10-K 1 immy_10k.htm ANNUAL REPORT immy_10k.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
(Mark One)
 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2012
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______

Commission File Number: 001-35814

IMPRIMIS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
45-0567010
(State or other jurisdiction of Incorporation or organization)
 
(IRS Employer Identification No.)

437 S. Hwy 101, Suite 209
Solana Beach, CA  92075
 (Address of Principal Executive Offices)(Zip Code)
 
(858) 704-4040
 (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, $0.001 par value per share
 
The NASDAQ Capital Market
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No þ
 
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. Yesþ No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
 
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
þ
(Do not check if a smaller reporting company)
     
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
 
As of June 29, 2012, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the common stock held by non-affiliates of the Registrant was approximately $11 million, based on the closing price of $3.00 for the Registrant’s common stock as quoted on the OTC Markets on that date (adjusted to reflect a one-for-five reverse stock split of the Registrant’s common stock on February 7, 2013). For purposes of this calculation, it has been assumed that shares of common stock held by each director, each officer and each person who owns 10% or more of the outstanding common stock are held by affiliates. The treatment of these persons as affiliates for purposes of this calculation is not conclusive as to whether such persons are, in fact, affiliates of the Registrant.

As of March 15, 2013, there were 8,888,250 shares of the Registrant’s common stock outstanding.

Documents incorporated by reference: None.
 


 
 

 
 
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Imprimis Pharmaceuticals, Inc. has pending trademark applications for Imprimis Pharmaceuticals, Accudel, Impracor and Generecycle. All other trademarks, tradenames and service marks included in this Report are the property of their respective owners.

 

 
The following discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Form 10-K. This report contains forward-looking statements that involve risks, uncertainties and assumptions. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. All statements made in this Annual Report on Form 10-K other than statements of historical fact could be deemed forward-looking statements.

By their nature, forward-looking statements speak only as of the date they are made, are neither statements of historical fact nor guarantees of future performance and are subject to risks, uncertainties, assumptions and changes in circumstances that are difficult to predict or quantify. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks identified in the section entitled “Risk Factors” in Part I, Item IA of this Annual Report, and similar discussions in our other SEC filings. If such risks or uncertainties materialize or such assumptions prove incorrect, our results could differ materially from those expressed or implied by such forward-looking statements and assumptions. Risks that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to: our ability to successfully implement our business plan; the success of our current and proposed clinical trials; uncertainties inherent in pre-clinical studies and clinical trials; our ability to research and successfully develop our product candidates; our ability to obtain financing necessary to operate our business; general economic and business conditions; our limited operating history; our ability to recruit and retain qualified personnel; our ability to manage future growth; and our ability to successfully complete and realize the benefits of potential acquisitions and collaborative arrangements (including our arrangement with PCCA).

You should not place undue reliance on forward-looking statements. Unless required to do so by law, we do not intend to update or revise any forward-looking statement, because of new information or future developments or otherwise.
 
As used in this Annual Report on Form 10-K and unless otherwise indicated, the terms “the Company”, “Imprimis” “we”, “us” and “our” refer to Imprimis Pharmaceuticals, Inc. and its consolidated subsidiary.

General
 
We are a specialty pharmaceutical company developing non-invasive, topically delivered products. Our innovative patented Accudel cream formulation technology is designed to enable highly targeted site specific treatment.  Impracor, our lead pain product candidate, utilizes the Accudel platform technology to deliver the active drug, ketoprofen, a non-steroidal anti-inflammatory drug, or NSAID, through the skin directly into the underlying tissues where the drug exerts its localized anti-inflammatory and analgesic effects.  
 
Through our strategic relationship with Professional Compounding Centers of America, Inc. (“PCCA”), one of the largest drug compounding organizations in the world, we expect to facilitate our future selection, formulation and development of potential product candidates. Our relationship with PCCA is exclusive and provides us with the opportunity to develop new products using PCCA’s proprietary drug formulations and drug delivery technologies, as well as access to an extensive database of market-oriented information related to specific drug development candidates. We plan to use our proprietary Accudel drug delivery technology, coupled with these licensed technologies, formulations and market data, to identify pharmaceutical development opportunities where there is a significant unmet need for a new drug product.
 
To better enable us to analyze the myriad of PCCA and PCCA-related development opportunities, we have designed a comprehensive drug development selection methodology.  In determining the viability of a potential opportunity, we group all development candidates according to delivery modality and health category.  We review intellectual property related to a respective opportunity, as well as manufacturing considerations, various market-related criterion and other clinical development issues.  We believe that our review process will aid us in identifying viable development candidates and assist us in determining whether to internally develop a program or seek an appropriate commercialization partner.
 
We were incorporated in Delaware in January 2006 as Bywater Resources, Inc. in order to conduct mineral exploration activities. We changed our name to Transdel Pharmaceuticals, Inc. on September 11, 2007. On September 17, 2007, Transdel Pharmaceuticals, Inc. entered into an Agreement of Merger and Plan of Reorganization by and among Transdel Pharmaceuticals, Inc., 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, Acquisition Sub merged with and into Transdel Holdings, Transdel Holdings, as the surviving corporation, became our wholly-owned subsidiary, and the former owners of Transdel Holdings became our controlling stockholders.  Upon completion of the merger, we began our operations as a specialty pharmaceutical company.
 
On February 28, 2012, we changed our name to Imprimis Pharmaceuticals, Inc. and effected a one-for-eight reverse split of our authorized, issued and outstanding common stock, and on February 7, 2013 we effected a one-for-five reverse split of our authorized, issued and outstanding common stock. The information in this Form 10-K and the accompanying consolidated financial statements for the periods presented have been retroactively adjusted to reflect the effects of these reverse stock splits.
 
Our common stock has been quoted in the over-the-counter market since March 14, 2007 and began trading on The NASDAQ Capital Market under the symbol IMMY on February 8, 2013.  Our executive offices are located at 437 S. Hwy 101, Suite 209, Solana Beach, CA  92075 and our telephone number at such office is (858) 704-4040.  Our website address is imprimispharma.com.  Information contained on our website is not deemed part of this Form 10-K.
 
Impracor
 
Impracor, our lead drug candidate, is comprised of a topical formulation of ketoprofen, a NSAID. Impracor is formulated using our proprietary Accudel drug delivery system and is being developed for the treatment of acute musculoskeletal pain. Impracor penetrates the skin barrier to reach the targeted underlying tissues where it exerts its localized anti-inflammatory and analgesic effect. The topical delivery of the drug may minimize systemic exposure, which may in turn lead to fewer concerns pertaining to gastrointestinal, hepatic, cardiovascular and other adverse systemic effects, which are associated with orally administered NSAIDs. We believe that this product may be considered for patients with site specific localized pain and who also (i) have a history of gastrointestinal, cardiovascular, kidney or liver problems, (ii) are geriatric or pediatric and/or (iii) are at risk for drug interactions.
 
Completed Clinical Studies for Impracor
 
In June 2008, we initiated a Phase 3 clinical trial designed as a randomized, double-blind, placebo-controlled, multi-center study that enrolled a total of 364 patients with acute soft tissue injuries of the upper or lower extremities in 26 centers in the United States.  As we reported in October 2009, the top-line results showed that the study demonstrated statistical significance in its primary endpoint in the per protocol analysis and was favorable for Impracor in the Intent-To Treat ("ITT") analysis. Impracor also demonstrated a safety and tolerability profile similar to the placebo used in the study.  Of the over 180 patients treated with Impracor, there were no treatments related gastrointestinal, cardiovascular, hepatic or other clinically relevant adverse events reported. Furthermore, Impracor was observed to be well absorbed through the skin and only minimal blood concentrations of ketoprofen were detected in a subset of patients who underwent blood sampling for pharmacokinetic analyses following repeated topical applications.
 
In January 2010, we reported on further in-depth analyses of the ITT data from the Impracor Phase 3 study.  For the modified ITT analysis we identified 35 patients who did not meet study entry criteria at the time of randomization.  Excluding the data from these patients who should not have been randomized into the study based on information that was not known at the time of enrollment, the study demonstrated statistical significance (p<0.038) on the primary efficacy endpoint.  This post-hoc analysis was confirmed by a third-party statistical expert.
 
In February 2012, our management conducted an additional analysis of the ITT data and a body weight adjusted modified per protocol (“mPP”) analysis of those participants who complied with the Phase 3 Study protocol.  This analysis excluded 52 participants from the mITT group who did not take a minimum therapeutic quantity of the study drug, and 20 patients who did not have a valid Day 3 primary end point assessment and 4 patients who were misdiagnosed.  This mPP analysis on 250 patients demonstrated statistical significance of the primary endpoint (p=0.034).
 
We believe that the weight of evidence of a treatment effect in this study is further strengthened by another endpoint (pain intensity recorded three times daily on patient diary cards) that supports the primary endpoint. The patient diary data which yield pain curves over time show separation between treatment groups reaching statistical significance in favor of Impracor using both the original and modified ITT population.  Furthermore, the physician's global assessment, using a 7 Point Likert Scale on day 3, produced statistically significant results (p=0.037), and a later exploratory analysis of the patient's global assessment of treatment satisfaction, using a binomial method, produced statistically significant results (p=0.023).
 
Proposed Clinical Program for Impracor
 
For Impracor to be approved by the FDA, two confirmatory Phase 3 trials with exposure of at least 300 to 500 patients and supportive dermal safety studies are required.  We plan to commence two adequate and well-controlled Phase 3 trials of Impracor in patients experiencing pain from osteoarthritis flare in their knees.  We plan to discuss the clinical development program for those trials, which has been endorsed by our scientific and regulatory advisory board, with the FDA at a Type C meeting scheduled to occur in April 2013.
 
Also as required by the FDA, we recently completed a clinical study that measured the amount of ketoprofen found in the bloodstream following topical application of two different doses of the anti-inflammatory cream under different conditions, including normal activities, heat exposure to the application site and standardized exercise, as well as the amount of the drug in the bloodstream after taking an oral dose of ketoprofen (the relative oral bioavailability).  The study included a total of 40 healthy volunteers (36 of which completed the study) assigned to one of two cohorts (2g or 4g applications).  Subjects were dosed according to a four-sequence, four-treatment randomization schedule in which they received topical Impracor applications under each of the three conditions and an oral ketoprofen dose in weekly intervals.  Overall the pharmacokinetic parameters were observed to be consistent between the two different dose cohorts.  The application of an occlusive knee bandage with either heat or exercise following topical administration showed faster initial, but lower overall plasma exposure of ketoprofen relative to non-occluded topical administration with no heat or exercise.  The extent of bioavailability over 48 hours as measured by the area under the concentration curve from time zero to the time of last measurable concentration (AUC0-t) was 2% or less in cohort 1 (2 g single dose applied to one knee) and 4% or less in cohort 2 (2 g single dose applied to each knee) for the topical treatments relative to the oral treatment.  All treatments were observed to be well tolerated.  We also expect to initiate a routine supportive trial in healthy subjects related to the potential of contact sensitization.  We expect that all of our planned clinical studies for Impracor will be executed with the professional help of CROs with experience in clinical trials of similar design.  We are in the process of selecting and negotiating arrangements with potential CROs and other third parties in order to initiate our Phase 3 clinical trials. 
 
Following completion of our clinical trials, we expect to file a New Drug Application for marketing authorization for Impracor under Section 505(b)(2) of the Hatch-Waxman Act of 1984, a regulatory route towards U.S. approval that leverages previously established safety and/or effectiveness of already approved ketoprofen products in other dosage forms.  This regulatory path is usually faster than the development of a completely new drug chemical entity.
 
The timing of Phase 3 trials and the other supportive studies will be dependent on obtaining adequate financing to support the execution of these activities and for other working capital expenditures.  Upon receipt of such financing, we anticipate initiating the supportive studies and Phase 3 trials in mid and late 2013, respectively.  Assuming successful timely completion and outcome of the additional Phase 3 trials, we would expect to file the New Drug Application for Impracor in the second half of 2014.
 
We expect that Impracor, if approved by the FDA, could become one of the first NSAID cream products available by prescription in the United States for the topical treatment of acute musculoskeletal pain. 
 
The Accudel Technology
 
Accudel is our proprietary topical cream drug delivery platform which can facilitate the transdermal penetration of drugs, thus enabling the avoidance of first pass metabolism by the liver and minimizing systemic exposure.   The following diagram provides a schematic of the Accudel drug delivery system:


 Accudel has the following properties, which make it a highly versatile vehicle for topical drug administration:
 
utilizes a pluronic lecithin organogel based matrix which is known to penetrate the stratum corneum and aid in the diffusion of active ingredients through the skin;
 
helps solubilize various types of drugs and its components (lipophilic, hydrophilic and amphiphilic);
 
uses penetration enhancers in a synergistic combination;
 
 
can incorporate compounds of various molecular sizes;
 
contains biocompatible components which are generally regarded as safe by the FDA;
 
is thermodynamically stable, insensitive to moisture and resistant to microbial contamination;
 
potentially results in decreased safety concerns associated with oral or intravenous drugs;
 
avoids certain limitations associated with transdermal patches;
 
is easy to apply, aesthetically acceptable and odorless; and
 
potentially produces patentable new products when combined with established or new drugs.
 
Product Development Program
 
We believe that the clinical success of Impracor will facilitate the use of the Accudel delivery technology in other products. We have identified development opportunities for potential products in pain management and other therapeutic areas utilizing the Accudel platform technology and we are exploring potential commercial relationships for these identified product candidates.  We are currently considering potential new drug candidates in several promising health care categories. We estimate that pre-Phase 3 clinical studies for two potential product candidates could each be completed approximately 18 to 24 months after their commencement, and that costs for such development, would range from approximately $2 million to $2.5 million for each proposed drug candidate.
 
In addition, we expect our new relationship with PCCA to facilitate our future selection, development and formulation of potential product candidates. We plan to use our proprietary Accudel drug delivery technology, coupled with these licensed technologies, formulations and market data, to identify pharmaceutical development opportunities where there is a significant unmet need for a new drug product. 

In the past our product development program has included cosmetic and cosmeceutical products utilizing our patented topical delivery system technology, Accudel. Our lead product candidate was an anti-cellulite formulation, for which we have initial clinical information supporting the beneficial effects of this cosmetic product on skin appearance. Our potential pipeline of cosmetic products includes hyperpigmentation and anti-aging formulations. We remain interested in pursuing this business opportunity and continue to consider entering into new relationships with third parties.  We may also pursue the out-licensing of our Accudel drug delivery technology for the development and commercialization of additional innovative drug and cosmeceutical products.
 
Market and Opportunity
 
According to Wolters-Kluwer PHAST, the U.S. pain market was approximately $39.8 billion in 2011.  Of that total, the NSAID market made up approximately $13.5 billion from approximately 155 million written prescriptions.  The topical NSAID market in 2011 over $500 million, averaging an approximately 28% compound annual growth rate since 2007.
 
According to the Archives of Internal Medicine, NSAIDs are regularly used by more than 60 million Americans.  Approximately 70% of people aged 65 or older take NSAIDs weekly.  As a result of the widespread usage of oral NSAIDs, according to Bandolier, there are over 100,000 hospitalizations annually and 16,500 deaths in the U.S. due to gastro-intestinal complications annually.  In the United Kingdom, there are approximately 12,000 hospitalizations and an estimated 2,600 deaths annually related to GI complications following oral NSAID use per year.  One study published in 1998 in the American Journal of Medicine found that NSAID-related gastro-intestinal side effects caused almost as many deaths as asthma, cervical cancer and malignant melanoma combined, and another 1999 study published in the Journal of Rheumatology found that death resulting from gastro-intestinal complications was the 15th most common cause of death in the U.S., higher than cervical cancer, asthma and malignant melanoma.  According to Singh G, Triadafilopoulos G., Epidemiology of NSAID induced gastrointestinal complications, J Rheumatol. 1999, the hospitalizations and deaths related to systemic NSAID use has a financial impact of more than $2 billion per year in the U.S.  Therefore, we believe there is a significant demand from physicians and patients for topical pain management products such as Impracor, especially with respect to the treatment of localized, acute musculoskeletal pain, which we believe is driven primarily by the concern of possible negative systemic effects of orally administered NSAIDs.
 
We believe there is a large and growing need for Impracor, and specifically, a non-liquid topical NSAID.  Recent prescription data from Wolters-Kluwer PHAST through May 2012 showed that following a production disruption with Voltaren® gel, the leading topical NSAID in prescription volume, and a corresponding spike in prescription volume for Pennsaid (a liquid) and Flector (a patch), once the Voltaren® gel supply issues were resolved in April 2012, prescription volumes for Voltaren® gel dramatically increased, nearly to pre-failure volumes.  We believe that this data shows that there is a market preference for gels over liquids and patches, and we further believe there may also be a market preference for creams such as Impracor as well.
 
Assuming that we can show positive efficacy and strong safety data, and assuming FDA approval of Impracor, we believe we will be able to enter into an agreement on reasonable terms with a suitable marketing partner to distribute Impracor. We also intend to assess alternative options, in parallel, to invest in the distribution of Impracor alone or in partnership with a more established sales organization.  We believe that finding a marketing partner with a sales force that will call on physicians who would potentially prescribe Impracor is of critical importance.  Given the growth in the use of topical NSAIDs we believe that interest in bringing Impracor to market by strong partners under acceptable terms should be significant.
 
Competition
 
The pharmaceutical industry is highly competitive. There are competitors in the United States that are currently selling FDA-approved topical NSAID products that our products would compete with, if our products are approved by the FDA. Also, we are aware of companies developing patch products, topical NSAIDs and other pain formulations.
 
In the topical NSAID category, since 2008, three diclofenac-based topical NSAID products have been introduced in the US market: Endo Pharmaceutical’s Voltaren® gel (licensed from Novartis), Alpharma’s (now subsidiary of Pfizer) Flector® patch and Covidien’s Pennsaid® Topical Solution (licensed from Nuvo).  While Voltaren Gel and Pennsaid are indicated for osteoarthritis of the knee, Flector Patch is indicated for acute sprains and strains.  The three FDA approved topical NSAID products currently in the US market are all diclofenac-based.  Currently, there are no FDA approved non-diclofenac-based topical NSAID products in the US market. We believe that additional topical NSAID products such as our ketoprofen-based Impracor would be well received by the FDA and patients by providing safe and effective treatment options to address pain in addition to diclofenac-based products.
 
According to Wolters-Kluwer PHAST, as of December 2011, Voltaren® gel dominated the topical NSAID market with approximately 74% of the U.S. monthly prescription volume.  Flector® patch held the number two position with approximately 16% of the U.S. monthly prescription volume.  Solaraze® Gel held the number three position in the market with approximately 6% of the U.S. monthly prescription volume. Pennsaid® Topical Solution makes up the remaining 4% of  topical NSAID prescriptions
 
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.  It is possible that developments by our competitors will make our products or technologies uncompetitive or obsolete.  In addition, the intensely competitive environment for pain management products requires an ongoing, extensive search for medical and technological innovations and the ability to market products effectively, including the ability to communicate the effectiveness, safety and value of branded products for their intended uses to healthcare professionals in private practice, group practices and managed care organizations.  Because we are significantly smaller than our primary competitors, we may lack the financial and other resources needed to develop, produce, distribute, market and commercialize any of our drug candidates or compete for market share in the pain management sector.
 
At this time, no generic version of any of the three currently marketed topical NSAID drugs have been approved by the FDA.  Additionally, the Office of Generic Drugs, or OGD, recently issued draft guidance representing the FDA’s opinion on the requirements for approval of a generic version of the currently marketed topical NSAIDs, Voltaren Gel and Flector Patch. OGD recommends a bioequivalence study with clinical endpoints and/or a bioequivalence study with pharmacokinetic endpoints and/or a skin irritation and sensitization study to determine bioequivalence between the products, i.e. demonstrating that there is no difference between the original drug and the generic. We believe that the cost to develop a generic topical NSAID is comparable to the cost of a Phase 3 new drug application and thereby discourages companies from genericizing the topical NSAID category of drugs.
 
