PERNIX THERAPEUTICS HOLDINGS, INC. (Form: 10-Q, Received: 08/09/2013 16:31:32)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)
þ	Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: June 30, 2013

o	Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from: _______ to _____________

001-14494

Commission

File Number

PERNIX THERAPEUTICS HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

Maryland		33-0724736
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

10863 Rockley Rd Houston, TX		77099
(Address of principal executive offices)		(Zip Code)


1003 Woodloch Forest Dr. Suite 950 The Woodlands, TX 77380
(Former address)

(832) 934-1825

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	o	Accelerated filer	þ

Non-accelerated filer	o	Smaller reporting company	o
(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

On August 5, 2013, there were 37,120,890 shares outstanding of the Registrant’s common stock, par value $0.01 per share.

PERNIX THERAPEUTICS HOLDINGS, INC.

Quarterly Report on Form 10-Q

For the Three and Six Months Ended June 30, 2013

INDEX

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012	1
	Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, 2013 and 2012	2
	Condensed Consolidated Statements of Stockholders’ Equity as of June 30, 2013 (unaudited) and December 31, 2012	3
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2013 and 2012	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38

PART II.	INFORMATION

Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	40
	Signatures	41

Cautionary Statement Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. We desire to take advantage of these “safe harbor” provisions with regard to the forward-looking statements in this Form 10-Q and in the documents that are incorporated herein by reference. These forward-looking statements reflect our current views with respect to future events and financial performance. Specifically, forward-looking statements may include:

●

projections of revenues, expenses, income, income per share and other performance measures;

●

statements regarding expansion of operations, including entrance into new markets and development of products; and

●

statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions.

These forward-looking statements express our best judgment based on currently available information and we believe that the expectations reflected in our forward-looking statements are reasonable.

By their nature, however, forward-looking statements often involve assumptions about the future. Such assumptions are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. As such, we cannot guarantee you that the expectations reflected in our forward-looking statements will actually be achieved. Actual results may differ materially from those in the forward-looking statements due to, among other things, the following factors:

●

changes in general business, economic and market conditions;

●

volatility in the securities markets generally or in the market price of our stock specifically; and

●

the risks outlined in the section entitled “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and in our Quarterly Report on Form 10-Q for the three months ended March 31, 2013.

We caution you not to place undue reliance on any forward-looking statements, which speak only as of the date of this Form 10-Q. Except as required by law, we do not undertake any obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

PERNIX THERAPEUTICS HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2013			2012
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	9,048,119		$	23,022,821
Accounts receivable, net		26,689,761			36,647,087
Inventory, net		18,968,319			22,014,405
Prepaid expenses and other current assets		4,655,948			3,888,117
Prepaid income taxes		5,506,105			2,024,411
Deferred income taxes		6,942,000			8,118,500
Total current assets		71,810,252			95,715,341
Property and equipment, net		7,200,041			6,946,944
Other assets:
Investments	─				5,710,526
Goodwill		52,645,405			37,160,911
Intangible assets, net		102,414,440			104,054,431
Assets held for sale		29,000,000		─
Other long-term assets		1,384,055			1,858,534
Total assets	$	264,454,193		$	251,446,687
LIABILITIES
Current liabilities:
Accounts payable	$	12,643,133		$	5,045,488
Accrued personnel expenses		2,595,489			2,881,967
Accrued allowances		31,423,549			30,054,551
Other accrued expenses		5,117,497			5,548,084
Other liabilities		15,180,329			8,130,664
Debt		18,471,787			2,286,513
Total current liabilities		85,431,784			53,947,267
Long-term liabilities
Other liabilities		7,808,640			7,765,511
Debt		6,414,307			41,349,563
Deferred income taxes		43,844,000			35,535,500
Total liabilities		143,498,731			138,597,841

Commitments and contingencies (Note 16)

Temporary Equity
Common stock subject to repurchase (3,773,079 and 4,427,084 shares as of June 30, 2013 and December 31, 2012, respectively)		29,241,362			34,309,901

STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 90,000,000 shares authorized, 39,240,781 and 34,994,828 issued and 37,120,890 and 34,030,351 outstanding at June 30, 2013 and December 31, 2012, respectively)		333,478			296,033
Treasury stock, at cost (2,119,891 and 2,072,810 shares held at June 30, 2013 and December 31, 2012, respectively)		(3,980,629	)		(3,772,410	)
Additional paid-in capital		88,943,737			58,606,942
Retained earnings		6,417,514			20,433,262
Accumulated other comprehensive income	─				2,975,118
Total equity		91,714,100			78,538,945

Total liabilities and stockholders’ equity	$	264,454,193		$	251,446,687

See accompanying notes to condensed consolidated financial statements.

PERNIX THERAPEUTICS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net revenues	$	20,573,401		$	10,499,334		$	42,651,274		$	24,981,359
Costs and operating expenses:
Cost of product sales		11,162,350			3,411,117			24,239,797			8,101,700
Selling, general and administrative expenses		13,141,447			7,636,227			27,220,635			14,465,296
Research and development expense		1,792,184			108,717			2,999,300			178,723
Loss from the operations of the joint venture with SEEK	─			─			─				240,195
Depreciation and amortization expense		2,631,992			796,535			4,794,700			1,434,607
Loss on sale of assets		4,880		─				4,880		─
Total costs and operating expenses		28,732,853			11,952,596			59,259,312			24,420,521

Income (loss) from operations		(8,159,452	)		(1,453,262	)		(16,608,038	)		560,838

Other income (expense):
Change in fair value of put right		(1,830,062	)	─				(3,970,789	)	─
Change in fair value of contingent consideration	─			─				283,000		─
Interest expense, net		(1,632,569	)		(27,470	)		(2,709,184	)		(67,407	)
Gain on sale of investment		3,605,263		─				3,605,263		─
Total other (loss) income, net		142,632			(27,470	)		(2,791,710	)		(67,407	)

Income (loss) before income taxes		(8,016,820	)		(1,480,732	)		(19,399,748	)		493,431

Income tax (benefit) provision		(2,121,000	)		(549,000	)		(5,384,000	)		234,000

Net income (loss)	$	(5,895,820	)	$	(931,732	)	$	(14,015,748	)	$	259,431

Reclassification adjustment for net realized gain included in net income (loss), net of income tax		(1,526,473	)		455,000			(2,975,118	)		1,478,500

Comprehensive income (loss)	$	(7,422,293	)	$	(476,732	)	$	(16,990,866	)	$	1,737,931

Net income (loss) per share, basic	$	(0.16	)	$	(0.03	)	$	(.39	)	$	0.01
Net income (loss) per share, diluted	$	(0.16	)	$	(0.03	)	$	(.39	)	$	0.01
Weighted-average common shares, basic		37,114,717			28,291,237			35,738,469			27,106,188
Weighted-average common shares, diluted		37,114,717			28,291,237			35,738,469			27,713,021

See accompanying notes to condensed consolidated financial statements.

PERNIX THERAPEUTICS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Common Stock			Additional Paid-In Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive income			Total
Balance at December 31, 2012	$	296,033		$	58,606,942		$	(3,772,410	)	$	20,433,262		$	2,975,118		$	78,538,945

Stock-based compensation		2,600			1,022,235			─			─			─			1,024,835
Cancelled/reclass par of unvested restricted stock		(9,477	)		9,477			─			─			─			─
Issuance of stock options for services from non-employees		─			294,796			─			─			─			294,796
Issuance of common stock upon the exercise of options		400			111,200			─			─			─			111,600
Issuance of common stock in connection with employee stock purchase plan		223			72,192			─			─			─			72,415
Forfeit of restricted common stock in payment of income tax liability		(394	)		─			(208,219	)		─			─			(208,613	)
Issuance of common stock in connection with the Somaxon acquisition		36,576			23,803,848			─			─			─			23,840,424
Issuance of restricted stock in lieu of cash payment		977			45,045												46,022
Cancellation of Put Shares		6,540			5,062,002			─			─			─			5,068,542
Income tax benefit on stock based awards		─			(84,000	)		─			─			─			(84,000	)
Net loss		─			─			─			(14,015,748	)		─			(14,015,748	)
Reclassification adjustment for net realized gain included in net income (loss), net of income tax		─			─			─			─			(2,975,118	)		(2,975,118	)
Balance at June 30, 2013	$	333,478		$	88,943,737		$	(3,980,629	)	$	6,417,514		$	─		$	91,714,100

See accompanying notes to condensed consolidated financial statements.

PERNIX THERAPEUTICS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six months ended
	June 30,
	2013			2012
Cash flows from operating activities:
Net (loss) income	$	(14,015,748	)	$	259,431
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation		306,965			51,331
Amortization of intangibles and interest accretion of contingent consideration		4,487,735			1,383,276
Amortization of deferred financing costs		947,818			─
Deferred income tax benefit		(3,075,000	)		(133,000	)
Gain on sale of investment		(3,605,263	)	─
Loss on disposal of assets		4,880		19,845
Stock compensation expense		1,024,835			1,223,419
Expense from stock options issued in exchange for services		294,796		376,732
Change in fair value of put right		3,970,789			─
Change in fair value of contingent consideration		(283,000	)		─
Loss from the operations of the joint venture with SEEK		─			240,195
Changes in operating assets and liabilities (net of effect of acquisitions):
Accounts receivable		11,164,747			4,976,596
Inventory		4,136,232			(407,197	)
Prepaid expenses and other assets		(915,804	)		14,680
Accounts payable		5,803,724			753,529
Income taxes		(3,545,938	)		(1,423,395	)
Accrued expenses		(7,234,683	)		(891,801	)
Net cash from operating activities		(532,915	)		6,443,641
Cash flows from investing activities:
Proceeds from sale of investment	4,605,263				─
Acquisition of Cypress		(309,589	)
Acquisition of gastroenterology product license		─		(2,400,000		)
Acquisition of license for non-codeine antitussive drug in development		─		(5,000,000		)
Other intangibles		─		(250,000		)
Proceeds from sale of property, plant and equipment		23,000		6,400
Purchase of property, plant and equipment		(278,965	)		(267,489	)
Net cash from investing activities		4,039,709			(7,911,089	)
Cash flows from financing activities:
Cash acquired in connection with acquisition of Somaxon	2,880,837				─
Payments on original Midcap Loan	(12,497,196		)		─
Payments on term loan		(2,299,802	)	─
Net proceeds from revolving credit facility		(3,842,193	)	─
Payments on line of credit		─		(6,000,000		)
Payment on contracts payable		(1,533,334	)		(660,000	)
Proceeds from issuance of stock in additional offering, net of issuance costs of $846,202		─		23,751,032
Payments on mortgages and capital leases		(81,210	)		─
Tax benefit on stock-based awards		(84,000	)		171,000
Proceeds from issuance of stock		184,015			163,030
Payment of employee income tax liability with surrender of employee restricted stock		(208,613	)		─
Net cash from financing activities		(17,481,496	)		17,425,062

Net (decrease) increase in cash and cash equivalents		(13,974,702	)		15,957,614
Cash and cash equivalents, beginning of period		23,022,821			34,551,180
Cash and cash equivalents, end of period	$	9,048,119		$	50,508,794

Supplemental disclosure:
Cash paid for income taxes	$	1,320,939		$	1,578,767
Interest paid during the period	$	2,001,022		$	106,424
Non-cash transaction
Acquisition of Omeclamox® license - contract payable	$	─		$ 2,000,000
Accrued bonus paid in unrestricted common stock	$	─		$	199,770
Accrued bonus paid in restricted common stock	$	46,022		$	─
Acquisition of license and supply agreement – contract payable	$	500,000		$	─
Acquisition of Cypress and Somaxon – Purchase price adjustment (see Note 4)	$	4,736,250		$	─
Acquisition of Somaxon – Fair value of common stock	$	23,840,424		$	─
Non-cash intangible value of deferred tax liability related to intellectual property license acquired	$	─		$	2,687,368

See accompanying notes to condensed consolidated financial statements.

PERNIX THERAPEUTICS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

Note 1. Company Overview

Pernix Therapeutics Holdings, Inc. (“Pernix”, the “Company”, “we”, our”) is a specialty pharmaceutical company focused on the sales, marketing, manufacturing and development of branded, generic and over-the-counter, which we refer to herein as OTC, pharmaceutical products for pediatric and adult indications in a variety of therapeutic areas. The Company expects to continue to execute its growth strategy which includes the horizontal integration of the Company’s branded prescription, generic and OTC businesses. The Company also plans to continue to make strategic acquisitions of products and companies, as well as develop and in-license additional products as capital availability permits. Branded products for the pediatrics market include CEDAX®, an antibiotic for middle ear infections, NATROBA®, a topical treatment for head lice marketed under an exclusive co-promotion agreement with ParaPRO, LLC and ZUTRIPRO® for the treatment of cough and cold. Branded products for gastroenterology include OMECLAMOX-PAK®, a 10-day treatment for H. pylori infection and duodenal ulcer disease, and REZYST®, a probiotic blend to promote dietary management. Through the Company’s wholly-owned subsidiary, Pernix Sleep (formerly Somaxon Pharmaceuticals, Inc. “Somaxon”), the Company markets SILENOR® (doxepin), a non- controlled substance approved for the treatment of insomnia characterized by difficulty with sleep maintenance. Through a license agreement with Pharmaceutical Associates, Inc., the Company markets VERIPRED™, a prescription drug product indicated for the control of severe allergic conditions. The Company promotes branded pediatric and gastroenterology products through its sales force. The Company markets generic products in the areas of cough and cold, pain, vitamins, dermatology, antibiotics and gastroenterology through the Company’s wholly-owned subsidiaries, Macoven Pharmaceuticals and Cypress Pharmaceuticals. The Company’s wholly-owned subsidiary, Pernix Manufacturing, manufactures and packages products for the Company’s subsidiaries and for others in the pharmaceutical industry in a wide range of dosage forms.

Business Combinations

On March 6, 2013, the Company acquired all of the outstanding common stock of Somaxon Pharmaceuticals, Inc. pursuant to an agreement and plan of merger dated December 10, 2012. As a result of the merger, each outstanding share of Somaxon common stock was converted into the right to receive 0.477 shares of the Company’s common stock, with cash paid in lieu of fractional shares. As a result of the merger, the Company issued an aggregate of approximately 3,665,689 shares of its common stock to the former stockholders of Somaxon. Somaxon is a specialty pharmaceutical company focused on the in-licensing, development and commercialization of proprietary branded products and product candidates to treat medical conditions where there is an unmet medical need and/or high level of patient dissatisfaction, mainly in the central nervous system therapeutic area. At the time of acquisition, Somaxon was only marketing Silenor. The company’s name was changed from Somaxon to Pernix Sleep, Inc.

On December 31, 2012, the Company completed the acquisition of Cypress Pharmaceuticals, Inc., a generic pharmaceutical company, and its subsidiary Hawthorn Pharmaceuticals, Inc, a branded pharmaceutical company, both of which were privately owned companies, collectively referred to herein as Cypress. The Company paid $52 million in cash, issued 4,427,084 shares of our common stock (“the acquisition shares”) having an aggregate market value equal to approximately $34.3 million based on the closing price per share of $7.75 as reported on the NYSE MKT LLC on December 31, 2012, and agreed to pay up to $6.5 million in holdback and contingent payments, $4.5 million to be deposited in escrow on December 15, 2013 and $5.0 million in shares of our common stock upon the occurrence of a milestone event, for an aggregate purchase price of up to $102.3 million. The Company also granted a put right to the sellers pursuant to which the sellers may put the acquisition shares to the Company at approximately $5.38 per share, with such put right being exercisable from January 1, 2014 to January 31, 2014 under certain circumstances. Cypress offers a wide array of branded and generic pharmaceutical products in the areas of cough and cold, nutritional supplements, analgesics, urinary tract, women’s health, pre-natal vitamins and dental health, as well as allergy, respiratory, iron deficiency, nephrology and pain management. See Note 4, Business Combinations and Other Acquisitions , and Note 11, Debt , for further discussion.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principals in the United States (“GAAP”) and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of these financial statements. Operating results for the six-month period ended June 30, 2013 are not necessarily indicative of the results for future periods or the full year.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Pernix’s wholly-owned subsidiaries: Pernix Therapeutics, LLC, GTA GP, Inc., GTA LP, Inc., Gaine, Inc., Macoven, Pernix Manufacturing (acquired July 1, 2012), Respicopea, Inc. (acquired May 14, 2012), Cypress (acquired December 31, 2012) and Pernix Sleep, Inc. (acquired March 6, 2013). Respicopea, Pernix Manufacturing, Cypress and Pernix Sleep are included only for the period subsequent to their acquisition. Transactions between and among the Company and its consolidated subsidiaries are eliminated.

Management’s Estimates and Assumptions

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The Company reviews all significant estimates affecting the condensed consolidated financial statements on a recurring basis and records the effect of any necessary adjustments prior to their issuance. Significant estimates of the Company include: revenue recognition, sales allowances such as returns on product sales, government program rebates, managed care rebates, customer coupon redemptions, wholesaler/pharmacy discounts, product service fees, rebates and chargebacks, sales commissions, amortization, depreciation, stock-based compensation, the determination of fair values of assets and liabilities in connection with business combinations, and deferred income taxes.

Fair Value of Financial Instruments

A financial instrument is defined as cash equivalent, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from another party. The Company’s financial instruments consist primarily of cash equivalents (including our Regions Trust Account which invests in short-term securities consisting of sweep accounts, money market accounts and money market mutual funds), an investment in equity securities (TherapeuticsMD), contingent consideration and a put right in connection with the acquisition of Cypress.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:

Level 1

Quoted prices in active markets for identical assets or liabilities as of the reporting date.

Level 2

Inputs other than Level 1 that are observable, either directly or indirectly, 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 for substantially the full term of the assets or liabilities as of the reporting date.

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Revenue Recognition

The Company’s consolidated net revenues represent the Company’s net product sales and collaboration revenues. The Company records all of its revenue from product sales and collaboration or co-promotion agreements when realized or realizable and earned. Revenue is realized or realizable and earned when all of the following criteria are met: (1) existence of persuasive evidence of an arrangement; (2) occurrence of delivery or rendering of services; (3) the seller’s price to the buyer is fixed or determinable; and (4) reasonable assurance of collectability. The Company records revenue from product sales when the customer takes ownership and assumes risk of loss. Royalty revenue is recognized upon shipment from the manufacturer to the purchaser. Co-promotion revenue is recognized in the period in which the product subject to the arrangement is sold. At the time of sale, estimates for a variety of sales deductions, such as returns on product sales, government program rebates, price adjustments and prompt pay discounts are recorded.

The following table sets forth a summary of Pernix’s consolidated net revenues for the three and six months ended June 30, 2013 and 2012.

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Gross product sales	$	35,423,638		$	16,982,750		$	74,007,616		$	37,153,322
Sales allowances		(16,493,215	)		(7,519,943	)		(35,166,458	)		(13,803,232	)
Net product sales		18,930,423			9,462,807			38,841,158			23,350,090
Manufacturing revenue		551,348		─				1,735,378		─
Co-promotion and other revenue		1,091,630			1,036,527			2,074,738			1,631,269
Net revenues	$	20,573,403		$	10,499,334		$	42,651,274		$	24,981,359

The Company’s customers consist of drug wholesalers, retail drug stores, mass merchandisers and grocery store pharmacies in the United States. The Company primarily sells its products directly to large national drug wholesalers, which in turn resell the products to smaller or regional wholesalers, retail pharmacies, chain drug stores, and other third parties. The following tables list the Company’s customers that individually comprised greater than 10% of total gross product sales for the three months ended June 30, 2013 and 2012, or 10% of total accounts receivable as of June 30, 2013 and December 31, 2012.

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Cardinal Health, Inc.		28	%		34	%		29	%		34	%
McKesson Corporation		37	%		36	%		36	%		30	%
AmerisourceBergen Drug Corporation		11	%		6	%		13	%		12	%
Total		76	%		76	%		78	%		76	%

	Accounts Receivable
	June 30,			December 31,
	2013			2012
Cardinal Health, Inc.		33	%		43	%
McKesson Corporation		29	%		17	%
AmerisourceBergen Drug Corporation		11	%		6	%
Walgreens Corporation		11	%		11	%
Total		84	%		77	%

Other Revenue Sharing Arrangements

The Company enters into collaborative arrangements to develop and commercialize drug candidates. Collaborative activities might include research and development, marketing and selling (including promotional activities and physician detailing), manufacturing, and distribution. These collaborations often require royalty or profit share payments, contingent upon the occurrence of certain future events linked to the success of the product. Revenues related to products sold by the Company pursuant to these arrangements are included in product sales, while other sources of revenue such as royalties and profit share receipts are included in collaboration, royalty and other revenue as further discussed below. Operating expenses for costs incurred pursuant to these arrangements are reported in their respective expense line item.

The Company seeks to enter into co-promotion agreements to enhance the promotional efforts and sales of products. The Company may enter into co-promotion agreements whereby it obtains rights to market other parties’ products in return for certain commissions or percentages of revenue on the sales Pernix generates. Alternatively, Pernix may enter into co-promotion agreements with respect to its products whereby it grants another party certain rights to market or otherwise promote one or more of its products. Typically, the Company will enter into this type of co-promotion arrangement when a particular product is not aligned with its product focus or it lacks sufficient sales force representation in a particular geographic area. Co-promotion revenue is included in net revenues. Expense from co-promotion agreements is included in cost of product sales.

Cost of Product Sales

Cost of product sales is comprised of (1) costs to manufacture or acquire products sold to customers; (2) royalty, co-promotion and other revenue sharing payments under license and other agreements granting the Company rights to sell related products; and (3) direct and indirect distribution costs incurred in the sale of products. The Company acquired the rights to sell certain of its commercial products through license and assignment agreements with the original developers or other parties with interests in these products. These agreements obligate the Company to make payments under varying payment structures based on our net revenue from related products.

As part of the acquisitions of Cypress and Somaxon, the Company adjusted the predecessor cost basis increasing inventory to fair value as required by ASC 820. As a result, $8,600,000 and $695,000, respectively, was recorded to adjust inventory to fair value. For the three and six months ended June 30, 2013, approximately $895,000 and $4,711,000, respectively, of the increase in the basis of the inventory was included in cost of product sales.

Net Revenues

Product Sales

The Company recognizes revenue from its product sales in accordance with its revenue recognition policy discussed above. The Company sells its products primarily to large national wholesalers, which have the right to return the products they purchase, accordingly the Company estimates the amount of future returns at the time of revenue recognition. The Company recognizes product sales net of estimated allowances for product returns, government program rebates, price adjustments, and prompt pay discounts.

Product Returns

Consistent with industry practice, the Company offers contractual return rights that allow its customers to return short-dated or expiring products within an 18-month period, commencing from six months prior to and up to twelve months subsequent to the product expiration date. The Company’s products have a 15 to 36-month expiration period from the date of manufacture. The Company adjusts its estimate of product returns if it becomes aware of other factors that it believes could significantly impact its expected returns. These factors include its estimate of inventory levels of its products in the distribution channel, the shelf life of the product shipped, review of consumer consumption data as reported by external information management companies, actual and historical return rates for expired lots, the forecast of future sales of the product, competitive issues such as new product entrants and other known changes in sales trends. The Company estimates returns at percentages up to 10% of sales of branded and generic products and, from time to time, higher on launch return percentages for sales of new products. Returns estimates are based upon historical data and other facts and circumstances that may impact future expected returns to derive an average return percentage for our products. The returns reserve may be further adjusted as sales history and returns experience is accumulated on our portfolio of products. The Company reviews and adjusts these reserves quarterly.

Government Program Rebates

The liability for Medicaid, Medicare and other government program rebates is estimated based on historical and current rebate redemption and utilization rates contractually submitted by each state’s program administrator and assumptions regarding future government program utilization for each product sold.

Price Adjustments

The Company’s estimates of price adjustments, which include customer rebates, managed care rebates, service fees, chargebacks, shelf stock adjustments, coupon redemptions and other fees and discounts, are based on our estimated mix of sales to various third-party payors who are entitled, either contractually or statutorily, to discounts from the listed prices of our products and contracted service fees with our wholesalers. In the event that the sales mix to third-party payors or the contract fees paid to the wholesalers are different from the Company’s estimates, the Company may be required to pay higher or lower total price adjustments and/or incur chargebacks that differ from its original estimates and such difference may be significant.

The Company’s estimates of discounts are applied pursuant to the contracts negotiated with certain customers and are primarily based on sales volumes. The Company, from time to time, offers certain promotional product-related incentives to its customers. These programs include sample cards to retail consumers, certain product incentives to pharmacy customers and other sales stocking allowances. For example, the Company has initiated coupon programs for certain of its promoted products whereby the Company offers a point-of-sale subsidy to retail consumers. The Company estimates its liabilities for these coupon programs based on redemption information provided by a third party claims processing organization. The Company accounts for the coupon redemption costs of these special promotional programs as price adjustments, resulting in a reduction in gross revenue. The administrative fees related to these programs are accounted for in SGA expenses.

Any price adjustments that are not contractual or are non-recurring but that are offered at the time of sale or when a specific triggering event occurs, such as sales stocking allowances or price protection adjustments, are recorded as a reduction in revenue when the sales order is recorded or when the triggering event occurs. These allowances may be offered at varying times throughout the year or may be associated with specific events such as a new product launch, the reintroduction of a product or product price changes.

Prompt Payment Discount

The Company typically requires its customers to remit payments within the first 30 days for branded products and within 60 to 120 days for generics, depending on the customer and the products purchased. The Company offers wholesale distributors a prompt payment discount if they make payments within these deadlines. This discount is generally 2-3%, but may be higher in some instances due to product launches and/or industry expectations. Because the Company’s wholesale customers typically take the prompt pay discount, we accrue 100% of prompt pay discounts. These discounts are based on the gross amount of each invoice at the time of our original sale to them. Earned discounts are applied at the time of payment. This allowance is recorded as a reduction of accounts receivable.

Segment Information

The Company currently markets two major product lines: a branded pharmaceuticals product line and a generic pharmaceuticals product line. These product lines qualify for reporting as a single segment in accordance with GAAP because they are similar in the nature of the products and services, production processes, types of customers, distribution methods and regulatory environment. The Company has a manufacturing subsidiary but the majority of its revenue is currently generated through intercompany sales and is eliminated in consolidation. Accordingly, it is deemed immaterial for segment reporting purposes. The Company has initiated an OTC division that is currently developing one product. This division has no revenue and is currently deemed immaterial for segment reporting purposes.

Earnings per Share

Earnings per common share is presented under two formats: basic earnings per common share and diluted earnings per common share. Basic earnings per common share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period, plus the potentially dilutive impact of restricted stock and common stock equivalents (i.e. stock options). Dilutive common share equivalents consist of the incremental common shares issuable upon exercise of stock options and vesting of restricted stock.

The following table sets forth the computation of basic and diluted net income per share:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Numerator:
Net income (loss)	$	(5,895,820	)	$	(931,732	)	$	(14,015,748	)	$	259,431
Denominator:
Weighted-average common shares, basic		37,114,717			28,291,237			35,738,469			27,106,188
Dilutive effect of stock options	─			─			─				606,833

Weighted-average common shares, diluted		37,114,717			28,291,237			35,738,469			27,713,021

Net income (loss) per share, basic and diluted	$	(0.16	)	$	(0.03	)	$	(0.39	)	$	0.01

At June 30, 2013, the Company had 671,455 shares of unvested restricted stock shares and 1,839,333 total outstanding options of which 860,331are vested and exercisable. Options and restricted stock not included above are anti-dilutive. See Note 14, Employee Compensation and Benefits , for information regarding the Company’s outstanding options.

Investments in Marketable Securities and Other Comprehensive Income

The Company held investments in marketable equity securities as available-for-sale and the change in the market value gives rise to other comprehensive income. The components of other comprehensive income are recorded in the condensed consolidated statements of comprehensive income, net of the related income tax effect. As of June 30, 2013, the Company has liquidated its investments in marketable equity securities as described below.

On October 5, 2011, the Company acquired 2.6 million shares of TherapeuticsMD for a purchase price of $1.0 million, or $0.38 per share, representing approximately 3.2% of TherapeuticsMD’s outstanding common stock at that time. The Company’s purchase was contingent upon TherapeuticsMD’s acquisition of VitaMedMD, which occurred on October 4, 2011. In connection with the Company’s purchase of shares of TherapeuticsMD, the Company also entered into a software license agreement with VitaMedMD pursuant to which VitaMedMD granted the Company an exclusive license to use certain of its physician, patient and product data gathering software in the field of pediatric medicine for a period of five years for a monthly fee of $21,700. As of June 30, 2013, the Company has not activated this software license agreement and has not paid monthly fees pursuant thereto. Cooper Collins, the Company’s Chief Executive Officer, was appointed to the board of Therapeutics MD on February 29, 2012.

On June 14, 2013, the Company sold all its shares of TherapeuticsMD for approximately $4,605,000 in cash proceeds, recognizing a gain on the investment of approximately $3,605,000. Approximately $2,300,000 of the proceeds were utilized to pay down the term loan (See Note 11, Debt ).

Reclassifications

Certain reclassifications have been made to prior period amounts in our consolidated statements of comprehensive (loss) income to conform to the current period presentation. These reclassifications related to the classification of the cost of samples as a selling expense instead of including in cost of product sales and the classification of coupon processing and program administrative fees as selling expense instead of being included in net sales. These reclassifications had no effect on net income as previously reported.

Recent Accounting Pronouncements

There have been no other recent accounting pronouncements that have not yet been adopted by us that are expected to have a material impact on our condensed consolidated financial statements from the accounting pronouncements previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

Note 3. Fair Value Measurement

The following tables summarize the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring and nonrecurring basis as of June 30, 2013 and December 31, 2012 (in thousands):

	June 30, 2013
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent consideration (1)	$	─	$	─	$	10,998	$	10,998
Put right (2)		─		─		7,336		7,336
Total Liabilities	$	─	$	─	$	18,334	$	18,334

	December 31, 2012
	Level 1		Level 2		Level 3		Total
Assets
Investments in TherapeuticsMD	$	─	$	─	$	5,711	$	5,711
Total Assets	$	─	$	─	$	5,711	$	5,711
Liabilities
Contingent consideration (1)	$	─	$	─	$	10,962	$	10,962
Put right (2)		─		─		3,365		3,365
Total Liabilities	$	─	$	─	$	14,327	$	14,327

(1)	Contingent consideration consists of certain holdback payments, contingent cash and equity payments and future cash to be placed in escrow with respect to our acquisition of Cypress. The fair value of the contingent consideration is included in other liabilities on the accompanying condensed consolidated balance sheets. The fair value of contingent consideration has been estimated using probability weighted discounted cash flow models (DCF). The DCF incorporates Level 3 inputs including estimated discount rates that the Company believes market participants would consider relevant in pricing and the projected timing and amount of cash flows, which are estimated and developed, in part, based on the requirements specific to the Cypress acquisition agreement. The Company analyzes and evaluates these fair value measurements quarterly to determine whether valuation inputs continue to be relevant and appropriate or whether current period developments warrant adjustments to valuation inputs and related measurements. Any increases or decreases in discount rates would have an inverse impact on the value of related fair value measurements, while increases or decreases in expected cash flows would result in a corresponding increase or decrease in fair value measurements.

(2)	The fair value of the put right was calculated using a Black-Scholes valuation model with assumptions for the following variables: closing Pernix stock price on the acquisition date, risk-free interest rates, and expected volatility and is included in prepaid expenses and other assets. The fair value of the put right was $7.3 million as of June 30, 2013, calculated using a Black-Scholes valuation model with assumptions for the following variables: term, closing Pernix stock price on the acquisition date, risk-free interest rates and expected volatility, with the volatility factor being the input subject to the most variation. Therefore, as pertaining to the put right, the Company is exposed to market risk in regards to the rate and magnitude of change of our stock price and corresponding variations to the volatility factor used in the Clack-Scholes valuation model. We evaluated this risk by estimating the potential adverse impact of a 10% increase in the volatility factor and determined that such a change in the volatility factor would have resulted in an approximately $225,000 increase to the put right liability and a corresponding reduction to pre-tax income (loss) for the three and six months ended June 30, 2013. See Note 5, Derivative Instruments. For the Company’s assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balances for each category therein, and gains or losses recognized during the six months ended June 30, 2013.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Assets:	Investment in Therapeutics MD
Beginning balance at January 1, 2013	$	5,710,526
Net realized and unrealized gains (losses)
Included in earnings (in other income)		3,605,263
Included in accumulated other comprehensive income (pre-tax) (1)		(4,710,526	)
Sale of Investment in TherapeuticsMD		(4,605,263	)
Ending balance at June 30, 2013	$	─

Liabilities:	Contingent Liability Consideration
Beginning balance at January 1, 2013	$	14,327,680
Interest accretion of Cypress contingent consideration		319,000
Change in fair value of Cypress contingent consideration		(283,000	)
Change in fair value of Cypress put right		3,970,789
Ending balance at June 30, 2013	$	18,334,469

(1)	Recorded as a component of other comprehensive income within stockholders’ equity, net of tax.

The Company believes the carrying amount of its debt, contracts payable, and capital lease obligations are a reasonable estimate of their fair value due to the remaining maturity of these items and/or their fluctuating interest rates.

Note 4. Business Combinations and Other Acquisitions

Consideration paid by the Company for the businesses it purchases is allocated to the assets and liabilities acquired based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed is recorded as goodwill.

Somaxon Acquisition

On March 6, 2013, Pernix completed an acquisition of Somaxon pursuant to an agreement and plan of merger dated December 10, 2012. As a result of the transaction, each outstanding share of Somaxon common stock was converted into the right to receive 0.477 shares of Pernix common stock. Somaxon stockholders received approximately 3.66 million shares of Pernix common stock which was calculated based on a value weighted average price of Pernix stock and a common stock value consideration of $25 million. Upon completion of the merger all unexercised and unexpired warrants to purchase Somaxon common stock were assumed by Pernix and were estimated to have a fair value of $0.9 million at the closing date.

The Somaxon acquisition broadened the Company’s branded and generic product portfolio and provides the opportunity for OTC development of Silenor, a non-controlled substance approved for the treatment of insomnia characterized by difficulty with sleep maintenance .

The Somaxon acquisition was accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) No. 805 “ Business Combinations” (“ ASC 805”) which, among other things, requires assets acquired and liabilities assumed to be measured at their acquisition date fair values. The purchase price allocation is preliminary with respect to taxes and certain accruals and includes the use of estimates based on information currently available. The Company believes the estimates used are reasonable and the significant effects of the Somaxon acquisition are properly reflected. However, the estimates are subject to change as additional information becomes available and is assessed by the Company. During the three months ended June 30, 2013, the Company made adjustments to increase intangible asset values by $0.3 million and to recognize previously unrecorded liabilities of approximately $1.1 million. Additional changes to the purchase price allocation may result in a corresponding change to the goodwill in the period of change.

The following table summarizes the consideration paid to acquire Somaxon and the estimated values of assets acquired and liabilities assumed in the accompanying unaudited condensed consolidated balance sheet based on their fair values on March 6, 2013 (in thousands, except stock price):

	March 6, 2013 (as initially reported)		Measurement Period Adjustment (i)		March 6, 2013 (As adjusted)
Consideration (ii) :
Shares of Pernix common stock issued to Somaxon’ stockholders		3,665				3,665
Pernix common stock price	$	6.26			$	6.26
Fair value of common stock issued	$	22,945			$	22,945
Fair value of warrants (iii)		895				895
Total consideration	$	23,840			$	23,840

Estimated Fair Value of Liabilities Assumed:
Current liabilities	$	8,764	$	968	$	9,732
Long-term liabilities		3,403		─		3,403
Long-term deferred tax liability (iv)		11,342		111		11,453
Amount attributable to liabilities assumed	$	23,509	$	1,079	$	24,588
Total purchase price plus liabilities assumed	$	47,349	$	1,079	$	48,428

Estimated Fair Value of Assets Acquired:
Current assets, excluding inventory	$	4,782			$	4,782
Inventory (v)		1,090				1,090
Intangible assets (vi)		30,729		300		31,029
Amount attributable to assets acquired	$	36,601		300	$	36,901

Goodwill (vii)	$	10,748	$	779	$	11,527

(i)	After the March 31, 2013 condensed consolidated financial statements were filed, the Company updated certain estimates used in the purchase price allocation, primarily with respect to fair value of the consideration, deferred tax amounts and other accruals due to more current information. The adjustments are based on updated assumptions and information related to facts and circumstances that existed as of the acquisition date as well as confirmatory information related to accruals.

(ii)	Under the terms of the merger agreement, consideration paid by Pernix consisted of approximately 0.477 shares of Pernix common stock for each share of Somaxon common stock and assumption of Somaxon’ s warrants. The fair value of the total purchase price was based upon the price of Pernix common stock on the day immediately prior to the closing date of the transaction, March 6, 2013. The Company issued a total of 3.66 million shares of its common stock to former Somaxon stockholders in exchange for their shares of Somaxon common stock and assumed approximately $469 thousand of outstanding warrants.

(iii)	The $0.9 million fair value of the assumed warrants was calculated using a Black-Scholes valuation model with assumptions for the following variables: price of Pernix stock on the closing date of the merger; risk-free interest rates; and expected volatility. The assumed warrants have been classified as equity.

(iv)	The Company received carryover tax basis in Somaxon’s assets and liabilities because the acquisition was not a taxable transaction under the United States Internal Revenue Code of 1986, as amended. Based upon the preliminary purchase price allocation, an increase in financial reporting carrying value related to the intangible assets and the inventory acquired from Somaxon is expected to result in a deferred tax liability of approximately $11.3 million.

(v)	As of the effective date of the acquisition, inventories are required to be measured at fair value. The estimated increase is preliminary and could vary materially from the actual values; the fair value of inventory was estimated based on estimated percentage of completion of work-in-progress inventory and selling costs left to incur.

