THERALINK TECHNOLOGIES, INC. - Quarter Report: 2011 August (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2011
or

[   ] 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: 000-52218

PEDIATRX INC.
(Exact name of registrant as specified in its charter)

405 Trimmer Road, Suite 200, Califon, New Jersey 07830
(Address of principal executive offices) (Zip Code)

(908) 975-0753
(Registrant's telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 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 [X]     No [   ]

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [   ]     No [X]

- ii -

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes [   ]     No [   ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date
20,836,000 shares of common stock are issued and outstanding as of October 17, 2011.

- iii -

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).

PediatRx Inc. (formerly Striker Energy Corp.)
(A Development Stage Company)

Financial Statements
August 31, 2011

PediatRx Inc. (formerly Striker Energy Corp.)
(A Development Stage Company)
Balance Sheets

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

PediatRx Inc. (formerly Striker Energy Corp.)
(A Development Stage Company)
Statements of Operations

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

PediatRx Inc. (formerly Striker Energy Corp.)
(A Development Stage Company)
Statements of Changes in Stockholders' Equity (Deficit)

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

PediatRx Inc. (formerly Striker Energy Corp.)
(A Development Stage Company)
Statements of Cash Flows

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

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The purchase price for the Granisol product line was allocated in accordance with the acquisition method of accounting. The acquisition method of accounting is based on ASC 805, Business Combinations, and uses the fair value concepts defined in ASC 820, Fair Value Measurements and Disclosures.

The following unaudited pro forma information was prepared assuming that the acquisitions of Granisol had taken place at the beginning of fiscal 2010. In preparing the pro forma financial information, various assumptions were made. Therefore, the Company does not imply that the future results will be indicative of the following pro forma information:

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A summary of the status of the Company’s outstanding stock option activity for the six months ended August 31, 2011 is as follows:

At August 31, 2011, the following stock options were outstanding:

The original contractual life of all options issued is five years. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market price of the Company’s stock for the options that were in-the-money at August 31, 2011. The total grant date stock-based compensation expense for stock options issued during the six months ended August 31, 2011 and 2010 was $115,492 and $0, respectively. As of August 31, 2011 unrecognized compensation costs of approximately $580,734 related to non-vested stock option awards granted after March 1, 2011 will be recognized on a straight line basis over the remaining vesting period for each award. The weighted average fair value of the stock options granted during the six months ended August 31, 2011 is $0.60.

The fair value of stock options granted has been determined using the Black-Scholes option pricing model using the following weighted average assumptions applied to stock options granted during the periods:

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The composition of the Company’s deferred tax assets as of August 31, 2011 and February 28, 2011 is as follows:

As of August 31, 2011, the Company’s unused net operating loss carry forward of approximately $1,804,000 is available to offset future taxable income. The potential income tax benefit of these losses has been offset by a full valuation allowance. This unused net operating loss carry-forward balance expires at various dates from 2026 to 2031.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

This report contains forward-looking statements. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue” or the negative of these terms or other comparable terminology. Such forward-looking statements include, without limitation, statements regarding our future products, statements regarding our anticipated future regulatory submissions and statements regarding our anticipated future cash position.

We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy, and financial needs. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” that may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Moreover, we are a new entrant to the pharmaceutical business and our management cannot predict all of the risks we will face in establishing our company in this industry, nor can we assess the impact that these risk factors might have on our business or the extent to which any risk factor, or any combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

As used in this report and unless otherwise indicated, the terms “we”, “us”, “PediatRx” and “our” refer to PediatRx Inc., a Nevada corporation. Unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in PediatRx’s capital stock.