Governmental Regulation
 
Our ongoing product development activities are subject to extensive and rigorous regulation at both the federal and state levels. Post development, the manufacture, testing, packaging, labeling, distribution, sales and marketing of our products is also subject to extensive regulation.  The Federal Food, Drug and Cosmetic Act of 1983, as amended, and other federal and state statutes and regulations govern or influence the testing, manufacture, safety, packaging, labeling, storage, record keeping, approval, advertising, promotion, sale and distribution of pharmaceutical products. Noncompliance with applicable requirements can result in fines, recall or seizure of products, total or partial suspension of production and/or distribution, refusal of the government to approve New Drug Applications, or NDAs, civil sanctions and criminal prosecution.
 
FDA approval is typically required before each dosage form or strength of any new drug can be marketed.  Applications for FDA approval must contain information relating to efficacy, safety, toxicity, pharmacokinetics, product formulation, raw material suppliers, stability, manufacturing processes, packaging, labeling, and quality control. The FDA also has the authority to revoke previously granted drug approvals.  Product development and approval within this regulatory framework requires a number of years and involves the expenditure of substantial resources.
 
Current FDA standards for approving new pharmaceutical products are more stringent than those that were applied in the past. As a result, labeling revisions, formulation or manufacturing changes and/or product modifications may be necessary. For example, due to an increased understanding of the cardiovascular and gastrointestinal risks associated with NSAIDs, the FDA approved new rules requiring that professional labeling for all prescription and over-the-counter NSAIDs include information on such risks.  We cannot determine what effect changes in regulations or legal interpretations, when and if promulgated, may have on our business in the future. Changes could, among other things, require expanded or different labeling, the recall or discontinuance of certain products, additional record keeping and expanded documentation of the properties of certain products and scientific substantiation.  Such regulatory changes, or new legislation, could have a material adverse effect on our business, financial condition and results of operations.  The evolving and complex nature of regulatory requirements, the broad authority and discretion of the FDA and the generally high level of regulatory oversight results in a continuing possibility that from time to time, we will be adversely affected by regulatory actions despite ongoing efforts and commitment to achieve and maintain full compliance with all regulatory requirements.
 
FDA Approval Process
 
To obtain approval of a new product from the FDA, we must, among other requirements, submit data supporting safety and efficacy, as well as detailed information on the manufacture and composition of the product and proposed labeling. The testing and collection of data and the preparation of necessary applications are expensive and time-consuming. The FDA may not act quickly or favorably in reviewing these applications, and we may encounter significant difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude us from marketing our products.
 
The process required by the FDA before a new drug may be marketed in the U.S. generally involves the following: (i) completion of nonclinical laboratory and animal testing in compliance with FDA regulations; (ii) submission of an investigational new drug application, which must become effective before human clinical trials may begin; (iii) performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use; and (iv) submission and approval of an NDA by the FDA.
 
The sponsor typically conducts human clinical trials in the following three sequential phases, but the phases may overlap
 
Phase 1 clinical studies frequently begin with the initial introduction of the compound into healthy human subjects prior to introduction into patients, involves testing the product for safety, adverse effects, dosage, tolerance, absorption, metabolism, excretion and other elements of clinical pharmacology.
 
Phase 2 clinical studies typically involve studies in a small sample of the intended patient population to assess the efficacy of the compound for a specific indication, to determine dose tolerance and the optimal dose range as well as to gather additional information relating to safety and potential adverse effects.
 
Phase 3 clinical studies are undertaken to further evaluate clinical safety and efficacy in an expanded patient population at typically dispersed study sites, in order to determine the overall risk-benefit ratio of the compound and to provide an adequate basis for product labeling.
 
As a product candidate moves through the clinical phases, manufacturing processes are further defined, refined, controlled and validated. The level of control and validation required by the FDA in the conduct of clinical trials increases as clinical studies progress.
 
Clinical trials must be conducted in accordance with the FDA’s good clinical practices requirements. The FDA may order the temporary or permanent discontinuation of a clinical trial at any time or impose other sanctions if it believes that the clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. An institutional review board, or IRB, generally must approve the clinical trial design and patient informed consent at each clinical site and may also require the clinical trial at that site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.
 
The applicant must submit to the FDA the results of the nonclinical studies and clinical trials, together with, among other things, detailed information on the manufacture and composition of the product and proposed labeling, in the form of an NDA, including payment of a user fee, unless waived. The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the Prescription Drug User Fee Act, or PDUFA, the FDA ordinarily has 10 months in which to complete its initial review of the NDA and respond to the applicant. However, the PDUFA goal dates are not legal mandates and the FDA response often occurs several months beyond the original PDUFA goal date. The review process and the target response date under PDUFA may be extended if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the NDA submission. Following completion of the FDA’s initial review of the NDA and the clinical and manufacturing procedures and facilities, the FDA will issue a complete response or action letter, which will either include an approval authorizing commercial marketing of the drug for certain indications or contain the conditions that must be met in order to secure final approval of the NDA. If the FDA’s evaluation of the NDA submission and the clinical and manufacturing procedures and facilities is not favorable, the FDA may refuse to approve the NDA.
 
 
Section 505(b)(2) New Drug Applications
 
Since the active pharmaceutical ingredient in Impracor is ketoprofen, which has already been approved by the FDA, we are able to file a NDA under section 505(b)(2) of the Hatch-Waxman Act of 1984 for this product as well as other products that we may develop including approved active pharmaceutical ingredients.  This is an alternate path to FDA approval for new formulations of previously approved products. Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Act. Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The Hatch-Waxman Act permits the applicant to rely upon certain published nonclinical or clinical studies conducted for an approved product or the FDA’s conclusions from prior review of such studies. The FDA may also require companies to perform additional studies or measurements to support any changes from the approved product. The FDA may then approve the new product for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant. While references to nonclinical and clinical data not generated by the applicant or for which the applicant does not have a right of reference are allowed, all development, process, stability, qualification and validation data related to the manufacturing and quality of the new product must be included in an NDA submitted under Section 505(b)(2).
 
Each study is conducted in accordance with certain standards under protocols that detail the objectives of the study, the parameters to be used to monitor safety, and efficacy criteria to be evaluated.  Each protocol must be submitted to the FDA.  In some cases, the FDA allows a company to rely on data developed in foreign countries or previously published data, which eliminates the need to independently repeat some or all of the studies.
 
To the extent that the Section 505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book publication. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid is called a paragraph IV certification. If the applicant does not challenge the listed patents, the Section 505(b)(2) application will not be approved until all the listed patents claiming the referenced product have expired. The Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired.  As of July 24, 2012, there were 14 ketoprofen based prescription drugs approved by the FDA in the Orange Book.  All of the approved applications are for oral capsules and oral extended release capsules, with dosage strengths ranging from 25 milligrams to 200 milligrams.
 
As a condition of approval, the FDA or other regulatory authorities may require further studies, including Phase 4 post-marketing studies to provide additional data.  Other post-marketing studies may be required to gain approval for the use of a product as a treatment for clinical indications other than those for which the product was initially tested.  Also, the FDA or other regulatory authorities require post-marketing reporting to monitor the adverse effects of the drug.  Results of post-marketing programs may limit or expand the further marketing of the products.
 
The FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the Internet.  A company can make only those claims relating to safety and efficacy that are approved by the FDA.  Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties.  Physicians may prescribe legally available drugs for uses that are not described in the drug's labeling and that differ from those tested by us and approved by the FDA.  Such off-label uses are common across medical specialties.  Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances.  The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers’ communications regarding off-label use.
 
Quality Assurance Requirements
 
The FDA enforces regulations to ensure that the methods used in, and facilities and controls used for, the manufacture, processing, packing and holding of drugs conform to current good manufacturing practices, or cGMP.  The cGMP regulations the FDA enforces are comprehensive and cover all aspects of operations, from receipt of raw materials to finished product distribution, insofar as they bear upon whether drugs meet all the identity, strength, quality, purity and safety characteristics required of them.  To assure compliance requires a continuous commitment of time, money and effort in all operational areas. 
 
The FDA conducts pre-approval inspections of facilities engaged in the development, manufacture, processing, packing, testing and holding of the drugs subject to NDAs.  If the FDA concludes that the facilities to be used do not meet cGMP, good laboratory practices or good clinical practices requirements, it will not approve the NDA. Corrective actions to remedy the deficiencies must be performed and verified in a subsequent inspection.  In addition, manufacturers of both pharmaceutical products and active pharmaceutical ingredients used to formulate the drug also ordinarily undergo a pre-approval inspection, although the inspection can be waived when the manufacturer has had a passing cGMP inspection in the immediate past.  Failure of any facility to pass a pre-approval inspection will result in delayed approval and would have a material adverse effect on our business, results of operations and financial condition.
 
The FDA also conducts periodic inspections of facilities to assess their cGMP status.  If the FDA were to find serious cGMP non-compliance during such an inspection, it could take regulatory actions that could adversely affect our business, results of operations and financial condition.  The FDA could initiate product seizures, request product recalls and seek to enjoin a product’s manufacture and distribution.  In certain circumstances, violations could lead to civil penalties and criminal prosecutions.  In addition, if the FDA concludes that a company is not in compliance with cGMP requirements, sanctions may be imposed that include preventing the company from receiving the necessary licenses to export its products and classifying the company as an “unacceptable supplier,” thereby disqualifying the company from selling products to federal agencies.  Imported active pharmaceutical ingredients and other components needed to manufacture our products could be rejected by United States Customs.
 
We believe that we and our suppliers and outside manufacturers are currently in compliance with all FDA requirements.
 
Impracor is manufactured by a large contract manufacturer in the United States that specializes in topical products.  We believe that this supplier has sufficient capability to manufacture Impracor if it is approved for sale.  We are currently assessing alternative suppliers for Impracor in the event there are problems associated with the manufacturing of Impracor by our current contract supplier, although we do not expect any such problems to occur.  Our active pharmaceutical ingredients (APIs), including ketoprofen, are manufactured by well-known and established chemical and pharmaceutical companies.  We are currently assessing alternative suppliers for our ketoprofen API.  Our preferred vendors for our non-API inactive raw materials suppliers are established companies.
 
 Other FDA Matters
 
If there are any modifications to an approved drug, including changes in indication, manufacturing process or labeling or a change in a manufacturing facility, an applicant must notify the FDA, and in many cases, approval for such changes must be submitted to the FDA or other regulatory authority.  The FDA also regulates post-approval promotional labeling and advertising activities to assure that such activities are being conducted in conformity with statutory and regulatory requirements.  Failure to adhere to such requirements can result in regulatory actions that could have a material adverse effect on our business, results of operations and financial condition.
 
Research and Development
 
Our research and development expenses primarily include costs for the Impracor clinical program.  These expenses have included costs related to our Phase 3 clinical studies, including costs for our contract research organizations and investigator payments to the clinical sites participating in the study.  Other expenses are personnel costs including wages and stock-based compensation, contract manufacturing, non-clinical studies, consulting and other costs related to the clinical program.

During the year ended December 31, 2012, we incurred $1,298,503 in research and development expenses, as compared to $111,554 during the year ended December 31, 2011. We expect research and development activities will continue to increase significantly as we execute on our business plan and conduct Phase 3 studies.
 
Intellectual Property
 
We obtained a patent from the United States Patent and Trademark Office on our Accudel technology in 1998, which affords protection of Accudel through 2016 in the United States.  This patent specifically lists over 500 different drugs in over 60 therapeutic areas, including both approved and established drugs.  The Accudel technology may also have an application to deliver drugs not listed in its patent, including novel drugs.  It also covers composition of matter, methods of use and methods of manufacture.  We have engaged counsel and consultants who have specific expertise in topical drug delivery to assist us in executing on an intellectual property strategy with the aim of extending the life of the technology derived from our existing patent beyond 2016.  We have also been granted a patent related to our Accudel technology in Canada through 2018.  We have filed additional patent applications in various jurisdictions.  We have pending trademark applications for Imprimis Pharmaceuticals, Accudel, Impracor and Generecycle.
 
Employees
 
As of March 15, 2013, we have four full-time employees and one part-time employee.  Our employees are responsible for financial accounting and investor relations, business and corporate development, research and development management, and general administration. 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 additional consultants. We are not party to any collective bargaining agreements with any of our employees. We have never experienced a work stoppage, and we believe our employee relations are good. We hire independent contractor labor and consultants on an as needed basis and have entered into consulting arrangements with certain directors in exchange for stock options and/or cash payments.
 
 
Scientific and Regulatory Advisors
 
On October 25, 2012, the Board approved the establishment of a scientific and regulatory advisory board to provide guidance to our management team relating to clinical trial procedures and product development.  The members of our advisory board are not members of our Board of Directors and do not otherwise hold management roles with the Company.
 
Our advisory board currently has six members as follows: Dr. Gerald J. Yakatan, Dr. Lee S. Simon, Dr. Allan Green, Dr. Marc Hochberg, Dr. Roy Altman and Dr. Roland Moskowitz. Dr. Yakatan has served in both academic and industrial environments in connection with pharmaceutical product development efforts, and we believe that his experience with the drug development and FDA approval process for various notable drug products will be valuable for our business. Dr. Simon, who has served as a division director and on advisory committees for the FDA and as a funded investigator and a member of the Steering Committee for the National Institutes of Health, brings important FDA expertise to the advisory board. Dr. Green is a physician, attorney, research scientist and inventor on several US patents and has significant operating and management experience with a number of biomedical companies, who we believe can provide invaluable advice to our management in the fields in which we operate. Dr. Altman has over 35 years of clinical experience in osteoarthritis and rheumatology and has been internationally recognized for his life work in the area of rheumatology and immunology. Dr. Hochberg serves in academic surroundings in connection with rheumatology and clinical immunology, where his research focuses on the clinical epidemiology of musculoskeletal diseases, particularly osteoarthritis and osteoporosis. Dr. Moskowitz has over 30 years of experience, where he has conducted extensive research in the pathophysiology and genetics of osteoarthritis. We believe that the experience and know-how of Dr. Altman, Dr. Moskowitz, and Dr. Hochberg, particularly in the areas of rheumatology and osteoarthritis, will provide our management with vital knowledge in order to serve our needs in those clinical areas. We have also entered into consulting agreements with the members of our advisory board. On August 28, 2012, we entered into an independent contractor services agreement with SDG, LLC (“SDG”), of which Dr. Simon and Dr. Green are principals, pursuant to which SDG will provide consulting services for us relating to our clinical development strategy for clinical trial design and management and regulatory affairs. In 2012, we entered into separate consulting agreements with each of Dr. Yakatan, Dr. Moskowitz, Dr. Hochberg and Dr. Altman, pursuant to which each has agreed to provide services for us relating to our regulatory and development strategy in connection with the FDA approval process.
 
 
The following risk factors should be considered carefully in addition to the other information contained in this Report. This Report contains forward-looking statements. Our business, financial condition, results of operations and stock price could be materially adversely affected by any of these risks.
 
Risks Related to Our Business
 
We have a limited operating history since the dismissal of our voluntary petition for reorganization relief under Chapter 11 of the Bankruptcy Code in December 2011, and we may be unable to successfully resume our operations and implement our business plan.
 
On June 26, 2011, we suspended our operations and filed a voluntary petition for reorganization relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of California (the “Bankruptcy Court”), Case No. 11-10497-11 (the “Chapter 11 Case”). On November 21, 2011, in connection with our entry into a line of credit agreement and securities purchase agreement with DermaStar International, LLC (“DermaStar”), we requested that the Bankruptcy Court dismiss the Chapter 11 Case.  On December 8, 2011, the Bankruptcy Court entered an order dismissing the Chapter 11 Case, and since that date we have engaged a new management team, appointed new directors to fill certain vacancies on our Board and worked towards re-initiating our Phase 3 clinical trials for Impracor.  However, we have a limited operating history since the dismissal of the Chapter 11 Case, and we may not be successful in our efforts to resume our operations.  We did not receive any type of discharge of debts, claims or obligations in the Chapter 11 Case, and prior unknown or contingent liabilities could have a material adverse effect on our financial condition.  Prior to the filing of the Chapter 11 Case, we were unable to successfully pursue our business plan due to a lack of funding.  We will require additional capital to pursue our clinical trials and maintain our operations.  We may be unable to obtain such funds when necessary.  In addition, by September 2011 we employed no full-time employees and had retained the consulting services of one former employee in order to manage any matters related to the Chapter 11 Case.  We have had to re-assemble an executive management team and a research and development team, and other employees to assist with our general operations.  We currently have five employees, a number of whom are former employees, and we will need to hire additional employees in order to execute our business plan.  Given our operating history, we may be unable to maintain an effective management team, or hire and retain the additional qualified individuals we will need.  As a result, we may be unable to successfully pursue our business plan.
 
 
We have incurred losses in the research and development of Impracor and our Accudel technology since inception. We may never generate revenue or become profitable.
 
We have incurred losses in every year of our operations, including net losses of $(5,383,535) and $(953,936) for the years ended December 31, 2012 and 2011, respectively. As of December 31, 2012, our accumulated deficit was $(24,104,268).  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 in-license rights to particular drugs or active ingredients for use in cosmetic products. The license fees for such drugs or active ingredients may increase our costs.

As we continue to engage in the development of Impracor and develop other products, we may never be able to achieve or sustain market acceptance, profitability or positive cash flow. Our ultimate success will depend on many factors, including whether Impracor receives FDA approval. We cannot be certain that we will receive FDA approval for Impracor, or that we will reach the level of sales and revenues necessary to achieve and sustain profitability. Unless we raise additional capital, we will not be able to execute our business plan or fund business operations. Furthermore, we will be forced to reduce our expenses and cash expenditures to a material extent, which would impair or delay our ability to execute our business plan.
 
We may not be able to correctly estimate our future operating expenses, which could lead to cash shortfalls.
 
We expect our total expenditures over the next 12 months to be approximately $9 million.  However, our estimate of total expenditures could increase if we encounter unanticipated difficulties.  In addition, our estimates of the amount of cash necessary to fund our business may prove to be wrong and we could spend our available financial resources much faster than we currently expect.  If we do not have sufficient funds to continue to develop our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations. If any of these events were to occur, there is a substantial risk that our business would fail.  Sources of additional funds may not be available on acceptable terms or at all.  Weak economic and capital market conditions could result in increased difficulties in raising capital for our operations. We may not be able to raise money through the sale of our equity securities or through borrowing funds on terms we find acceptable, or at all. If we cannot raise the funds that we need, we will be unable to continue our operations, and our stockholders could lose their entire investment in our company.

Our operating expenses may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. These factors include:
 
the time and resources required to develop, conduct clinical trials and obtain regulatory approvals for our drug candidates;
 
the costs to rebuild our management team following the dismissal of the Chapter 11 Case, including attracting and retaining personnel with the skills required for effective operations; and
 
the costs of preparing, filing, prosecuting, defending and enforcing patent claims and other patent related costs, including litigation costs and the results of such litigation.
 
If our estimates of our operating expenses prove to be wrong, we could spend our available financial resources much faster than we currently expect.  If we do not have sufficient funds to continue to develop our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations.
 
We may need additional capital in order to continue operating our business, and such additional funds may not be available on acceptable terms or at all.
 
We do not generate any cash from operations and, although we believe we have sufficient cash reserves to execute our business plan for at least the next twelve months, we will likely need significant additional capital, which we may seek to raise through, among other things, public and private equity offerings and debt financings.   In addition, estimates of our operating expenses and working capital requirements could be incorrect, and we could be required to seek additional financing earlier than we anticipate. We expect to continue to fund our operations primarily through equity and debt financings in the future, and could also pursue funding from corporate partnerships or licensing arrangements (as we did with the PCCA Transaction) or similar financings. If additional capital is not available when necessary, we may not be able to continue to operate our business pursuant to our business plan or we may have to discontinue our operations entirely.
 