(vi)	As of the effective date of the Somaxon acquisition, identifiable intangible assets are required to be measured at fair value and these acquired assets could include assets that are not intended to be used or sold or that are intended to be used in a manner other than their highest and best use. For purposes of the valuation, it is assumed that all assets will be used and that all assets will be used in a manner that represents the highest and best use of those assets, but it is not assumed that any market participant synergies will be achieved. The consideration of synergies has been excluded because they are not considered to be factually supportable. The fair value of identifiable intangible assets is determined primarily using the income method, which starts with a forecast of all the expected future net cash flows. Some of the more significant assumptions inherent in the development of intangible asset values, from the perspective of a market participant, include: the amount and timing of projected future cash flows (including revenue, cost of sales, research and development costs, sales and marketing expenses, capital expenditures and working capital requirements) as well as estimated contributory asset charges; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, among other factors. The consolidated financial statements include estimated identifiable intangible assets representing in-process research and development, or IPR&D, intangibles valued at $22.3 million and core technology intangibles valued at $7.7 million. The IPR&D are considered indefinite-lived intangible assets until the completion or abandonment of the associated research and development efforts. Accordingly, during the development period, these assets are not amortized but subject to impairment review. The core technology intangible assets represent developed technology of products approved for sale in the market, which we refer to as marketed products, and have finite useful lives. They are amortized on a straight line basis over a weighted average of 4 years.

(vii)	Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized but tested for impairment on an annual basis or when indications of impairment exist. Goodwill is not deductible for tax purposes. Goodwill specifically includes the expected synergies and other benefits that the Company believes will result from combining its operations with those of Somaxon and other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition.

On December 31, 2012, the Company completed the acquisition of Cypress by purchasing all the outstanding capital stock of Cypress from the former stockholders of Cypress. The Company paid $52.0 million in cash and issued 4,427,084 shares of the Company’s common stock with a market value equal to approximately $34.3 million based on the closing price per share of $7.75 as reported on the NYSE MKT LLC on December 31, 2012. In addition, the Company agreed to pay a holdback payment up to $5.5 million on December 15, 2013, a $1.0 million payment contingent on Cypress’ 2013 gross sales, $4.5 million to be deposited in escrow on December 15, 2013 and $5.0 million in shares of Company’s common stock upon the occurrence of a milestone event, for an aggregate purchase price up to $102.3 million, with a fair value, including the value of the put right (See Note 4), of approximately $100.6 million.

The Cypress acquisition significantly increased and broadened the Company’s branded and generic product portfolio and provided the Company with in-house product development and regulatory expertise. Since 2008, Cypress has been awarded nine ANDA and three NDA approvals (REZIRA, ZUTRIPRO and VITUZ) and currently has nine ANDAs on file with the FDA for future approvals. See Note 17, Subsequent Events, for discussion of the sale of certain of the generic assets and ANDAs acquired in the Cypress acquisition.

The Cypress acquisition was accounted for as a business combination in accordance with ASC No. 805 “Business Combinations” (“ ASC 805”) which, among other things, requires assets acquired and liabilities assumed to be measured at their acquisition date fair values.

A preliminary allocation of the purchase price as of December 31, 2012 was prepared in connection with the Company's annual financial statements filed on Form 10-K for the period ended December 31, 2012. In March 2013, the Company received an updated valuation summary of the purchase consideration which was compared to the preliminary fair value estimates that were used to prepare the initial purchase price allocation. With the information, the Company updated the assets acquired, as well as certain other estimates used in the initial purchase price allocation related to deferred tax amounts and other accruals based on the updated valuation. The following allocation is still preliminary with respect to final tax amounts, pending completion of the 2013 Cypress tax return and certain accruals and includes the use of estimates based on information that was available to management at the time these unaudited condensed consolidated financial statements were prepared. The Company believes the estimates used are reasonable and the significant effects of the acquisition are properly reflected. However, the estimates are subject to change as additional information becomes available and is assessed by the Company. Additional changes to the purchase price allocation may result in a corresponding change to the goodwill in the period of change. During the three and six months ended June 30, 2013, there were approximately $708,000 and $3,250,000 in re-measurement adjustments, primarily with respect to fair value of the consideration, deferred tax amounts and other accruals due to more current information. The adjustments are based on updated assumptions and information related to facts and circumstances that existed as of the acquisition date as well as confirmatory information related to accruals.

See Note 17, Subsequent Events, for more information regarding the sale of certain intangibles assets.

Pro Forma Impact of Acquisitions (Unaudited)

The following unaudited pro forma combined results of operations are provided for the three and six months ended June 30, 2013 and 2012 as though the Somaxon and the Cypress acquisitions had been completed as of January 1, 2012. The pro forma combined results of operations for the three and six months ended June 30, 2013 have been prepared by adjusting historical results of the Company to include the historical results of Somaxon and the pro forma combined results of operations for the three and six months ended June 30, 2012 have been prepared by adjusting the historical results of the Company to include the historical results of Somaxon and Cypress. These supplemental pro forma results of operations are provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future. The pro forma results of operations do not include any cost savings or other synergies that resulted, or may result, from the Somaxon and Cypress acquisitions or any estimated costs that will be incurred to integrate Somaxon and Cypress. Future results may vary significantly from the results reflected in this pro forma financial information because of future events and transactions, as well as other factors.

	Three Months ended June 30,							Six Months ended June 30,
	(unaudited, in thousands)							(unaudited, in thousands)
		2013			2012			2013			2012
		(Actual)			(Pro forma)			(Pro forma)			(Pro forma)
Revenue		$	20,573		$	24,716		$	44,528		$	54,957
Net loss		$	(5,896	)	$	(5,547	)	$	(15,473	)	$	(7,581	)
Pro forma net income (loss) per common share
Basic		$	(0.16	)	$	(0.15	)	$	(0.43	)	$	(0.22	)
Diluted		$	(0.16	)	$	(0.15	)	$	(0.43	)	$	(0.22	)

The Company’s historical financial information was adjusted to give effect to the pro forma events that were directly attributable to the Somaxon and the Cypress acquisitions and factually supportable. The unaudited pro forma consolidated results include the historical revenues and expenses of assets acquired and liabilities assumed in the acquisitions with the following adjustments:

●	Adjustment to recognize incremental amortization expense based on the fair value of intangibles acquired;

●	Eliminate historical interest expense for Cypress debt that was extinguished;

●	Adjustment to recognize interest expense for debt issued in connection with the Cypress transaction;

●	Eliminate transaction costs and non-recurring charges directly related to the Somaxon acquisition that were included in the historical results of operations for Pernix and Somaxon;

●	Adjustment to recognize pro forma income tax based on 27.7% rate;

●	Adjustment to recognize the issuance of 4.4 million shares of the Company’s common stock as consideration for the Cypress acquisition; and

●	Adjustment to recognize the issuance of 3.6 million shares of the Company’s common stock as consideration for the Somaxon acquisition.

For the three months and six months ended June 30, 2013, the Company recognized net revenue for Somaxon subsequent to the closing on March 6, 2013 in the amount of $0.7 million and $3.5 million, respectively. Non-recurring transaction costs of $3.2 million related to the Somaxon acquisition for the three and six months ended June 30, 2013 are included in the consolidated statement of operations in selling, general and administrative expenses. These non-recurring transaction costs have been excluded from the pro forma results in the above table.

Acquisition of GSL

On July 2, 2012, the Company acquired the business assets of Great Southern Laboratories, or GSL, a pharmaceutical contract manufacturing company located in Houston, Texas. The Company closed on the related real estate on August 30, 2012. Upon the final closing, the Company paid an aggregate of approximately $4.9 million (including $300,000 deposited to an escrow that was subsequently refunded to the Company as payment for unrecorded liabilities), and assumed certain liabilities totaling approximately $5.9 million for substantially all of GSL’s assets including the land and buildings in which GSL operates. GSL has an established manufacturing facility for the pharmaceutical industry, which was expected to provide the Company with potential cost savings going forward. The Company acquired the GSL assets through a wholly-owned subsidiary, Pernix Manufacturing, LLC. The results of operations of Pernix Manufacturing have been included in the Company’s consolidated financial statements since the acquisition date.

The GSL Acquisition was accounted for as a business combination in accordance with ASC No. 805 “Business Combinations” (“ASC 805”) which, among other things, requires assets acquired and liabilities assumed to be measured at their acquisition date fair values. The purchase price allocation was preliminary and was based on estimates of fair values at the date of the acquisition. The Company evaluated the preliminary purchase price allocation, which was adjusted as additional information relative to the fair value of assets and liabilities became available.

Pro forma combined results of operations for the three months and six months ended June 30, 2012 as though the GSL acquisition had been completed as of January 31, 2012 are omitted from this quarterly report on Form 10-Q. The Company determined that it is impractical to include such pro forma information given the immateriality of the transaction and the difficulty in obtaining the historical financial information of GSL. Inclusion of such information would require the Company to make estimates and assumptions regarding GSL’s historical financial results that we believe may ultimately prove inaccurate.

Note 5. Derivative Instruments

In connection with the acquisition of Cypress effective December 31, 2012, the Company issued a put right to Cypress’ former shareholders. The put right, which expires on January 31, 2014, is exercisable during the thirty-day period immediately following the one-year anniversary date of the business acquisition, which if exercised would enable them to sell any of the shares they still hold (3,773,079 as of June 30, 2013 from the underlying 4,427,084 shares of the Company’s common stock they received as part of the purchase consideration), back to the Company at a price of $5.38 per share, which represents a 30% discount off of the per-share value established on the effective date of the closing of the acquisition. In accordance with the relevant authoritative accounting literature a portion of the total purchase consideration was allocated to this put liability based on its initial fair value, which was determined to be $3.4 million using a Black-Scholes model. The inputs used in the valuation of the put right include term, stock price volatility, current stock price, exercise price, and the risk free rate of return. At June 30, 2013, the fair value of the put right liability was re-measured and was determined to have increased $1.8 million and $4 million during the three and six month periods then ended, respectively, with such amounts reflected as a loss included in other non-operating income in the accompanying Condensed Consolidated Statement of Comprehensive Income. As of June 30, 2013, the aggregate fair value of this derivative instrument, which is included in current liabilities in the Condensed Consolidated Balance Sheet, was $7.3 million. The Company has classified the put right, for which the fair value is re-measured on a recurring basis at each reporting date as a Level 3 instrument (i.e. wherein fair value is partially determined and based on unobservable inputs that are supported by little or no market activity), which the Company believes is the most appropriate level within the fair value hierarchy based on the inputs used to determine its fair value at the measurement date.

Note 6. Accounts Receivable

Accounts receivable consist of the following:

	June 30,			December 31,
	2013			2012
Trade accounts receivable	$	25,738,081		$	35,723,488
Less allowance for prompt pay discounts		(542,559	)		(727,714	)
Total trade receivables		25,195,522			34,995,774
Receivables from third parties – revenue sharing arrangements		1,978,270			1,690,544
Less allowance for doubtful accounts		(484,031	)		(39,231	)
Total account receivables		26,689,761			36,647,087

The Company typically requires customers to remit payments within the first 30 days for brand purchases or 60 to 120 days for generic purchases (depending on the customer and the products purchased). The Company offers wholesale distributors a prompt payment discount, which is typically 2-3%, as an incentive to remit payment within these deadlines. Accounts receivable are stated net of the estimated prompt pay discount. The Company’s management evaluates accounts receivable to determine if a provision for an allowance for doubtful accounts is appropriate.

Note 7. Inventory

Inventories consist of the following:

	June 30, 2013			December 31, 2012
Raw materials	$	2,117,880		$	1,550,736
Packaging materials		779,863			866,674
Samples		570,942			792,702
Finished goods		17,089,537			19,860,995
		20,558,222			23,071,107
Reserve for obsolescence		(1,589,903	)		(1,056,702	)
Inventory, net	$	18,968,319		$	22,014,405

An increase in the basis of inventory related to the acquisitions of Cypress and Somaxon are included in the balances above as of June 30, 2013 and December 31, 2012. The increase included in raw materials resulted from the Somaxon acquisition and was approximately $227,000 and $0 as of June 30, 2013 and December 31, 2012, respectively. The increase included in finished goods was approximately $4,307,000 as of June 30, 2013 and $8,600,000 as of December 31, 2012.

Note 8. Intangible Assets and Goodwill

Intangible assets consist of the following:

		June 30,			December 31,
	Life	2013			2012
Patents	12 - 15 years	$	1,442,000		$	1,442,000
Brand	8 years		3,887,000			3,887,000
Product licenses	1 – 13 years		16,213,794			15,135,050
Customer relationships	6 years		1,848,000			1,848,000
Non-compete and supplier contracts	2 - 7 years		5,194,571			5,194,571
Trademark rights	Indefinite		638,563			638,563
In-process research and development acquired (1)			61,500,000			45,200,000
Developed technology	9-11 years		51,000,000			37,000,000
			141,723,928			110,345,184
Less intangible assets held for sale (2)			(29,000,000	)		─
Accumulated amortization			(10,309,488	)		(6,290,753)
Total		$	102,414,440		$	104,054,431

(1)	Amortization will begin once the related products go into production or if the product in development fails or is abandoned, it will be written off.

(2)

Represents the stated sales price of certain intangible assets and in-process research and development, in addition to a $1.0 million transfer of product inventory, divested in a transaction that is expected to close no later than mid-September 2013. The sales price will be allocated based on subsequent analysis and is deemed to reflect the original cost as the assets were acquired within the last six months and Pernix did not expend significant efforts to advance these assets. The purchase price will be allocated at closing with the assistance of the valuation team of an independent public accounting firm that will include an analysis of the purchase price assigned to these assets in the original acquisition from the former stockholders of Cypress. Legal fees and other professional fees will be incurred as it relates to this sale but the total of these costs cannot be estimated at this time. The purchase price reflected as intangible assets held for sale have not been adjusted at this time for an estimate of costs to sell these assets; however, the Company does not believe these costs will be significant to the transaction. See Note 17, Subsequent Events .

Estimated amortization expense related to intangible assets with definite lives for each of the five succeeding years and thereafter is as follows:

	Amount
2013 (April – December)	$	4,602,537
2014		9,204,672
2015		9,204,672
2016		9,204,672
2017		7,688,626
Thereafter		29,370,699
Total	$	69,275,878

Amortization expense is approximately $2,469,000 and $4,427,000 for the three and six months ended June 30, 2013 and $771,000 and $1,383,000 for the three and six months ended June 30, 2012, respectively.

Changes in the carrying amount of goodwill for the six months ended June 30, 2013 and the year ended December 31, 2012 are as follows:

	June 30, 2013		December 31, 2012
Beginning Balance	$	37,160,911	$	1,406,591
Goodwill acquired – Somaxon		10,748,244	─
Goodwill acquired – Cypress	─			34,838,745
Goodwill acquired – GSL	─			915,575
Adjustments (1)		4,736,250	─
Total	$	52,645,405	$	37,160,911

(1)	Primarily reflects the impact of measurement period adjustments related to the Cypress and Somaxon acquisitions composed of a deferred tax asset on the increase in the basis of the acquired inventory and an increase in certain accrued allowances.

Note 9. Accrued Allowances

Accrued allowances consist of the following:

	June 30,		December 31,
	2013		2012
Accrued returns allowance	$	11,968,900	$	12,057,464
Accrued price adjustments		13,624,204		10,960,042
Accrued government program rebates		5,830,445		7,037,045
Total	$	31,423,549	$	30,054,551

Note 10. Other Liabilities

Other liabilities consist of the following:

	June 30, 2013		December 31, 2012
Stock repurchase contract with employee	$	─	$	600,000
Cypress acquisition contingent consideration		18,334,469		14,666,175
Product license contracts		196,667		630,000
Settlement obligations (see Note 16)		3,935,000	─
Other contracts		130,254
Deferred revenue		392,579	─
Total contracts payable and other obligations	$	22,988,969	$	15,896,175

Other liabilities – current	$	15,180,329	$	8,130,664
Other liabilities – long term	$	7,808,640	$	7,765,511

Note 11. Debt

Debt consists of the following:

	June 30, 2013		December 31, 2012
Amounts outstanding under the Credit Facility – MidCap Funding V, LLC	$	23,360,809	$	42,000,000
Stancorp Mortgage		1,516,198		1,580,748
Capital leases (see Note 16)		9,087		55,328
Total debt	$	24,886,094	$	43,636,076

Debt – current	$	18,471,787	$	2,286,513
Debt – long term	$	6,414,307	$	41,349,563

Credit Facility – MidCap Funding V, LLC

In connection with the purchase of all of the capital stock of Cypress, the Company, together with its subsidiaries, entered into a Credit and Guaranty Agreement, dated December 31, 2012, with MidCap Funding V, LLC, as administrative agent, a lender and as a co-bookrunner, and Business Development Corporate of America, as co-bookrunner, and additional lenders from time to time party thereto (the "Original Credit Agreement"). The Original Credit Agreement provided for a term credit facility of $42 million. Subject to certain permitted liens, the obligations under this facility were secured by a first priority perfected security interest in substantially all of the assets of the Company and its subsidiaries. The proceeds from this facility were used to fund a portion of the cash consideration of the acquisition of Cypress.

The Original Credit Agreement was subject to certain financial and nonfinancial covenants that were significantly more onerous than the covenants under our prior facility with Regions, and also contained customary representations and warranties and event of default provisions for a secured credit facility.

The facility bore interest at a rate equal to the sum of the LIBOR rate plus an applicable margin of 6.50% per annum (9.0% at April 30). The Company was required to make quarterly repayments beginning on March 31, 2013 and ending on December 31, 2017, when all remaining principal was due and payable. In addition, the Company was able to voluntarily repay outstanding amounts under the Original Credit Agreement at any time without premium or penalty. On May 8, 2013, the Company, together with its subsidiaries, entered into the Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with MidCap Financial, LLC, as Administrative Agent and as a lender, and additional lenders from time to time party thereto. The Restated Credit Agreement amends and restates in its entirety the Original Credit Agreement.

The Restated Credit Agreement provides for a term loan of $10 million and a revolving loan commitment of $20 million. In connection with the entry into the Restated Credit Agreement, the Company prepaid approximately $12 million of the term loan that had been previously outstanding under the Original Credit Agreement. Under the Restated Credit Agreement, the Company’s borrowing base on the revolving loan commitment is equal to (A) 85% of eligible accounts, plus (B) 50% of eligible inventory, minus (C) certain reserves and/or adjustments, subject to certain conditions and limitations. Notwithstanding the foregoing, the Restated Credit Agreement provides for an advance of up to $3 million in excess of the Company’s borrowing base until June 5, 2013, at which time all excess amounts were paid. As of June 30, 2013, the outstanding balance under the term loan was approximately $7.7 million and the outstanding balance under the revolver was approximately $15.7 million. The Company has approximately $4.3 million of remaining available funds as of June 30, 2013.

Unlike the Original Credit Agreement, the Restated Credit Agreement does not include covenants limiting capital expenditures or requiring the Company to maintain a fixed charge coverage ratio and leverage ratio, but rather contains covenants requiring the Company to maintain a minimum amount of EBITDA and net invoiced revenues. Similar to the Original Credit Agreement, the Restated Credit Agreement includes customary covenants for a secured credit facility, which include, among other things, (a) restrictions on (i) the incurrence of indebtedness, (ii) the creation of or existence of liens, (iii) the incurrence or existence of contingent obligations, (iv) making certain dividends or other distributions, (v) certain consolidations, mergers or sales of assets and (vi) purchases of assets, investments and acquisitions; and (b) requirements to deliver financial statements, reports and notices to the administrative agent and other lenders. The Restated Credit Agreement also contains customary representations and warranties and event of default provisions for a secured credit facility.

The loans under this facility bear interest at a rate equal to the sum of the LIBOR rate plus an applicable margin of 7.50% per annum. Pursuant to the Restated Credit Agreement, the Company paid certain customary fees to the administrative agent and lenders.

Under the Restated Credit Agreement, we are required to make monthly repayments of $333,333 on the term loan beginning on November 7, 2013 and ending on May 7, 2016, when all remaining principal is due and payable. Approximately $2,300,000 of the proceeds from the sale of TherapeuticsMD stock were utilized to pay down the term loan in June 2013. The revolving loan will be paid based on our cash receipts through a lockbox arrangement, with all principal due and payable on May 7, 2016. In addition, we are able to voluntarily prepay outstanding amounts under the revolving loan commitment at any time, subject to certain prepayment penalties. Pernix paid net funds on the revolving loan of approximately $3,842,000 during the three and six months ended June 30, 2013.

As with the Original Credit Agreement, the obligations under the Restated Credit Agreement are secured by a first priority perfected security interest in substantially all of the assets of the Company and its subsidiaries, subject to certain permitted liens. The May 2013 amendments described above were treated as a modification of debt under GAAP, and the Company expensed $630,000 of deferred financing fees and recorded approximately $524,000 of new deferred financing fees for the three and six months ended June 30, 2013.

Mortgage

Certain real estate acquired in the acquisition of GSL is encumbered by a mortgage that the Company assumed. The monthly fixed payment under this mortgage, including principal and interest, is approximately $19,000 until February 1, 2022. This mortgage is included under the caption Debt – short term and Debt – long term on the Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012. The outstanding mortgage balance is $1,516,198 and $1,580,747 as of June 30, 2013 and December 31, 2012, respectively.

Note 12. Temporary Equity

The Company issued 4,427,084 shares of its common stock as consideration to the sellers for the Cypress acquisition. These shares are subject to a put right that provides the sellers of Cypress a cash settlement right. This cash redemption feature is bifurcated from the common stock issued as a consideration and is classified as current liability. Subsequent to the acquisition of Cypress, 654,005 shares that were subject to the put right were sold by former Cypress shareholders on the open market. See Note 5, Derivative Instruments , for further information.

Note 13. Stockholders’ Equity

Controlled Equity Offering

On February 10, 2012, the Company entered into a controlled equity offering sales agreement with Cantor Fitzgerald & Co. pursuant to which the Company could issue and sell shares of its common stock having an aggregate offering price of up to $25,000,000 from time to time through Cantor, acting as agent, but in no event more than 5,000,000 shares of common stock. The Company paid Cantor a commission rate of 3.0% of the gross sales price per share of the common stock sold through Cantor. The Company reimbursed Cantor an amount equal to $50,000, representing certain expenses incurred by Cantor in connection with entering into the sales agreement and provided Cantor with customary indemnification rights. The Company sold 2,966,739 shares of common stock under this controlled equity program for total net proceeds of approximately $23.8 million and closed the controlled equity offering on May 1, 2012. The offering was made pursuant to our effective shelf registration statement filed with the Securities and Exchange Commission on May 31, 2011. The Company used the proceeds of this financing to provide funding for acquisitions and general corporate purposes in 2012.

Stock Repurchase Contract with Related Party

On September 10, 2010, Pernix entered into an agreement, pursuant to a stock repurchase authorization from our board of directors on May 12, 2010, to purchase 2,000,000 shares of its common stock from an employee of Pernix at $1.80 per share. The aggregate purchase price of $3,600,000 was paid in equal quarterly installments of $300,000 over three years. The final payment on this agreement was made on April 1, 2013.

Note 14. Employer Compensation and Benefits

The Company participates in a 401(k) plan, which covers substantially all full-time employees. The Plan is funded by employee contributions and discretionary matching contributions determined by management. At the Company’s discretion, it may match up to 100 percent of each employee’s contribution, not to exceed the first six percent of the employee’s individual salary. There is a six-month waiting period from date of hire to participate in the plan. Employees are 100 percent vested in employee and employer contributions. Contribution expense was approximately $118,000 and $255,000 for the three and six month periods ended June 30, 2013, respectively. Contribution expense was approximately $73,000 and $183,000 for the three and six month periods ended June 30, 2012, respectively.

Stock Options

The Company’s 2009 Stock Incentive Plan was approved concurrent with its merger with Golf Trust of America (“GTA”), Inc. on March 9, 2010. The maximum number of shares that can be offered under this plan is 5,000,000. Incentives may be granted under the 2009 Plan to eligible participants in the form of (a) incentive stock options, (b) non-qualified stock options, (c) restricted stock, (d) restricted stock units, (e) stock appreciation rights and (f) other stock-based awards.

As of June 30, 2013, approximately 30,000 options remain outstanding that were issued to current officers under former incentive plans of GTA. The remaining average contractual life of these options is approximately 1.6 months.

The Company currently uses the Black-Scholes option pricing model to determine the fair value of its stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include the Company’s expected stock price volatility over the term of the awards, actual employee exercise behaviors, risk-free interest rate and expected dividends.

The following table shows the weighted average of the assumptions used to value stock options on the date of grant, as follows:

	Six Months
	Ended
	June 30, 2013
Weighted average expected stock price volatility		66.8	%
Estimated dividend yield		0.0	%
Risk-free interest rate		1.0	%
Expected life of option (in years)		6.0
Weighted average fair value per share	$	4.64

The Company has not paid and does not anticipate paying cash dividends; therefore, the expected dividend rate is assumed to be 0%. The expected stock price volatility for the stock options is based on historical volatility of a representative peer group of comparable companies selected using publicly available industry and market capitalization data. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected life assumption. The expected life of the stock options granted was estimated based on the historical exercise patterns over the option lives.

The following table shows the option activity, described above, during the three months ended June 30, 2013:

Option Shares	Shares			Average Exercise Price
Outstanding at December 31, 2012 (1)		1,711,167		$	4.87
Granted		295,000			4.07
Exercised		(40,000	)		2.79
Cancelled		(126,834	)		7.69
Expired	─			─
Outstanding at June 30, 2013		1,839,333		$	4.59
Vested and exercisable, end of period		860,331		$	4.48

The intrinsic value of options exercised during the six months ended June 30, 2013 and 2012 was approximately $132,000 and $203,000, respectively.

The weighted-average grant date fair value for options granted during the six months ended June 30, 2013 and 2012 was approximately $4.64 and $5.52, respectively.

The following table shows the details by range of exercise price for the total options outstanding at June 30, 2013:

		Options Outstanding		Options Exercisable
Range of Exercise Price ($)		Shares	Remaining Contractual Life (years)	Shares	Price ($)
1.94 - 2.20		5,000	1.7	5,000	$	2.20
3.31 – 4.20	(1)	1,407,667	7.7	702,667		3.75
6.10		153,333	8.1	59,331		6.10
7.75 – 8.62		180,000	8.8	43,334		8.18
9.02 – 10.35		93,333	8.3	49,999		9.77
		1,839,333	7.8	860,331	$	4.47

(1) Includes 460,000 options granted to ParaPRO, LLC on August 3, 2011, that vest over seven years, pursuant to the commercial terms of the co-promotion arrangement between the Company and ParaPRO for the marketing and sale of Natroba. For additional information, see Note 16, Commitments and Contingencies .

As of June 30, 2013, the aggregate intrinsic value of 860,331 options outstanding and exercisable was approximately $22,000.

As of June 30, 2013, there was approximately $863,000 of total unrecognized compensation cost related to unvested stock options issued to employees and directors of the Company, which is expected to be recognized ratably over a weighted-average period of 1.67 years.

Restricted Stock

The following table shows the Company's nonvested restricted stock outstanding at June 30, 2013:

				Weighted Average
				Grant Date
Restricted Stock Shares	Shares			Fair Value
Nonvested at December 31, 2012		728,333		$	7.47
Granted		357,654			3.42
Vested		(138,332	)		7.85
Forfeited		(276,200	)		6.42
Nonvested at June 30, 2013		671,455		$	5.66

During the six months ended June 30, 2013, 357,654 common shares were issued. Approximately $3,277,000 of total unrecognized compensation cost related to unvested restricted stock is expected to be recognized over a weighted-average period of 2.1 years.

Employee Stock Purchase Plan

Effective July 22, 2010, the Company adopted the 2010 Employee Stock Purchase Plan to provide substantially all employees an opportunity to purchase shares of its common stock through payroll deduction, up to 10% of eligible compensation with a $25,000 maximum deferral. Semi-annually (on May 1 and November 1), participant account balances will be used to purchase shares of stock at the lesser of 85 percent of the fair market value of shares at the beginning or end of such six-month period. The Employee Stock Purchase Plan expires on July 22, 2020. A total of 1,000,000 shares are available for purchase under this plan of which 60,159 have been issued. Compensation expense related to the Employee Stock Purchase Plan and included in the table below for the six months ended June 30, 2013 and 2012 was approximately $35,100 and $39,800, respectively.

Stock-Based Compensation Expense

The following table shows the approximate amount of total stock-based compensation expense recognized (included in selling, general and administrative expenses) for employees and non-employees:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Employees	$	461,000	$	528,000	$	812,000	$	866,000
Non-employees/Directors		121,000		199,000		209,000		358,000

Total	$	582,000	$	727,000	$	1,021,000	$	1,124,000

Note 15. Income Taxes

The effective income tax rate from continuing operations is different from the federal statutory rate for the six months ended June 30, 2013 and 2012 for the following reasons:

	Six Months Ended June 30,
	2013			2012
Expected taxes at statutory rates		(35.0	)%		35.0	%
State taxes, net of federal tax benefit		(1.5	)%		(0.4	)%
Nondeductible expenses		1.4	%		10.3	%
Put right expense		7.4	%	─		%
Other	─		%		2.5	%
		(27.7	)%		47.4	%

Note. 16. Commitments and Contingencies

Legal Proceedings

United States District Court for the Eastern District of Texas, Civil Action No. 6:12-cv-00027-LED

On January 19, 2012, plaintiffs, Merck & Cie, South Alabama Medical Science Foundation and Pamlab, L.L.C. filed suit seeking unspecified damages and injunctive relief against our wholly owned subsidiary, Macoven Pharmaceuticals, for infringement of U.S. Patent Nos. 5,997,915, 6,254,904, 6,673,381, 7,172,778, 7,674,490 and 6,011,040 based on Macoven’s commercialization of the following products: Vitacirc-B; ALZ-NAC; L-methylfolate PNV; L-methylfolate calcium 7.5mg; and L-methylfolate calcium 15mg. As a result of the settlement and termination of the ITC investigation described below, this suit was dismissed on June 12, 2013.

ITC Investigation No. 337-TA-2912, In the Matter of Reduced Folate Nutraceutical Products and L-methylfolate Raw Ingredients Used Therein.

On September 10, 2012, plaintiffs, Merck & Cie, South Alabama Medical Science Foundation and Pamlab, L.L.C., filed a complaint with the ITC under Section 337 of the Tariff Act of 1930, as amended, against Macoven for infringement of U.S. Patent Nos. 5,997,915, 6,673,381, 7,172,778 and 6,011,040 based on Macoven’s commercialization of the following products: Vitaciric-B; ALZ-NAC; and L-methylfolate calcium. The ITC initiated an investigation on October 10, 2012. Macoven filed a response, denying liability for patent infringement and asserting patent invalidity as a defense. Macoven entered into a settlement agreement with the plaintiffs on May 23, 2013, and as a result, the administrative law judge granted the plaintiffs and Macoven’s joint motion to terminate this case on June 11, 2013. On July 12, 2013, the ITC determined to not review the termination. Pursuant to the settlement agreement, Macoven has agreed, among other things, to no longer market and sell the disputed products.

Somaxon Pharmaceuticals, Inc. Shareholder Litigation (Lead Case No. 37-201200087821-CU-SLCTL)

A purported class action lawsuit was filed in the Superior Court of California County of San Diego by Daniele Riganello, who, prior to the consummation of the merger between Pernix and Somaxon on March 6, 2013 (the “Merger”), was an alleged stockholder of Somaxon (Riganello v. Somaxon, et al., No. 37-201200087821-CU-SLCTL). A second purported class action was also filed in the court by another alleged stockholder (Wasserstrom vs. Somaxon, et al., No. 37-2012-00029214-CU-SL-CTL). Both plaintiffs filed amended complaints on January 18, 2013. The lawsuits were consolidated into a single action captioned In re Somaxon Pharmaceuticals, Inc. Shareholder Litigation (Lead Case No. 37-201200087821-CU-SLCTL). The operative complaint named as defendants Somaxon, Pernix, Pernix Acquisition Corp. I, as well as each of the former members of Somaxon’s board of directors (the “Individual Defendants”). It alleged, among other things, that (i) the Individual Defendants breached fiduciary duties they assertedly owed to Somaxon’ s former stockholders in connection with the Merger (ii) Somaxon and Pernix aided and abetted the purported breaches of fiduciary duty; (iii) the merger consideration was unfair and inadequate; and (iv) the disclosures regarding the Merger in the Registration Statement on Form S-4, initially filed with the Securities and Exchange Commission on January 7, 2013 (the “Proxy Statement/Prospectus”), were inadequate.

On January 24, 2013, solely to avoid the costs, risks and uncertainties inherent in litigation and without admitting any liability or wrongdoing, Pernix and the other named defendants in such litigation signed a memorandum of understanding (the “MOU”) to settle such litigation. Confirmatory discovery was completed by April 2013. Subject to court approval and further definitive documentation in a stipulation of settlement, the MOU resolves the claims brought in such litigation and provides a release and settlement by the purported class of Somaxon’ s former stockholders of all claims against the defendants and their affiliates and agents in connection with the Merger. The asserted claims will not be released until such stipulation of settlement is approved by the court, which was filed in July 2013. There can be no assurance that the court will approve such settlement. Additionally, as part of the MOU, Pernix made certain additional disclosures related to the Merger in the Proxy Statement/Prospectus. Finally, in connection with the proposed settlement, plaintiffs in such litigation intend to seek an award of attorneys’ fees and expenses in an amount to be approved or determined by the court.

In addition to the above proceedings, Pernix is subject to various claims and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such matters will not have a material effect on Pernix’s financial position or results of operations.

Texas Attorney General Medicaid Investigation

On May 9, 2013, our subsidiary, Cypress Pharmaceuticals, Inc., received notice from the Office of the Attorney General of the State of Texas that it had completed its initial analysis of transaction data provided by Cypress during 2012 to the Attorney General’s office and offering to settle all claims that the Attorney General alleges arise from Cypress’s prior actions under the Texas Medicaid Fraud Prevention Act. The Company is currently assessing both the legitimacy of the claims made in this offer letter and the legal steps at its disposal to challenge the claims and the value placed on those claims. The Company has requested information from the Attorney General to analyze the basis upon which damages were calculated which the Company has yet to receive. Given the lack of information at this time, we are unable to determine whether and to what extent this would materially impact the Company’s business and operations.

Purchase Commitments

Purchase obligations include fixed or minimum payments under manufacturing and supply agreements with third-party manufacturers and other providers of goods and services. Our failure to satisfy minimum sales requirements under our co-promotion agreements generally allows the counterparty to terminate the agreement and/or results in a loss of our exclusivity rights. In part to maintain minimum sales requirements under our co-promotion agreements, the Company has commitments under open purchase orders for inventory of approximately $5.0 million that can be cancelled without penalty.

Stock Options Issued in Exchange for Services

Pursuant to an agreement for support services entered into between the Company and ParaPRO on August 27, 2010 which commenced upon the launch of NATROBA on August 3, 2011, 460,000 stock options were granted to ParaPRO. The options have an exercise price of $3.65 which was the closing price of the Company’s stock as of the date of the support services agreement. The options are exercisable in seven installments in the following amounts: (i) 30,000 on August 1, 2012; (ii) 40,000 on August 1, 2013; (iii) 50,000 on August 1, 2014; (iv) 60,000 on August 1, 2015; (v) 70,000 on August 1, 2016; (vi) 90,000 on August 1, 2017; and (vii) 120,000 on August 1, 2018. The options are exercisable for a period of five years from the date each becomes exercisable and are valued at approximately $2,841,000. These options were granted in a private offering under Rule 4(2) of the Securities Act of 1933. As of June 30, 2013, there was approximately $1,543,000 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized ratably over a weighted-average period of 3.7 years.

Leases

The Company leases facilities space and equipment under operating lease arrangements that have terms expiring at various dates through 2016. Certain lease arrangements include renewal options and escalation clauses. In addition, various lease agreements to which the Company is a party require that we comply with certain customary covenants throughout the term of the leases. If we are unable to comply with these covenants and cannot reach a satisfactory resolution in the event of noncompliance, these agreements could terminate. See Note 17, Subsequent Events, for further discussion.

Future minimum lease payments under non-cancelable operating leases do not include the rent payments for the Woodlands, Texas lease that was terminated as described in Note 17, Subsequent Events. The minimum payments are as follows as of June 30, 2013 (in thousands):

2013 (July – December)	$	414,000
2014		470,000
2015		39,000
2016		3,000
2017	─
	$	926,000

Total rent expense was approximately $213,000 and $384,000 for the three and six months period ended June 30, 2013, respectively. Rent expense was approximately $88,000 and $175,000 for the three and six month period ended June 30, 2012, respectively.

Capital leases on certain pharmaceutical manufacturing equipment assumed in the acquisition of GSL have terms to November 2013. There were multiple assets under various individual capital leases as of June 30, 2013.

Milestone Payments

The Company is party to certain license agreements and acquisition agreements as described in Note 4, Business Combinations and Other Acquisitions. Generally, these agreements require that the Company make milestone payments in cash upon the achievement of certain product development and commercialization goals and payments of royalties upon commercial sales. The amount and timing of future milestone payments, as discussed in the Notes referenced herein, may vary depending on when related milestones will be attained, if at all.

