|
Prospectus
Supplement No. 4
|
Filed
pursuant to Rule 424(b)(3)
|
|
(to
Prospectus dated February 8, 2008)
|
Registration
No. 333-147930
|
TRANSDEL
PHARMACEUTICALS, INC.
4,421,219
Shares of Common Stock
This
prospectus supplement relates to the sale by the selling stockholders identified
in this Prospectus of up to 4,421,219 shares of our common stock and should
be
read in conjunction with the prospectus dated February 8, 2008, as supplemented
by prospectus supplement No. 1, dated May 2, 2008, prospectus supplement
No. 2,
dated May 29, 2008 and prospectus supplement No. 3, dated August 19, 2008
(collectively, the “Prospectus”), which is to be delivered with this prospectus
supplement. This prospectus supplement updates the information in the
Prospectus. If there is any inconsistency between the information in the
Prospectus and this prospectus supplement, you should rely on the information
in
this prospectus supplement.
The
shares that are the subject of the Prospectus have been registered to permit
their resale to the public by the selling stockholders named in the Prospectus.
The prices at which the selling stockholders may sell shares will be determined
by the prevailing market price for the shares or in negotiated transactions.
We
are not selling any shares of common stock in this offering, and therefore
will
not receive any proceeds from this offering, other than the exercise price,
if
any, to be received upon exercise of the warrants referred to in the
Prospectus.
This
prospectus supplement includes the following documents, as filed by us with
the
Securities and Exchange Commission:
| · |
Our
Definitive Proxy Statement filed on October 1,
2008
|
| · |
Our
Current Report on Form 8-K filed on November 7,
2008
|
| · |
Our
Quarterly Report on Form 10-Q filed on November 14,
2008
|
The
exhibits to the Definitive Proxy Statement, the Current Report on Form 8-K
and
Quarterly Report on Form 10-Q are not included with this prospectus supplement
and are not incorporated herein by reference.
Investing
in our common stock involves a high degree of risk. Before making any investment
in our common stock, you should read and carefully consider the risks described
in the Prospectus under “Risk Factors” beginning on page 3 of the Prospectus, as
updated by this prospectus supplement.
You
should rely only on the information contained in the Prospectus, this prospectus
supplement or any other prospectus supplement or amendment thereto. We have
not
authorized anyone to provide you with different information.
Our
common stock is quoted on the regulated quotation service of the OTC Bulletin
Board under the symbol “TDLP.OB”. On November 19, 2008, the last reported sale
price of our common stock as reported on the OTC Bulletin Board was $0.70
per
share.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of the Prospectus or this prospectus supplement. Any representation
to
the contrary is a criminal offense.
The
date
of this prospectus supplement is November 20, 2008.
SCHEDULE
14A
(Rule
14a-101)
Proxy
Statement Pursuant to Section 14(a) of
the
Securities Exchange Act of 1934
Filed
by
the registrant x
Filed
by
a party other than the registrant o
Check
the
appropriate box:
| o |
Preliminary
Proxy Statement
|
| o |
Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
|
| x |
Definitive
Proxy Statement
|
| o |
Definitive
Additional Materials
|
| o |
Soliciting
Material Pursuant to §240.14a-12
|
TRANSDEL
PHARMACEUTICALS, INC.
(Name
of
registrant as specified in its charter)
(Name
of
person(s) filing proxy statement, if other than the registrant)
Payment
of filing fee (check the appropriate box):
| x |
No
fee required
|
| o |
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
|
| (1) |
Title
of each class of securities to which transaction
applies:
|
| (2) |
Aggregate
number of securities to which transaction
applies:
|
| (3) |
Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is
calculated and state how it was
determined):
|
| (4) |
Proposed
maximum aggregate value of
transaction:
|
| (5) |
Total
fee paid:
|
|
o
|
Fee
paid previously with preliminary materials.
|
|
o
|
Check
box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid
previously. Identify the previous filing by registration statement
number,
or the form or schedule and the date of its filing.
|
| (1) |
Amount
previously paid:
|
| (2) |
Form,
schedule or registration statement
no.:
|
| (3) |
Filing
party:
|
| (4) |
Date
filed:
|
________________
Dear
Stockholder:
You
are cordially invited to attend the Annual Meeting of Stockholders of Transdel
Pharmaceuticals, Inc. (the “Corporation”) to be held at the La Jolla Executive
Tower Conference Center, 4225 Executive Square, Suite 495, La Jolla, California
92037 on Wednesday, November 5, 2008, at 1:00 p.m. (Pacific time). At this
Annual Meeting, we will ask you to consider and vote upon (i) the election
of
three directors to serve one-year terms expiring at the next annual meeting
of
stockholders in 2009, (ii) an amendment to the 2007 Incentive Stock and Awards
Plan which would increase the number of shares of common stock available for
issuance under the Plan and (iii) to ratify the appointment of KMJ Corbin &
Company as our independent registered public accounting firm for fiscal
2008.
Your
vote is important. Whether or not you plan to attend the Annual Meeting, we
recommend that you complete, sign, date and return the enclosed proxy card
to
ensure that your shares are represented at the Annual Meeting. The enclosed
proxy statement provides you with detailed information about the proposals
submitted for your consideration. We urge you to read it carefully.
On
behalf of your Board of Directors, I thank you for your support and appreciate
your consideration.
|
Very
truly yours,
|
|
| /s/ Juliet Singh, Ph.D. | |
|
Juliet
Singh, Ph.D.
|
|
|
President
and Chief Executive Officer
|
October
1, 2008
2
________________
NOTICE
OF THE ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD AT 1:00 P.M., WEDNESDAY, NOVEMBER 5, 2008
________________
NOTICE
IS HEREBY GIVEN
that the
Annual Meeting of Stockholders of Transdel Pharmaceuticals, Inc, a Delaware
corporation (the “Corporation”), will be held at the La Jolla Executive Tower
Conference Center, 4225 Executive Square, Suite 495, La Jolla, California 92037
on Wednesday, November 5, 2008, at 1:00 p.m. (Pacific time), for the following
purposes:
| 1. |
To
elect three directors to hold office for a term of one
year.
|
| 2. |
To
approve an amendment to the 2007 Incentive Stock and Awards Plan
(the
“Plan”) to increase the number of shares of the Corporation’s common stock
available for issuance under the Plan from 1,500,000 to 3,000,000
shares.
|
| 3. |
To
ratify the appointment of KMJ Corbin & Company as the Corporation’s
independent registered public accounting firm for fiscal
2008.
|
| 4. |
To
transact such other business as may properly come before the meeting
or
any adjournment thereof.
|
YOUR
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSALS PRESENTED
IN THE PROXY STATEMENT.
The
Board
of Directors has fixed the close of business on October 3, 2008 as the record
date for the determination of stockholders who are entitled to notice of and
to
vote at the meeting.
A
copy of
the Corporation’s Annual Report on Form 10-KSB for the year ended December 31,
2007 is enclosed.
To
assure
your representation at the meeting, please sign, date and return your proxy
in
the enclosed envelope, which requires no postage if mailed in the United
States.
|
BY
ORDER OF THE BOARD OF DIRECTORS,
|
|
| /s/ John T. Lomoro | |
|
John
T. Lomoro
|
|
|
Chief
Financial Officer
|
3
4225
Executive Square, Suite 485
La
Jolla,
California 92037
PROXY
STATEMENT
ANNUAL
MEETING OF STOCKHOLDERS - NOVEMBER 5, 2008
This
Proxy Statement is furnished by the Board of Directors (the “Board”) of Transdel
Pharmaceuticals, Inc., a Delaware corporation (the “Corporation”). The Proxy
Statement is being sent to the Corporation’s stockholders in connection with the
solicitation of proxies by the Board, on behalf of the Corporation, to be used
at the Annual Meeting of Stockholders, which will be held at the La Jolla
Executive Tower Conference Center, 4225 Executive Square, Suite 495, La Jolla,
California 92037 on Wednesday, November 5, 2008, at 1:00 p.m. (Pacific
time).
This
Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders
and proxy card are being mailed to the Corporation’s stockholders on or about
October 10, 2008. A copy of the Corporation’s Annual Report to Stockholders on
Form 10-KSB for the year ended December 31, 2007 is also enclosed.
You
are
requested to complete, date and sign the accompanying proxy and return it to
the
Corporation in the enclosed envelope. The proxy may be revoked at any time
prior
to the meeting by written notice to the Corporation bearing a later date than
the date on the proxy or by attending the meeting and voting in person. Where
instructions are indicated, proxies will be voted in accordance therewith.
Where
no instructions are indicated, proxies will be voted for the proposals set
forth
below.
The
Board
has fixed the close of business on October 3, 2008 as the record date (the
“Record Date”) for the determination of stockholders who are entitled to notice
of and to vote at the meeting. As of the Record Date, the outstanding number
of
voting securities of the Corporation was 15,545,184 shares of common stock,
par
value $0.001 per share (“Common Stock”). Holders of a majority of our
outstanding shares of Common Stock must be present or represented by proxy
at
the meeting to constitute a quorum. For each share held as of the Record Date,
each holder of Common Stock is entitled to one vote per share of Common Stock.
Our stock transfer books will remain open between the record date and the date
of the annual meeting. A list of stockholders entitled to vote at the annual
meeting will be available for inspection at the annual meeting and during
ordinary business hours for a period of ten days prior to the annual meeting
at
our executive offices located at 4225 Executive Square, Suite 485, La Jolla,
California 92037.
For
Proposal 1, the three nominees receiving the highest number of votes, in person
or by proxy, will be elected as directors. A majority of the votes of the total
number of the shares of Common Stock present at the meeting, in person or by
proxy, will be necessary for the approval of Proposal 2 regarding the amendment
to increase the number of shares of Common Stock authorized for issuance under
the Plan. A majority of the votes of the total number of the shares of Common
Stock present at the meeting, in person or by proxy, will be necessary for
the
approval of Proposal 3 regarding ratifying the appointment of KMJ Corbin &
Company as the Corporation’s independent registered public accounting firm for
fiscal 2008.
All
votes
will be tabulated by the inspector of election appointed for the meeting, who
will separately tabulate affirmative and negative votes, abstentions and “broker
non-votes.” A broker non-vote occurs when you fail to provide voting
instructions for shares you hold in “street name.” Under those circumstances,
your broker may be authorized to vote for you on some routine matters but is
prohibited from voting on other matters. Those items for which your broker
cannot vote result in broker non-votes. Abstentions and broker non-votes are
counted as present for purposes of determining the presence or absence of a
quorum for the transaction of business. For proposals that require an
affirmative vote of the majority of shares present and entitled to vote,
abstentions will be counted towards the number of votes cast and will have
the
same effect as negative votes. However, abstentions will have no impact on
the
election of directors. Broker non-votes will not be counted for purposes of
determining whether a proposal has received the requisite vote.
4
MATTERS
TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL
NUMBER 1:
ELECTION
OF DIRECTORS
The
members of the Board of Directors are elected annually for a one-year term.
The
stockholders will elect three directors at the meeting, each to serve for a
one-year term expiring at the Annual Meeting of Stockholders in 2009 or until
their successor has been elected and qualified, or until the earliest of their
death, resignation or retirement. The Corporation’s certificate of incorporation
provides that the total number of directors constituting the entire Board shall
not be less than one nor more than ten, with the then authorized directors
being
fixed from time to time by the Board. Currently, the Board is comprised of
three
directors, each of which is a current nominee.
Nominees
For Election As Directors
Unless
instructed otherwise, the proxies named on the enclosed proxy card intend to
vote the shares that they represent to elect Juliet Singh, Ph.D., Jeffrey J.
Abrams, M.D. and Anthony S. Thornley to serve as directors.
Juliet
Singh, Ph.D.,
has been
a director and our president and chief executive officer since our merger with
Transdel Pharmaceuticals Holdings, Inc. on September 17, 2007. Dr. Singh was
the
Chief Executive Officer of Transdel Pharmaceuticals Holdings, Inc. since 2005.
During 2004, Dr. Singh was Chief Executive Officer of Global Strategic Medical
Consulting. From 2000 to 2003, Dr. Singh was a corporate officer-vice president
of regulatory affairs and quality assurance of Collateral Therapeutics, Inc.,
a
developer of non-surgical gene therapy products for the treatment of
cardiovascular disease, which was acquired by Schering AG in 2002. From 1996
to
2000, Dr. Singh was the director of worldwide regulatory affairs for Allergan
Corporation, where she oversaw the registration of BOTOX™ in the United States,
Canada, Europe Asia, and South America. Prior to joining Allergan, Dr. Singh
was
the assistant director of regulatory affairs for Baxter Healthcare Corp., where
she provided leadership in obtaining worldwide regulatory approval for
recombinant factor VIII. Dr. Singh holds a Ph.D. in endocrinology from the
University of California, Davis.
Jeffrey
J. Abrams, M.D.,
MPH,
has
been a director since our merger with Transdel Pharmaceuticals Holdings, Inc.
on
September 17, 2007. Dr. Abrams has been a director of Transdel Pharmaceuticals
Holdings, Inc. since 1998. Prior to joining Transdel Pharmaceuticals Holdings,
Inc., Dr. Abrams was a practicing primary care clinician for over twenty years.
Dr. Abrams received a B.A. from the State University of New York at Buffalo,
an
M.D. from the Albert Einstein College of Medicine and an M.P.H. from San Diego
State University.
Anthony
S. Thornley,
has been
a director since November 6, 2007. Mr. Thornley currently serves on the Board
of
Directors at Callaway Golf Incorporated, Cavium Networks Inc. and Airvana Inc.
From February 2002 to June 2005, he served as President and Chief Operating
Officer of QUALCOMM Incorporated, a wireless communication technology and
integrated circuit company. From July 2001 to February 2002 he served as Chief
Financial Officer and Chief Operating Officer of QUALCOMM, and from March 1994
to February 2002, he was the Chief Financial Officer of QUALCOMM. Prior to
joining QUALCOMM, Mr. Thornley was with Nortel Networks, a telecommunications
equipment manufacturer, for sixteen years in various financial and information
systems management positions, including Vice President Finance and IS, Public
Networks, Vice President Finance NT World Trade and Corporate Controller Nortel
Limited. He has also worked for Coopers and Lybrand in public accounting. Mr.
Thornley received his BS degree in Chemistry from the University of Manchester,
England.