Corporate Overview

We are a development stage enterprise, as defined in ASC Topic 915, "Development Stage Entities". We are devoting substantially all of our present efforts to the marketing of Granisol and Aquoral and are seeking to secure the rights to other pharmaceutical products through acquisition, licensing and reformulation. Our company was incorporated under the laws of Nevada on March 18, 2005 under the name “Striker Energy Corp.” From inception until the summer of 2008, we were engaged in the mineral exploration business. During the summer of 2008, we abandoned our mineral exploration properties and made the transition to oil and gas. On July 23, 2010, our wholly owned subsidiary, PediatRx Inc., completed the acquisition of Granisol® (granisetron HC1) oral solution ("Granisol") from Cypress Pharmaceutical, Inc. and we abandoned our interest in the oil and gas business in favor of the pharmaceutical industry. Effective December 28, 2010, we changed our name from “Striker Energy Corp.” to “PediatRx Inc.” to better reflect our new business. We effected this name change by a merger with our wholly-owned subsidiary, PediatRx Inc., a Nevada corporation.

Our Business

On June 17, 2010, we entered into a letter of intent with Cypress Pharmaceutical to acquire all of the assets associated with Granisol. First approved in 2008, Granisol is an oral, liquid granisetron solution, formerly distributed by Hawthorn Pharmaceuticals, a wholly-owned subsidiary of Cypress Pharmaceutical. The Food and Drug Administration has approved Granisol's use in cancer care to prevent nausea and vomiting associated with cancer therapy. On June 18, 2010 we incorporated PediatRx Inc. under the laws of the state of Nevada. On July 23, 2010, PediatRx Inc., our wholly owned subsidiary, acquired Granisol from Cypress Pharmacutical and we turned our focus to the pharmaceutical industry and terminated our interest in oil and natural gas exploration. Effective December 28, 2010, we changed our name from “Striker Energy Corp.” to “PediatRx Inc.” to better reflect our new business. We effected this name change by a merger with our wholly-owned subsidiary, PediatRx Inc.

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Granisol is our first acquisition. We intend to be the sole distributor of Granisol and to focus our marketing efforts on specialists in the field of pediatric oncology and supportive care. We do not manufacture our products, nor do we intend to in the future. We contract manufacturing to Therapex, a division of E-Z-EM Canada Inc., a subsidiary of E-Z-EM, Inc., the entity that manufactured Granisol for Cypress Pharmaceutical.

On September 12, 2011 we entered into a co-promotion agreement with Bi-Coastal Pharmaceutical Corp. (“Bi-Coastal”) Pursuant to the co-promotion agreement, Bi-Coastal granted us the non-exclusive right to promote Aquoral within the United States of America. Aquoral, another oncology supportive care product, is an FDA-cleared treatement for xerostomia (the medical term for dry mouth due to a lack of saliva). Xerostomia is especially prevalent in patients undergoing various treatments for cancer and those with Sjogren’s syndrome. We are required to include Aquoral in no less than 85% of its sales calls. In return for our promotional efforts, we will receive compensation for each unit sold. The agreement with Bi-Coastal is for an initial term of two years and will automatically renew for one year terms unless either party provides notice of non-renewal at least six months prior to the expiration of the then-current term. The agreement is terminable at any time, by either party, upon six months prior written notice to the other party and is also terminable for cause.

We intend to develop our business by acquiring rights to, and/or substantially all of the assets associated with, drugs already approved for use by the United States Food and Drug Administration in oncology, supportive care, select adult and pediatric hospital specialties and other relevant medical specialties and to become the sole distributor of such products in the United States.

We intend to accelerate our recovery of acquisition costs and to add value to our acquisition of Granisol, and to future acquisitions through four principal means:

Marketing

We intend to promote the relative merits of Granisol, and future products, to healthcare professionals, payers, end-users and their caregivers.

Reformulation

We intend to alter non-pharmacological elements of our products to offer greater choice to consumers by reformulating our products into multiple appealing, easy-to-take presentations.

Extension

We intend to seek applications for our products in fields outside of oncology and supportive care.

Expanded distribution

We intend to expand distribution of our products in foreign markets, likely through partnerships and licensing agreements.

Liquidity and Capital Resources

Our financial condition for the six month periods ended August 31, 2011 and 2010 and as of August 31, 2011 and February 28, 2011 for the respective items are summarized below.

We have incurred recurring losses from inception. Our ability to meet our financial liabilities and commitments is primarily dependent upon the continued financial support of our directors and shareholders, the continued issuance of equity to new or existing shareholders or the securing of additional debt financing, and our ability to achieve and maintain profitable operations. There can be no assurance that we will be able to acquire such additional financing on acceptable terms or at all. We currently have no agreements for such additional financing in place.

