10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2014

[  ] 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)	(I.R.S. Employer Identification No.)
12626 High Bluff Dr., Suite 150 San Diego, CA	92130
(Address of principal executive offices)	(Zip code)

(858) 704-4040

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) 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 small reporting company.

Large accelerated filer	[  ]	Accelerated filer	[  ]
Non-accelerated filer	[  ] (Do not check if a smaller reporting company)	Smaller reporting company	[X]

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court. Yes [  ] No [  ]

As of August 12, 2014, 9,130,376 shares of the registrant’s common stock, $0.001 par value, were outstanding.

IMPRIMIS PHARMACEUTICALS, INC.

Table of Contents

		Page
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	11
Item 4.	Controls and Procedures	11
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	12
Item 1A.	Risk Factors	12
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	27
	Signatures	28

2

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

IMPRIMIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2014			December 31, 2013
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	12,101,796		$	15,579,309
Restricted short-term investments		150,151			50,097
Accounts receivable, net		81,149			-
Inventories		172,750			-
Prepaid expenses and other current assets		324,245			105,067
Total current assets		12,830,091			15,734,473
Intangible assets, net		641,567			-
Goodwill		331,621			-
Furniture and equipment, net		75,767			26,892
TOTAL ASSETS	$	13,879,046		$	15,761,365
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	750,106		$	311,924
Accrued payroll and related liabilities		553,109			338,703
Customer deposits		617			-
Current portion of contingent acquisition obligations		31,466			-
Current portion of capital lease obligation		6,428			-
Total current liabilities		1,341,726			650,627
Capital lease obligation, net of current portion		10,168			-
Contingent acquisition obligations, net of current portion		483,156			-
TOTAL LIABILITIES		1,835,050			650,627
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value, 395,000,000 shares authorized, 9,127,870 and 8,970,364 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively		9,128			8,970
Additional paid-in capital		48,703,148			46,849,160
Accumulated deficit		(36,668,280	)		(31,747,392	)
TOTAL STOCKHOLDERS’ EQUITY		12,043,996			15,110,738
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	13,879,046		$	15,761,365

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

F-1

IMPRIMIS PHARMACEUTICALS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the			For the			For the			For the
	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Revenues:
Pharmacy sales, net	$	664,370		$	-		$	664,370		$	-
License revenues		3,331			2,500			4,741			5,000
Total revenues		667,701			2,500			669,111			5,000
Cost of pharmacy sales		(476,549	)		-			(476,549	)		-
Gross profit		191,152			2,500			192,562			5,000
Operating expenses:
Selling and marketing		469,188			-			825,896			-
General and administrative		2,289,233			1,556,145			4,209,255			2,576,094
Research and development		35,571			677,347			95,723			1,132,447
Total operating expenses		2,793,992			2,233,492			5,130,874			3,708,541
Loss from operations		(2,602,840	)		(2,230,992	)		(4,938,312	)		(3,703,541	)
Other income (expense):
Interest expense		(1,565	)		-			(1,565	)		-
Interest income		8,680			12,940			18,989			20,008
Total other income, net		7,115			12,940			17,424			20,008
Net loss	$	(2,595,725	)	$	(2,218,052	)	$	(4,920,888	)	$	(3,683,533	)
Basic and diluted net loss per share of common stock	$	(0.28	)	$	(0.25	)		(0.54	)	$	(0.44	)
Weighted average number of shares of common stock outstanding, basic and diluted		9,109,842			8,890,668			9,060,496			8,342,497

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

F-2

IMPRIMIS PHARMACEUTICALS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the			For the
	Six Months Ended			Six Months Ended
	June 30, 2014			June 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(4,920,888	)	$	(3,683,533	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of furniture and equipment		10,411			2,073
Amortization of intangible assets		17,433			-
Stock-based compensation and payments		1,396,692			1,448,384
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable		(22,729	)		-
Inventories		40,440			-
Prepaid expenses and other current assets		(215,625	)		(278,956	)
Accounts payable and accrued expenses		318,134			283,985
Accrued payroll and related liabilities		178,930			163,617
Customer deposits		(11,699	)		-
Deferred revenue		-			1,667
NET CASH USED IN OPERATING ACTIVITIES		(3,208,901	)		(2,062,763	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of restricted short-term investments		(100,000	)		(50,000	)
Purchase of Pharmacy Creations, LLC, net of cash and advances		(636,374	)		-
Purchases of furniture and equipment		(14,776	)		(5,172	)
NET CASH USED IN INVESTING ACTIVITIES		(751,150	)		(55,172	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cancelled common stock		-			(192	)
Payments on capital lease obligation		(1,565	)		-
Net proceeds from the exercise of warrants and stock options		484,103			-
Proceeds from issuance of common stock and warrants for cash, net of offering costs		-			10,052,832
NET CASH PROVIDED BY FINANCING ACTIVITIES		482,538			10,052,640
NET CHANGE IN CASH AND CASH EQUIVALENTS		(3,477,513	)		7,934,705
CASH AND CASH EQUIVALENTS, beginning of period		15,579,309			10,035,615
CASH AND CASH EQUIVALENTS, end of period	$	12,101,796		$	17,970,320
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	800		$	1,600
Cash paid for interest	$	1,565		$	-
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Reclassification of deferred offering costs in connection with equity offering	$	-		$	596,281
Issuance of common stock for consulting services included in accounts payable and accrued expenses	$	-		$	139,444

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

F-3

IMPRIMIS PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2014 and 2013

NOTE 1. OVERVIEW, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Company and Background

Imprimis Pharmaceuticals, Inc. (“Imprimis” or the “Company”) is a vertically-integrated specialty pharmaceutical company dedicated to delivering high quality, novel and customizable medicines to physicians and patients at accessible prices. Imprimis is pioneering a new commercial pathway using compounding pharmacies for the formulation and distribution of its proprietary drug therapies which include formulations in ophthalmology, wound management and urology.

On April 1, 2014, the Company acquired Pharmacy Creations, LLC (“PC”), a New Jersey based compounding pharmacy; effective with this acquisition the Company commenced sales and marketing efforts surrounding Imprimis’ portfolio of proprietary and non-proprietary drug formulations.

Basis of Presentation

Imprimis has prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to the Company’s audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

Business Combinations

The Company accounts for business combinations by recognizing the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair values on the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, especially at acquisition date with respect to intangible assets, estimated contingent consideration payments and pre-acquisition contingencies. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:

● future expected cash flows from product sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies and patents; and

● discount rates utilized in valuation estimates.

Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, such as changes in our estimate of the revenue targets, will be recognized in earnings in the period of the estimated fair value change. A change in fair value of the acquisition-related contingent consideration could have a material effect on the financial position, results of operations, or cash flows in the period of the change in estimate.

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, and costs related to clinical trials, contract services and outsourced contracts.

F-4

Intellectual Property

The costs of acquiring intellectual property rights to be used in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where the Company has not identified an alternative future use for the acquired rights, and are capitalized in situations where the Company has identified an alternative future use. No costs associated with acquiring intellectual property rights have been capitalized to date. Costs of maintaining intellectual property rights are expensed as incurred.

Revenue Recognition and Deferred Revenue

The Company recognizes revenues when all of the following criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. The Company began generating revenues upon the acquisition of PC in the second quarter of 2014, which includes sales of certain of our proprietary compounded drug formulations.

Product Revenues

Determination of criteria (3) and (4) is based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product has not been delivered or are subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

License Revenues

License arrangements may consist of non-refundable upfront license fees, data transfer fees, research reimbursement payments, exclusive licensed rights to patented or patent pending compounds, technology access fees, and various performance or sales milestones. These arrangements can be multiple element arrangements.

Non-refundable fees that are not contingent on any future performance by us, and require no consequential continuing involvement on our part, are recognized as revenue when the license term commences and the licensed data, technology and/or compounded drug preparations is delivered. Such deliverables may include physical quantities of compounded drug preparations, design of the compounded drug preparations and structure-activity relationships, the conceptual framework and mechanism of action, and rights to the patents or patents pending for such compounded drug preparations. We defer recognition of non-refundable fees if we have continuing performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee that is separate and independent of our performance under the other elements of the arrangement. In addition, if we have required continuing involvement through research and development services that are related to our proprietary know-how and expertise of the delivered technology, or can only be performed by us, then such up-front fees are deferred and recognized over the period of continuing involvement. Guaranteed minimum annual royalties are recognized on a straight-line basis over the applicable term.

During the three and six months ended June 30, 2014 and 2013, the Company recorded $3,331, $4,741 and $2,500, $5,000, respectively, in revenues, related to royalty payments. In January 2013, the Company entered into a license agreement with ResolutionMD, LLC granting ResolutionMD, LLC rights to its Accudel delivery technology to be used for anti-cellulite formulations. Under the license agreement, the Company received $10,000 as a guaranteed minimum royalty amount for the year ended December 31, 2013. The Company is due annual guaranteed minimum royalty payments and additional royalty payments based on a percent (generally, 5%-7%) of net sales of any products covered under the license agreement in excess of the guaranteed amounts. The license agreement with ResolutionMD, LLC, unless terminated earlier, has a term of ten years following the first commercial sale of a product that is covered under the license agreement. The Company does not anticipate that the license agreement with ResolutionMD, LLC will generate significant revenues for the 2014 fiscal year.

F-5

Cost of Sales

Cost of sales includes direct and indirect costs to manufacture formulations and products sold, including active pharmaceutical ingredients, personnel costs, packaging, storage, royalties (see Note 11), shipping and handling costs and the write-off of obsolete inventory.

Income Taxes

The Company accounts for income taxes under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes”, or ASC 740. As of June 30, 2014, there were no unrecognized tax benefits included in the condensed consolidated balance sheets that would, if recognized, affect the effective tax rate. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties in its condensed consolidated balance sheets at June 30, 2014 and December 31, 2013, and has not recognized interest and/or penalties in the condensed consolidated statements of operations for the periods ended June 30, 2014 and 2013. The Company is subject to taxation in the United States and California. The Company’s tax years for 2000 and forward are subject to examination by the federal and state tax authorities due to the carry forward of unutilized net operating losses.

Cash and Cash Equivalents

Cash equivalents include short-term, highly liquid investments with maturities of three months or less at the time of acquisition.

Concentrations of Credit Risk

The Company places its cash with financial institutions deemed by management to be of high credit quality. The Federal Deposit Insurance Corporation (“FDIC”) provides basic deposit coverage with limits up to $250,000 per owner. At June 30, 2014, the Company had approximately $11.8 million in cash deposits in excess of FDIC limits.

Accounts Receivable

The balance in accounts receivable consists of revenue amounts the Company has invoiced and recognized, but for which payment has not been received. Accounts receivable are presented net of an allowance for doubtful accounts in the amount of $3,957 as of June 30, 2014.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out (“FIFO”) basis. The Company evaluates the carrying value of inventories on a regular basis, based on the price expected to be obtained for products in their respective markets compared with historical cost. Write-downs of inventories are considered to be permanent reductions in the cost basis of inventories.

The Company also regularly evaluates its inventories for excess quantities and obsolescence (expiration), taking into account such factors as historical and anticipated future sales or use in production compared to quantities on hand and the remaining shelf life of products and active pharmaceutical ingredients on hand. The Company establishes reserves for excess and obsolete inventories as required based on its analyses.

Furniture and Equipment

Furniture and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight-line method over the estimated useful life of the asset. Leasehold improvements are amortized over the estimated useful life or remaining lease term, whichever is shorter. Computer software and hardware, and furniture and equipment are depreciated over three to five years.

F-6

Goodwill and Intangible Assets

The Company will review its goodwill and indefinite-lived intangible assets for impairment as of January 1 of each year or when an event or a change in circumstances indicates the fair value of a reporting unit may be below its carrying amount. Events or changes in circumstances considered as impairment indicators include but are not limited to the following:

● significant underperformance of the Company’s business relative to expected operating results;

● significant adverse economic and industry trends;

● significant decline in the Company’s market capitalization for an extended period of time relative to net book value; and

● expectations that a reporting unit will be sold or otherwise disposed.

The annual goodwill impairment test consists of a two-step process as follows:

Step 1. The Company compares the fair value of each reporting unit to its carrying amount, including the existing goodwill. The fair value of each reporting unit is determined using a discounted cash flow valuation analysis. The carrying value of each reporting unit is determined by specifically identifying and allocating the assets and liabilities to each reporting unit based on headcount, relative revenues, or other methods as deemed appropriate by management. If the carrying amount of a reporting unit exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired and the Company then performs the second step of the impairment test. If the fair value of a reporting unit exceeds its carrying amount, no further analysis is required.

Step 2. If further analysis is required, the Company compares the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and its liabilities in a manner similar to a purchase price allocation, to its carrying amount. If the carrying amount of the reporting unit’s goodwill exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess.

Impairment of Long-Lived Assets

Long-lived assets, such as furniture and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material.

During the three and six months ended June 30, 2014 and 2013, the Company did not recognize any impairment of long-lived assets.

Deferred Rent

The Company accounts for rent expense related to its operating leases by determining total minimum rent payments on the leases over their respective periods and recognizing the rent expense on a straight-line basis. The difference between the actual amount paid and the amount recorded as rent expense in each fiscal year is recorded as an adjustment to deferred rent.

F-7

Fair Value Measurements

Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The established fair value hierarchy prioritizes the use of inputs used in valuation methodologies into the following three levels:

● Level 1: Applies to assets or liabilities for which there are quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.

● Level 2: Applies to assets or liabilities for which there are significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

● Level 3: Applies to assets or liabilities for which there are significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. For example, Level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.

At June 30, 2014 and December 31, 2013, the Company did not have any financial assets or liabilities which are measured on a recurring basis. At June 30, 2014 and December 31, 2013, the Company’s financial instruments include cash and cash equivalents, restricted short-term investments, accounts receivable, accounts payable and accrued expenses, accrued payroll and related liabilities, customer deposits, and capital lease. The carrying amount of these financial instruments, except for the restricted short-term investment and capital lease, approximates fair value due to the short-term maturities of these instruments. The Company’s restricted short-term investments are carried at amortized cost which approximates fair value. Based on borrowing rates currently available to the Company, the carrying value of the capital lease approximates fair value.

Stock-Based Compensation

All stock-based payments to employees and consultants, including grants of stock options, warrants, restricted stock units (“RSUs”) and restricted stock, are recognized in the condensed consolidated financial statements based upon their fair values. The Company uses the Black-Scholes-Merton option pricing model and Monte Carlo Simulation to estimate the fair value of stock-based awards. The 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.

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows FASB guidance. As such, the value of the applicable stock-based compensation is periodically remeasured and income or expense is recognized during their vesting terms. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is primarily recognized over the term of the consulting agreement. In accordance with FASB guidance, an asset acquired in exchange for the issuance of fully vested, nonforfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company records the fair value of nonforfeitable equity instruments issued for future consulting services as prepaid stock-based consulting expenses in its consolidated balance sheets.

The Company recorded stock-based compensation (including the amortization of stock-based prepaid consulting fees) related to equity instruments granted to employees, directors and consultants as follows:

	For the		For the		For the		For the
	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Employees - selling and marketing	$	16,994	$	-	$	30,861	$	-
Employees - general and administrative		561,733		378,895		1,105,000		464,898
Employees - research and development		-		44,619		-		111,750
Directors - general and administrative		42,147		45,458		84,293		248,250
Consultants - selling and marketing		14,730		-		30,783		-
Consultants - general and administrative		18,337		345,605		86,839		505,527
Consultants - research and development		4,814		180,559		8,916		117,959
Total	$	658,755	$	995,136	$	1,346,692	$	1,448,384

During the six months ended June 30, 2014, the Company issued 6,868 shares of common stock, valued at $50,000 in connection with the resolution of a contract dispute.

F-8

Basic and Diluted Net Loss per Common Share

Basic net loss per common share is computed by dividing net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common and common equivalent shares, such as stock options and warrants outstanding during the period.

Basic and diluted net loss applicable to common stock per share is computed using the weighted average number of shares of common stock outstanding during the period. Common stock equivalents (using the treasury stock or, “if converted” method) from convertible notes, preferred stock, stock options, unvested restricted stock units (“RSUs”) and warrants were 3,419,149 and 3,138,004 at June 30, 2014 and 2013, respectively, and are excluded from the calculation of diluted net loss per share for all periods presented because the effect is anti-dilutive.

The following table shows the computation of basic and diluted net loss per share of common stock for the three and six months ended June 30, 2014 and 2013:

	For the			For the			For the			For the
	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Numerator – net loss	$	(2,595,725	)	$	(2,218,052	)	$	(4,920,888	)	$	(3,683,533	)
Denominator – weighted average number of shares of common stock outstanding, basic and diluted		9,109,842			8,890,668			9,060,496			8,342,497
Net loss per share, basic and diluted	$	(0.28	)	$	(0.25	)	$	(0.54	)	$	(0.44	)

Use of Estimates

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

Reclassifications

Certain prior period items and amounts have been reclassified to conform to the classifications used to prepare the 2014 condensed consolidated financial statements. The Company has classified certain expenses as selling and marketing whereas in prior periods certain selling and marketing expenses were included as an expense line item titled selling, general and administrative in the condensed consolidated statements of operations. These reclassifications had no material impact on the Company’s financial position, results of operations, or cash flows as previously reported.

F-9

Recently Adopted Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013, with an option for early adoption. This pronouncement is effective for reporting periods beginning on or after January 1, 2013. The adoption of ASU 2011-11 did not have a material impact on the Company’s condensed consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-10, “Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities”. The amendments in this update remove the definition of a development stage entity from ASC Topic 915, Development Stage Entities, thereby removing the distinction between development stage entities and other reporting entities from GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of operations, cash flows, and stockholder’s equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. These amendments are effective for annual reporting periods beginning after December 15, 2014, with early application of the amendments permitted. The Company’s pharmacy operations commenced on April 1, 2014. This change in the nature of the Company’s operations included the recognition of significant revenues; as a result the Company is no longer defined as a development stage company for reporting dates beginning April 1, 2014. With the change in the Company’s operations, revenue recognition and its immediate adoption of ASU No. 2014-10, the Company no longer presents or discloses any information required under ASC Topic 915.

Recently Announced Accounting Pronouncements

In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The objective of ASU 2014-19 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB ASC. The new guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016 for public companies. Early adoption is not permitted. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its consolidated financial statements.

NOTE 2. ACQUISITION – PHARMACY CREATIONS, LLC

On April 1, 2014, the Company acquired all of the outstanding membership interests of PC (the “PC Acquisition”) from J. Scott Karolchyk and Bernard Covalesky (the “Sellers”), such that PC became a wholly-owned subsidiary of the Company. The acquisition of PC permits the Company to make and distribute its patent-pending proprietary drug formulations and other pharmaceutical preparations.

The transaction has been accounted for as a business combination and the financial results of PC have been included in the Company’s condensed consolidated financial statements for the period subsequent to its acquisition.

The estimated acquisition date fair value of consideration transferred, assets acquired and liabilities assumed for PC are presented below and represent the Company’s best estimates.

F-10

Fair Value of Consideration Transferred

At the closing of the PC Acquisition, the Company paid to the Sellers an aggregate cash purchase price of $600,000. In addition, the Sellers are entitled to receive additional contingent consideration upon the satisfaction of certain conditions:

● A contingent cash payment of $50,000, payable if PC earns revenue of over $3,500,000 for the 12 month period ending March 31, 2015.

● A contingent stock payment of up to an aggregate of 215,190 shares of the Company’s common stock, issuable only if the following revenue milestones are met:

● if the Company earns revenue of over $7,500,000 during the 12 month period ending March 31, 2016, all 215,190 shares;

● if the Company earns revenue of between $3,500,000 and $7,500,000 during the 12 month period ending March 31, 2016, an aggregate of that number of shares of Imprimis common stock equal to the amount that such revenue exceeds $3,500,000 divided by 18.5882, rounded down to the lower whole number (not to exceed 215,190 shares).

Management estimates that earnout payments will be made, however, it has applied a discount rate to represent the risk of these not occurring in determining the fair value. The total acquisition date fair value of the consideration to be transferred is estimated at approximately $1.1 million, as follows:

Cash payment to sellers at closing	$	600,000
Contingent common stock issuance to the Sellers		483,156
Contingent cash consideration to the Sellers		31,466
Total acquisition date fair value	$	1,114,622

A liability was recognized for an estimate of the acquisition date fair value of the future contingent common stock and cash payments and is included in the contingent acquisition obligations in the accompanying condensed consolidated balance sheet at June 30, 2014.

Allocation of Consideration Transferred

The identifiable assets acquired and liabilities assumed were recognized and measured as of the acquisition date based on their estimated fair values as of April 1, 2014, the acquisition date. The excess of the acquisition date fair value of consideration transferred over estimated fair value of the net tangible assets and intangible assets acquired was recorded as goodwill.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.

Cash and cash equivalents	$	4,982
Accounts receivable		58,420
Prepaid expenses and other assets		30,256
Inventory		213,190
Property and equipment		44,510
Intangible assets		659,000
Total identifiable assets acquired		1,010,358
Accounts payable and accrued liabilities		120,049
Other liabilities		107,308
Total liabilities assumed		227,357
Total identifiable assets less liabilities assumed		783,001
Goodwill		331,621
Net assets acquired	$	1,114,622

F-11

The fair value adjustments made herein and the allocation of purchase price is preliminary. The final allocation will be based on estimates and appraisals that will be finalized within one year of the closing of the PC Acquisition and based on the Company’s final evaluation of PC’s assets and liabilities, including both tangible and intangible assets. The final allocation of purchase price and the resulting effect on net income loss may differ from the amounts included herein. If the Company’s final purchase price allocation differs from the allocation used in preparing these condensed consolidated financial statements, the Company’s tangible and intangible assets and net loss could be higher or lower.

Results of Operations

The amount of revenues and operating loss of PC included in the Company’s condensed consolidated statement of operations from the acquisition date through the period ended June 30, 2014 is as follows:

Total revenues	$	664,370
Operating loss	$	(423,589	)

Pro Forma Financial Information

The following table presents the Company’s unaudited pro forma results (including PC) for the three and six months ended June 30, 2014 and 2013 as though the companies had been combined as of the beginning of each of the periods presented. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of each period presented nor is it indicative of results of operations which may occur in the future. The unaudited pro forma results presented include amortization charges for intangible assets and eliminations of intercompany transactions.

	For the			For the			For the			For the
	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Total revenues	$	667,701		$	744,299		$	1,286,805		$	1,453,050
Net loss	$	(2,595,725	)	$	(2,054,878	)	$	(4,854,258	)	$	(3,374,915	)

The Company did not incur material acquisition expenses related to the PC Acquisition.

Intangible Assets

Management engaged a third-party valuation firm to assist in the determination of the fair value of the intangible assets. In determining the fair value of the intangible assets the Company considered, among other factors, the best use of acquired assets, analyses of historical financial performance and estimates of future performance of PC. The fair values of the identified intangible assets related to the customer relationships, trade name, non-competition covenant, and state pharmacy licenses. The fair value of customer relationships and non-competition covenant were calculated using the income approach. The fair value of the trade name and pharmacy licenses were calculated using the cost approach. The following table sets forth the components of identified intangible assets associated with the PC acquisition and their estimated useful lives.

	Fair Value		Useful Life
Customer relationships	$	596,000	10 -15 years
Trade Name		5,000	5 years
Non-compete covenant		50,000	4 years
Licenses		8,000	25 years
	$	659,000

The Company determined the useful lives of intangible assets based on the expected future cash flows and contractual lives associated with the respective asset. Trade names represent the fair value of the brand and name recognition associated with the marketing of PC’s formulations and services. Customer relationships represent the expected benefit from future contracts which, at the date of acquisition, were reasonably anticipated to continue given the history and operating practices of PC. Non-competition covenant clause represents the contractual period and expected degree of adverse economic impact that would exist in its absence. Licenses represent eight state pharmacy licenses PC held at the date of acquisition.

Goodwill

Of the total estimated purchase price, $331,621 was allocated to goodwill and is attributable to expected synergies between the combined companies, including access for the Company to distribute its patent-pending proprietary drug formulations through PC's market channels and the assembled workforce. Goodwill represents the excess of the purchase price of the acquired business over the fair value of the underlying net tangible and intangible assets acquired. Goodwill resulting from the PC Acquisition will be tested for impairment at least annually and more frequently if certain indicators are present. In the event the Company determines that the value of goodwill has become impaired, it will incur an accounting charge for the amount of the impairment during the fiscal quarter in which the determination is made. None of the goodwill is expected to be deductible for income tax purposes.

F-12

NOTE 3. RESTRICTED SHORT-TERM INVESTMENTS

The restricted short-term investments at June 30, 2014 and December 31, 2013 consist of certificates of deposit, which are classified as held-to-maturity. At June 30, 2014 and December 31, 2013, the restricted short-term investments was recorded at amortized cost which approximates fair value.

At June 30, 2014 and December 31, 2013, the certificates of deposit of $150,151 and $50,097, respectively, were classified as a current asset. The certificates of deposit are required as collateral under the Company’s corporate credit card agreement and additional security for office space lease, and automatically renew every twelve months.