Election
of the directors of the Corporation will require the affirmative vote of a
plurality of voting shares held by stockholders present in person or represented
by proxy at the meeting and entitled to vote thereat. Each of the director
nominees have consented to be named in the Proxy Statement, and have indicated
their willingness to serve as a director if elected.
THE
BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH OF ITS NOMINEES FOR
DIRECTORS.
5
PROPOSAL
NUMBER 2:
APPROVAL
OF AMENDMENT TO THE 2007 INCENTIVE STOCK AND AWARDS PLAN
The
2007
Incentive Stock and Awards Plan of the Corporation (the “Plan”) was approved by
the Board of Directors (the “Board”) and the stockholders of the Corporation on
September 17, 2007 and currently provides for the granting of stock options
and
awards to purchase up to a maximum of 1,500,000 shares of Common Stock (subject
to adjustment in the event of certain capital changes). A copy of the amendment
to the Plan, as proposed, is attached hereto as Exhibit
A.
The
Board
has approved an amendment to the Plan, subject to the stockholders’ approval, to
increase the number of shares covered by, and reserved for issuance under,
the
Plan from 1,500,000 shares to 3,000,000 shares, to enable the Corporation to
make grants under the Plan, principally to its current and future employees
and
directors.
Stockholders
are being asked to approve the proposed amendment at this meeting. If the
stockholders approve such amendment, there will be a balance of 1,794,687 shares
available for grant under the Plan.
The
following is a summary of the terms of the Plan as currently in
effect.
General.
Purpose.
The Plan
is intended to provide an incentive, to retain the Corporation’s officers,
directors, employees, consultants and advisors, to attract new directors,
officers, consultants, advisors and employees whose services are considered
valuable, to encourage the sense of proprietorship and to stimulate the active
interest of such persons in the development and financial success of the
Corporation and its subsidiaries. It is further intended that certain options
granted pursuant to the Plan constitute incentive stock options (the “Incentive
Options”) within the meaning of Section 422 of the Internal Revenue Code of 1986
(the “Code”) while certain other options granted pursuant to the Plan will be
nonqualified stock options (the “Nonqualified Options”). Incentive Options and
Nonqualified Options are hereinafter referred to collectively as
“Options.”
Administration.
The
Board will appoint and maintain as administrator of the Plan a committee (the
“Committee”), which will serve at the pleasure of the Board. The Committee,
subject to certain provisions of the Plan, has full power and authority to
designate recipients of Options and restricted stock (“Restricted Stock”) and to
determine the terms and conditions of the respective Option and Restricted
Stock
agreements (which need not be identical) and to interpret the provisions and
supervise the administration of the Plan. The Committee also has the authority
to designate which Options granted under the Plan will be Incentive Options
and
which will be Nonqualified Options. In the event that for any reason the
Committee is unable to act or if there shall be no such Committee, or if the
Board otherwise determines to administer the Plan, then the Plan shall be
administered by the Board, and references herein to the Committee shall be
deemed to be references to the Board.
Eligible
Participants.
The
persons eligible for participation in the Plan as recipients of Options (the
“Optionees”) or Restricted Stock (the “Grantees” and together with Optionees,
the “Participants”) include directors, officers and employees of, and
consultants and advisors to, the Corporation or any subsidiary; provided that
Incentive Options may only be granted to employees of the Corporation and any
subsidiary. The Plan currently has seven Participants.
Shares
of the Corporation’s Common Stock Authorized Under the
Plan.
The Plan
authorizes the grant of stock options to Participants with respect to a maximum
of 1,500,000 shares of Common Stock. The maximum number of shares of Common
Stock that may be subject to Options granted under the Plan to any individual
in
any calendar year must conform to any requirements applicable to
performance-based compensation under Section 162(m) of the Code, if
qualification as performance-based compensation under Section 162(m) of the
Code
is intended.
Effective
Date and Duration of the Plan.
The
effective date of the Plan is September 17, 2007. No Option or award of
Restricted Stock will be granted pursuant to the Plan on or after the date
which
is ten years from the effective date of the Plan, but Options and awards of
Restricted Stock theretofore granted may extend beyond that date.
6
Terms
and Conditions of Options.
Option
Price.
The
purchase price of each share of Common Stock purchasable under an Incentive
Option is determined by the Committee at the time of grant, but will not be
less
than 100% of the Fair Market Value (as defined below) of such share of Common
Stock on the date the Option is granted; provided,
however,
that
with respect to an Optionee who, at the time such Incentive Option is granted,
owns (within the meaning of Section 424(d) of the Code) more than 10% of the
total combined voting power of all classes of stock of the Corporation or of
any
subsidiary, the purchase price per share of Common Stock will be at least 110%
of the Fair Market Value per share of Common Stock on the date of grant. The
purchase price of each share of Common Stock purchasable under a Nonqualified
Option will not be less than 100% of the Fair Market Value of such share of
Common Stock on the date the Option is granted. “Fair Market Value” means the
closing price on the final trading day immediately prior to the grant of the
Common Stock on the principal securities exchange on which shares of Common
Stock are listed (if the shares of Common Stock are so listed), or on the NASDAQ
Stock Market or OTC Bulletin Board (if the shares of Common Stock are regularly
quoted on the NASDAQ Stock Market or OTC Bulletin Board, as the case may be),
or, if not so listed, the mean between the closing bid and asked prices of
publicly traded shares of Common Stock in the over the counter market, or,
if
such bid and asked prices may not be available, as reported by any nationally
recognized quotation service selected by the Corporation, or as determined
by
the Committee in a manner consistent with the provisions of the Code.
Option
Term. The
term
of each Option will be fixed by the Committee, but no Option may be exercisable
more than ten years after the date such Option is granted. Further, in the
case
of an Incentive Option granted to an Optionee who, at the time such Incentive
Option is granted, owns (within the meaning of Section 424(d) of the Code)
more
than 10% of the total combined voting power of all classes of stock of the
Corporation or of any subsidiary, no such Incentive Option may be exercisable
more than five years after the date such Incentive Option is
granted.
Exercisability. Options
will be exercisable at such time or times and subject to such terms and
conditions as determined by the Committee at the time of grant; provided,
however,
that in
the absence of any Option vesting periods designated by the Committee at the
time of grant, Options will vest and become exercisable as to one-third of
the
total number of shares subject to the Option on each of the first, second and
third anniversaries of the date of grant; and provided further that no Options
may be exercisable until such time as any vesting limitation required by Section
16 of the Securities Exchange Act of 1934, and related rules, will be satisfied
if necessary for continued validity of the exemption provided under Rule
16b-3(d)(3).
Upon
the
occurrence of a “Change in Control” (as defined in the Plan), the Committee may
accelerate the vesting and exercisability of outstanding Options, in whole
or in
part, as determined by the Committee in its sole discretion. In its sole
discretion, the Committee may also determine that, upon the occurrence of a
Change in Control, each outstanding Option will terminate within a specified
number of days after notice to the Optionee thereunder, and each such Optionee
will receive, with respect to each share of Common Stock subject to such Option,
an amount equal to the excess of the Fair Market Value of such shares
immediately prior to such Change in Control over the exercise price per share
of
such Option; such amount may be payable in cash, in one or more kinds of
property (including the property, if any, payable in the transaction) or a
combination thereof, as the Committee may determine in its sole discretion.
If
Change of Control is defined in an employment agreement between the Corporation
and an Optionee, then, with respect to such Optionee, Change of Control will
have the meaning ascribed to it in such employment agreement.
Method
of Exercise. Options
to the extent then exercisable may be exercised in whole or in part at any
time
during the option period, by giving written notice to the Corporation specifying
the number of shares of Common Stock to be purchased, accompanied by payment
in
full of the purchase price, in cash, or by check or such other instrument as
may
be acceptable to the Committee. As determined by the Committee, in its sole
discretion, at or after grant, payment in full or in part may be made at the
election of the Optionee (i) in the form of Common Stock owned by the Optionee
(based on the Fair Market Value of the Common Stock which is not the subject
of
any pledge or security interest, (ii) in the form of shares of Common Stock
withheld by the Corporation from the shares of Common Stock otherwise to be
received with such withheld shares of Common Stock having a Fair Market Value
equal to the exercise price of the Option, or (iii) by a combination of the
foregoing, provided that the combined value of all cash and cash equivalents
and
the Fair Market Value of any shares surrendered to the Corporation is at least
equal to such exercise price. An Optionee will have the right to dividends
and
other rights of a stockholder with respect to shares of Common Stock purchased
upon exercise of an Option at such time as the Optionee (i) has given written
notice of exercise and has paid in full for such shares, and (ii) has satisfied
such conditions that may be imposed by the Corporation with respect to the
withholding of taxes.
7
Non-transferability
of Options. Options
are not transferable and may be exercised solely by the Optionee during his
lifetime or after his death by the person or persons entitled thereto under
his
will or the laws of descent and distribution. The Committee, in its sole
discretion, may permit a transfer of a Nonqualified Option to (i) a trust for
the benefit of the Optionee, (ii) a member of the Optionee’s immediate family
(or a trust for his or her benefit) or (iii) pursuant to a domestic relations
order. Any attempt to transfer, assign, pledge or otherwise dispose of, or
to
subject to execution, attachment or similar process, any Option contrary to
the
provisions of the Plan will be void and ineffective and will give no right
to
the purported transferee.
Termination
by Death. Unless
otherwise determined by the Committee, if any Optionee’s employment with or
service to the Corporation or any subsidiary terminates by reason of death,
the
Option may thereafter be exercised, to the extent then exercisable (or on such
accelerated basis as the Committee may determine at or after grant), by the
legal representative of the estate or by the legatee of the Optionee under
the
will of the Optionee, for a period of one (1) year after the date of such death
or until the expiration of the stated term of such Option as provided under
the
Plan, whichever period is shorter.
Termination
by Reason of Disability. Unless
otherwise determined by the Committee, if any Optionee’s employment with or
service to the Corporation or any subsidiary terminates by reason of Disability
(as defined below), then any Option held by such Optionee may thereafter be
exercised, to the extent it was exercisable at the time of termination due
to
Disability (or on such accelerated basis as the Committee may determine at
or
after grant), but may not be exercised after ninety (90) days after the date
of
such termination of employment or service or the expiration of the stated term
of such Option, whichever period is shorter; provided,
however,
that,
if the Optionee dies within such ninety (90) day period, any unexercised Option
held by such Optionee will thereafter be exercisable to the extent to which
it
was exercisable at the time of death for a period of one (1) year after the
date
of such death or for the stated term of such Option, whichever period is
shorter. “Disability” means an Optionee’s total and permanent disability;
provided,
that if
Disability is defined in an employment agreement between the Corporation and
the
relevant Optionee, then, with respect to such Optionee, Disability will have
the
meaning ascribed to it in such employment agreement.
Termination
by Reason of Retirement. Unless
otherwise determined by the Committee, if any Optionee’s employment with or
service to the Corporation or any subsidiary terminates by reason of Normal
or
Early Retirement (as such terms are defined below), any Option held by such
Optionee may thereafter be exercised to the extent it was exercisable at the
time of such Retirement (or on such accelerated basis as the Committee may
determine at or after grant), but may not be exercised after ninety (90) days
after the date of such termination of employment or service or the expiration
of
the stated term of such Option, whichever date is earlier; provided,
however,
that,
if the Optionee dies within such ninety (90) day period, any unexercised Option
held by such Optionee will thereafter be exercisable, to the extent to which
it
was exercisable at the time of death, for a period of one (1) year after the
date of such death or for the stated term of such Option, whichever period
is
shorter. “Normal Retirement” is defined as retirement from active employment
with the Corporation or any subsidiary on or after the normal retirement date
specified in the applicable Corporation or subsidiary pension plan or if no
such
pension plan, age 65. “Early Retirement” is defined as retirement from active
employment with the Corporation or any subsidiary pursuant to the early
retirement provisions of the applicable Corporation or subsidiary pension plan
or if no such pension plan, age 55.
Other
Terminations. Unless
otherwise determined by the Committee upon grant, if any Optionee’s employment
with or service to the Corporation or any subsidiary is terminated by such
Optionee for any reason other than death, Disability, Normal or Early Retirement
or Good Reason (as defined in the Plan), the Option will thereupon terminate,
except that the portion of any Option that was exercisable on the date of such
termination of employment or service may be exercised for the lesser of ninety
(90) days after the date of termination or the balance of such Option’s term,
which ever period is shorter. The transfer of an Optionee from the employ of
or
service to the Corporation to the employ of or service to a subsidiary, or
vice
versa, or from one subsidiary to another, will not be deemed to constitute
a
termination of employment or service for purposes of the Plan. Notwithstanding
the foregoing, in the event that the Optionee’s employment or service with the
Corporation or any subsidiary is terminated by the Corporation or such
subsidiary for “cause” (as defined in the Plan) any unexercised portion of any
Option will immediately terminate in its entirety.
Limit
on Value of Incentive Stock Option. The
aggregate Fair Market Value, determined as of the date the Incentive Option
is
granted, of Common Stock for which Incentive Options are exercisable for the
first time by any Optionee during any calendar year under the Plan (and/or
any
other stock option plans of the Corporation or any subsidiary) shall not exceed
$100,000.
8
Terms
and Conditions of Restricted Stock.
Restricted
Stock may be granted under the Plan aside from, or in association with, any
other award and is subject to the following conditions and may contain such
additional terms and conditions (including provisions relating to the
acceleration of vesting of Restricted Stock upon a Change of Control), not
inconsistent with the terms of the Plan, as the Committee deems
desirable:
Grantee
rights.
A
Grantee has no rights to an award of Restricted Stock unless and until Grantee
accepts the award within the period prescribed by the Committee and, if the
Committee deems desirable, makes payment to the Corporation in cash, or by
check
or such other instrument as may be acceptable to the Committee. After acceptance
and issuance of a certificate or certificates, as provided for below, the
Grantee will have the rights of a stockholder with respect to Restricted Stock
subject to the non-transferability and forfeiture restrictions described
below.
Issuance
of Certificates.
The
Corporation will issue in the Grantee’s name a certificate or certificates for
the shares of Common Stock associated with the award promptly after the Grantee
accepts such award.
Forfeitability,
Non-transferability of Restricted Stock. Shares
of
Restricted Stock are forfeitable until the terms of the Restricted Stock grant
have been satisfied. Shares of Restricted Stock are not transferable until
the
date on which the Committee has specified such restrictions have lapsed. Unless
otherwise provided by the Committee at or after grant, distributions in the
form
of dividends or otherwise of additional shares or property in respect of shares
of Restricted Stock will be subject to the same restrictions as such shares
of
Restricted Stock.
