Urigen Pharmaceuticals, Inc. - Annual Report: 2008 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, DC
20549
FORM 10-K
ý
Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For
the fiscal year ended June 30, 2008
Commission
File Number 0-22987
Urigen
Pharmaceuticals, Inc.
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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94-3156660
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(State
or Other Jurisdiction of Incorporation or
Organization)
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(IRS
Employer Identification No.)
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875
Mahler Road, Suite 235, Burlingame, CA
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94010
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(650) 259-0239
(Registrant’s
Telephone Number Including Area Code)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: Common Stock, Par Value
$.001
Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange
Act. Yes o
No
x
Indicate
by check mark whether the registrant (1) has filed all reports required by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ý No o
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.
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Large
accelerated filer
o
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Accelerated
filer
o
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Non-accelerated
filer
o
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(Do
not check if a smaller reporting company)
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Smaller
reporting company
ý
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o
No ý
The
number of outstanding shares of the registrant’s common stock, $0.001 par value,
was 69,669,535 as of October 13, 2008.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
1
URIGEN
PHARMACEUTICALS, INC.
FOR
THE YEAR ENDED JUNE 30, 2008
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Page
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PART I
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Item
1
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Business
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3
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Item
1A
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Risk
Factors
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14
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Item
1B
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Unresolved
Staff Comments
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28
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Item
2
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Properties
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28
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Item
3
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Legal
Proceedings
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28
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Item
4
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Submission
of Matters to a Vote of Security Holders
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28
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PART II
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Item
5
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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28
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Item
6
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Selected
Financial Data
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30
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Item
7
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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31
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Item
7A
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Quantitative
and Qualitative Disclosures About Market Risk
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37
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Item
8
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Financial
Statements and Supplementary Data
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37
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Item
9
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
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37
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Item
9A(T)
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Controls
and Procedures
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38
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Item
9B
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Other
Information
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39
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PART III
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Item
10
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Directors
and Executive Officers of the Registrant
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40
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Item
11
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Executive
Compensation
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45
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Item
12
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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48
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Item
13
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Certain
Relationships and Related Transactions, and Director
Independence
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49
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Item
14
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Principal
Accountant Fees and Services
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50
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PART IV
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Item
15
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Exhibits
and Financial Statement Schedules
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51
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SIGNATURES
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52
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2
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ITEM
1.
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BUSINESS
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This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements include,
without limitation, statements containing the words “believes,” “anticipates,”
“expects,” “intends,” “projects,” “will,” and other words of similar import or
the negative of those terms or expressions. Forward-looking statements in this
report include, but are not limited to, expectations of future levels of
research and development spending, general and administrative spending, levels
of capital expenditures and operating results, sufficiency of our capital
resources, our intention to pursue and consummate strategic opportunities
available to us, including sales of certain of our assets. Forward-looking
statements subject to certain known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These risks
and uncertainties include, but are not limited to, those described in Part I,
“Item 1A. Risk Factors” of 10-K reports filed with the Securities and Exchange
Commission and those described from time to time in our future reports filed
with the Securities and Exchange Commission.
CORPORATE
OVERVIEW
We were
formerly known as Valentis, Inc. and were formed as the result of the merger of
Megabios Corp. and GeneMedicine, Inc. in March 1999. We were incorporated in
Delaware on August 12, 1997. In August 1999, we acquired U.K.-based
PolyMASC Pharmaceuticals plc.
On
October 5, 2006, we entered into an Agreement and Plan of Merger, as
subsequently amended (the “Merger”) with Urigen N.A., Inc., a Delaware
corporation (“Urigen N.A.”), and Valentis Holdings, Inc., our newly formed
wholly-owned subsidiary (“Valentis Holdings”). Pursuant to the Merger Agreement,
on July 13, 2007, Valentis Holdings was merged with and into Urigen N.A., Inc.
with Urigen N.A., Inc. surviving as our wholly-owned subsidiary. In connection
with the Merger, each Urigen stockholder received, in exchange for each share of
Urigen N.A. common stock held by such stockholder immediately prior to the
closing of the Merger, 2.2554 shares of our common stock. At the effective time
of the Merger, each share of Urigen N.A Series B preferred stock was
exchanged for 11.277 shares of our common stock. An aggregate of 51,226,679
shares of our common stock were issued to the Urigen N.A.
stockholders. Upon completion of the Merger, we changed our name from
Valentis, Inc. to Urigen Pharmaceuticals, Inc. (the "Company").
