entire outstanding principal amount and accrued
      interest was converted into the Company’s common stock at a conversion price
      equal to $1.00 per share, which resulted in the issuance of 1,530,177 shares.
      Also, the Company recorded a debt discount of $1,530,177, which was amortized
      immediately to interest expense upon the conversion of the 2007 Notes. Excluding
      the debt discount, interest expense on the 2007 Notes was $7,451 and $30,177
      for
      the six months ended June 30, 2007 and the period from Inception to June 30,
      2008.




**Note
      6. Stockholders’ Equity**





On
      May
      12, 2008, the Company sold 1,818,180 shares of common stock for gross proceeds
      of $4,000,000 through a follow-on private placement (the “Follow-on Private
      Placement”) to accredited investors. In addition, the investors received
      warrants to purchase 227,272 shares of common stock for a period of five years
      at a cash and cashless exercise price of $4.40 and $5.50 per share,
      respectively. In connection with the Follow-On Private Placement, the Company
      incurred expenses of $22,470, which was recorded as a reduction of additional
      paid-in capital.





Concurrent
      with the Merger, the Company sold 2,071,834 shares of common stock for gross
      proceeds of $4,143,667 through a private placement (the “Private Placement”). In
      addition, the investors received warrants to purchase 517,958 shares of common
      stock for a period of five years at a cash and cashless exercise price of $4.00
      and $5.00 per share, respectively. In connection with the Private Placement,
      the
      Company incurred placement agent fees and other related expenses totaling
      $342,105 of which $36,229 was incurred in 2008, and issued warrants to purchase
      up to 33,750 shares of common stock for a period of three years at a cash and
      cashless exercise price of $4.00 and $5.00 per share, respectively.




8


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**




**Note
      6. Stockholders’ Equity (continued)**





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





In
      accordance with EITF No. 00-18, 100,000 of the 275,000 shares of common stock
      are subject to remeasurement on a periodic basis as the performance condition
      for these shares is not satisfied until the end of the contract term. The
      remeasurement for the 100,000 shares was completed in two stages. First, in
      February 2008, the consulting agreement associated with these shares was
      terminated and as a condition of the termination, the firm retained 50,000
      shares and transferred the remaining 50,000 shares to another firm. Therefore,
      since the performance obligation related to the 50,000 shares, retained by
      the
      terminated consulting firm, is complete, they were revalued as of the February
      termination date to $60,000, which was the fair market value of the shares
      on
      the termination date. Second, the remaining 50,000 shares that were transferred
      to the other firm will be utilized for the payment of investor communications
      services to be provided through September 2008. In accordance with the related
      agreement, the Company initially recorded the value of these shares at $100,000,
      which was revalued at June 30, 2008 to $92,500 (the estimated fair market value
      based on the closing market price). In the aggregate, the remeasurement of
      the
      50,000 shares earned and the transfer of the remaining 50,000 shares resulted
      in
      a reduction of additional paid in capital of $47,500 ($200,000 original value
      less $152,500 remeasured value). For the six months ended June 30, 2008 and
      2007
      and for the period from Inception through June 30, 2008, the Company amortized
      $303,807, $0 and $505,058, respectively, of prepaid consulting fees which
      is included as part of selling, general and administrative
      expenses.





On
      April
      24, 2008, the Company entered into a one-year consulting agreement with a firm
      to provide the Company with financial advisory services. As compensation for
      the
      services, the Company issued a three-year warrant to purchase 5,000 shares
      of
      the Company’s common stock at a cash and cashless price of $2.00 per share. The
      fair value of the warrant, determined based on the Black-Scholes pricing model,
      was valued at $1,310, which is being amortized over the one-year
      term.





**Note
      7. Stock Option Plans**





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




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


9


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**




**Note
      7. Stock Option Plans** , **continued**




A
      summary
      of the status of the Plan for the six months ended June 30, 2008 is as
      follows:





**Number**
              **of Shares**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**Options
                outstanding – Beginning of Period
            
            
            610,000
            
            $
            2.01Granted
            
            
            600,000
            
            
            2.00Exercised
            
            
            —
            
            
            —Cancelled
            
            
            (200,000
            )
            
            (2.00
            )Options
                outstanding – End of Period
            
            
            1,010,000
            
            $
            2.01Options
                exercisable – End of Period
            
            
            125,091Weighted
                average remaining contractual life of the outstanding options – End
                of period
            
            
            9.4
                yearsAggregate
                intrinsic value – End of Period
            