NOTE 4. INVENTORIES

Inventories are comprised of over-the-counter (“OTC”) retail pharmacy products, commercial pharmaceutical products, related laboratory supplies and active pharmaceutical ingredients. The composition of inventories as of June 30, 2014 was as follows:

	June 30, 2014
Raw materials	$	164,127
Finished goods		8,623
Total inventories	$	172,750

NOTE 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

	June 30, 2014
	(unaudited)		December 31, 2013
Prepaid stock-based consulting expenses	$	-	$	26,649
Prepaid rent		21,875		16,288
Prepaid insurance		180,519		39,166
Other prepaid expenses and deposits		121,851		22,964
Total prepaid expenses and other current assets	$	324,245	$	105,067

NOTE 6. INTANGIBLE ASSETS AND GOODWILL

The Company’s intangible assets at June 30, 2014 consist of the following:

	Amortization
	periods			Accumulated			Net
	(in years)	Cost		amortization			Carrying value
Customer relationships	10 - 15	$	596,000	$	(9,933	)	$	586,067
Trade name	5		5,000		(250	)		4,750
Non-compete	4		50,000		(6,250	)		43,750
Licenses	25		8,000		(1,000	)		7,000
		$	659,000	$	(17,433	)	$	641,567

F-13

Amortization expenses for intangible assets for the three and six months ended June 30, 2014 was as follows:

	For the		For the
	Three Months Ended		Six Months Ended
	June 30, 2014		June 30, 2014
Customer relationships	$	250	$	250
Trade name		9,933		9,933
Non-compete		6,250		6,250
Licenses		1,000		1,000
	$	17,433	$	17,433

Estimated future amortization expense for the Company’s intangible assets as June 30, 2014 is as follows:

Years ending December 31,
Remainder of 2014	$	23,600
2015	$	53,500
2016	$	53,500
2017	$	53,500
2018	$	44,100

The changes in the carrying value of the Company’s goodwill during the six months ended June 30, 2014 were as follows:

Balance at January 1, 2014:
Goodwill	$	-
Acquisition of PC		331,621
Balance at June 30, 2014	$	331,621

NOTE 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

	June 30, 2014
	(unaudited)		December 31, 2013
Accounts payable	$	750,106	$	261,924
Other accrued expenses		-		50,000
Total accounts payable and accrued expenses	$	750,106	$	311,924

F-14

NOTE 8. DEBT

Line of Credit

PC entered into a working capital line of credit agreement with a financial institution on March 21, 2008 and subsequently renewed the agreement on September 6, 2013. The line of credit had a maturity date of September 1, 2016. The line of credit agreement allowed PC to borrow of up to $75,000 and was secured by a first security interest on all business assets. PC was required to pay regular monthly payments of all accrued unpaid interest due monthly, with interest on the line of credit calculated as the greater of one of the following: (a) the Prime Rate (as defined and published in the Wall Street Journal) plus 1.00% per annum, or (b) 4.25% per annum. The line of credit agreement was terminated following the acquisition of PC, and no amounts were borrowed, paid or outstanding during the period ended June 30, 2014 following the Company’s acquisition of PC.

NOTE 9. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Common Stock

During April 2014, the Company issued 6,868 shares of common stock, valued at $50,000, in connection with the resolution of a contract dispute.

During the six months ended June 30, 2014, the Company issued a total of 121,045 shares of common stock for gross proceeds of $446,610 for stock option exercises.

During the six months ended June 30, 2014, the Company issued 23,265 shares of common stock in connection with the exercise of common stock options to purchase 44,164 shares of common stock with exercise prices of $3.60 - $4.27 per share pursuant to cashless exercise provisions.

During the six months ended June 30, 2014, the Company issued 6,328 shares of common stock for gross proceeds of $37,493 for warrant exercises.

Preferred Stock

At June 30, 2014, the Company had 5,000,000 shares of preferred stock, $0.001 par value, authorized and no shares of preferred stock issued and outstanding.

Stock Option Plan

On September 17, 2007, the Company’s Board of Directors and stockholders adopted the Company’s 2007 Incentive Stock and Awards Plan, which was subsequently amended on November 5, 2008, February 26, 2012, July 18, 2012 , May 2, 2013 and September 27, 2013 (as amended, the “Plan”). As of June 30, 2014, the Plan provides for the issuance of a maximum of an aggregate of 5,000,000 shares of the Company’s common stock. The purpose of the Plan is to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons in the Company’s development and financial success. Under the Plan, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the Internal Revenue Code, non-qualified stock options and restricted stock. The Plan is administered by the Compensation Committee of the Company’s Board of Directors.

F-15

A summary of the Plan activity with respect to options to purchase common stock for the six months ended June 30, 2014 is as follows:

	Number of shares			Weighted Avg. Exercise Price		Weighted Avg. Remaining Contractual Life		Aggregate Intrinsic Value
Options outstanding - January 1, 2014		1,328,790		$	5.31
Options granted		225,886		$	6.60
Options exercised		(165,209	)	$	3.69
Options cancelled/forfeit		(75,000	)	$	6.30
Options outstanding - June 30, 2014		1,314,467		$	5.66		6.41	$	2,532,926
Options exercisable		795,441		$	4.99		4.67	$	2,046,478
Options vested and expected to vest		1,262,564		$	5.64		6.31	$	2,484,281

The aggregate intrinsic value in the table above represents the total pre-tax amount of the proceeds, net of exercise price, which would have been received by option holders if all option holders had exercised and immediately sold all options with an exercise price lower than the market price on June 30, 2014, based on the closing price of the Company’s common stock of $6.94 on that date. The intrinsic value of stock options exercised during the six months ended June 30, 2014 was $644,113.

During the six months ended June 30, 2014, the Company granted stock options to certain employees, directors and consultants. The stock options were granted with an exercise price equal to the current market price of the Company’s common stock, as reported by the applicable quotation system of securities exchange on which the common stock was then quoted or listed, at the grant date and have contractual terms ranging from 5 to 10 years. Vesting terms for options granted to employees, directors and consultants typically included one of the following vesting schedules: 25% or 33% of the shares subject to the option vest and become exercisable on the first anniversary of the grant date and the remaining 75% or 67%, respectively, of the shares subject to the option vest and become exercisable quarterly in equal installments thereafter over two or three years, respectively; quarterly vesting over a three year period; annual vesting over three years; or monthly, quarterly or 100% vesting associated with the provision or completion of services provided under contracts with consultants. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plan) and in the event of certain modifications to the option award agreement.

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model. Prior to April 1, 2013, expected volatilities were based on historical volatility of the Company’s common stock and other factors. Following April 1, 2013, the expected volatility is based on the historical volatilities of the common stock of comparable publicly traded companies based on the Company’s belief that it has significantly changed its business operations and focus, and as a result, it currently has limited relevant historical data regarding the volatility of its stock price on which to base a meaningful estimate of expected volatility. The expected term of options granted was determined in accordance with the “simplified approach” as the Company has limited, relevant, historical data on employee exercises and post-vesting employment termination behavior. The expected risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the 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. For option grants to employees and directors, the Company assigns a forfeiture factor of 10%. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods. Utilizing these assumptions, the fair value is determined at the date of grant.

The table below illustrates the fair value per share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted to employees:

	2014
Weighted-average fair value of options granted	$	5.16
Expected terms (in years)		5.81 - 6.91
Expected volatility		100 - 102%
Risk-free interest rate		1.37 - 1.65%
Dividend yield		-

F-16

The table below illustrates the fair value per share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted to consultants:

	2014
Weighted-average fair value of options granted	$	6.15
Expected terms (in years)		2.54 - 10
Expected volatility		80 - 97%
Risk-free interest rate		0.10 - 1.64%
Dividend yield		-

The following table summarizes information about stock options outstanding and exercisable at June 30, 2014:

	Options Outstanding						Options Exercisable
			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
	Number		Contractual		Exercise		Number		Exercise
Range of Exercise Prices	Outstanding		Life in Years		Price		Exercisable		Price
$2.40 - $3.20		250,000		5.07	$	2.80		250,000	$	2.80
$3.60 - $4.51		515,107		4.95	$	4.25		375,359	$	4.33
$5.49 - $7.71		249,225		9.28	$	6.67		35,030	$	6.02
$8.06 - $10.75		293,335		7.73	$	8.99		128,252	$	9.02
28.00 - $80.00		6,800		5.63	$	40.86		6,800	$	40.86
		1,314,467		6.41	$	5.66		795,441	$	4.99

As of June 30, 2014, there was approximately $2,684,000 of total unrecognized compensation expense related to unvested stock options granted under the Plan. That expense is expected to be recognized over the weighted-average remaining vesting period of 2.48 years. The stock-based compensation for all stock options was $318,823 and $643,117 during the three and six months ended June 30, 2014, respectively.

Restricted Stock Units

Restricted stock unit, or RSU, awards are granted subject to certain vesting requirements and other restrictions, including performance and market based vesting criteria. The grant-date fair value of the RSUs, which has been determined based upon the market value of the Company’s shares on the grant date, is expensed over the vesting period. Unvested portions of RSUs issued to consultants are remeasured on an interim basis until vesting criteria is met. On May 2, 2013, the Board of Directors of the Company amended and restated the Plan to provide for the issuance of RSUs under the Plan.

During March 2014, the Company terminated its agreement with a consultant that provided for the grant of 100,000 RSUs that had vesting criteria based on the satisfaction of certain market-based conditions subject to the consultant’s continued service, among other things. Upon termination of the agreement, all 100,000 RSUs were forfeited and deemed reconveyed to the Company.

A summary of the Company’s RSU activity and related information for the six months ended June 30, 2014 is as follows:

	Number of RSUs			Weighted Average Grant Date Fair Value
RSUs outstanding - January 1, 2014		1,389,960		$	3.19
RSUs granted		-		$	-
RSUs vested		-		$	-
RSUs cancelled/forfeited		(100,000	)	$	2.88
Balance at June 30, 2014		1,289,960		$	3.22

F-17

As of June 30, 2014, the total unrecognized compensation expense related to unvested RSUs was approximately $2,418,000 which is expected to be recognized over a weighted-average period of 1.80 years, based on estimated vesting schedules. The stock-based compensation for RSU’s during the three months and six months ended June 30, 2014 was $339,932 and $676,926, respectively.

Warrants

From time to time, the Company issues warrants to purchase shares of the Company’s common stock to investors, note holders, underwriters and to non-employees for services rendered or to be rendered in the future.

A summary of the activity of the warrants for the six months ended June 30, 2014 is as follows:

	Number of Shares Subject to Warrants Outstanding			Weighted Avg. Exercise Price
Warrants outstanding - January 1, 2014		821,050		$	5.94
Granted		-		$	-
Exercised		(6,328	)	$	5.93
Expired		-		$	-
Warrants outstanding and exercisable - June 30, 2014		814,722		$	5.94
Weighted average remaining contractual life of the outstanding warrants in years - June 30, 2014		1.70

The fair value of each warrant is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The intrinsic value of warrants exercised during the six months ended June 30, 2014 was $8,701.

A list of the warrants outstanding as of June 30, 2014 is included in the table below:

	Warrants Outstanding					Warrants Exercisable
		Warrants		Exercise		Warrants		Expiration
Warrant Series	Issue Date	Outstanding		Price		Exercisable		Date
DermaStar	4/25/2012		48,262	$	5.93		48,262	4/25/2015
April PPM	4/25/2012		496,600	$	5.93		496,600	4/25/2015
Underwriter Warrants	2/7/2013		179,860	$	5.25		179,860	2/7/2018
IR Consultant	2/28/2013		30,000	$	5.25		30,000	2/28/2016
IR Consultant	7/19/2013		60,000	$	8.50		60,000	7/19/2018
			814,722	$	5.94		814,722

The stock-based compensation for warrants was $26,649 for the six months ended June 30, 2014.

NOTE 10. EMPLOYEE SAVINGS PLAN

The Company has established an employee savings plan pursuant to Section 401(k) of the Internal Revenue Code, effective January 1, 2014. The plan allows participating employees to deposit into tax deferred investment accounts up to 100% of their salary, subject to annual limits. The Company makes contributions to the plan in an amount not less than 3% of the participants’ annual cash compensation, subject to annual limits. The Company contributed approximately $33,000 to the plan during the six months ended June 30, 2014.

F-18

NOTE 11. COMMITMENTS AND CONTINGENCIES

Capital Lease

The Company leases equipment under a capital lease with an interest rate of 4.25% per annum. At June 30, 2014, future payments under this capital lease are as follows:

Years ending December 31,
Remainder of 2014	$	3,505
2015		7,009
2016		7,009
Total minimum lease payments		17,523
Less amount representing interest		(927	)
Present value of future minimum lease payments		16,596
Less current portion		(6,428	)
Capital lease obligation, net of current portion	$	10,168

The value of the equipment under capital lease as of June 30, 2014 was $18,913, with related accumulated depreciation of $3,153.

Operating Leases

In June 2014, the Company entered into a lease agreement for 7,565 square feet of office space from September 1, 2014 to October 31, 2018, effective September 1, 2014. Monthly rent begins on September 1, 2014 in the amount of $20,426, with a 3% increase in the base rent amount on an annual basis. The lease agreement allows for the monthly rent amount to be abated for two months at various times during the lease agreement.

In April 2013, the Company entered into a lease agreement for 3,874 square feet of office space from May 1, 2013 to September 30, 2016, effective May 1, 2013. Monthly rent began on May 1, 2013 in the amount of $10,406, with a 3% increase in the base rent amount on an annual basis. The lease agreement allows for the monthly rent amount to be abated for five months at various times during the lease agreement.

Once the Company relocates to the new office space (7,565 square feet), effective September 1, 2014, the Company’s intention is to sublet the 3,874 square feet of its current offices through its remaining lease term.

In January 2010, PC entered into a lease agreement for 3,137 square feet of office and laboratory space from January 1, 2010 to December 31, 2015. Monthly rent began on January 1, 2010 in the amount of $3,594.

Legal

In the ordinary course of business, the Company may face various claims brought by third parties and the Company may, from time to time, make claims or take legal actions to assert the Company’s rights, including intellectual property rights, contractual disputes and other commercial disputes. Any of these claims could subject the Company to litigation. Management believes the outcomes of currently pending claims are not likely to have a material effect on the Company’s condensed consolidated financial position and results of operations.

Indemnities and Guarantees

In addition to the indemnification provisions contained in the Company’s charter documents, the Company generally enters into separate indemnification agreements with the Company’s directors and officers. These agreements require the Company, among other things, to indemnify the director or officer against specified expenses and liabilities, such as attorneys’ fees, judgments, fines and settlements, paid by the individual in connection with any action, suit or proceeding arising out of the individual’s status or service as the Company’s director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the individual with respect to which the individual may be entitled to indemnification by the Company. The Company also indemnifies its lessors in connection with its facility leases for certain claims arising from the use of the facilities. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying condensed consolidated balance sheets.

F-19

PCCA License Agreement

Professional Compounding Centers of America, or PCCA, has granted to the Company and its affiliates certain exclusive rights under PCCA’s proprietary formulations, other technologies and data, and the Company has 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 the Company fails to commence efforts to research and develop future products within certain time periods, as set forth in the PCCA License Agreement.

PCCA Strategic Alliance Agreement

On February 18, 2013, the Company entered into a Strategic Alliance Agreement with PCCA. Under this agreement, PCCA has agreed that during the term of the agreement, it will not introduce any of PCCA’s members or customers meeting certain criteria (the “Member/Customers”) to any third party whereby such third party licenses or otherwise acquires the intellectual property rights of such Member/Customer, without first presenting such an opportunity to the Company. PCCA may, but is not required to, present such opportunities to the Company, use reasonable efforts to facilitate an introductory meeting between the Member/Customer and the Company, and to further provide certain key technical assistance to a potential development project associated with the Member/Customer’s intellectual property rights. In the event the Company and a Member/Customer introduced to the Company by PCCA enter into a commercial agreement for the license or acquisition of the intellectual property rights owned by the Member/Customer, PCCA will be entitled to receive certain cash fees up to an aggregate of $100,000, as well as a commission based on net sales, if any, generated by the Company as a result of the acquired intellectual property rights. The agreement has a term of one year and is automatically extended for successive one year periods unless either party gives the other written notice of non-renewal. This agreement automatically renewed for a one-year term on February 18, 2014.

Asset Purchase Agreements

The Company has acquired intellectual property rights related to certain proprietary innovations from certain inventors (the “Inventors”) through multiple asset purchase agreements. The asset purchase agreements provide that the Inventors will cooperate with the Company in obtaining patent protection for the acquired intellectual property and that the Company will use commercially reasonable efforts to research, develop and commercialize a product based on the acquired intellectual property. In addition, the Company has acquired a right of first refusal on additional intellectual property and drug development opportunities presented by these Inventors.

In consideration for the acquisition of the intellectual property rights, the Company is obligated to make payments to the Inventors based on the completion of certain milestones, generally consisting of: (1) a payment payable within 30 days after the issuance of the first patent in the United States arising from the acquired intellectual property (if any); (2) a payment payable within 30 days after the Company files the first Investigational New Drug application (“IND”) with the FDA for the first product arising from the acquired intellectual property (if any); (3) for certain of the Inventors, a payment payable within 30 days after the Company files the first New Drug application with the FDA for the first product arising from the acquired intellectual property (if any); and (4) certain royalty payments based on the net receipts received by the Company in connection with the sale or licensing of any product based on the acquired intellectual property (if any), after deducting (among other things) the Company’s development costs associated with such product. If, following five years after the date of the applicable asset purchase agreement, the Company either (a) for certain of the Inventors, has not filed an IND or, for the remaining Inventors, has not initiated a study where data is derived, or (b) has failed to generate royalty payments to the Inventors for any product based on the acquired intellectual property, the Inventors may terminate the applicable asset purchase agreement and request that the Company re-assign the acquired technology to the Inventors.

F-20

Novel Drug and Eye Care Northwest Asset Purchase Agreement – Related Party

On August 8, 2013, the Company acquired intellectual property rights related to certain proprietary innovations from the compounding pharmacy operations of Novel Drug Solutions, LLC (“NDS”) and from Eye Care Northwest, Inc. (together referred to as the “Sellers”) pursuant to an Asset Purchase Agreement, as amended (the “ECN APA”). As part of this acquisition the Company has acquired intellectual property assets, including a provisional patent application related to injectable ophthalmological compositions having anti-bacterial and anti-inflammatory properties for the prevention of post-ophthalmic surgery complications. In addition, under the ECN APA, the Company has a right of first refusal on any of the Sellers’ additional intellectual property and drug development opportunities. The ECN APA provides that the Sellers will cooperate with us in obtaining patent protection for the acquired intellectual property, among other things, and that we will use commercially reasonable efforts to research, develop and commercialize a product based on the acquired intellectual property.

In consideration for the acquisition, the Company is obligated to make the following payments to NDS: (1) one payment payable within 30 days after the issuance of the first patent in the United States arising from the acquired intellectual property (if any); (2) one payment payable within 30 days after the Company files the first IND with the FDA for the first product arising from the acquired intellectual property (if any); (3) one payment payable within 30 days after the Company files the first New Drug application with the FDA for the first product; and (4) certain royalty payments based on the net receipts received by the Company in connection with the sale or licensing of any product based on the acquired intellectual property (if any), after deducting (among other things) the Company’s development costs associated with such product. If following five years of the date of the ECN APA the Company either has not filed an IND or has failed to generate royalty payments to NDS for any product based on the acquired intellectual property, NDS may terminate the ECN APA and request that the Company re-assign the acquired technology to NDS.

NDS is owned by the former owners of PC and other full-time employees of the Company. During the six months ended June 30, 2014 the Company did not make any payments to NDS, and no amounts are due and payable to NDS at June 30, 2014.

NOTE 12. SEGMENT INFORMATION

The Company operates the business on the basis of a single reportable segment, which is the business of providing sterile and non-sterile pharmaceutical compounding services. The Company’s chief operating decision-maker is the Chief Executive Officer, who evaluates the Company as a single operating segment.

The Company categorizes revenues by geographic area based on selling location. All operations are currently located in the United States; therefore, total revenues for 2014 and 2013 are attributed to the United States. All long-lived assets at June 30, 2014 are located in the United States.

The Company sells its compounded formulations to a large number of customers. Less than 10% of the Company’s total pharmacy sales were derived from a single customer for the three and six months ended June 30, 2014.

The Company receives its active pharmaceutical ingredients from three main suppliers. These suppliers accounted for 90% of drug and chemical purchases during the three and six months ended June 30, 2014.

NOTE 13. SUBSEQUENT EVENTS

The Company has performed an evaluation of events occurring subsequent to June 30, 2014 through the filing date of this Quarterly Report. Based on our evaluation, nothing other than the events described below need to be disclosed.

From July 1, 2014 through the filing date of this Quarterly Report, the Company issued a total of 2,506 shares of common stock for gross proceeds of $9,619 for stock option exercises.

F-21

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and the related notes thereto contained in Part I, Item 1 of this Quarterly Report. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in our other reports filed with the U.S. Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and subsequent reports on Form 8-K, which discuss our business in greater detail. Unless the context indicates otherwise, the “Company”, “we”, “us”, and “our” in this Item 2 and elsewhere in this report refer to Imprimis Pharmaceuticals, Inc., a Delaware corporation and its subsidiary.

The following discussion contains forward-looking statements regarding future events and our future performance. In some cases, you can identify forward-looking statements by terminology such as “will”, “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 Quarterly Report other than statements of historical fact could be deemed forward-looking statements. These forward-looking statements involve risk and uncertainties that could cause actual results to differ materially from those expected or projected. Such statements reflect our current views with respect to future events. There are a number of important factors that could cause actual results or events to differ materially from those disclosed in the expressed or implied forward-looking statements we make. 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. 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 make commercially available our compounded formulations in a timely manner or at all; our ability to successfully implement our business plan, develop and commercialize our proprietary formulations, identify and acquire additional proprietary formulations, manage our pharmacy operations, obtain financing necessary to operate our business recruit and retain qualified personnel, manage any growth we may experience and successfully complete and realize the benefits of Pharmacy Creations, LLC (“Pharmacy Creations”) and any other acquisitions and collaborative arrangements we enter into; competition from pharmaceutical companies, outsourcing facilities and pharmacies; general economic and business conditions; regulatory and legal risks and uncertainties related to our pharmacy operations and the pharmacy and pharmaceutical business; physician interest in and market acceptance of our current and any future formulations and compounding pharmacies generally; our limited operating history; and the other risks and uncertainties described under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report and in similar discussions in our other SEC filings. Except as required by law, we undertake no obligation to revise or publicly update any forward-looking statement for any reason. Readers should not rely on any of our forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report.

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 vertically-integrated specialty pharmaceutical company focused on the development and commercialization of innovative proprietary sterile and topical drug formulations. We own proprietary formulations in ophthalmology, urology and wound management that we believe may offer competitive advantages over commercially available formulations or which serve substantially unmet needs in the marketplace. Although we hope to market and sell each of our proprietary drug formulations, we are currently focused on developing our proprietary ophthalmology formulation business. We also sell non-proprietary sterile and topical drug formulations. We fulfill prescription orders for our drug formulations through Pharmacy Creations, our New Jersey-based pharmacy, which is licensed to distribute our drug formulations in 32 states. We are in the process of expanding our prescription fulfillment and distribution capabilities with the goal of owning or otherwise having access to multiple facilities licensed in each of the 50 states in the United States. All of our proprietary drug formulations are born from the clinical experience of a network of inventors, including physician prescribers and pharmacist formulators, who prescribe and make customized medicines for individual patient needs. Working collaboratively with these inventors, we identify and evaluate intellectual property related to these drug formulations, assess relevant markets, and seek to validate the clinical experience of a development candidate outside of the inventor’s medical or pharmacy practice, with the objective of investing in commercialization activities. We believe our model allows us to meet the realities of the current health care economy by offering quality pharmaceutical innovation at accessible prices.

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Historically, our business focused on developing, obtaining U.S. Food and Drug Administration (the “FDA”) market approval for, and commercializing our topical pain management product candidate, Impracor™. After considering the totality of circumstances surrounding the development of and clinical trial requirements for Impracor, including certain manufacturing and formulation issues that we previously reported, in November 2013, we announced our discontinuation of the planned Phase 3 clinical trial for Impracor. During our 2013 fiscal year, we began re-focusing our business plan away from the development of Impracor and toward our current formulation and technology development and compounding pharmacy business model.

We have incurred recurring operating losses, and have had negative operating cash flows since July 24, 1998 (inception). In addition, we have an accumulated deficit of approximately $36.7 million at June 30, 2014. Beginning on April 1, 2014 we began generating revenue from certain of our proprietary drug formulations and other pharmacy formulations; however we expect to incur further losses as we integrate and develop our new pharmacy operations, evaluate other programs and continue the clinical development of our formulations. 

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-Q and the accompanying unaudited condensed consolidated financial statements for the periods presented have been retroactively adjusted to reflect the effects of those reverse stock splits.

Plan of Operations

Our operating plan for the next twelve months is focused on the development and commercialization of our proprietary ophthalmic formulations, furthering our compounding pharmacy operations and the continued assessment of our non-ophthalmic formulations. We have begun selling our ophthalmic formulations and have been building upon on pre-commercialization efforts related to these formulations and selling our ophthalmic formulations through our wholly-owned subsidiary. Outside of our ophthalmology business, physicians are conducting investigator-initiated studies of our injectable pentoxifylline proprietary formulation. We expect to provide grant support for additional investigator-initiated studies for this formulation within the next twelve months. We are also reviewing clinical development opportunities related to our wound management intellectual property.

We expect to continue to develop ownership of or access to a network of compounding pharmacies and potentially, outsourcing facilities registered with the FDA under section 503B of the Federal Food, Drug and Cosmetic Act (the “FDCA”), to not only formulate and distribute our proprietary compounded formulations, but also other non-proprietary compounded formulations within our therapeutic areas of interest (ophthalmology, wound management and urology). As we describe in more detail below, on April 1, 2014, we acquired Pharmacy Creations, LLC, a New Jersey-based compounding pharmacy.

Initially, we expect to focus our efforts on our commercial opportunities in the U.S. However, we believe our proprietary drug formulations could have commercial appeal in other markets. In the future, we may choose to pursue commercialization of our proprietary formulations in selected international markets through licensing or collaborative arrangements with strategic partners.