From and
after the Merger, our business is conducted through our wholly owned subsidiary
Urigen N.A. The discussion of our business in this annual report is that of our
current business which is conducted through Urigen N.A.
We are
located in Burlingame, California, where our headquarters and business
operations are located.
3
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BUSINESS
OVERVIEW
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We
specialize in the development of innovative products for patients with
urological ailments including, specifically, the development of innovative
products for amelioration Painful Bladder Syndrome/Interstitial Cystitis (“PBS”
or “PBS/IC”), Urethritis, Nocturia and Overactive Bladder (“OAB”).
Urology
represents a specialty pharmaceutical market of approximately 12,000 physicians
in North America. Urologists treat a variety of ailments of the urinary tract
including urinary tract infections, bladder cancer, overactive bladder, urgency
and incontinence and interstitial cystitis, a subset of PBS. Many of these
indications represent significant, underserved therapeutic market
opportunities.
Over the
next several years a number of key demographic and technological factors should
accelerate growth in the market for medical therapies to treat urological
disorders, particularly in our product categories. These factors include the
following:
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·
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Aging population. The
incidence of urological disorders increases with age. The over-40 age
group in the United States is growing almost twice as fast as the overall
population. Accordingly, the number of individuals developing urological
disorders is expected to increase significantly as the population ages and
as life expectancy continues to
rise.
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·
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Increased consumer
awareness. In recent years, the publicity associated with new
technological advances and new drug therapies has increased the number of
patients visiting their urologists to seek treatment for urological
disorders.
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Urigen’s
two clinical stage products target significant unmet medical needs with
meaningful market opportunities in urology:
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·
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URG101,
a bladder instillation for Painful Bladder Syndrome/Interstitial Cystitis
(PBS/IC)
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URG301,
a female urethral suppository for urethritis and
nocturia
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URG101
targets Painful Bladder Syndrome/Interstitial Cystitis (“PBS” or “PBS/IC”) which
affects approximately 10.5 million men and women in North
America. URG101 is a unique, proprietary combination therapy of
components that is locally delivered to the bladder for rapid relief of pain and
urgency as demonstrated in Urigen’s positive Phase II Pharmacodynamic Crossover
study.
URG301
targets urethritis and nocturia, typically seen in overactive bladder patients.
URG301 is a proprietary dosage form of an approved drug that is locally
delivered to the female urethra. Urethritis pain commonly occurs with urinary
tract infections (UTIs) which cause more than 8 million visits to the doctor
annually. Nocturia, or nighttime urgency and frequency, is secondary to
overactive bladder and can severely impact quality of life by disrupting the
normal sleep pattern.
The novel
urethral suppository platform presents excellent opportunities for effective
product lifecycle management. As market penetration of URG301
deepens, line extensions will be available through alternate generic drugs as
well as new chemical entities. To further expand the pipeline, the
Company will identify and prioritize both marketed and development-stage
products for acquisition. The commercial opportunity for such
candidates will benefit significantly from the synergy provided by URG101 and
URG301 in the urology marketplace.
We plan to market our products to
urologists and urogynecologists in the United States via a specialty sales force
managed internally. As appropriate, our specialty sales force will be augmented
by co-promotion and licensing agreements with pharmaceutical companies that have
the infrastructure to market our products to general practitioners. In all other
countries, we plan to license marketing and distribution rights to our products
to pharmaceutical companies with strategic interests in urology and
gynecology.