If we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience substantial dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. 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. If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash commitments. 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 options, convertible notes and warrants, which would adversely impact our financial results.

 
Our clinical trials may not demonstrate the safety and efficacy of our product candidates.
 
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 product candidates, we must demonstrate through preclinical studies and clinical trials that the product candidate is safe and effective for each intended use. Preclinical and clinical studies may fail to demonstrate the safety and effectiveness of our product candidates. 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 candidate, the approval may be limited to specific indications or limited with respect to its distribution, which could limit revenues.
 
The FDA or other regulatory agencies may not approve any product candidates developed by us on a timely basis or at all, and, if granted, such approval may subject the marketing of our product candidates to certain limits on indicated use. In particular, the outcome of the final analyses of the data from the Phase 3 clinical trials for Impracor may vary from our initial conclusions or the FDA may not agree with our interpretation of such results or may challenge the adequacy of our clinical trial design or the execution of the clinical trial. The FDA has required two adequate and well controlled Phase 3 clinical trials for Impracor before we can submit a New Drug Application under Section 505(b)(2) of the Hatch-Waxman Act of 1984. We have not yet initiated these Phase 3 clinical trials, although in September 2012 we commenced certain supportive studies relating to Impracor that are also required by the FDA.  The results of any future clinical trials or studies may not be favorable and we may never receive regulatory approval for Impracor. Any limitation on use imposed by the FDA or delay in or failure to obtain FDA approvals of product candidates developed by us would adversely affect our ability to generate product revenue, as well as the price of our common stock.
 
Delays in the conduct or completion of our clinical and non-clinical trials for Impracor or the analysis of the data from our clinical or non-clinical trials 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:
 
failure of the FDA to approve the scope or design of our clinical or non-clinical trials or manufacturing plans;
 
delays in enrolling volunteers in clinical trials;
 
insufficient supply or deficient quality of materials necessary for the performance of clinical or non-clinical trials;
 
negative results of clinical or non-clinical studies; and
 
adverse side effects experienced by study participants in clinical trials relating to a specific product.
 
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.Furthermore, we expect to rely on CROs to ensure the proper and timely conduct of our clinical trials, and while we expect to enter into agreements governing their committed activities, we have limited influence over their actual performance.  
 
If our patents are determined to be unenforceable or expire, 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 maintain patent protection with respect to our products;
 
prevent third parties from infringing upon our proprietary rights;
 
 
maintain trade secrets;
 
operate without infringing upon the patents and proprietary rights of others; and
 
obtain appropriate licenses to patents or proprietary rights held by third parties if infringement would otherwise occur.
 
We obtained a patent from the United States Patent and Trademark Office on our Accudel technology in 1998, which affords protection of Accudel through 2016 in the United States. We may not be successful in our efforts to extend the date of our patent protection beyond 2016.  Failure to maintain or extend the patent could adversely affect our business. We will only be able to protect our drug candidates and our technologies from unauthorized use by third parties to the extent that valid and enforceable patents cover them
 
The patent and intellectual property positions of specialty pharmaceutical companies, including ours, are uncertain and involve complex legal and factual questions. There is no guarantee that we have or will develop or obtain the rights to products or processes that are patentable, that patents will issue from any pending applications or that claims allowed will be sufficient to protect the technology we develop or have developed or that is used by us, our contract manufacturing organizations or our other service providers. In addition, we cannot be certain that patents issued to us will not be challenged, invalidated, infringed or circumvented, including by our competitors, or that the rights granted thereunder will provide competitive advantages to us.
 
Furthermore, patent applications in the U.S. are confidential for a period of time until they are published, and publication of discoveries in scientific or patent literature typically lags actual discoveries by several months. As a result, we cannot be certain that the inventors listed in any patent or patent application owned by us were the first to conceive of the inventions covered by such patents and patent applications or that such inventors were the first to file patent applications for such inventions.
 
We also may rely on unpatented trade secrets and know-how and continuing technological innovation to develop and maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with current employees, consultants, collaborators and others. We also have invention or patent assignment agreements with our current employees and certain consultants. There can be no assurance, however, that binding agreements will not be breached, that we will have adequate remedies for any breach, or that trade secrets will not otherwise become known or be independently discovered by competitors. In addition, there can be no assurance that inventions relevant to us will not be developed by a person not bound by an invention assignment agreement with us.
 
Our product development program may not be successful.
 
In addition to the development of Impracor, we expect to pursue development of potential products in pain management and other therapeutic areas. We are currently considering potential new product candidates in several promising healthcare categories. We also expect to utilize our relationship with PCCA to identify development opportunities where we perceive an unmet need for a new drug product, and thereby facilitate our future selection, formulation and development of potential product candidates. In addition, our product development program has included cosmetic products, which utilizes the basis of our patented topical delivery system technology, Accudel. Since our primary focus will remain seeking FDA approval for Impracor, we currently expect to use limited resources on our other development programs.
 
None of our potential pharmaceutical product candidates 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 may never 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 any market studies we rely on may not be accurate. We may expend significant capital and other resources on a drug candidate and find that no commercial market exists for the drug. Further, our relationship with PCCA, on which we intend to rely to facilitate our evaluation of the potential market for future products we may develop, is terminable if we fail to commence efforts to research and develop future products within certain time periods, as set forth in the PCCA License Agreement. We may not be able to meet such requirements within the required time periods or at all, and our relationship with PCCA could be terminated. If we do commence clinical trials of our other potential product candidates, such product candidates may never be approved by the FDA. Even if we are not required to obtain FDA pre-market approval for our potential cosmeceutical product candidates, we will still be subject to a number of federal and state regulations, including regulation by the FDA and the Federal Trade Commission on any marketing claims we make, and we may be unable to satisfy these requirements. Any cosmeceutical products we develop may cause undesirable side effects that could limit their use, require their removal from the market and subject us to adverse regulatory action and product liability claims. As a result, we may never successfully develop and obtain approval to market and sell any of our potential product candidates. Even if we do develop and obtain approval to market and sell such product candidates, we may be unable to compete against the many products and treatments currently being offered or under development by other established, well-known and well-financed cosmetic, health care and pharmaceutical companies.
 
 
If approved, failure to comply with continuing federal and state regulations could result in the loss of approvals to market our drugs.
 
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 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:
 
issue warning letters;
 
impose civil or criminal penalties;
 
suspend or withdraw our regulatory approval;
 
suspend or terminate any of our ongoing clinical trials;
 
refuse to approve pending applications or supplements to approved applications filed by us;
 
impose restrictions on our operations;
 
close the facilities of our contract manufacturers; or
 
seize or detain products or require a product recall.
 
Regulatory review also 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.  We may not be able to obtain the labeling claims necessary or desirable for product promotion.
 
If approved, there is no guarantee that the market will accept our products.  If we are not successful in introducing our products or if the market does not accept our products, our business, financial position and results of operations may be materially adversely affected and the market price for our common stock would decline.
 
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 and cosmetic 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.
 
We may not be successful in receiving additional patents based on our intellectual property strategy.
 
We have undertaken an effort to examine our intellectual property assets and have or shall file certain patents in certain jurisdictions, with the goal of attaining additional protections for our technologies and any related future products. The applications we have filed or we expect to file may never yield patents that protect our inventions and intellectual property assets. Failure to obtain additional patents may limit our protection against generic drug manufacturers and other parties who may seek to copy or otherwise produce products substantially similar to ours using technologies that may be substantially similar to those we own.
 
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 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 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.
 
We expect that third party manufacturers will manufacture all of our products, in the event that we successfully develop our product candidates into commercial 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 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 no 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 or 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 financial condition. 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 preparation 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 do not employ personnel or possess the facilities necessary to conduct many of the activities associated with our programs. We expect to engage consultants, advisors, CROs and others to design, conduct, analyze and interpret the results of studies in connection with the research and development of our product candidates. As a result, many important aspects of our product candidates’ development are outside our direct control.  Such third parties may not perform all of their obligations under arrangements with us or may not perform those obligations satisfactorily.
 
The CROs with whom we expect to contract for execution of our clinical studies will play a significant role in the conduct of our anticipated clinical studies or assist with our analysis of completed studies and to develop corresponding regulatory strategies. Individuals working at the CROs with whom we expect to contract, as well as investigators at the sites at which our studies are conducted, are not our employees, and we cannot control the amount or timing of resources that they devote to our programs. If these CROs fail to devote sufficient time and resources to our studies, or if their performance is substandard, it would delay the approval of our applications to regulatory agencies and the introduction of our products. Failure of these CROs to meet their obligations could adversely affect development of our product candidates and as a result could have a material adverse effect on our business, financial condition and results of operations. Moreover, these CROs may have relationships with other commercial entities, some of which may compete with us. If they assist our competitors at our expense, it could harm our competitive position.
 
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.
 
As we described elsewhere in this Form 10-K, we terminated all of our employees following our filing of the Chapter 11 Case. Since the dismissal of the Chapter 11 Case in December 2011, we have focused on rebuilding our management team and engaging consultants in order to begin operating our business. However, because of this history, we may have significant difficulty attracting and retaining necessary employees. In addition, 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 or the failure to recruit key scientific, technical and commercial personnel could have a material adverse effect on our business. While we have consulting agreements with certain key individuals and institutions, we may not succeed in retaining personnel or their services under existing agreements or otherwise. There is intense competition for qualified personnel in the pharmaceutical industry, and we may be unable to continue to attract and retain the qualified personnel necessary for the development of our business.
 
If we are unable to compete with other companies that develop rival products to our products, 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 topical 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 better 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.
 
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 consumers, governments, medical professionals and the pharmaceutical industry examine ways to broaden medical coverage while controlling the increase in healthcare costs.  In 2009 and 2010, the U.S. Congress adopted legislation regarding health insurance, which has been signed into law. As a result of this new legislation, substantial changes could be made to the current system of paying for healthcare in the United States, including changes made in order to extend medical benefits to those who currently lack insurance coverage. Extending coverage to a large population could substantially change the structure of the health insurance system and the methodology for reimbursing medical services, drugs and devices. These structural changes could entail modifications to the existing system of private payers and government programs, such as Medicare, Medicaid and State Children’s Health Insurance Program, creation of a government-sponsored healthcare insurance source, or some combination of both, as well as other changes. Restructuring the coverage of medical care in the United States could impact the reimbursement for prescribed drugs, biopharmaceuticals, medical devices, or our product candidates and could put pressure on the prices of pharmaceutical products, which could adversely affect our business or products.
 
Because of their significant stock ownership, some of our existing stockholders will be able to exert control over us and our significant corporate decisions, and sales by management and the Board of Directors from time to time could have an adverse effect on our stock price.
 
Our executive officers and directors own or have the right to acquire within 60 days, in the aggregate, approximately 19% of the shares of common stock outstanding following such issuance to them. In addition, three individual stockholders hold an additional approximately 30% of our common stock.  The sale of even a portion of these shares will likely have a material adverse effect on our stock price.  In addition, these persons, acting together, have the ability to exercise significant influence over the outcome of all matters submitted to our stockholders for approval, including the election and removal of directors and any significant transaction involving us, as well as control our management and affairs.  Since our stock ownership is concentrated among a limited number of holders and our Amended and Restated Certificate of Incorporation and Bylaws permit our stockholders to act by written consent, a limited number of stockholders may approve stockholder actions without holding a meeting of stockholders and could control the outcome of actions requiring stockholder approval.  This concentration of ownership may harm the market price of our common stock by, among other things:
 
delaying, deferring, or preventing a change in control of our company;
 
impeding a merger, consolidation, takeover, or other business combination involving our company;
 
causing us to enter into transactions or agreements that are not in the best interests of all stockholders; or
 
discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.
 
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business.

Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our operating results could be misstated, our reputation may be harmed and the trading price of our stock could be negatively affected. As we discuss in Item 9A of this Annual Report, we have only recently remediated certain material weaknesses in our internal control over financial reporting. We have implemented actions to address these weaknesses and to enhance the reliability and effectiveness of our internal controls and operations, and our management has concluded that there are no material weaknesses in our internal controls over financial reporting as of December 31, 2012. However, our controls over financial processes and reporting may not continue to be effective, or we may identify additional material weaknesses or significant deficiencies in our internal controls in the future. Any failure to remediate any future material weaknesses or implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements or other public disclosures. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

 
An active trading market for shares of our common stock may not develop or be sustained.
 
Historically, trading in our common stock has been sporadic and volatile, and our common stock has been “thinly-traded”. As a consequence, there may be extended periods when trading activity in our shares is minimal, as compared to a seasoned issuer with a large and steady volume of trading activity. The market for our common shares is also characterized by significant price volatility compared to seasoned issuers, and we expect that such volatility will continue. As a result of this lack of liquidity, the trading of relatively small quantities of shares may disproportionately influence the price of those shares in either direction.  It is possible that an active and liquid trading market in our securities may never develop or, if one does develop, that the market will not continue.
 
Our stock price may be volatile.
 
The market price of our common stock is likely to be highly volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the following:
 
changes in the pharmaceutical industry and markets;
 
competitive pricing pressures;
 
our ability to obtain working capital financing;
 
new competitors in our market;
 
additions or departures of key personnel;
 
limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;
 
sales of our common stock;
 
our ability to execute our business plan;
 
operating results that fall below expectations;
 
loss of any strategic relationship with our contract manufacturers or with other third parties (including PCCA) and clinical and non-clinical research organizations;
 
industry or regulatory developments; or
 
economic and other external factors.
 
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
 
We have the right to issue shares of preferred stock. If we were to issue preferred stock, it is likely to have rights, preferences and privileges superior to those of our common stock.
 
We are authorized to issue 5,000,000 shares of “blank check” preferred stock, with such rights, preferences and privileges as may be determined from time-to-time by our board of directors.  Following the conversion of our Series A Preferred Stock on June 29, 2012, we have no shares of preferred stock issued and outstanding. Our board of directors is empowered, without stockholder approval, to issue preferred stock in one or more series, and to fix for any series the dividend rights, dissolution or liquidation preferences, redemption prices, conversion rights, voting rights, and other rights, preferences and privileges for the preferred stock.  We have no immediate plans to issue shares of preferred stock. The issuance of shares of preferred stock, depending on the rights, preferences and privileges attributable to the preferred stock, could adversely reduce the voting rights and powers of the common stock and the portion of our assets allocated for distribution to common stock holders in a liquidation event, and could also result in dilution in the book value per share of the common stock we are offering. The preferred stock could also be utilized, under certain circumstances, as a method for raising additional capital or discouraging, delaying or preventing a change in control of the company.
 
 
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.
 
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.
 

Not Applicable.

 
We lease approximately 1,486 square feet of office space in Solana Beach, California. The current lease term expires on February 28, 2014. This facility serves as our corporate headquarters.
 
We believe our current facility is adequate for our immediate and near-term needs; however, additional space will be required as we expand our activities and hire new personnel. We do not currently foresee any significant difficulties in obtaining any required additional facilities.


None.


Not applicable.

 


Market Information
 
Our common stock began trading on The NASDAQ Capital Market on February 8, 2013 under the symbol "IMMY". Effective September 21, 2007, our common shares began quotation on the Over-the-Counter Bulletin Board, or OTCBB, under the symbol TDLP. Due to our failure to comply with SEC filing requirements and following our entry into bankruptcy proceedings (as described in more detail elsewhere in this Form 10-K), effective May 20, 2011, our common stock ceased being quoted on the OTCBB and, effective on June 28, 2011, began quotation under the symbol TDLPQ.PK on the OTC Markets Group Pink tier, or OTC Pink. On February 24, 2012, our common stock began quotation on the OTCQB under the symbol TDLPD, in connection with the one-for-eight reverse split of our authorized, issued and outstanding common stock effected on February 28, 2012. On March 23, 2012, our common stock began trading under the symbol IMMY in connection with our name change to Imprimis Pharmaceuticals, Inc. The liquidity of our shares on the OTCBB, OTC Pink and OTCQB markets has been extremely limited and any prices quoted may not be a reliable indication of the value of our common stock.
 
The following table sets forth the high and low last-bid prices for our common stock for the periods indicated, as reported by the OTCBB, OTC Pink or the OTCQB, as applicable, after giving effect to the one-for-eight reverse stock split effected February 28, 2012 and the one-for-five reverse stock split effected February 7, 2013. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
 
Fiscal Year 2012   High     Low  
First Quarter
  $ 3.75     $ 0.50  
Second Quarter
  $ 4.98     $ 2.55  
Third Quarter
  $ 9.00     $ 3.00  
Fourth Quarter
  $ 15.25     $ 4.75  
                 
Fiscal Year 2011   High     Low  
First Quarter
  $ 26.00     $ 6.00  
Second Quarter
  $ 10.40     $ 1.08  
Third Quarter
  $ 5.64     $ 1.24  
Fourth Quarter
  $ 9.64     $ 1.20  
 
Holders

As of March 15, 2013 we had approximately 175 stockholders of record (excluding an indeterminable number of stockholders whose shares are held in street or “nominee” name) of our common stock. 

Dividends

We have not paid any dividends on our common stock since our inception and do not expect to pay dividends on our common stock in the foreseeable future. 


Not applicable.
 

 
The following discussion should be read in conjunction with the consolidated financial statements and the related notes contained elsewhere in this Annual Report. In addition to historical information, the following discussion contains forward looking statements based upon current expectations that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described in the section entitled “Risk Factors” and elsewhere in this Form 10-K.
 
Unless otherwise stated below, all information regarding share amounts of common stock and prices per share of common stock described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” reflect the one-for-five reverse stock split  effected on February 7, 2013.
 
Overview
 
We are a specialty pharmaceutical company developing non-invasive, topically delivered product candidates. Our patented Accudel cream formulation technology is designed to enable highly targeted site specific treatment.  Impracor, our lead pain product candidate, utilizes the Accudel platform technology to deliver the active drug, ketoprofen, a non-steroidal anti-inflammatory drug, through the skin directly into the underlying tissues where the drug exerts its localized anti-inflammatory and analgesic effects.
 
Through our strategic relationship with Professional Compounding Centers of America, Inc. (“PCCA”), one of the largest drug compounding organizations in the world, we expect to facilitate our future selection, formulation and development of potential product candidates. Our relationship with PCCA is exclusive and provides us with the opportunity to develop new products using PCCA’s proprietary drug formulations and drug delivery technologies, as well as access to an extensive database of market-oriented information related to drug development opportunities. We plan to use our proprietary Accudel drug delivery technology, coupled with these licensed technologies, formulations and market data, to identify pharmaceutical development opportunities where we perceive a significant unmet need for a new drug product.
 
On February 28, 2012, we changed our name from Transdel Pharmaceuticals, Inc. to Imprimis Pharmaceuticals, Inc.  All prior references to Transdel Pharmaceuticals, Inc. have been changed to Imprimis to reflect our current name.  Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” “the Company,” or “Imprimis” refers to Imprimis Pharmaceuticals, Inc. and its subsidiaries.
 
On February 28, 2012, we effected a one-for-eight reverse split of our authorized, issued and outstanding common stock, and on February 7, 2013 we effected a one-for-five reverse split of our authorized, issued and outstanding common stock. The information in this Form 10-K and the accompanying consolidated financial statements for the periods presented have been retroactively adjusted to reflect the effects of those reverse stock splits.
 
We have incurred recurring operating losses, have had negative operating cash flows and have not recognized any significant revenues since July 24, 1998 (inception).  In addition, we have a deficit accumulated during the development stage of approximately $24.1 million at December 31, 2012.  We have not generated sales revenue from any of our product candidates and we expect to incur further losses through the 2013 fiscal year and beyond as we continue the clinical development of our drug candidates, including Impracor, and conduct preclinical studies on other programs.  Our research and development activities are budgeted to expand over time, and we will require further capital resources to fund the continued operation of our business model for a long enough period to achieve profitable operations.
 