Change
of Control.
Upon the
occurrence of a Change in Control as defined in the Plan, the Committee may
accelerate the vesting of outstanding Restricted Stock, in whole or in part,
as
determined by the Committee, in its sole discretion.
Termination
of Employment.
Unless
otherwise determined by the Committee at or after grant, in the event the
Grantee ceases to be an employee or otherwise associated with the Corporation
for any other reason, all shares of Restricted Stock theretofore awarded to
him
which are still subject to restrictions will be forfeited and the Corporation
will have the right to complete the blank stock power. The Committee may provide
(on or after grant) that restrictions or forfeiture conditions relating to
shares of Restricted Stock will be waived in whole or in part in the event
of
termination resulting from specified causes, and the Committee may in other
cases waive in whole or in part restrictions or forfeiture conditions relating
to Restricted Stock.
Other
Provisions.
Capital
Change of the Corporation. In
the
event of any merger, reorganization, consolidation, recapitalization, stock
dividend, or other change in corporate structure affecting the Common Stock,
the
Committee will make an appropriate and equitable adjustment in the number and
kind of shares reserved for issuance under the Plan and in the number and option
price of shares subject to outstanding Options granted under the Plan, to the
end that after such event each Optionee’s proportionate interest will be
maintained (to the extent possible) as immediately before the occurrence of
such
event. The Committee will, to the extent feasible, make such other adjustments
as may be required under the tax laws so that any Incentive Options previously
granted will not be deemed modified within the meaning of Section 424(h) of
the
Code. Appropriate adjustments will also be made in the case of outstanding
Restricted Stock granted under the Plan. The adjustments described above will
be
made only to the extent consistent with continued qualification of the Option
under Section 422 of the Code (in the case of an Incentive Option) and Section
409A of the Code.
Purchase
for Investment/Conditions. Unless
the Options and shares covered by the Plan have been registered under the
Securities Act of 1933, as amended (the “Securities Act”), or the Corporation
has determined that such registration is unnecessary, each person exercising
or
receiving Options or Restricted Stock under the Plan may be required by the
Corporation to give a representation in writing that he is acquiring the
securities for his own account for investment and not with a view to, or for
sale in connection with, the distribution of any part thereof. The Committee
may
impose any additional or further restrictions on awards of Options or Restricted
Stock as may be determined by the Committee at the time of award.
Taxes. The
Corporation may make such provisions as it may deem appropriate, consistent
with
applicable law, in connection with any Options or Restricted Stock granted
under
the Plan with respect to the withholding of any taxes (including income or
employment taxes) or any other tax matters. If any Grantee, in connection with
the acquisition of Restricted Stock, makes the election permitted under Section
83(b) of the Code (that is, an election to include in gross income in the year
of transfer the amounts specified in Section 83(b)), such Grantee must notify
the Corporation of the election with the Internal Revenue Service pursuant
to
regulations issued under the authority of Code Section 83(b). If any Grantee
makes any disposition of shares of Common Stock issued pursuant to the exercise
of an Incentive Option under the circumstances described in Section 421(b)
of
the Code (relating to certain disqualifying dispositions), such Grantee must
notify the Corporation of such disposition within ten (10) days
thereof.
9
Amendment
and Termination. The
Board
may amend, suspend, or terminate the Plan, except that no amendment may be
made
that would impair the rights of any Participant under any Option or Restricted
Stock granted without the Participant’s consent, and except that no amendment
may be made which, without the approval of the stockholders of the Corporation
would:
|
·
|
materially
increase the number of shares that may be issued under the
Plan;
|
|
·
|
materially
increase the benefits accruing to the Participants under the
Plan;
|
|
·
|
materially
modify the requirements as to eligibility for participation in the
Plan;
|
|
·
|
decrease
the exercise price of an Incentive Option to less than 100% of the
Fair
Market Value per share of Common Stock on the date of grant thereof
or the
exercise price of a Nonqualified Option to less than 100% of the
Fair
Market Value per share of Common Stock on the date of grant thereof;
|
|
·
|
extend
the term of any Option beyond that provided for in the Plan or by
the
Committee; or
|
|
·
|
except
as otherwise provided for in the Plan, reduce the exercise price
of
outstanding Options or effect re-pricing through cancellations and
re-grants of new Options.
|
Subject
to the forgoing, the Committee may amend the terms of any Option theretofore
granted, prospectively or retrospectively, but no such amendment may impair
the
rights of any Optionee without the Optionee’s consent.
Section
409A.
It is
the intention of the Board that the Plan comply strictly with the provisions
of
Section 409A of the Code and Treasury Regulations and other Internal Revenue
Service guidance promulgated thereunder (the “Section 409A Rules”) and the
Committee will exercise its discretion in granting awards (and the terms of
such
awards), accordingly. The Plan and any grant of an award may be amended from
time to time (without, in the case of an award, the consent of the Participant)
as may be necessary or appropriate to comply with the Section 409A
Rules.
Government
Regulations. The
Plan,
and the grant and exercise of Options or Restricted Stock thereunder, and the
obligation of the Corporation to sell and deliver shares under such Options
and
Restricted Stock will be subject to all applicable laws, rules and regulations,
and to such approvals by any governmental agencies, national securities
exchanges and interdealer quotation systems as may be required.
Certificates. All
certificates for shares of Common Stock delivered under the Plan will be subject
to such stop transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the Securities
and Exchange Commission, or other securities commission having jurisdiction,
any
applicable Federal or state securities law, any stock exchange or interdealer
quotation system upon which the Common Stock is then listed or traded and the
Committee may cause a legend or legends to be placed on any such certificates
to
make appropriate reference to such restrictions.
Employment
Matters.
Neither
the adoption of the Plan nor any grant or award under the Plan will confer
upon
any Participant who is an employee of the Corporation or any subsidiary any
right to continued employment or, in the case of a Participant who is a
director, continued service as a director, with the Corporation or a subsidiary,
as the case may be, nor will it interfere in any way with the right of the
Corporation or any subsidiary to terminate the employment of any of its
employees, the service of any of its directors or the retention of any of its
consultants or advisors at any time.
Limitation
of Liability.
No
member of the Committee, or any officer or employee of the Corporation acting
on
behalf of the Committee, will be personally liable for any action, determination
or interpretation taken or made in good faith with respect to the Plan, and
all
members of the Committee and each and any officer or employee of the Corporation
acting on their behalf will, to the extent permitted by law, be fully
indemnified and protected by the Corporation in respect of any such action,
determination or interpretation.
10
Registration
of Common Stock.
Notwithstanding any other provision in the Plan, no Option may be exercised
unless and until the Common Stock to be issued upon the exercise thereof has
been registered under the Securities Act and applicable state securities laws,
or are, in the opinion of counsel to the Corporation, exempt from such
registration in the United States. The Corporation will not be under any
obligation to register under applicable federal or state securities laws any
Common Stock to be issued upon the exercise of an Option granted in order to
permit the exercise of an Option and the issuance and sale of the Common Stock
subject to such Option, although the Corporation may in its sole discretion
register such Common Stock at such time as the Corporation may determine. If
the
Corporation chooses to comply with such an exemption from registration, the
Common Stock issued under the Plan may, at the direction of the Committee,
bear
an appropriate restrictive legend restricting the transfer or pledge of the
Common Stock represented thereby, and the Committee may also give appropriate
stop transfer instructions with respect to such Common Stock to the
Corporation’s transfer agent.
Non-Uniform
Determinations. The
Committee’s determinations under the Plan, including, without limitation, (i)
the determination of the Participants to receive awards, (ii) the form, amount
and timing of such awards, (iii) the terms and provisions of such awards and
(ii) the agreements evidencing the same, need not be uniform and may be made
by
it selectively among Participants who receive, or who are eligible to receive,
awards under the Plan, whether or not such Participants are similarly
situated.
Governing
Law. The
validity, construction, and effect of the Plan and any rules and regulations
relating to the Plan will be determined in accordance with the internal laws
of
the State of Delaware, without giving effect to principles of conflicts of
laws,
and applicable federal law.
Vote
Required.
Approval
of an amendment to the Plan will require the affirmative vote of a majority
of
the voting shares held by stockholders present in person or represented by
proxy
at the meeting and entitled to vote thereon.
THE
BOARD RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE AMENDMENT TO THE PLAN TO
INCREASE THE NUMBER OF AVAILABLE SHARES FROM 1,500,000 TO
3,000,000.
PROPOSAL
3:
RATIFICATION
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
has appointed the firm of KMJ
Corbin & Company
as our
independent registered public accounting firm for our fiscal year ending
December 31, 2008, and is asking our stockholders to ratify this appointment.
The affirmative vote of a majority of the shares present in person or
represented by proxy and entitled to vote at the annual meeting is required
to
ratify the selection of KMJ
Corbin & Company
by the
board of directors. KMJ
Corbin & Company
has
served as our independent registered public accounting firm since September
17,
2007.
If
our stockholders fail to ratify the appointment of KMJ Corbin & Company, the
board
of
directors
will reconsider its selection, but may still decide it is in the best interests
of
our company and our stockholders to retain KMJ Corbin & Company. Even if the
selection is ratified, the board
of
directors
in its discretion may authorize the appointment of a different independent
registered public accounting firm at any time during the year if the
board
of
directors
believes that such a change would be in our best interest.
A
representative of KMJ Corbin & Company is expected to be present at the
annual meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond
to appropriate questions.
THE
BOARD RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE RATIFICATION OF KMJ CORBIN
& COMPANY TO SERVE AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR
THE FISCAL YEAR ENDING DECEMBER 31, 2008.
11
SECURITY
OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
|
Name of
Beneficial Owner
|
Number of Shares Beneficially
Owned
|
Percentage
Beneficially Owned (1)
|
|||||
|
The
Abrams Family Trust
|
1,572,500
(2
|
)
|
10.1
|
%
|
|||
|
Juliet
Singh, Ph.D.
|
2,062,736(6
|
)
|
13.2
|
%
|
|||
|
Jeffrey
J. Abrams, M.D.
|
-
(3
|
)
|
-
|
||||
|
Anthony
S. Thornley
|
81,733
(4
|
)
|
*
|
||||
|
Joseph
Grasela(5)
|
1,171,875
|
7.5
|
%
|
||||
|
John
C. Grasela(5)
|
1,171,875
|
7.5
|
%
|
||||
|
John
T. Lomoro
|
66,667(7
|
)
|
*
|
||||
|
Balbir
Brar, D.V.M., Ph. D.(8)
|
398,438
|
2.6
|
%
|
||||
|
Paul
Finnegan, M.D., M.B.A., F.R.C.P.C.
|
43,750(9
|
)
|
*
|
||||
|
All
executive officers and directors as a group (5 persons)
|
3,827,386
|
24.2
|
%
|
||||
______________
*
less than 1%
|
(1)
|
Based
on 15,545,184 shares of our common stock issued and outstanding as
of
September 30, 2008.
|
|
(2)
|
Jeffrey
J. Abrams, M.D., a director, is a trustee of the Abrams Family Trust.
Dr.
Abrams has sole voting and investment control with respect to the
shares
of common stock owned by the Abrams Family Trust. Includes 10,000
shares
of common stock issuable upon the exercise of stock
options.
|
|
(3)
|
Dr.
Abrams is a trustee of the Abrams Family Trust, which owns 1,562,500
shares of our common stock.
|
|
(4)
|
Includes
12,500 and 8,333 shares of common stock issuable upon the exercise
of
warrants and stock options,
respectively.
|
|
(5)
|
Joseph
Grasela and John C. Grasela are adult siblings living in separate
households.
|
|
(6)
|
Includes
108,611 shares of common stock issuable upon the exercise of stock
options.
|
|
(7)
|
Total
amount includes shares of common stock issuable upon the exercise
of stock
options.
|
|
(8)
|
On
April 4, 2008, Dr. Brar resigned from the Company.
|
|
(9)
|
Total
amount includes shares of common stock issuable upon the exercise
of stock
options.
|
The
following table summarizes our compensation plans under which our equity
securities are authorized for issuance as of September 30, 2008:
12
EQUITY
COMPENSATION PLAN INFORMATION
|
|
Number of Shares
to be Issued Upon
Exercise of
Outstanding
Stock Options
|
Weighted-
Average
Exercise Price
of Outstanding
Stock Options
|
Number of Shares
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
|
|||||||
|
Equity
compensation plans approved by security holders
|
1,010,000
|
$
|
2.01
|
294,687
|
||||||
|
Equity
compensation plans not approved by security holders
|
-
|
-
|
-
|
|||||||
|
Total
|
1,010,000
|
$
|
2.01
|
294,687
|
||||||
BOARD
OF DIRECTORS
Composition
and Meetings of our Board
The
following table set forth, for the members of out Board and the nominees for
director, information with respect to their ages, their current positions and
the expiration dates of their terms as directors:
|
Name
|
Age
|
Position
|
Term
as Director Expires
|
|
Juliet
Singh, Ph.D.
|
48
|
President,
Chief Executive Officer and Director
|
2008
|
|
Jeffrey
J. Abrams, M.D
|
61
|
Director
|
2008
|
|
Anthony
S. Thornley
|
62
|
Director
|
2008
|
Each
director’s biography is included under Proposal 1.
Since
September 17, 2007 (the date we completed our merger and plan of
reorganization), our Board held one meeting and acted five times by written
consent during the remainder of fiscal year 2007. Each director attended or
participated in 100% of the total number of meetings of our Board. We encourage
all of our directors to attend our annual meetings.
Director
Independence
The
Corporation believes that Anthony S. Thornley is an “independent director,” as
that term is defined by applicable listing standards of The Nasdaq Stock Market
and SEC rules, including the rules relating to the independence standards of
an
audit committee and the non-employee director definition of Rule 16b-3
promulgated under the Exchange Act. There are no family relationships among
any
of our directors or executive officers.
Director
Compensation
We
filed
information regarding the compensation of our directors in our Annual Report
on
Form 10-KSB for the year ended December 31, 2007. This information is attached
hereto as Exhibit
B.
Code
of Ethics
On
December 6, 2007, we adopted an amended and restated code of ethics and business
conduct that applies to our principal executive officer, principal financial
officer, or persons performing similar functions and all of our other employees.