4
Following
is a description of our products currently in development, the anticipated
market for such products as well as the competitive environment in these
markets.
URG101
Presently,
no approved products exist for treating PBS, and those that have been approved
for interstitial cystitis, a subset of PBS, are based on clinical studies which
have shown the drugs to be marginally effective. According to its website, the
FDA has approved two drugs for the treatment of interstitial cystitis and
neither is labeled as providing immediate system relief. For example, at three
months, the oral drug Elmiron achieved a therapeutic benefit in only 38% of
patients on active drug versus 18% on placebo. The other drug approved for
interstitial cystitis, RIMSO®-50 is an intravesical treatment that was not based
on double-blind clinical trial results. According to the Interstitial Cystitis
Data Base Study Experience published in the year 2000, RIMSO®-50 is widely
recognized as ineffective and not included among the top ten most common
physician-prescribed treatments for urinary symptoms.
Consequently,
there remains a significant need for new therapeutic interventions such as
URG101 that can address the underlying disease process while also providing
acute symptom relief. PBS is a chronic disease characterized by moderate to
severe pelvic pain, urgency, urinary frequency, dyspareunia (painful
intercourse) with symptoms originating from the bladder. Current epidemiology
data shows that PBS may be much more prevalent than previously
thought.
One
theory of PBS’s pathological cause implicates a dysfunction of the bladder
epithelium surface called the urothelium. Normally, the urothelium is covered
with a mucus layer, the glycosaminoglycan, or GAG, layer, which is thought to
protect the bladder from urinary toxins. A deficiency in the GAG layer would
allow these toxins to penetrate into the bladder wall activating pain sensing
nerves and causing bladder muscle spasms. These spasms trigger responses to
urinate resulting in the symptoms of pelvic pain, urgency and frequency, the
constellation of symptoms associated with this disease. Once established, PBS
can be a chronic disease, which can persist throughout life and can have a
devastating impact on quality of life.
We have
estimated that the prevalence of PBS in North America to be 10.5 million, of
which 3.8 million would experience severe enough symptoms to be classified as
having interstitial cystitis, a subset of PBS. This estimate was based on
studies conducted by Clemens and colleagues at Northwestern University and by
Drs. Matt T. Rosenberg and Matthew Hazzard at the Mid-Michigan Health
Centers. Each group independently concluded that the number of subjects with
interstitial cystitis has been significantly underestimated. They evaluated over
1,000 female primary care patients over the course of a year using a pain,
urgency/frequency questionnaire to categorize subjects as symptomatic or not. We
calculated the North America PBS population based on a cutoff score of 13 on the
pain, urgency/frequency scale, and assumed a ratio of 1:2 for men to women; and
for interstitial cystitis population we used a more stringent cutoff score of
15.
5
We have
licensed the URG101 technology from the University of California, San Diego. The
license agreement is exclusive with regard to patent rights and non-exclusive
with regard to the written technical information. We may also grant a sublicense
to third parties. Pursuant to the license agreement, which was effective as of
January 18, 2006, we were required to pay a license issue fee in the form
of 7.5% of Urigen N.A. authorized common stock, and we are required to pay
(i) license maintenance fees of $15,000 per year, (ii) milestone
payments of up to $625,000 upon the occurrence of certain events related to FDA
approval, (iii) an earned royalty fee equal to 1.5% to 3.0% of net sales,
(iv) sublicense fee, if applicable, and (v) beginning in the year of
any commercial sales, a minimum annual royalty fee of $35,000. The term of the
license agreement ends on the earlier of the expiration date of the
longest-lived of the patent rights or the tenth anniversary of the first
commercial sale. Either party may terminate the license agreement for cause in
the event that the other party commits a material breach and fails to cure such
breach. In addition, we may terminate the license agreement at any time and for
any reason upon a 90-day written notice. In the event that any licensed product
becomes the subject of a third-party claim, we have the right to conduct the
defense at our own expense, and may contest or settle claims in our sole
discretion; provided, however, that we may not agree to any settlement that
would invalidate any valid claim of the patent rights or impose any ongoing
obligation on the university. Pursuant to the terms of the license agreement, we
must indemnify the university against any and all claims resulting or arising
out of the exercise of the license or any sublicense, including product
liability. In addition, upon the occurrence of a sale of a licensed product,
application for regulatory approval or initiation of human clinical trials, we
must obtain and maintain comprehensive and commercial general liability
insurance.