Recent Developments

Pharmacy Creations Acquisition

On April 1, 2014, we acquired all of the outstanding membership interests of Pharmacy Creations from J. Scott Karolchyk and Bernard Covalesky (the “Sellers”, and such transaction, the “PC Acquisition”).

At the closing of the PC Acquisition, we paid to the Sellers an aggregate cash purchase price of $600,000. In addition, the Sellers are entitled to receive additional contingent consideration upon the satisfaction of certain conditions:

● A contingent cash payment of $50,000, payable if Pharmacy Creations earns revenue of over $3,500,000 for the 12 month period ending March 31, 2015.

● A contingent stock payment of up to an aggregate of 215,190 shares of our common stock, issuable only if the following revenue milestones are met:

● if Pharmacy Creations earns revenue of over $7,500,000 during the 12 month period ending March 31, 2016, all 215,190 shares;

● if Pharmacy Creations earns revenue of between $3,500,000 and $7,500,000 during the 12 month period ending March 31, 2016, an aggregate of that number of shares of our common stock equal to the amount that such revenue exceeds $3,500,000 divided by 18.5882, rounded down to the lower whole number (not to exceed 215,190 shares).

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Quality Assurance Improvements

Immediately, following our acquisition of Pharmacy Creations on April 1, 2014, we began implementing new internal quality assurance standards and best practice policies that we believe may exceed those required under the U.S. Pharmacopeia ("USP") and state pharmacy laws in certain important respects. These standards and policies include, among other things, the engagement of a third party quality assurance and quality control consultant to perform quarterly inspections of our pharmacy operations, including assessing compliance with USP and state board of pharmacy standards and environmental monitoring. We also implemented a policy to validate that formulations produced at Pharmacy Creations satisfy USP guidelines and specifications prior to shipment to patients and physicians through testing at a third party FDA registered laboratory. We limited the sales of certain pharmacy products and formulations during the month of July 2014 while fully implementing these practices, and we have incurred and expect to incur future expenses related to establishing and complying with our quality assurance standards and other best practices.

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 and Monte Carlo Simulation 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 the Financial Accounting Standards Board (the “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.

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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.

Intellectual Property. The costs of acquiring intellectual property rights to be used in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where we have not identified an alternative future use for the acquired rights, and are capitalized in situations where it has identified an alternative future use. No costs associated with acquiring intellectual property rights have been capitalized to date. Costs of maintaining intellectual property rights are expensed as incurred.

Impairment of Long-Lived Assets. Long-lived assets, such as furniture, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material.

Business Combinations. The Company accounts for business combinations by recognizing the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair values on the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, especially at acquisition date with respect to intangible assets, estimated contingent consideration payments and pre-acquisition contingencies. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:

● future expected cash flows from product sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies and patents; and

● discount rates utilized in valuation estimates.

Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, such as changes in our estimate of the revenue targets, will be recognized in earnings in the period of the estimated fair value change. A change in fair value of the acquisition-related contingent consideration could have a material effect on the consolidated statements of operations, financial position and cash flows in the period of the change in estimate.

Goodwill and Intangible Assets. The Company reviews its goodwill and indefinite-lived intangible assets for impairment as of January 1 of each year or when an event or a change in circumstances indicates the fair value of a reporting unit may be below its carrying amount. Events or changes in circumstances considered as impairment indicators include but are not limited to the following:

● significant underperformance of the Company’s business relative to expected operating results;

● significant adverse economic and industry trends;

● significant decline in the Company’s market capitalization for an extended period of time relative to net book value; and

● expectations that a unit will be sold or otherwise disposed.

The annual goodwill impairment test consists of a two-step process as follows:

Step 1. The Company compares the fair value of each reporting unit to its carrying amount, including the existing goodwill. The fair value of each reporting unit is determined using a discounted cash flow valuation analysis. The carrying value of each reporting unit is determined by specifically identifying and allocating the assets and liabilities to each reporting unit based on headcount, relative revenues, or other methods as deemed appropriate by management. If the carrying amount of a reporting unit exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired and the Company then performs the second step of the impairment test. If the fair value of a reporting unit exceeds its carrying amount, no further analysis is required.

Step 2. If further analysis is required, the Company compares the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and its liabilities in a manner similar to a purchase price allocation, to its carrying amount. If the carrying amount of the reporting unit’s goodwill exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess.

Results of Operations

The following period to period comparisons of our financial results are not necessarily indicative of future results. In particular, much of our operational expenses during the periods covered by the following comparisons were incurred in connection with our development program for Impracor, which we have discontinued and do not expect to resume. As a result, our results of operations in the periods after those covered by the following comparisons, including aggregate revenue and expense amounts and the apportionment of expenses among categories, is expected to change. Our pharmacy operations activities commenced on April 1, 2014, and this change in the nature of our operations is expected to have a significant impact on our financial results in the future. In addition, as a result of this transaction and, any additional pharmacy acquisitions or other such transactions we may pursue, we may experience infrequent or one-time expenditures in connection with effecting those transactions.

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The following period to period comparisons of our financial results and our interim results are not necessarily indicative of future results.

For the Three and Six months ended June 30, 2014, Compared to the Three and Six months ended June 30, 2013

Revenues

The table below provides information regarding our revenues.

	Three months ended						Six months ended
	June 30,						June 30,
	2014		2013		Variance		2014		2013		Variance
Pharmacy sales	$	664,370	$	-	$	664,370	$	664,370	$	-	$	664,370
License revenues		3,331		2,500		831		4,741		5,000		(259	)
Total revenues	$	667,701	$	2,500	$	665,201	$	669,111	$	5,000	$	664,111

Following the acquisition of Pharmacy Creations on April 1, 2014, we began recognizing revenues from sale of our proprietary ophthalmic formulations, and other pharmacy products and formulations.

Cost of Pharmacy Sales

Our cost of pharmacy sales includes direct and indirect costs to manufacture formulations and product sold, including active pharmaceutical ingredients, personnel costs, packaging, storage, royalties, shipping and handling costs and the write-off of obsolete inventory.

The table below provides information regarding our cost of pharmacy sales.

Three months ended						Six months ended
June 30,						June 30,
2014		2013		Variance		2014		2013		Variance
$	476,549	$	-	$	476,549	$	476,549	$	-	$	476,549

Following the acquisition of Pharmacy Creations on April 1, 2014, we began selling of our proprietary ophthalmic formulations, and other pharmacy products and formulations and recognizing their associated cost of sales.

Selling and Marketing Expenses

Our selling and marketing expenses are related to the marketing activities and selling of our proprietary ophthalmic formulations and other pharmacy formulations, which include associated personnel costs including wages and stock-based compensation.

The table below provides information regarding selling and marketing expenses.

Three months ended						Six months ended
June 30,						June 30,
2014		2013		Variance		2014		2013		Variance
$	469,188	$	-	$	469,188	$	825,896	$	-	$	825,896

General and Administrative Expenses

Our general and administrative expenses include personnel costs including wages and stock-based compensation, corporate facility expenses, investor relations, consulting, insurance, filing fees, legal and accounting expenses.

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The table below provides information regarding general and administrative expenses.

Three months ended						Six months ended
June 30,						June 30,
2014		2013		Variance		2014		2013		Variance
$	2,289,233	$	1,556,145	$	733,088	$	4,209,255	$	2,576,094	$	1,633,161

For the three and six months ended June 30, 2014, there was an increase of $733,088, and $1,633,161 in general and administrative expenses, respectively, as compared to the same periods in the prior year. During the three and six months ended June 30, 2014 as compared to the same periods in the prior year, the increase in general and administrative expenses is largely attributable to additional expenses related to the acquisition of Pharmacy Creations and the general increase of our operations, including hiring additional personnel, licenses, professional fees and other related activities.

Research and Development Expenses

Our research and development expenses primarily include expenses related to the development of acquired intellectual property and our Impracor clinical program (for the prior year periods only), including costs for our contract research organization. Also included are personnel costs including wages and stock-based compensation, contract manufacturing, consulting and other costs related to the Impracor clinical program, and other costs related to the clinical development of our other assets.

The table below provides information regarding research and development expenses.

Three months ended							Six months ended
June 30,							June 30,
2014		2013		Variance			2014		2013		Variance
$	35,571	$	677,347	$	(641,776	)	$	95,723	$	1,132,447	$	(1,036,724	)

For the three and six months ended June 30, 2014, there was a decrease of $641,776 and $1,036,724, respectively, in research and development expense as compared to the same periods in the prior year. The decrease was primarily related to the termination of our Impracor clinical program in November 2013, which represented substantially all of our research and development expenses incurred in 2013. Research and development expenses in 2014 are related to patent and other development expenses associated with our other intellectual property assets.

Interest Income

Interest income was $8,680 and $18,989 for the three and six months ended June 30, 2014, compared to $12,940 and $20,008 for the same periods in the prior year, respectively. The decrease was due to a lower average cash balance during the three and six months ended June 30, 2014 as compared to the same period in the prior year.

Net Loss

Net loss for the three and six months ended June 30, 2014 was $(2,595,725) and $(4,920,888), or $(0.28) and $(0.54), basic and diluted net loss per share, respectively, compared to a net loss for same periods in the prior year of $(2,218,052) and $(3,683,533), or $(0.25) and $(0.44), basic and diluted net loss per share, respectively.

Liquidity and Capital Resources

Our cash on hand at June 30, 2014 was $12,101,796 as compared to $17,970,320 at June 30, 2013. The decrease in cash on hand is primarily attributable to use of cash to support our operations and acquire Pharmacy Creations. Since inception through June 30, 2014, we have incurred aggregate losses to common stockholders of approximately $(36,700,000). 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 former drug candidate, Impracor, which activities we have now discontinued. Historically, our operations have been financed through capital contributions and debt and equity financings.

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Net Cash Flow

The following table provides detailed information about our net cash flows for the six months ended June 30, 2014 and 2013:

	For the Six			For the Six
	Months Ended			Months Ended
Cash Flow	June 30, 2014			June 30, 2013
Net cash used in operating activities	$	(3,208,901	)	$	(2,062,763	)
Net cash used in investing activities		(751,150	)		(55,172	)
Net cash provided by financing activities		482,538			10,052,640
Net change in cash and cash equivalents		(3,477,513	)		7,934,705
Cash and cash equivalents at beginning of the period		15,579,309			10,035,615
Cash and cash equivalents at end of the period	$	12,101,796		$	17,970,320

Operating Activities

Net cash used in operating activities was $(3,208,901) for the six months ended June 30, 2014, as compared to $(2,062,763) used in operating activities during the same period for the prior year. The increase in net cash used in operating activities was mainly due to expanding our operations, including hiring additional personnel, commercialization and marketing activities related to our ophthalmic formulations, and other related activities.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2014 and 2013 was $(751,150) and $(55,172), respectively. The increase in cash used in investing activities during the six months ended June 30, 2014 was primarily related to the purchase of Pharmacy Creations.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2014 and 2013 was $482,538 and $10,052,640, respectively. The cash provided by financing activities during the six months ended June 30, 2014 is primarily attributable to proceeds received from the exercise of stock options and warrants. The cash provided by financing activities during the six months ended June 30, 2013 is primarily attributable to aggregate proceeds received in February and March 2013 from the public offering and over-allotment exercise. We incurred offering costs of $596,281 in fiscal 2012 in connection with our public offering in February 2013, which were offset against the proceeds received in fiscal 2013.

We expect to use our current cash position to pursue our business plan, including the development and commercialization of our current formulations and technologies and the integration and development of our pharmacy operations, to pursue potential future strategic transactions, including potential pharmacy and outsourcing facilities acquisitions, and to otherwise fund our operations. If we are not able to attain profitable operations, we will need to seek additional financing, which could include equity or debt financing, funding from a corporate partnership or licensing arrangement or any similar financing transaction. In addition, estimates of our operating expenses and working capital requirements could be inaccurate, and we could be required to seek additional financing earlier than we anticipate.

We expect to require additional funds in order to pursue the acquisition of additional compounding pharmacies or outsourcing facilities, commercialize our compounded drug formulations, integrate and operate any acquired pharmacies or outsourcing facilities, conduct any clinical trials and any other studies that may be required to obtain FDA regulatory approval to market any potential product candidates, pursue additional development programs and explore other development opportunities. If adequate financing is not available, we may not be able to pursue some or all of those activities.

Any future financings through equity investments may 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, or superior voting rights over our common stock, and may also include the issuance of warrants or other derivative securities, which may have additional dilutive effects on our existing stockholders. In addition, if we raise additional funds through collaboration or licensing arrangements, we may be required to relinquish potentially valuable rights to our product candidates or proprietary technologies or formulations, 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 would adversely impact our financial results.

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We may be unable to obtain financing when necessary as a result of, among other things, general economic conditions and conditions in the pharmaceuticals and pharmacy industries, 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 to us of future financings. As a result, sufficient funds may not be available when needed from any source or, if available, such funds may not 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 pursue any or all elements of our business plan and we may be required to cease operations.

As of the date of this Quarterly Report, we believe that cash and cash equivalents and restricted investments of approximately $12.3 million at June 30, 2014, together with funds expected to be generated from pharmacy operations, will be sufficient to sustain our planned level of operations for at least the next 12 months. However, our plans for that period may change, or changed circumstances may result in the depletion of capital resources more rapidly than anticipated.

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

In July 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013, with an option for early adoption. This pronouncement is effective for reporting periods beginning on or after January 1, 2013. The adoption of ASU 2011-11 did not have a material impact on the Company’s condensed consolidated financial statements.

In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The objective of ASU 2014-19 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. The new guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016 for public companies. Early adoption is not permitted. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial statements.

In June 2014, the FASB issued ASU No. 2014-10, “Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities”. The amendments in this update remove the definition of a development stage entity from ASC Topic 915, Development Stage Entities, thereby removing the distinction between development stage entities and other reporting entities from GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of operations, cash flows, and stockholder’s equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. These amendments are effective for annual reporting periods beginning after December 15, 2014, with early application of the amendments permitted. The Company’s pharmacy operations commenced on April 1, 2014. This change in the nature of the Company’s operations included the recognition of significant revenues; as a result the Company is no longer defined as a development stage company for reporting dates beginning April 1, 2014. With the change in the Company’s operations, revenue recognition and its immediate adoption of ASU No. 2014-10, the Company no longer presents or discloses any information required under ASC Topic 915.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest rate sensitivity

We are exposed to market risks related to changes in interest rates. The primary objective of our investments in securities is to preserve principal. We do not purchase financial instruments for trading purposes. Our investment portfolio consists primarily of cash invested in money market funds. We classify our short-term restricted investments, which are certificates of deposit as of June 30, 2014 as held-to-maturity. These held-to-maturity investments are subject to interest rate risk. Based on our current low yield, any decrease in interest rates is not likely to have a material effect on interest income.

As of June 30, 2014, approximately $11.1 million of our cash and cash equivalents was maintained in money market funds. At times, deposits held with the financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation (“FDIC”), which provides deposit coverage with limits up to $250,000 per owner. At June 30, 2014, such uninsured deposits totaled approximately $11.8 million. Generally, these deposits may be redeemed upon demand and, therefore, are believed to bear minimal risk.

Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents. However, we seek to mitigate the risk related to cash and cash equivalents by placing our cash and cash equivalents in money market funds and at financial institutions of high credit standing.

Item 4. Controls and Procedures.

Evaluation of 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 June 30, 2014. 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 June 30, 2014, the end of the period covered by this report.

Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during our quarter ended June 30, 2014, that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

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PART II

 OTHER INFORMATION

Item 1. Legal Proceedings

We are not aware of any pending legal proceedings to which we are a party or of which any of our property is subject the adverse outcome of which, individually or in the aggregate, likely to have a material adverse effect on our financial position or results of operations.

Item 1A. Risk Factors

We have incurred losses in every year of our operations, and we may never generate revenue or become profitable.

We have incurred losses in every year of our operations, including net losses of $(7,643,124) and $(5,383,535) for the years ended December 31, 2013 and 2012, respectively. As of June 30, 2014, our accumulated deficit was $(36,668,280). 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 December 8, 2011, the Bankruptcy Court entered an order dismissing the Chapter 11 Case following our entry into a line of credit agreement and securities purchase agreement with DermaStar International, LLC. Since the dismissal of the Chapter 11 Case we have focused on resuming our operations and developing and implementing our business plan. We expect to incur increasing operating losses for the foreseeable future as we continue to incur costs for commercialization activities and research and development. Our ability to generate revenue and achieve profitability depends upon our ability, alone or with others, to complete the development and commercialization of our proprietary compounded formulations, successfully operate Pharmacy Creations, comply with federal and state laws related to pharmaceutical compounding and, if applicable, FDA regulations for any formulations for which we pursue FDA approval, and prepare, market and sell our proprietary formulations. These activities are costly and may require significant investment.

Although we have been generating revenue from our pharmacy operations following the closing of our acquisition of Pharmacy Creations on April 1, 2014, our ability to generate significant revenues from any of our proprietary and other non-proprietary formulations will continue to depend on a number of factors, including our ability to satisfy applicable regulatory requirements, identify appropriate commercialization strategies, interest physicians and health care organizations in our formulations, establish a network of pharmacies with a broad geographic footprint, enter into arrangements with third parties, and market and sell any of our proprietary formulations. Our ultimate success will depend on many factors, including factors outside of our control. We may never successfully commercialize or achieve and sustain market acceptance of any of our proprietary formulations, our pharmacy operations may not generate sufficient revenue to support our business, and we may never reach the level of sales and revenues necessary to achieve and sustain profitability.

Currently, we expect to sell certain of our proprietary formulations primarily through compounding pharmacies and we may not be successful in our efforts to establish such a network or integrate these businesses into our operations.

A key aspect of our business strategy is to establish a compounding pharmacy network, whether through acquisitions, establishing new pharmacies or entering into licensing arrangements with other pharmacies, through which we can market and sell our proprietary formulations. On April 1, 2014, we completed the acquisition of Pharmacy Creations, LLC, a New Jersey-based compounding pharmacy. We have limited experience operating compounding pharmacies and commercializing our formulations through ownership of or licensing arrangements with compounding pharmacies. We expect to expand our operations and personnel in the pharmacy operations area in order to obtain additional expertise. However, we may be unable to do so successfully. We may experience unanticipated difficulties implementing our strategy, including difficulties that arise as a result of our lack of experience in this area. We may not be successful in our efforts to integrate Pharmacy Creations or acquire any additional pharmacy businesses or outsourcing facilities on reasonable terms or at all. Our business could suffer if we are unable to acquire or collaborate with one or more pharmacies that are licensed to operate as pharmacies in states important to our business plan. Even if we are successful, we may be unable to generate sufficient revenue to recover our costs.

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We have no experience acquiring, building, operating or licensing products to pharmacies and outsourcing facilities and we may not be successful in our efforts to build a pharmacy network. Even if we are successful in acquiring pharmacies, we may not be able to integrate pharmacy operations, including the operations of Pharmacy Creations, into our business or realize the benefits we expect from any such acquisition. If we elect to establish new pharmacies and outsourcing facilities, we may not be able to satisfy applicable federal and state licensing and other requirements in a timely manner or at all, or achieve a sufficient physician and patient customer base to sustain operations. If we elect to license our proprietary formulations to one or more unaffiliated pharmacies or outsourcing facilities, we may not be able to enter into licensing agreements on acceptable terms or at all. Acquiring, integrating, building or establishing licensing or other relationships with pharmacies and outsourcing facilities could be expensive and time consuming, disrupt our other operations, require significant capital expenditures and distract management and our other employees from other aspects of our business.

We are dependent on market acceptance of compounding pharmacies and compounded formulations, and physicians may be unwilling to prescribe our proprietary customizable compounded formulations.

We currently expect to distribute our proprietary formulations through compounding pharmacies. Formulations prepared and dispensed by compounding pharmacies contain FDA-approved ingredients, but are not themselves approved by the FDA. As a result, these formulations have not undergone the FDA approval process and only limited data, if any, may be available with respect to the safety and efficiency of our formulations for any particular indication. Some physicians may be hesitant to prescribe, and some patients may be hesitant to purchase and use, these non-FDA approved compounded formulations. In addition, certain compounding pharmacies have been the subject of widespread negative media coverage in recent years, and the actions of these pharmacies have resulted in increased scrutiny of compounding pharmacy activities from FDA and state governmental agencies. As a result, physicians may be unwilling to prescribe a compounded formulation when an FDA-approved alternative is available, even if they believed the compounded formulation to be superior and less expensive. Other reasons physicians may be unwilling to prescribe our proprietary customizable compounded formulations could include the following, among others: our proprietary formulations and other formulations that may be prepared by Pharmacy Creations or other pharmacy partners are not required to be, and have not been, approved for marketing and sale by the FDA; there may be limited or no data available with respect to the clinical efficacy or safety of the specific compounded formulations the physician is prescribing; to the extent there is such data available, we are limited in our ability to discuss the effectiveness or safety of our formulations with potential purchasers of our formulations; our pharmacy operations are currently operating on a cash-pay basis; and our formulations are not presently being prepared in a manufacturing facility governed by cGMP requirements.

Additionally, some third party payors, including the government Medicare and Medicaid programs, may not provide reimbursement for compounded formulations. Physicians who may otherwise be interested in prescribing our formulations or utilizing our compounding pharmacy services may be unwilling to do so if third party payor reimbursement, including Medicare reimbursement, is not available for our compounded formulations. Any failure by physicians, patients and/or third party payors to accept and embrace compounded formulations could substantially limit our market and cause our operations to suffer.

We may not receive significant revenue through Pharmacy Creations, or arrangements with other compounding pharmacies, to fund our operations and recover our development costs.

Our business plan with respect to certain of our formulations involves the sale of our proprietary formulations through a network of compounding pharmacies and outsourcing facilities, whether through the acquisition of pharmacies such as Pharmacy Creations, or through licensing our formulations to pharmacies or outsourcing facilities. We are in the processing of establishing an internal sales force to pursue sales of our proprietary and other formulations in the states in which Pharmacy Creations is authorized to operate under federal and state pharmacy laws. We are also pursuing additional strategic transactions to broaden our geographic reach. Our company has limited experience operating pharmacies and commercializing compounded formulations. We may be unable to successfully manage this business or generate sufficient revenue to recover our development costs and operational expenses.

We may have only limited success in marketing and selling our proprietary formulations through any network of compounding pharmacies we may develop. Because any of our formulations being commercialized through a compounding pharmacy distribution model will not have gone through the FDA approval process, only limited data will be available, if any, with respect to the safety and efficacy of our formulations for any particular indication. As a result, physicians may not be interested in prescribing our formulations to their patients, and we may not generate significant revenue from our proprietary formulations and other products available through Pharmacy Creations. In addition, we would be substantially dependent on Pharmacy Creations, or any other pharmacy partners we may contract with, to compound and sell our formulations in sufficient volumes to accommodate the number of prescriptions they receive. We may be unable to enter into agreements with pharmacies of sufficient size, reputation and quality to implement our business plan, and our pharmacy partners may be unable to compound our formulations successfully. If physicians and healthcare organizations were to request our formulations in quantities our pharmacy partners are unable to fill, our business would suffer.

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Our business is significantly impacted by state and federal statutes and regulations.

All of our proprietary formulations are comprised of active pharmaceutical ingredients (APIs) that are components of drugs that have received marketing approval from the FDA, although our proprietary formulations have not themselves received FDA approval. FDA approval of a compounded formulation is not required in order to market and sell the compounded formulations, although in select instances we may choose to pursue FDA approval to market and sell certain potential product candidates. The marketing and sale of compounded formulations is subject to and must comply with extensive state and federal statutes and regulations governing compounding pharmacies. These statutes and regulations include, among other things, restrictions on compounding in advance of receiving a patient-specific prescription, compounding drugs that are essentially copies of FDA-approved drugs, prohibitions on compounding drug products for office use without a prescription for an individually identified patient, limitations on the volume of compounded formulations that may be sold across state lines, and prohibitions on wholesaling or reselling, among other things. These and other restrictions on the activities of compounding pharmacies may significantly limit the extent of the market available to us, as compared to the market available for FDA-approved drugs.

Our business is impacted by federal and state laws and regulations governing, among other things: the purchase, distribution, management, compounding, dispensing, reimbursement, marketing and labeling of prescription drugs and related services; FDA and/or state regulation affecting the pharmacy and pharmaceutical industries; rules and regulations issued pursuant to HIPAA and other state and federal laws related to the use, disclosure and transmission of health information; state and federal controlled substance laws; state pharmacy licensure, registration or permit standards promulgated by the applicable state’s pharmacy licensing authority; and statutes and regulations related to FDA approval for the sale and marketing of new drugs and medical devices. Our business could be affected by changes in these or any newly enacted laws and regulations, as well as federal and state agency interpretations of such statutes and regulations. Such statutory or regulatory changes could require that we make changes to our business model and operations.

The failure to comply with federal and state law and licensing requirements by any pharmacies we establish or acquire, or to whom we license our formulations, could result in complaints or adverse actions by respective state boards of pharmacy, FDA inspection of the facility to comply with FDCA, loss of FDCA exemptions provided under Section 503A, Warning Letters, injunctions or prosecution. Untimely compliance or noncompliance with applicable laws and regulations could adversely affect our business, including loss of required government certifications and approvals, loss of licensure and a limited ability to market and sell our proprietary formulations.

If Pharmacy Creations or any other pharmacy we acquire or partner with fails to comply with state statutes and regulations, the pharmacy could be required to cease operations or become subject to restrictions that could adversely affect our business.