 
Plan of Operations
 
 For the next twelve months, our current operating plan is focused on the development of our lead product candidate, Impracor, for the indication of acute musculoskeletal pain, inflammation and swelling associated with soft tissue injuries, and limited development of other potential product candidates and pursuit of co-development opportunities in other therapeutic areas, in each case utilizing our Accudel platform technology.
 
On June 26, 2011 we filed a voluntary petition for reorganization relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of California (the" Bankruptcy Court"), Case No. 11-10497-11 (the "Chapter 11 Case"). Following the filing of the Chapter 11 Case with the Bankruptcy Court, we suspended our operations and terminated nearly all of our employees.  Since the dismissal of the Chapter 11 Case in December 2011, as further described below, we have engaged a new management team, appointed new directors to fill certain vacancies on our Board and worked towards re-initiating our Phase 3 clinical trials for Impracor.  However, we have a limited operating history since the dismissal of the Chapter 11 Case, and we may not be successful in our efforts to resume our operations.  Prior to the filing of the Chapter 11 Case, we were unable to successfully pursue our business plan and continue our clinical trials due to a lack of funding.  Given our operating history, we may be unable to obtain additional funds when necessary, maintain an effective management team, or hire and retain further qualified individuals.  As a result, we may be unable to successfully pursue our business plan.

Recent Developments
 
Bankruptcy Petition and Dismissal
 
On June 26, 2011 we filed the Chapter 11 Case with the Bankruptcy Court. In connection with the Chapter 11 Case, we, as seller, and Cardium Healthcare, Inc., a wholly-owned subsidiary of Cardium Therapeutics, Inc., as purchaser (“Cardium”), entered into an Asset Purchase Agreement dated June 23, 2011 (the “Asset Purchase Agreement”) pursuant to which we agreed to sell substantially all of our assets  pursuant to Sections 105, 363 and 365 of the Bankruptcy Code, subject to court approval and the satisfaction of certain conditions set forth in the Asset Purchase Agreement.  Consummation of the sale to Cardium was subject to a number of conditions, including, among others, the approval by the Bankruptcy Court of the transactions contemplated by the Asset Purchase Agreement and compliance with certain specified deadlines for actions in connection with the Chapter 11 Case. The Asset Purchase Agreement was terminable by the parties under a number of circumstances, including failure to obtain certain Bankruptcy Court orders by agreed dates.
 
On July 26, 2011, the Bankruptcy Court denied our motion to sell our assets pursuant to the Asset Purchase Agreement. On October 7, 2011, we terminated the Asset Purchase Agreement pursuant to its terms.  On November 21, 2011, in connection with the transactions described below, we requested that the Bankruptcy Court dismiss the Chapter 11 Case and retain jurisdiction to decide matters related to claims brought in the Chapter 11 Case by Cardium.  On December 8, 2011, the Bankruptcy Court entered an order dismissing the Chapter 11 Case.  In connection with the dismissal of the Chapter 11 Case, the Bankruptcy Court, among other things, declined to retain jurisdiction over claim objection proceedings and found moot our objection to certain claims of Cardium.  The dismissal of the Chapter 11 Case was based upon the provisions of both 11 U.S.C. Sections 305(a) and 1112(b).
 
Secured Line of Credit
 
On November 21, 2011, we entered into a Secured Line of Credit Letter Agreement (the “Line of Credit Agreement”) with DermaStar International, LLC (“DermaStar”), pursuant to which DermaStar agreed to lend us funds under a line of credit upon certain conditions, including the dismissal of the Chapter 11 Case by the Bankruptcy Court.   The Line of Credit Agreement became effective on December 9, 2011, in connection with the dismissal of the Chapter 11 Case by the Bankruptcy Court.  The Line of Credit Agreement provided for advances of up to an aggregate of $750,000, subject to the satisfaction by us of certain conditions in connection with the initial advance and each subsequent advance.  
 
 
On April 25, 2012, the entire outstanding principal balance and all accrued and unpaid interest under the line of credit, an aggregate of $762,534, was converted into 193,046 shares of common stock and warrants to purchase 48,262 shares of common stock at the offering price and on the terms of the April Private Placement described below, pursuant to the terms of a conversion agreement we entered into with DermaStar on April 20, 2012.  The warrants have substantially the same terms as the warrants issued in the April Private Placement.  The line of credit was terminated upon the completion of the conversion.
 
Change in Control – Issuance of Preferred Stock
 
In partial consideration for and in connection with the Line of Credit Agreement, on November 21, 2011 we executed a Securities Purchase Agreement (the “Series A Purchase Agreement”) with DermaStar, pursuant to which we agreed to issue 10 shares of newly-designated Series A Convertible Preferred Stock (the “Series A Preferred Stock”) to DermaStar for an aggregate purchase price of $100,000. The Series A Purchase Agreement, as amended, became effective on December 9, 2011, in connection with the dismissal of the Chapter 11 Case by the Bankruptcy Court. On December 12, 2011, we and DermaStar consummated the transactions contemplated by the Series A Purchase Agreement. The shares of Series A Preferred Stock issued to DermaStar in the offering were convertible into 1,499,700 shares of our common stock.  Upon issuance of the Series A Preferred Stock, DermaStar, and its members individually, became control persons of the Company. We appointed DermaStar Managing Members Mark L. Baum and Robert J. Kammer to our Board of Directors in December 2011.
   
On June 29, 2012, DermaStar converted the 10 shares of Series A Preferred Stock held by it into 1,499,700 shares of our common stock. In connection with the conversion, we paid to DermaStar $200,000 as partial consideration for the conversion pursuant to a conversion agreement. Immediately following the conversion of the Series A Preferred Stock, all 10 shares were retired to our treasury and cancelled. The conversion agreement was unanimously approved by the Company’s disinterested directors, with Mr. Baum and Dr. Kammer abstaining.
 
Settlement with the Holders of the Company’s 7.5% Convertible Promissory Note
 
On April 5, 2010, we issued a $1,000,000 7.5% Convertible Promissory Note (the “Convertible Note”) to Alexej Ladonnikov. During January 2012, Mr. Ladonnikov sold 80% of the Convertible Note to DermaStar in a private transaction.  Effective as of January 25, 2012, we entered into separate waiver and settlement agreements with DermaStar and Mr. Ladonnikov. Under each of the waiver and settlement agreements, the holders of the Convertible Note agreed to forever waive (i) their rights to accelerate the entire unpaid principal sum of the Convertible Note and all accrued interest pursuant to Section 1 of the Convertible Note, (ii) their rights under Section 7 of the Senior Convertible Note Purchase Agreement dated April 5, 2010, and (iii) certain conversion rights pursuant to Section 3 of the Convertible Note.  Under the terms of the waiver and settlement agreement with DermaStar, we and DermaStar agreed to the mandatory conversion of the principal and accrued and unpaid interest of the Convertible Note and $56,087 in current accounts payable of the Company held by DermaStar into our common stock at a conversion price of approximately $0.6668 per share at such time as we had a sufficient number of shares of authorized common stock to effect such conversion.  Under the terms of the waiver and settlement agreement with Mr. Ladonnikov, we and Mr. Ladonnikov agreed to the mandatory conversion of the 20% of the principal and accrued and unpaid interest of the Convertible Note held by Mr. Ladonnikov, at such time as we had a sufficient number of authorized common shares to effect such a conversion, into our common stock at a conversion price of $0.60. Mr. Ladonnikov also agreed to make a one-time payment of $50,000 to us at such time as the Convertible Note was converted into common stock.
 
On February 28, 2012, effective immediately following the effective time of our Certificate of Amendment to our Certificate of Incorporation increasing the number of authorized shares of common stock and implementing the one-for-eight reverse split of our common stock, the entire outstanding balance and all accrued but unpaid interest owing under the Convertible Note and the accounts payable held by DermaStar were converted into 1,835,830 shares of common stock, and the Convertible Note was terminated. Mr. Ladonnikov made the required one-time payment of $50,000 to us at the time of the conversion.
 
 
Changes in Management and Board of Directors
 
As a result of the Chapter 11 Case, our management team has undergone significant changes. The Board accepted the resignation of John N. Bonfiglio, Ph.D. as our Chief Executive Officer and President, effective May 13, 2011. On the same date, the Board appointed John T. Lomoro to serve as the Company’s Principal Executive Officer.  Effective September 16, 2011, the Board accepted the resignation of John T. Lomoro as Principal Executive Officer, Chief Financial Officer and Treasurer of the Company. On the same date, the Board appointed Terry Nida, the Company’s Chief Business Officer, to serve as the Company’s Principal Executive Officer and Principal Financial Officer. Effective December 16, 2011, Terry Nida resigned as Principal Executive Officer and Principal Financial Officer of the Company.     
 
In January 2012, we began assembling a new management team.  Effective January 1, 2012, the Board appointed Balbir Brar, D.V.M., Ph.D. as President of the Company.  Effective February 1, 2012, the Board appointed Andrew R. Boll as Vice-President of Accounting and Public Reporting and Principal Accounting and Financial Officer of the Company. Effective February 15, 2012, the Board appointed Joachim Schupp, M.D. as Chief Medical Officer of the Company.  Dr. Schupp had previously served as our Chief Medical Officer and Dr. Brar had previously served as our Vice President of Research and Development.  Mr. Baum served as our Chairman of the Board of Directors and principal executive officer beginning in December 2011.  On April 1, 2012, the Board appointed Mr. Baum as our Chief Executive Officer and Mr. Baum stepped down as our Chairman of the Board.  He continues to serve as a director.
 
Our Board of Directors has also undergone significant change.  Effective December 16, 2011, Anthony S. Thornley resigned from our Board of Directors, and Mr. Baum and Dr. Kammer, managing members of DermaStar, joined the Board of Directors.Effective February 15, 2012, Paul Finnegan, M.D., and Dr. Brar, our President, were appointed as directors of the Company. On April 1, 2012, Dr. Kammer began serving as the Chairman of the Board of Directors. On July 26, 2012, Stephen G. Austin, CPA, was appointed as a director on our Board of Directors and Dr. Brar resigned as a director (Dr. Brar continues to serve as our President).  Additionally, on December 14, 2012, Mr. August S. Bassani, Pharm.D., was appointed as a director on our Board of Directors. We currently have the following six directors on our Board of Directors:  Jeffrey Abrams, M.D., Mr. Bassani, Mr. Baum, Dr. Kammer, Dr. Finnegan and Mr. Austin.
 
April Private Placement
 
On April 20, 2012, we entered into a Securities Purchase Agreement with certain accredited investors relating to the sale and issuance of an aggregate of 2,011,691 shares of our common stock and warrants to purchase up to 502,928 shares of common stock at an exercise price of $5.925 per share, for an aggregate gross purchase price of approximately $7.95 million (the “April Private Placement”).  We closed the April Private Placement on April 25, 2012.  The securities sold in the April Private Placement were sold in reliance on the exemption from the registration requirements of the Securities Act of 1933 (the “Securities Act”) afforded by Section 4(2) of the Securities Act and Rule 506 of Regulation D.
 
The investors are not entitled to any registration rights with respect to the common stock and warrants issued in the April Private Placement.  The warrants have a term of three years and are exercisable any time after April 25, 2012. We may require that the investors exercise the warrants in whole, but not in part, at any time within 20 business days after all of the following conditions have been satisfied: (i) the volume weighted average price of the our common stock for 10 consecutive trading days is equal to or greater than the exercise price of the warrants; (ii) we have received a Filing Review Notification from the U.S. Food and Drug Administration ("FDA") regarding the status of Impracor; and (iii) sufficient shares of common stock are authorized and reserved for issuance upon full exercise of the warrants.
 
PCCA Transaction
 
On August 30, 2012, we entered into a License Agreement (the “PCCA License Agreement") and a Stock Purchase Agreement (the “PCCA Purchase Agreement”) in a strategic transaction with PCCA (the “PCCA Transaction”).
 
Pursuant to the terms of the PCCA License Agreement, effective August 30, 2012, PCCA has granted to us and our affiliates certain exclusive rights under PCCA’s proprietary formulations, other technologies and data, and we have agreed to pay to PCCA certain royalties on net sales relating to the sale of certain future products, which royalties range from 4.5% to 9% for each product, subject to certain minimum royalty payments. PCCA may terminate the PCCA License Agreement if we fail to commence efforts to research and develop future products within certain time periods.
 
 
Pursuant to the terms of the PCCA Purchase Agreement, closed on August 31, 2012, we issued and sold to PCCA 832,682 shares of our common stock at a per share purchase price of $4.8038, for aggregate gross proceeds to us of $4,000,000. The PCCA Purchase Agreement does not grant to PCCA any registration rights with respect to the shares purchased and sold thereunder. The shares sold to PCCA were sold in reliance on the exemption from the registration requirements of the Securities Act afforded by Section 4(2) thereof.

Public Offering
 
On February 13, 2013, we closed an underwritten public offering of 1,840,000 shares of our common stock at a per share price to the public of $5.25 (the “Public Offering”), and received net proceeds of approximately $8,140,000 after deducting underwriter fees and commissions and other offering expenses.  The underwriters also exercised their option to purchase an additional 276,000 shares of common stock from the Company at $5.25 per share to cover over-allotments on March 14, 2013.  Net cash proceeds from the exercise of the over-allotment were approximately $1,320,000.  The shares issued upon the closing of the Public Offering and the exercise of the over-allotment were registered on a Registration Statement on Form S-1 (File No. 333-182846), which was declared effective by the SEC on February 7, 2013.

Results of Operations
 
Comparisons of Years Ended December 31, 2012 and 2011
 
Revenues
 
For the year ended December 31, 2012 we recognized $100,000 in revenues, compared to no revenues recognized during the the prior year.  These revenues were non-refundable royalty advances, unrelated to product sales, paid to the Company in December 2010 and April 2011.  The revenues stem from our terminated license agreement which had provided JH Direct rights to our anti-cellulite cosmetic product.  This agreement was terminated in January 2012, and we do not expect any other revenues to be recognized from it.
 
Selling, General and Administrative Expenses
 
Our selling, general and administrative expenses include personnel costs including wages and stock-based compensation, corporate facility expenses, investor relations, consulting, insurance, legal and accounting expenses.
 
The table below provides information regarding selling, general and administrative expenses:
 
   
Year ended December 31,
    $  
   
2012
   
2011
   
Variance
 
Selling, general and administrative
  $ 2,980,374     $ 827,674       2,152,700  

For the year ended December 31, 2012, there was an increase of $2,152,700 in selling, general and administrative expenses, as compared to the prior year. The increase in selling, general and administrative expenses is largely attributable to the resumption of our operations in December 2011, following the winding down and ceasing of operations during these periods in 2011, including the suspension of payroll beginning in March 2011.  Selling, general and administrative expenses during the year ended December 31, 2012 were primarily due to the hiring of new personnel, consultants and management, legal and accounting fees associated with complying with our SEC reporting obligations and fees and expenses related to financing activities.  A significant portion of the increase in personnel costs is associated with stock-based compensation for the year ended December 31, 2012, which increased $1,593,555, as compared to the prior year.
 
 
Research and Development Expenses

Our research and development expenses primarily include expenses related to the Impracor clinical program.  These costs are comprised of expenses for our first Phase 3 study, including costs for our contract research organization and investigator payments to the clinical sites participating in the study.  Other expenses are personnel costs including wages and stock-based compensation, contract manufacturing, non-clinical studies, consulting and other costs related to the clinical program.

The table below provides information regarding research and development expenses:
 
   
Year ended December 31,
    $  
   
2012
   
2011
   
Variance
 
Research and development
  $ 1,298,503     $ 111,554       1,186,949  

For the year ended December 31, 2012, there was an increase of $1,186,949, in research and development expense as compared to the prior year. The increase was primarily related to the hiring of new personnel and consultants in 2012 for the planning and development of additional Phase 3 studies of our Impracor clinical program, and costs related to supportive safety studies for Impracor, which began in September 2012.  A significant portion of the increase in research and development personnel costs is associated with stock-based compensation for the year ended December 31, 2012, which increased $370,904, as compared to the prior year.

Interest Income
 
Interest income was $15,410 and $0, for the years ended December 31, 2012 and 2011, respectively. The increase was due to a higher average cash balance during fiscal year 2012 as compared to fiscal year 2011.

Interest Expense

Interest expense was $24,658 for the year ended December 31, 2012, as compared to $75,000 for the prior year.  The 10% promissory notes issued under our Line of Credit Agreement with DermaStar accounted for $12,534 of interest expense during the year ended December 31, 2012, and $0 during the prior year.  The 7.5% Convertible Note with a principal balance of $1,000,000, issued in April 2010 (and converted to shares of our common stock in February 2012) accounted for $12,124 of interest expense during the year ended December 31, 2012, and $75,000 in the prior year.

Loss on Extinguishment of Debt
 
Loss on extinguishment of debt was $1,195,410 and $0 for the years ended December 31, 2012 and 2011, respectively.  As further described above under the heading “Recent Developments”, effective as of January 25, 2012, we entered into separate waiver and settlement agreements with DermaStar and Alexej Ladonnikov, the two holders of the Convertible Note.  Pursuant to the waiver and settlement agreements, on February 28, 2012, the entire outstanding balance and all accrued but unpaid interest owing under the Convertible Note and the accounts payable held by DermaStar were converted into an aggregate of 1,835,830 shares of our common stock, and the Convertible Note was terminated. On February 28, 2012, we received payment from Mr. Ladonnikov of $50,000 and issued 380,868 shares of common stock to Mr. Ladonnikov as payment in full for his 20% ownership of the Convertible Note ($200,000) and its related accrued interest ($28,521).  We determined this to be a substantial modification to the debt instrument and applied debt extinguishment accounting to record a loss on extinguishment of debt of $150,000 ($200,000 Convertible Note principal balance less $50,000 cash payment) for the year ended December 31, 2012.  On February 28, 2012, we issued 1,454,962 shares of our common stock to DermaStar as payment in full for its 80% ownership of the Convertible Note ($800,000), its related accrued interest ($114,082) and $56,087 in accounts payable.  We determined this to be a substantial modification to the debt instrument and applied debt extinguishment accounting to record a loss on extinguishment of debt of $856,087 for the year ended December 31, 2012.
 
 
As further described above under the heading “Recent Developments”, on April 20, 2012, DermaStar agreed to convert the promissory notes issued under the Line of Credit Agreement and their related accrued interest, totaling $762,534, into 193,046 shares of our common stock and a related warrant to purchase up to an additional 48,262 shares of our common stock at an exercise price of $5.925 per share. We determined this to be a substantial modification to the debt instrument and applied debt extinguishment accounting to record a loss on extinguishment of debt of $189,323 for the year ended December 31, 2012.

Forgiveness of Liabilities

On October 5, 2011, priority claims of former employees in the amount of $119,667 originating as a result of the Company’s Bankruptcy petition filed June 26, 2010 (the “Priority Claimants”), were settled and paid by the Company.  These amounts consisted of accrued and owed payroll amounts, accrued vacation and any other claims held against the Company at October 5, 2011.  The Priority Claimants were given cash in the amount $47,975 and 7,500 stock options valued at $11,400 (using the Black-Scholes-Merton option pricing model to estimate the grant-date fair value) and the difference of $60,292 was recognized as a gain on forgiveness of liabilities during the year ended December 31, 2011.

Net Loss
 
Net losses attributable to common stockholders for the year ended December 31, 2012, was $5,583,535, or $(1.24) per basic and diluted share, compared to net losses attributable to common stockholders for the year ended December 31, 2011 of $1,053,936, or $(2.65), respectively, per basic and diluted share.