            
            —




All
      options granted to date expire on the ten year anniversary of the issuance
      date
      and vest on a quarterly basis over one to three years.    The Company
      uses the Black-Scholes option pricing model to estimate the grant-date fair
      value of share-based awards under SFAS No. 123R. The Black-Scholes model
      requires subjective assumptions regarding future stock price volatility and
      expected time to exercise, along with assumptions about the risk-free interest
      rate and expected dividends, which affect the estimated fair values of the
      Company’s stock-based awards. The expected term of options granted was
      determined in accordance with the simplified approach as defined by SAB No.
      107, *Share-Based
      Payment* ,
      as the
      Company has very limited historical data on employee exercises and post-vesting
      employment termination behavior. The expected volatility is based on the
      historical volatilities of the common stock of comparable publicly traded
      companies based on the Company’s belief that it currently has limited historical
      data regarding the volatility of its stock price on which to base a meaningful
      estimate of expected volatility. The risk-free rate selected to value any
      particular grant is based on the U.S. Treasury rate that corresponds to the
      expected term of the grant effective as of the date of the grant. The Company
      used 0% as an expected dividend yield assumption. These factors could change
      in
      the future, affecting the determination of stock-based compensation expense
      in
      future periods. Utilizing these assumptions, the fair value is determined at
      the
      date of grant. In accordance with SFAS No. 123R, the financial statement effect
      of forfeitures is estimated at the time of grant and revised, if necessary,
      if
      the actual effect differs from those estimates. As of June 30, 2008,
      management’s future estimates are that the effect of forfeitures on the
      financial statements will be insignificant. As of June 30, 2008, there was
      approximately $885,000 of total unrecognized compensation expense related to
      unvested stock-based compensation under the Plan. That expense is expected
      to be
      recognized over the weighted-average period of 2.9 years.





Furthermore,
      in August 2007, the Company issued a restricted stock grant to an executive
      of
      the Company for 195,313 shares of the Company’s common stock upon closing of the
      Merger (See Note 3). The restricted stock grant was scheduled to vest 100%
      on
      March 17, 2009 and valued at approximately $391,000, which was being amortized
      over the 18 month period. However, on April 4, 2008, the Company’s Board of
      Directors waived any restrictions or forfeiture conditions on the shares of
      restricted common stock in conjunction with the executive’s resignation and a
      separation agreement entered into between the Company and the executive.
      Therefore, the remaining unrecognized expense of $236,000 was fully amortized
      as
      a result of the waiver of the restrictions and forfeiture conditions.


10


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**




**Note
      8.    Stock Warrants**





In
      addition to the warrants issued in conjunction with the Private Placement and
      the Follow-On Private Placement, the Company issued a warrant to purchase shares
      of its common stock to a firm in connection with a consulting agreement at
      an
      exercise price of $4.00 (or cashless exercise price of $5.00). The expiration
      of
      the outstanding warrants occurs through May 2013 at various periods (see Note
      6).





A
      summary
      of the status of the warrants for the period ended June 20, 2008, is as
      follows:


**Number of**
              **Shares**
              **Subject to**
              **Warrants**
              **Outstanding**
            
            **Weighted-**
              **Average**
              **Exercise**
              **Price**Warrants
                outstanding – Beginning of Period
            
            
            570,458
            
            $
            4.00Granted
            
            
            232,272
            
            
            4.35Exercised
            
            
            —
            
            
            —Expired
            
            
            —
            
            
            —Warrants
                outstanding – End of Period
            
            
            802,730
            
            $
            4.10Weighted
                average remaining contractual life of the outstanding warrants – End
                of Period
            
            
            4.32
                years




**Note
      9. Recent Accounting Pronouncements**





The
      following pronouncements have been issued by the Financial Accounting Standards
      Board (“FASB”):





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





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





**Note
      10. Commitments and Contingencies**





Indemnities
      and Guarantees





The
      Company has made certain indemnities and guarantees, under which it may be
      required to make payments to a guaranteed or indemnified party, in relation
      to
      certain actions or transactions. The Company indemnifies its directors,
      officers, employees and agents, as permitted under the laws of the State of
      Delaware. The duration of the guarantees and indemnities varies, and is
      generally tied to the life of the agreement. These guarantees and indemnities
      do
      not provide for any limitation of the maximum potential future payments the
      Company could be obligated to make. Historically, the Company has not been
      obligated nor incurred any payments for these obligations and, therefore, no
      liabilities have been recorded for these indemnities and guarantees in the
      accompanying unaudited condensed consolidated balance sheet as of June 30,
      2008.