Other Revenue Sharing Agreements

The Company has entered into certain revenue sharing arrangements that require payments based on a specified percentage of net sales or a specified cost per unit sold. For the three and six months ended June 30, 2013, the Company recognized approximately $857,000 and $1,360,000, respectively, in expense included in cost of goods sold from payments pursuant to co-promotion and other revenue sharing arrangements. For the three and six months ended June 30, 2012, the Company recognized $801,000 and $1,916,000, respectively

Other Commitments

Somaxon was subject to certain contractual payment obligations pursuant to settlement agreements entered into by it which the Company assumed. As of June 30, 2013 and December 31, 2012, a $0.8 million balance remained unpaid under the terms of a settlement agreement relating to the termination of a co-promotion agreement. Pursuant to the terms of this agreement, six percent of sales of Silenor are payable to the counterparty until the balance is paid in full. In July 2012 and January 2013, Somaxon settled two patent litigation claims with parties seeking to market generic equivalents of Silenor. Remaining payment obligations owed by Somaxon and assumed by Pernix under these settlement agreements are $1.75 million and $2.0 million, respectively, payable in equal installments over the next seven and four years, respectively.

Uninsured Liabilities

The Company is exposed to various risks of losses related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters for which the Company maintains general liability insurance with limits and deductibles that management believes prudent in light of the exposure of the Company to loss and the cost of the insurance.

The Company is subject to various claims and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such matters will not have a material effect on the consolidated financial position or results of operations of the Company.

Note 17. Subsequent Events

Lease

The Company consolidated its Houston offices to its facility located in Magnolia, Texas, and terminated the lease, with the acceptance of its landlord, at its Woodlands, Texas location effective July 31, 2013 without penalty. This lease had a remaining term through April 2016 representing a future lease commitment of approximately $579,000.

Agreement to Sell Certain Generic Assets

On August 5, 2013, the Company entered into an agreement to sell certain generic assets and ANDAs owned by its subsidiary, Cypress Pharmaceuticals, to Breckenridge Pharmaceutical, Inc. for $30 million. Under the terms of the agreement, Breckenridge will pay Pernix $20 million in an upfront payment and $10 million payable in two equal installments over the next two years. The assets include seven previously marketed products, eight Abbreviated New Drug Applications (ANDAs) filed at the FDA, and certain other ANDAs in various stages of development.

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

The following discussion is designed to provide a better understanding of our unaudited consolidated financial statements, including a brief discussion of our business and products, key factors that impact our performance and a summary of our operating results. You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations together with our unaudited condensed consolidated financial statements and the related notes included in “Part I—Item 1. Financial Statements” of this Quarterly Report on Form 10-Q and the condensed consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2012. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated by the forward-looking statements due to important factors including, but not limited to, those set forth under “Part I—Item1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2012 and “Part II—Item1A. Risk Factors” of this Quarterly Report on Form 10-Q for the three months ended June 30, 2013 .

Executive Overview

Pernix Therapeutics Holdings, Inc. (“Pernix”, the “Company, “we” or “our”) is a specialty pharmaceutical company focused on the sales, marketing, manufacturing and development of branded, generic and over-the-counter, which we refer to herein as OTC, pharmaceutical products for pediatric and adult indications in a variety of therapeutic areas. We expect to continue to execute our growth strategy which includes the horizontal integration of our branded prescription, generic and OTC businesses. We also plan to continue to make strategic acquisitions of products and companies, as well as develop and in-license additional products as available capital permits. We manage a portfolio of branded and generic products. Our branded products for the pediatrics market include CEDAX®, an antibiotic for middle ear infections, NATROBA®, a topical treatment for head lice marketed under an exclusive co-promotion agreement with ParaPRO, LLC and ZUTRIPRO® for the treatment of cough and cold. Our branded products for gastroenterology include OMECLAMOX-PAK®, a 10-day treatment for H. pylori infection and duodenal ulcer disease, and REZYST®, a probiotic blend to promote dietary management. Through our wholly-owned subsidiary, Pernix Sleep, Inc. (formerly Somaxon Pharmaceuticals, Inc.), we market SILENOR® (doxepin), a non-controlled substance approved for the treatment of insomnia characterized by difficulty with sleep maintenance. Through our license agreement with Pharmaceutical Associates, Inc., we market VERIPRED™, a prescription drug product indicated for the control of severe allergic conditions. In addition, a product candidate utilizing cough-related intellectual property has been developed for the U.S. OTC market, for which partnering opportunities are currently being evaluated. We promote our branded pediatric and gastroenterology products through our sales force. We market our generic products in the areas of cough and cold, pain, vitamins, dermatology, antibiotics and gastroenterology through our wholly-owned subsidiaries, Macoven Pharmaceuticals and Cypress Pharmaceuticals. Our wholly-owned subsidiary, Pernix Manufacturing, manufactures and packages products for the pharmaceutical industry in a wide range of dosage forms.

On August 5, 2013, the Company entered into an agreement to sell certain generic assets owned by its subsidiary, Cypress Pharmaceuticals, to Breckenridge Pharmaceutical, Inc. for $30 million. Under the terms of the agreement, Breckenridge will pay Pernix $20 million in an upfront payment and $10 million payable in two equal installments over the next two years. The assets include seven previously marketed products, eight Abbreviated New Drug Applications (ANDAs) filed at the FDA, certain other ANDAs in various stages of development and the transfer of $1.0 million in inventory.

On May 9, 2013, the Company received letters from one of its suppliers relating to non-compliant product labeling for certain active ingredients. The Company initiated a voluntary market withdrawal to the wholesale level for the impacted products which pose no safety risk. We have provided for product returns of approximately $1,611,000 and written off inventory related to these products of approximately $295,000. The Company has worked with the Food and Drug Administration Recall Coordinator to finalize its recall strategy. The recall is at the retail level and has been initiated.

On March 6, 2013, the Company acquired all of the outstanding common stock of Somaxon Pharmaceuticals, Inc. pursuant to an agreement and plan of merger dated December 10, 2012. As a result of the merger, each outstanding share of Somaxon common stock was converted into the right to receive 0.477 shares of the Company’s common stock, with cash paid in lieu of fractional shares. As a result of the merger, the Company issued an aggregate of approximately 3,665,689 shares of its common stock to the former stockholders of Somaxon. Somaxon is a specialty pharmaceutical company focused on the in-licensing, development and commercialization of proprietary branded products and product candidates to treat important medical conditions where there is an unmet medical need and/or high level of patient dissatisfaction, mainly in the central nervous system therapeutic area. At the time of acquisition, Somaxon was only marketing Silenor. The company’s name was changed from Somaxon to Pernix Sleep, Inc.

On December 31, 2012, we completed the acquisition of a privately-owned, generic pharmaceutical company, Cypress Pharmaceuticals, Inc. and its branded pharmaceutical subsidiary Hawthorn Pharmaceuticals, Inc., which we refer to collectively herein as Cypress. Cypress offers a wide array of branded and generic pharmaceutical products in the areas of cough and cold, nutritional supplements, analgesics, urinary tract, women’s health, prenatal vitamins and dental health, as well as allergy, respiratory, iron deficiency, nephrology and pain management. Hawthorn offers a broad portfolio of branded products including allergy, respiratory, iron deficiency, nephrology and pain management. We paid an aggregate purchase price of up to $102.3 million. This purchase price included $52 million in cash, 4,427,084 shares of our common stock having an aggregate market value equal to approximately $34.3 million based on our common stock’s closing price per share of $7.75 as reported on the NYSE MKT LLC on December 31, 2012, up to $6.5 million in holdback and contingent payments, $4.5 million to be deposited in escrow on December 15, 2013, and $5.0 million in shares of our common stock contingent upon the occurrence of a milestone event. The Company also granted a put right to the sellers pursuant to which the sellers may put the shares of our common stock issued in connection with the acquisition to the Company at approximately $5.38 per share, with such put right being exercisable from January 1, 2014 to January 31, 2014. The Cypress acquisition significantly increased and broadened the Company’s branded and generic product portfolio and provided the Company with in-house product development and regulatory expertise. Since 2008, Cypress has been awarded nine ANDA and three NDA approvals (REZIRA, ZUTRIPRO and VITUZ) and currently has nine ANDAs on file with the FDA for future approvals. See Note 17, Subsequent Events , related to the sale of certain generic assets and ANDAs that were purchased in the Cypress acquisition.

We entered into a $42 million credit facility on December 31, 2012 with Midcap Funding V, LLC as administrative agent, as a lender and as co-bookrunner and sole lead arranger, and with Business Development Corporation of America, as co-bookrunner, and additional lenders from time to time party thereto. The proceeds from this facility were used to fund a portion of the cash consideration of the acquisition of Cypress. On May 8, 2013, we entered into an amended and restated credit agreement with MidCap Financial, LLC, as Administrative Agent and as a lender, and additional lenders from time to time party thereto. The restated credit agreement amends and restates in its entirety the December 2012 credit agreement.

The restated credit agreement provides for a term loan of $10 million and a revolving loan commitment of $20 million. In connection with the entry into the restated credit agreement, the Company prepaid approximately $12 million of the term loan that had been previously outstanding under the December 2012 credit agreement. Under the restated credit agreement, the Company’s borrowing base on the revolving loan commitment is equal to (A) 85% of eligible accounts, plus (B) 50% of eligible inventory, minus (C) certain reserves and/or adjustments, subject to certain conditions and limitations. Notwithstanding the foregoing, the restated credit agreement provides for an advance of up to $3 million in excess of the Company’s borrowing base until June 5, 2013, at which time all excess amounts were repaid accordingly. As of August 5, 2013, the outstanding balance under the term loan was $7.7 million and the outstanding balance under the revolver was $16.4 million.

On July 2, 2012, we completed our acquisition of the business assets of Great Southern Laboratories (GSL), a pharmaceutical contract manufacturing company located in Houston, Texas. We closed on the related real estate on August 30, 2012. Upon the final closing, the Company paid an aggregate of approximately $4.9 million (including $300,000 deposited to an escrow that was subsequently refunded to the Company in payment of unrecorded liabilities), and assumed certain liabilities totaling approximately $5.9 million, for substantially all of GSL’s assets including the land and buildings in which GSL operates. GSL has an established manufacturing facility with an existing base of customers in the pharmaceutical industry, which provides us with additional income and potential cost savings. We acquired the GSL assets through our wholly-owned subsidiary, Pernix Manufacturing, LLC.

Pernix was incorporated in November 1996, is headquartered in Houston, Texas and employs approximately 237 people full-time. The words “we,” “us” or “our” refer to Pernix and its consolidated subsidiaries, except where the context otherwise requires.

Business Strategy

Our objective is to be a leader in developing, marketing and selling prescription (branded and generic) and over-the-counter, or OTC, pharmaceutical products in the U.S. for pediatric and adult indications. Our strategy to achieve this objective includes the following elements:

●	Leveraging our focused sales and marketing organization - We have built a sales and marketing organization consisting of approximately 74 sales representatives with primary focus on, internal medicine, family practice, and gastroenterology. The pediatric sales force consists of approximately 40 sales representatives, with primary focus on pediatrics as well as family practice as of July 31, 2013. In January 2013, the Company commenced the integration of the Pernix and Cypress sales forces which has resulted in the elimination of approximately 75 sales representatives across the Company.

	We believe the concentration of high volume prescribers in our target markets enables us to effectively promote our products with a smaller and more focused sales and marketing organization than would be required for other markets. We intend to acquire or in-license products and late-stage product development candidates and to develop products that will leverage the capacity of our sales and marketing organization, as well as the relationships we have established with our target physicians. Further, we believe fixed costs from our field sales personnel are significantly less per representative than those incurred by larger, more established pharmaceutical companies, due to our higher ratio of incentive based compensation. This aligns representative pay to sales performance, providing upside commission potential and attracting top sales performers.

●	Develop and sell generic versions of selected branded products through our Macoven and Cypress subsidiaries . We intend to continue developing our Macoven and Cypress subsidiaries to diversify our product mix while creating a base business without branding, patent life or sales force detailing. However, certain generic products in specific geographic areas may be promoted by our sales force. Our business goals for Macoven and Cypress include launching authorized generic products for branded pharmaceutical companies including generic equivalents of our own branded products, generic products for patented or niche branded products, and generic products that have a limited number of alternatives.

●

Development of OTC Products. The Company has formed an OTC division which is dedicated to marketing and acquiring products for the consumer healthcare market. In 2013, the Company and/or its partners may launch a cough medicine for children, Dr. Cocoa. In addition, the OTC division is exploring the possibility of the Rx to OTC switch of SILENOR (doxepin). The Company continues to evaluate these opportunities as well as potential acquisitions or licensing opportunities for the OTC market.

●

Acquiring or in-licensing late-stage product development candidates. We also selectively seek to acquire or in-license late-stage product development candidates. We are focused on product development candidates that are ready for or have already entered Phase III clinical trials and should therefore present less development risk than product candidates at an earlier stage of development. We focus on product development candidates that would be prescribed by our target physicians, especially in pediatrics, gastroenterology and certain other niche markets. We believe that our established sales and marketing organization make us an attractive commercialization partner for many biotechnology and pharmaceutical companies with late-stage product development candidates. We may continue to pursue the acquisition of rights to product development candidates as capital permits.

●

Acquiring or in-licensing approved pharmaceuticals. We have historically grown our business by acquiring or in-licensing rights to market and sell prescription and OTC pharmaceutical products, and we intend to continue to grow in this manner. We are particularly focused on products that are prescribed by pediatricians and that are under-promoted by large pharmaceutical companies. We believe that the revenue potential for these products is increasing, potentially creating attractive opportunities for us to acquire additional products in pediatrics and certain other therapeutic areas where the market sizes are smaller. We may continue to pursue the acquisition of rights to product development candidates as capital permits.

●

Expand into new geographical and therapeutic markets. Following the acquisition of Cypress and subsequent realignment of our sales force, we have approximately 74 primary care representatives out of our total team of 114 sales representatives. We may also hire additional representatives to our sales force in both existing and new geographic markets to promote products in our existing product line. We intend to continue to explore additional therapeutic areas which have similar characteristics to the pediatrics market, including areas that are underserved by current pharmaceutical companies, where there is a readily identifiable set of high prescribing physicians for efficient sales force deployment or where we can acquire promotion sensitive products that are currently under-promoted by existing large pharmaceutical companies. The acquisition of Cypress expanded our presence in the primary care area in our existing geographical markets.

●

Realization of financial synergies through integration and consolidation plans. We intend to work to identify more products in our portfolio that can be manufactured by our subsidiary, Pernix Manufacturing, so as to realize improved product gross margins in the future. In addition, our sales team has been cross trained on the core products in our consolidated brand portfolio enhancing their effectiveness in the field and their potential to grow sales. We expect the integration of the businesses of Cypress and Somaxon and the realization of potential financial synergies to continue throughout 2013.

Acquisitions and License Agreements, Co-Promotions and Collaborations

We have and continue to grow our business through the use of acquisitions, license agreements, co-promotions and collaborations. We enter into acquisition, license and co-promotion agreements to acquire, develop, commercialize and market products and product candidates. In certain of these agreements, we market the products of others and remit a specified profit share to them. In certain other agreements, the contracted third party under the agreement markets products to which we have rights and remits a specified profit share to us. Collaborative agreements often include research and development efforts and/or capital funding requirements of the parties necessary to bring a product candidate to market. License, co-promotion and collaboration agreements may require royalty or profit share payments, contingent upon the occurrence of certain future events linked to the success of the product, as well as expense reimbursements or payments to third-party licensors.

Collaborations

Development of Late-stage Pediatric Product. In March 2012, we entered into a product development agreement with a private company for a prescription product for the pediatrics market. Under the terms of the agreement, Pernix obtained exclusive marketing rights to this late-stage development product in the United States, and Pernix will pay the costs related to the development of the product. Pernix expects to invest approximately $6 million over an estimated 36-month period for development and regulatory expenses related to this product candidate, and Pernix’s development partner will manage the development program. Pernix and its development partner expect to commence pivotal phase III studies in 2014. Approximately $1,144,000 has been incurred since the commencement of this project through June 30, 2013 (approximately $866,000 in the six months ended June 30, 2013 and $278,000 in 2012).

Pernix has several active research and development projects. We anticipate filing up to two INDs and one 510K in the second half on 2013, including the Silenor OTC IND. We expect to initiate several clinical studies, including post approval commitments for Zutripro and Silenor, by the end of 2013. We will continue to be opportunistic in exploiting our in-house expertise and intellectual property to initiate additional low risk development projects. In addition, we continue to look for external opportunities through in-license, collaborations or partnerships to build the Pernix pipeline.

Second Quarter 2013 Highlights

The following summarizes certain key financial measures as of, and for, the three months ended June 30, 2013:

●	Cash and cash equivalents equaled $9.0 million as of June 30, 2013.

●	Net revenues were approximately $20.6 million and $10.5 million for the three months ended June 30, 2013 and 2012, respectively.

●	Net (loss) before taxes was approximately ($8.0) million and ($1.5) million for the three months ended June 30, 2013 and 2012, respectively. This included approximately $895,000 in cost of product sales from the increased basis of the inventory acquired in connection with the Cypress and Somaxon acquisitions that was recognized for products sold during the three months ended June 30, 2013. Net (loss) income before taxes was approximately ($19.4) million and ($0.5) million for the six months ended June 30, 2013 and 2012, respectively. This included approximately $4,711,000 in cost of product sales from the increased basis of the inventory acquired in connection with the Cypress and Somaxon acquisitions that was recognized for products sold during the six months ended June 30, 2013.

Opportunities and Trends

There continue to be unmet patient needs in the pediatric area as well as other therapeutic areas. We believe that we can systematically focus our efforts on developing and acquiring products or acquiring the assets of other companies whose products or assets can meet these needs. We also believe that future growth will be realized in the execution of branded and generic development opportunities outside the pediatric area. We believe the combination of product development and acquisition will enhance our growth opportunities. Additionally, we will continue to leverage our industry relationships to identify and take advantage of new product opportunities. Currently, we believe we have significant opportunities in leveraging the assets and improving the profitability of the assets acquired in Cypress and Somaxon acquisitions as well as continuing the progress of our respective in-process research and development projects as capital permits. We will primarily focus our efforts on this strategy in 2013.

We are operating in challenging economic and industry environments. The challenges we face are compounded by the continued uncertainty around the impact of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, which we refer to collectively herein as Health Care Reform. Given this business climate, we will continue to focus on managing and deploying our available cash efficiently and strengthening our industry relationships in order to be well-positioned to identify and capitalize upon potential growth opportunities.

As we execute our strategy, we will monitor and evaluate success through the following measures:

●	Net product sales generated from our existing products;

●	Revenues generated from profit sharing arrangements;

●	Ability to continue to effectively integrate the operations of Somaxon and Cypress;

●	Progress of our development pipeline (as discussed below); and

●	Acquisition of products and product rights that align with our strategy and that offer potential for sustainable growth.

Financial Operations Overview

The discussion in this section describes our income statement categories. For a discussion of our results of operations, see “Results of Operations” below.

Net Revenues

Pernix’s net revenues consist of net product sales and revenue from co-promotion and other revenue sharing arrangements. Pernix recognizes product sales net of estimated allowances for product returns, price adjustments (customer rebates, managed care rebates, service fees, chargebacks and other discounts), government program rebates (Medicaid, Medicare and other government sponsored programs) and prompt pay discounts. The primary factors that determine Pernix’s net product sales are the level of demand for Pernix’s products, unit sales prices, the applicable federal and supplemental government program rebates, contracted rebates, services fees, and chargebacks and other discounts that Pernix may offer. In addition to our own product portfolio, we have entered into co-promotion agreements and other revenue sharing arrangements with various parties in return for a percentage of revenue on sales we generate or on sales they generate.

The following table sets forth a summary of Pernix’s net revenues for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012

Upper respiratory, allergy and antibiotic products	$	10,902		$	8,689		$	28,074		$	20,241
Gastroenterology products		2,430			2,907			4,131			3,333
Dietary supplements and medical food products		8,421			2,350			17,804			5,382
Analgesics		4,951			2,623			9,502			6,282
Sleep maintenance		4,632		─				5,751		─
Dermatology products		1,250			413			2,355			1,915
Other products		2,838		─				6,390		─
Gross Product Sales		35,423			16,982			74,007			37,153
Sales Allowances		(16,493	)		(7,520	)		(35,166	)		(13,733	)
Net Product Sales		18,930			9,462			38,841			23,350
Manufacturing revenue		1,092		─				1,735		─
Co-promotion and other revenue		551			1,037			2,075			1,631
Total Net Revenues	$	20,573		$	10,499		$	42,651		$	24,981

Allowances for Prompt Pay Discounts, Product Returns, Price Adjustments, and Medicaid Rebates

The following table sets forth a summary of our allowances for product returns, government rebate programs and price adjustments as of June 30, 2013. Prompt pay discounts are recorded as a reduction of accounts receivable and revenue and, therefore, are not included in the table below. The allowance for prompt pay discounts as of June 30, 2013 and December 31, 2012 was approximately $414,000 and $728,000, respectively.

	Product Returns				Government Program Rebates				Price Adjustments
	(in thousands)				(in thousands)				(in thousands)
Balance at December 31, 2011	$	5,712			$	5,843			$	5,451
Allowances assumed in acquisition of Cypress		5,901				1,175				4,586
Current provision:
Adjustments to provision for prior year sales		1,840				(1,075	)			(272	)
Provision – current year sales		5,426				7,689				15,368
Payments and credits		(6,822	)			(6,595	)			(14,173	)
Balance at December 31, 2012		12,057				7,037				10,960
Allowances assumed in acquisition of Somaxon		776		479				1,113
Post closing opening balance sheet adjustment		735		391				416
Current provision:
Adjustments to provision for prior year sales		1,611		(921)				(300			)
Provision – current year sales		4,112				4,860				23,582
Payments and credits		(7,322	)			(6,016	)			(22,147	)
Balance at June 30, 2013	$	11,969			$	5,830			$	13,624

Product Returns . Consistent with industry practice, we offer contractual return rights that allow our customers to return short-dated or expiring products within an 18-month period, commencing six months prior to and up to twelve months subsequent to the product expiration date. Our products have a 15 to 36-month expiration period from the date of manufacture. We adjust our estimate of product returns if we become aware of other factors that we believe could significantly impact our expected returns. These factors include our estimate of inventory levels of our products in the distribution channel, the shelf life of the product shipped, review of consumer consumption data as reported by external information management companies, actual and historical return rates for expired lots, the forecast of future sales of the product, competitive issues such as new product entrants and other known changes in sales trends. We estimate returns at percentages up to 10% of sales of branded and generic products and from time to time, higher on launch sales of new products. Returns estimates are based upon historical data and other facts and circumstances that may impact future expected returns to derive an average return percentage for our products. In addition to the accrual on sales during the three months ended June 30, 2013, the Company recorded an additional returns allowance for the returns of certain recalled products of approximately $390,000 and reclassed approximately $300,000 in unrealized price adjustments and approximately $921,000 in unrealized Medicaid rebates on these recalled products due to the fact that they will now be returned instead of prescribed under Medicaid. The returns reserve may be adjusted as sales history and returns experience is accumulated on this portfolio of products. We review and adjust these reserves quarterly. If estimates regarding product demand are inaccurate, if changes in the competitive environment affect demand for certain products, or if other unforeseen circumstances affect a product’s salability, actual returns could differ and such differences could be material. For example, a 1% difference in our provision assumptions for the six months ended June 30, 2013 would have affected pre-tax loss by approximately $720,000

Government Program Rebates . The liability for government program rebates is estimated based on historical and current rebate redemption and utilization rates contractually submitted by each state’s program administrator and assumptions regarding future government program utilization for each product sold. As we become aware of changing circumstances regarding the Medicaid and Medicare coverage of our products, we will incorporate such changing circumstances into the estimates and assumptions that we use to calculate government program rebates. If our estimates and assumptions prove inaccurate, we may be subject to higher or lower government program rebates. For example, with respect to the provision for the six months ended June 30, 2013, a 1% difference in the provision assumptions based on utilization would have effected pre-tax loss by approximately $133,000 and a 1% difference in the provisions based on reimbursement rates would have affected pre-tax loss by approximately $42,000.

Price Adjustments . Our estimates of price adjustments which include customer rebates, service fees, chargebacks and other discounts are based on our estimated mix of sales to various third-party payors who are entitled either contractually or statutorily to discounts from the listed prices of our products and contracted service fees with our wholesalers. In the event that the sales mix to third-party payors or the contract fees paid to the wholesalers are different from our estimates, we may be required to pay higher or lower total price adjustments than originally estimated. For example, for the six months ended June 30, 2013, a 1% difference in the assumptions based on the applicable sales would have affected pre-tax loss by approximately $1,130,000.

We, from time to time, offer certain promotional product-related incentives to our customers. These programs include sample cards to retail consumers, certain product incentives to pharmacy customers and other sales stocking allowances. For example, we have initiated coupon programs for certain of our promoted products whereby we offer a point-of-sale subsidy to retail consumers. We estimate our liabilities for these coupon programs based on redemption information provided by a third party claims processing organization. We account for the costs of these special promotional programs as a reduction of gross revenue when applicable products are sold to the wholesalers or other retailers. Any price adjustments that are not contractual but that are offered at the time of sale are recorded as a reduction of revenue when the sales order is recorded. These adjustments are not accrued as they are offered on a non-recurring basis at the time of sale and are recorded as an expense at the time of the sale. These allowances may be offered at varying times throughout the year or may be associated with specific events such as a new product launch or to reintroduce a product. Approximately 5% of the provision relates to promotional point-of-sale discounts to the wholesaler.

Prompt Payment Discount s. We typically require our customers to remit payments within the first 30 days for branded products (60 to 120 days for generics, depending on the customer and the products purchased). We offer wholesale distributors a prompt payment discount if they make payments within these deadlines. This discount is generally 2%, but may be higher in some instances due to product launches and/or industry expectations. Because our wholesale distributors typically take advantage of the prompt pay discount, we accrue 100% of the prompt pay discounts, based on the gross amount of each invoice, at the time of our original sale, and apply earned discounts at the time of payment. This allowance is recorded as a reduction of accounts receivable and revenue. We adjust the accrual periodically to reflect actual experience. Historically, these adjustments have not been material. We do not anticipate that future changes to our estimates of prompt payment discounts will have a material impact on our net revenue.

Cost of Sales

Our cost of product sales is primarily comprised of the costs of manufacturing and distributing our pharmaceutical products and profit sharing and royalty expenses related to co-promotion and license agreements with third parties. In particular, cost of product sales includes manufacturing, packaging and distribution costs and the cost of active pharmaceutical ingredients. We partner with third parties to manufacture certain of our products and product candidates while some of our products are manufactured by the manufacturing plant that we acquired in July 2012. We expect to utilize Pernix Manufacturing to manufacture more of our products moving forward which we expect will result in a reduction of the cost of certain of our products.

Most of our manufacturing arrangements with third party manufacturers are not subject to long-term agreements and generally may be terminated by either party without penalty at any time. Changes in the price of raw materials and manufacturing costs could adversely affect our gross margins on the sale of our products. Changes in our mix of products sold also affect our cost of product sales.

From time to time in the ordinary course of business, the Company enters into agreements regarding royalty payments or other profit sharing payments. Royalty expenses include the contractual amounts Pernix is required to pay licensors from which it has acquired the rights to certain of its marketed products. Royalty and profit sharing expenses will vary based on changes in product sales and/or product mix.

In the acquisitions of Cypress and Somaxon, we recorded an increase in the basis of the inventory acquired of approximately $8,600,000 and $695,000, respectively. The increase will be recognized in cost of sales as the acquired inventory is sold. For the six months ended June 30, 2013, approximately $4,711,000 of the increase in costs of sales was attributed to sales of the acquired inventory which has a significantly higher basis than the inventory purchased post-closing.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of salaries, benefits and commissions as well as public company costs, professional and consulting fees, sales data costs, insurance, and company overhead.

Research and Development Expenses

Research and development expenses consist of costs incurred in identifying, developing and testing products and product candidates. Pernix either expenses research and development costs as incurred or, if Pernix pays manufacturers a prepaid research and development fee, Pernix will expense such fee ratably over the term of the development. Pernix believes that significant investment in research and development is important to its competitive position and plans to increase its expenditures for research and development to realize the potential of the product candidates that it is developing or may develop, including the in-process research and development projects of Cypress. The Cypress acquisition significantly increased and broadened the Company’s branded and generic product portfolio and provided the Company with in-house product development and regulatory expertise. Since 2008, Cypress has been awarded nine ANDA and three NDA approvals (REZIRA, ZUTRIPRO and VITUZ) and currently has nine ANDAs on file with the FDA for future approvals. See Note 17, Subsequent Events , to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 and 2012 contained in Part I of this Quarterly Report on Form 10-Q, related to the sale of certain Cypress generic assets and ANDAs that were purchased in the Cypress acquisition.

Other Income and Expenses

Depreciation Expense . Depreciation expense is recognized for our property and equipment, which depreciates over the estimated useful life of the asset using the straight-line method.

Amortization Expense. Amortization expense is recognized for certain of our intangible assets, consisting primarily of patents, brands, licensing, non-competes and supplier contracts including those acquired in the acquisition of Pernix Manufacturing (formerly Great Southern Labs), Cypress and Somaxon. These assets are amortized over their estimated useful lives using the straight-line method. See Note 8, Intangible Assets , to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 and 2012 contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Income Taxes . Deferred taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory rates applicable to future years to the difference between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes for a change in tax rates is recognized in income in the period that includes the enactment date. Pernix will recognize future tax benefits to the extent that realization of such benefits is more likely than not. During the first quarter 2013, Pernix recorded a deferred tax liability of approximately $11.3 million related to the increase in the basis of the assets acquired in the Somaxon acquisition and an additional $2.9 million deferred tax liability related to the increase in the basis of certain assets related to the Cypress acquisition.

Critical Accounting Estimates

For information regarding our critical accounting policies and estimates please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” contained in our annual report on Form 10-K for the year ended December 31, 2012 and Note 2 to our consolidated financial statements contained therein. There have been no material changes to the critical accounting policies previously disclosed in that report.

Results of Operations

Comparison of the Three Months Ended June 30, 2013 and 2012

Net Revenues. Net revenues were approximately $20,573,000 and $10,499,000 for the three months ended June 30, 2013 and 2012, respectively, an increase of approximately $10,074,000 or 96.0%. The Cypress and Hawthorn product portfolio, acquired on December 31, 2012, contributed approximately $8,663,000 in net revenues, the Somaxon products, acquired on March 6, 2013, contributed approximately $691,000 in net revenues and the manufacturing facility, acquired on July 1, 2012, contributed approximately $1,092,000 in net revenues. These increases were offset by a decrease in the net revenues of the Company’s legacy portfolio (pre-acquisition portfolio) of products of approximately $372,000. This decrease was due in part to the discontinuation of the sale of certain generic products due to patent litigation settlement and of certain recalled cough and cold products. Additionally, we recorded approximately $242,000 in returns allowance for the recalled products. Total net revenues consisted of 53% from generic product sales and 47% from branded product sales.

Cost of Product Sales . Cost of sales was approximately $11,162,000, or 32.4% of gross product sales, and $3,411,000, or 20.1% of gross product sales for the three months ended June 30, 2013 and 2012, respectively, an increase of approximately $7,751,000, or 227.2%. Approximately $895,000 of this amount is from the increased basis of the inventory acquired in connection with the Cypress and Somaxon acquisitions that was recognized for products sold during the three months ended June 30, 2013. The remaining increase in basis of the inventory acquired in connection with the Cypress and Somaxon acquisitions is approximately $4,584,000, and will be amortized on a pro-rata basis as the acquired inventory is sold and included in cost of sales in future periods. The reserve for unsalable products included in the cost of sales was approximately $1,075,000 in the three months ended June 30, 2013, compared to approximately $52,000 in the three months ended June 30, 2012. Cost of sales, exclusive of the cost associated with the increase in inventory basis and the reserve for unsalable products was approximately $9,192,000, or 25.9% of gross product sales, similar to the prior year period which was 20.1%.

Collaboration and royalty expense included in cost of sales was approximately $1,808,000 and $801,000 for the three months ended June 30, 2013 and 2012, respectively. This increase of approximately $683,000 was primarily due to profit sharing arrangements on several of the Cypress products and Silenor.

Gross Margin. Gross profit margin on the sale of our products was 50.3% (excluding cost of sales attributed to sales of the acquired inventory which has a significantly higher basis than the inventory purchased post-closing) and 67.5% for the three months ended June 30, 2013 and 2012, respectively.The decrease in the gross margin is due to the sales of higher priced products and revenue sharing arrangements on products that make up the greatest percentage of our sales.

Selling, General and Administrative Expenses . Selling, general and administrative expenses were approximately $13,141,000 and $7,636,000 for the three months ended June 30, 2013 and 2012, respectively, an increase of approximately $5,505,000, or 72.0%.

Overall compensation expense represented approximately $6,120,000, or 46.6%, and $3,488,000, or 45.7%, of total selling, general and administrative expenses for the three months ended June 30, 2013 and 2012, respectively. The increase of approximately $2,632,000 in overall compensation expense is primarily due to the addition of Cypress employees effective January 1, 2013, the addition of Pernix Manufacturing employees in July 2012 and the hiring of additional sale representatives to market OMECLAMOX-PAK® in May 2012, partially offset by a decrease in bonus and incentive compensation.

Other selling, general and administrative expenses were approximately $7,021,000 and $4,148,000 for the three months ended June 30, 2013 and 2012, respectively, an increase of approximately $2,873000. This increase was primarily due to the incremental increase of the SG&A expenses from the acquisitions of Cypress, Somaxon and the manufacturing facility subsequent to June 30, 2012. In addition, during the three months ended June 30, 2013, Pernix incurred (i) deal expenses of approximately $116,000 related to these acquisitions, (ii) approximately $289,000 in other SG&A expenses of our OTC division, and (iii) approximately $718,000 in legal expenses related to certain litigation that has now been settled.

Research and Development Expense. Research and development expenses were approximately $1,792,000 and $109,000 for the three months ended June 30, 2013 and 2012, respectively. The increase was primarily due to expenses incurred related to the in-process research and development, including the compensation of the individuals in the R&D department, acquired in connection with the acquisition of Cypress

Depreciation and Amortization Expense . Depreciation expenses were approximately $163,000 and $25,000 for the three months ended June 30, 2013 and 2012, respectively. The increase of approximately $138,000 was due to the addition of Pernix Manufacturing fixed assets in July 2012, the addition of Cypress fixed assets on December 31, 2012 , and the addition of Somaxon fixed assets in March 2013.

Amortization expense was approximately $2,468,000 and $771,000 for the three months ended June 30, 2013 and 2012. The increase in amortization expense of approximately $1,697,000, or 220%, is due to the addition of intangible assets in the acquisitions of Cypress, Pernix Manufacturing and Somaxon, along with other licenses acquired in 2012 (including the license for OMECLAMOX-PAK®). For further discussion, see Note 8 , Intangible Assets and Goodwill , to our Condensed Consolidated Financial Statements for the three months ended June 30, 2013 and 2012.

Interest Expense, net. Interest income was approximately $7,000 and $23,000 for the three months ended June 30, 2013 and 2012, respectively. Interest expense was approximately $1,009,000 and $51,000 for the three months ended June 30, 2013 and 2012, respectively. The increase in interest expense of approximately $958,000 was primarily due to the credit facility with MidCap Funding V, LLC, effective December 31, 2012 as amended and restated on May 8, 2013. For further discussion, see Note 11, Debt .

Comparison of the Six Months Ended June 30, 2013 and 2012

Net Revenues. Net revenues were approximately $42,651,000 and $24,981,000 for the six months ended June 30, 2013 and 2012, respectively, an increase of approximately $17,670,000, or 70.7%. The Cypress and Hawthorn product portfolio, acquired on December 31, 2012, contributed approximately $19, 810,000 in net revenues, the Somaxon products, acquired on March 6, 2013, contributed approximately $2,793,000 in net revenues, and the manufacturing facility acquired on July 1, 2012, contributed approximately $1,735,000 in net revenues. These increases were offset by a decrease in the net revenues of the Company’s legacy portfolio (pre-acquisition portfolio) of products of approximately $6,668,000. This decrease was due in part to the discontinuation of the sale of certain generic products due to patent litigation settlement and of certain recalled cough and cold products. Additionally, we recorded approximately $390,000 in returns allowance for the recalled products. Total net revenues consisted of 51% from generic product sales and 49% from branded product sales.

Cost of Product Sales . Cost of product sales was approximately $24,240,000, or 32.8% of gross product sales, and $8,102,000, or 21.8% of gross product sales, for the six months ended June 30, 2013 and 2012, respectively, an increase of approximately $16,138,000, or 199.2%. Approximately $4,711,000 of this amount is from the increased basis of the inventory acquired in connection with the Cypress and Somaxon acquisitions that was recognized for products sold during the six months ended June 30, 2013. The remaining increase in basis of the inventory acquired in connection with the Cypress and Somaxon acquisitions is approximately $4,584,000, and will be amortized on a pro-rata basis as the acquired inventory is sold and included in cost of sales in future periods. The reserve for unsalable products, included in cost of product sales, was approximately $1,362,000 in the six months ended in June 30, 2013 compared to approximately $93,000 in the six months ended June 30, 2012. Cost of sales, exclusive of the cost associated with the increase in inventory basis and reserve for unsalable products, was approximately $18,167,000, or 23.9% of gross product sales, similar to the prior year period which was 21%.

Collaboration and royalty expense included in cost of sales was approximately $3,089,000 and $1,916,000, for the six months ended June 30, 2013 and 2012, respectively, an increase of approximately $1,173,000 . The increase in the collaboration expense was primarily due to profit sharing arrangements on several Cypress products and Silenor.

Gross Margin . Gross profit margin on the sale of our products was 54.3% (excluding cost of sales attributed to sales of the acquired inventory which has a significantly higher basis than the inventory purchased post-closing) and 67.6% for the six months ended June 30, 2013 and 2012, respectively, an increase of approximately $1,173,000. As noted above, the decrease in the gross margin is due to the sales of higher priced products and revenue sharing arrangements on products that make up the greatest percentage of our sales.

Selling, General and Administrative Expense (SG&A) . Selling, general and administrative expenses were approximately $27,221,000 and $14,465,000 for the six months ended June 30, 2013 and 2012, respectively, an increase of approximately $12,756,000, or 88.2%.