Liquidity and Capital Resources
 
Our cash on hand at December 31, 2012 was $10,035,615 as compared to $146,160 at December 31, 2011.  The increase in cash on hand is primarily attributable to aggregate net proceeds of approximately $11,916,000 received from our issuance of securities in the April Private Placement and the PCCA Transaction during the year ended December 31, 2012, and the $750,000 drawn under our Line of Credit Agreement with DermaStar between December 2011 and April 2012. From inception through December 31, 2012, we have incurred aggregate losses of approximately $(24,100,000). These losses are primarily due to selling, general and administrative and research and development expenses incurred in connection with developing and seeking regulatory approval for our lead drug, Impracor. Historically, our operations have been financed through capital contributions and debt and equity financings.
 
 As we described in more detail above under the heading “Recent Developments,” on June 26, 2011 we filed a voluntary petition for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code. Thereafter, we suspended our operations and terminated almost all of our employees.  After receiving certain commitments from DermaStar to provide funding to us under a secured line of credit (as further described above under the heading "Recent Developments" and below), on November 21, 2011 we requested that the Bankruptcy Court dismiss the Chapter 11 Case. The Bankruptcy Court entered an order dismissing the Chapter 11 Case on December 8, 2011.  Since December 9, 2011, we have focused on resuming the operation of our business, including assembling a management team and hiring employees.
 
Convertible Note
 
As we described in more detail above under the heading “Recent Developments,” on April 5, 2010 we issued a $1,000,000 7.5% Convertible Promissory Note.  Effective as of January 25, 2012, we entered into separate waiver and settlement agreements with DermaStar and Alexej Ladonnikov, the two holders of the Convertible Note.  Pursuant to the waiver and settlement agreements, on February 28, 2012, the entire outstanding balance and all accrued but unpaid interest owing under the Convertible Note and $56,087 in accounts payable held by DermaStar were converted into 1,835,830 shares of common stock, and the Convertible Note was terminated. In addition, Mr. Ladonnikov made a one-time payment of $50,000 to us at the time of the conversion.
 
 
Line of Credit
 
As further described above under the heading “Recent Developments,” on November 21, 2011 we entered into the Line of Credit Agreement with DermaStar.  The Line of Credit Agreement provided for advances of up to an aggregate of $750,000, subject to the satisfaction by us of certain conditions in connection with each advance.  Interest under the line of credit accrued at 10% per annum.  As of December 31, 2011 and up to April 25, 2012 (the date of the conversion thereof), we had requested advances totaling $300,000 and $750,000, respectively, under the line of credit.  On April 25, 2012, the entire outstanding principal balance and all accrued and unpaid interest under the line of credit, an aggregate of $762,534, was converted into 193,046 shares of common stock and warrants to purchase 48,262 shares of our common stock.  The line of credit was terminated upon the completion of the conversion.
 
April Private Placement
 
As further described above under the heading “Recent Developments,” on April 25, 2012 we closed a private placement of securities with certain accredited investors for the sale and issuance of 2,011,691 shares of common stock and warrants to purchase up to 502,928 shares of common stock at an exercise price of $5.925 per share, for aggregate proceeds, net of offering costs, to us of approximately $7,930,000.
 
PCCA Transaction
 
Pursuant to the terms of the PCCA Purchase Agreement, on August 31, 2012 we issued to PCCA 832,682 shares of our common stock at a per share purchase price of $4.8038, for aggregate net proceeds to us of approximately $3,980,000.
 
Net Cash Flow
 
The following table provides detailed information about our net cash flow for the years ended December 31, 2012 and 2011.

The following table provides detailed information about our net cash flow for all financial statement periods presented in this Report.

Cash Flow (All amounts in U.S. dollars)
 
For The Years Ended
December 31,
 
   
2012
   
2011
 
Net cash used in operating activities
  $ (1,900,840 )   $ (291,160 )
Net cash used in investing activities
    (15,492 )     -  
Net cash provided by financing activities
    11,805,787       145,858  
                 
Net Increase (Decrease) in Cash and Cash Equivalents
    9,889,455       (145,302 )
Cash and Cash Equivalents at Beginning of the Year
    146,160       291,462  
Cash and Cash Equivalents at End of the Year
  $ 10,035,615     $ 146,160  
 

Operating Activities

Net cash used in operating activities was $1,900,840 for the year ended December 31, 2012, as compared to $291,160 used in operating activities during the prior year. The increase in net cash used in operating activities was mainly due to resuming the operation of our business, including assembling a management team and hiring employees, planning and development of additional Phase 3 studies, and the reduction of our historical working capital debt.

Investing Activities

Net cash used in investing activities for the years ended December 31, 2012 and 2011 was $15,492 and $0, respectively.  The increase in investing activities during the year ended December 31, 2012 was due primarily to our move into our new office space and our purchase of furniture and office equipment to furnish that office space.

Financing Activities

Net cash provided by financing activities for the years ended December 31, 2012 and 2011 was $11,805,787 and $145,858, respectively.  The increase in cash is primarily attributable to aggregate proceeds, net of offering costs, of approximately $7,930,000 received from the April Private Placement, $3,980,000 from the PCCA Purchase Agreement, and the $450,000 drawn under our Line of Credit Agreement with DermaStar between January 2012 and April 2012.
 
Net cash provided by financing activities for the year ended December 31, 2011 was $145,858, which was attributable to the $100,000 received from the sale of Series A Preferred Stock and $300,000 in advances under our line of credit.  This was offset by amounts reimbursed to DermaStar for its payment of certain of our expenses incurred prior to the dismissal of the Chapter 11 Case, which totaled $254,142.
 
We expect to use our current cash position, including proceeds from the Public Offering and the exercise of the over-allotment, to fully execute on our business plan, including conducting clinical studies related to our Accudel technology, and otherwise fund our operations.  Management believes we have sufficient cash reserves to execute our business plan for the next twelve months.  If we are not able to generate significant revenues and attain profitable operations, we will need to seek additional financing, including equity or debt financing, funding from a corporate partnership or licensing arrangement or any similar financing.  In addition, estimates of our operating expenses and working capital requirements could be incorrect, and we could be required to seek additional financing earlier than we anticipate.
 
We may require additional funds in order to conduct additional clinical trials and any other studies that may be required to obtain regulatory approval to market Impracor, to pursue additional pharmaceutical development programs and to explore other co-development opportunities. If adequate financing is not available, we may not be able to obtain regulatory approval to market Impracor or develop any additional products.
 
We may seek funds from equity or debt financings, a corporate partnership, or licensing arrangements (as we did with the PCCA transaction), or any other similar financing. Any 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. 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. 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 results.
 
 
We may be unable to obtain financing when necessary as a result of, among other things, general economic conditions, conditions in the pharmaceuticals industry or as a result of our operating history, including our past bankruptcy proceedings.  In addition, the fact that we are not and have never been profitable could further impact the availability or cost of future financings. As a result, there is no assurance that sufficient funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. If we are unable to raise funds to satisfy our capital needs on a timely basis, then we may not be able to obtain regulatory approval to market Impracor or develop any additional products or otherwise pursue our business plan and we may be required to cease operations.
 
As of the date of this Annual Report, management believes we have sufficient cash reserves, including proceeds from the Public Offering and the exercise of the over-allotment, to support our operating plan and fund operating cash flow requirements through the next twelve months.

Critical Accounting Policies
 
We rely on the use of estimates and make assumptions that impact our financial condition and results. These estimates and assumptions are based on historical results and trends as well as our forecasts as to how results and trends might change in the future. Although we believe that the estimates we use are reasonable, actual results could differ from those estimates.
 
 We believe that the accounting policies described below are critical to understanding our business, results of operations and financial condition because they involve more significant judgments and estimates used in the preparation of our 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 consolidated financial statements.
 
 Our most critical accounting policies and estimates that may materially impact our results of operations include:
 
Stock-Based Compensation.  All share-based payments to employees, including grants of employee stock options and restricted stock grants, to be recognized in the consolidated financial statements are based upon their fair values. We use the Black-Scholes-Merton option pricing model to estimate the grant-date fair value of share-based awards. Fair value is determined at the date of grant. 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.
 
Our accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows Financial Accounting Standards Board (“FASB”) guidance.  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. 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 record the fair value of nonforfeitable equity instruments issued for future consulting services as prepaid consulting fees in our consolidated balance sheets.
  
Income Taxes.  As part of the process of preparing our consolidated financial statements, we must estimate our actual current tax liabilities together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the balance sheet. We must assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, a valuation allowance must be established. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, the impact will be included in the tax provision in the statement of operations.
 
 
Research and Development. The Company expenses all costs related to research and development as they are incurred.  Research and development expenses consist of expenses incurred in performing research and development activities including salaries and benefits, and other overhead expenses, clinical trials, contract services and outsource contracts.
 
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. We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
 
Recent Accounting Pronouncements
 
There are no recent accounting pronouncements issued by the FASB that management believes have had or are reasonably likely to have a material impact on our present or future consolidated financial statements.
 
Not applicable.

The financial statements and supplementary data required by this item are included in Part IV, Item 15 of this Report.


None.
 
 
Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission (the “SEC’s”) rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.
 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as they existed on December 31, 2012. The evaluation took into consideration the various changes in controls and remediation measures that the Company had made prior to December 31, 2012 to address material weaknesses in internal control over financial reporting that were identified and reported in the Form 10-K filed for the period ended December 31, 2011 and subsequent Quarterly Reports on Form 10-Q filed prior to and for the quarter ended September 30, 2012. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective to achieve their stated purpose as of December 31, 2012, the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

During the fourth quarter of fiscal 2012, we put into place and finalized actions to remediate material weaknesses in our internal control over financial reporting described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.  We implemented the following corrective actions during the fiscal year ended December 31, 2012:
 
Our Board of Directors established an Audit Committee, comprised of independent directors.  On July 26, 2012, we appointed Stephen Austin, CPA, to our Board of Directors.  The Board has determined that Mr. Austin is a “financial expert,” as the SEC has defined that term in Item 407 of Regulation S-K.  Mr. Austin serves on the Audit Committee as its chairman.  The Audit Committee operates independently of our Board of Directors as contemplated by the charter for that committee, and is tasked with, among other things, oversight of selection of our independent registered public accounting firm and the audit of our consolidated financial statements.
 
We have adopted and implemented procedures designed to ensure better coordination, oversight and communication among our finance, human resources, and legal functions to ensure that no one person or department would have complete control in the accounting and financial reporting process.  We hired qualified consultants to assist us in the remediation of our prior material weaknesses, and implementation of effective controls following the guidance issued by COSO.
 
In order to remediate the material weaknesses identified in our Annual Report on Form 10- K for the fiscal year ended December 31, 2011, we (1) put into place the procedures described above, which were designed, appropriately controlled and implemented for a sufficient period of time, and (2) gathered sufficient evidence that those procedures and related controls were operating effectively.  Other than the remediation efforts described above, there have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

                Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, the principal executive officer and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Under the supervision and with the participation of the management, our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations (COSO). Based on such evaluation, management concluded that the Company’s a internal control over financial reporting was effective as of December 31, 2012.

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
 

Inherent Limitations on Effectiveness of Controls

Our management, including our principal executive officer and our principal financial officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 
None.
 

 
Our directors hold office for one-year terms until the earlier of their death, resignation or removal or until their successors have been elected and qualified. Our officers are elected annually by the board of directors and serve at the discretion of the board.  Set forth below is certain information regarding our directors and executive officers as of the date of this Form 10-K:
 
Name
 
Age
 
Position
Joachim Schupp, M.D.
 
60
 
Chief Medical Officer
Balbir Brar D.V.M., Ph.D.
 
76
 
President
Andrew R. Boll
 
30
 
Vice President of Accounting and Public Reporting
Mark L. Baum, J.D.
 
40
 
Chief Executive Officer and Director
Paul Finnegan, M.D., M.B.A.
 
52
 
Director
Jeffrey J. Abrams, M.D.
 
65
 
Director
Robert Kammer, D.D.S.
 
63
 
Chairman of the Board of Directors
Stephen G. Austin, C.P.A.
 
60
 
Director
August S. Bassani, Pharm.D.
 
40
 
Director
 
 
Business Experience
 
The following is a brief account of the education and business experience of our current directors and executive officers:
 
Joachim Schupp, M.D. has been the Chief Medical Officer of the Company since February 2012. Dr. Schupp has more than 25 years of leadership experience in the pharmaceutical industry. He has achieved the professional distinction of leading international project teams that have brought several drugs through the development and the regulatory process and on to the market globally. Most recently, Dr. Schupp has worked as an executive consultant for pharmaceutical and biotechnology companies. He held positions as Vice-President of Clinical Development at Apricus Biosciences, Inc. from April 2011 to February 2012, Senior Consultant to and Chief Medical Officer at Transdel Pharmaceuticals, Inc. from April 2009 to April 2011, Vice President of Medical Affairs at Adventrx Pharmaceuticals from 2006 to 2008 and Vice President of Clinical Data Services at ProSanos Corporation from 2004 to 2006. In addition, Dr. Schupp spent 19 years with Novartis Pharmaceuticals in Switzerland where he held various positions in clinical development and global project management. Dr. Schupp began his pharmaceutical career at Ciba-Geigy, now Novartis, in 1985 where he was appointed to lead international clinical project teams to discover new NSAIDs with improved gastrointestinal tolerability. Dr. Schupp received several prestigious awards at Ciba-Geigy and Novartis for his team leadership contributions. Dr. Schupp received his M.D. and his research doctorate (Dr.med.) from the Free University of Berlin in Germany, and he served on the faculty at the University of Pretoria, South Africa, in Internal Medicine and Rheumatology.
 
Balbir Brar, D.V.M., Ph.D., has been President of the Company since January 2012 and served as a director from February 15, 2012 until July 25, 2012.  Dr. Brar served as our Vice President of Research and Development from December 2007 until April 2008.  Dr. Brar has over 25 years of experience in drug and device development and worldwide registration of eight major drugs, including Botox. He has significant experience in research and development, conducting clinical trials, implementation of product development plans and working with U.S. and international regulators.  Dr. Brar has also served as a consultant to numerous biotechnology companies since June 2002 including AtheroNova Inc., Aciont, Inc., Altheos, Inc., Aciex Therapeutics, Inc. Dr. Brar has worked with major pharmaceutical companies, including Lederle Laboratories (acquired by Wyeth, then by Pfizer, Inc. (NYSE: PFE), and served as Senior Director of Drug Safety at SmithKline Beckman, now GlaxoSmithKline plc (NYSE: GSK). In addition, he served as Vice President Drug Safety, Research & Development at Allergan, Inc. (NYSE: AGN), where he was responsible for regulatory submission of 50 IND’s/510K’s and worldwide approval of six New Drug Applications. Dr. Brar is listed as the inventor of numerous patents. He has a Ph.D. in Toxicology/Pathology from Rutgers University and D.V.M. from India with finance training from Harvard Business School. Dr. Brar is a recipient of numerous achievements awards for excellence belongs to a number of scientific organizations and is the author/coauthor of over 55 scientific publications.  Dr. Brar’s significant and specifically relevant research and development background brings an important technical perspective to our board.
 
Andrew R. Boll has been our Vice President of Accounting and Financial Reporting since February 2012 and was a consultant to the Company from December 2011 to February 2012. Mr. Boll has several years of experience in financial reporting and accounting, including four years of experience working with small publicly traded companies, with a particular focus on restructured and reorganized businesses. From November 2007 to November 2011, Mr. Boll was an accountant for BCGU, LLC, a privately held fund manager that specializes in capital venture investment opportunities. There he provided consulting services to public company clients, compiled SEC financial reports, and accounted for numerous public company restructurings, financings and private to public mergers. From December 2004 to November 2007, Mr. Boll was an accountant for Welsh Companies, LLC, a privately held commercial real estate company, its fund and its other subsidiaries. Mr. Boll received his B.S. degree in Corporate and Public Finance, summa cum laude, from Huron University and is a member of the Institute of Management Accountants.
 
Mark L. Baum, J.D. has served as a director since December 2011 and as our Chairman of our Board of Directors from December 16, 2011 through April 1, 2012.  Mr. Baum has also served as our principal executive officer since December 2011, and was appointed our Chief Executive Officer effective April 1, 2012.  Mr. Baum has served as the principal of The Baum Law Firm, P.C. (now TBLF, LLC) since 1998, and has more than 15 years of experience in financing, operating and advising small capitalization publicly traded enterprises, with a particular focus on restructured or reorganized businesses. As a manager of capital, he has completed more than 125 rounds of financing for more than 40 publicly traded companies. As a securities attorney, Mr. Baum focused his practice on US securities laws, reporting requirements and public company finance-related issues that affect small capitalization public companies. Mr. Baum has actively participated in numerous public company spin-offs, restructurings and recapitalizations, venture fundings, private-to-public mergers, asset acquisitions and divestitures. In addition to his fund management and legal experience, Mr. Baum has operational experience in the following industries: life science and diagnostics, closed door pharmacies, cleaner and renewable energy and retail home furnishings. Mr. Baum has served on numerous boards of directors, including Chembio Diagnostic Systems, Inc. (CEMI), Applied Natural Gas Fuels, Inc. (formerly AGAS), Shrink Nanotechnologies, Inc. (INKN), You on Demand, Inc. (YOD) and CoConnect, Inc. (CCON), as well as boards of advisors for domestic and international private and public companies. Mr. Baum founded and capitalized the Mark L. Baum Scholarship which has funded tuition grants to college students in Texas. Mr. Baum is a published inventor and an inactive member of the state bars of California and Texas.  Mr. Baum was a Managing Member of DermaStar International, LLC, our former majority stockholder.  Mr. Baum currently serves on the Board of Directors and as chair of the Audit Committee of Ideal Power Converters, Inc., a private company located in Austin, TX.  Mr. Baum brings to our board years of public company executive experience, including knowledge of securities laws, reporting requirements and public company finance-related issues.
 
 
Paul Finnegan, M.D., M.B.A. has served as a director since February 15, 2012 and currently serves as the Chair of our Compensation Committee and our Nomination and Corporate Governance Committee and as a member of our Audit Committee. Dr. Finnegan brings to the Company experience as a board member and a global senior executive in the pharmaceutical and biotechnology industries. His expertise involves development, commercialization, and product launches of multiple novel drugs, both blockbusters and ultra-orphan therapeutics, which encompassed various clinical indications. He has served in leadership roles in commercial, clinical, medical affairs and business development functions of public and private companies. Most recently, from November 2008 to January 2012, Dr. Finnegan has been an entrepreneur in residence with Avalon Ventures, serving as President, Chief Executive Officer and Board Director of Avelas BioSciences and InCode Pharmaceutics, as well as a member of the biotechnology investment team, leading the clinical, commercial and regulatory due diligence efforts for over three years.  Dr. Finnegan served as our Chief Operating Officer and Chief Medical Officer from April 2008 to November 2008.  From October 2007 to April 2008, Dr. Finnegan served as the President and Chief Executive Officer of Cecoura Therapeutics, a private drug development company. From April 2001 to September 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 served as a board observer at AnaptysBio, Inc., a privately held therapeutic antibody company, from 2008 to 2011, and as a member of the boards of directors of Avelas Biosciences, Inc. from November 2008 to January 2011, and InCode BioPharmaceuticals, Inc. from April 2009 to the present.  Dr. Finnegan earned his MBA with Honors, in Finance and Strategy, from the University of Chicago, Graduate School of Business, and the degrees of MD, CM from McGill University, Faculty of Medicine, in Montreal. He is a Fellow of the Royal College of Physicians, Canada (FRCPC), Member of the American Society of Hematology and practiced as an interventional radiologist specializing in oncology and vascular diseases prior to transitioning to industry.  Dr. Finnegan was appointed to our Board of Directors in accordance with the terms of the senior advisory agreement dated January 17, 2012 with the Company.  Dr. Finnegan terminated his senior advisory agreement on May 9, 2012, but remains as an independent member of our Board of Directors.  Dr. Finnegan’s extensive leadership, marketing, investment and financial expertise and international business knowledge provides valuable guidance to our management and board.
 