State pharmacy laws require pharmacy locations in those states be licensed as an in-state pharmacy to dispense pharmaceuticals. In addition, state controlled substance laws require registration and compliance with state pharmacy licensure, registration or permit standards promulgated by the state’s pharmacy licensing authority. Pharmacy and controlled substances laws often address the qualification of an applicant’s personnel, the adequacy of its prescription fulfillment and inventory control practices and the adequacy of its facilities. If Pharmacy Creations or any other pharmacy we may acquire or partner with is found not to comply with state pharmacy and controlled substance laws and regulations, the pharmacy could be required to cease operations or become subject to burdensome restrictions and limitations on its business. For example, on May 14, 2014, Pharmacy Creations entered into a voluntary interim consent order with the Office of the Attorney General of the State of New Jersey and New Jersey State Board of Pharmacy (the “Board”) related to its sterile compounding activities, pursuant to which Pharmacy Creations has agreed to, conduct four additional mandatory third party inspections through August 2015. The consent order is not a disciplinary action or sanction or an admission of liability on the part of the pharmacy. We believe that Pharmacy Creations is in material compliance with applicable regulatory requirements. However, if Pharmacy Creations is required to permanently or temporarily cease or limit its sterile compounding operations, we would be unable to realize the expected benefits of this transaction. Although we ultimately expect to distribute our proprietary formulations through a network of compounding pharmacies, and not solely through Pharmacy Creations, the loss of Pharmacy Creation’s ability to compound sterile formulations would have an immediate adverse impact on our ability to implement our business plan in a timely manner.

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Many of the states into which Pharmacy Creations delivers pharmaceuticals have laws and regulations that require out-of-state pharmacies to register with, or be licensed by, the boards of pharmacy or similar regulatory bodies in those states. These states generally permit the dispensing pharmacy to follow the laws of the state within which the dispensing pharmacy is located. However, various state pharmacy boards have enacted laws and/or adopted rules or regulations directed at restricting or prohibiting the operation of out-of-state pharmacies by, among other things, requiring compliance with all laws of the states into which the out-of-state pharmacy dispenses medications, whether or not those laws conflict with the laws of the state in which the pharmacy is located, or requiring the pharmacist-in-charge to be licensed in that state. To the extent that such laws or regulations are found to be applicable to our operations, we believe we comply with them. To the extent that any of the foregoing laws or regulations prohibit or restrict the operation of out-of-state pharmacies and are found to be applicable to us, they could have an adverse effect on our operations. If Pharmacy Creations or any other pharmacies we acquire or contract with become subject to additional licensure requirements, are unable to maintain their required licenses or if states place burdensome restrictions or limitations on pharmacies, our ability to operate in those states would be limited, which could have an adverse impact on our business.

There are many competitive risks related to the marketing and sale of our proprietary formulations and operating a compounding pharmacy business.

The pharmaceutical and pharmacy industries are highly competitive. We compete against branded drug companies, generic drug companies, outsourcing facilities and other compounding pharmacies. We expect to focus our efforts on making available innovative, proprietary compounded formulations through a network of compounding pharmacies. The drug products available through branded and generic drug companies with which our formulations compete have been approved for marketing and sale by the FDA and are required to be manufactured in facilities compliant with cGMP (current good manufacturing practices) standards. As a result, although we expect to prepare our compounded formulations in accordance with the standards provided by United States Pharmacopoeia (USP) <795> and USP <797> and applicable state and federal law, some physicians may be unwilling to prescribe them. Because our proprietary compounded formulations compounded in accordance with FDCA Section 503A are not required to be, and have not been, approved for marketing and sale by the FDA, our business may be subject to limitations our competitors with FDA-approved drugs may not face. We also compete against other compounding pharmacies that make compounded formulations available to their customers.

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. Developments by our competitors could 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 proprietary formulations will also compete with other compounded formulations created by pharmacies, which may develop alternative formulations or technologies. It is possible that developments by competing compounding pharmacies and drug developers will make our formulations or technologies uncompetitive or obsolete. The competitive environment requires an ongoing, extensive search for medical and technological innovations and the ability to develop and market these innovations effectively, and we may not be competitive with respect to these factors. Other competitive factors that may limit the market acceptance of our proprietary formulations include the timing of market entry relative to competitive products, the availability of alternative compounded formulations or approved drugs, the price of our formulations and services relative to these alternative products, the availability of third party reimbursement and the success of our sales and marketing efforts.

In addition, under state and federal laws applicable to compounding pharmacies, we are not permitted to prepare significant amounts of a specific formulation in advance of a prescription, compound quantities for office use or utilize a wholesaler for distribution of our formulations; instead, our compounded formulations must be prepared and dispensed in connection with a physician prescription for an individually identified patient. In general, pharmaceutical companies typically sell most of their products to large pharmaceutical wholesalers, who in turn sell to and supply hospitals and retail pharmacies. As a result, our business is not scalable on the scope available to our competitors with FDA-approved drugs. In addition, we are significantly smaller than our primary competitors, and we may lack the financial and other resources needed to develop, produce, distribute, market and commercialize any of our proprietary formulations or compete for market share in these sectors. If our proprietary formulations are unable to compete with the products of our competitors, we may never gain market share or achieve profitability.

If a compounded drug formulation provided through our compounding services leads to significant patient injury or death or results in a product recall, we may be exposed to significant liabilities or reputational harm.

The success of our business, including our proprietary formulations and pharmacy operations, will be highly dependent upon medical and patient perceptions of us and the safety and quality of our products. We could be adversely affected if we or any other compounding pharmacies or our formulations and technologies are subject to negative publicity. We could also be adversely affected if any of our formulations or technologies, any similar products sold by other companies, or any products sold by other compounding pharmacies prove to be, or are asserted to be, harmful to patients. Also, because of our dependence upon medical and patient perceptions, any adverse publicity associated with illness or other adverse effects resulting from the use or misuse of our products, any similar products sold by other companies or any products sold by compounding pharmacies could have a material adverse impact on our business.

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To assure compliance USP criteria and standards, we have recently implemented a policy whereby 100% of all sterile compounds produced by Pharmacy Creations will be tested both in-house and externally by an independent, FDA registered laboratory prior to shipment to patients and physicians. However, we could still become subject to product recalls and termination or suspension of our state pharmacy licenses if we fail to fully implement this policy or if the laboratory testing does not identify all contaminated products. In addition, such laboratory testing may produce false positives, which could harm our business and impact our pharmacy operations and licensure even if the impacted formulations are ultimately found to be sterile and no patients were harmed by them. If significant adverse events or deaths or a product recall, either voluntarily or by the FDA or a state board of pharmacy, were associated with one of our proprietary formulations, or any compounds prepared by Pharmacy Creations or any other pharmacy partner, we may be unable to continue to operate our pharmacy business. In addition, even if we continue to operate our pharmacy business, physicians may be unwilling to prescribe our proprietary formulations or order any prescriptions from Pharmacy Creations or any other future partner pharmacy. Although we expect that Pharmacy Creations and any future pharmacy partners will comply with high standards for manufacturing quality and quality assurance, including United States Pharmacopeia <795> and <797>, we cannot ensure that they will comply with such requirements.

We may become subject to product and professional liability lawsuits related to the preparation and sale of our compounded formulations or testing of our product candidates. An individual could bring a liability claim against us if one of our proprietary formulations or product candidates causes, or appears to have caused, an injury. If we cannot successfully defend ourselves against such claims, we may incur substantial liabilities in excess of the amount of any contractual indemnity or insurance coverage. Such claims could result in the termination or suspension of our state pharmacy licenses, decreased demand for our formulations, injury to our reputation, significant litigation costs, substantial monetary awards to or costly settlement with patients, product recalls, loss of revenue and the inability to further develop and commercialize our proprietary formulations. In addition, we could be subject to claims alleging, among other things, violations of consumer protection, trade practice and false advertising laws.

Although we have secured product and professional liability insurance that will cover our pharmacy operations and the marketing and sale of our formulations, our current or future insurance coverage may prove insufficient to cover any liability claims brought against us. Because of the increasing costs of insurance coverage, we may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise.

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.

Currently, Pharmacy Creations operates on a cash-pay basis and does not submit any claims for reimbursement through Medicare, Medicaid or other third party payors, although our customers may choose to seek available reimbursement opportunities to the extent that they exist. Although we expect to seek approval for Medicare and third party payor reimbursement for certain of our compounded formulations, we may be unsuccessful in these efforts. Many third party payors have imposed significant restrictions on reimbursement for compounded formulations in recent years. Even if we were to pursue FDA-approval for a particular product candidate, significant uncertainty exists as to the reimbursement status of newly approved health care products. 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.

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 formulations or technologies we develop or commercialize. If government and other third-party payors do not provide adequate coverage and reimbursement levels for our formulations, the market acceptance for our formulations may be limited.

We may not be able to correctly estimate our future operating expenses, which could lead to cash shortfalls.

Our estimates of our future operating and capital expenditures are based upon our current business plan, the anticipated expenses associated with our expected Pharmacy Creations operations and our current expectations regarding the commercialization of our proprietary formulations. Our projections have varied significantly in the past as a result of changes to our business model and strategy, our acquisition of additional product development opportunities and changes to the historical Impracor clinical program. Our company has never operated a pharmacy or successfully commercialized proprietary compounded formulations, and we may not accurately estimate expenses and potential revenue associated with our planned pharmacy operations. We may be unable to correctly estimate the amount of cash necessary to fund our business, and we could spend our available financial resources much faster than we currently expect. If we do not have sufficient funds to continue to operate and develop our business, we could be required to seek additional financing earlier than we expect or be forced to delay, scale back or eliminate some or all of our proposed operations.

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Our operating expenses may fluctuate significantly in the future as a result of a variety of factors, some of which are outside of our control. These factors include, among other things:

● the time and resources required to identify and acquire and/or research and develop potential compounded formulations;

● the time and resources required to pursue and realize the benefits of any potential strategic transactions;

● the costs related to attracting and retaining personnel with the skills required for effective operations;

● the costs associated with operating Pharmacy Creations and any other pharmacy we may acquire;

● the time and resources required to support or conduct feasibility or other studies to support our compounded formulations, or to conduct clinical trials and obtain regulatory approvals for any potential product candidate we may choose to commercialize using a Section 502(b) pathway; 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 we do not have sufficient funds to continue to operate and develop our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations.

Historically we have relied on third party relationships to assist in our identification, research, assessment and acquisition of new formulations. If we do not successfully identify and acquire rights to potential formulations and successfully integrate them into our operations, our growth opportunities may be limited.

We expect our recent acquisition of Pharmacy Creations to provide us with limited research and development support and access to additional novel compounded formulations. However, we expect to continue to rely upon third parties to provide us with additional opportunities. In 2013, we entered into three asset purchase agreements for development opportunities as a result of referrals from PCCA pursuant to our Strategic Alliance Agreement with PCCA. Although the term of the Strategic Alliance Agreement currently extends until February 18, 2015 and automatically extends for successive one year periods unless either party provides 30 day prior written notice of non-renewal, we do not expect to obtain additional referrals and development opportunities through PCCA. If we are unable to utilize Pharmacy Creations and our current and future relationships with pharmacists, physicians and other inventors to provide us with additional development opportunities, our growth opportunities may be limited. Our other pharmacist, physician and research consultants and advisors provide us with significant assistance in our evaluation of product development opportunities. These third parties generally engage in other business activities and may not devote sufficient time and attention to our research and development activities. If these third parties were to terminate their relationships with us, we may be unable to find other, equally qualified consultants and advisors on commercially reasonable terms or at all, and we may have significant difficulty evaluating potential opportunities and developing and commercializing our product candidates. In addition, we have limited resources to acquire additional potential product development assets and integrate them into our business. Acquisition opportunities may involve competition among several potential purchasers, which could include large multi-national pharmaceutical companies and other competitors that have access to greater financial resources than we do. We may face financial and operational risks and uncertainties in connection with any such future acquisitions. We may not be able to engage in future product acquisitions, and those we do complete may not be beneficial to us in the long term.

We may participate in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.

From time to time we consider strategic transactions, such as out-licensing or in-licensing of compounds or technologies, acquisitions of companies and asset purchases. Additional potential transactions we may consider include a variety of different business arrangements, including strategic partnerships, joint ventures, spin-offs, restructurings, divestitures, business combinations and investments. In addition, another entity may pursue us or certain of our assets or aspects of our operations as an acquisition target. Any such transactions may require us to incur non-recurring or other charges, may increase our near and long-term expenditures, may pose significant integration challenges, and may require us to hire or otherwise engage personnel with additional expertise, any of which could harm our operations and financial results. Such transactions may also entail numerous other operational and financial risks, including, among others, exposure to unknown liabilities, disruption of our business and diversion of our management’s time and attention in order to develop acquired products, product candidates or technologies or businesses.

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As part of an effort to enter into any significant transaction, we must conduct business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the transaction. Despite our efforts, we may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the expected benefits of any such transaction. If we fail to realize the expected benefits from any transaction we may complete, whether as a result of unidentified risks, integration difficulties, regulatory setbacks or other events, our business, results of operations and financial condition could be adversely affected. Companies that we acquire may have unknown or contingent liabilities, including, but not limited to, liabilities for failure to comply with healthcare and pharmacy laws and regulations. We may incur material liabilities for the past activities of acquired operations. Such liabilities and related legal or other costs and/or resulting damage to our reputation could negatively impact our business through lower-than-expected operating results, charges for impairment of acquired intangible assets or otherwise. In addition, we may encounter difficulties and additional unexpected costs in combining the operations and personnel of any acquired businesses with our operations and personnel, or if we are unable to retain key employees of any acquired businesses.

We may be unable to successfully develop and commercialize our proprietary formulations, or develop and commercialize any other assets we may acquire.

Our future results of operations will depend to a significant extent upon our ability to successfully develop and commercialize in a timely manner any of the assets we have acquired or to which we will acquire rights in the future. We have entered into three asset purchase agreements for assets related to compoundable formulations since May 2013. We are currently pursuing development and commercialization opportunities with respect to certain of those formulations and we are in the process of assessing certain other assets in order to determine whether to pursue development or commercialization. In addition, we expect to consider the acquisition of additional intellectual property in the future. There are numerous difficulties inherent in acquiring, developing and commercializing new formulations and product candidates, including the risks identified elsewhere in these Risk Factors.

Once we determine to pursue a potential product candidate, we assess the commercialization strategy with respect to the product candidate. These commercialization strategies could include, among others, marketing and selling the formulation in compounded form through a network of compounding pharmacies, or pursuing FDA approval of the product candidate. We may incorrectly assess the risks and benefits of our commercialization options with respect to one or more formulations or technologies, and we may not pursue a successful commercialization strategy. If we are unable to successfully commercialize one or more of our proprietary formulations, our operating results would be adversely affected. Even if we are able to successfully sell one or more proprietary formulations, we may never recoup our investment. Our failure to identify and expend our resources on formulations and technologies with commercial potential and execute an effective commercialization strategy for each of our formulations would negatively impact the long-term profitability of our business.

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 operate our business for at least the next twelve months, we may spend our cash reserves faster than we expect and need significant additional capital to execute our business plan and fund our proposed business operations. If we pursue acquisitions of pharmacies or other strategic transactions or experience growth more quickly or on a larger scale than expected, we may be required to raise additional capital to fund these activities. We may seek to raise additional capital through, among other things, public and private equity offerings and debt financings. If we are unable to raise additional capital when necessary, we may be required to forego pursuit of potentially valuable product development opportunities and reduce our expenses and cash expenditures to a material extent, which would impair or delay our ability to execute our business plan

We have raised $21.5 million in funds through equity financings since April 2012. To the extent we require additional capital, we may fund our operations through additional equity and/or debt financings, and could also pursue funding from corporate partnerships or licensing arrangements or similar transactions. 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 raise funds by incurring 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.

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If we are unable to establish, train and maintain an effective sales and marketing infrastructure, we will not be able to commercialize our product candidates successfully.

We plan to build an internal sales and marketing infrastructure to implement our business plan. We may also engage third parties to provide sales and marketing services for us. We may not be able to secure sales personnel or organizations that are adequate in number or expertise to successfully market and sell our proprietary formulations and pharmacy services. If we are unable to establish our sales and marketing capability, train our sales force effectively or provide any other capabilities necessary to our business, we will need to contract with third parties to provide these services. In addition, we must train our employees on proper regulatory compliance. If we are unable to establish and maintain compliant and adequate sales and marketing capabilities, we may be unable to sell our formulations or services or generate revenue.

We do not expect to obtain rights to any product candidates or receive any benefits under our License Agreement with PCCA.

Under our License Agreement with PCCA, PCCA has granted to us certain exclusive rights to 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. PCCA may terminate the License Agreement if we fail to commence efforts to research and develop at least one product opportunity provided to us by PCCA by February 29, 2016. Our rights under the License Agreement apply to development and commercialization opportunities within the prescription drug field and do not apply to compounding pharmacy activities. We have not received, and do not expect to receive, any development opportunities as a result of the License Agreement with PCCA, particularly in light of our re-focused business strategy aimed at developing compounded formulations. If we do commence clinical trials of any potential product candidates we obtain through PCCA, such product candidates may never be approved by the FDA. 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 more established, well-known and well-financed health care and pharmaceutical companies, and that competition and our royalty obligations to PCCA may prevent us from recouping our investment in these product candidates.

We may be unable to demonstrate the safety and efficacy or obtain FDA regulatory approval to market and sell any product candidates for which we seek FDA approval.

We may choose to seek FDA regulatory approval to market and sell one or more of our proprietary formulations. The process of obtaining FDA approval to market and sell pharmaceutical products is costly, time consuming, uncertain and subject to unanticipated delays. If we choose to pursue FDA approval for one or more such product candidates, the FDA or other regulatory agencies may not approve any such product candidate on a timely basis or at all. Before obtaining regulatory approvals for the sale of any of our potential 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 potential 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. The outcome of the final analyses of clinical trial data 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. Moreover, even if the FDA grants regulatory approval of a product candidate, the approval may be limited to specific therapeutic areas or limited with respect to its distribution, which could limit revenues.

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Delays in the conduct or completion of any clinical and non-clinical trials for any product candidates for which we seek FDA approval, or the analysis of the data from our clinical or non-clinical trials, may adversely affect our business.

Clinical trials are very expensive, time consuming and difficult to design and implement. Even if the results of clinical trials are favorable, they may continue for several years and may take significantly longer than expected to complete. Delays in the commencement or completion of clinical testing could significantly affect our product development costs and business plan with respect to any product candidate for which we seek FDA approval. For example, we experienced significant difficulties and delays with respect to initiating our now-terminated former Phase 3 trial for Impracor. We do not know whether any other pre-clinical or clinical trials related to any product development candidates we may identify will begin in a timely basis or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed and experience difficulties for a number of reasons, including delays and difficulties related to:

● obtaining clearance from the FDA or its respective international regulatory equivalent to commence a clinical trial;

● failure of the FDA to approve the scope or design of our clinical or non-clinical trials or manufacturing plans;

● reaching agreement on acceptable terms with clinical research organizations, or CROs, clinical investigators and trial sites;

● obtaining institutional review board, or IRB, approval to initiate and conduct a clinical trial at a prospective site;

● insufficient supply or deficient quality of materials necessary for the performance of clinical or non-clinical trials;

● identifying, recruiting and training suitable clinical investigators;

● identifying, recruiting and enrolling subjects to participate in clinical trials;

● retaining patients who have initiated a clinical trial but may be prone to withdraw or who are lost to further follow-up;

● negative results of clinical or non-clinical studies; and

● adverse side effects experienced by trial subjects.

There may be circumstances other than the ones described above, including circumstances over which we may have no control, which 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.

Although we may believe that we have planned and designed an adequate clinical trial program for any of our product candidates, the FDA could determine that it is not satisfied with our plan or the details of our clinical trial protocols and designs. Additionally, changes in applicable regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for our product candidates may be harmed, which may have a material adverse effect on our business, results of operations, financial condition and prospects.

Even if we receive FDA approval to market and sell any potential product candidates, our efforts may not be successful and we may not recoup the costs associated with these development programs.

Even if we receive FDA approval to market and sell any product candidates for which we seek FDA approval, the market may not accept such products, or the market may be smaller than we anticipate. A number of factors may limit the market acceptance of any drug products we may pursue, including the timing of market entry relative to competitive products, the availability of alternative products, the price of our drug products relative to alternative products, the availability of third party reimbursement and the success of our sales and marketing efforts, either internally or by third party distributors or agents that we retain. Any such products may not receive market acceptance in a commercially viable period of time, if at all. We may not recover any investment we make in developing our product candidates. 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.

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If we choose to pursue FDA approval for any of our formulations, we will need to rely on third parties to manufacture sufficient quantities of clinical materials for use in any pre-clinical and clinical trials, and any delays and problems with the manufacturing of our clinical materials would harm our business.

We may choose to pursue pre-clinical and clinical trials for certain proprietary formulations. We do not have the ability to manufacture the materials we may use in these pre-clinical and clinical trials. Rather, we would be required to rely on various third parties to manufacture these materials. Our third-party manufacturers may encounter delays and problems in manufacturing our investigational drug preparations and other materials associated with our clinical trials. For example, in August 2013, we experienced difficulties in obtaining suitable clinical materials for our planned Phase 3 clinical trial for Impracor, which was a significant factor in our decision to discontinue the clinical trial. If any third parties we rely upon in connection with the manufacturing of clinical materials do not provide materials in a timely manner, or if they otherwise breach their agreements with us, it may be difficult to replace their services quickly or at all. There may be long lead times to obtain materials. Commercially available starting materials, reagents, excipients, and other materials may become scarce, more expensive to procure, or not meet quality standards. We may not be able to identify, qualify and obtain prior regulatory approval for additional sources of clinical materials. If interruptions in our supply chain occur for any reason, including a decision by the third parties to discontinue manufacturing, technical difficulties, labor disputes, natural or other disasters, or a failure of the third parties to follow specifications or regulations, we may encounter difficulties in timely completing any clinical trials we pursue in the future, we may be unable to obtain regulatory approvals for any investigational drug preparations we may pursue in a timely manner and, ultimately, we may be unable to successfully commercialize these investigational drug preparations. If we are unable to have our clinical materials successfully manufactured by our current or any future contract manufacturer, we would be unable to initiate any clinical program.

We are dependent on third parties to conduct clinical trials and non-clinical studies of our drug formulations.

We do not employ personnel or possess the facilities necessary to conduct many of the activities associated with our non-clinical research activities or any clinical programs we may pursue in the future. We have engaged, and expect to continue to engage consultants, advisors, clinical research organizations (“CROs”) and others to design, conduct, analyze and interpret the results of studies in connection with the research and development of our products. In addition, we expect to provide grants to physicians and other healthcare organizations to support investigator-initiated studies of our proprietary formulations. We will have only very limited contractual rights in connection with the conduct of any such studies. In addition, if we were to participate in clinical trials conducted under an approved investigator-sponsored investigational new drug application, correspondence and communication with the FDA pertaining to these trials would strictly be between the investigator and the FDA. The communication and information provided by the investigator may not be appropriate and accurate, and the investigator has the ultimate responsibility and final decision-making authority with respect to submissions to the FDA. This potential communication gap could result in reviews, audits, delays or clinical holds by the FDA that affect the timelines for these studies and potentially risk the completion of these trials. As a result, many important aspects of any studies of our proprietary formulations and clinical or non-clinical trials for any drug candidates we determine to pursue are outside of our direct control.

If the third parties we engage to perform these activities fail to devote sufficient time and resources to our studies, or if their performance is substandard, it would delay the introduction of our proprietary formulations to the market or the approval of our applications to regulatory agencies. Failure of these third parties to meet their obligations could adversely affect development of our proprietary formations and product candidates and as a result could have a material adverse effect on our business, financial condition and results of operations.

In the event that we successfully develop any FDA-approved product candidates into commercial drugs, we will be dependent on outside manufacturers to produce and supply these drugs and will have limited control of the manufacturing process.

In the event that we successfully develop any of our product candidates into commercially available FDA-approved products, we expect that third party manufacturers would manufacture all of these products. In that event, we would 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. Any contract manufacturers with which we contract may not be able to produce finished products in quantities that are sufficient to meet demand, in a timely manner or at all, which could result in an inability to generate revenue from any such products. There may be delays in the manufacturing process over which we may 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. If we pursue the commercialization of any of our products as FDA-approved drugs, we will be reliant on the third-party manufacturers of those products 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 would also expect to rely on outside manufacturers to assist us in the preparation of key documents such as drug master files and other relevant materials 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 any drug candidates we may pursue in the future or impact our ability to continue to sell any drug candidates for which we are able to obtain approval.

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If approved, failure to comply with continuing federal and state regulations could result in the loss of approvals to market our drugs.

Following initial FDA regulatory approval of any drugs we may develop, we would 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 preparations would be subject to periodic review and inspection by the FDA. If a previously unknown problem with a product or a manufacturing and laboratory facility used by us were to be discovered, the FDA could impose restrictions on that product or on the manufacturing facility, including requiring us to withdraw the product from the market. Any changes to product that may have achieved approval, 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 would be subject to ongoing FDA requirements for submission of safety and other post-market information. If we or our contract manufacturers failed to comply with applicable regulatory requirements, a regulatory agency may, among other things, issue warning letters, impose civil or criminal penalties, suspend or withdraw regulatory approval, impose restrictions on our operations, close the facilities of our contract manufacturers, 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.

We are not pursuing further development of Impracor, our historical product candidate, and we do not expect to receive any revenue from Impracor.