11


**TRANSDEL
      PHARMACEUTICALS, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**




**Note
      10. Commitments and Contingencies (continued)**




Mediation
      Settlement





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




Cato
      Research Ltd. Agreement





In
      accordance with the Master Services Agreement, dated April 10, 2007, between
      the
      Company and Cato Research Ltd., a contract research and development organization
      (“Cato”), the Company entered into a clinical trial services agreement with Cato
      on June 10, 2008 (“Agreement”). Under the Agreement, Cato will serve as the
      Company’s strategic partner and contract research organization in conducting the
      Company’s Phase 3 clinical program for KetotransdelTM, the Company’s novel
      topical cream based non-steroidal anti-inflammatory drug for pain. Pursuant
      to
      the Agreement, the Company will make payments to Cato upon its completion of
      certain specified milestones. If all milestones under the Agreement are
      completed and the estimated pass-through costs are incurred, the Company’s total
      costs under the Agreement are estimated at $3.3 million. In addition, any
      changes to budget parameters identified in the Agreement may result in
      additional costs to the Company. There can be no assurance that Cato will
      complete its performance under the Agreement, and to the extent that such
      performance is completed that the clinical trial results for KetotransdelTM will
      be satisfactory.


12


**Item
      2. Management’s Discussion and Analysis of Financial Condition and
      Results of Operations**




**Overview**




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




**Plan
      of Operations**





For
      the next twelve months, our current operating plan is focused on the development
      of our lead drug, KetotransdelTM for the indication of acute musculoskeletal
      pain. On June 16, 2008, we announced that we initiated our Phase 3 clinical
      program for our novel analgesic and anti-inflammatory topical cream,
      KetotransdelTM, which contains ketoprofen. The first Phase 3 study will consist
      of a randomized, double-blind, placebo controlled trial to evaluate the efficacy
      and safety of KetotransdelTM in acute soft tissue injuries of the upper and lower
      extremities over a one week treatment period with a one week post-treatment
      follow-up for safety. The multi-center trial will be conducted at approximately
      25 to 35 sites, mainly in the United States and potentially in Canada, and
      will
      enroll approximately 350 patients, randomized 1:1 ratio KetotransdelTM (active)
      versus placebo vehicle (identical to active without the drug ketoprofen). The
      primary efficacy endpoint is the difference in the change of baseline of pain
      during normal activity for the past 24 hours from measurement at the Day 3
      clinical visit between active and placebo measured by using the Visual Analogue
      Scale (VAS), a well known and validated instrument for pain measurement.
      Secondary endpoints include safety assessments and other efficacy parameters
      measured by VAS. As of July 31, 2008, we have initiated two study sites for
      this
      Phase 3 study. We would anticipate reporting top-line results in the second
      half
      of 2009. In addition, as required by the FDA, we will be initiating a second
      Phase 3 clinical study in acute musculoskeletal pain, potentially for the
      treatment of acute flare in osteoarthritis patients. We are currently assessing
      the design and timing of this additional study that will support the
      registration of KetotransdelTM in the United States.




If
      and
      when the FDA approves KetotransdelTM for treatment of acute pain, we intend
      to pursue FDA approval of KetotransdelTM for other indications. We believe that
      the clinical success of KetotransdelTM will facilitate the use of the TransdelTM
delivery technology in other products. We are also investigating other
      drug candidates and treatments for transdermal delivery using the TransdelTM
platform technology for products in pain management and other therapeutic areas.
      Furthermore, we are exploring potential partnerships with U.S. and foreign
      based
      companies that have sales and marketing infrastructures to support KetotransdelTM
in the event that the product is approved and commercialized. We are also
      looking to out-license our TransdelTM drug delivery technology for the
      development and commercialization of additional innovative drug products. In
      addition, we are exploring opportunities in the cosmeceutical industry which
      may
      use our patented delivery technology. There can be no assurance that any of
      these activities will lead to definitive agreements.





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




**Liquidity
      and Capital Resources**





Since
      July 24, 1998 (“Inception”) through June 30, 2008, we have incurred
      losses of approximately $8.6 million. These losses are primarily due to general
      and administrative and research and development expenses. Historically, our
      operations have been financed through capital contributions and debt and equity
      financings.





As
      of
      June 30, 2008, we had $6.7 million in cash. On each of September 17, 2007,
      and
      October 10, 2007, we completed private placements to selected institutional
      and individual investors of our common stock and warrants. In connection
      with the private placements, we raised approximately $3.8 million (net of
      placement agent fees and other costs aggregating $342,105) from the issuance
      of
      2,071,834 shares of common stock and detachable redeemable warrants to purchase
      517,958 shares of our common stock at a cash exercise price of $4.00 per share
      and a cashless exercise price of $5.00 per share. In May 2008, we completed
      another private placement to accredited investors, where we raised gross
      proceeds of $4.0 million from the issuance of 1,818,180 shares of common stock
      and detachable warrants to purchase 227,272 shares of our common stock at a
      cash
      exercise price of $4.40 per share and a cashless exercise price of $5.50 per
      share.