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Working Capital (Deficit)

From February 28, 2011 to August 31, 2011, our working capital decreased by $608,531, due largely to the cost of promoting Granisol and related infrastructure. While we completed the placement of an unsecured promissory note of $250,000 during the period, this increase in working capital was offset by cash used in operations during the six month period ended August 31, 2011 of $600,947. In addition, our current liabilities increased by $235,721 due primarily to the term to maturity of an unsecured promissory note of $250,000 becoming less than one year.

Cash Flows

Cash Used in Operating Activities
Our cash used in operating activities for the six months ended August 31, 2011 compared to our cash used in operating activities for the six months ended August 31, 2010 increased by $426,896, primarily due to the cost of launching and promoting Granisol, compared to very minor infrastructure costs during the same period in 2010.

Cash Provided by Financing Activities
Our cash provided by financing activities for the six months ended August 31, 2011 decreased by $1,000,000 compared to our cash provided by financing activities for the six months ended August 31, 2010. This decrease was due to financing activities consisting of the issuance during the six month period ended August 31, 2011 of a $250,000, 5% unsecured promissory note due on May 6, 2012 in contrast to equity and debt financings totaling $1,250,000, which we completed during the same period in 2010.

Cash Used in Investing Activities
There was no cash used in investing activities for the six months ended August 31, 2011 while $1,000,000 was used for the acquisition of Granisol during the same period in 2010.

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Results of Operations

The following summary of our results of operations should be read in conjunction with our unaudited financial statements for the six month period ended August 31, 2011.

Revenues

We recognized $133,326 in net product revenue during the three month period ended August 31, 2011 and $3,111 during the three month period ended August 31, 2010 as a result of the Granisol acquisition and product launch. During the three month period ended August 31, 2011 we recorded revenue for the full three months, while for the same period in 2010 we recorded revenue for only one month.

We recognized $236,346 in net product revenue during the six month period ended August 31, 2011 and $3,111 during the six month period ended August 31, 2010 as a result of the Granisol acquisition and product launch. During the six month period ended August 31, 2011 we recorded revenue for the full six months, while for the same period in 2010 we recorded revenue for only one month.

We recognized no revenue prior to 2010.

Cost of Goods Sold

We recognized $44,631 in cost of goods sold during the three month period ended August 31, 2011, and $1,030 during the three month period ended August 31, 2010, as a result of the Granisol acquisition and product launch.

We recognized $61,363 in cost of goods sold during the six month period ended August 31, 2011, and $1,030 during the six month period ended August 31, 2010, as a result of the Granisol acquisition and product launch.

Our cost of goods sold consists primarily of our third-party manufacturing costs, third-party inventory management and distribution costs, wholesaler fee for services costs and freight-in on inventory purchases.

We recognized no cost of goods sold prior to 2010.

Expenses

The table below shows our expenses for the three and six month periods ended August 31, 2011 and 2010.

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Our expenses increased by approximately $59,990 from 345,657 for the three months ended August 31, 2010 to 405,647 for the three months ended August 31, 2011. This increase was primarily due to an increases of approximately $101,387 in employee, consulting, stock based compensation, marketing and travel expenses from a total of $219,382 for the three month period ended August 31, 2010 to $320,769 for the three month period ended August 31, 2011. This increase is associated with sales and marketing promotion and the establishment of infrastructure to support Granisol for a full three months, while expenses for the three month period ended August 31, 2010 represented only approximately one and one half months of expense subsequent to the acquisition of Granisol. Additionally, there was also a transition from consulting to employment during the three month period ended August 31, 2011. Amortization expense also increased by $14,714, from $7,357 for the for the three month period ended August 31, 2010 compared to $22,071 for the three month period ended August 31, 2011 due to the amortization of product rights for three full months during the three month period ended August 31, 2011 compared to only one month during the three month period ended August 31, 2010. This increase in expenses was largely offset by a decrease of $62,263 in interest, legal and accounting, insurance and regulatory expenses from a total of $107,238 for the three month period ended August 31, 2010 to $44,975 for the three month period ended August 31, 2011 due to significant upfront costs during the three month period ended August 31, 2010, associated with the acquisition and regulatory establishment of Granisol.