A copy of the amended and restated code of ethics and business conduct was
filed
as Exhibit 14 to the Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on December 7, 2007.
13
Board
Committees
Our
Board
currently performs the functions and duties generally performed by separately
constituted audit, compensation and nominating and corporate governance
committees. We intend to recruit additional directors to serve on our Board,
and
at such time, the Board will form separate Board committees. We intend that
a
majority of our directors will be independent directors, and that our Board
and
Board committees will meet the corporate governance requirements imposed by
a
national securities exchange, although we are not required to comply with such
requirements until we seek listing on a securities exchange. Additionally,
the
Board will direct each committee to adopt a charter to govern its duties and
actions.
Audit
Review.
Our
Board is responsible for assuring the integrity of our financial control, audit
and reporting functions and reviews with our management and our independent
auditors the effectiveness of our financial controls and accounting and
reporting practices and procedures. In addition, our Board reviews the
qualifications of our independent auditors, is responsible for their
appointment, compensation, retention and oversight and reviews the scope, fees
and results of activities related to audit and non-audit services.
Executive
Compensation.
Our
Board reviews and sets our general compensation policies and executive
compensation, including officer salary levels, incentive compensation programs
and share-based compensation. Our Board also has the exclusive authority to
administer our 2007 Incentive Stock and Awards Plan. Juliet Singh, our President
and Chief Executive Officer, has abstained from any board discussions with
respect to her compensation.
Nominating
and Corporate Governance.
Our
Board is responsible for identifying and selecting potential candidates for
our
Board. Our Board reviews the credentials of proposed members of the Board,
either in connection with filling vacancies or the election of directors at
each
annual meeting of stockholders. The Board will consider qualified nominees
recommended by stockholders. The Board intends to periodically assess how well
it is performing, and make recommendations regarding corporate governance
matters and practices. Nominees for director are selected on the basis of their
depth and breadth of experience, integrity, ability to make independent
analytical inquiries, understanding our business environment and willingness
to
devote adequate time to their board duties.
Stockholder
Nominees.
Our
Board will consider written proposals from stockholders for nominees for
director. Any such nominations should be submitted to the Board c/o the
Secretary of the Company and should include the following information: (i)
with
respect to each nominee, (a) the name, age, business address and residence
address of the nominee, (b) the principal occupation or employment of the
nominee, (c) the class and number of shares of the Company that are beneficially
owned by the nominee, (d) a description of all arrangements or understandings
between the stockholder submitting the nomination and the nominee pursuant
to
which the nomination is to be made by the stockholder, and (e) any other
information relating to the nominee that is required to be disclosed in
solicitations of proxies for the election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934 (including such person’s written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (ii) with
respect to the stockholder submitting the nomination, (a) the name and address
of the stockholder, as they appear on our books, (b) the class and number of
shares of the Company that are beneficially owned by the stockholder and (c)
any
material interest of the stockholder in the nomination. Such information should
be submitted in the time frame described under the caption “Proposals by
Stockholders” in this proxy statement.
Process
for Identifying and Evaluating Nominees.
Our
Board believes that the Corporation is well served by our current directors.
In
the ordinary course, absent special circumstances or a material change in the
criteria for Board membership, the Board will renominate incumbent directors
who
continue to be qualified for Board service and are willing to continue as
directors. If an incumbent director is not standing for re-election, or if
a
vacancy on the Board occurs between annual stockholder meetings, the Board
will
seek out potential candidates for Board appointment who meet the criteria for
selection as nominees and have the specific qualities or skills being sought.
Director candidates will be selected based on input from members of the Board,
our senior management and, if the Board deems appropriate, a third-party search
firm. The Board will evaluate each candidate’s qualifications and contact
relevant references. Based on this input, the Board will evaluate which of
the
prospective candidates is qualified to serve as a director.
Communications
with Directors. Stockholders
who wish to communicate with our Board may do so by writing to Anthony Thornley
at our principal executive offices located at 4225
Executive Square, Suite 485, La Jolla, California 92037.
14
Audit
Report.
Management has primary responsibility for the system of internal controls and
the financial reporting process. Our independent registered public accounting
firm has the responsibility to express an opinion on the financial statements
based on an audit conducted in accordance with standards of the Public Company
Accounting Oversight Board (United States). The Board appointed KMJ Corbin
&
Company LLP to audit our financial statements for the fiscal year
2007.
Our
Board
is kept apprised of the progress of the documentation, testing and evaluation
of
our system of internal controls over financial reporting, and provides oversight
and advice to management. In connection with this oversight, the Board receives
periodic updates provided by management at each quarterly Board meeting. The
Board also holds regular private sessions with KMJ Corbin & Company to
discuss their audit plan for the year, the financial statements and risks of
fraud.
The
Board
pre-approves all services to be provided by KMJ Corbin & Company LLP.
Pre-approval is required for audit services, audit-related services, tax
services and other services. In some cases, the Board provides pre-approval
for
up to a year, related to a particular defined task or scope of work and subject
to a specific budget. See “Principal Accounting Firm Fees” for more information
regarding fees paid to KMJ Corbin & Company for services in fiscal years
2007 and 2006.
In
this
context and in connection with the audited financial statements contained in
our
Annual Report on Form 10-KSB, the Board:
|
·
|
reviewed
and discussed the audited financial statements as of and for the
fiscal
year ended December 31, 2007 with our management and KMJ Corbin &
Company;
|
|
·
|
discussed
with KMJ Corbin & Company the matters required to be discussed by
Statement of Auditing Standards No. 61, Communication with Audit
committees, as amended by Statement of Auditing Standards No. 90,
Audit
Committee Communications;
|
|
·
|
received
from and discussed with KMJ Corbin & Company the written disclosures
and the letter required by Independence Standards Board Standard
No. 1
(Independence Discussions with Audit Committees);
|
|
·
|
concluded
that KMJ Corbin & Company did not provide any non-audit services
during the fiscal year ended December 31, 2007;
|
|
·
|
based
on the foregoing reviews and discussions, recommended that the audited
financial statements be included in our 2007 Annual Report on Form
10-KSB
for the fiscal year ended December 31, 2007; and
|
|
·
|
instructed
the independent registered public accounting firm that the Board
expects
to be advised if there are any subjects that require special attention.
|
This
report for 2007 is provided by the undersigned members of the Board.
|
Juliet
Singh, Ph.D
|
Jeffrey
J. Abrams, M.D
|
Anthony
S. Thornley
|
15
EXECUTIVE
OFFICERS
As
of
September 30, 2008, our executive officers are as follows:
|
Name
|
Age
|
Position
|
|
Juliet
Singh, Ph.D.
|
48
|
President
and Chief Executive Officer
|
|
John
T. Lomoro
|
39
|
Chief
Financial Officer
|
|
Paul
W. Finnegan, M.D., M.B.A., F.R.C.P.C.,
|
48
|
Chief
Medical Officer and Chief Operating
Officer
|
Dr.
Singh’s biography is included with those of the other nominees to the Board.
John
T. Lomoro,
has been
our chief financial officer since our merger with Transdel Pharmaceuticals
Holdings, Inc. on September 17, 2007 and the chief financial officer of Transdel
Pharmaceuticals Holdings, Inc. since September 2007. From 2004 to 2007, Mr.
Lomoro was the director of North American accounting for Carl Zeiss Vision
Inc.,
a privately held international optical lens manufacturing and distribution
company. From 2003 to 2004, Mr. Lomoro was the manager of financial reporting
and planning for dj Orthopedics, Inc., a publicly traded medical device
manufacturing company. From 2002 to 2003, Mr. Lomoro was a corporate accounting
manager at Wireless Knowledge, Inc. Mr. Lomoro’s experience also includes
approximately five years in public accounting as an audit manager at Ernst
&
Young LLP. Mr. Lomoro received a B.S. degree in accounting from St. Cloud State
University of Minnesota and is a certified public accountant.
Paul
W. Finnegan, M.D., M.B.A., F.R.C.P.C.,
has served as Chief Medical Officer and Chief Operating Officer of Transdel
since April 2008. Prior to Transdel, Dr. Finnegan served as the President and
Chief Executive Officer of Cecoura Therapeutics, a private drug development
company from 2007 to 2008.. From 2001 to 2007, Dr. Finnegan served as Vice
President of Global Strategic Marketing and Development and other senior
management positions at Alexion Pharmaceuticals. Prior to joining Alexion in
2001, Dr. Finnegan served as Senior Director, Global Medical Marketing for
Pharmacia Corporation and G.D. Searle & Co., providing medical affairs
leadership for all therapeutic areas for the Asia-Pacific, Japan, Latin America
and Canadian business regions. Dr. Finnegan holds the degrees of MD, CM from
McGill University, Faculty of Medicine, in Montreal and is a Fellow of the
Royal
College of Physicians, Canada (FRCPC). Also, Dr. Finnegan earned his MBA with
Honors, in Finance and Strategy, from the University of Chicago, Graduate School
of Business.
Executive
Compensation
We
filed
information regarding the compensation of our directors in our Annual Report
on
Form 10-KSB for the year ended December 31, 2007. This information is attached
hereto as Exhibit B.
16
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The
Company has not engaged in any transactions since its merger and plan of
organization was effective pursuant to which the amount involved was in excess
of $120,000 and in which any of the Corporation’s directors, named executive
officers or other executive officers, any holder of more than 5% of the
Corporation’s common stock or any member of the immediate family of any of these
persons had or will have a direct or indirect material interest, other than
the
compensation arrangements (including with respect to equity compensation)
described in “Executive Compensation” attached hereto as Exhibit
B.
Executive
and Director Compensation
See
Exhibit
B
for
information regarding the compensation we paid to our officers and directors
for
fiscal year 2007.
Director
and Officer Indemnification Agreements
In
addition to the indemnification provisions contained in our certificate of
incorporation and bylaws, we have entered into separate indemnification
agreements with each of our directors and executive officers. These agreements
require us, among other things, to indemnify our directors and executive
officers against specified expenses and liabilities, such as attorneys’ fees,
judgments, fines and settlements, paid by these individuals in connection with
any action, suit or proceeding arising out of their status or service as our
director or officer, other than liabilities arising from willful misconduct
or
conduct that is knowingly fraudulent or deliberately dishonest, and to advance
expenses incurred by these individuals in connection with any proceeding against
them with respect to which they may be entitled to indemnification by us. We
also intend to enter into these agreements with our future directors and
executive officers.
Company
Policy Regarding Related Party Transactions
It
is our
policy that the Board of Directors approve or ratify transactions involving
directors, executive officers or principal stockholders or members of their
immediate families or entities controlled by any of them in which they have
a
substantial ownership interest in which the amount involved exceeds $120,000
and
that are otherwise reportable under SEC disclosure rules. Such transactions
include employment of immediate family members of any director or executive
officer. Management advises the Board of Directors on a regular basis of any
such transaction that is proposed to be entered into or continued and seeks
approval.
17
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
KMJ
Corbin & Company LLP was the Corporation’s independent registered public
accounting firm for the year ended December 31, 2007. KMJ Corbin & Company
does not have any direct or indirect financial interest in the Corporation
in
any capacity other than that of independent public accountants. A representative
of KMJ Corbin & Company LLP will be present at the meeting to answer
questions by stockholders concerning the accounts of the Corporation and will
have the opportunity to make a statement, if such representative desires to
do
so.
Principal
Accounting Firm Fees
The
following table sets forth the aggregate fees billed to the Corporation for
the
fiscal years ended December 31, 2007 and 2006 by the Corporation’s independent
registered public accounting firm, KMJ Corbin & Company LLP. KMJ Corbin
& Company was appointed as the Corporation’s independent registered public
accounting firm effective September 17, 2007.
|
|
2007
|
2006
|
|||||
|
Audit
fees
|
$
|
67,100
|
$
|
-
|
|||
The
Audit
Fees
for the
years ended December 31, 2007 and 2006 were for professional services
rendered for audits and quarterly reviews of our consolidated financial
statements, and assistance with reviews of registration statements and documents
filed with the SEC. There were no audit-related fees, tax fees or other fees
billed by our principal accountant.
COMPLIANCE
WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
No
person who, during the fiscal year ended December 31, 2007, was one of our
directors or officers, or beneficial owner of more than ten percent of our
Common Stock (which is the only class of securities registered under Section
12
of the Exchange Act), failed to file on a timely basis reports required by
Section 16 of the Exchange Act during such fiscal year. The foregoing is based
solely upon our review of Forms 3 and 4 relating to the most recent fiscal
year
as furnished to us under Rule 16a-3(d) under the Exchange Act, and Forms 5
and
amendments thereto furnished to us with respect to our most recent fiscal year,
and any representation received by us from any reporting person that no Form
5
is required.
FORM
10-KSB
We
filed an annual report on Form 10-KSB with the SEC on March 26, 2008.
A
copy of
the Corporation’s Annual Report on Form 10-KSB for the year ended December 31,
2007 is enclosed.
In
addition, Stockholders may obtain a copy of this report online at www.sec.gov,
or without charge, by writing to the Secretary of the Company, at our principal
executive offices located at 4225 Executive Square, Suite 485, La Jolla,
California 92037.
OTHER
MATTERS
We
know of no other matters that will be presented for consideration at the annual
meeting. If any other matters properly come before the annual meeting, it is
the
intention of the persons named in the enclosed form of proxy to vote the shares
they represent at their discretion. Discretionary authority with respect to
such
other matters is granted by the execution of the enclosed proxy.
18
DELIVERY
OF PROXY MATERIALS AND ANNUAL REPORTS
We
may
satisfy SEC’s rules regarding delivery of proxy statements and annual reports by
delivering a single proxy statement and annual report to an address shared
by
two or more stockholders. This process is known as “householding.” This delivery
method can result in meaningful cost savings for us. In order to take advantage
of this opportunity, we have delivered only one proxy statement and annual
report to multiple stockholders who share an address, unless contrary
instructions were received prior to the mailing date. Accordingly, for many
stockholders who hold their shares through a bank, brokerage firm or other
holder of record (i.e., in “street name”) and share a single address, only one
annual report and proxy statement is being delivered to that address unless
contrary instructions from any stockholder at that address were
received.