Overall compensation expense represented approximately $12,947,000, or 47.6%, and $6,670,000, or 46.1%, of total selling, general and administrative expenses for the six months ended June 30, 2013 and 2012, respectively. The increase of approximately $6,276,000 in overall compensation expense is primarily due to the addition of Cypress employees effective January 1, 2013, the addition of Pernix Manufacturing employees in July 2012 and the hiring of additional sale representatives to market OMECLAMOX-PAK® in May 2012, partially offset by a decrease in bonus and incentive compensation.

Other selling, general and administrative expenses were approximately $14,274,000 and $7,795,000 for the six months ended June 30, 2013 and 2012, respectively, an increase of approximately $6,479,000. This increase was primarily due to the incremental increase of the SG&A expenses from the acquisitions of Cypress, Somaxon and the manufacturing facility subsequent to June 30, 2012. In addition, during the six months ended June 30, 2013, Pernix incurred (i) deal expenses of approximately $527,000 related to these acquisitions, (ii) approximately $500,000 in other SG&A expenses of our OTC division, and (iii) approximately $1,825,000 in legal expenses related to certain litigation that has now been settled.

Research and Development Expenses (R&D ). R&D expenses were approximately $2,999,000 and $179,000 for the six months ended June 30, 2013 and 2012, respectively. The increase was primarily due to expenses incurred related to the in-process research and development, including the compensation of the individuals in the R&D department, acquired in connection with the acquisition of Cypress and furthering the development of a late-stage pediatric product.

Loss from the Operations of the Joint Venture. The loss from the operations of our former joint venture with SEEK was approximately $0 and $240,000 for the six months ended June 30, 2013 and 2012, respectively,

Depreciation and Amortization Expense . Depreciation expense was approximately $307,000 and $51,000 for the six months ended June 30, 2013 and 2012, respectively. The increase of approximately $256,000 was due to the addition of the manufacturing fixed assets acquired in July 2012 and the addition of Cypress fixed assets on December 31, 2012.

Amortization expense was approximately $4,488,000 and $1,383,000 for the six months ended June 30, 2013 and 2012, respectively. The increase in amortization expense of approximately $3,105,000 is due to the addition of intangible assets in the acquisitions of Cypress, Somaxon and our manufacturing facility, along with other licenses acquired in 2012 (including the license for OMECLAMOX-PAK®). For further discussion, see Note 8, Intangible Assets and Goodwill , to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 and 2012.

Interest Expense, net. Interest income was approximately $18,000 and $37,000 for the six months ended June 30, 2013 and 2012, respectively. Interest expense was approximately $2,097,000 and $134,000 for the six months ended June 3, 2013 and 2012, respectively. The increase in interest expense of approximately $1,963,000 was primarily due to the interest and related financing costs from the restated credit agreement with MidCap Financial, LLC. For further discussion, see Note 11, Debt , Subsequent Events , to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 and 2012.

Liquidity and Capital Resources

Sources of Liquidity

Pernix’s net (loss) income was approximately ($5,896,000) and ($932,000) for the three months ended June 30, 2013 and 2012 and ($14,227,000) and $259,000 for the six months ended June 30, 2013 and 2012, respectively.

Pernix requires cash to meet its operating expenses and for research and development, capital expenditures, acquisitions, and in-licenses of rights to products. To date, Pernix has funded its operations primarily from product sales, co-promotion agreement revenues, proceeds from equity offerings and debt facilities.

As described in Note 17, Subsequent Events , on August 5, 2013, we entered into an agreement to sell certain generic assets and ANDAs owned by our subsidiary, Cypress, to Breckenridge Pharmaceutical, Inc. for $30 million. Under the terms of the agreement, Breckenridge will pay us $20 million in an upfront payment and $10 million of which is to be paid in two equal payments over the next two years. The assets include seven previously marketed products, eight Abbreviated New Drug Applications (ANDAs) filed at the FDA, and certain other ANDAs in various stages of development and the transfer of $1.0 million in inventory.

As described in Note 11, Debt , to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 and 2012, we entered into a $42 million credit facility on December 31, 2012 with Midcap Funding V, LLC, as administrative agent, as a lender and as co-bookrunner and sole lead arranger, Business Development Corporation of America, as co-bookrunner, and additional lenders from time to time party thereto (“the Original Credit Agreement”). We utilized the proceeds from this credit facility in the acquisition of Cypress.

On May 7, 2013, we, together with our subsidiaries, entered into the Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with MidCap Financial, LLC, as Administrative Agent and as a lender, and additional lenders from time to time party thereto. The Restated Credit Agreement amends and restates in its entirety the Original Credit Agreement.

The Restated Credit Agreement provides for a term loan of $10 million and a revolving loan commitment of $20 million. In connection with the entry into the Restated Credit Agreement, we prepaid approximately $12 million of the term loan that had been previously outstanding under the Original Credit Agreement. Under the Restated Credit Agreement, our borrowing base on the revolving loan commitment is equal to (A) 85% of eligible accounts, plus (B) 50% of eligible inventory, minus (C) certain reserves and/or adjustments, subject to certain conditions and limitations. Notwithstanding the foregoing, the Restated Credit Agreement provides for an advance of up to $3 million in excess of our borrowing base until June 8, 2013, at which time all excess amounts, if any, will become due and payable. As of August 5, 2013, the outstanding balance under the term loan was $7.7 million and the outstanding balance under the revolver was $16.4 million.

Unlike the Original Credit Agreement, the Restated Credit Agreement does not include covenants limiting capital expenditures or requiring us to maintain a fixed charge coverage ratio and leverage ratio, but rather contains covenants requiring us to maintain a minimum amount of EBITDA and net invoiced revenues. Similar to the Original Credit Agreement, the Restated Credit Agreement includes customary covenants for a secured credit facility, which include, among other things, (a) restrictions on (i) the incurrence of indebtedness, (ii) the creation of or existence of liens, (iii) the incurrence or existence of contingent obligations, (iv) making certain dividends or other distributions, (v) certain consolidations, mergers or sales of assets and (vi) purchases of assets, investments and acquisitions; and (b) requirements to deliver financial statements, reports and notices to the administrative agent and other lenders. The Restated Credit Agreement also contains customary representations and warranties and event of default provisions for a secured credit facility.

The loans under this facility bears interest at a rate equal to the sum of the LIBOR rate plus an applicable margin of 7.50% per annum. Pursuant to the Restated Credit Agreement, the Company paid certain customary fees to the administrative agent and lenders.

Under the Restated Credit Agreement, we are required to make monthly repayments on the term loan beginning on November 7, 2013 and ending on May 7, 2016, when all remaining principal is due and payable. The revolving loan will be paid based on our cash receipts, with all principal due and payable on May 7, 2016. In addition, we are able to voluntarily prepay outstanding amounts under the revolving loan commitment at any time, subject to certain prepayment penalties. Approximately $2,300,000 of the proceeds from the sale of TherapeuticsMD stock were utilized to pay down the term loan in June 2013. Pernix also paid net funds on the revolving loan of approximately $3,842,000 during the three and six months ended June 30, 2013.

The obligations under the Restated Credit Agreement are secured by a first priority perfected security interest in substantially all of our assets, subject to certain permitted liens.

Cash Flows

The following table provides information regarding Pernix’s cash flows for the six months ended June 30, 2013 and 2012:

	Six Months Ended
	June 30,
	(rounded)
	2013				2012
Cash (used in) provided by
Operating activities		$	(533,000	)		$	6,444,000
Investing activities			4,039,000			(7,911,000		)
Financing activities			(17,481,000	)			17,425,000	)
Net (decrease) increase in cash and cash equivalents		$	(13,975,000	)		$	15,958,000

Net Cash Provided By Operating Activities

Net cash (used in) provided by operating activities for the six months ended June 30, 2013 and 2012 was approximately ($533,000) and $6,444,000, respectively. Net cash used in operating activities for the six months ended June 30, 2013 reflects Pernix’s net loss of approximately $14,016,000, adjusted by non-cash expenses totaling approximately $6,520,000 offset by a non-cash deferred income tax benefit of approximately $3,096,000 and approximately $9,640,000 in net changes in accounts receivable, inventories, accrued expenses and other operating assets and liabilities. Non-cash expenses included amortization of approximately $4,488,000, depreciation of approximately $307,000, amortization of deferred financing costs of approximately $317,000, stock compensation expense of approximately $1,025,000, stock option expense for options issued to ParaPRO of approximately $295,000, a change in the fair value of the put right of approximately $3,971,000 and a loss on the sale of assets of approximately $5,000, offset by a gain on the sale of the TherapeuticsMD stock of approximately $3,605,000 and a change in the fair value of the contingent consideration of approximately $283,000.

Net cash provided by operating activities for the six months ended June 30, 2012 was approximately $6,444,000. Net cash provided by operating activities for the six months ended June 30, 2012 reflects Pernix’s net income of approximately $259,000, adjusted by non-cash expenses totaling approximately $3,275,000 partially offset by a non-cash deferred income tax benefit of approximately $133,000 and approximately $3,022,000 in net changes in accounts receivable, inventories, accrued expenses and other operating assets and liabilities. Non-cash expenses included amortization of approximately $1,383,000, depreciation of approximately $51,000, stock compensation expense of approximately $1,224,000, stock option expense for options issued to ParaPRO of approximately $377,000 and expenses from our joint venture with SEEK of approximately $240,000.

Accounts receivable at June 30, 2013, decreased approximately $11,165,000 from December 31, 2012 primarily attributable to the seasonal decrease in sales when comparing December to June. Inventories decreased approximately $4,136,000 due to a seasonal decrease in stocking going into the off-season for the majority of our current product portfolio, sales of acquired inventory which have a higher basis than inventory we purchase, and a decrease in our overall inventory stock par values by product. Prepaid expenses and other assets increased approximately $916,000 due to an increase in general prepaid expenses and prepaid insurance. Accounts payable increased approximately $5,804,000 due to increased expenses, as the result of the various acquisitions, and research and development. Accrued allowances and expenses decreased approximately $7,326,000 primarily due to the payment of severance and accrued expenses associated with the Somaxon acquisition and the timing of payments of government program rebates, returns credits taken and other price adjustments during the six months ended June 30, 2013.

Net Cash Used in Investing Activities

Net cash provided by (used in) investing activities for the six months ended June 30, 2013 and 2012 was approximately $4,040,000 and ($7,911,000), respectively. The cash provided by investing activities for the six months ended June 30, 2013 consisted of approximately $4,605,000 in proceeds from the sale of TherapeuticsMD stock, approximately $23,000 in proceeds from the sale of property, plant and equipment, offset by approximately $310,000 paid to former owners of Cypress under a reimbursement obligation and approximately $279,000 in property, plant and equipment purchases. The cash used in investing activities for the six months ended June 30, 2012 consisted of $5,000,000 to acquire the license from SEEK for the non-codeine antitussive drug in development, $2,400,000 to acquire the license for Omeclamox®, the acquisition of another license for $250,000 and purchases of software, furniture and equipment of approximately $267,000 offset by proceeds from the sale of computer equipment of approximately $6,000.

Net Cash Used in Financing Activities

Net cash used in financing activities for the six months ended June 30, 2013 was approximately $17,481,000 compared to net cash provided by financing activities for the six months ended June 30, 2012 of approximately $17,425,000. The cash used in financing activities for the six months ended June 30, 2013 consisted of approximately (i) $11,972,000 in prepayments of the term loan that had previously been outstanding under the Original Credit Agreement, (ii) an additional $525,000 in principal payments on the term loan that had previously been outstanding under the Original Credit Agreement, (iii) $2,300,000 in principal payments on the new term loan, (iv) $3,842,000 in net payments on the new revolving credit facility, (v) $1,533,000 in payments on contracts payable, (vi) $81,000 in payments under our mortgage and certain capital leases, (vii) $84,000 of tax benefits on stock-based awards and (v) $209,000 in payments of an employees’ income tax liability from the vesting of restricted stock, offset by $2,880,837 in cash on-hand at Somaxon on the day of closing, and $184,000 in net proceeds from the issuance of stock to employees.

Net cash from investing activities for the six months ended June 30, 2012 was approximately $17,425,000 and consisted of approximately (i) $23,751,000 in net proceeds from our controlled equity offering, (ii) $171,000 tax benefit on stock-based awards, (iii) $163,000 in net proceeds from the issuance of stock to employees, offset by approximately $6,000,000 in payments on our line of credit and $660,000 in payments on contracts payable.

Funding Requirements

As of August 5, 2013, Pernix has approximately $9.8 million in cash and $3.6 million of potential availability under its revolving line of credit. Pernix’s future capital requirements will depend on many factors, including:

●

the level of product sales of its currently marketed products and any additional products that Pernix may market in the future;

●

the extent to which Pernix acquires or invests in products, businesses and technologies;

	●	the level of inventory purchase commitments under supply, manufacturing, license and/or co-promotion agreements;
	●	the scope, progress, results and costs of development activities for Pernix’s current product candidates;

●

the costs, timing and outcome of regulatory review of Pernix’s product candidates;

●

the number of, and development requirements for, additional product candidates that Pernix pursues;

●

the costs of commercialization activities, including manufacturing, product marketing, sales and distribution;

●

the degree to which the former stockholders of Cypress exercise their put rights with respect to the shares issued in connection with the acquisition of Cypress;

●

the costs and timing of establishing manufacturing and supply arrangements for clinical and commercial supplies of Pernix’s product candidates and products;

●

the working capital funding required by the manufacturing plant that Pernix acquired on July 2, 2012;

●

the extent to which Pernix chooses to establish collaboration, co-promotion, distribution or other similar arrangements for its marketed products and product candidates; and

●

the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending claims related to intellectual property owned by or licensed to Pernix.

A significant portion of the Company’s planned expenditures for 2013 are expenses in connection with our development programs, notably our development project for a prescription pediatric product. Our capital requirements, including the additional consideration payable to the former stockholders of Cypress in December 2013 and the potential exercise of put rights under certain circumstances by the former Cypress stockholders of our common stock issued in connection with the acquisition in January 2014 may delay our ability to execute some or all of the development efforts currently contemplated.

As of August 5, 2013, Pernix believes that its existing cash and cash from operations will be sufficient to continue to fund its existing level of operating expense, certain planned development activities and general capital expenditure requirements through 2013 based on our additional opportunities to recognize synergistic savings from our acquisitions, our ability to pace our research and development spend as available capital permits and the potential to sell non-core assets such as the sale of certain generic assets and ANDAs to Breckenridge Pharmaceutical, Inc. for $30 million as previously described above.However, the Company’s ability to execute all of its development programs and other business strategies during 2013 may be limited by the Company’s cash position, financial covenants contained in our credit agreement, the additional consideration payable to the former stockholders of Cypress in January 2014 and the potential exercise of put rights by such former stockholders of Cypress in January 2014, each as described above.

To the extent our capital resources are insufficient to meet future capital requirements, Pernix may seek to finance its cash needs through public or private equity offerings, replacement debt financing, corporate collaboration and licensing arrangements, a sale of selected assets, or other financing alternatives. Equity or debt financing, or corporate collaboration and licensing arrangements, may not be available on acceptable terms, if at all.

Off-Balance Sheet Arrangements

Since its inception, Pernix has not engaged in any off-balance sheet arrangements, including structured finance, special purpose entities or variable interest entities.

Effects of Inflation

Pernix does not believe that inflation has had a significant impact on its revenues or results of operations since inception.

Contractual Obligations

Contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude contingent contractual liabilities for which we cannot reasonably predict future payment, including contingencies related to potential future development, financing, royalty payments and/or scientific, regulatory, or commercial milestone payments under development agreements. Further, obligations under employment agreements contingent upon continued employment are not included in the table below. The following table summarizes our contractual obligations as of June 30, 2013 (in thousands):

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years

Operating leases (1)	$	926	$	773	$	153	$	—	$	—
Capital leases (2)		16		16		—		—		—
Professional services agreements (3)		1,475		1,061		414		—		—
Supply agreements and purchase obligations (4)		3,500		3,500		—		—		—
Long-term debt obligations (5)		11,976		2,894		7,790		456		836
Settlement obligations (6)		4,189		1,189		1,500		1,000		500
Other obligations (7)		—		—		—		—		—

Total contractual obligations	$	22,083	$	9,433	$	9,857	$	1,456	$	1,336

(1)	Operating leases include minimum payments under leases for our facilities and certain equipment.

(2)	Capital leases include minimum payments under leases for certain manufacturing equipment at Pernix Manufacturing.

(3)	Professional service agreements include agreements with a specific term for consulting, information technology, telecom and software support, data and sales reporting tools and services.

(4)	Supply agreements and Purchase obligations include fixed or minimum payments under manufacturing and supply agreements with third-party manufacturers and other providers of goods and services. The contractual obligations table set forth above does not reflect certain minimum sales requirements related to our co-promotion agreements. Our failure to satisfy minimum sales requirements under our co-promotion agreements generally allows the counterparty to terminate the agreement and/or results in a loss of our exclusivity rights. In addition to minimum sales requirements under our co-promotion agreements, the table above does not include commitments under open purchase orders for inventory that can be cancelled without penalty, which are approximately $5.0 million.

(5)	The long-term debt obligations represent the minimum payments under the credit facility that was entered into during 2013 and the mortgage on certain real estate assumed in the acquisition of Pernix Manufacturing.

(6)	Settlement obligations represent remaining payments due under settlement agreements.

(7)	Other obligations represent the payments due under a privately negotiated stock repurchase.

See Notes 11, Debt , and 16, Commitments and Contingencies, to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 and 2012, for additional information.

In addition to the material contractual cash obligations included the chart above, we have committed to make potential future milestone payments to third parties as part of licensing, distribution, acquisition and development agreements. Payments under these agreements generally become due and payable only upon achievement of certain development, regulatory and/or commercial milestones. Because the achievement of milestones is neither probable nor reasonably estimable, such contingent payments have not been recorded on our consolidated balance sheets and have not been included in the table above. See Notes 4, Business Combinations and Other Acquisitions , and 8, Intangible Assets and Goodwill , to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 and 2012 for additional information.

Further, See Note 5, Derivative Instruments, to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 and 2012, for information related to the put right issued to Cypress’ former shareholders in connection with the acquisition of Cypress on December 31, 2012. The put right, which expires in January 31, 2014, is exercisable during the thirty-day period immediately following the one-year anniversary date of the business acquisition, which if exercised would enable them to sell any of the shares they still hold (3,773,079 as of June 30, 2013) from the underlying 4,427,084 shares of the Company’s common stock they received as part of the purchase consideration, back to the Company at a price of $5.38 per share, This potential obligation is not included in the table above.

Recent Accounting Pronouncements

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Credit Agreement with MidCap Funding

On December 31, 2012, the Company, together with its subsidiaries, entered into a Credit and Guaranty Agreement, dated December 31, 2012 (the “Original Credit Agreement”), with MidCap Funding V, LLC, as administrative agent, a lender and as a co-bookrunner, and Business Development Corporate of America, as co-bookrunner, and additional lenders from time to time party thereto. Proceeds from the Original Credit Agreement were used to fund a portion of the purchase price for Cypress Pharmaceuticals, Inc. The Original Credit Agreement provided for a term credit facility of $42 million with an interest rate equal to the sum of the LIBOR rate plus an applicable margin of 6.50% per annum. The average borrowing rate under the facility at March 31, 2013 was 9.3%.

On May 8, 2013, the Company, together with its subsidiaries, entered into the Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with MidCap Financial, LLC, as Administrative Agent and as a lender, and additional lenders from time to time party thereto. The Restated Credit Agreement amends and restates in its entirety the Original Credit Agreement.

Under the Restated Credit Agreement, the Company is required to make monthly repayments on the term loan beginning on November 7, 2013 and ending on May 7, 2016, when all remaining principal is due and payable. The revolving loan will be paid based on the Company’s cash receipts, with all principal due and payable on May 7, 2016. In addition, the Company is able to voluntarily prepay outstanding amounts under the revolving loan commitment at any time, subject to certain prepayment penalties.

The loans under this facility bear interest at a rate equal to the sum of the LIBOR rate (with a floor of 1.5%) plus an applicable margin of 7.50% per annum (9.0% on May 7, 2013). To calculate the potential impact related to interest rate risk, we performed a sensitivity analysis at June 30, 2013 based on the maximum available under the revolver and the term loan balance outstanding under the Restated Credit Agreement of approximately $23.4 million and considered the required term loan principal prepayments over the next twelve months. A 10% increase in our LIBOR floor would result in additional interest expense of approximately $24,000, net of tax.

See Note 11, Debt , and Note 16, Subsequent Events , to our Condensed Consolidated Financial Statements for the three months ended March 31, 2013 and 2012 for further discussion.

Put Right

In consideration for the Company’s acquisition of all of the outstanding share capital of Cypress Pharmaceuticals, Inc. on December 31, 2012, the Company paid $52 million in cash, issued 4,427,084 shares of common stock having an aggregate market value equal to approximately $34.3 million (based on the closing price per share of $7.75 as reported on the NYSE MKT LLC on December 31, 2012), and agreed to pay up to $6.5 million in holdback and contingent payments, $4.5 million to be deposited in escrow on December 15, 2013 and $5.0 million in shares of our common stock upon the occurrence of a milestone event, for an aggregate purchase price of up to $102.3 million. The Company also granted a put right to the sellers pursuant to which the sellers may put the shares issued at the closing of the acquisition to the Company at approximately $5.38 per share, representing 70% of the volume weighted average trading price of the Company’s common stock for the 30 trading days prior to November 13, 2012, with such put right being exercisable from January 1, 2014 to January 31, 2014. The fair value of the put right was $7.3 million as of June 30, 2013, calculated using a Black-Scholes valuation model with assumptions for the following variables: term, closing Pernix stock price on June 30, 2013, risk-free interest rates and expected volatility (with the volatility factor being the input subject to the most variation). The Company is exposed to market risk in regards to the rate and magnitude of change of our stock price and corresponding variations to the volatility factor used in the Black-Scholes valuation model. We evaluated this risk by estimating the potential adverse impact of a 10% increase in the volatility factor and determined that such a change in the volatility factor would have resulted in an approximate $225,000 increase to the put right liability and a corresponding reduction to pre-tax income (loss) for the three and six months ended June 30, 2013.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of June 30, 2013, we evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Management concluded that as of June 30, 2013, our disclosure controls and procedures were effective.

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Legal Matters under Note 16 to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 and 2012 contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2013.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.		Description

2.1		Asset Purchase Agreement by and among Breckenridge Pharmaceutical, Inc., on the one hand, and the Company and Cypress Pharmaceuticals, Inc., on the other hand, dated as of August 5, 2013

3.1		Articles of Incorporation of Pernix Therapeutics Holdings, Inc. (previously filed as Exhibit 3.1 to our Current Report on Form 8-K filed on March 15, 2010 and incorporated herein by reference).

3.2		Bylaws of Pernix Therapeutics Holdings, Inc. (previously filed as Exhibit 3.2 to our Current Report on Form 8-K filed on March 15, 2010 and incorporated herein by reference).
10.1 *		Offer letter between the Company and Cooper Collins dated May 8, 2013.
10.2 *		Offer letter between the Company and Michael Pearce dated May 28, 2013.
10.3 *		Severance letter between the Company and Tracy Clifford dated July 19, 2013.
10.4		Amended and Restated Credit Agreement dated as of May 8, 2013 by and among the Company, together with its subsidiaries, MidCap Financial, LLC, as Administrative Agent and as lender, and additional lenders from time to time party thereto (previously filed as Exhibit 10.1 to our Current Report on Form 8-K filed on May 13, 2013 and incorporated herein by reference).

31.1 *		Certification of the Registrant’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 *		Certification of the Registrant’s Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 *		Certification of the Registrant’s Chief Executive Officer and Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*		Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language)
		(i) Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012
		(ii) Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2013 and 2012;
		(iii) Condensed Consolidated Statements of Stockholders’ Equity as of June 30, 2013 and December 31, 2012
		(iv) Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012
		(v) Notes to Condensed Consolidated Financial Statements

________________________

* Filed herewith.

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.

	PERNIX THERAPEUTICS HOLDINGS, INC.

Date: August 9, 2013	By:	/s/ MICHAEL C. PEARCE
		Michael C. Pearce
		Chief Executive Officer and President


Date: August 9, 2013	By:	/s/ TRACY S. CLIFFORD
		Tracy S. Clifford
		Principal Financial Officer and Principal Accounting Officer

Exhibit 2.1

ASSET PURCHASE AGREEMENT

by and among

BRECKENRIDGE PHARMACEUTICAL, INC.

and

PERNIX THERAPEUTICS HOLDINGS, INC.

and

CYPRESS PHARMACEUTICALS, INC.

TABLE OF CONTENTS

ARTICLE I.	DEFINITIONS	1

Section 1.1.	Defined Terms	1
Section 1.2.	Construction	13

ARTICLE II.	THE TRANSACTION	14

Section 2.1.	Purchase and Sale of Purchased Assets	14
Section 2.2.	Excluded Assets	16
Section 2.3.	Assumed Liabilities	16
Section 2.4.	Excluded Liabilities	17
Section 2.5.	Closing Date	17
Section 2.6.	Purchaser Obligations	18
Section 2.7.	Seller Obligations	18
Section 2.8.	Allocation of Purchase Price	19
Section 2.9.	Assignability and Consents	20
Section 2.10.	License Grant	20

ARTICLE III.	REPRESENTATIONS AND WARRANTIES OF SELLER	21

Section 3.1.	Organization and Authority	21
Section 3.2.	Purchased Assets; Title to Purchased Assets	21
Section 3.3.	Consents; Non-Contravention	22
Section 3.4.	Regulatory Approvals	22
Section 3.5.	Compliance with Applicable Laws and Litigation	23
Section 3.6.	No Material Adverse Change	23
Section 3.7.	Assumed Contracts	23
Section 3.8.	Inventory, CMO Purchase Orders and Returns	24
Section 3.9.	Tax Matters	25
Section 3.10.	Intellectual Property	25
Section 3.11.	Product Records	27
Section 3.12.	Brokers, Finders, etc	27
Section 3.13.	Financial Statements	27
Section 3.14.	Insurance	27
Section 3.15.	Regulatory Compliance	27
Section 3.16.	No Other Warranties	29

ARTICLE IV.	REPRESENTATIONS AND WARRANTIES OF PURCHASER	29

Section 4.1.	Organization and Authority	29
Section 4.2.	Consents; No Violations	29
Section 4.3.	Brokers, Finders, etc	30
Section 4.4.	Financing	30
Section 4.5.	Litigation	30

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(cont’d)

ARTICLE V.	COVENANTS OF SELLER PRIOR TO CLOSING	30

Section 5.1.	Purchaser Access	30
Section 5.2.	Conduct of the Product Business Prior to Closing	31
Section 5.3.	Notice of Default	31
Section 5.4.	No Negotiation	32
Section 5.5.	Commercially Reasonable Efforts	32
Section 5.6.	Notice of Government Investigations	32
Section 5.7.	Assistance	32

ARTICLE VI.	COVENANTS OF PURCHASER PRIOR TO CLOSING	32

Section 6.1.	Notice of Default	32
Section 6.2.	Commercially Reasonable Efforts by Purchaser	32
Section 6.3.	Assistance	32

ARTICLE VII.	CLOSING AND TERMINATION	33

Section 7.1.	Conditions Precedent to Obligations of the Parties	33
Section 7.2.	Conditions Precedent to Purchaser’s Obligations	33
Section 7.3.	Conditions Precedent to Seller’s Obligations	34
Section 7.4.	Termination	34
Section 7.5.	Procedure and Effect of Termination	34

ARTICLE VIII.	CERTAIN OTHER COVENANTS	35

Section 8.1.	Product Returns, Rebates and Chargebacks	35
Section 8.2.	Necessary Efforts; No Inconsistent Action	35
Section 8.3.	Public Disclosures	35
Section 8.4.	Transitional Trademark License	36
Section 8.5.	Customer Billing	37
Section 8.6.	Cooperation	37
Section 8.7.	Tax Matters	38
Section 8.8.	Notice to Customers	39
Section 8.9.	Adverse Experience Reports	39
Section 8.10.	Regulatory Matters	40
Section 8.11.	Product Records	41
Section 8.12.	Employees	41
Section 8.13.	Non-Competition	41
Section 8.14.	Seller’s Additional Covenants and Agreements	43

ARTICLE IX.	INDEMNIFICATION	43

Section 9.1.	Indemnification	43
Section 9.2.	Certain Limitations	45
Section 9.3.	Procedures for Third Party Claims and Excluded Liabilities	46
Section 9.4.	Certain Procedures	49
Section 9.5.	Remedies Exclusive	49

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(cont’d)

ARTICLE X.	MISCELLANEOUS PROVISIONS	50

Section 10.1.	Confidentiality	50
Section 10.2.	Notices	51
Section 10.3.	Bulk Transfers	52
Section 10.4.	Remedies Cumulative; Specific Performance	53
Section 10.5.	Further Assurances; Further Cooperation	53
Section 10.6.	Amendments and Waivers	53
Section 10.7.	Expenses	53
Section 10.8.	Binding Effect; Benefit; Assignment	54
Section 10.9.	Governing Law	54
Section 10.10.	Arbitration	55
Section 10.11.	Counterparts; Effectiveness	55
Section 10.12.	Entire Agreement	56
Section 10.13.	Severability	56
Section 10.14.	Time is of the Essence	56

iii

TABLE OF CONTENTS

(cont’d)

Exhibit A	Template of Assignment and Assumption Agreement
Exhibit B	Template of Bill of Sale
Exhibit C	Template of Domain Name Assignment Agreement
Exhibit D	Template of Pernix Supply Agreement
Exhibit E	Template of Pharmacovigilance Agreement
Exhibit F	Template of Trademark Assignment Agreement
Exhibit G	Template of Transition Service and Technology Transfer Agreement
Exhibit H	Template of First Anniversary Promissory Note
Exhibit I	Template of Second Anniversary Promissory Note
Exhibit J	Template of Allocation Schedule
Exhibit K	Template of Third Party Consent
Schedule 1.1(a)	Assumed Contracts
Schedule 1.1(b)	Contract Manufacturing Organizations
Schedule 1.1(c)	CMO Purchase Orders
Schedule 1.1(d)	Development Products
Schedule 1.1(e)	Product Copyrights
Schedule 1.1(f)	Product Domain Names
Schedule 1.1(g)	Product Intellectual Property
Schedule 1.1(h)	Product Patents
Schedule 1.1(i)	Product Trademarks
Schedule 1.1(j)	Inventory
Schedule 1.1(k)	Transferred Abbreviated New Drug Applications
Schedule 2.3(e)	Other Liabilities
Schedule 2.4(a)	Certain Excluded Liabilities
Schedule 5.5	Certain Closing Obligations Seller Disclosure Schedule

TABLE OF CONTENTS

(cont’d)

Section 3.2(a)	Assets Not Included in Purchased Assets Required to Conduct Business
Section 3.2(b)	Title Exceptions
Section 3.3(b)	Exceptions to Non-Contravention Representation
Section 3.4(c)	Regulatory Approval Exceptions
Section 3.5(b)	Litigation
Section 3.6(a)	Material Adverse Changes
Section 3.7(a)	Exceptions to Assumed Contracts Representation
Section 3.7(c)	Deferred Payments under Assumed Contracts
Section 3.8(c)	Minimum Inventory Levels
Section 3.8(d)	Return of Product
Section 3.9(c)	Exceptions to Tax Matter Representation
Section 3.9(e)	Exceptions to Tax Filing Representation
Section 3.10(d)	Proceedings Against Product Trademarks, Copyrights and Domain Names
Section 3.10(f)	Proceedings Against use of Product Intellectual Property
Section 3.10(j)	Third Party Rights in and to Products, Product Intellectual Property and Product Business
Section 3.13	Financial Data
Section 3.15(e)	Alleged Regulatory Exceptions
Section 3.15(j)	Comments and Demands from the Regulatory Authorities

ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT (as amended from time to time, the “ Agreement ”) is made as of this 5 nd day of August, 2013 (the “ Agreement Date ”), by and among Breckenridge Pharmaceutical, Inc., a Florida corporation (“ Purchaser ”), and Pernix Therapeutics Holding, Inc., a Maryland company (“ Pernix ”) and Cypress Pharmaceuticals, Inc., a Mississippi company (“ Cypress ”) (Pernix and Cypress being referred to collectively as “ Seller ”). Purchaser, Pernix and Cypress are each referred to individually as a “ Party ” and together as the “ Parties .”

RECITALS

WHEREAS, Seller sells, markets, distributes, manufactures and commercializes, by itself or through third parties, the Products (as defined below) in certain countries;

WHEREAS, Seller desires to sell, transfer, and convey to Purchaser, and Purchaser desires to purchase from Seller, the Purchased Assets (as defined below), and Purchaser desires to assume the Assumed Contracts (as defined below) and Assumed Liabilities (as defined below); and

WHEREAS, in connection with the sale, transfer and conveyance of the Purchased Assets, the Parties and/or their respective Affiliates desire to enter into the Ancillary Agreements (as defined below);

NOW, THEREFORE, in consideration of the promises, representations, warranties, covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, intending to be legally bound hereby, agree as follows:

ARTICLE I.

DEFINITIONS

Section 1.1. Defined Terms . For the purposes of this Agreement, the following words and phrases shall have the following meanings whether in the singular or the plural:

“ AAA ” shall have the meaning set forth in Section 10.10(a) .

“ Accountant ” shall have the meaning set forth in Section 2.8(a) .

“ Acquisition Proposal ” shall mean an indication of interest, offer or proposal to acquire Seller’s right, title and interest in and to all or any substantial portion of the Purchased Assets in a single transaction or series of related transactions (other than the transactions provided for in this Agreement).

“ Affiliate ” shall mean with respect to any entity, any other entity which controls, is controlled by, or is under common control with such entity. For purposes of this definition, a Person shall be regarded as in control of another Person if it owns or controls, directly or indirectly, (i) in the case of corporate entities, direct or indirect ownership of at least fifty percent (50%) of the stock or shares (or such lesser percentage which is the maximum allowed to be owned by a foreign corporation in a particular jurisdiction) entitled to vote for the election of directors or otherwise having the power to direct the management and policies of such corporate entities; and (ii) in the case of non-corporate entities, direct or indirect ownership of at least fifty percent (50%) (or the maximum ownership interest permitted by law) of the equity interest or the power to direct the management and policies of such non-corporate entities.

“ Agreement ” shall have the meaning set forth in the first paragraph of this Agreement.

“ Agreement Date ” shall mean the date set forth in the first paragraph of this Agreement.

“ Allocation Schedule ” shall have the meaning set forth in Section 2.8 .

“ Alternate Seller Bank Account ” shall have the meaning set forth in Section 2.1(b)(ii) .

“ Ancillary Agreements ” shall mean the Bills of Sale, the Assignment and Assumption Agreements, the Domain Name Assignment Agreement, the Pernix Supply Agreement, the Pharmacovigilance Agreement, the Trademark Assignment Agreement, the Transition Service and Technology Transfer Agreement and the Third Party Consents.

“ Applicable Law ” shall mean all applicable foreign, federal, state or local provisions of all statutes, laws, rules, regulations, administrative codes, ordinances, decrees, orders, decisions, guidance documents, injunctions, awards, judgments, and permits and licenses of or from Governmental Authorities relating to or governing the use or regulation of the subject item.

“ Assignment and Assumption Agreements ” shall mean those certain assignment and assumption agreements, substantially in the form attached hereto as Exhibit A .

“ Assumed Contracts ” shall mean (i) the Contracts identified on item 1 of Schedule 1.1(a) , and the Contracts identified on item 2 of Schedule 1.1(a) to the extent that such Contracts directly relate to the Purchased Assets, either of the foregoing including all amendments thereto, and (ii) any purchase orders for Products transmitted by Seller or its Affiliates prior to the Closing Date, but not shipped prior to 11:59 p.m., PDT, on the day prior to the Closing Date. To the extent an Assumed Contract was only made orally and not in writing, such oral contract shall be clearly identified on Schedule 1.1(a) and a brief but substantially complete written summary of all material rights and obligations of the parties to such oral contract shall be attached to Schedule 1.1(a) .

“ Assumed Liabilities ” shall mean the Liabilities set forth in Section 2.3 .

“ Basket Amount ” shall have the meaning set forth in Section 9.2(a) .

“ Bills of Sale ” shall mean those certain bills of sale, substantially in the form attached hereto as Exhibit B .

“ Books and Records ” means all books, records, files, reports, plans and operating records (including extracts thereof) in any form, including paper, electronically stored data, magnetic media, film or microfilm, in each case to the extent primarily related to the Products and/or the Purchased Assets in the Territory, including the entire Regulatory Approvals in documentary and electronic form, and all such correspondence between Seller, its Affiliates and the FDA and/or Governmental Authorities, including but not limited to “supplements,” “deficiencies” and “responses” whereby such terms shall have the meaning ascribed to them under 21 C.F.R. § 314.3). To the extent any content which would constitute Books and Records are not in writing, Seller shall immediately memorialize and reduce any such content to writing.

“ Business Day ” shall mean a day, which is not a Saturday, a Sunday, or a statutory holiday in the United States.

“ Chargebacks ” shall mean chargebacks and similar payments to wholesalers and other distributors in connection with the Products.

“ Closing ” shall have the meaning set forth in Section 2.5 .

“ Closing Cash Payment ” shall have the meaning set forth in Section 2.1(b)(i) .

“ Closing Date ” shall have the meaning set forth in Section 2.5 .

“ Closing Date Inventory Statement ” shall have the meaning set forth in Section 2.1(e) .

“ Closing Date Purchase Order Statement ” shall mean the statement to be delivered by Seller to Purchaser on the Closing Date listing the purchase orders outstanding for Products as of the Closing Date.