Our expenses increased by approximately $580,976 from $362,171 for the six month period ended August 31, 2010 to $943,147 for the six month period ended August 31, 2011. This increase was primarily due to an increases of approximately $503,159 in employee, consulting, stock based compensation, marketing and travel expenses from a total of $219,382 for the six month period ended August 31, 2010 to $722,541 for the six month period ended August 31, 2011. This increase is associated with sales and marketing promotion and the establishment of infrastructure to support Granisol for a full six months, while expenses for the six month period ended August 31, 2010 represented only approximately one and one half months of expense subsequent to the acquisition of Granisol. Additionally, there was also a transition from consulting to employment during the six month period ended August 31, 2011. Amortization expense also increased by $36,784, from $7,357 for the for the six month period ended August 31, 2010 compared to $44,141 for the six month period ended August 31, 2011 due to the amortization of product rights for six full months during the six month period ended August 31, 2011 compared to only one month during the six month period ended August 31, 2010. Interest, legal and accounting, insurance and regulatory expenses also increased by $15,786 from a total of $118,109 for the six month period ended August 31, 2010 to $133,895 for the six month period ended August 31, 2011 due to the fact that the six month period ended August 31 2011 contains six months of expense, while the six month period ended August 31, 2010 contains only approximately one and one half months of expenses, plus upfront costs associated with the acquisition and regulatory establishment of Granisol.

Cash Requirements

Our primary objectives for the next twelve months are to complete the systems, processes and infrastructure within our company required to support Granisol promotion and to continue to look at opportunities within the pharmaceutical markets to acquire or license and/or reformulate other pharmaceutical products.

Pursuant to the terms of the co-promotion agreement with Bi-Coastal we are responsible for the travel and entertainment expenses incurred by our sales representatives. Bi-Coastal is responsible for all costs of marketing materials and the cost of goods for the product. While we do not expect these expenses to be significant, we do anticipate increased costs and we will be dependent on the revenue from this co-promotion arrangement to insure that we do not incur a loss from these co-promotion activities.

Specifically, we estimate our operating expenses and working capital requirements for the next 12 months to be as follows:

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These expenses and working capital requirements will be offset to some degree by revenue generation from sales of Granisol. There can be no assurance that we will generate revenues significant enough to offset these expenses to some or any degree and that we will not have significant needs for other financing to support the activities of our company. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, and if sales of Granisol are insufficient to ultimately fund the operating costs of our business, we may be forced to cease the operation of our business.

Future Financing

We will require additional financing to fund our planned operations, including acquiring and/or developing any potential products. We currently do not have committed sources of additional financing and may not be able to obtain additional financing, particularly, if the volatile conditions in the stock and financial markets, and more particularly the market for early development stage biotechnology research and development company stocks persist.

There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to delay or scale down some or all of our marketing, business development and product development activities or perhaps even cease the operation of our business.

Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing. If we are able to raise additional financing by issuing equity securities, our existing stockholders' ownership will be diluted. Obtaining commercial or other loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his, her, or its investment in our common stock. Further, we may continue to be unprofitable.

Off-Balance Sheet Arrangements

We have no 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 is material to stockholders.

Going Concern

Our financial statements and information for the three and six month period ended August 31, 2011, have been prepared by our management on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We have generated limited revenues to date and have incurred a net loss of approximately $768,164 during the six month period ended August 31, 2011, and approximately $2,066,947 from inception (March 18, 2005) through August 31, 2011. We cannot provide any assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional funds through the sale of debt and/or equity.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure controls and procedures

We maintain "disclosure controls and procedures", as that term is defined in Rule 13a-15(e), promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company's reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal accounting officer to allow timely decisions regarding required disclosure.

As required by paragraph (b) of Rules 13a-15 under the Securities Exchange Act of 1934, as amended, our management, with the participation of our principal executive officer and our principal financial officer, evaluated our company's disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our management concluded that as of the end of the period covered by this quarterly report on Form 10-Q, our disclosure controls and procedures were effective.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended August 31, 2011 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

ITEM 1A. RISK FACTORS.