We
      are
      assessing our financing needs for the foreseeable future. In order to
      execute our operating plan over the next twelve months, which includes the
      conduct of the Phase 3 clinical program, we will be required to raise additional
      funds to support our operations. This funding requirement raises substantial
      doubt about our ability to continue as a going concern. The accompanying
      unaudited condensed consolidated financial statements have been prepared on
      a
      going-concern basis, which contemplates the realization of assets and the
      satisfaction of liabilities in the normal course of business.


13


Our
      continuation as a going concern is dependent on our ability to obtain additional
      financing to fund operations, implement our business model, and ultimately,
      to
      attain profitable operations. We intend to obtain additional financing to fund
      our operations through, and without limitation to, equity or debt
      financing, funding from a corporate partnership or licensing arrangement or
      any
      similar financing. There can be no assurance that such financing will be
      available on terms favorable to us or at all. If adequate financing is not
      available, we will have to delay, postpone or terminate the clinical
      program and curtail general and administrative operations, which would have
      a
      material adverse effect on us.




**Critical
      Accounting Policies**




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




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




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





*Stock-Based
      Compensation.* Effective January 1, 2006, we adopted Statement of Financial
      Accounting Standards (“SFAS”) No. 123 (revised 2004), *Share-Based
      Payment* ,
      (“SFAS No. 123R”), which is a revision of SFAS No. 123, *Accounting
      for Stock-Based Compensation* . SFAS
      No. 123R supersedes Accounting Principles Board No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      amends SFAS No. 95, *Statement
      of Cash Flows* .
      SFAS
      No. 123R requires all share-based payments to employees, including grants of
      employee stock options and restricted stock grants, to be recognized in the
      financial statements based upon their fair values. We use the Black-Scholes
      option pricing model to estimate the grant-date fair value of share-based awards
      under SFAS No. 123R. Fair value is determined at the date of grant. In
      accordance with SFAS No. 123R, the financial statement effect of forfeitures
      is
      estimated at the time of grant and revised, if necessary, if the actual effect
      differs from those estimates. As of June 30, 2008, management estimates that
      the
      effect of forfeitures on the unaudited condensed financial statements will
      be
      insignificant.





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





*Beneficial
      Conversion Feature.* The
      convertible features of the convertible notes provided for a rate of conversion
      that was below market value (see Note 5). Such feature is normally characterized
      as a “beneficial conversion feature” (“BCF”). Pursuant to EITF No. 98-5 *Accounting
      For Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratio* and EITF
      No. 00-27, *Application
      of EITF Issue No. 98-5 To Certain Convertible Instruments,* the
      relative fair values of the BCFs have been recorded as a discount from the
      face
      amount of the respective debt instrument. We recorded the corresponding
      debt discount related to the BCF as interest expense, in fiscal year 2007,
      when
      the related instrument was converted into its common
      stock.


14


**Off-Balance
      Sheet Arrangements**




Since our
      inception, except for standard operating leases, we have not engaged
      in any off-balance sheet arrangements, including the use of structured finance,
      special purpose entities or variable interest entities.





**Recent
      Accounting Pronouncements**




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





**Item
      4T. Controls and Procedures.**




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




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




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


15


**PART
      II**


**OTHER
      INFORMATION**




**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**




Except
      as
      previously included in our Current Reports on Form 8-K filed with the
      Securities and Exchange Commission on May 15, 2008, we have not sold any
      equity securities during the period covered by this quarterly report on Form
      10-Q that were not registered under the Securities Act of 1933, as
      amended.





**Item
      6.**  **Exhibits**




**Exhibit**
              **Number**
            
            **Description**10.1*
            
            Clinical
                Trial Services Agreement by and between Transdel Pharmaceuticals,
                Inc. and
                Cato Research Ltd.31.1*
            
            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.




16


**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.




Transdel
                Pharmaceuticals, Inc.Dated:
                August 11, 2008
            By:
            /s/ Juliet
              SinghJuliet
                Singh, Ph.D.
              Chief
                Executive Officer
              (Principal
                Executive Officer)







17


**EXHIBIT
      INDEX**




**Exhibit**
                **Number**
              
              **Description**10.1*
              
              Clinical
                  Trial Services Agreement by and between Transdel Pharmaceuticals,
                  Inc. and
                  Cato Research Ltd.31.1*
              
              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.