Jeffrey J. Abrams, M.D., MPH, has served as a director since September 2007 and served as Chairman of the Board from February 2010 until December 2011.  Currently, Dr. Abrams serves as a member of our Audit Committee, Compensation Committee, and Nomination and Corporate Governance Committee. Prior to 2007, 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. Dr. Abrams was one of the co-founders of our company, and we believe that his qualifications to sit on our Board include his scientific and technical knowledge of our Accudel technology and our lead product candidate, Impracor, as well as his years of experience as a practicing primary care clinician.
 
Robert Kammer, D.D.S., has served as a director since December 2011 and as Chairman of the Board of Directors since April 1, 2012.  Dr. Kammer received his Bachelor of Science Degree in 1971 from Xavier University, Cincinnati, Ohio. He received his Doctor of Dental Surgery Degree from the University of Iowa in 1974. Dr. Kammer is a Diplomat of The American Board of Orofacial Pain and a Founding Charter Member of The Academy for Sports Dentistry and Colorado Osseointegration Study Club. From 1979 to 1996, Dr. Kammer was an Associate Professor and Course Director of Orofacial Pain Section in the Department of Restorative Dentistry at The University of Colorado Health Science Center. From 1982 through 1993, he served on the Sports Medicine Advisory Committee at The University of Colorado Intercollegiate Athletics and was the Team Dentist for Football and Basketball. From 1983 to 1990, Dr. Kammer was a consultant to the Boulder-Denver Pain Control Center and from 1988 through 1991, he served as a Referee and Editorial Staff Consultant of the Journal of Orofacial Pain. Dr. Kammer recently contributed a chapter to the groundbreaking text Osteoperiosteal Flap, is consulting for Clear Choice Dental Implant Centers, co-authoring scientific papers and is a co-investigator for a landmark study of Titanium Implant Prostheses at the Mayo Institute.  Dr. Kammer was a Managing Member of DermaStar International, LLC, our former majority stockholder.  Dr. Kammer brings to our Board of Directors over 30 years of practical experience treating patients for orofacial pain as well as a history of success in leadership positions he has been associated with.
 
Stephen G. Austin, CPA, has served as a director since July 2012 and currently serves as the Chair of our Audit Committee and as a member of our Compensation Committee and Nomination and Corporate Governance Committee. He has been a Partner in Swenson Advisors, LLP, a regional accounting firm (registered with the PCAOB), since May 1998 and has served as Managing Partner since October 2006. At Swenson Advisors, Mr. Austin manages audit, SEC, Sarbanes-Oxley and business consulting engagements with a focus on technology, manufacturing, service, real estate, social media and non-profit organizations. Prior to joining Swenson Advisors, Mr. Austin accumulated over 22 years of experience as an audit partner with Price Waterhouse LLP, where he worked from 1976 to 1996, and with McGladrey & Pullen, LLP, where he worked from 1996 to 1998, serving both public and private companies. While at Price Waterhouse, Mr. Austin worked in their national office in New York, where he addressed complex accounting and reporting issues for publicly-traded companies and worked with various members of the FASB and EITF staffs. Mr. Austin is licensed as a CPA in California and Georgia. He serves as a board member or advisory board member for various not-for-profit foundations, associations and public service organizations in the United States, serves on the Global board of directors of Integra International, an international association of accounting firms, and served as a director on the board of Avanir Pharmaceuticals, Inc. (NASDAQ: AVNR). In 2004, Mr. Austin published a book on business ethics entitled “Rise of the New Ethics Class,” and in 2005 and 2006 he published articles in Asia discussing The Sarbanes-Oxley Act of 2002. Mr. Austin has also authored articles for the AICPA including the Journal of Accountancy. Mr. Austin holds a B.S. degree in accounting from Bob Jones University and an M.B.A. degree from the University of Georgia. Mr. Austin brings to our Board financial and accounting expertise and extensive experience serving as a director of other companies.
 
 
August (“Gus”) S. Bassani, Pharm.D., has served as a director since December 2012.  He currently serves as Vice-President of Consulting, R&D and Formulations at PCCA and has been with PCCA since September 2002. Prior to joining PCCA, Mr. Bassani was a formulation pharmacist in the Product Development Lab of a veterinary pharmaceutical company. He has worked in multiple pharmacy practice settings, located in Alaska, Iowa and Kansas, and has taught extemporaneous compounding principles to pharmacy students in Drake University’s Pharmaceutics Laboratory course. Mr. Bassani received his Doctor of Pharmacy degree from Drake University College of Pharmacy and Health Sciences. He is a member of the 2010 – 2015 United States Pharmacopeia (USP) Council of Experts – Compounding Expert Committee, and is serving on the 2012 – 2014 Drake University College of Pharmacy and Health Sciences National Advisory Council. He is a member of the American Pharmacists Association (APhA), International Academy of Compounding Pharmacists (IACP), American Society of Health Systems Pharmacists (ASHP) and the American Association of Pharmaceutical Scientists (AAPS).  Mr. Bassani's widespread experience in the pharmaceutical industry and his formulation expertise provides valued guidance to our management and board.
 
There are no family relationships among our directors and executive officers.
 
Committees of the Board of Directors
 
On August 7, 2012, the Board established the following committees:  the Audit Committee, the Compensation Committee and the Nomination and Corporate Governance Committee.
 
Audit Committee
 
Mr. Austin, Dr. Abrams, and Dr. Finnegan have been appointed to serve on our Audit Committee, and Mr. Austin has been appointed as the Chair of the Audit Committee. Our Board of Directors has determined that each current member of our Audit Committee is “independent” within the meaning of Section 10A(m)(3) of the Exchange Act and Rule 10A-3(b)(1) thereunder and satisfies the requirements for membership in the Audit Committee as set forth in Rule 5605(c)(2)(A) of the Rules of The NASDAQ Stock Market (“NASDAQ Rules”). Our Board of Directors has also determined that Mr. Austin qualifies as an “audit committee financial expert” as defined in applicable rules of the Securities and Exchange Commission.
 
Our Board of Directors has adopted a written charter for our Audit Committee, which sets forth the specific duties and responsibilities of the Audit Committee, including: (i) overseeing our accounting and financial reporting processes and our financial reporting legal and regulatory compliance, (ii) overseeing and evaluating management’s assessment of the effectiveness of our internal controls over financial reporting, (iii) reviewing any transactions by us with related parties, (iv) appointing our independent registered public accounting firm, (v) monitoring the independence and performance of our independent registered public accounting firm, (vi) pre-approving all audit and permissible non-audit services to be provided to us by our independent registered public accounting firm, subject to a “de minimus” exception, (vii) meeting separately, periodically, with management and with our independent registered public accounting firm, and (viii) establishing procedures for our receipt, retention and treatment of information provided by our employees regarding accounting, internal accounting controls or audit matters. The Audit Committee’s charter is provided on our website, http://www.imprimispharma.com.
 
Compensation Committee
 
Dr. Finnegan, Dr. Abrams and Mr. Austin have been appointed to serve on our Compensation Committee, and Dr. Finnegan has been appointed as the Chair of the Compensation Committee. Each member of our Compensation Committee is independent within the meaning of applicable NASDAQ Rules and is a “non-employee director” as defined under Rule 16b-3 of the Exchange Act and an “outside director” as that term is defined in applicable rules under the Internal Revenue Code.
 
Our Board of Directors has adopted a written charter for our Compensation Committee, which sets forth the specific duties and responsibilities of the Compensation Committee, including: (i) reviewing and approving our executive officer compensation programs and arrangements, (ii) determining the specific objectives of our compensation programs and structuring such programs to effectively attract and retain qualified personnel, (iii) reviewing and establishing goals and objectives relevant to the compensation of our Chief Executive Officer, and evaluating the Chief Executive Officer’s performance in light of those goals and objectives, (iv) administering our equity and incentive compensation plans, and (v) reviewing and approving director compensation and benefits. Pursuant to its charter, the Compensation Committee may select and engage such advisors and consultants as it deems necessary or desirable in its sole discretion to carry out its duties, and has the authority to approve the fees and retention terms relating to such advisors and/or consultants. The Compensation Committee’s charter is provided on our website, http://www.imprimispharma.com.
 

Nomination and Corporate Governance Committee
 
Dr. Finnegan, Dr. Abrams and Mr. Austin have been appointed to serve on our Nomination and Corporate Governance Committee, and Dr. Finnegan has been appointed as the Chair of that committee. Each member of our Nomination and Corporate Governance Committee is independent within the meaning of applicable NASDAQ Rules.
 
Our Board of Directors has adopted a written charter for our Nomination and Corporate Governance Committee, which sets forth the specific duties and responsibilities of that committee, including: (i) assisting in identifying and recruiting qualified candidates for our Board and our management team, (ii) advising the Board regarding the membership and chairs of the committees of our Board, (iii) overseeing and evaluating the performance of our Board and our management team, including assessing the independence of our directors, (iv) recommending to the Board and overseeing our corporate governance principles, and (vii) recommending to the Board and monitoring compliance with our code of business conduct and ethics. A copy of the Nomination and Corporate Governance Committee’s charter is provided on our website, http://www.imprimispharma.com.

Section 16 Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors and persons who beneficially own more than 10% of our common stock to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms filed by such person.
 
Based solely on our review of the copies of such forms furnished to us and the written representations from certain of the reporting persons that no other reports were required, we believe that during the fiscal year ended December 31, 2012, all executive officers, directors and greater than ten-percent beneficial owners complied with the reporting requirements of Section 16(a), except as follows: (i) stockholder Don Miloni filed a late Form 3 on March 18, 2013; (ii) stockholder Professional Compounding Centers of America, Inc. filed a late Form 3 on March 8, 2013; (iii) former stockholder DermaStar International, LLC (A) filed a late Form 5 on March 15, 2013 reporting transactions that occurred on February 28, 2012 and April 25, 2012, which were improperly reported on a Form 3 filed on April 27, 2012 and (B) filed a late Form 4 on July 20, 2012 reporting transactions that occurred on June 29, 2012 and July 12, 2012; (iv) director Jeffrey Abrams filed a late Form 4 on April 27, 2012 reporting transactions that occurred on April 1, 2012; (v) officer and director Mark Baum (A) filed a late Form 5 on March 15, 2013 reporting transactions that occurred on February 28, 2012, April 1, 2012 and April 25, 2012, which were improperly reported on a Form 3 filed on April 27, 2012 and (B) filed a late Form 4 on July 20, 2012 reporting transactions that occurred on June 29, 2012 and July 12, 2012; (vi) officer Andrew Boll filed a late Form 5 on March 15, 2013 reporting a transaction that occurred on February 1, 2012, which was improperly reported on a Form 3 filed on April 27, 2012; (vii) officer and former director Balbir Brar filed a late Form 5 on March 15, 2013 reporting transactions that occurred on January 25, 2012 and April 1, 2012, which were improperly reported on a Form 3 filed on April 27, 2012; (viii) director Paul Finnegan filed a late Form 5 on March 15, 2013 reporting transactions that occurred on January 25, 2012 and April 1, 2012, which were improperly reported on a Form 3 filed on April 27, 2012; (ix) director Robert Kammer (A) filed a late Form 5 on March 15, 2013 reporting transactions that occurred on February 28, 2012, April 1, 2012 and April 25, 2012, which were improperly reported on a Form 3 filed on April 30, 2012 and (B) filed a late Form 4 on July 20, 2012 reporting transactions that occurred on June 29, 2012 and July 12, 2012; (x) director Stephen Austin filed a late Form 4 on August 15, 2012 reporting a transaction that occurred on July 26, 2012; and (xi) officer Joachim Schupp filed a late Form 5 on March 15, 2013 reporting a transaction that occurred on February 15, 2012, which was improperly reported on a Form 3 filed on April 27, 2012.

Code of Business Conduct and Ethics

Our Board has adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees. The Code of Business Conduct and Ethics is available for review on our website at www.imprimispharma.com, and is also available in print, without charge, to any stockholder who requests a copy by writing to us at Imprimis Pharmaceuticals, Inc., 437 S. Hwy 101, Suite 209, Solana Beach, California, 92075, Attention: Investor Relations. Each of our directors, employees and officers, including our Chief Executive Officer and Principal Financial Officer, and all of our other executive officers, are required to comply with the Code of Business Conduct and Ethics. There have not been any waivers of the Code of Business Conduct and Ethics relating to any of our executive officers or directors in the past year.
 

Corporate Governance Documents

Our corporate governance documents, including the Audit Committee Charter, Compensation Committee Charter, and Nominating and Corporate Governance Committee Charter are available, free of charge, on our website at www.imprimispharma.com. The information contained on the website is not incorporated by reference in, or considered part of, this Form 10-K. We will also provide copies of these documents free of charge to any stockholder upon written request to Imprimis Pharmaceuticals, Inc., 437 S. Hwy 101, Suite 209, Solana Beach, California, 92075, Attention: Investor Relations.

 
All information regarding share amounts of common stock and prices per share of common stock contained under the heading “Executive Compensation” reflects the one-for-five reverse stock split effected on February 7, 2013.
 
Summary Compensation Table
 
The following table summarizes compensation earned by or awarded or paid to our principal executive officer and our other two most highly compensated executive officers (our “named executive officers”). Also included is compensation information for our Vice President, Accounting and Public Reporting (our Principal Accounting and Financial Officer).
 
Name and
Principal Position
Year
   
Salary
   
Stock
Awards (1)
   
Option
Awards (2)
   
All Other
Compensation
    Total  
Mark L. Baum, J.D.
2012
    $ 150,300     $ 520,000 (3)   $ 655,773 (4)     -     $ 1,326,073  
  Chief Executive Officer
2011
      -       -       -       -       -  
                                             
Joachim P.H. Schupp, M.D.
2012
    $ 178,500       -     $ 260,100     $ 29,134 (5)   $ 467,734  
  Chief Medical Officer
2011
    $ 38,800       -     $ 2,192       -     $ 40,992  
                                             
Balbir Brar, D.V.M., Ph.D.
2012
    $ 84,000       -     $ 669,300 (6)     -     $ 753,300  
  President
2011
      -       -       -       -       -  
                                             
Andrew R. Boll
2012
    $ 64,500       -     $ 51,780     $ 7,524 (7)   $ 123,804  
   Vice-President, Accounting and Public Reporting
2011
      -       -       -       -       -  
  
 
(1)
Represents the dollar value of the restricted stock awards calculated on the basis of the fair value of the underlying shares of our common stock on the respective grant dates in accordance with FASB ASC Topic 718 and without any adjustment for estimated forfeitures. The actual value that an executive will realize on each restricted stock award will depend on the price per share of our common stock at the time shares underlying the restricted stock awards are sold. The actual value realized by an executive may not be at or near the grant date fair value of the restricted stock awarded.
 (2)
Reflects the dollar amount of the grant date fair value of awards granted during the respective fiscal years, measured in accordance with Accounting Standards Codification Topic 718 and without adjustment for estimated forfeitures. For a discussion of the assumptions used to calculate the value of option awards, refer to Note 7 "Shareholders’ Equity" of Notes to Consolidated Financial Statements for the fiscal year ended December 31, 2012 included in this Form 10-K. For a discussion of the material terms of each stock option award, see the table entitled "Outstanding Equity Awards at Fiscal Year End."
 (3)
Represents restricted stock units granted to Mr. Baum outside the 2007 Plan in connection with his services as our Chief Executive Officer, the vesting of which is subject to certain performance conditions.  The value of the award at the grant date assuming that the highest level of the performance conditions will be achieved is the same as reflected in the above table.
  (4)
Represents (i) an option to purchase up to 125,000 shares of common stock under the 2007 Plan granted on January 25, 2012 for his uncompensated services as Chairman of the Board of Directors and significant ongoing services related, but not limited, to the Company’s emergence from Chapter 11 bankruptcy protection, negotiation with creditors, pursuit of additional financing opportunities and hiring of executive officers, (ii) an option to purchase up to 25,000 shares of common stock under the 2007 Plan, which was granted to all of the Company’s directors on April 1, 2012 for their service as directors and which vests in equal installments of 6,250 shares on each of June 30, 2012, September 30, 2012, December 31, 2012 and March 31, 2013 subject to continued service as a director on each such date, and (iii) an option to purchase up to 60,000 shares of common stock under the 2007 Plan granted on April 1, 2012 in connection with his appointment as our Chief Executive Officer.
 (5)
Consists of (i) $23,500 paid to an entity beneficially owned by Mr. Schupp for consulting services performed during the fiscal year 2012 prior to his hire as our Chief Medical Officer, and (ii) $5,634 paid for medical and dental insurance premiums.
 (6)
Represents (i) an option to purchase up to 225,000 shares of common stock under the 2007 Plan granted on January 25, 2012 in connection with his appointment as our President, and (ii) an option to purchase up to 25,000 shares of common stock under the 2007 Plan, which was granted to all of the Company’s directors on April 1, 2012 for their service as directors and which vests in equal installments of 6,250 shares on each of June 30, 2012, September 30, 2012, December 31, 2012 and March 31, 2013 subject to continued service as a director on each such date.  On July 25, 2012, Dr. Brar resigned as a director (but continues in his capacity as our President).  As a result of such resignation, the 18,750 unvested shares under Dr. Brar’s April 1, 2012 option grant were forfeited, and the 6,250 vested shares under such option remain exercisable until March 22, 2013.
 (7)
Consists of (i) $5,000 paid to Mr. Boll for consulting services performed during the fiscal year 2012 prior to his hire as our Vice President, Accounting and Public Reporting, and (ii) $2,524 paid for medical and dental insurance premiums. 
 
Outstanding Equity Awards at Fiscal Year-End
 
The following table sets forth certain information concerning outstanding stock awards held by our named executive officers and our Vice President, Accounting and Public Reporting serving during the fiscal year ended December 31, 2012.
 