The
individual components of this combination therapy, lidocaine and heparin, were
originally approved as a local anesthetic and an anti-coagulant, respectively.
It was demonstrated that a proprietary formulation of these components reduced
symptoms of pelvic pain and urgency upon instillation into the
bladder.
The
rationale for this combination therapy is two-fold. The lidocaine is a local
anesthetic that reduces the sensations of pain, urge and muscle spasms. The
heparin, a glycosaminoglycan, coats the bladder wall augmenting natural
heparinoids, which may be deficient on the surface of the urothelium. Heparin is
not being utilized in this application for its anti-coagulant properties.
Heparinoids comprise part of the mucus layer of the urothelium and help to limit
urinary toxins from penetrating the underlying tissues thereby preventing pain,
tissue inflammation and muscle spasms.
Urigen
filed an investigational new drug application (“IND”) in 2005 and has undertaken
two (2) clinical studies to date: URG101-101 and URG101-104. The results of
the most recent study, URG101-104, have been announced with primary and
secondary endpoints all achieving statistical significance. The URG101-104 study
was designed using lessons learned from the URG101-101 study which did not
achieve statistical significance on the primary endpoint at 3 weeks, but did
demonstrate that the URG101 product was safe and resulted in an acute reduction
in urgency (P=0.006) and trend towards reduction in bladder pain
(P=0.093).
The
URG101-104 study was a pharmacodynamic crossover study to evaluate the time
course of response to URG101 drug and placebo in subjects experiencing acute
symptoms of painful bladder syndrome/interstitial cystitis. In March
2008 an un-blinded interim analysis was conducted. Primary and secondary
efficacy measurements in the study demonstrated that URG101 was significantly
better than placebo. Top line data analysis findings include: primary endpoint -
improvement in average daytime pain (p=0.03); secondary endpoints - improvement
in daytime urgency (p=0.03), total symptom score (p=0.03), improved overall
symptom relief as measured by PORIS (p=0.01).
Competitive
Landscape
PBS is
currently an underserved medical market. There is no acute treatment for pain of
bladder origin other than narcotics. Currently, there are two approved
therapeutics, RIMSO®-50 and Elmiron®, for the treatment of interstitial
cystitis. Both of these approved products require chronic administration before
any benefit is achieved. Other non-approved therapies provide marginal, if any
benefit.
Development
of drugs for PBS/IC has targeted a wide array of potential causes with limited
success. We believe that URG101 will be well positioned, as it will address both
the acute pain the patient experiences and the dysfunctional aspect of the
urothelium of the bladder wall.
6
Commercialization
Plan
Remaining
a virtual company, Urigen will commercialize URG101 in the United States by
collaborating with appropriate vendors to conduct a situational analysis of the
United States; develop an appropriate product strategy; and then, create and
implement a launch plan that includes the establishment of a 75 to 100 member
sales organization that Urigen will have the option to acquire post the
successful launch of URG101.
As
appropriate, co-promotional agreements will be established with interested
parties to ensure that URG101 is adequately promoted to the entire U.S.
healthcare community. In all countries outside the United States, Urigen will
either assign licensing rights to or establish Supply and Distribution
Agreements with interested parties. Initial discussions to acquire such rights
have begun with interested parties who have a strategic interest in Urology and
Painful Bladder Syndrome, and have the requisite infrastructure and resources to
successfully commercialize URG101.
Manufacturing
of URG101 finished goods kits will be conducted by contract manufacturers
approved by regulatory authorities and with a history of having demonstrated an
ability to support a global supply chain demand. Negotiations with such
manufacturers are in progress to establish requisite manufacturing and supply
agreements.