“ CMO ” shall mean any and all of the contract manufacturing organizations listed on Schedule 1.1(b) .

“ CMO Purchase Orders ” shall mean the purchase orders listed on Schedule 1.1(c) , as well as the purchase orders for Products listed on the Closing Date Purchase Order Statement.

“ CMO Supply Agreement ” shall mean any Assumed Contract providing for the manufacture and supply of Products by a CMO to Seller.

“ Code ” shall mean the United States Internal Revenue Code of 1986, as amended.

“ Commercial Rebates ” shall mean rebates to Customers.

“ Competing Product ” shall mean any product that is or is being developed to be a generic equivalent of, a generic formulation of, bio-equivalent or interchangeable with a Product where “ bio-equivalent ” and “ interchangeable ” shall have the meaning ascribed to them under 21 C.F.R. § 320.

“ Confidentiality Agreement ” shall have the meaning set forth in Section 10.1(a) .

“ Confidential Information ” shall mean Purchaser Confidential Information and Seller Confidential Information.

“ Consent ” shall have the meaning set forth in Section 2.9 .

“ Contract ” shall mean any agreement, contract, lease, consensual obligation, promise, or undertaking (whether written or oral), to which Seller or any of its Affiliates is a party (i) that relates solely or primarily to the Products, the Product Business, the Purchased Assets or the Assumed Liabilities, or (ii) that, to the extent related to the Products, is necessary for the conduct of the Product Business as conducted by Seller.

“ Controlled ” shall mean, with respect to any of the Inventory, any of the Product Intellectual Property and any of the Product Records, that is owned or licensed (as licensor or licensee) by Seller and/or any of its Affiliates, and in which Seller has the legal authority or right to grant, convey, transfer and assign to Purchaser, all of Seller’s (and any of its Affiliates’) rights, titles and interests therein and thereto.

“ Copyright ” shall mean U.S., international or foreign copyrights, including any and all Copyright Registrations and Applications therefor, and all exclusive rights under all such copyrights, for, in and to, or otherwise based upon any and all documents, website content, data, artwork, advertising materials, product packaging, product labels, product packaging inserts and product instructions.

“ Copyright Registrations and Applications ” shall mean U.S., international or foreign copyright registrations, recordations and applications, and any and all renewals, extensions and reversions thereof, for which a registration or serial number may be, has been or will be assigned by the relevant Governmental Authority.

“ Customer ” means any Third Party wholesalers, distributors, retail warehousing chains, pharmacy benefit managers, managed care organizations, government buyers, group purchasing organizations or other Third Parties that purchase the Products from Seller as of the Closing Date in the Territory.

“ Cypress ” shall have the meaning set forth in the Preamble.

“ Deferred Payment ” shall have the meaning set forth in Section 2.1(b)(ii)(A) .

“ Dispute ” shall have the meaning set forth in Section 10.10(a) .

“ Domain Name Assignment Agreement ” shall mean that certain domain name and webpages assignment agreement for the transfer of the Product Domain Names, substantially in the form attached hereto as Exhibit C .

“ Domain Names ” shall mean any and all Internet domain names, websites and URLs, and any and all applications and registrations therefor.

“ Encumbrance ” shall mean claims, security interests, liens, pledges, charges, escrows, options, proxies, rights of first refusal, preemptive rights, covenants not to sue, mortgages, hypothecations, assessments, prior assignments, reversionary rights, reversionary titles, reversionary interests, title retention agreements, conditional sales agreements, indentures, deeds of trust, leases, levys or security agreements of any kind whatsoever, or any other agreements to give any of the foregoing in the future, imposed upon the subject property or item.

“ Estimated Closing Inventory Book Value ” shall have the meaning set forth in Section 2.1(e) .

“ Evaluation Material ” shall have the meaning set forth in Section 10.1 .

“ Excluded Assets ” shall mean (i) all assets and properties other than the Purchased Assets of Seller and its Affiliates, (ii) all cash and accounts receivable for sales of Products sold by Seller prior to the Closing, (iii) Contracts identified on item 2 of Schedule 1.1(a) to the extent that such Contracts do not directly relate to the Purchased Assets and (iii) the Contracts listed in Section 3.7(a) of the Seller Disclosure Schedule .

“ Excluded Liabilities ” shall have the meaning set forth in Section 2.4(a) .

“ FDA ” shall mean the United States Food and Drug Administration or any successor organization.

“ Final Inventory Book Value ” shall have the meaning set forth in Section 2.1(f) .

“ Financial Data ” shall have the meaning set forth in Section 3.13 .

“ First Anniversary Note ” shall have the meaning set forth in Section 2.1(b)(ii)(A) .

“ First Year Liability Cap ” shall have the meaning set forth in Section 9.2(c) .

“ GAAP ” shall mean United States generally accepted accounting principles.

“ Governmental Authority ” shall mean the government of the applicable country in the Territory and any state, province, municipality or other political subdivision thereof or therein, or any court, tribunal, judiciary body, agency, department, board, instrumentality, panel, dispute resolution agency, patent office, trademark office, copyright office and any official authority or commission (including regulatory and administrative bodies) of any of the foregoing.

“ HIPAA ” shall have the meaning set forth in Section 3.15(b) .

“ Indemnification Claim Notice ” shall have the meaning set forth in Section 9.4 .

“ Indemnified Party ” shall mean the Seller Indemnified Parties or the Purchaser Indemnified Parties, as applicable, in accordance with the terms of this Agreement.

“ Indemnifying Party ” shall mean the Purchaser or the Seller Indemnifying Parties, as applicable, in accordance with the terms of this Agreement.

“ Intellectual Property ” shall mean the Copyrights, Domain Names, Know-How, Patent Rights, Trademarks and Trade Secrets.

“ Inventory ” shall mean the Products, and all active pharmaceutical ingredients which are used or intended to be used solely or primarily for the production of the Products, that are owned or Controlled by Seller or its Affiliates on the Closing Date for Seller’s marketing and sale and which (i) are of a quality usable and salable in the ordinary course of business and (ii) in the case of the Products, comprise all unsold lots.

“ Know-How ” shall mean information reasonably believed to be useful (whether or not deemed confidential or proprietary), including Trade Secrets, inventions (whether or not patentable), discoveries, developments, improvements, enhancements, concepts, ideas, methods, processes, designs, schematics, drawings, formulae, data, technical data and information, specifications, instructions, research and development information, technology and databases.

“ Knowledge of Purchaser ” or “ to Purchaser’s Knowledge ” or any similar such statement shall mean the actual knowledge of, or such knowledge as would be reasonably expected to have been obtained after reasonable inquiry by Larry Runsdorf, Larry Lapila or Brian Guy.

“ Knowledge of Seller ” or “ to Seller’s Knowledge ” or any similar such statement shall mean the actual knowledge of, or such knowledge as would be reasonably expected to have been obtained after reasonable inquiry by Seller’s Key Employees.

“ Liability ” shall mean, collectively, any liability, indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost, expense, obligation, responsibility, or product liability, whether fixed or unfixed, known or unknown, choate or inchoate, liquidated or unliquidated, secured or unsecured, direct or indirect, matured or unmatured, or absolute, contingent or otherwise.

“ Losses ” shall mean any and all losses, damages, Liabilities, deficiencies, claims, proceedings, causes of action, costs (including reasonable out of pocket costs of investigation) and expenses, including interest, proven diminution in value (to the extent such diminution in value is verfied by a fairness opinion issued by the Accountant), penalties, settlement costs, judgments, awards, fines, costs of mitigation, court costs and fees (including reasonable attorneys’ fees and expenses); provided, however, that the term Losses shall be subject to Section 9.1(c) .

“ Material Adverse Effect ” shall mean any change, circumstance, event or effect that has had or is reasonably likely to have in the future, individually or in the aggregate, a material adverse effect on (i) the condition (financial or otherwise) or results of operation of the Product Business or the Purchased Assets or (ii) the ability of Seller to consummate the transactions contemplated by this Agreement; provided that no changes, circumstances, events or effects resulting from or arising out of the following shall be taken into account in determining whether a Material Adverse Effect has occurred: (a) the public announcement of the entering into of this Agreement or the other Ancillary Agreements or the pendency of the transactions contemplated hereby or thereby (including any cancellation or delay of Customer orders, any reduction in sales, any disruption in supplier, partner or similar relationships or any loss of employees), (b) the performance by Seller of any action, or the failure to take any action, in each case at Purchaser’s written request (including email) pursuant to this Agreement or the other Ancillary Agreements, (c) general economic conditions, (d) general conditions in the industry in which the Product Business is conducted, (e) changes in GAAP or Applicable Law which have general application, (f) the failure of the business to meet any internal projections or forecasts of revenue or earnings ( provided that the underlying cause of such failure shall be taken into account unless such cause is otherwise included in clause (a) through (e), or (g)), or (g) fire, flood, tornado, earthquake or other acts of nature, acts of terrorism or sabotage, war, regional, national or international calamity, military action or any other similar event or any escalation or worsening thereof after the date hereof, except to the extent, in the case of the foregoing clauses (c) through (e), such changes, circumstances, events or effects referred to therein have a materially disproportionate impact on the Product Business relative to the industry in which the Product Business competes as a whole.

“ Medical Information ” means any medical or clinical information related to the Products in the Territory, including clinical and technical matters, such as therapeutic uses for the licensed indications, drug-disease information, and other product characteristics. Medical Information shall include any medical or clinical information relating to completed clinical trials and related to the Products conducted by or on behalf of Pernix and/or its Affiliates whether or not included in the Regulatory Approvals for the Products.

“ Notes ” shall have the meaning set forth in Section 2.1(b)(ii)(B) .

“ Objection Notice ” shall have the meaning set forth in Section 2.1(f) .

“ Party ” or “ Parties ” shall have the meaning set forth in the first paragraph of this Agreement.

“ Patent Rights ” shall mean U.S., international or foreign patents, provisional patent applications, patent applications, design registrations, design registration applications, industrial designs, industrial design applications and industrial design registrations, including any and all divisions, continuations, continuations-in-part, extensions, substitutions, renewals, registrations, revalidations, reexaminations, reissues or additions, including supplementary certificates of protection, of or to any of the foregoing items.

“ Patient Data ” shall mean data accessible through Seller’s Product regulatory safety database (e.g., the annual safety update reports provided by Seller to the FDA contained therein) and any other global safety database maintained by Seller, which data exists at the time such databases are transferred by Seller to Purchaser after the Closing Date and which may include, among other things, safety data generated by or for Seller or its Affiliates in the conduct of the clinical development of the Purchased Assets.

“ Permitted Encumbrances ” shall mean (i) Encumbrances for Taxes, assessments and other governmental charges not yet due and payable, (ii) mechanics’, workmen’s, repairmen’s, warehousemen’s, carriers’ or other similar Encumbrances, including all statutory Encumbrances, arising or incurred in the ordinary course of business and not yet delinquent or, (iii) Encumbrances that do not materially affect the ownership, value or use of the underlying Purchased Asset for the purpose it is being utilized by Seller or its Affiliates on the Closing Date.

“ Pernix ” shall have the meaning set forth in the Preamble.

“ Pernix Supply Agreement ” shall mean that certain supply agreement, substantially in the form attached hereto as Exhibit D .

“ Person ” shall mean any natural person, corporation, unincorporated organization, partnership, association, joint stock company, joint venture, limited liability company, trust or government, or any agency or political subdivision of any government, or any other entity.

“ Pharmacovigilance Agreement ” shall mean that pharmacovigilance agreement, substantially in the form attached hereto as Exhibit E

“ Post-Closing Tax Period ” shall mean any Tax period beginning after the Closing Date and the portion of the Straddle Period beginning after the Closing Date.

“ Pre-Closing Tax Period ” shall mean any Tax period ending on or before the Closing Date and the portion of any Straddle Period ending on the Closing Date.

“ Proceeding ” shall mean any litigation, claim, action, dispute, lawsuit, arbitration, dispute resolution process, cancellation proceeding, opposition proceeding, concurrent use proceeding, reexamination proceeding, nullification proceeding, interference proceeding, priority contest, challenge, protest, inquiry, change demand, order, judgment, hearing, assessment, or any other proceeding (whether civil, criminal, administrative or investigative), commenced, brought, conducted, or heard by or before any Governmental Authority or arbitrator.

“ Products ” shall mean those products (and related labeling and packaging) that as of the Closing Date (i) are marketed and sold by Seller or by a Third Party on behalf of Seller in the Territory under the Product Trademarks and/or the Regulatory Approvals, (ii) are or were anticipated to be marketed and sold as part of a pending or future Regulatory Approval by Seller or by a Third Party in the Territory and (iii) are under development by Seller or by a Third Party on behalf of Seller and are listed on Schedule 1.1(d) ; in each case (i) to (iii) including any new formulation, dosage form or dosage strength related thereto.

“ Product Business ” shall mean the manufacturing, using, developing, promoting, advertising, marketing, distributing, selling, offering to sell, importing and/or exporting of the Products in the Territory.

“ Product Copyrights ” shall mean any and all Copyrights (including any and all Copyright Registrations and Applications listed on Schedule 1.1(e) ) that are Controlled by Seller and/or any of its Affiliates and that relate solely to the Products and/or the Product Business.

“ Product Domain Names ” shall mean any and all active or inactive Domain Names, that are Controlled by Seller and/or any of its Affiliates and that relate solely to the Products and/or the Product Business, as identified on Schedule 1.1(f) .

“ Product Intellectual Property ” shall mean the Product Copyrights, Product Domain Names, Product Know-How, Product Patents, Product Trademarks and Product Trade Secrets, including each of the foregoing as listed on Schedule 1.1(g) .

“ Product Know How ” shall mean any and all Know-How that is Controlled by Seller and/or any of its Affiliates and that relates primarily to the Products and/or the Product Business.

“ Product Patents ” shall mean any and all Patent Rights that are Controlled by Seller and/or any of its Affiliates and that relate primarily to the Products and/or the Product Business, as identified on Schedule 1.1(h) .

“ Product Records ” shall mean all files, documents, instruments, papers, Books and Records Controlled by Seller and/or any of its Affiliates, whether in electronic or tangible form, that relate primarily to the Products, the Product Business and/or the Product Intellectual Property, including any and all pricing lists, customer lists, vendor lists, financial data, research and development files, marketing materials, regulatory files, adverse event reports and files; equipment specifications; analytical specifications and validation reports; Product batch records; bills of material; packaging specifications; approved and rejected vendor lists and audits; Product complaints, clinical studies and all documentation relating thereto; all documentation associated with the Product Intellectual Property; copies of all filings (and supporting documentation) with Governmental Authorities; regulatory and other opinions and memoranda, component and labeling purchasing specifications; packaging and quality control SOPs; stability data, records, charts, reports and applicable SOPs; quality assurance/control data, records, charts, reports, and applicable SOPs; budgets; pricing guidelines; ledgers; journals; Assumed Contracts; Promotional Materials; Medical Information; operating data and plans; sales data; target lists; file histories, file wrappers, correspondence, application documents, registration documents, search reports, documents concerning the prosecution history, enforcement or maintenance of rights, or restrictions on use, with respect to the Product Intellectual Property, freedom-to-operate and other patent opinions and related documents relating to Third Party IP Rights, whether or not required to be kept or maintained under any Applicable Law; but excluding any items to the extent that any Applicable Law prohibits their transfer.

“ Product Returns ” shall mean returns of Product by Customers.

“ Product Trademarks ” shall mean any and all Trademarks that are Controlled by Seller and/or any of its Affiliates and that relate solely to the Products and/or the Product Business, as identified on Schedule 1.1(i) . “ Product Trademarks ” shall not include the Seller Marks.

“ Product Trade Secrets ” shall mean any and all Trade Secrets that are Controlled by Seller and/or any of its Affiliates and that relate primarily to the Products and/or the Product Business.

“ Promotional Materials ” shall mean any and all physician lists, Customer lists, marketing studies, marketing plans and strategies, sales force training materials, market research materials, and all advertising, selling, and promotional materials and other similar information and data, including records of sales and cost data for the twenty-four (24) months preceding, and as of the day prior to, the Closing Date, to the extent the foregoing relate primarily to the Products and/or the Product Business, and to the extent the foregoing are within the Seller’s or its Affiliates’ possession as of the Closing Date.

“ Property Taxes ” shall have the meaning set forth in Section 8.7(c) .

“ Purchased Assets ” shall mean, collectively, the assets of Cypress and/or Pernix, as the case may be, set forth below:

(i)

the Regulatory Approvals;

(ii)

the Products;

(iii)

the Assumed Contracts;

(iv)

all Inventory identified on Schedule 1.1(j) ;

(v)

the Promotional Materials;

(vi)

the Product Records;

(vii)

the Product Intellectual Property;

(viii)

all of Seller’s right, title and interest in and to each and all of the foregoing assets set forth in (i) – (vii), supra, including any and all of Seller’s and its Affiliates’ rights to bring any and all causes of action, either in law or in equity, for past, present or future infringement of any of the Product Intellectual Property and rights to defend against Third Party IP Rights; and

(ix)

any and all of Seller’s right, title, interest and assets in and to each and all of the foregoing assets set forth in (i) – (viii), supra, necessary to obtain regulatory approval in order to lawfully market a Product, or otherwise to continue the lawful marketing of a Product.

“ Purchase Price ” shall have the meaning set forth in Section 2.1(b) .

“ Purchaser ” shall have the meaning set forth in the first paragraph of this Agreement.

“ Purchaser Confidential Information ” shall have the meaning set forth in Section 10.1(b) .

“ Purchaser Indemnified Parties ” shall have the meaning set forth in Section 9.1(a) .

“ Purchaser Labeling ” shall mean the printed labels, labeling and packaging materials, including printed carton, container labels and package inserts, to be prepared by Purchaser after the Closing Date and bearing Purchaser’s name for, or in connection with, packaging of the Products.

“ Purchaser’s Liability Cap ” shall have the meaning set forth in Section 9.2(d) .

“ Purchaser’s Third Party Logistics Provider ” shall mean Woodfield Distribution, LLC, located at 951 Clint Moore Road, Suite A, Boca Raton, Florida 33487, or any other logistic provider as Purchaser may hereafter specify to Seller in accordance with the terms of Section 10.2 .

“ Quality Agreement ” shall mean any quality agreement executed by and between Seller and a CMO in connection with the execution of a CMO Supply Agreement, which Quality Agreement will be one of the Assumed Contracts.

“ Regulatory Approvals ” shall mean (i) the abbreviated new drug applications of Seller listed on Schedule 1.1(k) and (ii) all applications of Seller for regulatory approval listed on Schedule 1.1(k) , including new drug applications, abbreviated new drug applications, new drug submissions, biologic license applications, and any comparable applications and submissions with respect to the Products, either of the foregoing (a) together with any and all Drug Master Files (as such term is defined in 21 C.F.R. §314.420), supplements or modifications or amendments thereto, (b) whether existing, pending, withdrawn or in draft form, prepared and submitted to any Governmental Authority in the Territory, and (c) along with all supporting files, data, studies and reports relating thereto (in tangible and electronic form) and all technical and other information contained therein.

“ Received Inventory Book Value ” shall have the meaning set forth in Section 2.1(f) .

“Received Inventory Statement ” shall have the meaning set forth in Section 2.1(f) .

“ Resolving Accountants ” shall have the meaning set forth in Section 2.1(g) .

“ Restrictive Period ” shall have the meaning set forth in Section 8.13(a) .

“ Schedules ” shall refer to the schedules to this Agreement which are hereby incorporated by reference into this Agreement.

“ Second Year Liability Cap ” shall have the meaning set forth in Section 9.2(c) .

“ Seller ” shall have the meaning set forth in the first paragraph of this Agreement.

“ Seller Bank Account ” shall have the meaning set forth in Section 2.1(b)(i) .

“ Seller Confidential Information ” shall have the meaning set forth in Section 10.1(c) .

“ Seller Disclosure Schedule ” shall have the meaning set forth in the first paragraph of Article III .

“ Seller Indemnified Parties ” shall have the meaning set forth in Section 9.1(b) .

“ Seller Marks ” shall mean all Trademarks Controlled by Seller, other than the Product Trademarks, that are used in connection with the Product Business and the Assumed Liabilities as of the Agreement Date.

“ Sellers Key-Employees ” shall mean Michael C. Pearce, Cooper C. Collins, Michael Venters or Brian Dorsey.

“ Seller’s Liability Caps ” shall have the meaning set forth in Section 9.2(c) .

“ Settlement Period ” shall have the meaning set forth in Section 2.1(f) .

“ Straddle Period ” shall mean any Tax period beginning on or before the Closing Date and ending after the Closing Date.

“ Target Inventory Book Value ” shall have the meaning set forth in Section 2.1(e) .

“ Taxes ” shall mean all federal, state, local, foreign and other income, net income, gross income, gross receipts, sales, use, ad valorem, transfer, capital stock, franchise, profits, license, service, add on or alternative minimum tax, occupancy, withholding, payroll, fringe benefits, employment, employees’ income withholding, foreign or domestic withholding, unemployment, disability, excise, severance, stamp, value added, occupation, premium, property (including, real property and personal property taxes and any assessments, special or otherwise), environmental, windfall profits, customs, duties or other taxes, and any fees, assessments, levies, tariffs or charges of any kind that are in the nature of a tax, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, imposed, assessed or collected by or under the authority of any Governmental Authority (and “ Tax ” means any one of the foregoing Taxes).

“ Tax Benefit ” shall have the meaning set forth in Section 9.3(c) .

“ Tax Return ” shall mean any return, declaration, report or statement required to be filed with a Governmental Authority in respect to any Tax (including any attachments thereto, and any amendment thereof), including any information return, claim for refund, amended return or declaration of estimated Tax.

“ Territory ” shall mean the world wide.

“ Third Party ” shall mean any Person other than Purchaser, Pernix, Cypress, or an Affiliate of any of them.

“ Third Party Claim ” shall mean any Proceeding at law or suit in equity by or against a Third Party as to which indemnification will be sought hereunder.

“ Third Party IP Rights ” shall mean the intellectual property rights of a third party to which the manufacture and/or sale of a Product could be deemed to be infringing.

“ Trademark Assignment Agreement ” shall mean that certain trademark assignment agreement for the assignment of the Product Trademarks, substantially in the form attached hereto as Exhibit F .

“ Trademarks ” shall mean any and all U.S., international or foreign trademarks, service marks, trade names, service names, brand names, product names, trade dress, trade styles, logos, symbols, and other product or service source identifiers and general intangibles of a like nature, together with all goodwill associated with any of the foregoing, along with all applications, registrations, renewals and extensions therefor.

“ Trade Secrets ” shall mean information, including any formula, program, device, method, technique, and/or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, any Third Party who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

“ Transaction Documents ” shall mean this Agreement and the Ancillary Agreements.

“ Transfer Taxes ” shall have the meaning set forth in Section 8.7(b) .

“ Transition Service and Technology Transfer Agreement ” shall mean that certain transition services and technology transfer agreement, substantially in the form attached hereto as Exhibit G .

“ Treasury Regulations ” shall mean the income tax regulations issued under the Code.

Section 1.2. Construction .

(a) The words “ hereof ,” “ herein ” and “ hereunder ” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.

(b) The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Articles, Sections, Annexes, Exhibits, and Schedules are to Articles, Sections, Annexes, Exhibits, and Schedules of this Agreement unless otherwise specified.

(c) All Annexes, Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Annex, Exhibit or Schedule but not otherwise defined therein, shall have the meaning as defined in this Agreement.

(d) Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular, and words denoting either gender shall include both genders as the context requires. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning.

(e) Whenever the words “ include ,” “ includes ” or “ including ” are used in this Agreement, they shall be deemed to be followed by the words “ without limitation ,” whether or not they are in fact followed by those words or words of like import.

(f) The use of the word “ or ” shall not be exclusive.

(g) A reference to any legislation or to any provision of any legislation shall include any modification, amendment, re-enactment thereof, any legislative provision substituted therefore and all rules, regulations and statutory instruments issued or related to such legislation.

(h) Any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement. No prior draft of this Agreement nor any course of performance or course of dealing shall be used in the interpretation or construction of this Agreement. No parol evidence shall be introduced in the construction or interpretation of this Agreement unless the ambiguity or uncertainty in issue is plainly discernible from a reading of this Agreement without consideration of any extrinsic evidence.

(i) Any exception or qualification set forth in the Seller Disclosure Schedule with respect to a particular representation or warranty contained herein shall be deemed to be an exception or qualification with respect to other representations and warranties contained in this Agreement to the extent the applicability of the disclosure to each other representation and warranty is reasonably apparent from the text of the disclosure made. Nothing in the Seller Disclosure Schedule is intended to broaden the scope of any representation, warranty or covenant of Seller contained in this Agreement.

ARTICLE II.

THE TRANSACTION

Section 2.1. Purchase and Sale of Purchased Assets .

(a) Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell, assign, transfer, convey and deliver to Purchaser, and Purchaser shall purchase, acquire and accept, all of Seller’s right, title and interest in and to the Purchased Assets, free and clear of all Encumbrances other than Permitted Encumbrances.

(b) As consideration for the transactions contemplated hereby, Purchaser shall pay to Seller an aggregate purchase price of Thirty Million Dollars ($30,000,000), as adjusted in accordance with Section 2.1(e) (the “ Purchase Price ”) by making the following payments to Seller:

(i) Earnest Money Payment. On the Agreement Date, Purchaser shall make a cash payment of Two Million Dollars ($2,000,000) (the “ Earnest Money Payment ”) to a bank account in the United States identified by Seller to Purchaser in writing at least two (2) Business Days prior to the Agreement Date (the “ Seller Bank Account ”);

(ii) Closing Cash Payment. At Closing, Purchaser shall make a cash payment of Eighteen Million Dollars ($18,000,000) (the “ Closing Cash Payment ”) by wire transfer of immediately available funds to the Seller Bank Account, as adjusted in accordance with Section 2.1(e) .

(iii) Deferred Payment. Purchaser shall pay deferred payments (each a “ Deferred Payment ” and together, the “ Deferred Payments ”) totaling Ten Million Dollars ($10,000,000) comprising of the following.

(A) Issuance at the Closing of an unsecured promissory note, substantially in the from attached hereto as Exhibit H (the “ First Anniversary Note ”), in the principal amount of Five Million Dollars ($5,000,000) due on the first anniversary of the Closing; and

(B) Issuance at the Closing of an unsecured promissory note, substantially in the form attached hereto as Exhibit I (such promissory note together with the First Anniversary Note, the “ Notes ”), in the principal amount of Five Million Dollars ($5,000,000) due on the second anniversary of the Closing.

(c) At the Closing, Purchaser shall assume from Seller, and thereafter pay, perform and discharge when due, the Assumed Liabilities.

(d) The CMO Purchase Orders listed on the Closing Date Purchase Order Statement shall constitute Assumed Contracts. Purchaser shall be responsible for all amounts payable to a CMO under a CMO Purchase Order listed on the Closing Date Purchase Order Statement. Seller shall be responsible for all amounts payable to a CMO under a CMO Purchase Orders listed on Schedule 1.1(c) to the extent a CMO Purchase Order is fulfilled (i.e. the Product has been delivered to Seller) on the Closing Date. To the extent a CMO Purchase Order listed on Schedule 1.1(c) is not fulfilled or only partly fulfilled on the Closing Date, such CMO Purchase Order shall be listed on the Closing Date Purchase Order Statement and Purchaser shall be responsible for all amounts payable to the CMO under such partly fulfilled CMO Purchase Order to the extent the CMO Purchase Order has not been fulfilled on or prior to Closing Date; to the extent a partly fulfilled CMO Purchase Order is fulfilled prior to the Closing Date, Seller shall be responsible to the CMO under such CMO Purchase Order. If Closing occurs prior to the transfer of title from a CMO to Seller of Product under a CMO Purchase Order, Seller shall instruct the respective CMO at Closing to ship or have shipped the Products under such CMO Purchase Order to Purchaser’s Third Party Logistics Provider pursuant to the terms of the respective CMO Supply Agreement. If Closing occurs after the transfer of title from a CMO to Seller of Products under a CMO Purchase Order, Seller shall at the Closing ship, or cause the CMO or Seller’s third party logistics provider, as the case may be, to ship, the Products to Purchaser’s Third Party Logistics Provider as part of the Purchased Assets, provided however, that Purchaser and Seller shall each be responsible for fifty percent (50%) of all additional costs relating to such shipment.

(e) Not more than five (5) Business Days and nor less than two (2) Business Days prior to the Closing Date, Seller shall deliver to Purchaser a written statement (the “ Closing Date Inventory Statement ”) prepared by the Seller setting forth the estimated book value of the Inventory as of the Closing (the “ Estimated Closing Inventory Book Value ”) along with, in reasonable detail, the related calculations. The Closing Cash Payment shall be decreased, on a dollar for dollar basis, to the extent that the Estimated Closing Inventory Book Value is less than $1,000,000 (the “ Target Inventory Book Value ”) or increased, on a dollar for dollar basis, to the extent that the Estimated Closing Inventory Book Value exceeds the Target Inventory Book Value.

(f) On the Closing Date or the next Business Day Seller shall ship or cause to be shipped the Inventory to Purchaser’s Third Party Logistics Provider. Purchaser and Seller shall each be responsible for fifty percent (50%) of all costs relating to such shipment. Upon receipt of the Inventory, Purchaser shall conduct a physical inventory and deliver to Seller a written statement (the “ Received Inventory Statement ”) prepared by Purchaser setting forth the book value of the Inventory received by Purchaser (the “ Received Inventory Book Value ”). If Seller does not object to the Received Inventory Statement within five (5) Business Days after Seller’s receipt of the Received Inventory Statement by delivering a written notice to Purchaser thereof (the “ Objection Notice ”), the Received Inventory Book Value shall become the final book value (the “ Final Inventory Book Value ”). If Seller delivers an Objection Notice to Purchaser within such five (5) Business Days, the Parties shall seek in good faith to determine the Final Inventory Book Value within forty five (45) days following Purchaser’s receipt of such Objection Notice (the “ Settlement Period ”). If the Parties cannot come to an agreement within Settlement Period, they shall resolve such dispute in accordance with Section 2.1(g) . In the event that the Final Inventory Book Value as determined in accordance with this Section 2.1(f) or Section 2.1(g) is: (x) lower than the Estimated Closing Inventory Book Value shown on the Closing Date Inventory Statement, then Seller shall promptly following the date of determination of the Final Inventory Book Value pay the amount of such difference to Purchaser in cash by wire transfer in immediately available funds or (y) higher than the Estimated Closing Inventory Book Value shown on the Closing Date Inventory Statement, then Purchaser shall promptly following the date of determination of the Final Inventory Book Value pay the amount of such difference to Seller in cash by wire transfer of immediately available funds. All amounts payable under this Section 2.1(f) or Section 2.1(g) shall be an adjustment of the Purchase Price.

(g) If the parties cannot agree on a Final Inventory Book Value within the Settlement Period, then the issues remaining in dispute will be submitted to a panel of three (3) accountants (the “ Resolving Accountants ”), each of whom has substantial experience in mergers and acquisitions and the auditing of pharmaceutical businesses and who are employed by an accounting firm with which neither Purchaser nor Seller has had a business relationship during the two (2) years prior to the Closing Date. Not more than one of such Resolving Accountants may be from the same accounting firm. One of such Resolving Accountants shall be selected by Seller, one of such Resolving Accountants shall be selected by Purchaser, and the third Resolving Accountant shall be mutually selected by the two Resolving Accountants selected by Seller and Purchaser. If issues in dispute are submitted to the Resolving Accountants, each of Seller and Purchaser will furnish to the Resolving Accountants such work papers and other documents and information relating to the disputed issues as the Resolving Accountants may request and are available, and each of Seller and Purchaser will be afforded the opportunity to present to the Resolving Accountants any material relating to the determination and to discuss the determination with the Resolving Accountants, and copies of such material shall be provided to the other Party at the same time. The determination by the Resolving Accountants, as set forth in a written notice delivered to Seller and Purchaser by the Resolving Accountants, will be in accordance with US general accounting principals and consistent with the terms of this Agreement, including the adjustments provided for herein. The determination by the Resolving Accountants will be binding and conclusive on Purchaser and Seller, and Seller and Purchaser will each bear the fees of the Resolving Accountants in such amounts as the Resolving Accountants’ determine relate to the extent to which each of Seller and Purchaser was correct or incorrect as to the dispute.

Section 2.2. Excluded Assets . Seller is not selling, conveying, transferring, assigning, or delivering, or assigning any rights whatsoever to the Excluded Assets to Purchaser, and Purchaser is not purchasing, taking delivery of or acquiring any rights whatsoever to the Excluded Assets from Seller.

Section 2.3. Assumed Liabilities . Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Purchaser shall assume and agree to pay, perform or otherwise discharge, in accordance with their respective terms and subject to the respective conditions thereof, only the following Liabilities (collectively, the “ Assumed Liabilities ”):

(a) Any Liability arising on or after the Closing under any Assumed Contract (other than any Liability arising out of or relating to a breach of such Assumed Contract where the breach or the facts and circumstances of such breach occurred prior to the Closing and whether or not the Liability arose prior to or after the Closing);

(b) Any Liability arising out of the conduct of the Product Business by Purchaser after the Closing, including any Liabilities and obligations arising out of or resulting from product liability claims for a Product but only with respect to Products which are sold by Purchaser after the Closing and not including any Liabilities relating to any circumstances and facts which occurred prior to the Closing whether or not the Liability arose prior to or after the Closing);

(c) Any Liability arising after the Closing for Taxes imposed with respect to the Product Business or the Purchased Assets that are attributable to the ownership, sale, operation or use of the Product Business or the Purchased Assets following the Closing Date and are not related to any facts or circumstances that occurred prior to, but where the Liability arose after, the Closing);

(d) Property Taxes and Transfer Taxes to the extent specifically allocated to Purchaser pursuant to Section 8.7 ; and

(e) Any other Liability specifically set forth on Schedule 2.3(e) hereto.

(f) For the avoidance of doubt, the Parties acknowledge that in no event shall the provisions of this Section 2.3 be construed to limit Purchaser’s obligations under Article IX .

Section 2.4. Excluded Liabilities .

(a) Other than the Assumed Liabilities, or as specifically provided in the Transaction Documents, Purchaser shall not be responsible for, assume, or be obligated to pay, perform or otherwise discharge any Liabilities or obligations of Seller, whether or not related to the Product Business (collectively, the “ Excluded Liabilities ”), which Excluded Liabilities shall include (i) any obligation or Liability of Seller created as a result of this Agreement, (ii) any Liability relating to Products sold prior to the Closing Date or the operation of the Product Business prior to the Closing Date (including any Liability arising out of or relating to Products sold prior to the Closing Date where the facts and circumstances of the Liability occurred prior to the Closing and where the claim was made after the Closing), (iii) those items set forth on Schedule 2.4(a) , and (iv) all liabilities with respect to any Taxes owed by Seller, including any liability of Seller for the Taxes of any other Person under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee, or as a result of a Tax sharing or similar agreement, and Taxes otherwise imposed with respect to the Product Business or the Purchased Assets that are attributable to the ownership, sale, operation or use of the Product Business or the Purchased Assets on or prior to the Closing Date. For the avoidance of doubt, the Parties acknowledge that in no event shall the provisions of this Section 2.4 be construed to limit Seller’s obligations under Article IX .

(b) Other than as provided in the Transaction Documents, Seller shall not be responsible for, assume, or be obligated to pay, perform or otherwise discharge any obligations or liabilities of Purchaser. The Parties acknowledge that in no event shall the foregoing sentence be construed to limit Seller’s obligations under Article IX .

Section 2.5. Closing Date . Unless this Agreement shall have been terminated pursuant to Article VII , the consummation of the transactions contemplated by Section 2.1 (the “ Closing ”) shall take place at the New York or Florida office of Purchaser at 10:00 a.m., EST, and in such other places as are necessary to effect the transactions to be consummated at the Closing, on the fifth (5th) Business Day immediately following the satisfaction or, to the extent permitted, waiver of all of the conditions in Article VII (other than those conditions which by their nature are to be satisfied or, to the extent permitted, waived at the Closing but subject to the satisfaction or, to the extent permitted, waiver of such conditions), or at such other time, date and place as shall be determined by mutual agreement of the Parties (such date of the Closing being herein referred to as the “ Closing Date ”). The Closing shall be deemed to have become effective as of 12:00 a.m., CST on the Closing Date.

Section 2.6. Purchaser Obligations . At the Closing, Purchaser shall (i) deliver to Seller the Closing Cash Payment and (ii) execute and deliver to Seller the following:

(a) the Bills of Sale;

(b) the Assignment and Assumption Agreements;

(d) the Pernix Supply Agreement;

(e) the Pharmacovigilance Agreement;

(f) the Trademark Assignment Agreement;

(g) the Transition Service and Technology Transfer Agreement;

(h) the Notes;

(i) the certificate required by Section 7.3(a) and Section 7.3(b) ;

(j) its acknowledgments to and acceptances of the consents and waivers of the CMOs, as described in Section 7.2(e) hereof; and

(k) such other documents and instruments (other than agreements with Third Parties) as Seller may reasonably request to consummate the transactions described in Section 2.1 ; provided that Seller shall have made such request for such document no less than five (5) days prior to the Closing.

Section 2.7. Seller Obligations . At the Closing, Seller shall execute and deliver to Purchaser, the following:

(a) the Bills of Sale;

(b) the Assignment and Assumption Agreements;

(d) the Pernix Supply Agreement;

(e) the Pharmacovigilance Agreement;

(f) the Trademark Assignment Agreement;

(g) the Transition Service and Technology Transfer Agreement;

(h) the certificate required by Section 7.2(a) and Section 7.2(b) ;

(i) a confirmation receipt reflecting receipt of the Closing Cash Payment;

(j) the consents and waivers of the CMOs, as described in Section 7.2(e) hereof;

(k) the Closing Date Inventory Statement;

(l) the Closing Date Purchase Order Statement; and

(m) such other documents and instruments (other than agreements with Third Parties) as Purchaser may reasonably request to consummate the transactions described in Section 2.1 ; provided that Purchaser shall have made such request for such document no less than five (5) days prior to the Closing.