Historically, our business has focused on developing and commercializing our product candidate Impracor under the regulatory pathway provided by Section 505(b)(2) of the FDCA. In August 2013, we were notified by our contract manufacturer that placebo and active bulk batches that were to be used in a planned Phase 3 clinical trial of Impracor had demonstrated out of specification stability test results with respect to the placebo and decreasing stability test results for Impracor, which we believe would likely have resulted in the materials being unusable for the duration of the planned Impracor clinical trial. After considering the totality of circumstances surrounding Impracor, including these unexpected manufacturing and formulation issues, other strategic and competitive considerations related to the Impracor program, the optimal use of our capital and other resources and other potential commercialization opportunities, we have discontinued the previously planned Phase 3 study for Impracor and terminated all development programs for Impracor. We do not expect we will identify or pursue a successful commercialization pathway for Impracor. Even if we were to pursue commercialization of Impracor or sell compounded formulations utilizing the Impracor technology through Pharmacy Creations, we would not expect to achieve sales and revenues necessary to recover our historical costs associated with the Impracor development program.

If our patents are determined to be unenforceable or expire, or if we are unable to obtain new patents based on current or future patent applications, we may not be able to prevent others from using our intellectual property, which may influence our commitment to continue to fund the development of assets that have limited intellectual property protection.

Our success will depend in part on our ability to obtain and maintain patent protection for our formulations and technologies and prevent third parties from infringing upon our proprietary rights. We must also operate without infringing upon patents and proprietary rights of others, including by obtaining appropriate licenses to patents or proprietary rights held by third parties if necessary. We will only be able to protect our formulations and technologies from unauthorized use by third parties to the extent that valid and enforceable patents cover them. As of August 1, 2014, we have nine patent applications pending in the United States, including five utility patent applications and four provisional patent applications. We expect to make significant investments in certain of our proprietary formulations prior to the grant of any patents covering these formulations. However, the applications we have filed or may file may never yield patents that protect our inventions and intellectual property assets. Failure to obtain patents for our formulations and technologies would limit our protection against other compounding pharmacies and outsourcing facilities, generic drug manufacturers, pharmaceutical companies and other parties who may seek to copy or otherwise produce products substantially similar to ours or use technologies substantially similar to those we own.

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The patent and intellectual property positions of pharmacies and 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. 

We also rely on unpatented trade secrets and know-how and continuing technological innovation in order to develop our formulations, which we seek to protect, in part, by confidentiality agreements with our employees, consultants, collaborators and others. We also have invention or patent assignment agreements with our current employees and certain consultants. However, our employees and consultants may breach these agreements and we may not have adequate remedies for any breach, or our trade secrets may become known or be independently discovered by competitors. In addition, inventions relevant to us could be developed by a person not bound by an invention assignment agreement with us.

We may face additional competition outside of the U.S. as a result of a lack of patent coverage in some territories and differences in patent prosecution and enforcement laws in foreign counties.

Filing, prosecuting, defending and enforcing patents on our potential investigational drug preparations throughout the world is extremely expensive. While we have filed patent applications in many countries outside the U.S., and have obtained some patent coverage for Accudel™ and Impracor™ in Canada, we do not currently have patent protection, nor have we filed patent applications, outside of the U.S. that cover any of the product formulations we are currently pursuing. Competitors may use our technologies to develop their own products in jurisdictions where we have not obtained patent protection. These products may compete with ours and may not be covered by any of our patent claims or other intellectual property rights.

Even if we were to file international patent applications for any of our current or future proprietary formulations and patents were issued or approved, it is likely that the scope of protection provided by such patents would be different from, and possibly less than, the scope provided by corresponding U.S. patents. The success of our international market opportunity would be dependent upon the enforcement of patent rights in various other countries. A number of countries in which we could file patent applications have a history of weak enforcement and/or compulsory licensing of intellectual property rights. Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of patents and other intellectual property protection, particularly those relating to biotechnology and/or pharmaceuticals, which would make it difficult for us to stop a party from infringing any of our intellectual property rights. Even if we have patents issued in these jurisdictions, our patent rights may not be sufficient to prevent generic competition or unauthorized use. Attempting to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

The use of our technologies could potentially conflict with the rights of others.

The preparation, use or sale of our proprietary formulations and technologies 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.

If we are unable to attract and retain key personnel and consultants, we may be unable to maintain or expand our business.

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 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 pharmacy, scientific, technical and commercial employees and consultants. The loss of key employees or consultants or the failure to recruit or engage new employees and consultants could have a material adverse effect on our business. There is intense competition for qualified personnel in our industry, and we may be unable to continue to attract and retain the qualified personnel necessary for the development of our business.

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We depend upon consultants and outside contractors for key aspects of our business.

We are substantially dependent on consultants and other outside contractors for key aspects of our business, including our research and development activities. Our agreements with our consultants typically provide that the consultant may terminate the agreement on 30 day notice to us. If any of our consultants terminates their engagement with us, or we are unable to engage highly qualified consultants as necessary for our business, we may be unable to successfully execute our business plan. We must effectively manage these consultants to ensure that they successfully carry out their contractual obligations and meet expected deadlines. However, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our development activities may be extended, delayed or terminated, and we may not be able to commercialize our formulations or advance our business. We may not be able to manage our existing consultants or find other competent outside contractors and consultants on commercially reasonable terms, or at all.

Changes in the healthcare industry that are beyond our control may have an impact on 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. The Patient Protection and Affordable Care Act, or PPACA, and the Health Care and Education Reconciliation Act of 2010, which amended PPACA (collectively, the “Health Reform Law”), may have a considerable impact on the financing and delivery of health care and conceivably could have a material effect on our business. The Health Reform Law will result in sweeping changes to the existing U.S. system for the delivery and financing of health care. The details for implementation of many of the requirements under the Health Reform Law will depend on the promulgation of regulations by a number of federal government agencies. It is impossible to predict the outcome of these changes, what many of the final requirements of the Health Reform Law will be, and the net effect of those requirements on us. As such, we cannot predict the impact of the Health Reform Law on our business, operations or financial performance.

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 of common stock by management and members of our 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 of August 8, 2014, in the aggregate, approximately 18% of the shares of common stock outstanding following such issuance to them. In addition, four individual stockholders own, or have the right to acquire within 60 days of August 8, 2014, an additional approximately 35% 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, in the fiscal year ended December 31, 2013, our management has concluded that our internal controls over financial reporting were effective as of December 31, 2013. However, our controls over financial processes and reporting may not continue to be effective, or we may identify 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.

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A consistently active trading market for shares of our common stock may not be sustained.

Historically, trading in our common stock has been sporadic and volatile, and our common stock has been “thinly-traded”. There have been, and may in the future continue to 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, the trading of relatively small quantities of shares may disproportionately influence the market price of our common stock. It is possible that a consistently active and liquid trading market in our securities may never develop or be sustained.

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 pharmacy and 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 material strategic relationships;

● 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.

25

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 result 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.

Item 2. Unregistered Sales of Equity Securities

During April 2014, we issued 3,164 shares of common stock in connection with the exercise of warrants to purchase our common stock, for gross proceeds of $18,747. The warrants were issued in April 2012 as part of a private placement of securities. Neither the warrants nor the common stock issued upon exercise of the warrants have been registered under the Securities Act. The securities were sold and issued in reliance on the exemption from the registration requirements of the Securities Act of 1933 (the “Securities Act”) afforded by Section 4(2) thereof and Rule 506 of Regulation D promulgated thereunder. In determining that the issuance of the securities in the private placement qualified for an exemption under Section 4(2) and Rule 506 of Regulation D, we relied on the following facts: we did not use general solicitation or advertising to market the securities; each investor in the private placement represented to us that it was an accredited investor (as that term is defined in Rule 501 of Regulation D) and that it was purchasing the securities for its own account and not with a view to distribute them; and the securities issued are restricted securities.

On April 25, 2014, the Company issued 6,868 shares of restricted common stock, valued at $50,000, to a third party in connection with the resolution of a contract dispute pursuant to the terms of a confidential settlement agreement. The common stock was issued in reliance on the exemption from the registration requirements of the Securities Act afforded by Section 4(2) thereof. In determining that the issuance of the securities in the private placement qualified for an exemption under Section 4(2), we relied on the following facts: the shares were issued to one corporation in connection with the resolution of a contract dispute; we did not use general solicitation or advertising to market the securities; the third party represented to us that it was an accredited investor and that it was purchasing the securities for its own account and not with a view to distribute them.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

26

Item 6. Exhibits

Exhibit Number	Description
31.1*	Certification of Mark L. Baum, Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.
31.2*	Certification of Andrew R. Boll, Principal Accounting and Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.
32.1*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Mark L. Baum, Chief Executive Officer, and Andrew R. Boll, Principal Accounting and Financial Officer.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	XBRL Taxonomy Extension Definition Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith.

27

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.

	Imprimis Pharmaceuticals, Inc.
Dated: August 13, 2014	By:	/s/ Mark L. Baum
		Mark L. Baum
		Chief Executive Officer and Director
		(Principal Executive Officer)
	By:	/s/ Andrew R. Boll
		Andrew R. Boll
		Vice President, Accounting and Public Reporting
		(Principal Financial and Accounting Officer)

28

EXHIBIT INDEX

Exhibit Number	Description
31.1*	Certification of Mark L. Baum, Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.
31.2*	Certification of Andrew R. Boll, Principal Accounting and Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.
32.1*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Mark L. Baum, Chief Executive Officer, and Andrew R. Boll, Principal Accounting and Financial Officer.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	XBRL Taxonomy Extension Definition Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith.

29

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Mark L. Baum, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Imprimis Pharmaceuticals, Inc.;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in the report any change in this registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2014	/s/ Mark L. Baum
	Mark L. Baum Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Andrew R. Boll, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Imprimis Pharmaceuticals, Inc.;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in the report any change in this registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2014	/s/ Andrew R. Boll
	Andrew R. Boll Vice-President of Accounting and Public Reporting (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION REQUIRED BY

SECTION 1350 OF TITLE 18 OF THE UNITED STATES CODE

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned hereby certifies in his capacity as the specified officer of Imprimis Pharmaceuticals, Inc. (the “Company”), that, to the best of his knowledge, the Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended June 30, 2014 fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such report.

Date: August 13, 2014

/s/ MARK L. BAUM

Mark L. Baum

Chief Executive Officer

(Principal Executive Officer)

Date: August 13, 2014

/s/ ANDREW R. BOLL

Andrew R. Boll

Vice-President of Accounting and Public Reporting
(Principal Financial and Accounting Officer)

This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

XML

Prepaid Expenses and Other Current Assets - Schedule of Prepaid Expenses and Other Current Assets (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Prepaid Expenses And Other Current Assets
Prepaid stock-based consulting expenses		$ 26,649
Prepaid rent	21,875	16,288
Prepaid insurance	180,519	39,166
Other prepaid expenses and deposits	121,851	22,964
Total prepaid expenses and other current assets	$ 324,245	$ 105,067

XML

Commitments and Contingencies (Details Narrative) (USD $)

1 Months Ended

6 Months Ended

1 Months Ended

Jun. 30, 2014

sqft

Apr. 30, 2013

sqft

Jun. 30, 2014

sqft

Feb. 18, 2013

Jun. 30, 2014

Minimum [Member]

Jun. 30, 2014

Maximum [Member]

Jan. 31, 2010

Pharmacy Creations, LLC [Member]

sqft

Leases equipment under capital lease with interest rate

4.25%

4.25%

Lease agreement for office space (Square feet)

7,565

3,874

7,565

3,137

Operating lease Expiry

Oct. 31, 2018

Sep. 30, 2016

Dec. 31, 2015

Operating lease, monthly rental

$ 20,426

$ 10,406

$ 3,594

Operating lease, rent increase percentage

3.00%

3.00%

3.00%

Operating lease description

Once the Company relocates to the new office space (7,565 square feet), effective September 1, 2014, the Company’s intention is to sublet the 3,874 square feet of its current offices through its remaining lease term.

Royalties range percentage

4.50%

9.00%

Maximum aggregate value of cash fees

$ 100,000

XML

Stockholders' Equity and Stock-based Compensation - Schedule of Fair Value Assumption (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Options Granted To Employees [Member]
Weighted-average fair value of options granted	$ 5.16
Expected volatility, minimum	100.00%
Expected volatility, maximum	102.00%
Risk-free interest rate, minimum	1.37%
Risk-free interest rate, maximum	1.65%
Dividend yield	0.00%
Options Granted To Employees [Member] | Minimum [Member]
Expected terms (in years)	5 years 9 months 22 days
Options Granted To Employees [Member] | Maximum [Member]
Expected terms (in years)	6 years 10 months 28 days
Options Granted To Consultants [Member]
Weighted-average fair value of options granted	$ 6.15
Expected volatility, minimum	80.00%
Expected volatility, maximum	97.00%
Risk-free interest rate, minimum	0.10%
Risk-free interest rate, maximum	1.64%
Dividend yield	0.00%
Options Granted To Consultants [Member] | Minimum [Member]
Expected terms (in years)	2 years 6 months 15 days
Options Granted To Consultants [Member] | Maximum [Member]
Expected terms (in years)	10 years

XML

Commitments and Contingencies - Schedule of Lease Equipment Under Capital Lease (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Compensation and Retirement Disclosure [Abstract]
Remainder of 2014	$ 3,505
2015	7,009
2016	7,009
Total minimum lease payments	17,523
Less amount representing interest	(927)
Present value of future minimum lease payments	16,596
Less current portion	6,428
Capital lease obligation, net of current portion	$ 10,168

XML

Stockholders' Equity and Stock-based Compensation (Details Narrative) (USD $)

1 Months Ended

3 Months Ended

6 Months Ended

0 Months Ended

1 Months Ended

3 Months Ended

6 Months Ended

Apr. 30, 2014

Jun. 30, 2014

Jun. 30, 2014

Apr. 02, 2013

Employees And Directors [Member]

Jun. 30, 2014

2007 Incentive Stock And Awards Plan [Member]

Mar. 31, 2014

Restricted Stock Units [Member]

Jun. 30, 2014

Restricted Stock Units [Member]

Jun. 30, 2014

Restricted Stock Units [Member]

Jun. 30, 2014

Warrant [Member]

Jun. 30, 2014

Minimum [Member]

Jun. 30, 2014

Maximum [Member]

Common stock issued shares

6,868

Common stock issued shares value

$ 50,000

Shares issued upon exercise of stock options, shares

121,045

Shares issued upon exercise of stock options

446,610

Additional shares issued upon exercise of stock options, shares

23,265

Exercise of common stock option to purchase of common stock

44,164

Shares issued upon warrants exercise

6,328

Proceeds from warrants exercise

37,493

Common stock exercise price per share

$ 3.60

$ 4.27

Preferred stock, shares authorized

5,000,000

5,000,000

Preferred stock, par value

$ 0.001

$ 0.001

Preferred stock, shares issued

0

0

Preferred stock, shares outstanding

0

0

Maximum number of common stock issuance under the plan

5,000,000

stock option exercise price

$ 6.94

Intrinsic value of stock options exercised

644,113

Contractual term of stock options granted

5 years

10 years

Stock options granted vesting terms

Vesting terms for options granted to employees, directors and consultants typically included one of the following vesting schedules: 25% or 33% of the shares subject to the option vest and become exercisable on the first anniversary of the grant date and the remaining 75% or 67%, respectively, of the shares subject to the option vest and become exercisable quarterly in equal installments thereafter over two or three years, respectively; quarterly vesting over a three year period; annual vesting over three years; or monthly, quarterly or 100% vesting associated with the provision or completion of services provided under contracts with consultants.

Percentage of forfeiture factor

10.00%

Total unrecognized compensation expense related to unvested stock options granted under the Plan

2,684,000

2,684,000

2,418,000

2,418,000

Expense expected to recognize over the weighted-average remaining vesting period

2 years 5 months 23 days

1 year 9 months 18 days

Stock-based compensation

318,823

643,117

339,932

676,926

26,649

RSUs were forfeited

100,000

Intrinsic value of warrants exercised

$ 8,701

XML

Acquisition - Pharmacy Creations, Llc - Schedule of Estimated Fair Value of Assets Acquired and Liabilities Assumed (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Goodwill	$ 331,621
Pharmacy Creations, LLC [Member]
Cash and cash equivalents	4,982
Accounts receivable	58,420
Prepaid expenses and other assets	30,256
Inventory	213,190
Property and equipment	44,510
Intangible assets	659,000
Total identifiable assets acquired	1,010,358
Accounts payable and accrued liabilities	120,049
Other liabilities	107,308
Total liabilities assumed	227,357
Total identifiable assets less liabilities assumed	783,001
Goodwill	331,621
Net assets acquired	$ 1,114,622

XML

Subsequent Events (Details Narrative) (USD $)	6 Months Ended	0 Months Ended
	Jun. 30, 2014	Jul. 01, 2014 Subsequent Event [Member]
Shares issued upon exercise of stock options	121,045	2,506
Shares issued upon exercise of stock options	$ 446,610	$ 9,619

XML

Accounts Payable and Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Schedule of Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:

	June 30, 2014
	(unaudited)		December 31, 2013
Accounts payable	$	750,106	$	261,924
Other accrued expenses		-		50,000
Total accounts payable and accrued expenses	$	750,106	$	311,924

XML

Stockholders' Equity and Stock-based Compensation - Schedule of Restricted Stock Units Activity (Details) (Restricted Stock Units [Member], USD $)	6 Months Ended
	Jun. 30, 2014
Restricted Stock Units [Member]
Number of RSUs, Outstanding, Beginning balance	1,389,960
Number of RSUs granted
Number of RSUs vested
Number of RSUs cancelled/forfeit	(100,000)
Number of RSUs, Outstanding, Ending balance	1,289,960
Weighted Average Grant Date Fair Value, Beginning balance	$ 3.19
Weighted Average Grant Date Fair Value, RSUs granted
Weighted Average Grant Date Fair Value, RSUs vested
Weighted Average Grant Date Fair Value, RSUs cancelled/forfeit	$ (2.88)
Weighted Average Grant Date Fair Value, Ending balance	$ 3.22

XML

Intangible Assets and Goodwill - Schedule of Estimated Future Amortization Expense (Details) (USD $)	Jun. 30, 2014
Goodwill and Intangible Assets Disclosure [Abstract]
Remainder of 2014	$ 23,600
2015	53,500
2016	53,500
2017	53,500
2018	$ 44,100

XML

Restricted Short-Term Investment (Details Narrative) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Restricted Short-Term Investment
Certificate of deposit	$ 150,151	$ 50,097

XML

Stockholders' Equity and Stock-based Compensation - Schedule of Warrants Outstanding and Warrants Exercisable (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Derma Star [Member]
Issue Date	Apr. 25, 2012
Warrants Outstanding	48,262
Exercise Price	$ 5.93
Warrants Exercisable	48,262
Expiration Date	Apr. 25, 2015
April PPM [Member]
Issue Date	Apr. 25, 2012
Warrants Outstanding	496,600
Exercise Price	$ 5.93
Warrants Exercisable	496,600
Expiration Date	Apr. 25, 2015
Underwriter Warrants [Member]
Issue Date	Feb. 07, 2013
Warrants Outstanding	179,860
Exercise Price	$ 5.25
Warrants Exercisable	179,860
Expiration Date	Feb. 07, 2018
IR Consultant [Member]
Issue Date	Feb. 28, 2013
Warrants Outstanding	30,000
Exercise Price	$ 5.25
Warrants Exercisable	30,000
Expiration Date	Feb. 28, 2016
IR Consultant [Member]
Issue Date	Jul. 19, 2013
Warrants Outstanding	60,000
Exercise Price	$ 8.50
Warrants Exercisable	60,000
Expiration Date	Jul. 19, 2018
Warrant [Member]
Warrants Outstanding	814,722
Exercise Price	$ 5.94
Warrants Exercisable	814,722

XML

Stockholders' Equity and Stock-based Compensation - Schedule of Stock Option Plan Activity (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Number of shares, Options exercised	121,045
Number of shares, Outstanding, Ending balance	1,314,467
Weighted Avg. Remaining Contractual Life, Options outstanding	6 years 4 months 28 days
Stock Option Plan [Member]
Number of shares, Outstanding, Beginning balance	1,328,790
Number of shares, Options granted	225,886
Number of shares, Options exercised	(165,209)
Number of shares, Options cancelled/forfeit	(75,000)
Number of shares, Outstanding, Ending balance	(1,314,467)
Number of shares, Options exercisable	795,441
Number of shares, Options vested and expected to vest	1,262,564
Weighted Avg. Exercise Price, Outstanding, Beginning balance	$ 5.31
Weighted Avg. Exercise Price, Options granted	$ 6.60
Weighted Avg. Exercise Price, Options exercised	$ 3.69
Weighted Avg. Exercise Price, Options cancelled/forfeit	$ 6.30
Weighted Avg. Exercise Price, Outstanding, Ending balance	$ 5.66
Weighted Avg. Exercise Price, Exercisable Ending Balance	$ 4.99
Weighted Avg. Exercise Price, Vested and expected to vest - end of period	$ 5.64
Weighted Avg. Remaining Contractual Life, Options outstanding	6 years 4 months 28 days
Weighted Avg. Remaining Contractual Life, Options exercisable	4 years 8 months 1 day
Weighted Avg. Remaining Contractual Life, Options vested and expected to vest	6 years 3 months 22 days
Aggregate Intrinsic Value, Options outstanding	$ 2,532,926
Aggregate Intrinsic Value, Options exercisable	2,046,478
Aggregate Intrinsic Value, Options vested and expected to vest	$ 2,484,281

XML

Inventories

6 Months Ended

Jun. 30, 2014

Inventory Disclosure [Abstract]

Inventories

NOTE 4. INVENTORIES

Inventories are comprised of over-the-counter (“OTC”) retail pharmacy products, commercial pharmaceutical products, related laboratory supplies and active pharmaceutical ingredients. The composition of inventories as of June 30, 2014 was as follows:

	June 30, 2014
Raw materials	$	164,127
Finished goods		8,623
Total inventories	$	172,750

XML

Intangible Assets and Goodwill - Schedule of Changes in Carrying Value of Goodwill (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill, Beginning
Goodwill
Acquisition of PC	331,621
Goodwill, Ending	$ 331,621

XML

Overview, Basis of Presentation and Summary of Significant Accounting Policies - Schedule of Basic and Diluted Earnings Per Common Share (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Accounting Policies [Abstract]
Numerator - net loss	$ (2,595,725)	$ (2,218,052)	$ (4,920,888)	$ (3,683,533)
Denominator - weighted average number of shares outstanding, basic and diluted	9,109,842	8,890,668	9,060,496	8,342,497
Net loss per share, basic and diluted	$ (0.28)	$ (0.25)	$ (0.54)	$ (0.44)

XML

Overview, Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) (USD $)	3 Months Ended		6 Months Ended			12 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013	Dec. 31, 2013 Minimum [Member]	Dec. 31, 2013 Maximum [Member]
Revenue	$ 3,331	$ 2,500	$ 4,741	$ 5,000
Guaranteed minimum royalty amount						10,000
Additional royalty payments based on percent of net sales						5.00%	7.00%
Deposit coverage limits by FDIC, per owner			250,000
Cash deposits in excess of FDIC limits			11,800,000
Accounts receivable, net of allowance for doubtful accounts	3,957		3,957
Impairment of long-lived assets			0	0
Number of common stock issued during period for contract dispute, shares			6,868
Number of common stock issued during period for contract dispute, value			50,000
Common stock equivalents, dilutive instruments			3,419,149	3,138,004
Unrecognized tax benefits	$ 0		$ 0		$ 0

XML

Segment Information (Details Narrative)	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014
Segment Reporting [Abstract]
Percentage of sales derived from single customer	10.00%	10.00%
Percentage of drug and chemical purchases from three main suppliers	90.00%	90.00%

XML

Accounts Payable and Accrued Expenses - Schedule of Accounts Payable and Accrued Expenses (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Debt Disclosure [Abstract]
Accounts payable	$ 750,106	$ 261,924
Other accrued expenses		50,000
Total accounts payable and accrued expenses	$ 750,106	$ 311,924

XML

Overview, Basis of Presentation and Summary of Significant Accounting Policies - Schedule of Stock Based Compensation and Equity Intruments (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Compensation Expenses	$ 658,755	$ 995,136	$ 1,346,692	$ 1,448,384
Employees Selling And Marketing [Member]
Compensation Expenses	16,994		30,861
Employees General And Administrative [Member]
Compensation Expenses	561,733	378,895	1,105,000	464,898
Employees Research And Development [Member]
Compensation Expenses		44,619		111,750
Directors General And Administrative [Member]
Compensation Expenses	42,147	45,458	84,293	248,250
Consultants Selling And Marketing [Member]
Compensation Expenses	14,730		30,783
Consultants General And Administrative [Member]
Compensation Expenses	18,337	345,605	86,839	505,527
Consultants Research And Development [Member]
Compensation Expenses	$ 4,814	$ 180,559	$ 8,916	$ 117,959

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Acquisition - Pharmacy Creations, Llc (Details Narrative) (USD $)

6 Months Ended

Jun. 30, 2014

Jun. 30, 2013

Cash paid for business acquisition

$ 636,374

Pharmacy Creations, LLC [Member]

Cash paid for business acquisition

600,000

Contingent cash payment

50,000

Expected revenue

3,500,000

Expected revenue date

Mar. 31, 2015

Maximum number of common stock applied for contingent stock payment

215,190

Condition for contingent stock payment

if the Company earns revenue of over $7,500,000 during the 12 month period ending March 31, 2016, all 215,190 shares;

if the Company earns revenue of between $3,500,000 and $7,500,000 during the 12 month period ending March 31, 2016, an aggregate of that number of shares of Imprimis common stock equal to the amount that such revenue exceeds $3,500,000 divided by 18.5882, rounded down to the lower whole number (not to exceed 215,190 shares).

