Business Context and Reporting Period
Company: Transdel Pharmaceuticals, Inc. (Note: Subsequent to the reporting period, the company changed its name to Imprimis Pharmaceuticals, Inc.)
Reporting Period: Quarter ended March 31, 2011
Business Stage: Development stage company focused on non-invasive, topically delivered pharmaceutical products (lead candidate: Ketotransdel) and cosmetic products utilizing the Transdel transdermal delivery platform.
Status: The company has not generated significant revenue and has incurred recurring losses since inception. The filing includes a "Going Concern" warning due to substantial doubt about the ability to continue operations without additional financing.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 | YTD Inception (Mar 31, 2011) |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Net Loss | $(432,313) | $(870,612) | $(17,899,110) |
| Loss Per Share (Basic/Diluted) | $(0.03) | $(0.06) | N/A |
| Cash and Cash Equivalents (End of Period) | $70,866 | $951,882 | N/A |
| Total Assets | $133,006 | N/A | N/A |
| Total Liabilities | $1,534,721 | N/A | N/A |
| Stockholders' Deficit | $(1,401,715) | N/A | N/A |
| Convertible Note Payable | $1,073,972 | N/A | N/A |
| Net Cash Used in Operating Activities | $(220,596) | $(637,891) | $(10,699,529) |
Material Changes vs. Prior Period
- Operating Expenses: Selling, general, and administrative (SG&A) expenses decreased by $428,983 to $326,604. This reduction was primarily due to the absence of a one-time $416,000 separation agreement expense recognized in Q1 2010 for the former CEO.
- Research and Development (R&D): R&D expenses decreased by $27,942 to $87,216, attributed to reduced activity in Phase 3 clinical trials and consulting expenses.
- Liquidity: Cash balances plummeted from $951,882 in Q1 2010 to $70,866 in Q1 2011. The company suspended all payroll effective March 1, 2011, to conserve cash.
- Debt: Interest expense of $18,493 was recorded on a $1 million Senior Convertible Promissory Note issued in April 2010.
Outlook, Risks, and Subsequent Events
Management Commentary & Outlook: The company requires significant additional financing to fund a second Phase 3 clinical trial for Ketotransdel and supportive safety studies required for FDA approval. Without funding, the company cannot meet regulatory requirements or continue operations. Management anticipates initiating the second Phase 3 trial in 2012 or 2013 if financing is secured.
Material Risks & Contingencies:
- Going Concern: Substantial doubt exists regarding the company's ability to continue as a going concern due to recurring losses and negative cash flows.
- Internal Controls: Management concluded that disclosure controls and procedures were not effective as of March 31, 2011, citing material weaknesses.
- Bankruptcy (Subsequent Event): On June 26, 2011, the company filed for Chapter 11 bankruptcy protection. The court denied a proposed asset sale to Cardium Healthcare, Inc. The Chapter 11 case was dismissed on December 9, 2011.
- Change in Control (Subsequent Event): Following the bankruptcy dismissal, the company entered into a Secured Line of Credit and issued Series A Convertible Preferred Stock to DermaStar International, LLC. DermaStar became a controlling person, and its members joined the Board of Directors.
- Debt Settlement (Subsequent Event): The company entered into waiver and settlement agreements regarding its $1 million convertible note, mandating conversion to common stock at a price of $0.01667 (DermaStar) and $0.015 (other holder), subject to an increase in authorized shares.
- Corporate Actions (Subsequent Event): The company approved a name change to Imprimis Pharmaceuticals, Inc., a reverse stock split (1-for-8), and an increase in authorized shares to 400 million.
Investor Verification Checklist
- Capital Structure: Verify the impact of the subsequent 1-for-8 reverse stock split and the massive dilution resulting from the mandatory conversion of the $1.14 million convertible note and the issuance of Series A Preferred Stock.
- Going Concern Status: Confirm the company's current cash position and whether the $750,000 line of credit from DermaStar has been fully utilized or if further funding has been secured.
- Regulatory Path: Assess the current status of the Ketotransdel Phase 3 clinical trials and whether the FDA has accepted the post-hoc analysis data from the initial failed trial.
- Internal Controls: Review subsequent filings to determine if the material weaknesses in internal controls over financial reporting have been remediated.
- Related Party Transactions: Scrutinize the terms of the agreements with DermaStar, given their controlling interest and the related-party nature of the debt and equity financing.