Section 2.8. Allocation of Purchase Price .

(a) Seller and Purchaser shall allocate the Purchase Price (and Assumed Liabilities, to the extent properly taken into account under the Code) among the Purchased Assets for tax purposes in accordance with Section 1060 of the Code and the Treasury Regulations promulgated thereunder (and any similar provisions of state, local or foreign law, as appropriate). A draft allocation schedule, substantially in the form attached hereto as Exhibit J , shall initially be prepared by Purchaser and delivered to Seller not later than thirty (30) days after the Closing Date for Seller's review and comment. The Seller will be deemed to have accepted such allocation unless it provides written notice of disagreement to Purchaser within ten (10) days after the receipt of the draft allocation schedule. If Seller provides timely written notice of disagreement to Purchaser, Seller and Purchaser shall work in good faith to resolve any disputes relating to the draft allocation schedule (such allocation schedule as finally agreed to by Purchaser and Seller, the “ Allocation Schedule ”). If, within thirty (30) days after Purchaser receives Seller’s notice of disagreement, the parties have not reached agreement, Seller and Purchaser shall jointly appoint a nationally recognized accounting firm agreed to by the parties (and, if the parties are unable to agree, the New York office of PriceWaterhouseCoopers) (the “ Accountant ”) to whom the parties shall submit the dispute for resolution, which resolution shall be final, conclusive and binding on the parties. Notwithstanding anything in this Agreement to the contrary, the fees and expenses of the Accountant in resolving this dispute shall be borne equally by Seller and Purchaser. Not later than thirty (30) days prior to the filing of their respective Internal Revenue Service Forms 8594 (Asset Acquisition Statement under Section 1060 of the Code) relating to this transaction, each party shall deliver to the other party a copy of its Internal Revenue Service Form 8594.

(b) The Allocation Schedule shall be revised as mutually agreed by Purchaser and Seller to reflect any adjustment to the Purchase Price pursuant to the provisions of this Agreement. The Allocation Schedule shall be binding upon Purchaser and Seller. Purchaser and Seller shall prepare all financial statements and file all Tax Returns (including an Internal Revenue Service Form 8594 with their respective United States federal income Tax Return for the taxable year that includes the date of the Closing) with respect to the transactions contemplated by this Agreement consistently with the Allocation Schedule and any adjustments thereto, unless otherwise required by Applicable Law. Neither Purchaser nor Seller shall take any position (whether in any Tax audit, Tax review or Tax litigation relating thereto, or otherwise) that is inconsistent with the Allocation Schedule unless required to do so by Applicable Law.

Section 2.9. Assignability and Consents . Notwithstanding anything to the contrary contained in this Agreement, but subject to Section 7.2 , if the sale, assignment, transfer, conveyance or delivery or attempted sale, assignment, transfer, conveyance or delivery to Purchaser of any Purchased Assets (i) is prohibited by any Applicable Law or (ii) would require any consents, waivers, approvals or authorizations of a Third Party or Governmental Authority (a “ Consent ”) and such Consents shall not have been obtained prior to the Closing and an attempted assignment thereof without such Consent would constitute a breach thereof, then in either case, the Closing will proceed without the sale, assignment, transfer, conveyance or delivery of such Purchased Assets and this Agreement shall not constitute an agreement for the sale, assignment, transfer, conveyance or delivery of such Purchased Asset. In the event that the Closing proceeds without the sale, assignment, transfer, conveyance or delivery of any such Purchased Asset, then following the Closing, the Parties shall use their commercially reasonable efforts, and cooperate with each other, to obtain promptly such Consents; provided, however , that no Party shall be required to pay any consideration to obtain any such Consent. Pending receipt of such Consents, the Parties shall cooperate with each other in any mutually agreeable, reasonable and lawful arrangements designed to provide to Purchaser the benefits of and the obligations associated with use of such Purchased Asset that it would have obtained or been subject to had the asset been conveyed to Purchaser at the Closing. To the extent that Purchaser is provided the benefits pursuant to this Section 2.9 of any Assumed Contract, Purchaser shall (x) perform for the benefit of the other parties thereto the obligations of Seller or any Affiliate of Seller thereunder, which arise after the Closing, and (y) shall satisfy any related Liabilities with respect to such Assumed Contract that, but for the lack of a Consent to assign such obligations or Liabilities to Purchaser, would be Assumed Liabilities. Once Consent for the sale, assignment, transfer, conveyance or delivery of any such Purchased Asset not sold, assigned, transferred, conveyed or delivered at the Closing is obtained or given, Seller shall promptly assign, transfer, convey and deliver such Purchased Asset to Purchaser at no additional cost to Purchaser.

Section 2.10. License Grant . To the extent Seller has any Know-How necessary to obtain regulatory approval of the abbreviated new drug applications that are clearly indicated on Schedule 1.1(k) as pending and that is not included in the Purchased Assets, Seller hereby grants Purchaser, on Seller’s behalf and on behalf of any applicable Affiliate, a non-exclusive, royalty-free, Territory-wide sublicenseable license to use such Know-How.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF SELLER

Pernix and Cypress, jointly and severally, represent and warrant to Purchaser as of the date hereof, but subject to such exceptions as are specifically disclosed in the disclosure schedule referencing the appropriate Sections hereof (unless the applicability and relevance of the disclosure to another representation or warranty is readily apparent on the face of such disclosure, in which case such disclosure shall also apply to such other representations or warranty) supplied by Seller and dated as of the date hereof (the “ Seller Disclosure Schedule ”), as follows:

Section 3.1. Organization and Authority . Pernix is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland. Cypress is a corporation duly organized, validly existing and in good standing under the laws of the State of Mississippi. Each of Pernix and Cypress has all requisite corporate power and corporate authority, and has taken all actions necessary, to execute and deliver the Transaction Documents, and the transactions contemplated thereby, and effect the transactions contemplated thereby and has duly authorized the execution, delivery and performance of the Transaction Documents and transactions or documents contemplated thereby by all necessary corporate action. Each of Pernix and Cypress has all requisite corporate power and corporate authority necessary to own its assets and carry on the Product Business as currently being conducted by it. The Transaction Documents will be upon the Closing, the valid and legally binding obligations of Pernix and Cypress, enforceable against them in accordance with their terms, subject to applicable bankruptcy moratorium, reorganization, insolvency and similar laws of general application relating to or affecting the rights and remedies of creditors generally and to general equitable principles (regardless of whether in equity or at law).

Section 3.2. Purchased Assets; Title to Purchased Assets .

(a) Except as set forth on Section 3.2(a) of the Seller Disclosure Schedule , the Purchased Assets collectively constitute all of the material properties, rights, titles, interests and other tangible and intangible assets owned by Sellers and/or any of its Affiliates and used by Seller and/or any of Seller’s Affiliates necessary to conduct the Product Business consistent with past practice.

(b) Except as set forth on Section 3.2(b) of the Seller Disclosure Schedule , Cypress and/or Pernix, as the case may be, has good and marketable title to the Purchased Assets owned by Cypress and/or Pernix, as the case may, be free and clear of any Encumbrances, except for the Permitted Encumbrances. Except as set forth on Section 3.2(b) of the Seller Disclosure Schedule , Seller has not received any notice of any adverse claims of ownership to the Purchased Assets owned by Cypress and/or Pernix, as the case may be, and to Seller’s Knowledge, no facts or circumstances exist which would provide a reasonable basis for any such adverse claim of ownership of any of the Purchased Assets owned by Cypress and/or Pernix, as the case may be. Upon delivery to Purchaser at the Closing of the Ancillary Agreements, Seller will thereby sell, transfer, convey and assign to Purchaser good and marketable title to the Purchased Assets, free and clear of all Encumbrances other than Permitted Encumbrances, subject to the terms and conditions of this Agreement.

Section 3.3. Consents; Non-Contravention .

(a) Except for all filings and other actions contemplated by the Transaction Documents (including the necessary transfer of filings, notices and approvals required to transfer the Regulatory Approvals from Seller to Purchaser), the execution, delivery and performance by Seller of the Transaction Documents and the consummation by Seller of the transactions contemplated thereby will not require any notice to, filing with, or the consent, approval or authorization of, any Person or Governmental Authority.

(b) Except as set forth on Section 3.3(b) of the Seller Disclosure Schedule , neither the execution and delivery of the Transaction Documents nor the consummation of the transactions contemplated thereby will (i) violate or result in a breach or result in the acceleration or termination of, or the creation in any Third Party of the right to accelerate, terminate, modify or cancel, any Assumed Contract, (ii) conflict with, violate or result in a breach of any provision of the certificate of incorporation, or by-laws of Seller, (iii) conflict with or violate in any material respect Applicable Law, or (iv) conflict with, violate or result in a breach of any material agreement, instrument or arrangement to which Seller is subject, including any agreement affecting Seller’s ownership of, or ability to assign, the Product Intellectual Property.

Section 3.4. Regulatory Approvals .

(a) Schedule 1.1(k) sets forth a complete and correct list of all Regulatory Approvals. Seller has provided to Purchaser complete and correct copies of the Regulatory Approvals or Purchaser has had access to such copies of the Regulatory Approvals.

(b) Seller is in material compliance with all of the Regulatory Approvals listed on Schedule 1.1(k) , and, since August 1, 2012, Seller has not received any written or oral notification or other communication from any Third Party with respect to any alleged or possible violation with respect to any such Regulatory Approvals, and to Seller’s Knowledge, there are no facts or circumstances that would form a reasonable basis for any such violation.

(c) Except as set forth on Section 3.4(c) of the Seller Disclosure Schedule , the Regulatory Approvals are in full force and effect and have been duly and validly issued. Except as set forth on Section 3.4(c) of the Seller Disclosure Schedule , the U.S. Regulatory Approvals are in good standing, have not been revoked, rescinded, amended or modified, and, to Seller’s Knowledge, no event has occurred or written or oral notification or other communication been received by Seller from the FDA or other Governmental Authority, a notified body or any other party that would materially adversely affect or otherwise jeopardize the FDA approval status of the Products. To the Knowledge of Seller, no applications made or other materials submitted by Seller to the FDA or other Governmental Authority or a notified body with respect to the Products contained an untrue statement of material fact when submitted, or omitted to state a material fact when submitted which was required to be stated therein or necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading.

(d) The Regulatory Approval files of Seller have been maintained in accordance with reasonable industry standards. Seller has in its possession or control, or has access to, copies of all the material documentation filed in connection with filings made by Seller for Regulatory Approval of the Products, including the substantially complete regulatory chronology for each Regulatory Approval (if applicable) and Seller will, to the extent any such materials are not delivered pursuant to the terms of this Agreement, upon request of Purchaser make such materials available for review and copying by Purchaser and its representatives.

Section 3.5. Compliance with Applicable Laws and Litigation .

(a) Except with respect to any matter relating to or arising from Regulatory Approvals (which are addressed in Section 3.4 and Section 3.15 ), with respect to the Products, the Product Business, the Purchased Assets and the Assumed Liabilities, Seller is in material compliance with all Applicable Laws.

(b) Except with respect to routine administrative proceedings conducted with respect to Regulatory Approvals conducted in the Seller’s ordinary and usual course of conduct of the Product Business or as set forth on Section 3.5(b) of the Seller Disclosure Schedule , there are no Proceedings, including any action or investigation (formal or informal) by the U.S. Department of Justice, Office of the Inspector General, or any Governmental Authority, existing, pending, or to the Knowledge of Seller, threatened against or affecting Seller, with respect to the Products, the Product Business, the Purchased Assets or the Assumed Liabilities or with respect to this Agreement or the transactions contemplated hereby, and there are no Proceedings pending in which Seller is the plaintiff or claimant and which relate to the conduct of Seller with respect to the Purchased Assets or the Product Business prior to the Closing Date. Seller is not subject to any Proceedings, nor, to the Knowledge of Seller, are any Proceedings threatened, which, in any such case, that would reasonably be expected to impair or delay its ability to perform its obligations under this Agreement.

Section 3.6. No Material Adverse Change .

(a) Except as set forth on Section 3.6(a) of the Seller Disclosure Schedule , since August 1, 2012, there has been no Material Adverse Effect on the Product Business or the Purchased Assets; (b) there has been no damage or impairment to, or destruction or loss of, the Purchased Assets, that had or would reasonably be expected to have a Material Adverse Effect on the Product Business or the Purchased Assets; (c) there has been no sale, assignment, transfer or Encumbrance of the Purchased Assets outside the ordinary course of business; and (d) there has been no change in the contingent obligations of Seller by way of guaranty, endorsement, indemnity, warranty or otherwise that would reasonably be expected to have a Material Adverse Effect.

(b) Since August 1, 2012, Seller has (i) continued and conducted the Product Business in Seller’s ordinary and usual course of business, and (ii) to the Knowledge of Seller maintained its relationships with suppliers, distributors, Customers and others having material business relationships with Seller related to the Product Business.

Section 3.7. Assumed Contracts .

(a) Schedule 1.1(a) sets forth a complete and correct list of all Assumed Contracts. Except as set forth in Section 3.7(a) of the Seller Disclosure Schedule , the Assumed Contracts constitute all of the contracts to which Seller or any of its Affiliates is a party or is otherwise bound and that are material to or otherwise relate solely or primarily to the Purchased Assets and/or the Product Business. Seller has delivered to or made available to Purchaser true and complete copies of all such Assumed Contracts and these copies include all terms agreed to between the respective parties. To the extent that an Assumed Contract was made orally or by correspondence (for example emails between the contract parties), Seller has provided to Purchaser a true and substantially complete summary of such oral agreements and/or correspondence outlining all rights and obligations of the parties thereto. All such Assumed Contracts are, as to Seller (and, as to the other parties thereto, to the Knowledge of Seller), legal, valid and binding agreements in full force and effect and enforceable in accordance with their respective terms (subject to applicable bankruptcy moratorium, reorganization, insolvency and similar laws of general application relating to or affecting the rights and remedies of creditors generally and to general equitable principles (regardless of whether in equity or at law)) and, subject to Section 2.9 , may be transferred to the Purchaser pursuant to this Agreement and, as of the Closing Date and subject to the provisions of each such Assumed Contract, will continue in full force and effect in each case without the consent, approval, or act, or the making of any filing with, any other party thereto.

(b) Seller is not in material breach or default, and no event has occurred that with notice or lapse of time would constitute a material breach or default by Seller permitting termination, modification, or acceleration, under any Assumed Contract. To the actual knowledge of Seller, no other party to any Assumed Contract is in material breach or default under, or has repudiated any material provision of, any Assumed Contract, and, to the actual knowledge of Seller, no event has occurred and no condition or state or facts currently exists which, with time or the giving of notice, or both, would constitute such a material default or breach by such other party.

(c) Except as set forth in Section 3.7(c) of the Seller Disclosure Schedule , there are no deferred payment obligations of Seller under an Assumed Contract from the time prior to the Agreement Date, and as of the Closing Date, that are unpaid and remain due after the consummation of the transactions contemplated by this Agreement.

Section 3.8. Inventory, CMO Purchase Orders and Returns .

(a) Schedule 1.1(j) sets forth a complete and correct list of the Inventory as of a date no earlier than two (2) Business Days prior to the Agreement Date, as the same will be revised by the Closing Date Inventory Statement. The Inventory has been produced or manufactured in accordance with all Applicable Law and Regulatory Approvals.

(b) For the twelve (12) months preceding the Agreement Date, Seller has not (i) materially altered its distribution practices or terms with respect to the Products, or (ii) materially altered its activities and practices with respect to inventory levels of the Products maintained at the wholesale, chain, institutional or retail levels in any material respect.

(c) As of the date of this Agreement, and as of the date of the Closing, Seller shall have at least Inventory for each Product at the levels set forth on Section 3.8(c) of the Seller Disclosure Schedule as Inventory on hand (in the warehouse) or under CMO Purchase Order for delivery within no more than five (5) Business Days after Closing.

(d) Section 3.8(d) of the Seller Disclosure Schedule sets forth, on a monthly basis, the returns other than third party returns (i.e. returns not made directly from Seller's retail and wholesale customers) of the Products for the one year period ended March 31, 2013, as the same will be revised as of the day prior to the Closing Date other than third party returns (i.e. returns not made directly from Seller's retail and wholesale customers.

(e) All Inventory included in the Purchased Assets shall be fully paid for and in good and saleable condition with at least fifteen (15) months expiration dating remaining and shall be in compliance in all material respects with all Applicable Laws applicable to its manufacture, labeling and storage.

Section 3.9. Tax Matters .

(a) There are no Encumbrances for Taxes on any of the Purchased Assets other than Permitted Encumbrances (within the meaning of clause (i) of such definition).

(b) Seller has timely filed all Tax Returns that were required to be filed relating to the Product Business or the Purchased Assets and has paid all Taxes shown thereon as owing, where the failure to file Tax Returns or to pay Taxes would not have a Material Adverse Effect.

(c) Except as disclosed on Section 3.9(c) of the Seller Disclosure Schedule , there are no federal, state, local or foreign audits, suits, proceedings, claims or administrative proceedings or, to the Knowledge of Seller, investigations pending or ongoing against Seller for Taxes of Seller relating to the Product Business or the Purchased Assets or any Tax Returns of Seller relating to the Product Business or the Purchased Assets that could result in (i) a material Encumbrance on the Purchased Assets or (ii) material Taxes for which the Purchaser Indemnified Parties may be liable.

(d) Seller has not received any written ruling concerning Taxes of Seller with respect to the Product Business or the Purchased Assets from any taxing authority.

(e) Except as disclosed on Section 3.9(e) of the Seller Disclosure Schedule , since August 1, 2012 no jurisdiction where Seller does not file a Tax Return has made a claim in writing that Seller is required to file a Tax Return relating to the Product Business or the Purchased Assets for such jurisdiction or that any Taxes relating to the Product Business of the Purchased Assets are due as a result of doing any business in such jurisdiction, except where the failure to file such Tax Return would not have a Material Adverse Effect.

Section 3.10. Intellectual Property .

(a) Seller is the owner or licensee of all right, title and interest in and to, or otherwise has the right to use, the Product Intellectual Property, free and clear of any Encumbrance, except for the Permitted Encumbrances; Seller has the full and unrestricted right, power and authority to grant, convey, transfer and assign to Purchaser all of Seller’s (and any of its Affiliates’) right, title and interest in and to the Product Intellectual Property; and Seller’s grant, conveyance, transfer and assignment to Purchaser of all of Seller’s (and any of its Affiliates’) right, title and interest in and to the Product Intellectual Property will not violate or breach any Assumed Contract.

(b) Schedule 1.1(g) sets forth a true and complete list of all Product Intellectual Property, and Schedule 1.1(g) sets forth a true and complete list of all Assumed Contracts through which the Seller (and any of its Affiliates) has obtained rights to any Product Intellectual Property.

(c) None of the Product Patents is involved in any Proceeding (including any Proceeding challenging the ownership, right to use, validity, enforceability, and/or any allegation of infringement, of any of the Product Patents (and whether under the Hatch Waxman Act, the Biologics Price Competition and Innovation Act, or other Applicable Law)). To the Knowledge of Seller, no inequitable conduct (i.e., any conduct that would be in violation of 37 C.F.R. §1.56, or its foreign equivalent, if applicable) was committed in the prosecution of any of the Product Patents owned by Seller.

(d) Except as set forth in Section 3.10(d) of the Seller Disclosure Schedule , to the Knowledge of Seller, none of the Product Trademarks, Product Copyrights or Product Domain Names is involved in any Proceeding.

(e) To the Knowledge of Seller, all maintenance fees, annuity fees or renewal fee payments have been timely paid, as and if applicable, for each of the Product Patents, Product Trademarks, Product Copyrights and Product Domain Names owned by the Seller.

(f) Except as set forth in Section 3.10(f) of the Seller Disclosure Schedule , there are no pending or, to the Knowledge of Seller, threatened Proceedings (i) based upon, challenging, or seeking to deny or restrict, the Seller’s (or, as applicable, any of its Affiliates’) use of any of the Product Intellectual Property, and/or (ii) alleging that the manufacture, use, sale, offer for sale, import, or export of the Products by Seller (or, as applicable, by any of its Affiliates), or the operation of the Product Business, infringes the rights of any Third Party in and to any Intellectual Property.

(g) To the Knowledge of Seller, no Third Party is engaging in any activity that infringes or misappropriates the Product Intellectual Property. Neither Seller nor its Affiliates has received any notice from any Third Party, under either the Hatch Waxman Act or the Biologics Price Competition and Innovation Act, asserting any position of non-infringement, invalidity or unenforceability of any of the Product Patents.

(h) Seller has taken all action reasonable and commensurate with industry best practices to protect, preserve and maintain the secrecy, confidentiality and value of the Product Trade Secrets and the Product Know-How

(i) To the Knowledge of Seller, no former or current employees and/or contractors of Seller or its Affiliates own, hold or possess, in their individual or any other capacities, any right, title or interest in and to any of the Product Intellectual Property.

(j) Except as set forth in Section 3.10(j) of the Seller Disclosure Schedule , neither Seller nor any of its Affiliates has licensed, granted, conveyed, transferred or assigned to any Third Party any right, title or interest in and to the Products, any of the Product Intellectual Property and/or the Product Business.

(k) Seller has advised Purchaser of all challenges and potential challenges involving Third Party IP Rights regarding the Products.

Section 3.11. Product Records . All material Product Records have been made available by Seller to Purchaser for examination and copying, and all Product Records (other than financial information pertaining to periods prior to January 1, 2013) are complete and correct in all material respects and have been maintained in accordance with reasonable industry standards.

Section 3.12. Brokers, Finders, etc . Other than VelocityHealth Securities, Inc., whose fees, commission and expenses are the responsibility of Seller and Purchaser in accordance with their respective agreements with VelocityHealth Securities, Inc., Seller has not employed any broker, finder, consultant or other intermediary in connection with the transactions contemplated by the Transaction Documents who would have a valid claim for a fee or commission from Purchaser in connection with such transactions by reason of any action taken by or on behalf of Seller.

Section 3.13. Financial Statements . Section 3.13 of the Seller Disclosure Schedule sets forth a copy of certain financial data for the periods sets forth therein related to (i) sales of the Products, (ii) sales prices of the Products, (iii) representative returns and allowances pertaining to the Products (using a blended rate of all of Cypress’ generics products in total as a sum as set forth on Section 3.13 of the Seller Disclosure Schedule ) , and (iv) cost of goods (including the costs of the active pharmaceutical ingredients) to Cypress (collectively, the “ Financial Data ”). The Financial Data was prepared by Seller in good faith from the Product Records, and fairly present, in all material respects, the financial condition and results of operations of the Product Business as of the date thereof and for the periods shown. At any given time since January 1, 2013, Seller did not sell to and load customers with inventory relating to the Products at materially higher-than-normal levels or offer special or hidden discounts or any other pricing adjustments which would have materially increased sales, or engage in any other activity which would have affected sales and profitability in a manner inconsistent with historical levels.

Section 3.14. Insurance . There are no material claims currently made against any of the insurance policies of Seller relating to the Products, the Product Business, no material impairment of the amounts of coverage required thereunder, and Seller has no Knowledge of any reasonable basis for any such claims. Seller has and will maintain sufficient product liability insurance after the Closing covering any Liability relating to Products sold prior to the Closing Date or the operation of the Product Business prior to the Closing Date (including claims where the Liability arose before the Closing and where the claim was made after the Closing).

Section 3.15. Regulatory Compliance . To the extent applicable to the Products in the Territory:

(a) To the Knowledge of Seller, the Products have been developed, labeled, stored, tested and distributed in compliance with all applicable requirements under the Federal Food Drug and Cosmetic Act 21 U.S.C. §§301 et. seq., its implementing regulations, and all similar Applicable Laws, including those relating to investigational use, premarket clearance and applications or abbreviated applications to market a new product, except for noncompliance which individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect.

(b) To the Knowledge of Seller, all pre-clinical and clinical investigations conducted by or on behalf of Seller with respect to the Products have been, and are being, conducted in compliance with all applicable recommendations, policy, and guidance issued by the FDA, 21 C.F.R. Parts 50, 54, 56, 58 and 312 and all other Applicable Laws, including those with respect to good laboratory practices, investigational new drug requirements, good clinical practice requirements (including informed consent and institutional review boards designed to ensure the protection of the rights and welfare of human subjects), and federal and state laws restricting the use and disclosure of protected health information, including but not limited the Health Institute Portability and Accountability Act (“ HIPAA ”), and regulations related to HIPAA, except for noncompliance which individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect.

(c) To the Knowledge of Seller, with respect to the Products (i) all manufacturing operations conducted for the benefit of Seller have been and are being conducted in compliance with the FDA’s current Good Manufacturing Practice regulations for drug products, including 21 C.F.R. Parts 210 and 211, and all similar Applicable Laws, including the Generic Drug User Fee Act (“GDUFDA”), 21 U.S.C. §379j-42, except for noncompliance which, individually or in the aggregate, would not have, or be reasonably likely to have, a Material Adverse Effect; and (ii) Seller is in compliance with all registration and listing requirements set forth in 21 U.S.C. §360 and 21 C.F.R. Part 207, and all similar Applicable Laws, except for noncompliance which individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect.

(d) Since August 1, 2012, no Product has been recalled, suspended or discontinued as a result of any action by the FDA or any other foreign Governmental Authority within the Territory, by Seller or by any licensee, distributor or marketer of the Product, within the Territory, or, to the Knowledge of Seller, outside of the Territory.

(e) Except as set forth in Section 3.15(e) of the Seller Disclosure Schedule , since August 1, 2012, Seller has not received any notice or other communication from the FDA or any other Governmental Authority alleging any violation of any Applicable Law applicable to any activity relating to the Product Business that is subject to the jurisdiction of FDA or any other Governmental Authority, nor has any Governmental Authority commenced, or threatened to initiate, any action to enjoin or place restrictions on the production of the Products.

(f) To the Knowledge of Seller, there are no facts, circumstances or conditions that would be sufficient to presently, or solely with the passage of time in the ordinary course of business, provide a reasonable basis for a recall, suspension or discontinuance of the Products.

(g) Seller is in compliance with 21 U.S.C. §355, 42 U.S.C. §262 and applicable FDA implementing regulations, including 21 C.F.R. Parts 312, 314, 600 and 601 and all similar Applicable Laws, except for any such failure or failures to be in compliance which individually or in the aggregate has not had and would not reasonably be expected to have a Material Adverse Effect. As to the Products, Seller and its officers, employees or agents have included in each applicable application, where required, the certification described in 21 U.S.C. §335a(k)(l) and each such certification was true, complete and correct in all material respects when made.

(h) With respect of the Products or of the Product Business, Seller has not committed any act, made any statement or failed to make any statement that would reasonably be expected to provide a basis for the FDA to invoke its policy respecting “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto, or any similar policy. Neither the Seller nor any of its officers, employees or agents has been convicted of any crime or engaged in any conduct with respect to the Product Business for which debarment is mandated by 21 U.S.C. §335a(a) or any similar Applicable Law or authorized by 21 U.S.C. §335a(b) or any similar Applicable Law.

(i) Seller has delivered to Purchaser or made available to Purchaser copies of all annual safety update reports prepared by Seller with respect to the Products.

(j) With respect to the Products which are under development by Seller or by a Third Party on behalf of Seller, except as set forth in Section 3.15(j) of the Seller Disclosure Schedule , as of the Agreement Date, and as the same will be revised as of the day prior to the Closing Date, to the Knowledge of Seller, there are no comments from, or demands or requests of, the Regulatory Authorities.

Section 3.16. No Other Warranties . Purchaser acknowledges that, except as expressly provided in the Transaction Documents, Seller has not made any other express or implied representation or warranty, either written or oral, and that Purchaser is not relying and has not relied on representations or warranties whatsoever regarding the subject matter of this Agreement, express or implied, except for the representations and warranties provided in the Transaction Documents.

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Seller as follows:

Section 4.1. Organization and Authority . Purchaser is a corporation duly organized, validly existing and in good standing under the laws of Florida. Purchaser has all requisite corporate power and authority to execute and deliver the Transaction Documents, and the transactions contemplated thereby, and effect the transactions contemplated thereby and has duly authorized the execution, delivery and performance of the Transaction Documents and transactions or documents contemplated thereby by all necessary corporate action. Purchaser has all requisite corporate power and authority necessary to carry on its business as is currently being conducted. The Transaction Documents will be upon the Closing, the valid and legally binding obligations of Purchaser, enforceable against it in accordance with their terms, subject to applicable bankruptcy moratorium, reorganization, insolvency and similar laws of general application relating to or affecting the rights and remedies of creditors generally and to general equitable principles (regardless of whether in equity or at law).

Section 4.2. Consents; No Violations .

(a) Except for all filings and other actions contemplated by the Transaction Documents (including the necessary transfer of filings, notices and approvals required to transfer the Regulatory Approvals from Seller to Purchaser), the execution, delivery and performance by Purchaser of the Transaction Documents and the consummation by Purchaser of the transactions contemplated thereby will not require any notice to, filing with, or the consent, approval or authorization of, any Person or Governmental Authority.

(b) Neither the execution and delivery of the Transaction Documents nor the consummation of the transactions contemplated thereby will (i) violate or result in a breach or result in the acceleration or termination of, or the creation in any Third Party of the right to accelerate, terminate, modify or cancel, any indenture, contract, lease, sublease, loan agreement, note or other obligation or liability to which Purchaser is a party or is bound, (ii) conflict with, violate or result in a breach of any provision of the organizational documents (including its certificate of incorporation and bylaws) of Purchaser, or (iii) conflict with or violate in any material respect Applicable Law.

Section 4.3. Brokers, Finders, etc . Other than VelocityHealth Securities, Inc., whose fees, commission and expenses are the responsibility of Seller and Purchaser in accordance with their respective agreements with VelocityHealth Securities, Inc. and The Chesapeake Group., whose fees, commission and expenses are the sole responsibility of Purchaser, Purchaser and its respective Affiliates have not employed any broker, finder, consultant or other intermediary in connection with the transactions contemplated by this Agreement and the Ancillary Agreements who would have a valid claim for a fee or commission from Seller in connection with such transactions by reason of any action taken by or on behalf of Purchaser.

Section 4.4. Financing . Purchaser will have funds sufficient to pay (i) the Closing Cash Payment on the Closing Date and (iii) the Deferred Payments, if and when applicable.

Section 4.5. Litigation . There are no lawsuits, claims or any civil, administrative or criminal actions, suits, or proceedings or governmental investigations existing, pending, or to the Knowledge of Purchaser, threatened, with respect to this Agreement or the transactions contemplated hereby. Purchaser is not subject to any decree or order of any Governmental Authority that would impair or delay its ability to perform its obligations under this Agreement or the Ancillary Agreements.

ARTICLE V.

COVENANTS OF SELLER PRIOR TO CLOSING

Section 5.1. Purchaser Access . Subject to Applicable Law and upon reasonable notice, Seller will, and will cause its Affiliates to, cooperate with the Purchaser and its authorized representatives (including legal counsel and independent accountants) to provide access at reasonable business hours prior to the Closing Date to the Product Records and will instruct its employees, counsel and other representatives to cooperate with the Purchaser in its investigation of the Purchased Assets; provided that any such access by the Purchaser shall not unreasonably interfere with the conduct of the business of Seller. On and after the Closing Date, Seller will afford the Purchaser and its authorized representatives (including legal counsel and independent accountants) reasonable access to its books of account, financial and other records, information, employees and auditors only to the extent necessary for the Purchaser to defend against, respond to or otherwise participate in any audit, investigation, dispute or litigation relating to the Purchased Assets; provided that any such access by the Purchaser shall not unreasonably interfere with the conduct of the business of Seller. The Purchaser will hold, and will use commercially reasonable efforts to cause its officers, directors, employees, accountants, counsel, consultants, advisors and agents to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of Applicable Law, all confidential documents and information concerning Seller or the Products, Purchased Assets or the Product Business made available to it pursuant to this Section 5.1 .

Section 5.2. Conduct of the Product Business Prior to Closing .

(a) Subject to Applicable Law or as contemplated by this Agreement or consented to in writing by the Purchaser, Seller shall, consistent with its conduct of the Product Business since January 1, 2013: (i) continue and conduct the Product Business in Seller’s ordinary and usual course of business, (ii) preserve intact the market for the Products and the goodwill associated with the Products and the Product Intellectual Property, (iii) preserve in full force and effect, and, other than in the ordinary course of business, not amend or alter, any Assumed Contract or any other Contracts that are material to the Product Business, (iv) not alter its marketing practices in respect of the Products in a manner intended to increase sales of Products prior to Closing, including the offering of incentives which are inconsistent with past practices, (v) sell the Products only in the ordinary course of business and at levels consistent with past practices for comparable periods of time and (vi) continue to maintain its relationships with suppliers, distributors, Customers and others having material business relationships with it related to the Product Business.

(b) Between the Agreement Date and the Closing, Seller shall maintain, at its cost, all Regulatory Approvals including (i) taking all actions, paying all fees and conducting all communication with the appropriate Governmental Authority required by Applicable Law in respect of the Regulatory Approvals, including preparing and filing all reports (including annual reports and adverse drug experience reports) with the appropriate Governmental or Regulatory Authority (whether a Product is sold before or after transfer of such Regulatory Approval) and responding to FDA deficiencies in connection with any Regulatory Approval, (ii) taking all actions and conducting all communication with third parties in respect of the Products sold pursuant to such Regulatory Approval (whether sold before or after transfer of such Regulatory Approval), including responding to all complaints in respect thereof, including complaints related to tampering or contamination, and (iii) investigating all complaints and adverse drug experiences in respect of the Products sold pursuant to such Regulatory Approval (whether sold before or after transfer of such Regulatory Approval), in each case, to the extent which is in the ordinary course of business during such period.

(c) Between the Agreement Date and the Closing, Seller shall not take any affirmative action which would reasonably be expected to (i) cause Seller to violate Section 5.1(a) , or (ii) have a Material Adverse Effect on the Product Business, or with, respect to (i) or (ii), refrain from taking any action which would be reasonably be expected to prevent such an event.

Section 5.3. Notice of Default . Between the Agreement Date and the Closing, Seller shall promptly notify Purchaser in writing if Seller becomes aware of any fact or condition that constitutes a breach of a representation, warranty or covenant of Seller under this Agreement. Any such notice or disclosure shall not be deemed to amend or supplement Seller’s disclosure under Article III or any schedule hereto, or to correct or cure any misrepresentation, breach of warranty or breach of covenant.

Section 5.4. No Negotiation . Seller shall not, and shall direct its representatives not to, directly or indirectly, initiate, solicit or knowingly encourage any Acquisition Proposal, or furnish any information to any other Person with respect to, or agree to or otherwise enter into, any Acquisition Proposal. Seller shall promptly notify Purchaser after receipt of any Acquisition Proposal or any request for information relating to the Purchased Assets or the Product Business by any Person who has informed Seller or any of its representatives that such Person is considering making, or has made, an Acquisition Proposal (which notice shall identify the Person making, or considering making, such Acquisition Proposal and shall set forth the material terms of any Acquisition Proposal received), and Seller shall keep Purchaser informed in reasonable detail of the terms, status and other pertinent details of any such Acquisition Proposal or request. Seller shall, and shall direct its representatives to, discontinue any solicitation efforts or negotiations with respect to or in furtherance of any Acquisition Proposal.

Section 5.5. Commercially Reasonable Efforts . Seller shall use commercially reasonable efforts to cause the conditions in Section 7.1 and 7.2 to be satisfied.

Section 5.6. Notice of Government Investigations . Between the Agreement Date and the Closing, Seller shall promptly notify Purchaser in writing if Seller has received any written or oral notice from the U.S. Department of Justice, the Office of the Inspector General or any other Governmental Authority that such Governmental Authority has commenced, threatened or intends to commence any action or investigation with respect to the Product Business.

Section 5.7. Assistance . Seller shall use commercially reasonable efforts to assist Purchaser that the matters set forth on Schedule 5.7 are satisfied as set forth on Schedule 5.7 and assist, where requested by Purchaser, with the amendments of the Assumed Contracts.

ARTICLE VI.

COVENANTS OF PURCHASER PRIOR TO CLOSING

Section 6.1. Notice of Default . Between the Agreement Date and the Closing, Purchaser, shall promptly notify Seller in writing if Purchaser becomes aware of any fact or condition that constitutes a breach of a representation, warranty or covenant of Purchaser under this Agreement. Any such notice or disclosure shall not be deemed to amend or supplement Purchaser’s disclosure under Article IV or any schedule hereto, or to correct or cure any misrepresentation, breach of warranty or breach of covenant

Section 6.2. Commercially Reasonable Efforts by Purchaser . Purchaser shall use commercially reasonable efforts to cause the conditions in Section 7.1 and 7.3 to be satisfied.

Section 6.3. Assistance . Purchaser shall use commercially reasonable efforts to assist Seller that the matters set forth on Schedule 5.7 are satisfied as set forth on Schedule 5.7 .

ARTICLE VII.

CLOSING AND TERMINATION

Section 7.1. Conditions Precedent to Obligations of the Parties . The respective obligations of Purchaser and Seller to consummate the transactions contemplated by this Agreement on the Closing Date are subject to the satisfaction or waiver at or prior to the Closing Date of the following conditions:

(a) No Injunction. No Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Applicable Law which is in effect on the Closing Date which would, and no Proceeding by any Governmental Authority shall have been threatened against any of the Parties or any of the officers or directors of any of them seeking to, prohibit, enjoin or restrain the consummation of the transactions contemplated by this Agreement to occur on the Closing Date or otherwise making such transactions illegal.