Business acquisition, total fair value transferred

1,114,622

Business combination purchase price allocation for good will

331,621

Pharmacy Creations, LLC [Member] | Minimum [Member] | Period Ending March 31, 2016

Expected revenue

3,500,000

Expected revenue date

Mar. 31, 2016

Pharmacy Creations, LLC [Member] | Maximum [Member] | Period Ending March 31, 2016

Expected revenue

$ 7,500,000

Expected revenue date

Mar. 31, 2016

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Restricted Short-Term Investment

6 Months Ended

Jun. 30, 2014

Restricted Short-Term Investment

Restricted Short-Term Investment

NOTE 3. RESTRICTED SHORT-TERM INVESTMENTS

The restricted short-term investments at June 30, 2014 and December 31, 2013 consist of certificates of deposit, which are classified as held-to-maturity. At June 30, 2014 and December 31, 2013, the restricted short-term investments was recorded at amortized cost which approximates fair value.

At June 30, 2014 and December 31, 2013, the certificates of deposit of $150,151 and $50,097, respectively, were classified as a current asset. The certificates of deposit are required as collateral under the Company’s corporate credit card agreement and additional security for office space lease, and automatically renew every twelve months.

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Acquisition - Pharmacy Creations, Llc - Schedule of Acquisition Date Fair Value of Consideration (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash payment to sellers at closing	$ 636,374
Pharmacy Creations, LLC [Member]
Cash payment to sellers at closing	600,000
Contingent common stock issuance to the Sellers	483,156
Contingent cash consideration to the Sellers	31,466
Total acquisition date fair value	$ 1,114,622

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Intangible Assets and Goodwill - Schedule of Intangible Assets (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Cost	$ 659,000
Accumulated amortization	(17,433)
Net Carrying value	641,567
Customer Relationships [Member]
Cost	596,000
Accumulated amortization	(9,933)
Net Carrying value	586,067
Customer Relationships [Member] | Minimum [Member]
Amortization periods (in years)	10 years
Customer Relationships [Member] | Maximum [Member]
Amortization periods (in years)	15 years
Trade Name [Member]
Amortization periods (in years)	5 years
Cost	5,000
Accumulated amortization	(250)
Net Carrying value	4,750
Non-Compete Covenant [Member]
Amortization periods (in years)	4 years
Cost	50,000
Accumulated amortization	(6,250)
Net Carrying value	43,750
Licensing [Member]
Amortization periods (in years)	25 years
Cost	8,000
Accumulated amortization	(1,000)
Net Carrying value	$ 7,000

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Employee Savings Plan (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2014
Compensation and Retirement Disclosure [Abstract]
Percentage of salary deposits in tax deferred investment account	100.00%
Percentage of contributions made by the company	3.00%
Contributions by the company	$ 33,000

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Condensed Consolidated Balance Sheets (USD $)	Jun. 30, 2014	Dec. 31, 2013
Current assets
Cash and cash equivalents	$ 12,101,796	$ 15,579,309
Restricted short-term investment	150,151	50,097
Accounts receivable, net	81,149
Inventories	172,750
Prepaid expenses and other current assets	324,245	105,067
Total current assets	12,830,091	15,734,473
Intangible assets, net	641,567
Goodwill	331,621
Furniture and equipment, net	75,767	26,892
TOTAL ASSETS	13,879,046	15,761,365
Current liabilities
Accounts payable and accrued expenses	750,106	311,924
Accrued payroll and related liabilities	553,109	338,703
Customer deposits	617
Current portion of contingent acquisition obligations	31,466
Current portion of capital lease obligation	6,428
Total current liabilities	1,341,726	650,627
Capital lease obligation, net of current portion	10,168
Contingent acquisition obligations, net of current portion	483,156
TOTAL LIABILITIES	1,835,050	650,627
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 395,000,000 shares authorized, 9,127,870 and 8,970,364 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively	9,128	8,970
Additional paid-in capital	48,703,148	46,849,160
Accumulated deficit	(36,668,280)	(31,747,392)
TOTAL STOCKHOLDERS' EQUITY	12,043,996	15,110,738
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 13,879,046	$ 15,761,365

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Debt (Details Narrative) (USD $)

6 Months Ended

Jun. 30, 2014

Apr. 13, 2009

Debt Disclosure [Abstract]

Line of credits borrowing limit maximum

$ 75,000

Line of credit facility interest rate description

PC was required to pay regular monthly payments of all accrued unpaid interest due monthly, with interest on the line of credit calculated as the greater of one of the following: (a) the Prime Rate (as defined and published in the Wall Street Journal) plus 1.00% per annum, or (b) 4.25% per annum. The line of credit agreement was terminated following the acquisition of PC, and no amounts were borrowed, paid or outstanding during the period ended June 30, 2014 following the Company’s acquisition of PC.

Borrowed term loan

$ 168,000

Debt maturity date

May 01, 2014

Term loan interest rate description

PC was required to pay regular monthly principal and interest payments with the interest on the term loan calculated as the greater of one of the following: (a) the Prime Rate (as defined and published in the Wall Street Journal) plus 1.50% per annum, or (b) 4.25% per annum. The term loan was secured by a first security interest on all business assets and the term loan was personally guaranteed by the members of PC. The term loan was terminated following the acquisition of PC, and no amounts were borrowed, paid or outstanding during the period ended June 30, 2014 following the Company’s acquisition of PC.

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Overview, Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Overview, Basis of Presentation and Summary of Significant Accounting Policies

NOTE 1. OVERVIEW, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Company and Background

Imprimis Pharmaceuticals, Inc. (“Imprimis” or the “Company”) is a vertically-integrated specialty pharmaceutical company dedicated to delivering high quality, novel and customizable medicines to physicians and patients at accessible prices. Imprimis is pioneering a new commercial pathway using compounding pharmacies for the formulation and distribution of its proprietary drug therapies which include formulations in ophthalmology, wound management and urology.

On April 1, 2014, the Company acquired Pharmacy Creations, LLC (“PC”), a New Jersey based compounding pharmacy; effective with this acquisition the Company commenced sales and marketing efforts surrounding Imprimis’ portfolio of proprietary and non-proprietary drug formulations.

Basis of Presentation

Imprimis has prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to the Company’s audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

Business Combinations

The Company accounts for business combinations by recognizing the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair values on the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, especially at acquisition date with respect to intangible assets, estimated contingent consideration payments and pre-acquisition contingencies. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:

● future expected cash flows from product sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies and patents; and

● discount rates utilized in valuation estimates.

Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, such as changes in our estimate of the revenue targets, will be recognized in earnings in the period of the estimated fair value change. A change in fair value of the acquisition-related contingent consideration could have a material effect on the financial position, results of operations, or cash flows in the period of the change in estimate.

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, and costs related to clinical trials, contract services and outsourced contracts.

Intellectual Property

The costs of acquiring intellectual property rights to be used in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where the Company has not identified an alternative future use for the acquired rights, and are capitalized in situations where the Company has identified an alternative future use. No costs associated with acquiring intellectual property rights have been capitalized to date. Costs of maintaining intellectual property rights are expensed as incurred.

Revenue Recognition and Deferred Revenue

The Company recognizes revenues when all of the following criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. The Company began generating revenues upon the acquisition of PC in the second quarter of 2014, which includes sales of certain of our proprietary compounded drug formulations.

Product Revenues

Determination of criteria (3) and (4) is based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product has not been delivered or are subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

License Revenues

License arrangements may consist of non-refundable upfront license fees, data transfer fees, research reimbursement payments, exclusive licensed rights to patented or patent pending compounds, technology access fees, and various performance or sales milestones. These arrangements can be multiple element arrangements.

Non-refundable fees that are not contingent on any future performance by us, and require no consequential continuing involvement on our part, are recognized as revenue when the license term commences and the licensed data, technology and/or compounded drug preparations is delivered. Such deliverables may include physical quantities of compounded drug preparations, design of the compounded drug preparations and structure-activity relationships, the conceptual framework and mechanism of action, and rights to the patents or patents pending for such compounded drug preparations. We defer recognition of non-refundable fees if we have continuing performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee that is separate and independent of our performance under the other elements of the arrangement. In addition, if we have required continuing involvement through research and development services that are related to our proprietary know-how and expertise of the delivered technology, or can only be performed by us, then such up-front fees are deferred and recognized over the period of continuing involvement. Guaranteed minimum annual royalties are recognized on a straight-line basis over the applicable term.

During the three and six months ended June 30, 2014 and 2013, the Company recorded $3,331, $4,741 and $2,500, $5,000, respectively, in revenues, related to royalty payments. In January 2013, the Company entered into a license agreement with ResolutionMD, LLC granting ResolutionMD, LLC rights to its Accudel delivery technology to be used for anti-cellulite formulations. Under the license agreement, the Company received $10,000 as a guaranteed minimum royalty amount for the year ended December 31, 2013. The Company is due annual guaranteed minimum royalty payments and additional royalty payments based on a percent (generally, 5%-7%) of net sales of any products covered under the license agreement in excess of the guaranteed amounts. The license agreement with ResolutionMD, LLC, unless terminated earlier, has a term of ten years following the first commercial sale of a product that is covered under the license agreement. The Company does not anticipate that the license agreement with ResolutionMD, LLC will generate significant revenues for the 2014 fiscal year.

Cost of Sales

Cost of sales includes direct and indirect costs to manufacture formulations and products sold, including active pharmaceutical ingredients, personnel costs, packaging, storage, royalties (see Note 11), shipping and handling costs and the write-off of obsolete inventory.

Income Taxes

The Company accounts for income taxes under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes”, or ASC 740. As of June 30, 2014, there were no unrecognized tax benefits included in the condensed consolidated balance sheets that would, if recognized, affect the effective tax rate. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties in its condensed consolidated balance sheets at June 30, 2014 and December 31, 2013, and has not recognized interest and/or penalties in the condensed consolidated statements of operations for the periods ended June 30, 2014 and 2013. The Company is subject to taxation in the United States and California. The Company’s tax years for 2000 and forward are subject to examination by the federal and state tax authorities due to the carry forward of unutilized net operating losses.

Cash and Cash Equivalents

Cash equivalents include short-term, highly liquid investments with maturities of three months or less at the time of acquisition.

Concentrations of Credit Risk

The Company places its cash with financial institutions deemed by management to be of high credit quality. The Federal Deposit Insurance Corporation (“FDIC”) provides basic deposit coverage with limits up to $250,000 per owner. At June 30, 2014, the Company had approximately $11.8 million in cash deposits in excess of FDIC limits.

Accounts Receivable

The balance in accounts receivable consists of revenue amounts the Company has invoiced and recognized, but for which payment has not been received. Accounts receivable are presented net of an allowance for doubtful accounts in the amount of $3,957 as of June 30, 2014.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out (“FIFO”) basis. The Company evaluates the carrying value of inventories on a regular basis, based on the price expected to be obtained for products in their respective markets compared with historical cost. Write-downs of inventories are considered to be permanent reductions in the cost basis of inventories.

The Company also regularly evaluates its inventories for excess quantities and obsolescence (expiration), taking into account such factors as historical and anticipated future sales or use in production compared to quantities on hand and the remaining shelf life of products and active pharmaceutical ingredients on hand. The Company establishes reserves for excess and obsolete inventories as required based on its analyses.

Furniture and Equipment

Furniture and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight-line method over the estimated useful life of the asset. Leasehold improvements are amortized over the estimated useful life or remaining lease term, whichever is shorter. Computer software and hardware, and furniture and equipment are depreciated over three to five years.

Goodwill and Intangible Assets

The Company will review its goodwill and indefinite-lived intangible assets for impairment as of January 1 of each year or when an event or a change in circumstances indicates the fair value of a reporting unit may be below its carrying amount. Events or changes in circumstances considered as impairment indicators include but are not limited to the following:

● significant underperformance of the Company’s business relative to expected operating results;

● significant adverse economic and industry trends;

● significant decline in the Company’s market capitalization for an extended period of time relative to net book value; and

● expectations that a reporting unit will be sold or otherwise disposed.

The annual goodwill impairment test consists of a two-step process as follows:

Step 1. The Company compares the fair value of each reporting unit to its carrying amount, including the existing goodwill. The fair value of each reporting unit is determined using a discounted cash flow valuation analysis. The carrying value of each reporting unit is determined by specifically identifying and allocating the assets and liabilities to each reporting unit based on headcount, relative revenues, or other methods as deemed appropriate by management. If the carrying amount of a reporting unit exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired and the Company then performs the second step of the impairment test. If the fair value of a reporting unit exceeds its carrying amount, no further analysis is required.

Step 2. If further analysis is required, the Company compares the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and its liabilities in a manner similar to a purchase price allocation, to its carrying amount. If the carrying amount of the reporting unit’s goodwill exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess.

Impairment of Long-Lived Assets

Long-lived assets, such as furniture, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material.

During the three and six months ended June 30, 2014 and 2013, the Company did not recognize any impairment of long-lived assets.

Deferred Rent

The Company accounts for rent expense related to its operating leases by determining total minimum rent payments on the leases over their respective periods and recognizing the rent expense on a straight-line basis. The difference between the actual amount paid and the amount recorded as rent expense in each fiscal year is recorded as an adjustment to deferred rent.

Fair Value Measurements

Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The established fair value hierarchy prioritizes the use of inputs used in valuation methodologies into the following three levels:

● Level 1: Applies to assets or liabilities for which there are quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.

● Level 2: Applies to assets or liabilities for which there are significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

● Level 3: Applies to assets or liabilities for which there are significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. For example, Level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.

At June 30, 2014 and December 31, 2013, the Company did not have any financial assets or liabilities which are measured on a recurring basis. At June 30, 2014 and December 31, 2013, the Company’s financial instruments include cash and cash equivalents, restricted short-term investments, accounts receivable, accounts payable and accrued expenses, accrued payroll and related liabilities, customer deposits, and capital lease. The carrying amount of these financial instruments, except for the restricted short-term investment and capital lease, approximates fair value due to the short-term maturities of these instruments. The Company’s restricted short-term investments are carried at amortized cost which approximates fair value. Based on borrowing rates currently available to the Company, the carrying value of the capital lease approximates fair value.

Stock-Based Compensation

All stock-based payments to employees and consultants, including grants of stock options, warrants, restricted stock units (“RSUs”) and restricted stock, are recognized in the condensed consolidated financial statements based upon their fair values. The Company uses the Black-Scholes-Merton option pricing model and Monte Carlo Simulation to estimate the fair value of stock-based awards. The 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.

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows FASB guidance. As such, the value of the applicable stock-based compensation is periodically remeasured and income or expense is recognized during their vesting terms. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is primarily recognized over the term of the consulting agreement. In accordance with FASB guidance, an asset acquired in exchange for the issuance of fully vested, nonforfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company records the fair value of nonforfeitable equity instruments issued for future consulting services as prepaid stock-based consulting expenses in its consolidated balance sheets.

The Company recorded stock-based compensation (including the amortization of stock-based prepaid consulting fees) related to equity instruments granted to employees, directors and consultants as follows:

	For the		For the		For the		For the
	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Employees - selling and marketing	$	16,994	$	-	$	30,861	$	-
Employees - general and administrative		561,733		378,895		1,105,000		464,898
Employees - research and development		-		44,619		-		111,750
Directors - general and administrative		42,147		45,458		84,293		248,250
Consultants - selling and marketing		14,730		-		30,783		-
Consultants - general and administrative		18,337		345,605		86,839		505,527
Consultants - research and development		4,814		180,559		8,916		117,959
Total	$	658,755	$	995,136	$	1,346,692	$	1,448,384

During the six months ended June 30, 2014, the Company issued 6,868 shares of common stock, valued at $50,000 in connection with the resolution of a contract dispute.

Basic and Diluted Net Loss per Common Share

Basic net loss per common share is computed by dividing net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common and common equivalent shares, such as stock options and warrants outstanding during the period.

Basic and diluted net loss applicable to common stock per share is computed using the weighted average number of shares of common stock outstanding during the period. Common stock equivalents (using the treasury stock or, “if converted” method) from convertible notes, preferred stock, stock options, unvested restricted stock units (“RSUs”) and warrants were 3,419,149 and 3,138,004 at June 30, 2014 and 2013, respectively, and are excluded from the calculation of diluted net loss per share for all periods presented because the effect is anti-dilutive.

The following table shows the computation of basic and diluted net loss per share of common stock for the three and six months ended June 30, 2014 and 2013:

	For the			For the			For the			For the
	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Numerator – net loss	$	(2,595,725	)	$	(2,218,052	)	$	(4,920,888	)	$	(3,683,533	)
Denominator – weighted average number of shares of common stock outstanding, basic and diluted		9,109,842			8,890,668			9,060,496			8,342,497
Net loss per share, basic and diluted	$	(0.28	)	$	(0.25	)	$	(0.54	)	$	(0.44	)

Use of Estimates

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

Reclassifications

Certain prior period items and amounts have been reclassified to conform to the classifications used to prepare the 2014 condensed consolidated financial statements. The Company has classified certain expenses as selling and marketing whereas in prior periods certain selling and marketing expenses were included as an expense line item titled selling, general and administrative in the condensed consolidated statements of operations. These reclassifications had no material impact on the Company’s financial position, results of operations, or cash flows as previously reported.

Recently Adopted Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013, with an option for early adoption. This pronouncement is effective for reporting periods beginning on or after January 1, 2013. The adoption of ASU 2011-11 did not have a material impact on the Company’s condensed consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-10, “Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities”. The amendments in this update remove the definition of a development stage entity from ASC Topic 915, Development Stage Entities, thereby removing the distinction between development stage entities and other reporting entities from GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of operations, cash flows, and stockholder’s equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. These amendments are effective for annual reporting periods beginning after December 15, 2014, with early application of the amendments permitted. The Company’s pharmacy operations commenced on April 1, 2014. This change in the nature of the Company’s operations included the recognition of significant revenues; as a result the Company is no longer defined as a development stage company for reporting dates beginning, April 1, 2014. With the change in the Company’s operations, revenue recognition and its immediate adoption of ASU No. 2014-10, the Company no longer presents or discloses any information required under ASC Topic 915.

Recently Announced Accounting Pronouncements

In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The objective of ASU 2014-19 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB ASC. The new guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016 for public companies. Early adoption is not permitted. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its consolidated financial statements.

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Acquisition - Pharmacy Creations, Llc - Schedule of Pro Forma Financial Information (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Business Combinations [Abstract]
Total revenues	$ 667,701	$ 744,299	$ 1,286,805	$ 1,453,050
Net loss	$ (2,595,725)	$ (2,054,878)	$ (4,854,258)	$ (3,374,915)

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Inventories (Tables)

6 Months Ended

Jun. 30, 2014

Inventory Disclosure [Abstract]

Schedule of Inventories

The composition of inventories as of June 30, 2014 was as follows:

	June 30, 2014
Raw materials	$	164,127
Finished goods		8,623
Total inventories	$	172,750

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Acquisition - Pharmacy Creations, Llc - Schedule of Intangible Assets Acquisition (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Fair Value	$ 659,000
Customer Relationships [Member]
Fair Value	596,000
Customer Relationships [Member] | Minimum [Member]
Useful Life	10 years
Customer Relationships [Member] | Maximum [Member]
Useful Life	15 years
Trade Name [Member]
Fair Value	5,000
Useful Life	5 years
Non-Compete Covenant [Member]
Fair Value	50,000
Useful Life	4 years
Licensing [Member]
Fair Value	$ 8,000
Useful Life	25 years

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Intangible Assets and Goodwill (Tables)

6 Months Ended

Jun. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets

The Company’s intangible assets at June 30, 2014 consist of the following:

	Amortization
	periods			Accumulated			Net
	(in years)	Cost		amortization			Carrying value
Customer relationships	10 - 15	$	596,000	$	(9,933	)	$	586,067
Trade name	5		5,000		(250	)		4,750
Non-compete	4		50,000		(6,250	)		43,750
Licenses	25		8,000		(1,000	)		7,000
		$	659,000	$	(17,433	)	$	641,567

Schedule of Amortization Expenses for Intangible Assets

Amortization expenses for intangible assets for the three and six months ended June 30, 2014 was as follows:

	For the		For the
	Three Months Ended		Six Months Ended
	June 30, 2014		June 30, 2014
Customer relationships	$	250	$	250
Trade name		9,933		9,933
Non-compete		6,250		6,250
Licenses		1,000		1,000
	$	17,433	$	17,433

Schedule of Estimated Future Amortization Expense

Estimated future amortization expense for the Company’s intangible assets as June 30, 2014 is as follows:

Years ending December 31,
Remainder of 2014	$	23,600
2015	$	53,500
2016	$	53,500
2017	$	53,500
2018	$	44,100

Schedule of Changes in Carrying Value of Goodwill

The changes in the carrying value of the Company’s goodwill during the six months ended June 30, 2014 were as follows:

Balance at January 1, 2014:
Goodwill	$	-
Acquisition of PC		331,621
Balance at June 30, 2014	$	331,621

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Acquisition - Pharmacy Creations, Llc

6 Months Ended

Jun. 30, 2014

Business Combinations [Abstract]

Acquisition - Pharmacy Creations, Llc

NOTE 2. ACQUISITION – PHARMACY CREATIONS, LLC

On April 1, 2014, the Company acquired all of the outstanding membership interests of PC (the “PC Acquisition”) from J. Scott Karolchyk and Bernard Covalesky (the “Sellers”), such that PC became a wholly-owned subsidiary of the Company. The acquisition of PC permits the Company to make and distribute its patent-pending proprietary drug formulations and other pharmaceutical preparations.

The transaction has been accounted for as a business combination and the financial results of PC have been included in the Company’s condensed consolidated financial statements for the period subsequent to its acquisition.

The estimated acquisition date fair value of consideration transferred, assets acquired and liabilities assumed for PC are presented below and represent the Company’s best estimates.

Fair Value of Consideration Transferred

At the closing of the PC Acquisition, the Company paid to the Sellers an aggregate cash purchase price of $600,000. In addition, the Sellers are entitled to receive additional contingent consideration upon the satisfaction of certain conditions:

● A contingent cash payment of $50,000, payable if PC earns revenue of over $3,500,000 for the 12 month period ending March 31, 2015.

● A contingent stock payment of up to an aggregate of 215,190 shares of the Company’s common stock, issuable only if the following revenue milestones are met:

● if the Company earns revenue of over $7,500,000 during the 12 month period ending March 31, 2016, all 215,190 shares;

● if the Company earns revenue of between $3,500,000 and $7,500,000 during the 12 month period ending March 31, 2016, an aggregate of that number of shares of Imprimis common stock equal to the amount that such revenue exceeds $3,500,000 divided by 18.5882, rounded down to the lower whole number (not to exceed 215,190 shares).

Management estimates that earnout payments will be made, however, it has applied a discount rate to represent the risk of these not occurring in determining the fair value. The total acquisition date fair value of the consideration to be transferred is estimated at approximately $1.1 million, as follows:

Cash payment to sellers at closing	$	600,000
Contingent common stock issuance to the Sellers		483,156
Contingent cash consideration to the Sellers		31,466
Total acquisition date fair value	$	1,114,622

A liability was recognized for an estimate of the acquisition date fair value of the future contingent common stock and cash payments and is included in the contingent acquisition obligations in the accompanying condensed consolidated balance sheet at June 30, 2014.

Allocation of Consideration Transferred

The identifiable assets acquired and liabilities assumed were recognized and measured as of the acquisition date based on their estimated fair values as of April 1, 2014, the acquisition date. The excess of the acquisition date fair value of consideration transferred over estimated fair value of the net tangible assets and intangible assets acquired was recorded as goodwill.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.

Cash and cash equivalents	$	4,982
Accounts receivable		58,420
Prepaid expenses and other assets		30,256
Inventory		213,190
Property and equipment		44,510
Intangible assets		659,000
Total identifiable assets acquired		1,010,358
Accounts payable and accrued liabilities		120,049
Other liabilities		107,308
Total liabilities assumed		227,357
Total identifiable assets less liabilities assumed		783,001
Goodwill		331,621
Net assets acquired	$	1,114,622

The fair value adjustments made herein and the allocation of purchase price is preliminary. The final allocation will be based on estimates and appraisals that will be finalized within one year of the closing of the PC Acquisition and based on the Company’s final evaluation of PC’s assets and liabilities, including both tangible and intangible assets. The final allocation of purchase price and the resulting effect on net income loss may differ from the amounts included herein. If the Company’s final purchase price allocation differs from the allocation used in preparing these condensed consolidated financial statements, the Company’s tangible and intangible assets and net loss could be higher or lower.

Results of Operations

The amount of revenues and operating loss of PC included in the Company’s condensed consolidated statement of operations from the acquisition date through the period ended June 30, 2014 is as follows:

Total revenues	$	664,370
Operating loss	$	(423,589	)

Pro Forma Financial Information

The following table presents the Company’s unaudited pro forma results (including PC) for the three and six months ended June 30, 2014 and 2013 as though the companies had been combined as of the beginning of each of the periods presented. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of each period presented nor is it indicative of results of operations which may occur in the future. The unaudited pro forma results presented include amortization charges for intangible assets and eliminations of intercompany transactions.

	For the			For the			For the			For the
	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Total revenues	$	667,701		$	744,299		$	1,286,805		$	1,453,050
Net loss	$	(2,595,725	)	$	(2,054,878	)	$	(4,854,258	)	$	(3,374,915	)

The Company did not incur material acquisition expenses related to the PC Acquisition.

Intangible Assets

Management engaged a third-party valuation firm to assist in the determination of the fair value of the intangible assets. In determining the fair value of the intangible assets the Company considered, among other factors, the best use of acquired assets, analyses of historical financial performance and estimates of future performance of PC. The fair values of the identified intangible assets related to the customer relationships, trade name, non-competition covenant, and state pharmacy licenses. The fair value of customer relationships and non-competition covenant were calculated using the income approach. The fair value of the trade name and pharmacy licenses were calculated using the cost approach. The following table sets forth the components of identified intangible assets associated with the PC acquisition and their estimated useful lives.