We
undertake to deliver promptly upon written
or oral
request a separate copy of the proxy statement and/or annual report, as
requested, to a stockholder at a shared address to which a single copy of these
documents was delivered. If you hold stock as a record stockholder and prefer
to
receive separate copies of a proxy statement or annual report either now or
in
the future, please contact American Registrar & Transfer Co., 342 East 900
South, Salt Lake City, UT 84111. If your stock is held by a brokerage firm
or
bank and you prefer to receive separate copies of a proxy statement or annual
report either now or in the future, please contact your brokerage or
bank. The
voting instruction sent to a street-name stockholder should provide information
on how to request (1) householding of future company materials or (2) separate
materials if only one set of documents is being sent to a household. If it
does
not, a stockholder who would like to make one of these requests should contact
us as indicated above.
PROPOSALS
BY STOCKHOLDERS
Proposals
of stockholders to be presented, pursuant to Rule 14a-8 under the Exchange
Act,
at the 2009 Annual Meeting of Stockholders of
the
Corporation, must be directed to the Corporate Secretary, at 4225 Executive
Square, Suite 485, La Jolla, California 92037, and must be received by the
Corporation no later than May 29, 2009 if they are to be included in the
Corporation’s proxy statement and proxy relating to such meeting. However,
if the Company changes the date of its annual meeting by more than 30 days
from the date of the 2008 Annual Meeting, the deadline is a reasonable
time before the Company begins to print and send proxy materials.
Proposals submitted thereafter will be opposed as not timely filed.
SOLICITATION
OF PROXIES
The
Corporation will bear the entire cost of soliciting proxies for the meeting,
including the preparation, assembly, printing and mailing of this Proxy
Statement, the proxy and any additional solicitation materials furnished to
stockholders. Copies of solicitation materials will be furnished to brokerage
houses, fiduciaries and custodians holding shares in their names that are
beneficially owned by others so that they may forward this solicitation material
to the beneficial owners. In addition, the Corporation may reimburse such
persons for their costs in forwarding the solicitation materials to the
beneficial owners. The original solicitation of proxies by mail may be
supplemented by a solicitation by telephone, electronic mail or other means
by
the Corporation’s directors, officers or employees. No additional compensation
will be paid to these individuals for any of those services. Except as described
above, the Corporation does not presently intend to solicit proxies other than
by mail.
WHERE
YOU CAN FIND MORE INFORMATION
The
Corporation files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any
reports, statements or other information we file at the Public Reference Room
maintained by the Securities and Exchange Commission (“SEC”) at 100 F. Street,
N.E., Washington, D.C. 20549. Our SEC filings are also available to the public
from commercial document retrieval services and at the website maintained by
the
SEC at http://www.sec.gov. The SEC allows the Corporation to “incorporate by
reference” information into this Proxy Statement, which means that we can
disclose important information by referring you to another document filed
separately with the SEC. A copy of such report is being mailed to the
Corporation’s stockholders with this Proxy Statement. All documents filed by the
Corporation pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act
subsequent to the date hereof and prior to the annual meeting shall also be
deemed to be incorporated by reference into this Proxy Statement.
19
Our
stockholders may obtain
the above-mentioned documents, without charge, by requesting them in writing
or
by telephone from the Corporation, by writing to Transdel Pharmaceuticals,
Inc.,
4225 Executive Square, Suite 485, La Jolla, California 92037, attention of
John
T.
Lomoro,
and by telephone to 858- 457-5300.
You
should rely only on the information contained in this Proxy Statement or other
documents to which we refer to vote at the annual meeting. We have not
authorized anyone to provide you with information that is different from what
is
contained in this Proxy Statement.
Unless otherwise specified in this Proxy Statement, you should not assume that
the information contained in this Proxy Statement is accurate as of any date
other than the date hereof, and the mailing of the Proxy Statement to
stockholders shall not create any implication to the contrary.
|
October
1, 2008
|
BY
ORDER OF THE BOARD OF DIRECTORS,
|
| /s/ John T. Lomoro | |
|
John
T. Lomoro
|
|
|
Chief
Financial Officer
|
20
TRANSDEL
PHARMACEUTICALS, INC.
PROXY
Annual
Meeting of Stockholders, November
5, 2008
This
Proxy is Solicited on Behalf of the Board of Directors of Transdel
Pharmaceuticals, Inc.
The
undersigned revokes all previous proxies, acknowledges receipt of the notice
of
the 2008 annual meeting of stockholders and the proxy statement and appoints
Juliet Singh, Ph.D. and John T. Lomoro as proxies of the undersigned, with
full
power of substitution, to vote all shares of common stock of Transdel
Pharmaceuticals, Inc. that the undersigned is entitled to vote, either on his
or
her own behalf or on behalf of any entity or entities, at the La Jolla Executive
Tower Conference Center, 4225 Executive Square, Suite 495, La Jolla, California
92037 on Wednesday,
November 5, 2008,
at
1:00 p.m., Pacific Daylight Time, and at any adjournment or postponement of
the annual meeting, with the same force and effect as the undersigned might
or
could do if personally present there at. The shares represented by this proxy
shall be voted in the manner set forth below.
|
1.
|
To
elect the following directors to serve until the 2009 annual meeting
of
stockholders and until their respective successors are duly elected
and
qualified: Please check either “FOR ALL” or “WITHHOLD AUTHORITY TO VOTE ON
ALL.”
|
|
FOR
ALL (except as indicated below)
o
|
WITHHOLD
AUTHORITY TO VOTE ON ALL
o
|
|
To
withhold authority to vote for any individual nominee(s), please
write the
name(s) of those nominee(s) on the line provided
below:
|
|
(The
nominees are Juliet Singh, Ph.D., Jeffrey J. Abrams, M.D. and Anthony
S.
Thornley)
|
|
2.
|
To
adopt the Amendment of the 2007 Incentive Stock and Award Plan to
increase
the number of available shares from 1,500,000 to
3,000,000.
|
|
FOR
o
|
AGAINST
o
|
ABSTAIN
o
|
|
3.
|
To
ratify the appointment of KMJ Corbin & Company as the independent
registered public accounting firm for fiscal year 2008.
|
|
FOR
o
|
AGAINST
o
|
ABSTAIN
o
|
|
4.
|
In
accordance with the discretion of the proxy holders, to act upon
all
matters incident to the conduct of the meeting and upon other matters
as
may properly come before the
meeting.
|
Our
board
of directors recommends a vote FOR each of the nominees for director listed
under Item 1 (Election of Directors), a vote FOR Item 2 (Amendment of
the 2007 Incentive Stock and Award Plan) and a vote FOR Item 3
(Ratification of Independent Registered Public Accounting Firm). This proxy,
when properly executed, will be voted as specified by the undersigned.
If
no specification is made, this proxy will be voted FOR each of the nominees
for
director listed under Item 1 (Election of Directors), FOR Item 2
(Amendment of the 2007 Incentive Stock and Award Plan) and FOR Item 3
(Ratification of Independent Registered Public Accounting
Firm).
Please
print the name(s) appearing on each stock certificate(s) over which you have
voting authority:
|
Signature(s)
of Stockholder(s)
|
|
|
|
Date
and sign exactly as name(s) appear(s) on each stock certificate(s).
If signing for estates, trusts, corporations or other entities, title
or
capacity should be stated. If shares are held jointly, each holder
should
sign.
|
||
|
Date:
, 2008
|
||
PLEASE
COMPLETE, DATE AND SIGN THIS PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
____________________________________________________________
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
___________________________________________________________________
Date
of
Report (Date of earliest event reported): November
3, 2008
|
Transdel
Pharmaceuticals, Inc.
|
||
|
(Exact
name of registrant as specified in its charter)
|
||
|
Delaware
|
000-52998
|
45-0567010
|
|
(State
or other jurisdiction
of
incorporation)
|
(Commission
File
Number)
|
(IRS
Employer
Identification
No.)
|
|
4225
Executive Square, Suite 485
La
Jolla, CA
|
92037
|
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
|
|
Registrant’s
telephone number, including area code: (858)
457-5300
|
||
|
N/A
|
||
|
(Former
name or former address, if changed since last
report)
|
||
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
| o |
Written
communications pursuant to Rule 425 under the Securities Act
(17 CFR
230.425)
|
| o |
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17
CFR
240.14a-12)
|
| o |
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR
240.14d-2(b))
|
| o |
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR
240.13e-4(c))
|
Item
5.02 Departure
of Directors or Certain Officers; Election of Directors; Appointment
of Certain
Officers; Compensatory Arrangements of Certain Officers.
In
September 2008, Transdel Pharmaceuticals, Inc. (the “Company”) announced that
the first patient had been enrolled in its Phase 3 clinical trial for
Ketotransdel™. The clinical trial is well underway and is being executed by Cato
Research Ltd. With the Company’s Phase 3 clinical trial moving from the planning
and development stage to the execution stage, the Company and Paul Finnegan,
M.D., M.B.A., F.R.C.P.C., have agreed that Dr. Finnegan will transition
from the
Company’s Chief Medical Officer and Chief Operating Officer to a consultant of
the Company. The effective date of Dr. Finnegan’s transition will be November
17, 2008. Dr. Finnegan’s transition from a full time employee and officer of the
Company to a consultant did not result from any disagreement between
Dr.
Finnegan and the Company or its Board of Directors. The Company and
Dr. Finnegan are currently negotiating the terms of his consulting
agreement with the Company.
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.
|
||
| |
|
|
|
Date:
November 7, 2008
|
By: | /s/ John T. Lomoro |
|
John
T. Lomoro
|
||
|
Chief
Financial Officer
|
||
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 September
30, 2008
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
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)
(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
November 12, 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 filer o
|
Accelerated
filer o
|
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
|
(Do not check if a smaller reporting company)
|
|
TRANSDEL PHARMACEUTICALS,
INC.
(A
Development Stage Company)
Table
of Contents
|
|
|
|
|
Page
|
|
Part
I
|
|
FINANCIAL
INFORMATION
|
|
2
|
|
|
|
|
|
|
|
Item
1.
|
|
Financial
Statements
|
|
2
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets - September 30, 2008 (Unaudited) and
December 31, 2007
|
|
2
|
|
|
|
|
|
|
|
|
|
Unaudited
Condensed Consolidated Statements of Operations for the
three and
nine-month periods ended September 30, 2008 and 2007
|
|
3
|
|
|
|
|
|
|
|
|
|
Unaudited
Condensed Consolidated Statements of Cash Flows for the
nine-month periods
ended September 30, 2008 and 2007
|
|
4
|
|
|
|
|
|
|
|
|
|
Notes
to the Unaudited Condensed Consolidated Financial
Statements
|
|
5
|
|
|
|
|
|
|
|
Item
2.
|
|
Management’s
Discussion and Analysis of Financial Condition and Results
of
Operations
|
|
13
|
|
|
|
|
|
|
|
Item
4T.
|
|
Controls
and Procedures
|
|
15
|
|
|
|
|
|
|
|
Part
II
|
|
OTHER
INFORMATION
|
|
16
|
|
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
16
|
||
|
Item
2.
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
23
|
|
|
|
|
|
|
|
Item
6.
|
|
Exhibits
|
|
23
|
1
PART
I
FINANCIAL
INFORMATION
Item
1.
Financial
Statements.
TRANSDEL
PHARMACEUTICALS, INC.
(A
Development Stage Company)
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
September 30,
2008
|
December 31,
2007
|
|||||
|
|
(Unaudited)
|
|
|||||
|
ASSETS
|
|||||||
|
Current
assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
5,775,523
|
$
|
3,706,369
|
|||
|
Prepaid
consulting fees
|
764
|
488,748
|
|||||
|
Prepaid
expenses and other current assets
|
210,000
|
45,604
|
|||||
|
Total
current assets
|
5,986,287
|
4,240,721
|
|||||
|
Equipment,
net
|
2,714
|
—
|
|||||
|
Total
assets
|
$
|
5,989,001
|
$
|
4,240,721
|
|||
|
|
|||||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable
|
$
|
523,516
|
$
|
696,340
|
|||
|
Accrued
expenses and payroll liabilities
|
83,953
|
53,901
|
|||||
|
Total
liabilities
|
607,469
|
750,241
|
|||||
|
|
|||||||
|
Stockholders’
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,
15,462,616 and
13,727,004 shares issued and outstanding as of September
30, 2008 and
December 31, 2007
|
15,462
|
13,727
|
|||||
|
Additional
paid-in capital
|
14,794,604
|
10,554,298
|
|||||
|
Deficit
accumulated during the development stage
|
(9,428,534
|
)
|
(7,077,545
|
)
|
|||
|
Total
stockholders’ equity
|
5,381,532
|
3,490,480
|
|||||
|
Total
liabilities and stockholders’ equity
|
$
|
5,989,001
|
$
|
4,240,721
|
|||
2
TRANSDEL
PHARMACEUTICALS, INC.
(A
Development Stage Company)
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
For the
Period From
July 24, 1998
(Inception)
Through
September 30,
|
|||||||||||||
|
|
2008
|
2007
|
2008
|
2007
|
2008
|
|||||||||||
|
|
|
|
|
|
||||||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Selling,
general and administrative
|
$
|
305,221
|
$
|
247,891
|
$
|
1,315,400
|
$
|
499,227
|
$
|
4,398,981
|
||||||
|
Research
and development
|
529,455
|
721,253
|
1,466,638
|
806,300
|
4,024,382
|
|||||||||||
|
Operating
loss
|
834,676
|
969,144
|
2,782,038
|
1,305,527
|
8,423,363
|
|||||||||||
|
|
||||||||||||||||
|
Other
income (expense):
|
||||||||||||||||
|
Interest
expense
|
—
|
(1,552,903
|
)
|
—
|
(1,563,504
|
)
|
(1,575,755
|
)
|
||||||||
|
Interest
income
|
19,721
|
12,983
|
56,049
|
14,352
|
105,670
|
|||||||||||
|
Gain
on forgiveness of liabilities
|
—
|
—
|
—
|
89,914
|
89,914
|
|||||||||||
|
Gain
on settlement
|
—
|
—
|
375,000
|
—
|
375,000
|
|||||||||||
|
Total
other income (expense), net
|
19,721
|
(1,539,920
|
)
|
431,049
|
(1,459,238
|
)
|
(1,005,171
|
)
|
||||||||
|
|
||||||||||||||||
|
$
|
(814,955
|
)
|
$
|
(2,509,064
|
)
|
$
|
(2,350,989
|
)
|
$
|
(2,764,765
|
)
|
$
|
(9,428,534
|
)
|
||
|
|
||||||||||||||||
|
Basic
and diluted loss per common share
|
$
|
(0.05
|
)
|
$
|
(0.29
|
)
|
$
|
(0.16
|
)
|
$
|
(0.38
|
)
|
||||
|
Weighted
average common shares outstanding
|
15,462,616
|
8,745,363
|
14,586,704
|
7,204,663
|
||||||||||||
3
TRANSDEL
PHARMACEUTICALS, INC.