An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this report in evaluating our company and its business before purchasing shares of our company's common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. You could lose all or part of your investment due to any of these risks.

Risks Related to Our Company

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.

We have generated minimal revenue from operations since our incorporation. During the six month period ended August 31, 2011, we incurred a net loss of $768,164. From inception through August 31, 2011, we incurred an aggregate loss of $2,066,947. We anticipate that we will continue to incur operating expenses which will be offset to some degree by revenues from the sales of Granisol and revenues from the co-promotion of Aquoral. Unless we are able to grow the revenues from Granisol and Aquoral significantly, we may never reach a point where we have positive net income. If we cannot substantially increase our revenues from sales of Granisol and the co-promotion of Aquoral, we will continue to generate losses and will require additional funding to remain in business. We estimate our average monthly expenses over the next 12 months to be approximately $350,000, including product development and general and administrative expenses, but excluding any additional product acquisition costs. On August 31, 2011, we had cash and cash equivalents of approximately $198,445. In order to fund our anticipated budget for the next 12 months, excluding additional product acquisition costs, we believe that we will need to raise approximately $2 million. This amount could increase if we encounter difficulties that we cannot anticipate at this time and if we were to add further commercialization resources and/or acquire or license additional products. We have traditionally raised our operating capital from the sale of equity securities and the placement of unsecured promissory notes, but there can be no assurance that we will continue to be able to do so. If we cannot raise the money that we need in order to continue to operate our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations. If any of these were to occur, there is a substantial risk that our business would fail.

These circumstances raise substantial doubt about our ability to continue as a going concern, as described in the explanatory paragraph to our independent auditors' report on our financial statements for the year ended February 28, 2011, which are included in our annual report on Form 10-K filed on May 17, 2011. Although our financial statements raise substantial doubt about our ability to continue as a going concern, they do not reflect any adjustments that might result if we are unable to continue our business. Our financial statements contain additional note disclosure describing the circumstances that lead to this disclosure by our independent auditors.

Our substantial debt and other financial obligations could impair our financial condition and our ability to fulfill our debt obligations. Any refinancing of this substantial debt could be at significantly higher interest rates.

As of August 31, 2011, we had total debt of approximately $800,146 (including accrued interest of approximately $22,764). Our substantial indebtedness and other current financial obligations and any that we may become a party to in the future could:

• impair our ability to obtain financing in the future for working capital, capital expenditures, acquisitions or general corporate purposes;

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• have a material adverse effect on us if we fail to comply with financial and affirmative and restrictive covenants in debt agreements and an event of default occurs as a result of a failure that is not cured or waived;

• require us to dedicate a substantial portion of our cash flow for interest payments on our indebtedness and other financial obligations, thereby reducing the availability of our cash flow to fund working capital and capital expenditures;

• limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

• place us at a competitive disadvantage compared to our competitors that have proportionally less debt.

If we are unable to meet our debt service obligations and other financial obligations, we could be forced to restructure or refinance our indebtedness and other financial transactions, seek additional equity capital or sell our assets. We might then be unable to obtain such financing or capital or sell our assets on satisfactory terms, if at all. Any refinancing of our indebtedness could be at significantly higher interest rates, and/or incur significant transaction fees.

We are an early-stage company with a limited operating history, which may hinder our ability to successfully meet our objectives.

We are an early-stage company with only a limited operating history upon which to base an evaluation of our current business and future prospects. While we have recently acquired Granisol and more recently entered into a co-promotion agreement for Aquoral, our revenues have been minimal and, there can be no assurance that we will be successful in our efforts to increase sales. In addition, Granisol requires significant expenditure with regard to the sales and marketing effort necessary to support sales growth. As a result, the revenue and income potential of our business is unproven. In addition, because of our limited operating history, we have limited insight into trends that may emerge and affect our business. Errors may be made in predicting and reacting to relevant business trends and we will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets. We may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so could cause our business, results of operations and financial condition to suffer.