	Fair Value		Useful Life
Customer relationships	$	596,000	10 -15 years
Trade Name		5,000	5 years
Non-compete covenant		50,000	4 years
Licenses		8,000	25 years
	$	659,000

The Company determined the useful lives of intangible assets based on the expected future cash flows and contractual lives associated with the respective asset. Trade names represent the fair value of the brand and name recognition associated with the marketing of PC’s formulations and services. Customer relationships represent the expected benefit from future contracts which, at the date of acquisition, were reasonably anticipated to continue given the history and operating practices of PC. Non-competition covenant clause represents the contractual period and expected degree of adverse economic impact that would exist in its absence. Licenses represent eight state pharmacy licenses PC held at the date of acquisition.

Goodwill

Of the total estimated purchase price, $331,621 was allocated to goodwill and is attributable to expected synergies between the combined companies, including access for the Company to distribute its patent-pending proprietary drug formulations through PC's market channels and the assembled workforce. Goodwill represents the excess of the purchase price of the acquired business over the fair value of the underlying net tangible and intangible assets acquired. Goodwill resulting from the PC Acquisition will be tested for impairment at least annually and more frequently if certain indicators are present. In the event the Company determines that the value of goodwill has become impaired, it will incur an accounting charge for the amount of the impairment during the fiscal quarter in which the determination is made. None of the goodwill is expected to be deductible for income tax purposes.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	395,000,000	395,000,000
Common stock, shares issued	9,127,870	8,970,364
Common stock, shares outstanding	9,127,870	8,970,364

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Segment Information

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Segment Information

NOTE 12. SEGMENT INFORMATION

The Company operates the business on the basis of a single reportable segment, which is the business of providing sterile and non-sterile pharmaceutical compounding services. The Company’s chief operating decision-maker is the Chief Executive Officer, who evaluates the Company as a single operating segment.

The Company categorizes revenues by geographic area based on selling location. All operations are currently located in the United States; therefore, total revenues for 2014 and 2013 are attributed to the United States. All long-lived assets at June 30, 2014 are located in the United States.

The Company sells its compounded formulations to a large number of customers. Less than 10% of the Company’s total pharmacy sales were derived from a single customer for the three and six months ended June 30, 2014.

The Company receives its active pharmaceutical ingredients from three main suppliers. These suppliers accounted for 90% of drug and chemical purchases during the three and six months ended June 30, 2014.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 12, 2014
Document And Entity Information
Entity Registrant Name	Imprimis Pharmaceuticals, Inc.
Entity Central Index Key	0001360214
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		9,130,376
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2014

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Subsequent Events

6 Months Ended

Jun. 30, 2014

Subsequent Events [Abstract]

Subsequent Events

NOTE 13. SUBSEQUENT EVENTS

The Company has performed an evaluation of events occurring subsequent to June 30, 2014 through the filing date of this Quarterly Report. Based on our evaluation, nothing other than the events described below need to be disclosed.

From July 1, 2014 through the filing date of this Quarterly Report, the Company issued a total of 2,506 shares of common stock for gross proceeds of $9,619 for stock option exercises.

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Condensed Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Revenues:
Pharmacy sales, net	$ 664,370		$ 664,370
License revenues	3,331	2,500	4,741	5,000
Total revenues	667,701	2,500	669,111	5,000
Cost of pharmacy sales	(476,549)		(476,549)
Gross profit	191,152	2,500	192,562	5,000
Operating Expenses:
Selling and marketing	469,188		825,896
General and administrative	2,289,233	1,556,145	4,209,255	2,576,094
Research and development	35,571	677,347	95,723	1,132,447
Total operating expenses	2,793,992	2,233,492	5,130,874	3,708,541
Loss from operations	(2,602,840)	(2,230,992)	(4,938,312)	(3,703,541)
Other income (expense):
Interest expense	(1,565)		(1,565)
Interest income	8,680	12,940	18,989	20,008
Total other income, net	7,115	12,940	17,424	20,008
Net loss	$ (2,595,725)	$ (2,218,052)	$ (4,920,888)	$ (3,683,533)
Basic and diluted net loss per share of common stock	$ (0.28)	$ (0.25)	$ (0.54)	$ (0.44)
Weighted average number of shares of common stock outstanding, basic and diluted	9,109,842	8,890,668	9,060,496	8,342,497

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Accounts Payable and Accrued Expenses

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Accounts Payable and Accrued Expenses

NOTE 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

	June 30, 2014
	(unaudited)		December 31, 2013
Accounts payable	$	750,106	$	261,924
Other accrued expenses		-		50,000
Total accounts payable and accrued expenses	$	750,106	$	311,924

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Intangible Assets and Goodwill

6 Months Ended

Jun. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

NOTE 6. INTANGIBLE ASSETS AND GOODWILL

The Company’s intangible assets at June 30, 2014 consist of the following:

	Amortization
	periods			Accumulated			Net
	(in years)	Cost		amortization			Carrying value
Customer relationships	10 - 15	$	596,000	$	(9,933	)	$	586,067
Trade name	5		5,000		(250	)		4,750
Non-compete	4		50,000		(6,250	)		43,750
Licenses	25		8,000		(1,000	)		7,000
		$	659,000	$	(17,433	)	$	641,567

Amortization expenses for intangible assets for the three and six months ended June 30, 2014 was as follows:

	For the		For the
	Three Months Ended		Six Months Ended
	June 30, 2014		June 30, 2014
Customer relationships	$	250	$	250
Trade name		9,933		9,933
Non-compete		6,250		6,250
Licenses		1,000		1,000
	$	17,433	$	17,433

Estimated future amortization expense for the Company’s intangible assets as June 30, 2014 is as follows:

Years ending December 31,
Remainder of 2014	$	23,600
2015	$	53,500
2016	$	53,500
2017	$	53,500
2018	$	44,100

The changes in the carrying value of the Company’s goodwill during the six months ended June 30, 2014 were as follows:

Balance at January 1, 2014:
Goodwill	$	-
Acquisition of PC		331,621
Balance at June 30, 2014	$	331,621

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Prepaid Expenses and Other Current Assets (Tables)

6 Months Ended

Jun. 30, 2014

Prepaid Expenses And Other Current Assets

Schedule of Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

	June 30, 2014
	(unaudited)		December 31, 2013
Prepaid stock-based consulting expenses	$	-	$	26,649
Prepaid rent		21,875		16,288
Prepaid insurance		180,519		39,166
Other prepaid expenses and deposits		121,851		22,964
Total prepaid expenses and other current assets	$	324,245	$	105,067

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Overview, Basis of Presentation and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Company and Background

Company and Background

Imprimis Pharmaceuticals, Inc. (“Imprimis” or the “Company”) is a vertically-integrated specialty pharmaceutical company dedicated to delivering high quality, novel and customizable medicines to physicians and patients at accessible prices. Imprimis is pioneering a new commercial pathway using compounding pharmacies for the formulation and distribution of its proprietary drug therapies which include formulations in ophthalmology, wound management and urology.

On April 1, 2014, the Company acquired Pharmacy Creations, LLC (“PC”), a New Jersey based compounding pharmacy; effective with this acquisition the Company commenced sales and marketing efforts surrounding Imprimis’ portfolio of proprietary and non-proprietary drug formulations.

Basis of Presentation

Basis of Presentation

Imprimis has prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to the Company’s audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

Business Combinations

Business Combinations

The Company accounts for business combinations by recognizing the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair values on the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, especially at acquisition date with respect to intangible assets, estimated contingent consideration payments and pre-acquisition contingencies. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:

● future expected cash flows from product sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies and patents; and

● discount rates utilized in valuation estimates.

Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, such as changes in our estimate of the revenue targets, will be recognized in earnings in the period of the estimated fair value change. A change in fair value of the acquisition-related contingent consideration could have a material effect on the financial position, results of operations, or cash flows in the period of the change in estimate.

Research and Development

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, and costs related to clinical trials, contract services and outsourced contracts.

Intellectual Property

Intellectual Property

The costs of acquiring intellectual property rights to be used in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where the Company has not identified an alternative future use for the acquired rights, and are capitalized in situations where the Company has identified an alternative future use. No costs associated with acquiring intellectual property rights have been capitalized to date. Costs of maintaining intellectual property rights are expensed as incurred.

Revenue Recognition and Deferred Revenue

Revenue Recognition and Deferred Revenue

The Company recognizes revenues when all of the following criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. The Company began generating revenues upon the acquisition of PC in the second quarter of 2014, which includes sales of certain of our proprietary compounded drug formulations.

Product Revenues

Determination of criteria (3) and (4) is based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product has not been delivered or are subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

License Revenues

License arrangements may consist of non-refundable upfront license fees, data transfer fees, research reimbursement payments, exclusive licensed rights to patented or patent pending compounds, technology access fees, and various performance or sales milestones. These arrangements can be multiple element arrangements.

Non-refundable fees that are not contingent on any future performance by us, and require no consequential continuing involvement on our part, are recognized as revenue when the license term commences and the licensed data, technology and/or compounded drug preparations is delivered. Such deliverables may include physical quantities of compounded drug preparations, design of the compounded drug preparations and structure-activity relationships, the conceptual framework and mechanism of action, and rights to the patents or patents pending for such compounded drug preparations. We defer recognition of non-refundable fees if we have continuing performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee that is separate and independent of our performance under the other elements of the arrangement. In addition, if we have required continuing involvement through research and development services that are related to our proprietary know-how and expertise of the delivered technology, or can only be performed by us, then such up-front fees are deferred and recognized over the period of continuing involvement. Guaranteed minimum annual royalties are recognized on a straight-line basis over the applicable term.

During the three and six months ended June 30, 2014 and 2013, the Company recorded $3,331, $4,741 and $2,500, $5,000, respectively, in revenues, related to royalty payments. In January 2013, the Company entered into a license agreement with ResolutionMD, LLC granting ResolutionMD, LLC rights to its Accudel delivery technology to be used for anti-cellulite formulations. Under the license agreement, the Company received $10,000 as a guaranteed minimum royalty amount for the year ended December 31, 2013. The Company is due annual guaranteed minimum royalty payments and additional royalty payments based on a percent (generally, 5%-7%) of net sales of any products covered under the license agreement in excess of the guaranteed amounts. The license agreement with ResolutionMD, LLC, unless terminated earlier, has a term of ten years following the first commercial sale of a product that is covered under the license agreement. The Company does not anticipate that the license agreement with ResolutionMD, LLC will generate significant revenues for the 2014 fiscal year.

Cost of Sales

Cost of Sales

Cost of sales includes direct and indirect costs to manufacture formulations and products sold, including active pharmaceutical ingredients, personnel costs, packaging, storage, royalties (see Note 11), shipping and handling costs and the write-off of obsolete inventory.

Income Taxes

Income Taxes

The Company accounts for income taxes under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes”, or ASC 740. As of June 30, 2014, there were no unrecognized tax benefits included in the condensed consolidated balance sheets that would, if recognized, affect the effective tax rate. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties in its condensed consolidated balance sheets at June 30, 2014 and December 31, 2013, and has not recognized interest and/or penalties in the condensed consolidated statements of operations for the periods ended June 30, 2014 and 2013. The Company is subject to taxation in the United States and California. The Company’s tax years for 2000 and forward are subject to examination by the federal and state tax authorities due to the carry forward of unutilized net operating losses.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash equivalents include short-term, highly liquid investments with maturities of three months or less at the time of acquisition.

Concentrations of Credit Risk

Concentrations of Credit Risk

The Company places its cash with financial institutions deemed by management to be of high credit quality. The Federal Deposit Insurance Corporation (“FDIC”) provides basic deposit coverage with limits up to $250,000 per owner. At June 30, 2014, the Company had approximately $11.8 million in cash deposits in excess of FDIC limits.

Accounts Receivable

Accounts Receivable

The balance in accounts receivable consists of revenue amounts the Company has invoiced and recognized, but for which payment has not been received. Accounts receivable are presented net of an allowance for doubtful accounts in the amount of $3,957 as of June 30, 2014.

Inventories

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out (“FIFO”) basis. The Company evaluates the carrying value of inventories on a regular basis, based on the price expected to be obtained for products in their respective markets compared with historical cost. Write-downs of inventories are considered to be permanent reductions in the cost basis of inventories.

The Company also regularly evaluates its inventories for excess quantities and obsolescence (expiration), taking into account such factors as historical and anticipated future sales or use in production compared to quantities on hand and the remaining shelf life of products and active pharmaceutical ingredients on hand. The Company establishes reserves for excess and obsolete inventories as required based on its analyses.

Furniture and Equipment

Furniture and Equipment

Furniture and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight-line method over the estimated useful life of the asset. Leasehold improvements are amortized over the estimated useful life or remaining lease term, whichever is shorter. Computer software and hardware, and furniture and equipment are depreciated over three to five years.

Goodwill and Intangible Assets

Goodwill and Intangible Assets

The Company will review its goodwill and indefinite-lived intangible assets for impairment as of January 1 of each year or when an event or a change in circumstances indicates the fair value of a reporting unit may be below its carrying amount. Events or changes in circumstances considered as impairment indicators include but are not limited to the following:

● significant underperformance of the Company’s business relative to expected operating results;

● significant adverse economic and industry trends;

● significant decline in the Company’s market capitalization for an extended period of time relative to net book value; and

● expectations that a reporting unit will be sold or otherwise disposed.

The annual goodwill impairment test consists of a two-step process as follows:

Step 1. The Company compares the fair value of each reporting unit to its carrying amount, including the existing goodwill. The fair value of each reporting unit is determined using a discounted cash flow valuation analysis. The carrying value of each reporting unit is determined by specifically identifying and allocating the assets and liabilities to each reporting unit based on headcount, relative revenues, or other methods as deemed appropriate by management. If the carrying amount of a reporting unit exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired and the Company then performs the second step of the impairment test. If the fair value of a reporting unit exceeds its carrying amount, no further analysis is required.

Step 2. If further analysis is required, the Company compares the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and its liabilities in a manner similar to a purchase price allocation, to its carrying amount. If the carrying amount of the reporting unit’s goodwill exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

Long-lived assets, such as furniture and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material.

During the three and six months ended June 30, 2014 and 2013, the Company did not recognize any impairment of long-lived assets.

Deferred Rent

Deferred Rent

The Company accounts for rent expense related to its operating leases by determining total minimum rent payments on the leases over their respective periods and recognizing the rent expense on a straight-line basis. The difference between the actual amount paid and the amount recorded as rent expense in each fiscal year is recorded as an adjustment to deferred rent.

Fair Value Measurements

Fair Value Measurements

Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The established fair value hierarchy prioritizes the use of inputs used in valuation methodologies into the following three levels:

● Level 1: Applies to assets or liabilities for which there are quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.

● Level 2: Applies to assets or liabilities for which there are significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

● Level 3: Applies to assets or liabilities for which there are significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. For example, Level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.

At June 30, 2014 and December 31, 2013, the Company did not have any financial assets or liabilities which are measured on a recurring basis. At June 30, 2014 and December 31, 2013, the Company’s financial instruments include cash and cash equivalents, restricted short-term investments, accounts receivable, accounts payable and accrued expenses, accrued payroll and related liabilities, customer deposits, and capital lease. The carrying amount of these financial instruments, except for the restricted short-term investment and capital lease, approximates fair value due to the short-term maturities of these instruments. The Company’s restricted short-term investments are carried at amortized cost which approximates fair value. Based on borrowing rates currently available to the Company, the carrying value of the capital lease approximates fair value.

Stock-Based Compensation

Stock-Based Compensation

All stock-based payments to employees and consultants, including grants of stock options, warrants, restricted stock units (“RSUs”) and restricted stock, are recognized in the condensed consolidated financial statements based upon their fair values. The Company uses the Black-Scholes-Merton option pricing model and Monte Carlo Simulation to estimate the fair value of stock-based awards. The 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.

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows FASB guidance. As such, the value of the applicable stock-based compensation is periodically remeasured and income or expense is recognized during their vesting terms. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is primarily recognized over the term of the consulting agreement. In accordance with FASB guidance, an asset acquired in exchange for the issuance of fully vested, nonforfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company records the fair value of nonforfeitable equity instruments issued for future consulting services as prepaid stock-based consulting expenses in its consolidated balance sheets.

The Company recorded stock-based compensation (including the amortization of stock-based prepaid consulting fees) related to equity instruments granted to employees, directors and consultants as follows:

	For the		For the		For the		For the
	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Employees - selling and marketing	$	16,994	$	-	$	30,861	$	-
Employees - general and administrative		561,733		378,895		1,105,000		464,898
Employees - research and development		-		44,619		-		111,750
Directors - general and administrative		42,147		45,458		84,293		248,250
Consultants - selling and marketing		14,730		-		30,783		-
Consultants - general and administrative		18,337		345,605		86,839		505,527
Consultants - research and development		4,814		180,559		8,916		117,959
Total	$	658,755	$	995,136	$	1,346,692	$	1,448,384

During the six months ended June 30, 2014, the Company issued 6,868 shares of common stock, valued at $50,000 in connection with the resolution of a contract dispute.

Basic and Diluted Net Loss per Common Share

Basic and Diluted Net Loss per Common Share

Basic net loss per common share is computed by dividing net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common and common equivalent shares, such as stock options and warrants outstanding during the period.

Basic and diluted net loss applicable to common stock per share is computed using the weighted average number of shares of common stock outstanding during the period. Common stock equivalents (using the treasury stock or, “if converted” method) from convertible notes, preferred stock, stock options, unvested restricted stock units (“RSUs”) and warrants were 3,419,149 and 3,138,004 at June 30, 2014 and 2013, respectively, and are excluded from the calculation of diluted net loss per share for all periods presented because the effect is anti-dilutive.

The following table shows the computation of basic and diluted net loss per share of common stock for the three and six months ended June 30, 2014 and 2013:

	For the			For the			For the			For the
	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Numerator – net loss	$	(2,595,725	)	$	(2,218,052	)	$	(4,920,888	)	$	(3,683,533	)
Denominator – weighted average number of shares of common stock outstanding, basic and diluted		9,109,842			8,890,668			9,060,496			8,342,497
Net loss per share, basic and diluted	$	(0.28	)	$	(0.25	)	$	(0.54	)	$	(0.44	)

Use of Estimates

Use of Estimates

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

Reclassifications

Reclassifications

Certain prior period items and amounts have been reclassified to conform to the classifications used to prepare the 2014 condensed consolidated financial statements. The Company has classified certain expenses as selling and marketing whereas in prior periods certain selling and marketing expenses were included as an expense line item titled selling, general and administrative in the condensed consolidated statements of operations. These reclassifications had no material impact on the Company’s financial position, results of operations, or cash flows as previously reported.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013, with an option for early adoption. This pronouncement is effective for reporting periods beginning on or after January 1, 2013. The adoption of ASU 2011-11 did not have a material impact on the Company’s condensed consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-10, “Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities”. The amendments in this update remove the definition of a development stage entity from ASC Topic 915, Development Stage Entities, thereby removing the distinction between development stage entities and other reporting entities from GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of operations, cash flows, and stockholder’s equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. These amendments are effective for annual reporting periods beginning after December 15, 2014, with early application of the amendments permitted. The Company’s pharmacy operations commenced on April 1, 2014. This change in the nature of the Company’s operations included the recognition of significant revenues; as a result the Company is no longer defined as a development stage company for reporting dates beginning April 1, 2014. With the change in the Company’s operations, revenue recognition and its immediate adoption of ASU No. 2014-10, the Company no longer presents or discloses any information required under ASC Topic 915.

Recently Announced Accounting Pronouncements

Recently Announced Accounting Pronouncements

In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The objective of ASU 2014-19 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB ASC. The new guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016 for public companies. Early adoption is not permitted. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its consolidated financial statements.

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Employee Savings Plan

6 Months Ended

Jun. 30, 2014

Compensation and Retirement Disclosure [Abstract]

Employee Savings Plan

NOTE 10. EMPLOYEE SAVINGS PLAN

The Company has established an employee savings plan pursuant to Section 401(k) of the Internal Revenue Code, effective January 1, 2014. The plan allows participating employees to deposit into tax deferred investment accounts up to 100% of their salary, subject to annual limits. The Company makes contributions to the plan in an amount not less than 3% of the participants’ annual cash compensation, subject to annual limits. The Company contributed approximately $33,000 to the plan during the six months ended June 30, 2014.

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Debt

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Debt

NOTE 8. DEBT

Line of Credit

PC entered into a working capital line of credit agreement with a financial institution on March 21, 2008 and subsequently renewed the agreement on September 6, 2013. The line of credit had a maturity date of September 1, 2016. The line of credit agreement allowed PC to borrow of up to $75,000 and was secured by a first security interest on all business assets. PC was required to pay regular monthly payments of all accrued unpaid interest due monthly, with interest on the line of credit calculated as the greater of one of the following: (a) the Prime Rate (as defined and published in the Wall Street Journal) plus 1.00% per annum, or (b) 4.25% per annum. The line of credit agreement was terminated following the acquisition of PC, and no amounts were borrowed, paid or outstanding during the period ended June 30, 2014 following the Company’s acquisition of PC.

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Stockholders' Equity and Stock-based Compensation

6 Months Ended

Jun. 30, 2014

Equity [Abstract]

Stockholders' Equity and Stock-based Compensation

NOTE 9. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Common Stock

During April 2014, the Company issued 6,868 shares of common stock, valued at $50,000, in connection with the resolution of a contract dispute.

During the six months ended June 30, 2014, the Company issued a total of 121,045 shares of common stock for gross proceeds of $446,610 for stock option exercises.

During the six months ended June 30, 2014, the Company issued 23,265 shares of common stock in connection with the exercise of common stock options to purchase 44,164 shares of common stock with exercise prices of $3.60 - $4.27 per share pursuant to cashless exercise provisions.

During the six months ended June 30, 2014, the Company issued 6,328 shares of common stock for gross proceeds of $37,493 for warrant exercises.

Preferred Stock

At June 30, 2014, the Company had 5,000,000 shares of preferred stock, $0.001 par value, authorized and no shares of preferred stock issued and outstanding.

Stock Option Plan

On September 17, 2007, the Company’s Board of Directors and stockholders adopted the Company’s 2007 Incentive Stock and Awards Plan, which was subsequently amended on November 5, 2008, February 26, 2012, July 18, 2012 , May 2, 2013 and September 27, 2013 (as amended, the “Plan”). As of June 30, 2014, the Plan provides for the issuance of a maximum of an aggregate of 5,000,000 shares of the Company’s common stock. The purpose of the Plan is to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons in the Company’s development and financial success. Under the Plan, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the Internal Revenue Code, non-qualified stock options and restricted stock. The Plan is administered by the Compensation Committee of the Company’s Board of Directors.

A summary of the Plan activity with respect to options to purchase common stock for the six months ended June 30, 2014 is as follows:

	Number of shares			Weighted Avg. Exercise Price		Weighted Avg. Remaining Contractual Life		Aggregate Intrinsic Value
Options outstanding - January 1, 2014		1,328,790		$	5.31
Options granted		225,886		$	6.60
Options exercised		(165,209	)	$	3.69
Options cancelled/forfeit		(75,000	)	$	6.30
Options outstanding - June 30, 2014		1,314,467		$	5.66		6.41	$	2,532,926
Options exercisable		795,441		$	4.99		4.67	$	2,046,478
Options vested and expected to vest		1,262,564		$	5.64		6.31	$	2,484,281

The aggregate intrinsic value in the table above represents the total pre-tax amount of the proceeds, net of exercise price, which would have been received by option holders if all option holders had exercised and immediately sold all options with an exercise price lower than the market price on June 30, 2014, based on the closing price of the Company’s common stock of $6.94 on that date. The intrinsic value of stock options exercised during the six months ended June 30, 2014 was $644,113.

During the six months ended June 30, 2014, the Company granted stock options to certain employees, directors and consultants. The stock options were granted with an exercise price equal to the current market price of the Company’s common stock, as reported by the applicable quotation system of securities exchange on which the common stock was then quoted or listed, at the grant date and have contractual terms ranging from 5 to 10 years. Vesting terms for options granted to employees, directors and consultants typically included one of the following vesting schedules: 25% or 33% of the shares subject to the option vest and become exercisable on the first anniversary of the grant date and the remaining 75% or 67%, respectively, of the shares subject to the option vest and become exercisable quarterly in equal installments thereafter over two or three years, respectively; quarterly vesting over a three year period; annual vesting over three years; or monthly, quarterly or 100% vesting associated with the provision or completion of services provided under contracts with consultants. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plan) and in the event of certain modifications to the option award agreement.

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model. Prior to April 1, 2013, expected volatilities were based on historical volatility of the Company’s common stock and other factors. Following April 1, 2013, the expected volatility is based on the historical volatilities of the common stock of comparable publicly traded companies based on the Company’s belief that it has significantly changed its business operations and focus, and as a result, it currently has limited relevant historical data regarding the volatility of its stock price on which to base a meaningful estimate of expected volatility. The expected term of options granted was determined in accordance with the “simplified approach” as the Company has limited, relevant, historical data on employee exercises and post-vesting employment termination behavior. The expected risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the 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. For option grants to employees and directors, the Company assigns a forfeiture factor of 10%. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods. Utilizing these assumptions, the fair value is determined at the date of grant.