Market
Opportunity for Treatment of Urethritis and Nocturia
A
significant percentage of female patients presenting with Urinary Tract
Infections (UTI) and Painful Bladder Syndrome have a substantial urethral
component to their disease. There are approximately 8 million doctor visits
annually for urinary tract infections alone. The severity of their urethral pain
and discomfort may compromise the administration of intravesical therapies while
the antibiotics used to treat their UTI do not address their urethral pain. To
overcome this problem, Urigen is developing a urethral suppository to resolve
this pain and discomfort.
Nocturia,
frequent nighttime urination, is a symptom of an underlying condition or
disease, such as PBS. A poll conducted by the National Sleep
Foundation in 2003 reported that nearly two-thirds of adults between the ages of
55 and 84 suffered from nocturia. The International Continence
Society defines nocturia as two or more night time voids. In its
simplest terms, nocturia refers to urination at night and entails some degree of
impairment, with urinary frequency often considered excessive and
disruptive. Patients with severe nocturia may get up five or more
times per night to go to the bathroom to void.
Preliminary
work, by Kalium, Inc., from which we licensed the product, has been conducted to
test a variety of generally recognized as safe (“GRAS”) approved carriers and
therapeutic agents as well as to optimize melt times for the suppository.
Additionally, patients with urethritis were offered the use of a suppository
that contained lidocaine and heparin for the treatment of their symptoms of
urethral pain and inflammation. An optimized formulation has been tested in an
open-label clinical trial. This study was undertaken to determine the proportion
of urethral symptoms by 50% or more in patients with urethritis. Results were
evaluated 15 minutes after administration of the suppository using the patient
overall rating of improvement of symptoms (“PORIS”) scale. The result
of this pilot Phase II (open label) study in approximately 30 patients
demonstrated a 50% or greater improvement in 83% of patients experiencing pain
and 84% of patients experiencing urgency related to urethritis following a
single treatment. Importantly, 50% of patients had complete resolution of pain
and 63% had complete resolution of urgency. Duration of relief following a
single treatment was greater than 12 hours in approximately 30% of subjects.
This testing was not performed as a formal clinical trial, but under physician
care and information provided to us from Kalium, Inc. Clinical development of
URG301 will be similar to that of lidocaine jelly which is approved for
urethritis.
The licensed patents cover a range of
active ingredients that can be formulated in the suppository to create a desired
therapeutic effect. Such agent may include antibiotics, antimicrobials,
antifungals, analgesics, anesthetics, steroidal anti-inflammatories,
non-steroidal anti-inflammatories, mucous production inhibitors, hormones and
antispasmodics.
7
Market
Opportunity for Treatment of Overactive Bladder (“OAB”)
According
to an article published by the Mayo Foundation for Medical Education and
Research, overactive bladder is a fairly common malady as approximately 17
million individuals in the United States and more than 100 million worldwide are
afflicted. Importantly, the condition worsens as people age.
Although
not life-threatening, for the individual overactive bladder is inconvenient,
potentially embarrassing, and may disrupt sleep; while significantly impacting
quality of life. Frequently these individuals are afraid to leave their home, or
are unable to participate in a lengthy meeting, dinner, or social event.
Unfortunately, many of these people hesitate to seek treatment because they
think their symptoms are a normal part of aging. This mindset is incorrect as
overactive bladder is not normal, is treatable, and treatment can significantly
ease symptoms and improve quality of life.
Patient
compliance studies report that more than half of patients taking an oral OAB
drug stop taking it within six months of initiation of therapy. Such studies
also report that only 10 to 20 percent of people remain on an oral OAB medicine
six to 12 months after initiating treatment. About a third to one-half of those
who discontinue their drug therapy do so due to side effects, they simply can
not tolerate the drug or do not find the minimal benefit they receive to
outweigh the negative effects of the drug.