(A
Development Stage Company)
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Nine Months Ended
September 30,
|
For The Period
From July 24,
1998 (Inception)
Through
September 30,
|
||||||||
|
|
2008
|
2007
|
2008
|
|||||||
|
|
|
|
|
|||||||
|
Cash
from operating activities:
|
||||||||||
|
Net
loss
|
$
|
(2,350,989
|
)
|
$
|
(2,764,765
|
)
|
$
|
(9,428,534
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used in
operating activities:
|
||||||||||
|
Estimated
fair value of contributed services
|
—
|
175,000
|
2,475,000
|
|||||||
|
Gain
on forgiveness of liabilities
|
—
|
(89,914
|
)
|
(89,914
|
)
|
|||||
|
Amortization
of prepaid consulting fees and depreciation
|
284,598
|
28,752
|
485,850
|
|||||||
|
Non-cash
interest on notes payable
|
—
|
1,563,504
|
1,575,755
|
|||||||
|
Stock-based
compensation
|
504,566
|
43,051
|
689,088
|
|||||||
|
Changes
in operating assets and liabilities:
|
||||||||||
|
Prepaid
consulting costs
|
—
|
(140,000
|
)
|
(140,000
|
)
|
|||||
|
Prepaid
expenses and other current assets
|
(164,396
|
)
|
(44,132
|
)
|
(210,000
|
)
|
||||
|
Accounts
payable
|
(172,824
|
)
|
117,102
|
613,430
|
||||||
|
Accrued
expenses and payroll liabilities
|
30,052
|
42,128
|
83,953
|
|||||||
|
|
||||||||||
|
Net
cash used in operating activities
|
(1,868,993
|
)
|
(1,069,274
|
)
|
(3,945,372
|
)
|
||||
|
|
||||||||||
|
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
|
—
|
—
|
226,300
|
|||||||
|
Proceeds
from notes payable
|
—
|
1,500,000
|
1,500,000
|
|||||||
|
Capital
contributions
|
—
|
105,907
|
168,707
|
|||||||
|
Proceeds
from purchase of common stock and exercise of warrants
and stock
options
|
—
|
25,750
|
49,950
|
|||||||
|
Net
proceeds from Private Placements
|
3,941,301
|
3,735,167
|
7,779,092
|
|||||||
|
|
||||||||||
|
Net
cash provided by financing activities
|
3,941,301
|
5,366,824
|
9,724,049
|
|||||||
|
|
||||||||||
|
Net
change in cash and cash equivalents
|
2,069,154
|
4,297,550
|
5,775,523
|
|||||||
|
|
||||||||||
|
Cash
and cash equivalents, beginning of period
|
3,706,369
|
542
|
—
|
|||||||
|
|
||||||||||
|
Cash
and cash equivalents, end of period
|
$
|
5,775,523
|
$
|
4,298,092
|
$
|
5,775,523
|
||||
|
|
||||||||||
|
Supplemental
disclosure of cash flow information:
|
||||||||||
|
Adjustment/issuance
of common stock and warrants to consulting firms for prepaid
consulting
fees, net
|
$
|
(203,826
|
)
|
$
|
550,000
|
$
|
346,174
|
|||
|
Conversion
of notes payable and accrued interest into common stock
|
$
|
—
|
$
|
1,530,177
|
$
|
1,530,177
|
||||
|
Forgiveness
of notes payable and accrued interest to shareholders
|
$
|
—
|
$
|
241,701
|
$
|
241,701
|
||||
|
Conversion
of notes payable to shareholders
|
$
|
—
|
$
|
—
|
$
|
196,300
|
||||
4
TRANSDEL
PHARMACEUTICALS, INC.
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 products. The Company’s lead topical drug,
KetotransdelTM
utilizes
the Company’s 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 tissue where the drug exerts its localized anti-inflammatory
and
analgesic effect. The Company is also investigating other drug candidates
and
treatments for transdermal delivery using the TransdelTM
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 September 30, 2008, the results of
operations for
three and nine months ended September 30, 2008 and 2007, and cash
flows for the
nine months ended September 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 $9,428,534 at September 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™
.
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”). The Company performs an ongoing evaluation of this
institution. On October 3, 2008, FDIC deposit insurance temporarily
increased from $100,000 to $250,000 through December 31, 2009, therefore,
based
on the cash and cash equivalent balance as of September 30, 2008,
the Company
had $5,525,523 in excess of the increased limit.
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.
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.
6
TRANSDEL
PHARMACEUTICALS, INC.
(A
Development Stage Company)
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note
4. Summary of Significant Accounting Policies,
continued
As
of
September 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”) or until the Company is able to
commercialize one of its cosmetic products. Also, effective sales
and marketing
support must be in place for either the drug candidates or the cosmetic
products
in order to generate any revenues. The FDA approval process is highly
uncertain and the Company cannot estimate when it will generate revenues
at this
time from sales of its drug candidates. Similarly, the Company currently
cannot estimate when it will generate revenues from the cosmetic
products.
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 $504,566, $43,051 and $689,088 for the
nine months
ended September 30, 2008 and 2007 and for the period from Inception
to September
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 $204,323 and $300,243, respectively,
for
the nine months ended September 30, 2008, $8,385 and $34,666, respectively,
for
the nine months ended September 30, 2007, and $267,902 and $421,186,
respectively, for the period from Inception to September 30, 2008.
The fair
value of the unvested stock option grants amounted to approximately
$791,000 as
of September 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 nonforfeitable
equity instruments 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
1,151,708 for the nine months ended September 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.
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.
7
TRANSDEL
PHARMACEUTICALS, INC.
(A
Development Stage Company)
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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 nine months ended
September 30, 2007 and the period from Inception to September 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 $30,177
for the nine
months ended September 30, 2007 and the period from Inception to
September 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.
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
were 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 relation
services. The Company originally estimated that these shares would
be utilized
and earned for investor relations services by the end of the one-year
term,
however, these 50,000 shares along with 32,568 (for an aggregate
of 82,568)
shares from the issuance of common stock to one of the other consulting
firms
were not earned as of September 30, 2008. Therefore, these shares
are being held
for final disposition for investor relation services to be provided
to the
Company. As a result, in accordance with EITF Topic D-90, these shares
are not
considered issued and outstanding as of September 30, 2008. The Company
fully
intends to utilize these shares for payment of investor relation
services within
the next six to nine months. For the nine months ended September
30, 2008 and
2007 and for the period from Inception through September 30, 2008,
the Company
amortized $284,598, $28,752 and $485,850, respectively, of prepaid
consulting fees which is included as part of selling, general and
administrative
expenses.
8
TRANSDEL
PHARMACEUTICALS, INC.
(A
Development Stage Company)
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note
6. Stockholders’ Equity, continued
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. On
November 5, 2008, the Company’s shareholders approved an increase to the number
of authorized shares for issuance to 3,000,000.
Pursuant
to the terms of the Private Placement, for one year following the
initial
closing of the Private Placement, the Company may not issue options
to purchase
shares of common stock at an exercise price below $2.00 per share.
In addition,
for a period of 18 months following the initial closing of the Private
Placement, the Company may not file a registration statement, including,
without
limitation, a registration statement on Form S-8, covering the resale
of any
shares of common stock issued pursuant to an employee benefit plan.
A
summary
of the status of the Plan for the nine months ended September 30,
2008 is as
follows:
|
|
Number
of Shares
|
Weighted
Average
Exercise
Price
|
|||||
|
Options outstanding – Beginning of Period
|
610,000
|
$
|
2.01
|
||||
|
Granted
|
600,000
|
2.00
|
|||||
|
Exercised
|
—
|
—
|
|||||
|
Cancelled
|
(200,000
|
)
|
(2.00
|
)
|
|||
|
Options
outstanding – End of Period
|
1,010,000
|
$
|
2.01
|
||||
|
Options
exercisable – End of Period
|
204,167
|
||||||
|
Weighted
average remaining contractual life of the outstanding options – End
of period
|
9.3
years
|
||||||
|
Aggregate
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 September 30, 2008, management’s future estimates are that the effect of
forfeitures on the financial statements will be insignificant. As
of September
30, 2008, there was approximately $791,000 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 2.3 years.
9
(A
Development Stage Company)
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note
7. Stock Option Plans,
continued
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.
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).
|
Number of
Shares
Subject to
Warrants
Outstanding
|
Weighted-
Average
Exercise
Price
|
||||||
|
Warrants
outstanding – Beginning of Period
|
570,458
|
$
|
4.00
|
||||
|
Granted
|
232,272
|
4.35
|
|||||
|
Exercised
|
—
|
—
|
|||||
|
Expired
|
—
|
—
|
|||||
|
Warrants
outstanding – End of Period
|
802,730
|
$
|
4.10
|
||||
|
Weighted
average remaining contractual life of the outstanding warrants – End
of Period
|
4.07
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.
10
TRANSDEL
PHARMACEUTICALS, INC.
(A
Development Stage Company)
NOTES
TO THE UNAUDITED CONDENSED 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 September 30, 2008.
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 Ketotransdel™, 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 Ketotransdel™ will
be satisfactory.
Cosmetic
Products Consulting Agreement
On
August
25, 2008, the Company entered into a consulting agreement with a
firm to provide
product and business development services for specific cosmetic products
that
would be developed by the Company. To the extent a specific cosmetic
product,
applicable to the consulting agreement, is successfully developed
and a separate
agreement is entered into between the Company and a third party for
(including
but not limited to) the out-license or distribution of a product,
the firm will
receive a percentage of the operating profits from the third party
agreement as
agreed upon in the consulting agreement.
Note
11. Subsequent Events
On
October 27, 2008, the Company entered into an agreement with an investor
relations firm (“IR FIRM”), pursuant to which the IR FIRM will provide certain
investor relations and public relations services to the Company for
a period of
one year, beginning on November 1, 2008. In exchange for such
services, the Company issued 82,568 registered shares of its common
stock, a portion of which is forfeitable, to the IR FIRM as a prepayment of
services to be received and beginning on or about March 1, 2008,
the Company has
agreed to issue an additional 22,889 shares of unregistered common
stock to the IR FIRM on a monthly basis thereafter for the term of the
agreement.
11
TRANSDEL
PHARMACEUTICALS, INC.
(A
Development Stage Company)
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note
11. Subsequent Events, continued
Stock
Option Grant
On
November 5, 2008, the Company’s Board of Directors granted 10,000 stock options
to an employee of the Company under the Company’s 2007 Incentive Stock and
Awards Plan. The options were granted with an exercise price of $1.10
and have a
ten year life. Also, the options vest one-twelfth per quarter commencing
on the
first full quarter after the initial grant date of November 5,
2008.
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 products. Our
lead topical
drug, Ketotransdel™, utilizes our proprietary Transdel™ 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.
Ketotransdel™
is currently being studied in a Phase 3 U.S. registration trial in
acute soft
tissue injuries..
Plan
of Operations
For
the next twelve months, our current operating plan is focused on
the development
of our lead drug, Ketotransdel™ for the indication of acute musculoskeletal
pain, co-development opportunities in other therapeutic areas and
the
development of our cosmetic products.
On
June
16, 2008, we announced that we initiated our Phase 3 clinical program for
our novel analgesic and anti-inflammatory topical cream, Ketotransdel™, which
contains ketoprofen and on September 22, 2008 we announced the enrollment
of our
first patient. The first Phase 3 study will consist of a randomized,
double-blind, placebo controlled trial to evaluate the efficacy and
safety of
Ketotransdel™ 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 Ketotransdel™ (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 October 31, 2008, we have initiated three 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
Ketotransdel™ in the United States.
If
and
when the FDA approves Ketotransdel™ for treatment of acute pain, we intend
to pursue FDA approval of Ketotransdel™ for other indications, such as
osteoarthritis. We believe that the clinical success of Ketotransdel™ will
facilitate the use of the Transdel™ delivery technology in other
products. We are also investigating other drug candidates and
treatments for transdermal delivery using the Transdel™ platform technology for
products in pain management and other therapeutic areas. We have
identified key
therapeutic areas for co-development opportunities and are in the
discussion
phase with potential partners for these identified products. Furthermore,
we are
exploring potential partnerships with U.S. and foreign based companies
that have
sales and marketing infrastructures to support Ketotransdel™ in the event that
the product is approved and commercialized. We are also looking to
out-license
our Transdel™ drug delivery technology for the development and commercialization
of additional innovative drug products. In addition, we have developed
two
cosmetic formulations using our patented delivery system. One product will
potentially improve the appearance of facial fine lines and wrinkles and
other signs of aging on the face, while the other product will potentially
treat
cellulite on the thighs. We anticipate continuing the expansion of our
cosmetic product opportunities. 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 or the use of
consultants
Liquidity
and Capital Resources
Since
July 24, 1998 (“Inception”) through September 30, 2008, we have
incurred losses of approximately $9.4 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
September 30, 2008, we had approximately $5.8 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.
13
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.
If
we
raise additional capital by issuing equity securities, our existing
stockholders’ ownership will be diluted. In addition, if we raise additional
funds through collaboration and licensing arrangements, we may be
required to
relinquish potentially valuable rights to our product candidates
or proprietary
technologies, or grant licenses on terms that are not favorable to
us.
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.
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 September 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 nonforfeitable equity
instruments issued for future consulting services as prepaid consulting
fees
in our condensed consolidated balance sheets.
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.
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.
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
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-KSB for the fiscal year ended December 31, 2007,
as filed with the Securities and Exchange Commission on March 26, 2008.
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.
Since
inception we have recorded operating losses. From Inception through
September
30, 2008, we have a deficit accumulated during the development stage
of
approximately $9.4 million, and for the three and nine months ended
September
30, 2008, we experienced a net loss of approximately $815,000 and
$2.4 million,
respectively. In addition, we expect to incur increasing operating
losses for
the foreseeable future as we continue to incur costs for research
and
development and clinical trials, and in other development activities.
Our
ability to generate revenue and achieve profitability depends upon
our ability,
alone or with others, to complete the development of our proposed
products,
obtain the required regulatory approvals and manufacture, market
and sell our
proposed products. Development is costly and requires significant
investment. In
addition, we may choose to license rights to particular drugs. The
license fees
for such drugs may increase our costs.