 
 
Option Awards
           
Stock Awards
 
 
Number of
 
Number of
               
Market Value
 
 
Securities
 
Securities
           
Number
 
of Shares or
 
 
Underlying
 
Underlying
           
of Shares
 
Units of
 
 
Unexercised
 
Unexercised
   
Option
 
Option
 
or Units
 
Stock that
 
 
Options (#)
 
Options (#)
   
Exercise
 
Expiration
 
of Stock that
 
Have Not
 
Name
Exercisable
 
Unexercisable
   
Price ($)
 
Date
 
Have Not Vested
 
Vested(1)
 
Mark L. Baum, J.D.
    114,583 (2)     10,417 (2)   $ 2.40  
1/25/2022
      -       -  
      31,875 (3)     28,125 (3)   $ 4.50  
3/31/2017
      -       -  
      18,750 (4)     6,250 (4)   $ 4.50  
3/31/2017
      -       -  
      -       -     $ -   -       160,000 (5)   $ 1,560,000  
Balbir Brar, D.V.M., Ph.D.
    68,750 (6)     156,250 (6)   $ 3.68  
1/25/2016
      -       -  
      6,250 (7)     -     $ 4.50   -       -       -  
Joachim P.H. Schupp, M.D.
    22,917 (8)     52,083 (8)   $ 3.60  
2/15/2016
      -       -  
      493 (9)     -     $ 4.00  
10/5/2014
      -       -  
Andrew R. Boll
    4,583 (10)     10,417 (10)   $ 3.68  
2/1/2016
      -       -  
 
(1)
Calculated by multiplying the number of unvested shares by $9.75, the closing price per share of our common stock on December 31, 2012 (which was the last business day of the fiscal year).
(2)
Represents an option granted to Mr. Baum on April 1, 2012 under the 2007 Plan for his uncompensated services as Chairman of the Board of Directors and significant ongoing services related, but not limited, to the Company’s emergence from Chapter 11 bankruptcy protection, negotiation with creditors, pursuit of additional financing opportunities and hiring of executive officers.  The option vests in 12 equal monthly installments of 10,417 shares commencing on January 25, 2012 and ending on January 25, 2013.
(3)
Represents an option granted to Mr. Baum an April 1, 2012 under the 2007 Plan in connection with his appointment as our Chief Executive Officer.  The option vests over a two-year period, with 15,000 shares vesting immediately upon issuance and an additional 1,875 shares vesting monthly for the 24 months thereafter.
(4)
Represents an option granted to Mr. Baum an April 1, 2012 under the 2007 Plan in connection with his services as a director.  The option vests in four equal quarterly installments of 6,250 shares commencing on June 30, 2012.
(5)
Represents restricted stock units granted to Mr. Baum outside the 2007 Plan in connection with his services as our Chief Executive Officer. The total award vests as follows:  (i) 25% vests on successful completion of a financing that results in aggregate cash proceeds to the Company of at least $5,000,000 at any time following the effective date of the grant; (ii) 25% vests on the Company meeting the primary endpoints of its Phase 3 clinical studies for its drug candidate, Impracor; (iii) 25% vests on the Company submitting a New Drug Application for Impracor to the U.S. Food and Drug Administration; and (iv) 25% vests on the Company entering into a definitive license, collaboration or similar agreement for Impracor that would reasonably be expected to generate cash flow for the Company.
(6)
Represents an option granted to Dr. Brar on January 25, 2012 under the 2007 Plan in connection with his appointment as our President.  The option vests in equal monthly installments over the 36 month period following the date of grant.
(7)
Represents an option granted to Dr. Brar on April 1, 2012 under the 2007 Plan in connection with his former services as a director.  The option vests in equal installments of 6,250 shares on each of June 30, 2012, September 30, 2012, December 31, 2012 and March 31, 2013 subject to continued service as a director on each such date.   On July 25, 2012, Dr. Brar resigned as a director (but continues in his capacity as our President).  As a result of such resignation, the 18,750 unvested shares under the option were forfeited, and the 6,250 vested shares under the option remain exercisable until March 22, 2013.
(8)
Represents an option granted to Dr. Schupp on February 15, 2012 under the 2007 Plan in connection with his appointment as our Chief Medical Officer.  The option vests in equal monthly installments over the 36 month period following the date of grant.
(9)
Represents an option granted to Dr. Schupp on December 15, 2011 under the 2007 Plan in connection with a release given by Dr. Schupp upon DermaStar’s investment in the Company.  The option was 100% vested upon its grant.
(10)
Represents an option granted to Mr. Boll on February 1, 2012 under the 2007 Plan in connection with his appointment as our Vice President, Accounting and Public Reporting.  The option vests in equal monthly installments over the 36 month period following the date of grant.
 
 
Employment Agreements
 
Mark L. Baum
 
On April 1, 2012, the Board of Directors appointed Mr. Mark L. Baum, J.D. as our Chief Executive Officer. Mr. Baum had served as our Chairman of the Board of Directors and principal executive officer and Secretary since December 17, 2011. Concurrently with Mr. Baum’s appointment to Chief Executive Officer, Mr. Baum resigned from his position as Chairman of the Board. Mr. Baum continues to serve as a member of the Board of Directors and as Secretary. Concurrent with his appointment as Chief Executive Officer, we entered into an employment agreement with Mr. Baum, effective as of April 1, 2012, which was subsequently amended and restated on July 24, 2012 (as amended, the “Baum Employment Agreement”). Under the terms of the Baum Employment Agreement, Mr. Baum’s initial base annual salary is $200,400, with a minimum salary increase of no less than 15% annually. Mr. Baum may be eligible, at the sole discretion of the Board, to receive an annual cash bonus of up to 30% of his annual base salary beginning in the fiscal year ending 2013 contingent upon his satisfaction of certain company and individual performance criteria. Mr. Baum may be terminated by us at any time.  Upon the closing of a financing transaction that results in aggregate cash proceeds to the Company of over $5,000,000 at any time after July 24, 2012, Mr. Baum will automatically become entitled to receive a severance package of one year’s base salary and annual bonus in effect at the time of termination and continued Company paid healthcare expenses for one year upon the Company’s termination of Mr. Baum’s employment without cause.
 
Also on April 1, 2012, the Company granted to Mr. Baum an option to purchase up to 60,000 shares of common stock at an exercise price of $4.50 per share under the 2007 Plan. The option terminates on March 31, 2017 and vests over a two year period, with 15,000 options vesting immediately upon issuance and an additional 1,875 options vesting monthly for the next twenty-four months thereafter. The option vests immediately upon the involuntary termination of Mr. Baum’s employment within 12 months following a change in control, as defined in the 2007 Plan.

On January 25, 2012, the Board approved an option grant to Mr. Baum to purchase up to 125,000 shares pursuant to the 2007 Plan. The options were issued to Mr. Baum for his uncompensated services as Chairman of the Board of Directors and significant ongoing services related, but not limited to, the Company’s emergence from Chapter 11 bankruptcy protection, negotiation with creditors, pursuit of additional financing opportunities and hiring of executive officers.  The option vests in twelve equal monthly installments commencing on January 25, 2012 and ending on January 25, 2013, and has an exercise price of $2.40.
 
On July 18, 2012, the Board granted to Mr. Baum, in connection with his services as the Chief Executive Officer of the Company, 160,000 restricted stock units (RSUs) outside of the 2007 Plan. The restricted stock units granted to Mr. Baum are subject to certain performance-based vesting criteria, such that 40,000 RSUs will vest upon the satisfaction of each of the following events:  (i) successful completion of a financing that results in aggregate cash proceeds to the Company of at least $5,000,000 at any time following the effective date of the grant; (ii) the Company meets the primary endpoints of its Phase III clinical studies for Impracor; (iii) the Company submits a New Drug Application for Impracor to the U.S. Food and Drug Administration; and (iv) the Company enters into a definitive license, collaboration or similar agreement for Impracor that would reasonably be expected to generate cash flow for the Company. The RSUs vest in full upon a change in control of the Company.
 
Dr. Balbir Brar
 
On January 17, 2012, we entered into an Employment Agreement with Dr. Balbir Brar in connection with his appointment as our President, effective January 1, 2012.  Under the agreement, Dr. Brar must commit 20 hours each week to the Company and will receive an initial base salary of $84,000 per year. On January 25, 2012, the Board granted Dr. Brar an option to purchase 225,000 shares of common stock with an exercise price of $3.68 under the 2007 Plan. The option has a four year term and vests monthly over a 36 month period following the date of grant and vests in full upon a change of control, as defined in the 2007 Plan.  Dr. Brar has agreed to not sell more than 5% of the shares of the Company’s common stock acquired through the exercise of his stock options in any monthly period without the approval of the Board of Directors.  We may terminate Dr. Brar’s employment without notice for cause, and upon 60 days’ notice without cause.  Dr. Brar’s employment will also terminate upon his death or disability, or Dr. Brar may terminate his employment upon 60 days’ notice.
 
 
Dr. Joachim Schupp
 
On February 15, 2012, we entered into an Employment Agreement with Dr. Joachim Schupp in connection with his appointment as our Chief Medical Officer.  Under the terms of his Employment Agreement, Dr. Schupp will receive an initial base salary of $204,000 per year.  Also on February 15, 2012, Dr. Schupp was issued an option to purchase 75,000 shares of common stock with an exercise price of $3.60 per share under the 2007 Plan.  The option has a four year term and vests monthly over a 36 month period following the date of grant. The option vests in full upon a change of control as defined in the 2007 Plan. Dr. Schupp has agreed to not sell more than 5% of the shares of the Company’s common stock acquired through the exercise of his stock options in any monthly period without the approval of the Board of Directors. We may terminate Dr. Schupp’s employment without notice for cause, and upon 60 days’ notice without cause.  Dr. Schupp’s employment will also terminate upon his death or disability, or Dr. Schupp may terminate his employment upon 60 days’ notice.
 
Andrew R. Boll
 
On January 25, 2012, the Company entered into an Employment Agreement with Mr. Boll, effective as of February 1, 2012. Under the terms of the Employment Agreement, Mr. Boll will receive an initial base salary of $60,000 per year. On January 25, 2012, the Board approved the issuance of an option to purchase 15,000 shares of common stock under the 2007 Plan to Mr. Boll, which was granted on February 1, 2012, the date of his employment with the Company.  The option has an exercise price of $3.68 per share, has a four year term and vests monthly over a 36 month period following the date of grant.  The option vests in full upon a change of control as defined in the 2007 Plan.  Mr. Boll has agreed to not sell more than 5% of the shares of the Company’s common stock acquired through the exercise of his stock option in any monthly period without the approval of the Board of Directors.  We may terminate Mr. Boll’s employment without notice for cause, and upon 60 days’ notice without cause.  Mr. Boll’s employment will also terminate upon his death or disability, or Mr. Boll may terminate his employment upon 60 days’ notice. On October 1, 2012, Mr. Boll's salary was increased to $90,000 per year.
 
2007 Incentive Stock and Awards Plan
 
On September 17, 2007, our Board of Directors and stockholders adopted the 2007 Incentive Stock and Awards Plan (the “2007 Plan”). The purpose of the 2007 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 in our development and financial success. Under the 2007 Plan, we are authorized to issue incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options, and restricted stock. The 2007 Plan is administered by our Board of Directors until such time as such authority has been delegated to a committee of the Board of Directors.  Effective November 5, 2008, our stockholders approved an amendment to the 2007 Plan to increase the number of authorized shares to 75,000 from 37,500.  On January 25, 2012, our Board of Directors and stockholders approved an amendment to, among other things, increase the maximum number of shares issuable under the 2007 Plan to 750,000 shares. The amendment became effective following our compliance with certain information requirements of the SEC.  Effective as of July 18, 2012, our Board of Directors and stockholders approved a further amendment to increase the maximum number of shares to 2,400,000 shares and to increase the number of shares that may be granted to an individual in a calendar year.  The stockholder approval of the amendment became effective upon our compliance with certain information requirements of the SEC.
  
Compensation of Directors
 
We do not currently have a standard director compensation program in place; however, the Board of Directors approved the following compensation to our directors for their service as directors in 2012:
 
On April 1, 2012, the Board of Directors approved the grant to each of our directors on that date, including our employee and non-employee directors, of an option to purchase up to 25,000 shares of our common stock under the 2007 Plan (each, a “2012 Director Option”). The directors who received such an option were as follows: (i) employee directors Dr. Brar (whose option has been forfeited as a result of his resignation as a director but remains exercisable until March 22, 2013) and Mr. Baum, and (ii) non-employee directors Dr. Kammer, Dr. Finnegan and Dr. Abrams.  Each of the options has an exercise price of $4.50 per share and a term of five years, and vests quarterly over a one year period such that options to purchase 6,250 shares vest on each of June 30, 2012, September 30, 2012, December 31, 2012 and March 31, 2013 (subject to continued service as a director on each such date).
 
 
On April 1, 2012, the Board of Directors approved the grant to director Dr. Jeffrey Abrams, in consideration of his service as a director of the Company during 2011 and 2012, of an option to purchase up to 60,000 shares of common stock under the 2007 Plan.  The option has an exercise price of $4.50 per share and a term of ten years, and vests in equal monthly installments over a one year period.
 
On July 26, 2012, in connection with his appointment as a director, the Board of Directors granted to Mr. Austin an option to purchase up to 17,123 shares of our common stock under the 2007 Plan. That option has an exercise price of $4.50 per share and a term of five years, and vests in equal monthly installments over a period of one year commencing on January 1, 2013. In addition, the Board of Directors approved our payment to Mr. Austin of a quarterly cash payment of $5,000 for his services as a director and a quarterly cash payment of $1,250 for his services as the chair of the Audit Committee.
 
On December 14, 2012, in connection with his appointment as a director, the Board of Directors granted to Mr. Bassani an option to purchase up to 7,603 shares of our common stock under the 2007 Plan. That option has an exercise price of $10.75 per share and a term of five years, and vests in equal monthly installments over a period of one year commencing on January 1, 2013. In addition, the Board of Directors approved the payment to Mr. Bassani of a quarterly cash payment of $5,000 for his services as a director.
 
Director Compensation Table
 
The following table shows the compensation paid in fiscal 2012 to our non-employee directors.  All compensation received by directors Dr. Brar and Mr. Baum, including compensation received by them for services as a director, is disclosed in the Summary Compensation Table.
 
Name
 
Fees Earned or
Paid in Cash
   
Stock
Awards(1)(3)
   
Option
Awards (2)(3)
   
Total
 
Robert J. Kammer, D.D.S.
  $ -     $ 269,444 (4)   $ 381,578 (5)   $ 651,022  
Paul Finnegan, M.D.
  $ 18,000 (6)   $ -     $ 450,325 (7)   $ 468,325  
Jeffrey J. Abrams, M.D.
  $ -     $ -     $ 381,480 (8)   $ 381,480  
Stephen G. Austin, CPA
  $ 12,500     $ -     $ 58,099 (9)   $ 70,599  
August S. Bassani, Pharm.D.
  $ -     $ -     $ 81,627 (10)   $ 81,627  
 
 (1)
Represents the dollar value of the restricted stock awards calculated on the basis of the fair value of the underlying shares of our common stock on the respective grant dates in accordance with FASB ASC Topic 718 and without any adjustment for estimated forfeitures. The actual value that an executive will realize on each restricted stock award will depend on the price per share of our common stock at the time shares underlying the restricted stock awards are sold. The actual value realized by an executive may not be at or near the grant date fair value of the restricted stock awarded.
 (2)
Reflects the dollar amount of the grant date fair value of awards granted during the respective fiscal years, measured in accordance with Accounting Standards Codification Topic 718 and without adjustment for estimated forfeitures. For a discussion of the assumptions used to calculate the value of option awards, refer to Note 7 "Shareholders’ Equity" of Notes to Consolidated Financial Statements for the fiscal year ended December 31, 2012 included in this Form 10-K.
 (3)
The aggregate number of stock and option awards outstanding as of December 31, 2012 for each non-employee director are as follows:
 
 
Name
 
Shares Underlying Options Awards
   
Shares Underlying
Stock Awards
   
Total
 
Robert J. Kammer, D.D.S.
    85,000       60,000       145,000  
Paul Finnegan, M.D.
    150,000       -       150,000  
Jeffrey J. Abrams, M.D.
    87,250       -       87,250  
Stephen G. Austin, CPA
    17,123       -       17,123  
August S. Bassani, Pharm.D.
    7,603       -       7,603  
 
 (4)
Represents (i) 20,000 shares of common stock earned by but not yet issued to Dr. Kammer under his advisory agreement entered into with the Company on April 1, 2012, pursuant to which Dr. Kammer provides certain consultant and advisory services in addition to his services as a director and, among other compensation, earns $10,000 per month in the form of common stock based on a price per share of $4.50, and (ii) 40,000 RSUs granted to Dr. Kammer on July 18, 2012 outside the 2007 Plan in connection with his services as a consultant and advisor to the Company, which RSUs are subject to certain performance-based vesting criteria such that all 40,000 RSUs will vest at such time as the Company meets the primary endpoints of its Phase III clinical studies for Impracor.
 (5)
Represents (i) a 2012 Director Option granted to Dr. Kammer, and (ii) an option to purchase up to 60,000 shares of common stock granted to Dr. Kammer on April 1, 2012 under the 2007 Plan pursuant to the terms of his advisory agreement with the Company, which agreement provides for, in addition to certain other compensation provided to Dr. Kammer under that agreement for his consulting and advisory services that is described in footnote (4) above, the grant to Dr. Kammer of this non-qualified stock option with an exercise price of $4.50 per share, an expiration date of March 31, 2017, and a vesting schedule as follows:  15,000 shares vest on the date of grant and the remaining shares vest in equal monthly installments over a two year period beginning on May 1, 2012.
 (6)
Reflects the total amount paid to Dr. Finnegan under a senior advisory agreement entered into with the Company on January 17, 2012 and terminated on May 9, 2012. Such amount was paid in April 2012 prior to the termination of the agreement in exchange for services rendered under the agreement in the first quarter of 2012. 
 (7)
Represents (i) a 2012 Director Option granted to Dr. Finnegan, and (ii) an option to purchase 125,000 shares of common stock at an exercise price of $3.20 per share granted to Dr. Finnegan on January 25, 2012 under the 2007 Plan in connection with a senior advisory agreement entered with the Company on January 17, 2012, which agreement was terminated on May 9, 2012. Also effective May 9, 2012, we entered into an amendment to Dr. Finnegan’s option agreement which modifies the vesting schedule of the option to provide that the option to purchase 40% of the shares covered by the grant will vest on September 30, 2012, 40% will vest on March 31, 2013 and 20% will vest on September 30, 2013, provided that Dr. Finnegan is serving as a director, employee or consultant at the time of such vesting. 
 (8)
Represents (i) a 2012 Director Option granted to Dr. Abrams, and (ii) an option to purchase 60,000 shares of common stock granted to Dr. Abrams on April 1, 2012 under the 2007 Plan in consideration of his service as a director of the Company during 2011 and 2012, which option has an exercise price of $4.50 per share, a term of ten years, and vests in equal monthly installments over a one year period.  
 (9)
Represents an option to purchase up to 17,123 shares of our common stock granted to Mr. Austin on August 26, 2012 under the 2007 Plan, as consideration for his service as a director. That option has an exercise price of $4.50 per share, a term of five years, and vests in equal monthly installments over a period of one year commencing on January 1, 2013.
 (10)
Represents an option to purchase up to 7,603 shares of our common stock granted to Mr. Bassani on December 14, 2012 under the 2007 Plan, as consideration for his services as a director.  That option has an exercise price of $10.75 per share, has a term of five years, and vests monthly over a period of one year commencing on January 1, 2013.
 
 
 
The following table sets forth the shares of our common stock beneficially owned by (1) each of our directors, (2) the named executive officers, (3) all of our directors and executive officers as a group, and (4) all persons known by us to beneficially own more than 5% of our outstanding voting stock.  We have determined the beneficial ownership shown on this table in accordance with the rules of the Securities and Exchange Commission. Under those rules, shares are considered beneficially owned if held by the person indicated, or if such person, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares the power to vote, to direct the voting of and/or to dispose of or to direct the disposition of such security. Except as otherwise indicated in the accompanying footnotes, beneficial ownership is shown as of March 15, 2013.  Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power with respect to shares of common stock and the address is c/o Imprimis Pharmaceuticals, Inc. 437 S. Hwy 101, Suite 209, Solana Beach, CA 92075.  All information regarding share amounts reflects our one-for-five reverse stock split effected on February 7, 2013.

Beneficial Owner
 
Amount and Nature of Beneficial Ownership
 
   
Number of Shares
   
Percentage (1)
 
5% + Stockholders
           
John W. Fish, Jr. (2)
    603,171       6.78 %
Don Miloni (3)
    1,243,513       13.86 %
Professional Compounding Centers of America, Inc. (4)
    832,683       9.37 %
                 
Directors and Officers
               
Jeffery J. Abrams, M.D. (5)
    126,113       1.41 %
Mark L. Baum, J.D. (6)
    401,174       4.40 %
Andrew R. Boll (7)
    6,250       *  
Balbir Brar, D.V.M., Ph.D. (8)
    113,204       1.26 %
Paul Finnegan, M.D.  (9)
    125,000       1.39 %
Robert J. Kammer, D.D.S.  (10)
    995,593       11.07 %
Stephen G. Austin, CPA (11)
    7,135       *  
August S. Bassani, Pharm.D. (13)
    3,168       *  
Joachim Schupp, M.D.  (12)
    31,743       *  
All executives and directors as a group (9 persons)
    1,809,380       18.88 %
____________
*
Represents less than 1%.
(1)
Applicable percentage ownership is based on 8,888,250 shares of our common stock outstanding as of March 15, 2013.  Shares of common stock subject to options or warrants and convertible notes subject to conversion into shares of our common stock currently exercisable or convertible, or exercisable or convertible within 60 days after March 15, 2013 are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options, warrants or convertible notes, but are not deemed outstanding for computing the percentage ownership of any other person.
 