(b) Regulatory Authorizations. All material consents of Governmental Authorities shall have been obtained and shall be in full force and effect.

Section 7.2. Conditions Precedent to Purchaser’s Obligations . Purchaser’s obligations to consummate the transactions contemplated by the Transaction Documents shall be subject to the fulfillment of each of the following additional conditions, any one or more of which may be waived, at Purchaser’s sole discretion, in writing by the Purchaser:

(a) Representations and Warranties. The representations and warranties of Seller in Article III (i) shall have been accurate in all material respects on the Agreement Date and (ii) shall be accurate in all material respects on the Closing Date as if made on the Closing Date (except to the extent that any such representation or warranty is made as of a specified date, in which case such representation or warranty shall be accurate in all material respects as of such date), and Purchaser shall have received a certificate signed on behalf of Seller by an authorized officer of Seller to such effect.

(b) Performance. Seller shall have performed and complied in all material respects with all covenants contained in this Agreement that are required to be performed or complied with by it on or prior to the Closing, and Purchaser shall have received a certificate signed on behalf of Seller by an authorized officer of Seller to such effect.

(c) Removal of Liens. The liens listed on Section 3.2(b) of the Seller Disclosure Schedule in favor of MidCap Financial, LLC in accordance with that certain Amended and Restated MidCap Credit Agreement, dated May 8, 2013, by and between Pernix, Cypress, Macoven Pharmaceuticals, LLC, Pernix Manufacturing, LLC, Pernix Therapeutics, LLC, GTA GP, Inc., GTA LP, Inc., Gaine, Inc., Respicopea, Inc., Hawthorn Pharmaceuticals, Inc. and Pernix Sleep, as borrowers, and MidCap Financial, LLC, as administrative agent and lender, and additional lenders from time to time party thereto have been released and removed with respect to the Purchased Assets before the Closing.

(d) No Material Adverse Effect. Since the date of this Agreement, no Material Adverse Effect shall have occurred and be continuing.

(e) Assumed Contracts. To the extent required under any Assumed Contract ( Schedule 1.1(a) shall identify any such Assumed Contact), each Third Party to such Assumed Contract shall have consented in writing to the assignment of its respective Assumed Contract to Purchaser, substantially in the form attached hereto as Exhibit K .

(f) Closing Documents. Purchaser shall have received the documents set forth in Sections 2.7(a) - (m) . Such documents shall have been executed by the parties thereto and shall be in full force and effect.

Section 7.3. Conditions Precedent to Seller’s Obligations . Seller’s obligation to consummate the transactions contemplated hereby shall be subject to the fulfillment of each of the following additional conditions, any one or more of which may be waived, at Seller’s sole discretion, in writing by Seller:

(a) Representations and Warranties. The representations and warranties of Purchaser, contained in this Agreement shall have been accurate in all material respects on the date of this Agreement and shall be accurate in all material respects as of the Closing Date as if made on and as of the Closing Date (except to the extent that any such representation or warranty is made as of a specified date, in which case such representation or warranty shall be accurate in all material respects as of such date) and Seller shall have received a certificate signed on behalf of Purchaser by an authorized officer of Purchaser to such effect.

(b) Performance. Purchaser shall have performed and complied in all material respects with all covenants contained in this Agreement that are required to be performed or complied with by them on or prior to the Closing, and Seller shall have received a certificate signed on behalf of Purchaser by an authorized officer of Purchaser to such effect

(c) Closing Documents. Purchaser shall have executed and delivered to Seller the documents set forth in Sections 2.6(a) - (k) . Such documents shall have been executed by the parties thereto and shall be in full force and effect.

Section 7.4. Termination . This Agreement may be terminated:

(a) at any time before the Closing Date by mutual written consent of Purchaser and Pernix; or

(b) by Purchaser or Pernix, in writing, if the transactions contemplated hereby have not been consummated on or before September 16, 2013 (as such date may be extended pursuant to Section 10.6 ), provided that such failure is not due to the failure of the Party seeking to terminate this Agreement to comply in all material respects with its obligations under this Agreement, including the failure of the Party seeking to terminate this Agreement to satisfy its closing conditions set forth in this Article VII .

Section 7.5. Procedure and Effect of Termination . Upon termination of this Agreement by Purchaser or Seller pursuant to Section 7.4 , written notice thereof shall forthwith be given to the other Parties and this Agreement shall terminate, the transactions contemplated hereby shall be abandoned without further action by any of the Parties. Seller shall have the right to retain the Earnest Money Payment unless this Agreement is terminated in accordance with Section 7.4(b) because any of the closing conditions listed in Section 7.2(a) (Representation and Warranties), Section 7.2(b) (Performance), Section 7.2(c) (Removal of Liens) or Section 7.2(e) (Assumed Contracts) has not been fulfilled, in which case Seller shall return the Earnest Money Payment to Purchaser. Termination of this Agreement shall terminate all outstanding obligations and liabilities between the Parties arising from this Agreement except those described in: (i) this Section 7.5 , Article IX , and Section 10.1 ; (ii) the Confidentiality Agreement; and (iii) any other provisions of this Agreement which by their nature are intended to survive any such termination.

ARTICLE VIII.

CERTAIN OTHER COVENANTS

Section 8.1. Product Returns, Rebates and Chargebacks . Product Returns, Commercial Rebates and Chargebacks are to be processed by the Parties in accordance with the provisions of the Transition Service and Technology Transfer Agreement.

Section 8.2. Necessary Efforts; No Inconsistent Action . Subject to the other terms and conditions of this Agreement, including the conditions set forth in Article VII , the Parties shall, and shall cause their respective Affiliates to, use their respective commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary, proper or advisable under Applicable Law to consummate and make effective the transactions contemplated by the Transaction Documents and to use their respective commercially reasonable efforts to cause the conditions to each Party’s obligation to close the transactions contemplated hereby as set forth in Article VII to be satisfied, including all actions necessary to obtain all Consents and all waivers or terminations of applicable waiting periods required for the satisfaction of the conditions set forth in Section 7.1(b) , and all other Consents necessary in connection with the consummation of the transactions contemplated by the Ancillary Agreements; provided, however , that the foregoing provisions of this Section 8.2 shall not (i) require any Party to perform, satisfy or discharge any obligations of any other Party under this Agreement or otherwise or (ii) subject to the provisions of Section 2.9 , require any Party or its Affiliates to expend any money other than for filing fees or expenses or de minimus costs or expenses or agree to any restrictions in order to obtain any Consents. The Parties shall cooperate fully with each other to the extent necessary in connection with the foregoing

Section 8.3. Public Disclosures . Unless otherwise required by Applicable Law, the rules and regulations of any stock exchange or quotation services on which such Party’s stock is traded or quoted, no news release or other public announcement pertaining to the transactions contemplated by this Agreement will be made by or on behalf of a Party or its Affiliates without the prior written approval of the other Party (which approval shall not be unreasonably withheld, conditioned or delayed). If in the judgment of any Party such a news release or public announcement is required by Applicable Law or the rules or regulations of any stock exchange on which such Party’s stock is traded, the Party intending to make such release or announcement shall to the extent practicable use commercially reasonable efforts to provide prior written notice to the other Party of the contents of such release or announcement and to allow the other Party reasonable time to comment on such release or announcement in advance of such issuance. Purchaser acknowledges that Pernix will disclose a summary of the transaction contemplated herein, including the Purchase Price, in, and file a copy of this Agreement as an exhibit to, its filings made with the United States Securities and Exchange Commission in accordance with Applicable Law.

Section 8.4. Transitional Trademark License .

(a) As of the Closing Date and for a period of up to twenty-four months (24) months after the Closing Date, Seller hereby grants to Purchaser (or its Affiliates responsible for operating the Product Business after Closing or any Third Party manufacturers utilized by Purchaser in connection with the Product Business after the Closing Date), and Purchaser hereby accepts, a non-exclusive, non-transferable, non-sublicensable (except with respect to such Third Party manufacturers or Purchaser’s Affiliates), royalty-free, paid-up, license in the Territory under the Seller Marks, for use solely in connection with (i) Purchaser’s sale of the Inventory in the Territory, and (ii) Purchaser’s use of the Promotional Materials existing as of the Closing Date and transferred to Purchaser as part of the Purchased Assets, and (iii) the labeling on the Products manufactured by or on behalf of Purchaser as of and after the Closing; provided, however , that such license is being granted solely for transitional purposes and Purchaser shall therefore, notwithstanding the time period provided for above, use its commercially reasonable efforts to as quickly as is reasonably possible cease its use of the Seller Marks after the Closing, but in no event later than twenty-four (24) months after the Closing Date.

(b) To the extent that Purchaser is utilizing the transitional trademark license set forth in Section 8.4(a) , Purchaser shall not (i) add any marks to, or otherwise modify or alter, the Seller Marks as used in the Product Business as of the Closing Date (except as required by Applicable Law); (ii) change in any way the style of the Seller Marks as used in the Product Business as of the Closing Date; or (iii) otherwise use the Seller Marks in any manner other than as specifically provided in this Section 8.4 .

(c) Purchaser acknowledges Seller’s ownership of the Seller Marks, shall do nothing inconsistent with such ownership, and agrees not to challenge Seller’s title to the Seller Marks. Nothing in this Agreement shall give Purchaser any right, title or interest in the Seller Marks other than the right to use the Seller Marks strictly in accordance with this Section 8.4 . All use of the Seller Marks by Purchaser under this Section 8.4 shall conform to the standards followed by Seller in operating the Product Business prior to the Closing Date, and Seller shall have the right to review the standards used by Purchaser to operate the Product Business after the Closing Date to ensure Purchaser’s compliance with this requirement related to the Seller Marks.

(d) Purchaser shall not have the right to, and shall not, sublicense, assign, pledge, grant or otherwise encumber or transfer to any Third Party any rights licensed by Seller to Purchaser under Section 8.4(a) without Seller’s prior written consent. In addition to all other legal remedies, Seller shall be entitled to immediate injunctive relief in order to enforce the terms of this Section 8.4 .

(e) Nothing in this Section 8.4 , or any other provision of this Agreement or any provision of the Ancillary Agreements, shall grant the Purchaser any rights in any of Seller’s Internet domain names, registrations or applications for registration, or renewals thereof, registered in the United States or any other country or jurisdiction throughout the world, except as such Internet domain names, registrations or applications for registration, or renewals thereof are included as part of the Purchased Assets.

(f) Following the Closing, Purchaser shall promptly and at its own expense use commercially reasonable efforts to obtain such FDA approvals necessary for Purchaser Labeling for the Products to be manufactured after the Closing and, promptly comply with such FDA approvals upon receipt thereof.

Section 8.5. Customer Billing . In the event that Seller or any of its Affiliates receives payment after the Closing Date on invoices relating to the Product Business operated by the Purchaser or sales of products or services rendered by Purchaser on or after the Closing, Seller will promptly notify Purchaser of such receipt and will promptly remit, or will cause such Affiliate to promptly remit, such payment to Purchaser, and Seller, or such Affiliate, shall not be entitled to offset such payment against any payments due Seller from Purchaser. In the event Seller receives an invoice or request for payment relating to the operation of the Product Business on or after the Closing Date, or with respect to any Assumed Liability, Seller will promptly notify Purchaser of such request or invoice and forward the invoice and all other appropriate information to Purchaser for payment. In the event Purchaser or any of its Affiliates receive payment after the Closing Date on invoices issued by Seller relating to an Excluded Asset (such as Seller’s accounts receivable as of the Closing Date) or relating to product sold or services rendered by businesses other than the Product Business or the Purchased Assets, Purchaser will promptly notify Seller of such receipt and will promptly remit, or will cause such Affiliate to promptly remit, such payment to Seller without depositing such payment in an account of Purchaser, or such Affiliate, unless in error, and Purchaser, or such Affiliate, shall not be entitled to offset such payment against any payments due Purchaser from Seller.

Section 8.6. Cooperation .

(a) After the Agreement Date, the Parties shall cooperate reasonably with each other in connection with any reasonable actions required to be taken with respect to their respective obligations under this Agreement and the Ancillary Agreements, and shall (i) furnish upon reasonable request to each other such further information, and (ii) execute and deliver to each other such other reasonable documents, and (iii) do such other acts, all as the other Party may reasonably request for the purpose of carrying out the provisions of this Agreement (and the Ancillary Agreements) and the transactions contemplated hereby and thereby.

(b) The Parties will promptly notify each other in writing, of any event or fact which represents a material breach of any of their respective representations, warranties, covenants or agreements hereunder

(c) Not limiting the foregoing, from and after the Closing Date, subject to Applicable Law and upon reasonable notice, Purchaser will, and will cause its Affiliates to, cooperate with Seller and its authorized representatives (including legal counsel and independent accounts) to provide access at reasonable business hours (a) to the Product Records pertaining to Seller’s operation of the Product Business prior to the Closing Date for a period of three (3) years (or such longer period as shall be necessary with respect to any Tax period or other statutory period beginning prior to the Closing Date for which statute of limitations has not expired as of the end of such three-year period) and (b) to records relating to returns of Products after the Closing Date of Products sold prior to the Closing Date.

Section 8.7. Tax Matters .

(a) Seller and Purchaser shall provide reasonable cooperation and information to each other in connection with (i) the preparation or filing of any Tax Return, Tax election, Tax consent or certification, or any claim for a Tax refund, (ii) any determination of liability for Taxes and (iii) any audit, examination or other proceeding in respect of Taxes related to the Product Business. Seller and Purchaser shall make themselves (and their respective employees) reasonably available on a mutually convenient basis to provide an explanation of any documents or information provided under this Section 8.7(a) . Each of Seller and Purchaser shall retain all Tax Returns, work papers and all material records or other documents in its possession (or in the possession of its Affiliates) relating to Tax matters of the Product Business for any taxable period that includes the Closing Date and for all prior taxable periods until the later of (i) the expiration of the statute of limitations of the taxable period to which such Tax Returns and other documents relate, without regard to extensions, or (ii) six (6) years following the due date (without extension) for such Tax Returns. Prior to the expiration of such time, if Seller or Purchaser desires to retain any such documents in the other’s possession (or in the possession of the other party’s Affiliates), such party desiring to retain such document shall give notice to the other party at least ninety (90) days’ prior to the later of (i) the expiration of the statute of limitations of the taxable period to which such Tax Returns and other documents relate, without regard to extensions, or (ii) six (6) years following the due date (without extension) for such Tax Returns, requesting that such other party remove and retain all or any part of the such documents (at such party’s request). Any information obtained under this Section 8.7(a) shall be kept confidential pursuant to Section 10.1 , except as may be otherwise necessary in connection with the filing of Tax Returns, claims for a Tax refund or in conducting any audit, examination or other proceeding in respect of Taxes.

(b) Purchaser and Seller shall each be responsible for fifty percent (50%) of all sales, use, transfer, value added and other similar Taxes (the “ Transfer Taxes ”), if any, arising out of the transfer by Seller of the Purchased Assets to Purchaser pursuant to this Agreement, such Transfer Taxes to be paid when due, regardless of whether such Transfer Taxes are technically owed by Seller or Purchaser or any of their Affiliates. The party required by Applicable Law will file all necessary Tax Returns and other documentation with respect to all such Transfer Taxes, fees and charges, and if required by Applicable Law, the other party will join in the execution of any such Tax Returns and other documentation. Notwithstanding the foregoing, Seller shall have no responsibility for, and Purchaser will be solely responsible for, any value added Tax payable in connection with the sale, assignment, transfer, conveyance and delivery to Purchaser of the Inventory identified on Schedule 1.1(j) and the Products under the CMO Purchase Orders pursuant to Section 2.1(c) .

(c) Except as otherwise provided in Section 8.7(b) above relating to Transfer Taxes, Seller shall be responsible for and shall promptly pay when due all Taxes levied with respect to the Purchased Assets and Product Business attributable to the Pre-Closing Tax Period. All Taxes levied with respect to the Purchased Assets and Product Business for any Straddle Period shall be apportioned between the Pre-Closing Tax Period and the Post-Closing Tax Period, as follows:

(i) In the case of all real property, personal property, similar ad valorem Taxes and other Taxes which are not based upon or calculated in reference to gross or net receipts or income (collectively, “Property Taxes”) levied with respect to the Purchased Assets, such portion of the Property Taxes allocable to the Pre-Closing Tax Period shall be deemed to be the amount of such Property Taxes for the entire Straddle Period multiplied by a fraction the numerator of which is the number of days in the Tax period ending on the Closing Date and the denominator of which is the number of days in the entire Straddle Period. Similarly, the portion of Property Taxes allocable to the Post-Closing Tax Period shall be deemed to be the amount of such Property Taxes for the entire Straddle Period multiplied by a fraction the numerator of which is the number of days in the Tax period beginning on the date after the Closing Date and the denominator of which is the number of days in the entire Straddle Period. Seller shall be liable for the proportionate amount of such Property Taxes that is attributable to the Pre-Closing Tax Period, and Purchaser shall be liable for the proportionate amount of such Property Taxes that is attributable to the Post-Closing Tax Period.

(ii) In the case of any Tax based upon or related to income or receipts, the portion allocable to the Pre-Closing Tax Period shall be deemed equal to the amount which would be payable if the relevant Straddle Period ended on the Closing Date.

Upon receipt of any bill for such Taxes, Purchaser or Seller, as applicable, shall present a statement to the other setting forth the amount of reimbursement to which each is entitled under this Section 8.7(c) together with such supporting evidence as is reasonably necessary to calculate the proration amount. The proration amount shall be paid by the party owing it to the other within ten (10) days after delivery of such statement. In the event that Purchaser or Seller shall make any payment for which it is entitled to reimbursement under this Section 8.7(c) , the applicable party shall make such reimbursement promptly but in no event later than ten (10) days after the presentation of a statement setting forth the amount of reimbursement to which the presenting party is entitled along with such supporting evidence as is reasonably necessary to calculate the amount of reimbursement. Notwithstanding anything to the contrary in this Section 8.7(c) , if any charges or rates for any Property Taxes are assessed based upon usage of utility or similar services, such charges shall be determined based upon meter readings taken on the Closing Date. If the Closing occurs before the tax rate is fixed for the then current fiscal or calendar year, whichever is applicable, the proration of the corresponding Taxes shall be on the basis of the tax rate for the last preceding year applied to the latest assessed valuation.

(d) Purchaser and Seller agree and acknowledge that no withholding of Taxes is required under US or other Applicable Law with respect to any of the payments contemplated by Section 2.1 and that no payments under Section 2.1 shall be reduced by any withholding Taxes.

Section 8.8. Notice to Customers . Seller agrees to cooperate with Purchaser, at Purchaser’s reasonable request, in the notification to Customers of the transactions contemplated by this Agreement and Seller agrees not to notify any Customer of such transactions without the consent of Purchaser. Such notification shall be in such form as is reasonably satisfactory to both Purchaser and Seller as agreed to prior to Closing.

Section 8.9. Adverse Experience Reports . At a mutually agreed upon time after the Closing, Seller shall provide Purchaser with information relating to the investigation and reporting of all adverse experiences regarding the Products prior to the Closing and all other information which is materially relevant to the safe use of the Products in Seller’s possession as of the Closing. After the Closing, Seller shall promptly submit to Purchaser all adverse drug experience information or Customer complaints brought to the attention of Seller in respect of the Products, as well as any material events and matters concerning or affecting the safety or efficacy of the Products. After the Closing and after the time the appropriate Governmental Authorities are notified of the transfer of the applicable Regulatory Approvals, Purchaser shall have all responsibility for required reporting of adverse experiences for the Products.

Section 8.10. Regulatory Matters .

(a) Except as expressly set forth in Section 8.9 or the Transition Service and Technology Transfer Agreement, from and after the Closing, Purchaser, at its cost, shall be solely responsible and liable for (i) taking all actions, paying all fees and conducting all communication with the appropriate Governmental Authority required by Applicable Law in respect of the Regulatory Approvals, including preparing and filing all reports (including adverse drug experience reports) with the appropriate Governmental or Regulatory Authority (whether a Product is sold before or after transfer of such Regulatory Approval), (ii) taking all actions and conducting all communication with third parties in respect of the Products sold pursuant to such Regulatory Approval (whether sold before or after transfer of such Regulatory Approval), including responding to all complaints in respect thereof, including complaints related to tampering or contamination, and (iii) investigating all complaints and adverse drug experiences in respect of the Products sold pursuant to such Regulatory Approval (whether sold before or after transfer of such Regulatory Approval).

(b) From and after the Closing, and subject to Section 8.9 hereof and the Transition Service and Technology Transfer Agreement, Seller promptly (and in any event within the time periods required by Applicable Law) shall notify Purchaser within five (5) Business Days if Seller receives a complaint or a report of an adverse drug experience in respect of a Product. In addition, Seller shall cooperate with Purchaser’s reasonable requests and use commercially reasonable efforts to assist Purchaser in connection with the investigation of and response to any complaint or adverse drug experience related to a Product sold by Seller.

(c) From and after the Closing, Purchaser, at its cost, shall be solely responsible and liable for conducting all voluntary and involuntary recalls of units of a Product sold pursuant to such Regulatory Approval (whether sold before or after transfer of such Regulatory Approval), including recalls required by any Governmental Authority and recalls of units of a Product sold by Seller deemed necessary by Seller in its reasonable discretion; provided, however , that Seller shall reimburse Purchaser for any customer-related penalties and fees and for other reasonable expenses and costs of conducting recalls relating to a Product sold by or on behalf of Seller prior to the Closing, including the costs of notifying Customers, the costs associated with shipment of such recalled Product, the price paid for such Inventory, reasonable credits extended to Customers in connection with the recall, and Purchaser’s 10% Recall Processing Fee. Seller shall notify Purchaser promptly in the event that a recall of the Products sold by Seller is necessary.

(d) Seller shall, within fifteen (15) days after the Closing, notify the FDA of the transfer of the Regulatory Approvals to Purchaser in accordance with all Applicable Laws.

Section 8.11. Product Records . At the Closing, to the extent Seller has actual possession, Seller shall transfer to Purchaser, or if Seller does not have actual possession but is in a position to provide access, Seller shall provide Purchaser access to, the original copies of the Product Records and Assumed Contracts. Seller may retain one (1) archival copy of the Product Records and Assumed Contracts solely for archival purposes or as required by Applicable Law. Prior to delivering or making available any Product Records to Purchaser, Seller shall be entitled to redact therefrom any information that does not relate to the Product Business.

Section 8.12. Employees . There is no intent or agreement that any employee of Seller will terminate his or her employment with Seller and/or commence employment with Purchaser as a result of the transactions contemplated by this Agreement. Purchaser (on behalf of itself and its Affiliates) shall not solicit, induce or influence any employee of Pernix, Cypress, or their Affiliates to terminate his or her employment with Pernix, Cypress, or any of their Affiliates, as the case may be, and/or commence employment with Purchaser or its Affiliates.

Section 8.13. Non-Competition .

(a) Seller hereby covenants and agrees that, for a period of five (5) years from the Closing Date (the “ Restrictive Period ”), neither Seller nor any of its Affiliates or any of Seller’s Key-Employees (either alone or in collaboration with any Third Party) shall (i) launch, market, distribute, sell, offer to sell, import, export and/or commercialize any of the Products and/or any Competing Product anywhere in the Territory or (ii) engage in any aspect of the Product Business; provided that this Section 8.13(a) shall not apply to non-affiliated acquirers, successors or assigns of Seller or such non-affiliated Person’s Affiliates.

(b) Notwithstanding the provisions of Section 8.13(a) , none of Seller, its Affiliates or Seller’s Key Employees shall be restricted from doing any of the following: (i) acquiring any legal entity, division or business that derives less than 5% of its revenues from sales of a Competing Product within the Territory (or any legal entity, division or business that derives an amount equal to or in excess of 5% of its revenues from sales of a Competing Product within the Territory so long as Seller causes such legal entity to cease selling such Competing Product in the Territory (for the duration of the Restricted Period) within six (6) months from the date of acquisition), and thereafter owning, managing, operating or controlling such Person; (ii) owning up to 5% of the voting equity securities or any non-voting equity or debt securities of any legal entity whose securities are publicly traded on a national securities exchange or in the over-the-counter market and that derives more than 5% of its revenues from sales of a Competing Product within the Territory, (iii) owning any equity or debt securities through any employee benefit or pension plan, (iv) operating their business in substantially the same manner as operated prior to the Closing Date (other than with respect to the Product Business) or (v) after three (3) years from the Closing Date developing any Competing Products or filing any applications for regulatory approval, including new drug applications, abbreviated new drug applications, new drug submissions, and any comparable applications and submissions, with any Governmental Authority, with respect to any Competing Product, for any use, purpose, indication or treatment of any disease or disorder. Notwithstanding the provisions of Section 8.13(a) , none of the Key-Employees shall be restricted from being employed by a third party that manufactures a Competing Product as long as such Key-Employees owns, directly or indirectly, less than 5% of the voting equity securities or any non-voting equity or debt securities of such third party.

(c) Nothing in this Section 8.13 or in the Transaction Documents shall operate or be construed as a waiver, disclaimer, abridgment, abrogation or truncation of any of Purchaser’s, and/or any of its Affiliates’ rights, titles and/or interests in and to the Product Intellectual Property and/or in and to any Intellectual Property owned or licensed (as licensor or licensee) by Purchaser and/or any of its Affiliates. For the avoidance of doubt, nothing in this Section 8.13 or in the Transaction Documents shall operate or be construed as assigning, conveying, transferring or granting to Seller and/or any of its Affiliates any rights, titles, interests, licenses or authorities in and to any of the Product Intellectual Property and/or in and to any Intellectual Property owned or licensed (as licensor or licensee) by Purchaser and/or any of its Affiliates.

(d) Seller acknowledges that the restrictions contained in this Section 8.13 are reasonable and necessary to protect the legitimate interests of the Purchaser and constitute a material inducement to the Purchaser to enter into this Agreement and consummate the transactions contemplated hereby. Seller acknowledges that any violation of this Section 8.13 will result in irreparable injury to the Purchaser and agrees that the Purchaser shall be entitled to specific performance of Section 8.13 and consent to the entry thereof. Without limiting the generality of the foregoing, the Restricted Period shall be extended for an additional period equal to any period during which Seller is in breach of its obligations under this Section 8.13 .

(e) In order to receive the full benefit of the bargain under the Transaction Documents, the Parties hereto have knowingly and voluntarily entered into, and intend to be fully and legally bound to, the restrictive covenants of this Section 8.13 , including as to the defined territory, duration, and prohibited conduct set forth in this Section 8.13 . If any provision contained in this Section 8.13 shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Section 8.13 , but this Section 8.13 shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. It is the intention of the Parties that if any of the restrictions or covenants contained herein is held to cover a geographic area or to be for a length of time which is not permitted by Applicable Law, or in any way construed to be too broad or to any extent invalid, such provision shall not be construed to be null, void and of no effect, but to the extent such provision would be valid or enforceable under Applicable Law, a court of competent jurisdiction shall construe and interpret or reform this Section 8.13 to provide for a covenant having the maximum enforceable geographic area, time period and other provisions (not greater than those contained herein) as shall be valid and enforceable under such Applicable Law.

(f) Notwithstanding anything herein to the contrary, Purchaser agrees and acknowledges that Seller or any Third Party on behalf of Seller may with prior approval of Purchaser which shall not unreasonably be withheld, donate any inventory of the Products with less than twelve (12) months expiration dating remaining as of the Closing Date to an organization of Seller’s choosing, which donation shall not constitute a violation of this Section 8.13 or any other breach of any Transaction Document

Section 8.14. Seller’s Additional Covenants and Agreements .

(a) Seller hereby covenants and agrees that neither Seller nor any of its Affiliates (either alone or in collaboration with any Third Party) shall, at any time on or subsequent to the Closing Date, challenge or otherwise contest before any Governmental Authority or via any Proceeding (i) Purchaser’s right, title and interest in and to the Products, the Product Business, and the Product Intellectual Property, (ii) the validity and/or the enforceability of any of the Assumed Contracts and Product Intellectual Property, (iii) Purchaser’s right to seek and obtain any copyright, patent and/or trademark protection for the Products, the Product Business, and/or any of the Product Intellectual Property, (iv) the validity and/or the enforceability of any copyright(s), patent(s) and/or trademark(s) so obtained by Purchaser for the Products, the Product Business, and/or any of the Product Intellectual Property, (v) Purchaser’s right to retain any and all income, revenue, profit, royalties, damages, claims and payments attributable thereto, payable in connection therewith, or otherwise derived therefrom, without any duty to account to Seller (excepted as otherwise provided under this Agreement), (vi) Purchaser’s right to bring any and all causes of action, either in law or in equity, for past, present or future infringement of any of the Product Intellectual Property, (vii) Purchaser’s right to exploit the Product Intellectual Property for whatever purposes Purchaser shall elect to pursue, including improvements, combinations and analogies thereof and commercialization for new uses and indications or as otherwise restricted by the terms of this Agreement, and (viii) Purchaser’s right to any and all rights, titles and interests corresponding to the foregoing throughout the world.

(b) Seller hereby covenants and agrees that neither Seller nor any of its Affiliates (either alone or in collaboration with any Third Party) shall, at any time on or subsequent to the Closing Date (i) assist any Third Party in challenging or otherwise contesting Purchaser’s rights, titles in and to the Products, the Product Business, the Assumed Contracts, and/or any of the Product Intellectual Property, anywhere in the world, (ii) use any of the Product Intellectual Property (other than Product Know How) during the Restrictive Period, and/or (iii) obtain or assert during the Restrictive Period any right(s), title(s) or interest(s) to any patent, trademark or copyright relating to the Products, the Product Business and/or any of the Product Intellectual Property.

ARTICLE IX.

INDEMNIFICATION

Section 9.1. Indemnification .

(a) Subject to the terms and conditions of this Article IX , from and after the Closing, Seller shall indemnify, reimburse, defend and hold harmless Purchaser, its Affiliates and their respective officers, directors, managers, employees, stockholders, members, agents, successors and assigns (collectively, the “ Purchaser Indemnified Parties ”) from and against, and shall compensate and reimburse each Purchaser Indemnified Party, for any and all Losses incurred by such Purchaser Indemnified Party to the extent arising or resulting from:

(i) any inaccuracy or breach of any representation or warranty of Seller contained in this Agreement;

(ii) any breach of any covenant or agreement of Seller contained in this Agreement or in any of the Ancillary Agreements;

(iii) the failure of Seller or any of its Affiliates to pay, perform or discharge any Excluded Liabilities; or

(iv) to the extent not already covered by any of the forgoing (i) to (iii) any claims against Purchaser arising from or in connection with the investigation listed as item 2 on Section 3.5(b) of the Seller Disclosure Schedule ;

provided, however , that in no event Seller shall indemnify, reimburse defend or hold harmless Purchaser Indemnified Parties or otherwise be responsible for any Losses arising from claims challenging the title or ownership of the assets described in item 3 of Schedule 1.1(k) .

(b) Subject to the terms and conditions of this Article IX , from and after the Closing, Purchaser shall indemnify, reimburse, defend and hold harmless Seller, its Affiliates and their respective officers, directors, managers, employees, stockholders, agents, successors and assigns (collectively, the “ Seller Indemnified Parties ”) from and against, and shall compensate and reimburse each Seller Indemnified Party for, any and all Losses incurred by such Seller Indemnified Party to the extent arising or resulting from:

(i) any inaccuracy or breach of any representation or warranty of Purchaser, contained in this Agreement;

(ii) any breach of any covenant or agreement of Purchaser contained in this Agreement or in any of the Ancillary Agreements; or

(iii) the failure of Purchaser or any of its Affiliates to pay, perform or discharge any Assumed Liabilities.

(c) NOTWITHSTANDING THE FOREGOING, PURCHASER LOSSES AND SELLER LOSSES SHALL NOT INCLUDE, AND IN NO EVENT SHALL ANY PURCHASER LOSSES OR SELLER LOSSES BE RECOVERABLE UNDER THE TERMS OF THIS AGREEMENT TO THE EXTENT SUCH DAMAGES CONSIST OF CONSEQUENTIAL DAMAGES, PUNITIVE DAMAGES , SPECIAL DAMAGES OR EXEMPLARY DAMAGES, LOST PROFITS, INCIDENTAL DAMAGES, INDIRECT DAMAGES, UNREALIZED EXPECTATIONS, DAMAGES BASED ON ANY TYPE OF MULTIPLIER AND OTHER SIMILAR ITEMS (EXCEPT TO THE EXTENT ANY SUCH FOREGOING DAMAGES ARE AWARDED AGAINST ANY PURCHASER INDEMNIFIED PARTY OR SELLER INDEMNIFIED PARTY, AS THE CASE MAY BE, IN A THIRD-PARTY CLAIM); PROVIDED, HOWEVER, THAT THE THIS SECTION 9.1(c) SHALL NOT APPLY TO ANY SUCH FOREGOING DAMAGES ATTRIBUTABLE TO FRAUD OR INTENTIONAL MISCONDUCT.

Section 9.2. Certain Limitations . Notwithstanding anything to the contrary contained in this Agreement, each of the following limitations shall apply:

(a) Seller will not be required to indemnify Purchaser under Sections 9.1(a)(i) (other than Losses incurred as a result of any inaccuracy or breach of any representation or warranty contained in Sections 3.1 (Organization and Authority), 3.2(b) (Title to Purchased Assets), 3.9 (Tax Matters), 3.12 (Brokers, Finders, etc.), or attributable to fraud or intentional misconduct, as to which this Section 9.2(a) shall not apply), except to the extent that the cumulative amount of the Losses under Section 9.1(a)(i) incurred by the Purchaser Indemnified Parties exceeds Two Hundred Fifty Thousand Dollars (U.S. $250,000) (the “ Basket Amount ”) at which point Seller will be required to pay, and will have Liability for, an amount equal to the amount of the Losses under Section 9.1(a)(i) incurred by the Purchaser Indemnified Parties in excess of the Basket Amount.

(b) Purchaser will not be required to indemnify Seller under Section 9.1(b)(i) (other than Losses incurred as a result of any inaccuracy or breach of any representation or warranty contained in Sections 4.1 (Organization and Authority) or 4.3 (Brokers, Finders, etc.), or attributable to fraud or intentional misconduct, as to which this Section 9.2(b) shall not apply) except to the extent that the cumulative amount of the Losses under Section 9.1(b)(i) incurred by the Seller Indemnified Parties exceeds the Basket Amount at which point Purchaser will be required to pay, and will have Liability for, the cumulative amount of the Losses under Section 9.1(b)(i) incurred by the Seller’s Indemnified Parties in excess of the Basket Amount.

(c) In no event shall the aggregate out-of-pocket Liability of Seller for any Losses pursuant to Sections 9.1(a) exceed (i) Ten Million Dollars (U.S. $10,000,000) (the “ First Year Liability Cap ”) if the Indemnification Claim Notice is given on or before the first anniversary of the Closing, and (ii) Five Million Dollars (U.S. $5,000,000) (the “ Second Year Liability Cap ”) (the First Year Liability Cap and the Second Year Liability Cap, the “ Seller’s Liability Caps ”) if the Indemnification Claim Notice is given after the first anniversary of the Closing; provided , that Seller’s Liability Caps shall not apply to any (i) claims against Purchaser arising from or in connection with the investigation listed as item 2 on Section 3.5(b) of the Seller Disclosure Schedule and (ii) Losses incurred as a result of any inaccuracy or breach of any representation or warranty contained in Section 3.1 (Organization and Authority), Section 3.2(b) (Title to Purchased Assets), Section 3.9 (Tax Matters) and Section 3.12 (Brokers, Finders, etc.); and provided, further, that the Seller’s Liability Caps shall not apply to Losses attributable to fraud or intentional misconduct. Notwithstanding anything contained herein to the contrary, in no event shall the aggregate out-of-pocket Liability of Seller Indemnifying Parties for any Losses or any Liability hereunder exceed the Purchase Price.

(d) In no event shall the aggregate out-of-pocket Liability of Purchaser for any Losses pursuant to Sections 9.1(b)(i) exceed Two Million Dollars (U.S. $2,000,000); (the “ Purchaser’s Liability Cap ”); provided , that the forgoing Purchaser’s Liability Cap shall not apply to Losses incurred as a result of any inaccuracy or breach of any representation or warranty contained in Section 4.1 (Organization and Authority) or Section 4.3 (Brokers, Finders, etc.); and provided, further , that the Purchaser’s Liability Cap shall not apply to Losses attributable to fraud or intentional misconduct. Notwithstanding anything contained herein to the contrary, in no event, except with respect to Purchaser’s obligation to make payment on the Notes when due, shall the aggregate out-of-pocket Liability of Purchaser for any Losses or any Liability hereunder exceed Five Million Dollars (U.S. $5,000,000).

(e) In no event shall Seller or Purchaser have any Liability under Section 9.1(a)(i) , or 9.2(b)(i) , as the case may be, with respect to claims that are not properly asserted in writing prior to the date that is eighteen (18) months after the Closing Date; provided, however , that (i) claims for Losses incurred as a result of (A) claims against Purchaser arising from or in connection with the issue listed as item 2 on Section 3.5(b) of the Seller Disclosure Schedule and (B) any inaccuracy or breach of any representation or warranty contained in Sections 3.1 (Organization and Authority), 3.2(b) (Title to Purchased Assets), 3.9 (Tax Matters), 3.12 (Brokers, Finders, etc.), 4.1 (Organization and Authority) or 4.3 (Brokers, Finders, etc.), may be asserted at any time prior to expiration of the applicable statute of limitations and (ii) claims attributable to fraud or intentional misconduct, will have no expiration date.