As
we
continue to engage in the development of Ketotransdel™ and develop other
products, there can be no assurance that we will ever be able to
achieve or
sustain market acceptance, profitability or positive cash flow. Our
ultimate
success will depend on many factors, including whether Ketotransdel™ receives
FDA approval. We cannot be certain that we will receive FDA approval
for
Ketotransdel™ or other products, or that we will reach the level of sales and
revenues necessary to achieve and sustain profitability. Further,
there is no
assurance our cosmetic products will lead to successful products. Unless
we raise additional capital, we may not be able to execute our business
plan or
fund business operations long enough to achieve positive cash flow.
Furthermore,
we may be forced to reduce our expenses and cash expenditures to
a material
extent, which would impair our ability to execute our business
plan.
Our
independent registered public accounting firm expressed doubt about
our ability
to continue as a going concern.
There
can
be no assurance that we will ever be able to achieve or sustain profitability
or
positive cash flow. Based on our history of losses, our independent
registered
public accounting firm has stated in their report accompanying their
audit of
our 2007 year-end consolidated financial statements that there was
substantial
doubt about our ability to continue as a going concern. If we are
not able to
generate revenue or raise additional capital, we may not be able
to continue
operating our business.
We
will need additional financing to execute our business plan and fund
operations,
which additional financing may not be available.
We
have
very limited funds and we may not be able to execute our current
business plan
and fund business operations long enough to achieve profitability
unless we are
able to raise additional funds. Our ultimate success will depend
upon our
ability to raise additional capital. There can be no assurance that
additional
funds will be available when needed from any source or, if available,
will be
available on terms that are acceptable to us.
We
may be
required to pursue sources of additional capital through various
means,
including joint venture projects and debt or equity financings. Future
financings through equity investments are likely to be dilutive to
existing
stockholders. Also, the terms of securities we may issue in future
capital
transactions may be more favorable for our new investors. Newly issued
securities may include preferences, superior voting rights and the
issuance of
warrants or other derivative securities, which may have additional
dilutive
effects. Further, we may incur substantial costs in pursuing future
capital
and/or financing, including investment banking fees, legal fees,
accounting
fees, printing and distribution expenses and other costs. We may
also be
required to recognize non-cash expenses in connection with certain
securities we
may issue, such as convertible notes and warrants, which will adversely
impact
our financial condition.
Our
ability to obtain needed financing may be impaired by such factors
as the
capital markets, both generally and specifically in the pharmaceutical
industry,
and the fact that we are not profitable, which could impact the availability
or
cost of future financings. If the amount of capital we are able to
raise from
financing activities, together with our revenues from operations,
is not
sufficient to satisfy our capital needs, even to the extent that
we reduce our
operations accordingly, we may be required to cease operations.
16
Timing
and results of clinical trials to demonstrate the safety and efficacy
of
products as well as FDA approval of products are
uncertain.
We
are
subject to extensive government regulations. The process of obtaining
FDA
approval is costly, time consuming, uncertain and subject to unanticipated
delays. Before obtaining regulatory approvals for the sale of any
of our
products, we must demonstrate through preclinical studies and clinical
trials
that the product is safe and effective for each intended use. Preclinical
and
clinical studies may fail to demonstrate the safety and effectiveness
of a
product. Even promising results from preclinical and early clinical
studies do
not always accurately predict results in later, large scale trials.
A failure to
demonstrate safety and efficacy would result in our failure to obtain
regulatory
approvals. Moreover, if the FDA grants regulatory approval of a product,
the
approval may be limited to specific indications or limited with respect
to its
distribution, which could limit revenues.
We
cannot
assure you that the FDA or other regulatory agencies will approve
any products
developed by us, on a timely basis, if at all, or, if granted, that
such
approval will not subject the marketing of our products to certain
limits on
indicated use. Any limitation on use imposed by the FDA or delay
in or failure
to obtain FDA approvals of products developed by us would adversely
affect the
marketing of these products and our ability to generate product revenue,
as well
as adversely affect the price of our common stock.
If
we fail to comply with continuing federal, state and foreign regulations,
we
could lose our approvals to market drugs and our business would be
seriously
harmed.
Following
initial regulatory approval of any drugs we may develop, we will
be subject to
continuing regulatory review, including review of adverse drug experiences
and
clinical results that are reported after our drug products become
commercially
available. This would include results from any post-marketing tests
or continued
actions required as a condition of approval. The manufacturer and
manufacturing
facilities we use to make any of our drug candidates will be subject
to periodic
review and inspection by the FDA. If a previously unknown problem
or problems
with a product or a manufacturing and laboratory facility used by
us is
discovered, the FDA or foreign regulatory agency may impose restrictions
on that
product or on the manufacturing facility, including requiring us
to withdraw the
product from the market. Any changes to an approved product, including
the way
it is manufactured or promoted, often requires FDA approval before
the product,
as modified, can be marketed. In addition, we and our contract manufacturers
will be subject to ongoing FDA requirements for submission of safety
and other
post-market information. If we or our contract manufacturers fail
to comply with
applicable regulatory requirements, a regulatory agency may:
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issue
warning letters;
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impose
civil or criminal penalties;
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suspend
or withdraw our regulatory
approval;
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suspend
or terminate any of our ongoing clinical
trials;
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refuse
to approve pending applications or supplements to approved
applications
filed by us;
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impose
restrictions on our operations;
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close
the facilities of our contract manufacturers;
or
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seize
or detain products or require a product
recall.
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Additionally,
regulatory review covers a company’s activities in the promotion of its drugs,
with significant potential penalties and restrictions for promotion
of drugs for
an unapproved use. Sales and marketing programs are under scrutiny
for
compliance with various mandated requirements, such as illegal promotions
to
health care professionals. We are also required to submit information
on our
open and completed clinical trials to public registries and databases.
Failure
to comply with these requirements could expose us to negative publicity,
fines
and penalties that could harm our business.
If
we
violate regulatory requirements at any stage, whether before or after
marketing
approval is obtained, we may be fined, be forced to remove a product
from the
market or experience other adverse consequences, including delay,
which would
materially harm our financial results. Additionally, we may not be
able to
obtain the labeling claims necessary or desirable for product
promotion.
17
Delays
in the conduct or completion of our clinical and non-clinical trials
or the
analysis of the data from our clinical or non-clinical trials may
result in
delays in our planned filings for regulatory approvals, and may adversely
affect
our business.
We
cannot
predict whether we will encounter problems with any of our completed
or planned
clinical or non-clinical studies that will cause us or regulatory
authorities to
delay or suspend planned clinical and non-clinical studies. Any of
the following
could delay the completion of our planned clinical studies:
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failure
of the FDA to approve the scope or design of our clinical
or non-clinical
trials or manufacturing plans;
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delays
in enrolling volunteers in clinical
trials;
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insufficient
supply or deficient quality of materials necessary for
the performance of
clinical or non-clinical trials;
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negative
results of clinical or non-clinical studies;
and
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adverse
side effects experienced by study participants in clinical
trials relating
to a specific product.
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There
may
be other circumstances other than the ones described above, over
which we may
have no control that could materially delay the successful completion
of our
clinical and non-clinical studies.
None
of our product candidates, other than Ketotransdel™ , have commenced clinical
trials.
None
of
our product candidates, other than Ketotransdel™, have commenced any clinical
trials and there are a number of FDA requirements that we must satisfy
in order
to commence clinical trials. These requirements will require substantial
time,
effort and financial resources. We cannot assure you that we will
ever satisfy
these requirements. In addition, prior to commencing any trials of
a drug
candidate, we must evaluate whether a market exists for the drug
candidate. This
is costly and time consuming and no assurance can be given that our
market
studies will be accurate. We may expend significant capital and other
resources
on a drug candidate and find that no commercial market exists for
the drug. Even
if we do commence clinical trials of our other drug candidates, such
drug
candidates may never be approved by the FDA.
Once
approved, there is no guarantee that the market will accept our products,
and
regulatory requirements could limit the commercial usage of our
products.
Even
if
we obtain regulatory approvals, uncertainty exists as to whether
the market will
accept our products or if the market for our products is as large
as we
anticipate. A number of factors may limit the market acceptance of
our products,
including the timing of regulatory approvals and market entry relative
to
competitive products, the availability of alternative products, the
price of our
products relative to alternative products, the availability of third
party
reimbursement and the extent of marketing efforts by third party
distributors or
agents that we retain. We cannot assure you that our products will
receive
market acceptance in a commercially viable period of time, if at
all. We cannot
be certain that any investment made in developing products will be
recovered,
even if we are successful in commercialization. To the extent that
we expend
significant resources on research and development efforts and are
not able,
ultimately, to introduce successful new products as a result of those
efforts,
our business, financial position and results of operations may be
materially
adversely affected, and the market value of our common stock could
decline.
*We
may be subject to product liability claims.
The
development, manufacture, and sale of pharmaceutical products expose
us to the
risk of significant losses resulting from product liability claims.
Although we have obtained and intend to maintain product liability
insurance to
offset some of this risk, we may be unable to maintain such insurance
or it may
not cover certain potential claims against us.
In
the
future, we may not be able to afford to obtain insurance due to rising
costs in
insurance premiums in recent years. Currently we have been able to secure
insurance coverage, however, we may be faced with a successful claim
against us
in excess of our product liability coverage that could result in
a material
adverse impact on our business. If insurance coverage is too expensive or
is unavailable to us in the future, we may be forced to self-insure
against
product-related claims. Without insurance coverage, a successful claim
against us and any defense costs incurred in defending ourselves
may have a
material adverse impact on our operations.
18
If
our patents are determined to be unenforceable, or if we are unable
to obtain
new patents based on current patent applications or for future inventions,
we
may not be able to prevent others from using our intellectual
property.
Our
success will depend in part on our ability to obtain and expand patent
protection for our specific products and technologies both in the
United States
and other countries. We cannot guarantee that any patents will be
issued from
any pending or future patent applications owned by or licensed to
us.
Alternatively, a third party may successfully circumvent our patents.
Our rights
under any issued patents may not provide us with sufficient protection
against
competitive products or otherwise cover commercially valuable products
or
processes. In addition, because patent applications in the United
States are
maintained in secrecy for eighteen months after the filing of the
applications,
and publication of discoveries in the scientific or patent literature
often lag
behind actual discoveries, we cannot be sure that the inventors of
subject
matter covered by our patents and patent applications were the first
to invent
or the first to file patent applications for these inventions. In
the event that
a third party has also filed a patent on a similar invention, we
may have to
participate in interference proceedings declared by the United States
Patent and
Trademark Office to determine priority of invention, which could
result in a
loss of our patent position. Furthermore, we may not have identified
all United
States and foreign patents that pose a risk of infringement.
The
use of our technologies could potentially conflict with the rights
of
others.
The
manufacture, use or sale of our proprietary products may infringe
on the patent
rights of others. If we are unable to avoid infringement of the patent
rights of
others, we may be required to seek a license, defend an infringement
action or
challenge the validity of the patents in court. Patent litigation
is costly and
time consuming and may divert management’s attention and our resources. We may
not have sufficient resources to bring these actions to a successful
conclusion.
In such case, we may be required to alter our products, pay licensing
fees or
cease activities. If our products conflict with patent rights of
others, third
parties could bring legal actions against us claiming damages and
seeking to
enjoin manufacturing and marketing of affected products. If these
legal actions
are successful, in addition to any potential liability for damages,
we could be
required to obtain a license in order to continue to manufacture
or market the
affected products. We may not prevail in any legal action and a required
license
under the patent may not be available on acceptable terms, if at
all.
We
will be dependent on outside manufacturers in the event that we successfully
develop our product candidates into commercial drug products; therefore,
we will
have limited control of the manufacturing process, access to raw
materials,
timing for delivery of finished products and costs. One manufacturer
may
constitute the sole source of one or more of our
products.
Third
party manufacturers will manufacture all of our products, in the
event that we
successfully develop our product candidates into commercial drug
products.
Currently, certain of our contract manufacturers constitute the sole
source of
one or more of our products. If any of our existing or future manufacturers
cease to manufacture or are otherwise unable to deliver any of our
products or
any of the components of our products, we may need to engage additional
manufacturing partners. Because of contractual restraints and the
lead-time
necessary to obtain FDA approval of a new manufacturer, replacement
of any of
these manufacturers may be expensive and time consuming and may disrupt
or delay
our ability to supply our products and reduce our revenues.
Because
all of our products, in the event that we successfully develop our
product
candidates into commercial drug products, will be manufactured by
third parties,
we have a limited ability to control the manufacturing process, access
to raw
materials, the timing for delivery of finished products or costs
related to this
process. There can be assurance that our contract manufacturers will
be able to
produce finished products in quantities that are sufficient to meet
demand or at
all, in a timely manner, which could result in decreased revenues
and loss of
market share. There may be delays in the manufacturing process over
which we
will have no control, including shortages of raw materials, labor
disputes,
backlog and failure to meet FDA standards. Increases in the prices
we pay our
manufacturers, interruptions in our supply of products or lapses
in quality
could adversely impact our margins, profitability and cash flows.
We are reliant
on our third-party manufacturers to maintain their manufacturing
facilities in
compliance with FDA and other federal, state and/or local regulations
including
health, safety and environmental standards. If they fail to maintain
compliance
with FDA or other critical regulations, they could be ordered to
curtail
operations, which would have a material adverse impact on our business,
results
of operations and financial condition.
We
also
rely on our outside manufacturers to assist us in the acquisition
of key
documents such as drug master files and other relevant documents
that are
required by the FDA as part of the drug approval process and post-approval
oversight. Failure by our outside manufacturers to properly prepare
and retain
these documents could cause delays in obtaining FDA approval of our
drug
candidates.
We
are dependent on third parties to conduct clinical trials and non-clinical
studies of our drug candidates and to provide services for certain
core aspects
of our business. Any interruption or failure by these third parties
to meet
their obligations pursuant to various agreements with us could have
a material
adverse effect on our business, results of operations and financial
condition.
We
rely
on third parties to conduct clinical and non-clinical studies of
our drug
candidates and provide us with other services. Such third party contractors
are
subject to FDA requirements. Our business and financial viability
are dependent
on the regulatory compliance of these third parties, and on the strength,
validity and terms of our various contracts with these third parties.
Any
interruption or failure by these third party contractors to meet
their
obligations pursuant to various agreements with us may be outside
of our control
and could have a material adverse effect on our business, financial
condition
and results of operations.