Our CEO and CFO are employed elsewhere and their time and effort will not be devoted to our company full-time.

Our CEO and CFO are each employed in other positions with other companies. As a result, our company is and will continue to be managed on a part-time basis. Our business could be adversely impacted by the lack of full time management.

If we are unable to successfully recruit qualified managerial and field personnel, we may not be able to continue our operations.

In order to successfully implement and manage our business plan, we will depend upon, among other things, successfully recruiting qualified managerial and field personnel having experience in the pharmaceutical industry. Competition for qualified individuals is intense. We may not be able to find, attract and retain qualified personnel on acceptable terms. If we are unable to find, attract and retain qualified personnel with technical expertise, our business operations could suffer.

Future growth could strain our resources, and if we are unable to manage our growth, we may not be able to successfully implement our business plan.

We hope to experience rapid growth in our operations, which will place a significant strain on our management, administrative, operational and financial infrastructure. Our future success will depend in part upon the ability of our executive officers to manage growth effectively. This will require that we hire and train additional personnel to manage our expanding operations. In addition, we must continue to improve our operational, financial and management controls and our reporting systems and procedures. If we fail to successfully manage our growth, we may be unable to execute upon our business plan.

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Risks Relating to the Pharmaceutical Business

If we are unable to successfully acquire, develop or commercialize new products, our operating results will suffer.

Our future results of operations will depend to a significant extent upon our ability to successfully acquire, develop and commercialize new products in a timely manner. There are numerous difficulties in acquiring, developing and commercializing new products, including:

• acquiring, developing, testing and manufacturing products in compliance with regulatory standards in a timely manner;

• failure to receive requisite regulatory approvals for such products in a timely manner or at all;

• acquiring, developing and commercializing a new product is time consuming, costly and subject to numerous factors, including legal actions brought by our competitors, that may delay or prevent the development and commercialization of new products;

• experiencing delays or unanticipated costs;

• experiencing delays as a result of limited resources at FDA or other regulatory agencies; and

• changing review and approval policies and standards at FDA and other regulatory agencies.

As a result of these and other difficulties, products in development by us may or may not receive timely regulatory approvals, or approvals at all, necessary for marketing by us or other third-party partners. If any of our products are not timely approved or, when acquired or developed and approved, cannot be successfully manufactured or timely commercialized, our operating results could be adversely affected. We cannot guarantee that any investment we make in developing products will be recouped, even if we are successful in commercializing those products.

Our pharmaceutical expenditures may not result in commercially successful products.

We cannot be sure our business expenditures will result in the successful acquisition, development or launch of products that will prove to be commercially successful or will improve the long-term profitability of our business. If such business expenditures do not result in successful acquisition, development or launch of commercially successful brand products our results of operations and financial condition could be materially adversely affected.

Third-parties may claim that we infringe their proprietary rights and may prevent us from manufacturing and selling some of our products.

The manufacture, use and sale of new products that are the subject of conflicting patent rights have been the subject of substantial litigation in the pharmaceutical industry. These lawsuits relate to the validity and infringement of patents or proprietary rights of third parties. Litigation may be costly and time-consuming, and could divert the attention of our management and technical personnel. In addition, if we infringe on the rights of others, we could lose our right to develop, manufacture or market products or could be required to pay monetary damages or royalties to license proprietary rights from third parties. Although the parties to patent and intellectual property disputes in the pharmaceutical industry have often settled their disputes through licensing or similar arrangements, the costs associated with these arrangements may be substantial and could include on-going royalties. Furthermore, we cannot be certain that the necessary licenses would be available to us on commercially reasonable terms, or at all. As a result, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling a number of our products, and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

The loss of or inability to attract key personnel could cause our business to suffer.

The success of our present and future operations will depend, to a significant extent, upon the experience, abilities and continued services of key personnel. We cannot assure you that we will be able to attract and retain key personnel. Employment agreements with our senior executives do not guarantee that our senior executive officers will remain employed by us for a significant period of time, or at all. We do not carry key-employee life insurance on any of our officers.

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We may need to raise additional funds in the future which may not be available on acceptable terms or at all.