(f) The representations and warranties made by each Party in this Agreement shall survive the Closing and shall expire eighteen (18) months after the Closing Date and any Liability of any Party with respect to such representations and warranties (other than Losses incurred as a result of any inaccuracy or breach of any representation or warranty contained in (i) Sections 3.1 (Organization and Authority), 3.2(b) (Title to Purchased Assets), 3.9 (Tax Matters), 3.12 (Brokers, Finders, etc.), 4.1 (Organization and Authority) and 4.3 (Brokers, Finders, etc.), which shall expire upon expiration of the applicable statute of limitations, or (ii) attributable to fraud or intentional misrepresentation, as to which no expiration date shall apply; provided, however, that if, at any time prior to such expiration date, notice of any case for indemnification pursuant to Section 9.1(a) or Section 9.1(b) , as the case may be, shall have been given prior to the applicable expiration date and such notice describes the circumstances with respect to which such indemnification claim relates, such indemnification claim shall survive until such time as such claim is finally resolved.

(g) Purchaser shall have the right to offset any and all unpaid indemnification claims of Purchaser Indemnified Parties against Purchaser’s payment obligations under the First Anniversary Note; provided that, to the extent Seller contest any indemnification claim, Purchaser shall pay the amount of such contested indemnification claim into an escrow account with a bank in New York as the escrow agent, which escrow shall be released to Seller when the indemnification claim is finally rejected or to Purchaser if the indemnification claim is finally decided in favor of the Seller or such other manner in which Seller and Purchaser mutually agree. The costs for such escrow agent shall be born by the losing Party.

Section 9.3. Procedures for Third Party Claims and Excluded Liabilities .

(a) General Procedures. Promptly (but in no event later than ten (10) days) after the receipt by any Indemnified Party of a notice of any Proceeding by any Third Party that may be subject to indemnification under this Article IX , including any Proceeding relating to any Excluded Liability or Assumed Liability, such Indemnified Party shall give written notice of such Proceeding to the Indemnifying Party, stating in reasonable detail the nature and basis of each claim made in the Proceeding and the amount thereof, to the extent known, along with copies of the relevant documents received by the Indemnified Party evidencing the Proceeding and the basis for indemnification sought. Failure of the Indemnified Party to give such notice shall not relieve the Indemnifying Party from liability on account of this indemnification, except if and only to the extent that the Indemnifying Party is actually prejudiced thereby. Thereafter, the Indemnified Party shall deliver to the Indemnifying Party, promptly after the Indemnified Party’s receipt thereof, copies of all notices and documents (including court papers) received the Indemnified Party relating to the Proceeding. The Indemnifying Party shall have the right to assume the defense of the Indemnified Party against the Third Party Claim upon written notice to the Indemnified Party delivered within thirty (30) days after receipt of the particular notice from the Indemnified Party; provided, however , that the Indemnifying Party shall not have the right to assume the defense of the Third Party Claim if such Third Party Claim (x) seeks as a remedy the imposition of an equitable remedy that is binding upon Purchaser, the Purchased Assets or the Assumed Liabilities or (y) the amounts of Losses would be reasonably expected to exceed the amounts for which the Indemnifying Party is obligated to indemnify. So long as the Indemnifying Party has assumed the defense of the Third Party Claim in accordance herewith and notified the Indemnified Party in writing thereof, (i) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim, it being understood that the Indemnifying Party shall pay all reasonable costs and expenses of counsel for the Indemnified Party after such time as the Indemnified Party has notified the Indemnifying Party of such Third Party Claim and prior to such time as the Indemnifying Party has notified the Indemnified Party that it has assumed the defense of such Third Party Claim, (ii) the Indemnified Party shall fully cooperate in the defense of any Third Party Claim, (iii) the Indemnified Party shall not file any papers or consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not to be unreasonably withheld, conditioned or delayed) and (iv) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim (other than a judgment or settlement that is solely for money damages in an amount less than the remaining balance of the limitations on indemnity set forth in Section 9.2 and is accompanied by a release of all indemnifiable claims against the Indemnified Party) without the prior written consent of the Indemnified Party (not to be unreasonably withheld, conditioned or delayed). Whether or not the Indemnifying Party shall have assumed the defense, such Indemnifying Party shall not be obligated to indemnify and hold harmless the Indemnified Party hereunder for any settlement entered into without the Indemnifying Party’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed.

(b) Equitable Remedies. In the case of any Third Party Claims where the Indemnifying Party reasonably believes that it would be appropriate to settle such claim using equitable remedies (i.e., remedies involving the future use of the Purchased Assets), the Indemnifying Party and the Indemnified Party shall work together in good faith to agree to a settlement; provided, however, that no Party shall be under any obligation to agree to any such settlement.

(c) Treatment of Indemnification Payments; Insurance Recoveries. Any payment made pursuant to the indemnification obligations arising under this Agreement shall be treated as an adjustment to the Purchase Price to the extent allowable under Applicable Law. If an indemnity payment for Losses pursuant to this Article IX results in an actually recognized Tax Benefit (as defined below) by the Indemnified Party after such payment is made, provided that the Indemnifying Party has made all required indemnity payments pursuant to this Agreement, Indemnified Party shall reimburse to the Indemnifying Party an amount equal to, at the election of the Indemnified Party, the Tax Benefit realized or the net present value (calculated at short term applicable federal rate) of the Tax Benefit likely to be realized by a party no later than fifteen (15) days after such Tax Benefit is realized or is reasonably calculable by such party. For purposes of this Agreement, a “ Tax Benefit ” means the reduction of Tax liabilities (calculated on the basis of the actual reduction in cash payments for Taxes) resulting from an increase in deductions, losses or Tax credits or decrease in the income, gain or recapture of Tax credits that the Indemnified Party or any subsidiary or other affiliated entity actually reported in any taxable period (or portions thereof) subsequent to the Closing Date. In determining Losses for purposes of this Agreement, the parties shall make appropriate reimbursements for Tax Benefits recognized by a party hereto as set forth herein and for insurance coverage to the extent of insurance proceeds actually received with respect to any indemnification claim, net of all costs and expenses incurred to collect such insurance. Any indemnity payment under this Agreement shall be decreased by any amounts actually received by the Indemnified Party under Third Party insurance policies with respect to such Damage prior to the time payment by the Indemnifying Party is due and payable under this Agreement (net of any premiums paid by such Indemnified Party under the relevant insurance policy and any costs incurred by such Indemnified Party in procuring such payment under such policy), each Party agreeing (i) to use commercially reasonable efforts to recover all available insurance proceeds and (ii) to the extent that any indemnity payment under this Agreement has been paid by the Indemnifying Party to or on behalf of the Indemnified Party prior to the receipt, directly or indirectly, by the Indemnified Party of any net insurance proceeds under Third Party insurance policies on account of such Loss which duplicate, in whole or in part, the payment made by the Indemnifying Party to or on behalf of the Indemnified Party, the Indemnified Party shall remit to the Indemnifying Party an amount equal to the amount of the net insurance proceeds actually received by the Indemnified Party on account of such Loss which duplicate, in whole or in part, the payment made by the Indemnifying Party to or on behalf of the Indemnified Party.

(d) In connection with any actual or threatened Third Party Claims by, or actual or threatened litigation or other disputes with, Third Parties relating to Assumed Liabilities or Excluded Liabilities, any such claims, litigation and disputes being referred to as “claims” for purposes of this Section 9.3(d), the Indemnified Party shall cooperate in the defense by the Indemnifying Party of such claim (and the Indemnified Party and the Indemnifying Party agree with respect to all such claims that a common interest privilege agreement exists between them), including, (i) permitting the Indemnifying Party to discuss the claim with such officers, employees, consultants and representatives of the Indemnified Party as the Indemnifying Party reasonably requests, (ii) permitting the Indemnifying Party to have reasonable access to the properties, books, records, papers, documents, plans, drawings, electronic mail, databases and computers of the Indemnified Party at reasonable hours to review information and documentation relative to the claim, (iii) providing to the Indemnifying Party copies of documents and samples of the Products as the Indemnifying Party reasonably requests in connection with defending such claim, (iv) permitting the Indemnifying Party to conduct privileged interviews and witness preparation of officers, employees and representatives of the Indemnified Party as the Indemnifying Party reasonably requests, (v) preserving all properties, books, records, papers, documents, plans, drawings, electronic mail and databases included in the Purchased Assets relating to matters relating to Excluded Liabilities (in the case of the Purchaser) and Assumed Liabilities (in the case of Seller) in accordance with such Party’s corporate documents retention policies, or longer to the extent reasonably requested by the other Party in connection with any actual or threatened action that would reasonably be expected to result in a claim for indemnification hereunder, (vi) promptly collecting documents and extracting information from documents for the Indemnifying Party’s review and use, as the Indemnifying Party reasonably requests, or allowing the Indemnifying Party’s representatives to do the same, (vii) notifying the Indemnifying Party promptly of receipt by the Indemnified Party of any subpoena or other Third Party request for documents or interviews and testimony, (viii) providing to the Indemnifying Party copies of any documents produced by the Indemnified Party in response to or compliance with any subpoena or other Third Party request for documents, and (ix) permitting the Indemnifying Party to conduct such other reasonable investigations and studies, and take such other actions, as are reasonably necessary in connection with the Indemnifying Party’s defense or investigation of such claim. In connection with any claims, except to the extent inconsistent with the Indemnified Party’s obligations under Applicable Law and except to the extent that to do so would subject the Indemnified Party or its employees, agents or representatives to criminal or civil sanctions, (1) unless ordered by a court to do otherwise, the Indemnified Party shall not produce documents to a Third Party until the Indemnifying Party has been provided a reasonable opportunity to review, copy and assert privileges covering such documents, (2) the transfer to the Indemnified Party by the Indemnifying Party of documents covered by the Indemnifying Party’s attorney/client or work product privileges shall not constitute a waiver of such privileges, (3) unless otherwise ordered by a court, the Indemnified Party shall withhold from production to any Third Party any documents as to which the Indemnifying Party asserts a privilege, (4) the Indemnified Party shall defend in court any such privilege asserted by the Indemnifying Party and (5) the Indemnified Party shall permit the Indemnifying Party to prepare any employees of the Indemnified Party required or requested to testify or otherwise be deposed or interviewed in connection with any claim and to be present during any such testimony or interviews.

Section 9.4. Certain Procedures . The Indemnified Party shall give the Indemnifying Party prompt written notice (an “ Indemnification Claim Notice ”) (but in no event more than thirty (30) days after discovery) of any Losses or discovery of fact upon which such Indemnified Party intends to base a request for indemnification under Section 9.1(a) or Section 9.1(b) ; provided, however, that failure to give such notice shall not relieve the Indemnifying Party of its obligations hereunder except to the extent it shall have been materially prejudiced by such failure. Each Indemnification Claim Notice must contain a reasonable description of the claim and the nature and amount of such Losses (to the extent the nature and amount of such Losses are known at such time). The Indemnified Party shall furnish promptly to the Indemnifying Party (but in no event more than thirty (30) days after discovery) copies of all papers and official documents received in respect of any Losses. All indemnification claims in respect of a Party, its Affiliates or their respective directors, stockholders, members, officers, managers, employees and agents shall be made solely by such Party to this Agreement.

Section 9.5. Remedies Exclusive . Following the Closing, with the exception of remedies based on fraud, the remedies set forth in this Article IX shall constitute the sole and exclusive remedy for money damages and shall be in lieu of any other remedies for money damages that may be available to the Indemnified Parties under any other agreement or pursuant to any statutory or common law with respect to any Losses of any kind or nature incurred directly or indirectly resulting from or arising out of any of this Agreement, the Purchased Assets, the Assumed Liabilities or the Excluded Liabilities (it being understood that nothing in this Section 9.5 or elsewhere in this Agreement shall affect the Parties’ rights to specific performance or other similar non-monetary equitable remedies with respect to the covenants referred to in this Agreement to be performed after the Closing). The Parties each hereby waive any provision of any Applicable Law to the extent that it would limit or restrict the agreement contained in this Section 9.5

ARTICLE X.

MISCELLANEOUS PROVISIONS

Section 10.1. Confidentiality .

(a) Reference is made to that certain confidentiality agreement dated March 20, 2013, by and between Seller and Purchaser (the “ Confidentiality Agreement ”). As used in this Section 10.1 , the term “ Evaluation Material ” shall have the meaning assigned to such term in the Confidentiality Agreement. Upon the Closing, the Confidentiality Agreement shall expire and be of no further force and effect with respect to all Evaluation Material relating to the Product Business, the Purchased Assets or the Assumed Liabilities, but all such Evaluation Materials shall thereafter be governed by the provisions of Section 10.1(b) ; provided, however , such expiration of the Confidentiality Agreement shall in no way prejudice or adversely affect Seller’s ability to seek damages, or any other remedy available to Seller, with respect to a violation by Purchaser (or its Affiliates or representatives) of the Confidentiality Agreement prior to or after the Closing. Upon and after the Closing, the Confidentiality Agreement shall remain in full force and effect pursuant to its terms with respect to all other Evaluation Material that does not relate to the Product Business, the Purchased Assets or the Assumed Liabilities.

(b) From and after the Closing, all information and all Evaluation Material relating to the Product Business, the Purchased Assets and the Assumed Liabilities shall constitute the “ Purchaser Confidential Information ” and shall be used by Seller solely as required to perform its obligations, exercise or enforce its rights under this Agreement (or any Ancillary Agreement), or comply with Applicable Law, and for no other purpose. Seller shall not disclose, or permit the disclosure of, any of the Purchaser Confidential Information to any Person except those Persons to whom such disclosure is necessary to permit Seller to perform its obligations, exercise or enforce its rights under this Agreement (or any Ancillary Agreement), or comply with Applicable Law. Seller shall treat, and will cause its Affiliates and the directors, officers, employees, agents, representatives and advisors of Seller or any of their Affiliates to treat, the Purchaser Confidential Information as confidential, using the same degree of care as Seller normally employs to safeguard its own confidential information from unauthorized use or disclosure, but in no event less than a reasonable degree of care.

(c) All confidential information obtained by Purchaser (or its respective Affiliates or representatives) from Seller (or its Affiliates or representatives) other than the Purchaser Confidential Information (the “ Seller Confidential Information ”) shall be used by Purchaser, solely as required to perform their respective obligations, exercise or enforce its rights under this Agreement (or any Ancillary Agreement), or comply with Applicable Law, and for no other purpose. Purchaser shall not disclose, or permit the disclosure of, any of Seller Confidential Information to any person except those persons to whom such disclosure is necessary to permit Purchaser to perform their respective obligations, exercise or enforce their respective rights under this Agreement (or any Ancillary Agreement), or comply with Applicable Law. Purchaser shall treat, and will cause its respective Affiliates and the directors, officers, employees, agents, representatives and advisors of Purchaser or any of its Affiliates to treat, Seller Confidential Information as confidential, using the same degree of care as Purchaser normally employs to safeguard its own confidential information from unauthorized use or disclosure, but in no event less than a reasonable degree of care.

(d) In the event any Party is requested pursuant to, or required by, Applicable Law to disclose any of any other Party’s Confidential Information (i.e., Seller Confidential Information or Purchaser Confidential Information, as applicable), it will notify the other Party in a timely manner so that such Party may seek a protective order or other appropriate remedy or, in such Party’s sole discretion, waive compliance with the confidentiality provisions of this Agreement; provided, however, that the foregoing shall not restrict the Seller from making any public disclosure in accordance with Section 8.3 .

(e) Each Party will co-operate in all reasonable respects, in connection with any reasonable actions to be taken for the foregoing purpose. In any event, the Party requested or required to disclose such Confidential Information may furnish it as requested or required pursuant to Applicable Law (subject to any such protective order or other appropriate remedy) without liability hereunder, provided that such Party furnishes only that portion of the Confidential Information which such Party is advised by a reasoned opinion of its counsel is legally required, and such Party exercises reasonable efforts to obtain reliable assurances that confidential treatment will be accorded such Confidential Information.

(f) Nothing in this Section 10.1 shall be construed as preventing or in any way inhibiting any Party from complying with Applicable Law governing activities and obligations undertaken pursuant to this Agreement, in any manner which it reasonably deems appropriate, including, for example, by disclosing to Governmental Authorities confidential or other information of the other Party.

Section 10.2. Notices . All notices, requests and other communications required or permitted under, or otherwise made in connection with, this Agreement, shall be in writing and shall be deemed to have been duly given (a) when delivered in person, (b) upon confirmation of receipt when transmitted by facsimile transmission, or (c) on the next Business Day if transmitted by national overnight courier (with confirmation of delivery), in each case, addressed as follows:

if to Seller, to:

Pernix Therapeutics Holdings, Inc.

884 Johnnie Dodds Blvd., Suite 201

Mt. Pleasant, South Carolina 29464

Phone: (832) 934-1825

Fax: (843) 723-0479

Attn: Michael C. Pearce, President and Chief Executive Officer

with copies (which shall not constitute notice) to:

Pernix Therapeutics Holdings, Inc.

33219 Forest West Drive

Magnolia, Texas 77354

Phone: (843) 654-7456

Fax: (281) 419-4009

Attn: Paul D. Aubert, General Counsel

and

Winstead PC

24 Waterway Avenue, Suite 500

The Woodlands, Texas 77380

Phone: (281) 681-5912

Fax: (281) 681-5901

Attn: William R. Rohrlich, II

if to Purchaser to:

Breckenridge Pharmaceutical, Inc.

60 E. 42nd Street, Suite 5210

New York, New York 10165

Phone: (646) 448-1300

Fax: (646) 448-1301

Attn: General Counsel

with copies (which shall not constitute notice) to:

Breckenridge Pharmaceutical, Inc.

1141 S. Rogers Circle, Suite 3

Boca Raton, Florida 33487

Phone: (561) 443-3314

Fax: (561) 989-0819

Attn: President

or to such other address or facsimile number as such Party may hereafter specify for the purpose by notice to the other parties hereto in accordance with the terms of this Section 10.2 .

Section 10.3. Bulk Transfers . Purchaser waives compliance with the provisions of all Applicable Laws relating to bulk transfers in connection with the transfer of the Purchased Assets.

Section 10.4. Remedies Cumulative; Specific Performance . The rights and remedies of the Parties shall be cumulative (and not alternative). The Parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions of this Agreement in addition to any other remedy to which they are entitled to at law or in equity, in each case without the requirement of posting any bond or other type of security.

Section 10.5. Further Assurances; Further Cooperation . Subject to the terms and conditions hereof, each of the Parties agrees to use commercially reasonable efforts to execute and deliver, or cause to be executed and delivered, all documents and to take, or cause to be taken, all actions that may be reasonably necessary or appropriate, in the reasonable opinion of counsel for each Party, to effectuate the provisions of this Agreement, provided that all such actions are in accordance with Applicable Law. From time to time, whether at or after the Closing, (i) Seller shall execute and deliver such further documents or instruments of conveyance, transfer and assignment and take all such other action, at Purchaser’s sole expense, as Purchaser may reasonably require to more effectively convey, transfer and assign to Purchaser any and all ownership, right, title and interest in and to the Purchased Assets, including executing documents or instruments necessary to permit Purchaser to record the transfer, conveyance and/or assignment of any and all Product Intellectual Property with any Governmental Authority and (ii) Purchaser will execute and deliver such further instruments and take all such other action, at Seller’s sole expense, as Seller may reasonably require to more effectively assume the Assumed Liabilities. Upon reasonable request and during normal business hours, Purchaser and Seller shall cooperate with each other, and shall cause their respective representatives and Affiliates to cooperate with each other, after the Closing to ensure the orderly transition of the Purchased Assets and Assumed Liabilities to Purchaser and to minimize any disruption to the businesses of Seller and Purchaser that might result from the transactions contemplated hereby.

Section 10.6. Amendments and Waivers .

(a) Any provision of this Agreement may be amended or waived but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each Party to this Agreement or, in the case of a waiver, by the Party against whom the waiver is to be effective. No waiver by any Party hereto of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement or any future occasions.

(b) No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by Applicable Law.

Section 10.7. Expenses . Except as otherwise provided herein, all costs and expenses incurred in connection with this Agreement, including all third-party legal, accounting, financial advisory, consulting or other fees and expenses incurred in connection with the transactions contemplated hereby, shall be paid by the Party incurring such cost or expense.

Section 10.8. Binding Effect; Benefit; Assignment .

(a) The provisions of this Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and assigns. Except as provided under this Agreement, no provision of this Agreement is intended to confer any rights, benefits, remedies, obligations or liabilities hereunder upon any Person other than the Parties and their respective successors and assigns.

(b) Neither this Agreement nor any right, interest or obligation hereunder may be assigned by any Party hereto (other than to an Affiliate of the Party) without the prior written consent of the other Party hereto (which consent shall not be unreasonably withheld) and any attempt to do so will be void; provided, however, that after the Closing, such prior written consent will not be required with respect to any assignment by any Party (a) to an Affiliate of such Party so long as such Party remains bound by the terms hereof, or (b) in connection with a reorganization, merger, statutory share exchange, consolidation or similar change of control transaction involving the Seller or sale or transfer of all or substantially all of the assets of Seller, or, in the case of Purchaser, a sale or transfer, regardless of form, involving all or substantially all of the assets associated with the Product Business. Except with respect to Section 8.13(a) of this Agreement which shall not apply to non-affiliated acquirers, successors or assigns of Seller, and except with respect to Section 8.13(b) of this Agreement which shall not apply to non-affiliated successors or assigns of Purchaser, this Agreement is binding upon, inures to the benefit of and is enforceable by the Parties hereto and their respective successors and permitted assigns. For the avoidance of doubt, all obligations pursuant to Section 8.13(a) shall automatically and immediately terminate and cease to be enforceable against any non-affiliated acquirer, successor or assign of Seller and all obligations pursuant to Section 8.13(b) shall automatically and immediately terminate and cease to be enforceable against any non-affiliated acquirer, successor or assign of Purchaser. Any attempt to assign this Agreement in violation of this Section 10.8(b) shall be void. Subject to this Section 10.8(b) , any permitted assignee shall assume all obligations of its assignor under this Agreement pursuant to a written instrument reasonably acceptable to the other Parties. In addition, nothing in this Agreement shall preclude Purchaser from providing its lenders with a security interest in its rights under this Agreement in accordance with the terms of their security and collateral agreements in connection with any credit facility provided by such lenders to Purchaser or preclude such lenders from foreclosing upon such security interest in accordance with the terms of such security and collateral agreements (including by means of the sale of the assets or stock of Purchaser to a Third Party including Purchaser’s rights and responsibilities under this Agreement), and any such action by such lenders shall not be deemed to be a change of control for purposes of this Agreement.

(c) Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the Parties and their respective successors and permitted assigns any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

Section 10.9. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts of laws that would require the application of the laws of any other jurisdiction.

Section 10.10. Arbitration .

(a) With respect to any dispute, controversy or claim arising from or related to this Agreement, or the validity, enforceability, breach, or termination thereof (“ Dispute ”), such Dispute shall first be referred to an executive officer from each Party for attempted resolution by good faith negotiations. Any such Dispute shall be submitted to such senior executives no later than thirty (30) days following such request by any Party. Such executives shall attempt in good faith to resolve any such Dispute within thirty (30) days after the submission of the Dispute. In the event the executives are unable to resolve the Dispute, the Parties shall otherwise negotiate in good faith and use reasonable efforts to settle. If the Parties do no fully settle, and a Party wishes to pursue the matter, each such Dispute shall be finally resolved by binding arbitration in accordance with the Commercial Arbitration Rules and Supplementary Procedures for Large Complex Disputes of the American Arbitration Association (“ AAA ”), and judgment on the arbitration award may be entered in any court having jurisdiction thereof.

(b) The arbitration shall be conducted by a panel of three (3) persons experienced in the pharmaceutical business: within thirty (30) days after initiation of arbitration, each of Purchaser and Seller shall select one person to act as arbitrator and the two selected arbitrators shall select a third arbitrator within thirty (30) days of their appointment. If the arbitrators selected by Purchaser and Seller are unable or fail to agree upon the third arbitrator, the third arbitrator shall be appointed by the AAA. The place of arbitration shall be Chicago, Illinois, and all proceedings and communications shall be in English.

(c) Any Party may apply to the arbitrators for interim injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved. Any Party also may, without waiving any remedy under this Agreement, seek from any court having jurisdiction any injunctive or provisional relief necessary to protect the rights or property of that Party pending the arbitration award. The arbitrators shall have no authority to award punitive or any other type of damages not measured by a Party’s compensatory damages. Each Party shall bear its own costs and expenses and attorneys’ fees and an equal share of the arbitrators’ fees and any administrative fees of arbitration.

(d) Except to the extent necessary to confirm an award or as may be required by law, no Party nor an arbitrator may disclose the existence, content, or results of an arbitration without the prior written consent of each Party. In no event shall an arbitration be initiated after the date when commencement of a legal or equitable proceeding based on the dispute, controversy or claim would be barred by the applicable New York statute of limitations.

Section 10.11. Counterparts; Effectiveness . This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each Party shall have received a counterpart hereof signed by the other Party. Until and unless each Party has received a counterpart hereof signed by the other Party hereto, this Agreement shall have no effect, and no Party shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication). The exchange of a fully executed Agreement or any Ancillary Agreement (in counterparts or otherwise) by electronic transmission in .PDF format or by facsimile shall be sufficient to bind the Parties to the terms and conditions hereof and thereof.

Section 10.12. Entire Agreement . This Agreement, the Ancillary Agreements, the Confidentiality Agreement and each of the documents, instruments and agreements delivered in connection with the transactions contemplated by this Agreement, including each of the Exhibits, the Annexes, the Schedules, and the Seller Disclosure Schedule, constitute the entire agreement between the Parties with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both oral and written, between the Parties with respect to the subject matter of this Agreement.

Section 10.13. Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other Governmental Authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such a determination, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

Section 10.14. Time is of the Essence . Time is of the essence with respect to the performance of this Agreement.

(Signatures Pages Follow)

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed and delivered as of the date first written above.

PURCHASER:

	BRECKENRIDGE PHARMACEUTICAL, INC.

	By:	/s/ Laurence D. Runsdorf
	Name:	Laurence D. Runsdorf
	Title:	President

	By:	/s/ Larry J. Lapila
	Name:	Larry J. Lapila
	Title:	Executive Vice President


SELLER:

	CYPRESS PHARMACEUTICALS, INC.

	By:	/s/ Michael C. Pearce
	Name:	Michael C. Pearce
	Title:	President and Chief Executive Officer


	PERNIX THERAPEUTICS HOLDINGS, INC.

	By:	/s/ Michael C. Pearce
	Name:	Michael C. Pearce
	Title:	President and Chief Executive Officer

May 10, 2013

Dear Mr. Collins:

We are pleased to extend an offer of continued employment to you with Pernix Therapeutics Holdings, Inc. (the “Company”). You are being offered a full-time position as Chief Strategic Officer . You will be expected to work on a full time basis, which is generally construed to mean forty (40) hours per week at our primary corporate office in The Woodlands, Texas, and you will be compensated on a semi-monthly basis, on the 15 th and last day of each month. You will report directly to the CEO of the Company. Your compensation package is as follows:

●	Base salary will be set at $295,000 annually.

●	Monthly car allowance of $750 to be reduced or increased from time to time as executive management deems appropriate.

●	You initially will be eligible for four weeks of vacation time per year.

●	After six months after the date of this letter, if you and the CEO agree that you will work half-time, your base salary will be reduced in half.

You will be hired as an at-will employee. If you are terminated without Cause (as defined below) or resign with Good Reason (as defined below), you will (i) be eligible to receive severance equal to your then-current base salary payable in equal installments over a one year period beginning with the first regular payroll date following such termination and continuing thereafter at such intervals as other salaried employees are paid for one year and (ii) be eligible for health insurance coverage for you and your eligible family members for such one year period. “Cause” shall consist of: (i) fraud, libel, slander or any other willful and deliberate act by you that is damaging to the Company’s relationships with its customers or suppliers, including, without limitation, (A) use of alcohol or illegal drugs such as to interfere with the performance of your obligations hereunder, and (B) conviction of, or entry of a plea of guilty or no contest to, a felony or any crime involving moral turpitude, dishonesty, or theft; (ii) your failure to comply with applicable laws or governmental regulations with respect to the Company’s operations or the performance of your duties; or (iii) your failure to perform the reasonable duties and responsibilities typically associated with your position as Chief Strategic Officer. “Good Reason” shall consist of (i) a material diminution in your base compensation; (ii) a material diminution in your authority, duties or responsibilities; (iii) a material diminution in the authority, duties or responsibilities of the supervisor to whom you are required to report; (iv) a material change in the geographic location at which you must perform your duties; or (v) any other action or inaction that constitutes a material breach by the Company under this letter agreement. You have the option to receive the severance payments described above for up to one year as long as you are not directly competing with the Company in a manner materially detrimental to the Company’s operations at such time. You also agree that you will keep the Company’s confidential information confidential during such time.

You will continue to be eligible for health insurance, dental insurance, life, short term and long term disability insurance. Medical and dental insurance is available for your dependents as well. Currently, Pernix will pay your family insurance premium for these benefits with no contribution required from you. However, this benefit level could change in the future requiring an employee contribution, provided that you will not receive benefits less than others at comparable levels of responsibility. You are eligible for our 401k plan upon completion of the requirements listed in the Employee Handbook. Please read, sign and return the acknowledgement located on the last page of the handbook. (Provided separately).

Under the Immigration Reform and Control Act (IRCA), our company is required to verify the identity and work authorization of all newly hired employees. Therefore, you may be required to complete the I-9 form upon hire. Within three business days of beginning employment, you will need to supply acceptable documentation (as noted on the enclosed I-9 form) of your identity and work authorization.

Page 1 of 3

OUR COMPANY ADHERES TO A POLICY OF EMPLOYMENT-AT-WILL WHICH ALLOWS EITHER PARTY TO TERMINATE THE EMPLOYMENT RELATIONSHIP AT ANY TIME, FOR ANY REASON, WITH OR WITHOUT CAUSE OR NOTICE.

Your official employment in this capacity begins on May 10, 2013 and you will receive your first paycheck in the usual course of business.

Sincerely,

/s/Michael Pearce

Michael Pearce

Chairman and CEO

And

/s/James Smith

James Smith

Chairman of the Compensation Committee

Page 2 of 3

I have read and accept the terms of this employment offer from Pernix Therapeutics.

ACKNOWLEDGEMENT

/s/Cooper C. Collins

Cooper C. Collins

Page 3 of 3

May 10, 2013

Dear Mr. Pearce:

Position Offered; Duties . We are pleased to extend an offer of employment to you with Pernix Therapeutics Holdings, Inc. (the “Company”). You are being offered a full-time position as Chief Executive Officer . You will be expected to work on a full time basis, which is generally construed to mean forty (40) hours per week, and you will be compensated on a semi-monthly basis, on the 15 th and last day of each month. You will be expected to provide services typically provided by a Chief Executive Officer of a publicly traded company doing the business conducted by Pernix Therapeutics Holdings, Inc. and all of its subsidiaries (collectively, “Pernix”), and such other duties and responsibilities as may from time to time be assigned by the Company’s Board of Directors (the “Board”). You will report directly to the Board. You will be considered an executive officer for purposes of Section 16 of the Securities Exchange Act of 1934.

Compensation. Your compensation package is as follows:

●	Base salary will be set at $350,000 annually.

●	Grant of a restricted stock award of 250,000 shares of the Company’s common stock on the first day of your employment pursuant to the Company’s equity incentive plan. These restricted shares vest in three equal installments starting with the first anniversary of the execution of this letter.

●

Grant of an option to purchase 250,000 shares of the Company’s common stock on the first day of your employment pursuant to the Company’s equity incentive plan. These options vest in three equal installments starting with the first anniversary of the execution of this letter. Both the stock award and the option are granted pursuant to the Company’s equity incentive plan which provides for acceleration of vesting upon a change of control as defined in such plan.

Stock Purchase Obligation. In connection with your employment, you agree to purchase 250,000 shares of the Company’s common stock under a 10b5-1 plan to be established as soon as practicable after your first day of employment.

At-Will; Severance. You will be hired as an at-will employee. If you are terminated by the Company or you resign for Good Reason, all restrictions on exercise relating to any equity awards will lapse, and all of your equity awards will otherwise vest. If you are terminated by the Company or resign with Good Reason, your options will remain exercisable for the remaining term of the option.

“Good Reason” shall consist of (i) a material diminution in your base compensation; (ii) a material diminution in your authority, duties or responsibilities; (iii) a material change in the geographic location at which you must perform your duties; or (iv) any other action or inaction that constitutes a material breach by the Company under this letter agreement.

Confidentiality. Both during and after the term of your employment, you will adhere to the Company’s policy on keeping confidential the Company’s confidential information.

Additional Benefits. You will be eligible for health insurance, dental insurance, life, short term and long term disability insurance on the first day of the month following one month of consecutive employment. Medical and dental insurance is available for your dependents as well. Currently, Pernix will pay your family insurance premium for these benefits with no contribution required from you. However, this benefit level could change in the future requiring an employee contribution, provided that you will not receive benefits less than others at comparable levels of responsibility. You are eligible for our 401k plan upon completion of the requirements listed in the Employee Handbook. Please read, sign and return the acknowledgement located on the last page of the handbook. (Provided separately).

Immigration. Under the Immigration Reform and Control Act (IRCA), our company is required to verify the identity and work authorization of all newly hired employees. Therefore, you may be required to complete the I-9 form upon hire. Within three business days of beginning employment, you will need to supply acceptable documentation (as noted on the enclosed I-9 form) of your identity and work authorization.

EMPLOYMENT AT-WILL. OUR COMPANY ADHERES TO A POLICY OF EMPLOYMENT-AT-WILL WHICH ALLOWS EITHER PARTY TO TERMINATE THE EMPLOYMENT RELATIONSHIP AT ANY TIME, FOR ANY REASON, WITH OR WITHOUT CAUSE OR NOTICE.

Drug Screening. As with all potential employees, you will undergo a background check and you will be required to take a drug screening test which will be conducted in accordance with applicable federal, state and local laws. Your employment is contingent on successful completion of your drug screening and background checks.

Your employment under the terms of this letter begins upon our receipt of your signature to this letter and to Exhibit A attached hereto. If you have any questions concerning the above details, please contact me immediately at (800) 793-2145, x-3004.

Sincerely,

PERNIX THERAPEUTICS HOLDINGS, INC.

/s/James Smith

James Smith, Chairman of the Compensation Committee

I have read and accept the terms of this employment offer from Pernix Therapeutics Holdings, Inc.

AGREED TO AND ACKNOWLEDGED

THIS 10 th DAY OF MAY, 2013:

/s/Michael Pearce

Michael Pearce

July 19, 2013

Dear Ms. Clifford.

Your compensation is changed as follows:

If you are terminate without Cause (as defined below), or you resign with Good Reason, (i) you will receive severance equal to your then-current annual base salary payable in equal installments over a one year period beginning with the first regular payroll date following such termination and continuing thereafter at such intervals as other salaried employees are paid for one year.

“Cause” shall consist of (i) fraud, libel, slander or any other willful and deliberate act by you that is damaging to the Company’s relationships with it customers or suppliers, including, without limitation, (A) use of alcohol or illegal drugs such as to interfere with the performance of your obligations hereunder, and (B) conviction of, or entry of a plea of guilty or no contest to, a felony or any crime involving moral turpitude, dishonesty, or theft; (ii) your failure to comply with applicable laws or governmental regulations with respect to the Company’s operations or the performance of your duties; or (iii) your failure to perform the reasonable duties and responsibilities typically associated with your position. “Good Reason” shall consist of (i) a material diminution in your base compensation; (ii) a material diminution in the authority, duties, or responsibilities of the supervisor to whim you are required to report, (iii) a change in your work location from the Charleston/Mount Pleasant area; or (iv) any other action or inaction that constitutes a material breach by the Company under this letter agreement.

If you are terminated without Cause or resign with Good Reason, then in addition to receiving the above you will receive the following: (i) you will be paid the equivalent of the current premiums of the family insurance coverage for a period of one year, and (ii) all restrictions on exercise relating to any equity awards will lapse, and all of your equity awards will otherwise vest. If you are terminated without Cause or resign with Good Reason, your options will remain exercisable for the remaining term of the option.

Both during and after the term of your employment, you will adhere to the Company’s policy on keeping confidential the Company’s confidential information.

All other aspects of your employment and compensation remain the same.

Sincerely,

PERNIX THERAPEUTICS HOLDINGS, INC.

/s/James Smith

James Smith, Chairmen of the Compensation Committee

I have read and accept the terms of this employment offer from Pernix Therapeutics Holdings, Inc.

AGREED TO AND ACKNOWLEDGED

THIS 19th DAY OF July, 2013:

/s/Tracy Clifford

Tracy Clifford

I, Michael C. Pearce, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Pernix Therapeutics Holdings, Inc.;

2. Based on my knowledge, this quarterly 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 quarterly 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 quarterly report;

4. The Registrant’s other certifying officer 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 quarterly 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 quarterly 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 this report any change in the 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, including any corrective actions with regard to significant deficiencies and material weaknesses; and

5. The Registrant’s other certifying officer 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.


August 9, 2013		/s/ MICHAEL C. PEARCE
		Michael C. Pearce
		Chief Executive Officer and President

I, Tracy S. Clifford, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Pernix Therapeutics Holdings, Inc.;

(d) Disclosed in this quarterly report any change in the 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, including any corrective actions with regard to significant deficiencies and material weaknesses; 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.

August 9, 2013		/s/ TRACY S. CLIFFORD
		Tracy S. Clifford
		Principal Financial Officer and Principal Accounting Officer

CERTIFICATION UNDER SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies that this periodic report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and that information contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of Pernix Therapeutics Holdings, Inc. for the periods covered by this periodic report.

Date: August 9, 2013		/s/ MICHAEL C. PEARCE
		Michael C. Pearce
		Chief Executive Officer and President

Date: August 9, 2013		/s/ TRACY S. CLIFFORD
		Tracy S. Clifford
		Principal Financial officer and Principal Accounting Officer