19
We
currently have no internal sales and marketing resources and may
have to rely on
third parties in the event that we successfully commercialize our
product.
In
order
to market any of our products in the United States or elsewhere,
we must develop
internally or obtain access to sales and marketing forces with technical
expertise and with supporting distribution capability in the relevant
geographic
territory. We may not be able to enter into marketing and distribution
arrangements or find a corporate partner to market our drug candidates,
and we
currently do not have the resources or expertise to market and distribute
our
products ourselves. If we are not able to enter into marketing or
distribution
arrangements or find a corporate partner who can provide support
for
commercialization of our products, we may not be able to successfully
commercialize our products. Moreover, any new marketer or distributor
or
corporate partner for our specific combinations, with whom we choose
to contract
may not establish adequate sales and distribution capabilities or
gain market
acceptance for our products.
If
we are unable to retain our key personnel or attract additional professional
staff, we may be unable to maintain or expand our
business.
Because
of the specialized scientific nature of our business, our ability
to develop
products and to compete will remain highly dependent, in large part,
upon our
ability to attract and retain qualified scientific, technical and
commercial
personnel. The loss of key scientific, technical and commercial personnel,
especially our Chief Executive Officer, Juliet Singh, Ph.D. or the
failure to
recruit additional key scientific, technical and commercial personnel
could have
a material adverse effect on our business. While we have consulting
agreements
with certain key institutions and have an employment agreement with
our Chief
Executive Officer, we cannot assure you that we will succeed in retaining
personnel or their services under existing agreements. There is intense
competition for qualified personnel in the pharmaceutical industry,
and we
cannot assure you that we will be able to continue to attract and
retain the
qualified personnel necessary for the development of our business.
Risks
Relating to Our Industry
If
we are unable to compete with other companies that develop rival
products to our
products, then we may never gain market share or achieve
profitability.
The
pharmaceutical industry is intensely competitive, and we face competition
across
the full range of our activities. If we fail to compete successfully,
our
business, results of operations and financial condition could be
adversely
affected. Our competitors include brand name and generic manufacturers
of
pharmaceuticals specializing in transdermal drug delivery, especially
those
doing business in the United States. In the market for pain management
products,
our competitors include manufacturers of over-the-counter and prescription
pain
relievers. Because we are smaller than many of our national competitors,
we may
lack the financial and other resources needed to compete for market
share in the
pain management sector. Our other potential drug candidates will
also face
intense competition from larger and more well established pharmaceutical
and
biotechnology companies. Many of these competitors have significantly
greater
financial, technical and scientific resources than we do. In addition
to product
safety, development and efficacy, other competitive factors in the
pharmaceutical market include product quality and price, reputation,
service and
access to scientific and technical information. If our products are
unable to
compete with the products of our competitors, we may never gain market
share or
achieve profitability.
We
may not be able to keep up with the rapid technological change in
the
biotechnology and pharmaceutical industries, which could make our
products
obsolete and reduce our potential revenues.
Biotechnology
and related pharmaceutical technologies have undergone and continue
to be
subject to rapid and significant change. Our future will depend in
large part on
our ability to maintain a competitive position with respect to these
technologies. It is possible that developments by our competitors
will render
our products and technologies obsolete or unable to compete. Any
products that
we develop may become obsolete before we recover expenses incurred
in developing
those products, which may require that we raise additional funds
to continue our
operations.
Our
ability to generate revenues will be diminished if we fail to obtain
acceptable
prices or an adequate level of reimbursement from third-party
payors.
If
we
succeed in bringing a specific product to market, we cannot be certain
that the
products will be considered cost effective and that reimbursement
from insurance
companies and other third-party payors will be available or, if available,
will
be sufficient to allow us to sell the products on a competitive
basis.
20
Significant
uncertainty exists as to the reimbursement status of newly approved
health care
products. Third-party payors, including Medicare, are challenging
the prices
charged for medical products and services. Government and other third-party
payors increasingly are attempting to contain health care costs by
limiting both
coverage and the level of reimbursement for new drugs and by refusing,
in some
cases, to provide coverage for uses of approved products for disease
indications
for which the FDA has not granted labeling approval. Third-party
insurance
coverage may not be available to patients for any products we discover
and
develop, alone or with collaborators. If government and other third-party
payors
do not provide adequate coverage and reimbursement levels for our
products, the
market acceptance of these products may be reduced.
Changes
in the healthcare industry that are beyond our control may be detrimental
to our
business.
The
healthcare industry is changing rapidly as the public, governments,
medical
professionals and the pharmaceutical industry examine ways to broaden
medical
coverage while controlling the increase in healthcare costs. Potential
changes
could put pressure on the prices of prescription pharmaceutical products
and
reduce our business or prospects. We cannot predict when, if any,
proposed
healthcare reforms will be implemented or their affect on our
business.
Risks
Relating to the Common Stock
*We
are subject to financial reporting and other requirements for which
our
accounting and other management systems and resources may not be
adequately
prepared.
We
are
subject to reporting and other obligations under the Securities Exchange
Act of
1934, as amended, (the “Exchange Act”) including the requirements of Section 404
of the Sarbanes-Oxley Act. Section 404 required us to conduct an
annual
management assessment of the effectiveness of our internal controls
over
financial reporting which commenced with the annual report on Form
10-KSB for
the Fiscal Year 2007 and will be conducted for the Fiscal Year 2008.
Also, we
will be required to obtain a report by our independent registered
public
accounting firm addressing these assessments commencing with our
annual report
on Form 10-K for the fiscal year ended December 31, 2009. These reporting
and
other obligations will place significant demands on our management,
administrative, operational, and accounting resources. We anticipate
that we
will need to upgrade our systems; implement additional financial
and management
controls, reporting systems and procedures; implement an internal
audit
function; and hire additional accounting, internal audit and finance
staff. If
we are unable to accomplish these objectives in a timely and effective
fashion,
our ability to comply with our financial reporting requirements and
other rules
that apply to reporting companies could be impaired and we may not
be able to
obtain the independent registered public accounting firm certifications
required
by Section 404. Any failure to maintain effective internal controls
could have a
negative impact on our ability to manage our business and on our
stock
price.
If
we fail to maintain an effective system of internal control, we may
not be able
to report our financial results accurately or to prevent fraud. Any
inability to
report and file our financial results accurately and timely could
harm our
business and adversely impact the trading price of our common
stock.
Effective
internal control is necessary for us to provide reliable financial
reports and
prevent fraud. If we cannot provide reliable financial reports or
prevent fraud,
we will not be able to manage our business as effectively, and our
business and
reputation with investors would be harmed. Any such inabilities to
establish
effective controls or loss of confidence would have an adverse affect
on our
financial condition, results of operation and access to capital.
We have not
performed an in-depth analysis to determine if past failures of internal
controls exist, and may in the future discover areas of our internal
control
that need improvement.
Public
company compliance may make it more difficult to attract and retain
officers and
directors.
The
Sarbanes-Oxley Act and new rules subsequently implemented by the
Securities and
Exchange Commission have required changes in corporate governance
practices of
public companies. As a public company, we expect these new rules
and regulations
to increase our compliance costs and to make certain activities more
time
consuming and costly. We also expect that these new rules and regulations
may
make it more difficult and expensive for us to obtain director and
officer
liability insurance in the future and we may be required to accept
reduced
policy limits and coverage or incur substantially higher costs to
obtain the
same or similar coverage. As a result, it may be more difficult for
us to
attract and retain qualified persons to serve on our board of directors
or as
executive officers.
Our
stock price may be volatile.
The
market price of our common stock is likely to be highly volatile
and could
fluctuate widely in price in response to various factors, many of
which are
beyond our control, including the following:
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changes
in the pharmaceutical industry and
markets;
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competitive
pricing pressures;
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our
ability to obtain working capital financing;
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new
competitors in our market;
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additions
or departures of key personnel;
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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;
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sales
of our common stock;
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our
ability to execute our business plan;
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operating
results that fall below expectations;
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loss
of any strategic relationship with our contract manufacturers
and clinical
and non-clinical research organizations;
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industry
or regulatory developments;
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economic
and other external factors; and
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period-to-period
fluctuations in our financial
results.
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We
have not paid dividends in the past and do not expect to pay dividends
in the
future. Any return on investment may be limited to the value of our
common
stock.
We
have
never paid cash dividends on our common stock and do not anticipate
doing so in
the foreseeable future. The payment of dividends on our common stock
will depend
on earnings, financial condition and other business and economic
factors
affecting us at such time as our board of directors may consider
relevant. If we
do not pay dividends, our common stock may be less valuable because
a return on
your investment will only occur if our stock price appreciates.
Our
common stock may be deemed a “penny stock”, which would make it more difficult
for our investors to sell their shares.
Our
common stock may be subject to the “penny stock” rules adopted under Section
15(g) of the Exchange Act. The penny stock rules apply to companies
whose common
stock is not listed on The Nasdaq Stock Market or other national
securities
exchange and trades at less than $4.00 per share or that have tangible
net worth
of less than $5,000,000 ($2,000,000 if the company has been operating
for three
or more years). These rules require, among other things, that brokers
who trade
penny stock to persons other than “established customers” complete certain
documentation, make suitability inquiries of investors and provide
investors
with certain information concerning trading in the security, including
a risk
disclosure document and quote information under certain circumstances.
Many
brokers have decided not to trade penny stocks because of the requirements
of
the penny stock rules and, as a result, the number of broker-dealers
willing to
act as market makers in such securities is limited. If we remain
subject to the
penny stock rules for any significant period, it could have an adverse effect
on
the market, if any, for our securities. If our securities are subject
to the
penny stock rules, investors will find it more difficult to dispose
of our
securities.
Furthermore,
for companies whose securities are traded in the OTC Bulletin Board,
it is more
difficult (1) to obtain accurate quotations, (2) to obtain coverage
for
significant news events because major wire services generally do
not publish
press releases about such companies and (3) to obtain needed
capital.
Offers
or availability for sale of a substantial number of shares of our
common stock
may cause the price of our common stock to decline.
The
sale
by our stockholders of substantial amounts of our common stock in
the public
market or upon the expiration of any statutory holding period, under
Rule 144,
or upon expiration of lock-up periods applicable to outstanding shares,
or
issued upon the exercise of outstanding options or warrants, could
create a
circumstance commonly referred to as an “overhang” and in anticipation of which
the market price of our common stock could fall. The existence of
an overhang,
whether or not sales have occurred or are occurring, also could make
more
difficult our ability to raise additional financing through the sale
of equity
or equity-related securities in the future at a time and price that
we deem
reasonable or appropriate.
Our
directors and executive officers can exert significant control over
our business
and affairs and may have actual or potential interests that may depart
from
those of our other stockholders.
Our
directors and executive officers together beneficially own a significant
percentage of our issued and outstanding common stock, which percentage
may
increase in the event that they exercise any options or warrants
to purchase
shares of our common stock that they may hold or in the future are
granted to
them. The interests of such persons may differ from the interests
of other
stockholders. Such persons will have significant influence over all
corporate
actions requiring stockholder approval, irrespective of how our other
stockholders may vote, including the following actions:
22
|
·
|
the
election of our directors;
|
|
|
|
·
|
amendment
of our Certificate of Incorporation or By-laws; and
|
|
|
·
|
mergers,
sales of assets or other corporate
transactions.
|
Concentration
of stock ownership among a few stockholders may discourage a potential
acquirer
from making a tender offer or otherwise attempting to obtain control
of our
company, which in turn could reduce our stock price or prevent our
stockholders
from realizing a premium over our stock price.
*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.
We
may
raise additional funds through public or private equity offerings
or corporate
collaboration and licensing arrangements. To the extent that we raise
additional
capital by issuing equity securities, our existing stockholders’ ownership will
be diluted. In addition, if we raise additional funds through collaboration
and
licensing arrangements, it may be necessary to relinquish potentially
valuable
rights to our potential products or proprietary technologies, or
grant licenses
on terms that are not favorable to us. Further, we may not be able
to obtain
additional funding, particularly if the volatile conditions in the
stock and
financial markets, and more particularly the market for pharmaceutical
company
stocks, persist. If we are unable to obtain additional funding, we
may be
required to delay, further reduce the scope of or discontinue one
or more of our
research and development projects, sell the company or certain of
its assets or
technologies, or dissolve and liquidate the company’s assets.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
Since
July 1, 2008, we have issued or agreed to issue the following shares
of our
common stock that have not been registered under the Securities Act
of 1933, as
amended:
On
October 27, 2008, we entered into an agreement with an investor relations
firm
(“IR FIRM”), pursuant to which the IR FIRM will provide certain investor
relations and public relations services to us for a period of one
year,
beginning on November 1, 2008. In exchange for such services, we
issued 82,568 registered shares of our common stock, a portion of which is
forfeitable, to the IR FIRM as a prepayment of services to be received,
and
beginning on or about March 1, 2008, we have agreed to issue an additional
22,889 shares of unregistered common stock to the IR FIRM on a
monthly basis thereafter for the term of the agreement. The offer, sale and
issuance of these securities was made in reliance upon the exemption
from
registration requirements of the Securities Act provided for by Section
4(2)
thereof for transactions not involving a public offering.
On
November 5, 2008, we granted a stock option to an employee, to
purchase 10,000 shares of our common stock at an exercise price of
$1.10 per
share, which was the closing bid price of our common stock on the
date of
grant. The issuance of these securities is exempt from registration in
reliance on Rule 701 of the under the Securities Act of 1933 pursuant to
compensatory benefit plans approved by our board of directors.
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
31.1*
|
|
Section
302 Certification of Principal Executive Officer
|
|
31.2*
|
|
Section
302 Certification of Principal Financial Officer
|
|
32.1*
|
|
Section
906 Certification of Principal Executive Officer and Principal
Financial
Officer
|
|
*
|
Filed
herewith.
|
23
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:
November 14, 2008
|
By:
|
/s/ Juliet
Singh
|
|
|
Juliet
Singh, Ph.D.
Chief
Executive Officer
(Principal
Executive Officer)
|
|
24
EXHIBIT
INDEX
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
31.1*
|
|
Section
302 Certification of Principal Executive Officer
|
|
31.2*
|
|
Section
302 Certification of Principal Financial Officer
|
|
32.1*
|
|
Section
906 Certification of Principal Executive Officer and Principal
Financial
Officer
|
|
*
|
Filed
herewith.
|
25