The table below illustrates the fair value per share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted to employees:

	2014
Weighted-average fair value of options granted	$	5.16
Expected terms (in years)		5.81 - 6.91
Expected volatility		100 - 102%
Risk-free interest rate		1.37 - 1.65%
Dividend yield		-

The table below illustrates the fair value per share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted to consultants:

	2014
Weighted-average fair value of options granted	$	6.15
Expected terms (in years)		2.54 - 10
Expected volatility		80 - 97%
Risk-free interest rate		0.10 - 1.64%
Dividend yield		-

The following table summarizes information about stock options outstanding and exercisable at June 30, 2014:

	Options Outstanding						Options Exercisable
			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
	Number		Contractual		Exercise		Number		Exercise
Range of Exercise Prices	Outstanding		Life in Years		Price		Exercisable		Price
$2.40 -$3.20		250,000		5.07	$	2.80		250,000	$	2.80
$3.60 - $4.51		515,107		4.95	$	4.25		375,359	$	4.33
$5.49 - $7.71		249,225		9.28	$	6.67		35,030	$	6.02
$8.06 - $10.75		293,335		7.73	$	8.99		128,252	$	9.02
28.00 - $80.00		6,800		5.63	$	40.86		6,800	$	40.86
		1,314,467		6.41	$	5.66		795,441	$	4.99

As of June 30, 2014, there was approximately $2,684,000 of total unrecognized compensation expense related to unvested stock options granted under the Plan. That expense is expected to be recognized over the weighted-average remaining vesting period of 2.48 years. The stock-based compensation for all stock options was $318,823 and $643,117 during the three and six months ended June 30, 2014, respectively.

Restricted Stock Units

Restricted stock unit, or RSU, awards are granted subject to certain vesting requirements and other restrictions, including performance and market based vesting criteria. The grant-date fair value of the RSUs, which has been determined based upon the market value of the Company’s shares on the grant date, is expensed over the vesting period. Unvested portions of RSUs issued to consultants are remeasured on an interim basis until vesting criteria is met. On May 2, 2013, the Board of Directors of the Company amended and restated the Plan to provide for the issuance of RSUs under the Plan.

During March 2014, the Company terminated its agreement with a consultant that provided for the grant of 100,000 RSUs that had vesting criteria based on the satisfaction of certain market-based conditions subject to the consultant’s continued service, among other things. Upon termination of the agreement, all 100,000 RSUs were forfeited and deemed reconveyed to the Company.

A summary of the Company’s RSU activity and related information for the six months ended June 30, 2014 is as follows:

	Number of RSUs			Weighted Average Grant Date Fair Value
RSUs outstanding - January 1, 2014		1,389,960		$	3.19
RSUs granted		-		$	-
RSUs vested		-		$	-
RSUs cancelled/forfeited		(100,000	)	$	(2.88	)
Balance at June 30, 2014		1,289,960		$	3.22

As of June 30, 2014, the total unrecognized compensation expense related to unvested RSUs was approximately $2,418,000 which is expected to be recognized over a weighted-average period of 1.80 years, based on estimated vesting schedules. The stock-based compensation for RSU’s during the three months and six months ended June 30, 2014 was $339,932 and $676,926, respectively.

Warrants

From time to time, the Company issues warrants to purchase shares of the Company’s common stock to investors, note holders, underwriters and to non-employees for services rendered or to be rendered in the future.

A summary of the activity of the warrants for the six months ended June 30, 2014 is as follows:

	Number of Shares Subject to Warrants Outstanding			Weighted Avg. Exercise Price
Warrants outstanding - January 1, 2014		821,050		$	5.94
Granted		-		$	-
Exercised		(6,328	)	$	5.93
Expired		-		$	-
Warrants outstanding and exercisable - June 30, 2014		814,722		$	5.94
Weighted average remaining contractual life of the outstanding warrants in years - June 30, 2014		1.70

The fair value of each warrant is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The intrinsic value of warrants exercised during the six months ended June 30, 2014 was $8,701.

A list of the warrants outstanding as of June 30, 2014 is included in the table below:

	Warrants Outstanding					Warrants Exercisable
		Warrants		Exercise		Warrants		Expiration
Warrant Series	Issue Date	Outstanding		Price		Exercisable		Date
DermaStar	4/25/2012		48,262	$	5.93		48,262	4/25/2015
April PPM	4/25/2012		496,600	$	5.93		496,600	4/25/2015
Underwriter Warrants	2/7/2013		179,860	$	5.25		179,860	2/7/2018
IR Consultant	2/28/2013		30,000	$	5.25		30,000	2/28/2016
IR Consultant	7/19/2013		60,000	$	8.50		60,000	7/19/2018
			814,722	$	5.94		814,722

The stock-based compensation for warrants was $26,649 for the six months ended June 30, 2014.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

NOTE 11. COMMITMENTS AND CONTINGENCIES

Capital Lease

The Company leases equipment under a capital lease with an interest rate of 4.25% per annum. At June 30, 2014, future payments under this capital lease are as follows:

Years ending December 31,
Remainder of 2014	$	3,505
2015		7,009
2016		7,009
Total minimum lease payments		17,523
Less amount representing interest		(927	)
Present value of future minimum lease payments		16,596
Less current portion		(6,428	)
Capital lease obligation, net of current portion	$	10,168

The value of the equipment under capital lease as of June 30, 2014 was $18,913, with related accumulated depreciation of $3,153.

Operating Leases

In June 2014, the Company entered into a lease agreement for 7,565 square feet of office space from September 1, 2014 to October 31, 2018, effective September 1, 2014. Monthly rent begins on September 1, 2014 in the amount of $20,426, with a 3% increase in the base rent amount on an annual basis. The lease agreement allows for the monthly rent amount to be abated for two months at various times during the lease agreement.

In April 2013, the Company entered into a lease agreement for 3,874 square feet of office space from May 1, 2013 to September 30, 2016, effective May 1, 2013. Monthly rent began on May 1, 2013 in the amount of $10,406, with a 3% increase in the base rent amount on an annual basis. The lease agreement allows for the monthly rent amount to be abated for five months at various times during the lease agreement.

Once the Company relocates to the new office space (7,565 square feet), effective September 1, 2014, the Company’s intention is to sublet the 3,874 square feet of its current offices through its remaining lease term.

In January 2010, PC entered into a lease agreement for 3,137 square feet of office and laboratory space from January 1, 2010 to December 31, 2015. Monthly rent began on January 1, 2010 in the amount of $3,594.

Legal

In the ordinary course of business, the Company may face various claims brought by third parties and the Company may, from time to time, make claims or take legal actions to assert the Company’s rights, including intellectual property rights, contractual disputes and other commercial disputes. Any of these claims could subject the Company to litigation. Management believes the outcomes of currently pending claims are not likely to have a material effect on the Company’s condensed consolidated financial position and results of operations.

Indemnities and Guarantees

In addition to the indemnification provisions contained in the Company’s charter documents, the Company generally enters into separate indemnification agreements with the Company’s directors and officers. These agreements require the Company, among other things, to indemnify the director or officer against specified expenses and liabilities, such as attorneys’ fees, judgments, fines and settlements, paid by the individual in connection with any action, suit or proceeding arising out of the individual’s status or service as the Company’s director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the individual with respect to which the individual may be entitled to indemnification by the Company. The Company also indemnifies its lessors in connection with its facility leases for certain claims arising from the use of the facilities. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying condensed consolidated balance sheets.

PCCA License Agreement

Professional Compounding Centers of America, or PCCA, has granted to the Company and its affiliates certain exclusive rights under PCCA’s proprietary formulations, other technologies and data, and the Company has 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 the Company fails to commence efforts to research and develop future products within certain time periods, as set forth in the PCCA License Agreement.

PCCA Strategic Alliance Agreement

On February 18, 2013, the Company entered into a Strategic Alliance Agreement with PCCA. Under this agreement, PCCA has agreed that during the term of the agreement, it will not introduce any of PCCA’s members or customers meeting certain criteria (the “Member/Customers”) to any third party whereby such third party licenses or otherwise acquires the intellectual property rights of such Member/Customer, without first presenting such an opportunity to the Company. PCCA may, but is not required to, present such opportunities to the Company, use reasonable efforts to facilitate an introductory meeting between the Member/Customer and the Company, and to further provide certain key technical assistance to a potential development project associated with the Member/Customer’s intellectual property rights. In the event the Company and a Member/Customer introduced to the Company by PCCA enter into a commercial agreement for the license or acquisition of the intellectual property rights owned by the Member/Customer, PCCA will be entitled to receive certain cash fees up to an aggregate of $100,000, as well as a commission based on net sales, if any, generated by the Company as a result of the acquired intellectual property rights. The agreement has a term of one year and is automatically extended for successive one year periods unless either party gives the other written notice of non-renewal. This agreement automatically renewed for a one-year term on February 18, 2014.

Asset Purchase Agreements

The Company has acquired intellectual property rights related to certain proprietary innovations from certain inventors (the “Inventors”) through multiple asset purchase agreements. The asset purchase agreements provide that the Inventors will cooperate with the Company in obtaining patent protection for the acquired intellectual property and that the Company will use commercially reasonable efforts to research, develop and commercialize a product based on the acquired intellectual property. In addition, the Company has acquired a right of first refusal on additional intellectual property and drug development opportunities presented by these Inventors.

In consideration for the acquisition of the intellectual property rights, the Company is obligated to make payments to the Inventors based on the completion of certain milestones, generally consisting of: (1) a payment payable within 30 days after the issuance of the first patent in the United States arising from the acquired intellectual property (if any); (2) a payment payable within 30 days after the Company files the first Investigational New Drug application (“IND”) with the FDA for the first product arising from the acquired intellectual property (if any); (3) for certain of the Inventors, a payment payable within 30 days after the Company files the first New Drug application with the FDA for the first product arising from the acquired intellectual property (if any); and (4) certain royalty payments based on the net receipts received by the Company in connection with the sale or licensing of any product based on the acquired intellectual property (if any), after deducting (among other things) the Company’s development costs associated with such product. If, following five years after the date of the applicable asset purchase agreement, the Company either (a) for certain of the Inventors, has not filed an IND or, for the remaining Inventors, has not initiated a study where data is derived, or (b) has failed to generate royalty payments to the Inventors for any product based on the acquired intellectual property, the Inventors may terminate the applicable asset purchase agreement and request that the Company re-assign the acquired technology to the Inventors.

Novel Drug and Eye Care Northwest Asset Purchase Agreement – Related Party

On August 8, 2013, the Company acquired intellectual property rights related to certain proprietary innovations from the compounding pharmacy operations of Novel Drug Solutions, LLC (“NDS”) and from Eye Care Northwest, Inc. (together referred to as the “Sellers”) pursuant to an Asset Purchase Agreement, as amended (the “ECN APA”). As part of this acquisition the Company has acquired intellectual property assets, including a provisional patent application related to injectable ophthalmological compositions having anti-bacterial and anti-inflammatory properties for the prevention of post-ophthalmic surgery complications. In addition, under the ECN APA, the Company has a right of first refusal on any of the Sellers’ additional intellectual property and drug development opportunities. The ECN APA provides that the Sellers will cooperate with us in obtaining patent protection for the acquired intellectual property, among other things, and that we will use commercially reasonable efforts to research, develop and commercialize a product based on the acquired intellectual property.

In consideration for the acquisition, the Company is obligated to make the following payments to NDS: (1) one payment payable within 30 days after the issuance of the first patent in the United States arising from the acquired intellectual property (if any); (2) one payment payable within 30 days after the Company files the first IND with the FDA for the first product arising from the acquired intellectual property (if any); (3) one payment payable within 30 days after the Company files the first New Drug application with the FDA for the first product; and (4) certain royalty payments based on the net receipts received by the Company in connection with the sale or licensing of any product based on the acquired intellectual property (if any), after deducting (among other things) the Company’s development costs associated with such product. If following five years of the date of the ECN APA the Company either has not filed an IND or has failed to generate royalty payments to NDS for any product based on the acquired intellectual property, NDS may terminate the ECN APA and request that the Company re-assign the acquired technology to NDS.

NDS is owned by the former owners of PC and other full-time employees of the Company. During the six months ended June 30, 2014 the Company did not make any payments to NDS, and no amounts are due and payable to NDS at June 30, 2014.

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Acquisition - Pharmacy Creations, Llc - Schedule of Result of Operation from Acquisition (Details) (Pharmacy Creations, LLC [Member], USD $)	6 Months Ended
	Jun. 30, 2014
Pharmacy Creations, LLC [Member]
Total revenues	$ 664,370
Operating loss	$ (423,589)

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Stockholders' Equity and Stock-based Compensation - Schedule of Warrants Activity (Details) (Warrant [Member], USD $)	6 Months Ended
	Jun. 30, 2014
Warrant [Member]
Number of shares, Outstanding, Beginning balance	821,050
Number of Shares Subject to Warrants Outstanding, Granted
Number of Shares Subject to Warrants Outstanding, Exercised	(6,328)
Number of Shares Subject to Warrants Outstanding, Expired
Number of shares, Outstanding, Ending balance	814,722
Weighted average remaining contractual life of the outstanding warrants in years	1 year 8 months 12 days
Weighted Avg. Exercise Price, Outstanding, Beginning balance	$ 5.94
Weighted Avg. Exercise Price, Granted
Weighted Avg. Exercise Price, Exercised	$ 5.93
Weighted Avg. Exercise Price, Expired
Weighted Avg. Exercise Price, Outstanding, Ending balance	$ 5.94

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Acquisition - Pharmacy Creations, Llc (Tables)

6 Months Ended

Jun. 30, 2014

Business Combinations [Abstract]

Schedule of Acquisition Date Fair Value of Consideration

The total acquisition date fair value of the consideration to be transferred is estimated at approximately $1.1 million, as follows:

Cash payment to sellers at closing	$	600,000
Contingent common stock issuance to the Sellers		483,156
Contingent cash consideration to the Sellers		31,466
Total acquisition date fair value	$	1,114,622

Schedule of Estimated Fair Value of Assets Acquired and Liabilities Assumed

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.

Cash and cash equivalents	$	4,982
Accounts receivable		58,420
Prepaid expenses and other assets		30,256
Inventory		213,190
Property and equipment		44,510
Intangible assets		659,000
Total identifiable assets acquired		1,010,358
Accounts payable and accrued liabilities		120,049
Other liabilities		107,308
Total liabilities assumed		227,357
Total identifiable assets less liabilities assumed		783,001
Goodwill		331,621
Net assets acquired	$	1,114,622

Schedule of Result of Operation from Acquisition

The amount of revenues and operating loss of PC included in the Company’s condensed consolidated statement of operations from the acquisition date through the period ended June 30, 2014 is as follows:

Total revenues	$	664,370
Operating loss	$	(423,589	)

Schedule of Pro Forma Financial Information

The unaudited pro forma results presented include amortization charges for intangible assets and eliminations of intercompany transactions.

	For the			For the			For the			For the
	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Total revenues	$	667,701		$	744,299		$	1,286,805		$	1,453,050
Net loss	$	(2,595,725	)	$	(2,054,878	)	$	(4,854,258	)	$	(3,374,915	)

Schedule of Intangible Assets Acquisition

The following table sets forth the components of identified intangible assets associated with the PC acquisition and their estimated useful lives.

	Fair Value		Useful Life
Customer relationships	$	596,000	10 - 15 years
Trade Name		5,000	5 years
Non-compete covenant		50,000	4 years
Licenses		8,000	25 years
	$	659,000

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Stockholders' Equity and Stock-based Compensation (Tables)

6 Months Ended

Jun. 30, 2014

Equity [Abstract]

Schedule of Stock Option Plan Activity

A summary of the Plan activity with respect to options to purchase common stock for the six months ended June 30, 2014 is as follows:

	Number of shares			Weighted Avg. Exercise Price		Weighted Avg. Remaining Contractual Life		Aggregate Intrinsic Value
Options outstanding - January 1, 2014		1,328,790		$	5.31
Options granted		225,886		$	6.60
Options exercised		(165,209	)	$	3.69
Options cancelled/forfeit		(75,000	)	$	6.30
Options outstanding - June 30, 2014		1,314,467		$	5.66		6.41	$	2,532,926
Options exercisable		795,441		$	4.99		4.67	$	2,046,478
Options vested and expected to vest		1,262,564		$	5.64		6.31	$	2,484,281

Schedule of Fair Value Assumption

The table below illustrates the fair value per share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted to employees:

	2014
Weighted-average fair value of options granted	$	5.16
Expected terms (in years)		5.81 - 6.91
Expected volatility		100 - 102%
Risk-free interest rate		1.37 - 1.65%
Dividend yield		-

The table below illustrates the fair value per share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted to consultants:

	2014
Weighted-average fair value of options granted	$	6.15
Expected terms (in years)		2.54 - 10
Expected volatility		80 - 97%
Risk-free interest rate		0.10 - 1.64%
Dividend yield		-

Schedule of Shares Outstanding and Exercisable

The following table summarizes information about stock options outstanding and exercisable at June 30, 2014:

	Options Outstanding						Options Exercisable
			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
	Number		Contractual		Exercise		Number		Exercise
Range of Exercise Prices	Outstanding		Life in Years		Price		Exercisable		Price
$2.40 - $3.20		250,000		5.07	$	2.80		250,000	$	2.80
$3.60 - $4.51		515,107		4.95	$	4.25		375,359	$	4.33
$5.49 - $7.71		249,225		9.28	$	6.67		35,030	$	6.02
$8.06 - $10.75		293,335		7.73	$	8.99		128,252	$	9.02
28.00 - $80.00		6,800		5.63	$	40.86		6,800	$	40.86
		1,314,467		6.41	$	5.66		795,441	$	4.99

Schedule of Restricted Stock Units Activity

A summary of the Company’s RSU activity and related information for the six months ended June 30, 2014 is as follows:

	Number of RSUs			Weighted Average Grant Date Fair Value
RSUs outstanding - January 1, 2014		1,389,960		$	3.19
RSUs granted		-		$	-
RSUs vested		-		$	-
RSUs cancelled/forfeited		(100,000	)	$	(2.88	)
Balance at June 30, 2014		1,289,960		$	3.22

Schedule of Warrants Activity

A summary of the activity of the warrants for the six months ended June 30, 2014 is as follows:

	Number of Shares Subject to Warrants Outstanding			Weighted Avg. Exercise Price
Warrants outstanding - January 1, 2014		821,050		$	5.94
Granted		-		$	-
Exercised		(6,328	)	$	5.93
Expired		-		$	-
Warrants outstanding and exercisable - June 30, 2014		814,722		$	5.94
Weighted average remaining contractual life of the outstanding warrants in years - June 30, 2014		1.70

Schedule of Warrants Outstanding and Warrants Exercisable

A list of the warrants outstanding as of June 30, 2014 is included in the table below:

	Warrants Outstanding					Warrants Exercisable
		Warrants		Exercise		Warrants		Expiration
Warrant Series	Issue Date	Outstanding		Price		Exercisable		Date
DermaStar	4/25/2012		48,262	$	5.93		48,262	4/25/2015
April PPM	4/25/2012		496,600	$	5.93		496,600	4/25/2015
Underwriter Warrants	2/7/2013		179,860	$	5.25		179,860	2/7/2018
IR Consultant	2/28/2013		30,000	$	5.25		30,000	2/28/2016
IR Consultant	7/19/2013		60,000	$	8.50		60,000	7/19/2018
			814,722	$	5.94		814,722

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Stockholders' Equity and Stock-based Compensation - Schedule of Shares Outstanding and Exercisable (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Number of Options Outstanding	1,314,467
Weighted Average Remaining Contractual Life in Years	6 years 4 months 28 days
Weighted Average Exercise Price	$ 5.66
Number Exercisable	795,441
Weighted Average Exercisable Exercise Price	$ 4.99
Range One [Member]
Range of Exercise Prices, minimum	$ 2.40
Range of Exercise Prices, maximum	$ 3.20
Number of Options Outstanding	250,000
Weighted Average Remaining Contractual Life in Years	5 years 26 days
Weighted Average Exercise Price	$ 2.80
Number Exercisable	250,000
Weighted Average Exercisable Exercise Price	$ 2.80
Range Two [Member]
Range of Exercise Prices, minimum	$ 3.60
Range of Exercise Prices, maximum	$ 4.51
Number of Options Outstanding	515,107
Weighted Average Remaining Contractual Life in Years	4 years 11 months 12 days
Weighted Average Exercise Price	$ 4.25
Number Exercisable	375,359
Weighted Average Exercisable Exercise Price	$ 4.33
Range Three [Member]
Range of Exercise Prices, minimum	$ 5.49
Range of Exercise Prices, maximum	$ 7.71
Number of Options Outstanding	249,225
Weighted Average Remaining Contractual Life in Years	9 years 3 months 11 days
Weighted Average Exercise Price	$ 6.67
Number Exercisable	35,030
Weighted Average Exercisable Exercise Price	$ 6.02
Range Four [Member]
Range of Exercise Prices, minimum	$ 8.06
Range of Exercise Prices, maximum	$ 10.75
Number of Options Outstanding	293,335
Weighted Average Remaining Contractual Life in Years	7 years 8 months 23 days
Weighted Average Exercise Price	$ 8.99
Number Exercisable	128,252
Weighted Average Exercisable Exercise Price	$ 9.02
Range Five [Member]
Range of Exercise Prices, minimum	$ 28.00
Range of Exercise Prices, maximum	$ 80.00
Number of Options Outstanding	6,800
Weighted Average Remaining Contractual Life in Years	5 years 7 months 17 days
Weighted Average Exercise Price	$ 40.86
Number Exercisable	6,800
Weighted Average Exercisable Exercise Price	$ 40.86

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Intangible Assets and Goodwill - Schedule of Amortization Expenses for Intangible Assets (Details) (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014
Amortization of intangible assets	$ 17,433	$ 17,433
Customer Relationships [Member]
Amortization of intangible assets	250	250
Trade Name [Member]
Amortization of intangible assets	9,933	9,933
Non-Compete Covenant [Member]
Amortization of intangible assets	6,250	6,250
Licensing [Member]
Amortization of intangible assets	$ 1,000	$ 1,000

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (4,920,888)	$ (3,683,533)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of furniture and equipment	10,411	2,073
Amortization of intangible assets	17,433
Stock-based compensation and payments	1,396,692	1,448,384
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable	(22,729)
Inventories	40,440
Prepaid expenses and other current assets	(215,625)	(278,956)
Accounts payable and accrued expenses	318,134	283,985
Accrued payroll and related liabilities	178,930	163,617
Customer deposits	(11,699)
Deferred revenue		1,667
NET CASH USED IN OPERATING ACTIVITIES	(3,208,901)	(2,062,763)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of restricted short-term investments	(100,000)	(50,000)
Purchase of Pharmacy Creations, LLC, net of cash and advances	(636,374)
Purchases of furniture and equipment	(14,776)	(5,172)
NET CASH USED IN INVESTING ACTIVITIES	(751,150)	(55,172)
CASH FLOWS FROM FINANCING ACTIVITIES
Cancelled common stock		(192)
Payments on capital lease obligation	(1,565)
Net proceeds from the exercise of warrants and stock options	484,103
Proceeds from issuance of common stock and warrants for cash, net of offering costs		10,052,832
NET CASH PROVIDED BY FINANCING ACTIVITIES	482,538	10,052,640
NET CHANGE IN CASH AND CASH EQUIVALENTS	(3,477,513)	7,934,705
CASH AND CASH EQUIVALENTS, beginning of period	15,579,309	10,035,615
CASH AND CASH EQUIVALENTS, end of period	12,101,796	17,970,320
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	800	1,600
Cash paid for interest	1,565
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Reclassification of deferred offering costs in connection with equity offering		596,281
Issuance of common stock for consulting services included in accounts payable and accrued expenses		$ 139,444

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Prepaid Expenses and Other Current Assets

6 Months Ended

Jun. 30, 2014

Prepaid Expenses And Other Current Assets

Prepaid Expenses and Other Current Assets

NOTE 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

	June 30, 2014
	(unaudited)		December 31, 2013
Prepaid stock-based consulting expenses	$	-	$	26,649
Prepaid rent		21,875		16,288
Prepaid insurance		180,519		39,166
Other prepaid expenses and deposits		121,851		22,964
Total prepaid expenses and other current assets	$	324,245	$	105,067

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2014

Compensation and Retirement Disclosure [Abstract]

Schedule of Lease Equipment Under Capital Lease

The Company leases equipment under a capital lease with an interest rate of 4.25% per annum. At June 30, 2014, future payments under this capital lease are as follows:

Years ending December 31,
Remainder of 2014	$	3,505
2015		7,009
2016		7,009
Total minimum lease payments		17,523
Less amount representing interest		(927	)
Present value of future minimum lease payments		16,596
Less current portion		(6,428	)
Capital lease obligation, net of current portion	$	10,168

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Inventories - Schedule of Inventories (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Inventory Disclosure [Abstract]
Raw materials	$ 164,127
Finished goods	8,623
Total inventories	$ 172,750

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Overview, Basis of Presentation and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Schedule of Stock Based Compensation and Equity Instruments

The Company recorded stock-based compensation (including the amortization of stock-based prepaid consulting fees) related to equity instruments granted to employees, directors and consultants as follows:

	For the		For the		For the		For the
	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Employees - selling and marketing	$	16,994	$	-	$	30,861	$	-
Employees - general and administrative		561,733		378,895		1,105,000		464,898
Employees - research and development		-		44,619		-		111,750
Directors - general and administrative		42,147		45,458		84,293		248,250
Consultants - selling and marketing		14,730		-		30,783		-
Consultants - general and administrative		18,337		345,605		86,839		505,527
Consultants - research and development		4,814		180,559		8,916		117,959
Total	$	658,755	$	995,136	$	1,346,692	$	1,448,384

Schedule of Basic and Diluted Earnings Per Common Share

The following table shows the computation of basic and diluted net loss per share of common stock for the three and six months ended June 30, 2014 and 2013:

	For the			For the			For the			For the
	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Numerator – net loss	$	(2,595,725	)	$	(2,218,052	)	$	(4,920,888	)	$	(3,683,533	)
Denominator – weighted average number of shares of common stock outstanding, basic and diluted		9,109,842			8,890,668			9,060,496			8,342,497
Net loss per share, basic and diluted	$	(0.28	)	$	(0.25	)	$	(0.54	)	$	(0.44	)