We may consider issuing additional debt or equity securities in the future to fund potential acquisitions or investments, to refinance existing debt, or for general corporate purposes. If we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. 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. We may not be able to market such issuances on favorable terms, or at all, in which case, we may not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements.

Extensive industry regulation has had, and will continue to have, a significant impact on our business, especially our product development, manufacturing and distribution capabilities.

All pharmaceutical companies are subject to extensive, complex, costly and evolving government regulation. For the U.S., this is principally administered by the FDA and to a lesser extent by the DEA and state government agencies, as well as by varying regulatory agencies in foreign countries where products or product candidates are being manufactured and/or marketed. The Federal Food, Drug and Cosmetic Act, the Controlled Substances Act and other federal statutes and regulations, and similar foreign statutes and regulations, govern or influence the testing, manufacturing, packing, labeling, storing, record keeping, safety, approval, advertising, promotion, sale and distribution of our products.

Under these regulations, we may become subject to periodic inspection of our facilities, procedures and operations and/or the testing of our products by the FDA, the DEA and other authorities, which conduct periodic inspections to confirm that we are in compliance with all applicable regulations. In addition, the FDA and foreign regulatory agencies conduct pre-approval and post-approval reviews and plant inspections to determine whether our systems and processes are in compliance with cGMP and other regulations. Following such inspections, the FDA or other agency may issue observations, notices, citations and/or Warning Letters that could cause us to modify certain activities identified during the inspection. FDA guidelines specify that a Warning Letter is issued only for violations of “regulatory significance” for which the failure to adequately and promptly achieve correction may be expected to result in an enforcement action. We are required to report adverse events associated with our products to FDA and other regulatory authorities. Unexpected or serious health or safety concerns would result in labeling changes, recalls, market withdrawals or other regulatory actions.

The range of possible sanctions includes, among others, FDA issuance of adverse publicity, product recalls or seizures, fines, total or partial suspension of production and/or distribution, suspension of the FDA’s review of product applications, enforcement actions, injunctions, and civil or criminal prosecution. Any such sanctions, if imposed, could have a material adverse effect on our business, operating results, financial condition and cash flows. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Similar sanctions as detailed above may be available to the FDA under a consent decree, depending upon the actual terms of such decree. If internal compliance programs do not meet regulatory agency standards or if compliance is deemed deficient in any significant way, it could materially harm our business.

The pharmaceutical industry is highly competitive.

The pharmaceutical industry has an intensely competitive environment that will require an on-going, extensive search for technological innovations and the ability to market products effectively, including the ability to communicate the effectiveness, safety and value of products to healthcare professionals in private practice, group practices and MCOs. We are smaller than all of our competitors. Most of our competitors have been in business for a longer period of time than us, have a greater number of products on the market and have greater financial and other resources than we do. Furthermore, recent trends in this industry are toward further market consolidation of large drug companies into a smaller number of very large entities, further concentrating financial, technical and market strength and increasing competitive pressure in the industry. If we directly compete with them for the same markets and/or products, their financial strength could prevent us from capturing a profitable share of those markets. It is possible that developments by our competitors will make any products or technologies that we acquire non- competitive or obsolete.

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Risks Relating to Our Common Stock

If we issue additional shares in the future, it will result in the dilution of our existing shareholders.

Our articles of incorporation authorize the issuance of up to 150,000,000 shares of common stock with a par value of $0.0001 per share. Our Board of Directors may choose to issue some or all of such shares to acquire one or more products and to fund our overhead and general operating requirements. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.

Trading of our stock is restricted by the Securities Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our common stock.

The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.

Although our common stock is currently listed for quotation on the OTC Bulletin Board, trading through the OTC Bulletin Board is frequently thin and highly volatile. There is no assurance that a sufficient market will develop in our stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

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We do not intend to pay dividends on any investment in the shares of stock of our company.

We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock’s price. This may never happen and investors may lose all of their investment in our company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. [REMOVED AND RESERVED].

ITEM 5. OTHER INFORMATION.

None

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ITEM 6. EXHIBITS.

Exhibits required by Item 601 of Regulation S-K:

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* Filed herewith.

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SIGNATURES

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

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