 
(2)
Includes 10,190 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of March 15, 2013.
(3)
Includes 878,576 shares held in his name, 25,316 shares held by Mr. Miloni’s spouse, 151,899 shares held by 1425 Greenwood Lane, LLC, of which Mr. Miloni is the beneficial owner, 102,766 shares held by RCHER Financial, LLC, of which Mr. Miloni is a beneficial owner and 84,956 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of March 15, 2013 (of which Mr. Miloni holds warrants to acquire 15,282 shares, Mr. Miloni’s spouse holds warrants to acquire 6,329 shares, 1425 Greenwood Lane, LLC holds warrants to acquire 37,975 shares, and RCHER Financial, LLC holds warrants to acquire 25,730 shares).
(4)
The address for Professional Compounding Centers of America, Inc. is 9901 South Wilcrest Dr., Houston, TX 77099.
(5)
Jeffrey J. Abrams, M.D., a director, is a trustee of the Abrams Family Trust, which owns 39,063 shares of our common stock. Dr. Abrams has sole voting and investment control with respect to the shares of common stock owned by the Abrams Family Trust.  Includes 87,050 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of March 15, 2013.
(6)
Includes 40,000 shares of common stock issuable pursuant to restricted stock units that vested on February 13, 2013 and 189,375 shares of common stock issuable upon the exercise of stock options and 2,413 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of March 15, 2013.
(7)
Includes 6,250 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of March 15, 2013.
(8)
Includes 100,000 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of March 15, 2013.
(9)
Includes 125,000 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of March 15, 2013.
(10)
Includes 24,444 shares of common stock to which Dr. Kammer is entitled for services performed under his advisory agreement, and 64,375 shares of common stock issuable upon the exercise of stock options and 15,282 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of March 15, 2013. 
(11)
Includes 7,135 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of March 15, 2013.
(12)
Includes 31,743 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of March 15, 2013.
(13)
Includes 3,168 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of March 15, 2013.
 
Securities Authorized for Issuance Under Equity Compensation Plans

The following table summarizes our compensation plans under which our equity securities are authorized for issuance as of December 31, 2012:
 
EQUITY COMPENSATION PLAN INFORMATION (1)(2)

   
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
    2,400,000     $ 5.26       1,477,888  
Equity compensation plans not approved by security holders
    200,000 (3)     -       -  
Total
    2,600,000     $ 5.26       1,477,888  

(1)  
Includes the 2007 Incentive Stock and Awards Plan. See Note 7 of Notes to Consolidated Financial Statements, included in Part IV, Item 15 of this Report, for additional information regarding our equity compensation plans.
(2)  
On January 25, 2012, the Board determined that it was in the best interests of the Company and its stockholders to amend the 2007 Plan to, among other things, increase the maximum number of shares issuable under the 2007 Plan by 675,000 shares to 750,000 shares, and to reserve such shares for issuance under the 2007 Plan (the “Plan Amendment”), subject to stockholder approval of the Plan Amendment. Our stockholders approved the Plan Amendment in an action by written consent on January 25, 2012; the approval became effective on February 26, 2012.  Effective as of July 18, 2012, our board of directors and stockholders holding a majority of the Company’s outstanding voting power approved a further amendment to the Plan to increase the number of shares available for issuance under the Plan from 750,000 to 2,400,000 and to increase the per person limit on the maximum number of shares of the Company’s common stock that may be granted to an individual under the Plan in a calendar year.
(3)  
On July 18, 2012, the Board granted to Mr. Baum, in connection with his services as the Chief Executive Officer of the Company, 160,000 restricted stock units (RSUs) and Mr. Kammer, in connection with his services as a consultant, 40,000 RSUs outside of the 2007 Plan.  The restricted stock units granted to Mr. Baum and Mr. Kammer are subject to certain performance-based vesting criteria.  See Note 7 of Notes to Consolidated Financial Statements, included in Part IV, Item 15 of this Report, for additional information regarding these restricted stock units.
 
 

 Transactions with Related Persons
 
During the fiscal year ended December 31, 2012, and through the date of this Form 10-K, other than as described below, there have been no transactions, and there are no currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years and in which any related person had or will have a direct or indirect material interest.
 
Our Chief Executive Officer and director, Mr. Mark L. Baum, and the Chairman of our Board of Directors, Robert J. Kammer, served as Managing Members of DermaStar International, LLC (“DermaStar”) prior to DermaStar’s conversion of all of the outstanding shares of Series A Preferred Stock into common stock and the distribution of all shares of capital stock and warrants held by it to its members in July 2012.  Mr. Baum and Dr. Kammer were appointed to our Board on December 16, 2011, following the closing of the Line of Credit Agreement and the purchase of the Series A Preferred Stock by DermaStar described below and elsewhere in this Form 10-K.
 
Secured Line of Credit
 
On November 21, 2011, we entered into a Secured Line of Credit Letter Agreement (the “Line of Credit Agreement”) with DermaStar, pursuant to which DermaStar agreed to lend us funds under a line of credit upon certain conditions, including the dismissal of the Chapter 11 Case by the Bankruptcy Court.   The Line of Credit Agreement became effective on December 9, 2011, in connection with the dismissal of the Chapter 11 Case by the Bankruptcy Court.  The Line of Credit Agreement provided for advances of up to an aggregate of $750,000, subject to the satisfaction by us of certain conditions in connection with the initial advance and each subsequent advance. The largest outstanding principal balance under the line of credit at any time was $750,000.   Interest accrued at 10% per annum.  No interest payments were made by us during the period other than in connection with the conversion of the line of credit described below.
 
On April 25, 2012, the entire outstanding principal balance and all accrued and unpaid interest under the line of credit, an aggregate of $762,534, was converted into 193,046 shares of common stock and warrants to purchase 48,262 shares of common stock at the offering price and on the terms of the April Private Placement described below, pursuant to the terms of a conversion agreement we entered into with DermaStar on April 20, 2012.  The warrants have substantially the same terms as the warrants issued in the April Private Placement.  The line of credit was terminated upon the completion of the conversion.
 
Series A Preferred Stock Purchase
 
In partial consideration for and in connection with the Line of Credit Agreement, on November 21, 2011 we executed a Securities Purchase Agreement with DermaStar, pursuant to which we agreed to issue 10 shares of newly-designated Series A Convertible Preferred Stock (the “Series A Preferred Stock”) to DermaStar for an aggregate purchase price of $100,000.   The Securities Purchase Agreement, as amended, became effective on December 9, 2011, in connection with the dismissal of the Chapter 11 Case by the Bankruptcy Court.  On December 12, 2011, we and DermaStar consummated the transactions contemplated by the Securities Purchase Agreement.  The shares of Series A Preferred Stock issued to DermaStar in the offering are convertible into 1,499,700 shares of our common stock.
 
 
On June 29, 2012, DermaStar converted the 10 shares of Series A Preferred Stock held by it into 1,499,700 shares of our common stock.   In connection with the conversion, we paid to DermaStar $200,000 as partial consideration for the conversion pursuant to a conversion agreement.  Immediately following the conversion of the Series A Preferred Stock, all 10 shares were retired to our treasury and cancelled.  The conversion agreement was unanimously approved by the Company’s disinterested directors, with Mr. Baum and Dr. Kammer abstaining.
 
7.5% Convertible Promissory Note
 
On April 5, 2010, we issued a $1,000,000 7.5% Convertible Promissory Note (the “Convertible Note”) to Alexej Ladonnikov, an existing stockholder of the Company.  The Convertible Note had an annual interest rate of 7.5% and all principal and interest were due and payable on its maturity date, April 5, 2012.
 
During January 2012, Mr. Ladonnikov sold 80% of the Convertible Note to DermaStar in a private transaction.  Effective as of January 25, 2012, we entered into separate waiver and settlement agreements with DermaStar and Mr. Ladonnikov.  Under each of the waiver and settlement agreements, the holders of the Convertible Note agreed to forever waive (i) their rights to accelerate the entire unpaid principal sum of the Convertible Note and all accrued interest pursuant to Section 1 of the Convertible Note, (ii) their rights under Section 7 of the Senior Convertible Note Purchase Agreement dated April 5, 2010, and (iii) certain conversion rights pursuant to Section 3 of the Convertible Note.  Under the terms of the waiver and settlement agreement with DermaStar, we and DermaStar agreed to the mandatory conversion of the principal and accrued and unpaid interest of the Convertible Note and $56,087 in current accounts payable of the Company held by DermaStar into our common stock at a conversion price of approximately $0.6668 per share at such time as we had a sufficient number of shares of authorized common stock to effect such conversion.  Under the terms of the waiver and settlement agreement with Mr. Ladonnikov, we and Mr. Ladonnikov agreed to the mandatory conversion of the 20% of the principal and accrued and unpaid interest of the Convertible Note held by Mr. Ladonnikov, at such time as we had a sufficient number of authorized common shares to effect such a conversion, into our common stock at a conversion price of $0.60. Mr. Ladonnikov also agreed to make a one-time payment of $50,000 to us at such time as the Convertible Note was converted into common stock.
 
On February 28, 2012, effective immediately following the effective time of our Certificate of Amendment to our Certificate of Incorporation increasing the number of authorized shares of common stock and implementing the one-for-eight reverse split of our common stock, the entire outstanding balance and all accrued but unpaid interest owing under the Convertible Note and the accounts payable held by DermaStar were converted into 1,835,830 shares of common stock, and the Convertible Note was terminated.  At the time of conversion, there was approximately $142,603 in accrued and unpaid interest due under the Convertible Note.  Mr. Ladonnikov made the required one-time payment of $50,000 to us at the time of the conversion.
 
Company Policy Regarding Related Party Transactions
 
The charter of the Audit Committee of our Board tasks the Audit Committee with reviewing and overseeing all related party transactions for potential conflict of interest situations on an ongoing basis.  In accordance with that policy, the Audit Committee’s general practice is to review and oversee those transactions that are reportable as related party transactions under the Financial Accounting Standards Board and Securities and Exchange Commission rules and regulations. 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.
 
Director Independence
 
Our Board of Directors has determined that Mr. Austin, Dr. Abrams, Mr. Bassani and Dr. Finnegan would each be considered an “independent director” as defined in Rule 5605(a)(2) of the NASDAQ Rules. Mr. Baum would not be considered independent because he currently serves as our Chief Executive Officer, and Dr. Kammer is not independent because of certain ongoing advisory relationships.
 
Commencing on February 15, 2012, Dr. Balbir Brar, our President, served as a director on our Board.  Dr. Brar resigned as a director on July 25, 2012, but continues in his capacity as our President. Dr. Brar was not considered independent because of his position as our President.
 
 
Company Policy Regarding Related Party Transactions
 
It is our policy that the disinterested members of our 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 may exceed the lesser of $120,000 or 1% of the average of our total assets at year end 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.
 
 
Aggregate fees for professional services rendered to the company by KMJ Corbin & Company LLP for the years ended December 31, 2012 and 2011, were:

   
2012
   
2011
 
   
 
   
 
 
Audit Fees
  $ 48,100     $ 15,000  
Audit-Related Fees
  $ 76,032     $ -  
Total
  $ 124,132     $ 15,000  
 
“Audit Fees” represent fees for professional services provided in connection with the audit of our annual financial statements, and  review of financial statements included in our quarterly reports. “Audit-Related Fees” represent fees for professional services provided in connection with the review of our registration statements on Forms S-8 and S-1, and related services normally provided in connection with statutory and regulatory filings and engagements.   There were no Tax Fees or Other Fees billed by or paid to our principal accountant during the years ended December 31, 2012 and 2011.

Pre-approval Policy

Our Board of Directors pre-approves all services to be provided by KMJ Corbin & Company LLP.  KMJ Corbin & Company LLP performed no services, and no fees were incurred or paid, relating to financial information systems design and implementation. All fees paid to KMJ Corbin & Company LLP for fiscal 2012 and 2011 were pre-approved by our Board of Directors.



 
  (a) List of the following documents filed as part of the report:
       
    (1) See the index to our consolidated financial statements on page F-1 for a list of the financial statements being filed herein.
    (2) All financial statement schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or other notes thereto.
    (3) See the Exhibits under Item 15(b) below for all Exhibits being filed or incorporated by reference herein.
       
  (b) Exhibits:
       
    The Exhibit Index attached to this Report is incorporated by reference herein.
 
 
 
Pursuant to the requirements of Section 13 or 15(d) 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.
 
 
IMPRIMIS PHARMACEUTICALS, INC.  
 
       
Date: March 18, 2013
By:
/s/ Mark Baum  
   
Name: Mark L. Baum, J.D.
 
    Title: Secretary and Chief Executive Officer (Principal Executive Officer)  
       
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
 
Title
 
Date
         
         
/s/ Andrew R. Boll  
 
Vice-President of Accounting and Public Reporting
 
March 18, 2013
Andrew R. Boll
 
 (Principal Accounting and Financial Officer)
   
         
/s/ Mark L. Baum
 
Chief Executive Officer and Director
 
March 18, 2013
Mark L. Baum, J.D.
 
 (Principal Executive Officer)
   
         
/s/   Jeffrey J. Abrams  
     
March 18, 2013
Jeffrey J. Abrams, M.D.
 
Director
   
         
/s/ Balbir Brar  
     
March 18, 2013
Balbir Brar, D.V.M., Ph.D.
 
President
   
         
/s/ Paul Finnegan  
     
March 18, 2013
Paul Finnegan, M.D., M.B.A.
 
Director
   
         
/s/ Robert J. Kammer  
     
March 18, 2013
Robert J. Kammer, D.D.S.
 
Director
   
         
/s/ Stephen Austin  
     
March 18, 2013
Stephen Austin, C.P.A.
 
Director
   
         
/s/ August Bassani  
     
March 18, 2013
August Bassani, Pharm.D.
 
Director
   

 
 
Imprimis Pharmaceuticals, Inc.
(A Development Stage Company)

Index to Consolidated Financial Statements

    F-2  
         
    F-3  
         
    F-4  
         
    F-5  
         
    F-9  
         
    F-11  
 
 
 

 
To the Board of Directors and Stockholders of
 
Imprimis Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheets of Imprimis Pharmaceuticals, Inc. and subsidiary (a development stage company) (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2012 and for the period from July 24, 1998 (date of inception) through December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit on its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Imprimis Pharmaceuticals, Inc. and subsidiary as of December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2012 and for the period from July 24, 1998 (date of inception) through December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

/s/ KMJ Corbin & Company LLP
 
Costa Mesa, California
March 18, 2013
 
 
IMPRIMIS PHARMACEUTICALS, INC.
(A Development Stage Company)
 
   
December 31,
   
December 31,
 
   
2012
   
2011
 
ASSETS
Current assets
           
Cash and cash equivalents
  $ 10,035,615     $ 146,160  
Prepaid expenses and other current assets
    61,552       14,797  
Deferred offering costs
    596,281       -  
Total current assets
    10,693,448       160,957  
Furniture and equipment, net
    12,548       -  
TOTAL ASSETS
  $ 10,705,996     $ 160,957  
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
               
Accounts payable and accrued expenses
  $ 635,384     $ 218,612  
Accounts payable - related party
    -       56,087  
Accrued Phase 3 expenses
    55,784       55,784  
Accrued payroll
    18,391       -  
Deferred revenue
    -       100,000  
Notes payable - related party
    -       300,000  
Convertible note payable and accrued interest
    -       1,130,479  
Total current liabilities
    709,559       1,860,962  
Commitments and contingencies
               
STOCKHOLDERS' EQUITY (DEFICIT)
               
Series A convertible preferred stock, $0.001 par value, 10 shares authorized,
               
none and 10 shares issued and outstanding
               
at December 31, 2012 and 2011, respectively
    -       -  
Common stock, $0.001 par value, 395,000,000 shares authorized,
               
6,772,066 and 397,515 shares issued and outstanding
               
at December 31, 2012 and 2011, respectively
    6,772       398  
Additional paid-in capital
    34,093,933       16,820,330  
Deficit accumulated during the development stage
    (24,104,268 )     (18,520,733 )
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)
    9,996,437       (1,700,005 )
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  $ 10,705,996     $ 160,957  
 
The accompanying notes are an integral part of these consolidated financial statements
 
IMPRIMIS PHARMACEUTICALS, INC.
(A Development Stage Company)
 
   
For The
Year Ended
December 31,
2012
   
For The
Year Ended
December 31,
2011
   
For the Period
From July 24, 1998 (Inception) through
December 31,
2012
 
Revenues:
                 
License revenues
  $ 100,000     $ -     $ 100,000  
Operating expenses:
                       
Selling, general and administrative
    2,980,374       827,674       12,553,701  
Research and development
    1,298,503       111,554       9,118,761  
Loss from operations
    (4,178,877 )     (939,228 )     (21,572,462 )
Other income (expense):
                       
Interest expense
    (24,658 )     (75,000 )     (1,730,892 )
Interest income
    15,410       -       142,991  
Loss on extinguishment of debt
    (1,195,410 )     -       (1,195,410 )
Gain on settlement
    -       -       375,000  
Gain on forgiveness of liabilities
    -       60,292       176,505  
Total other expense, net
    (1,204,658 )     (14,708 )     (2,231,806 )
Net loss
    (5,383,535 )     (953,936 )     (23,804,268 )
Deemed dividend to preferred stockholders
    (200,000 )     (100,000 )     (300,000 )
Net loss attributable to common stockholders
  $ (5,583,535 )   $ (1,053,936 )   $ (24,104,268 )
Net loss per share of common stock, basic and diluted:
  $ (1.24 )   $ (2.65 )        
Weighted average number of shares of common stock outstanding,
 
basic and diluted
    4,493,535       397,803          

The accompanying notes are an integral part of these consolidated financial statements
 

IMPRIMIS PHARMACEUTICALS, INC.
 (Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended December 31, 2012 and 2011 and for the period from June 24, 1998 (Inception) through December 31, 2012
 
                      Deficit
accumulated
       
    Preferred Stock     Common Stock     Additional    
during the
    Total  
         
Par
         
Par
   
Paid-in
    development    
Stockholders'
 
   
Shares
   
Value
   
Shares
   
Value
   
Capital
   
 stage
   
Equity (Deficit)
 
Balance at June 24, 1998 (Inception)
    -     $ -       -     $ -     $ -     $ -     $ -  
Estimated fair value of services contributed by
                                                       
   stockholders
    -       -       -       -       100,000       -       100,000  
Net loss
    -       -       -       -       -       (100,000 )     (100,000 )
Balance at December 31, 1998
    -       -       -       -       100,000       (100,000 )     -  
                                                         
Estimated fair value of services contributed by
                                                       
   stockholders
    -       -       -       -       200,000       -       200,000  
Net loss
    -       -       -       -       -       (204,000 )     (204,000 )
Balance at December 31, 1999
    -       -       -       -       300,000       (304,000 )     (4,000 )
                                                         
Issuance of common stock at $0.256 per share in
                                                       
   May and June 2000
    -       -       23,437       23       5,977       -       6,000  
Estimated fair value of services contributed by
                                                       
   stockholders
    -       -       -       -       200,000       -       200,000  
Net loss
    -       -       -       -       -       (213,092 )     (213,092 )
Balance at December 31, 2000
    -       -       23,437       23       505,977       (517,092 )     (11,092 )
                                                         
Estimated fair value of services contributed by
                                                       
   stockholders
    -       -       -       -       200,000       -       200,000  
Net loss
    -       -       -       -       -       (208,420 )     (208,420 )
Balance at December 31, 2001
    -       -       23,437       23       705,977       (725,512 )     (19,512 )
                                                         
Estimated fair value of services contributed by
                                 <