Manufacturers
of these overactive bladder therapies have expended significant research energy
and money in their efforts to reduce side effects to increase patients’
adherence to treatment. However, some physicians, experts and healthcare
providers do not believe that the marginal benefits of these oral agents
outweigh the significant side effects endured by patients prescribed such
drugs.
Importantly,
given these efficacy and side effect limitations, the overactive bladder market
has experienced significant and constant double digit annual growth. According
to sales data provided by the four largest U.S. pharmaceutical companies in
their annual reports, we estimate that in the five year period 2000 through
2004, sales of OAB drugs in the United States grew from $636 million to more
than $1.3 billion, and year over year percentage increases for this five year
period were 40%, 25%, 18%, and 13%, respectively.
Product
Development
We are
developing an IND to initiate an exploratory study to evaluate the safety and
efficacy of an intraurethral suppository to treat urethritis, nocturia and the
symptoms of acute urinary urgency associated with overactive bladder. The study
will enroll subjects randomized to drug vs. placebo in a 1:1 ratio to evaluate
the safety and efficacy of URG301 for one or more of these
disorders.
Commercialization
Plan
We will
commercialize URG301 in the United States by conducting a situational analysis
of the United States; developing an appropriate product strategy; and then,
creating and implementing a launch plan that incorporates the 75 to 100 member
sales organization that we are planning to establish for the launch of URG101.
As appropriate, co-promotional agreements will be established with interested
parties to ensure that URG301 is adequately promoted to the entire U.S.
healthcare community.
In all
countries outside the United States, Urigen will either assign licensing rights
to or establish Supply and Distribution Agreements with interested parties.
Discussions to acquire such rights will be scheduled with interested
pharmaceutical companies who have a strategic interest in Incontinence and
Overactive Bladder, and have the requisite infrastructure and resources to
successfully commercialize URG301.
8
Competitive
Landscape
Approved
prescription drugs used to treat overactive bladder are not optimally effective
and have side effects that can limit their use. These approved drugs—oxybutynin
(Ditropan®, Ditropan XL® and Oxytrol®, a skin patch); tolterodine (Detrol®,
Detrol LA®); trospium (Sanctura®); solifenacin (Vesicare®); and darifenacin
(Enablex®)—demonstrate remarkably similar efficacy.
However,
they do differ in the side effects they cause and their cost. Side effects
include dry mouth, constipation, and mental confusion. In clinical studies,
Ditropan XL, Detrol LA, Oxytrol, Sanctura, Vesicare, and Enablex have caused
fewer side effects than the short acting dosage forms of oxybutynin (Ditropan)
and tolterodine (Detrol).
Oxybutynin
has been available since 1976 and tolterodine since 1998. The short-acting form
of oxybutynin is available as a less expensive generic drug while the
extended-release formulations of both oxybutynin and tolterodine are available,
but not as generics. An oxybutynin patch (Oxytrol) was launched in 2003 while
solifenacin and darifenacin were introduced in 2004.
Retail
prices for these products vary considerably and are tied directly to the number
of pills taken per day and whether or not the product is available generically.
The least expensive is generic oxybutynin 5mg with an average monthly cost of
$20 compared to Ditropan 5mg at $79 and Ditropan XL 5mg costing $122 per month
on average. The average monthly cost for Detrol is $138; Detrol LA $119;
Sanctura $116; Vesicare $121; and Enablex $116. (Prices from May 2006
Wolters Kluwer Health, Pharmaceutical Audit Suite).
We
retained Navigant Consulting, Inc. to conduct a situational assessment of
physicians, healthcare payers and patient advocacy groups to generate a product
strategy that addressed key geographical markets, customers, product
positioning, lifecycle management and pricing. The project cost of this first
phase was $125,000, of which $86,000 had been paid through June 30,
2008.
Life
Science Strategy Group LLC (LSSG) has been retained to create and implement a
commercialization plan specific for us in the United States. Pursuant to the
terms of the agreement, LSSG will bill us for all professional services at
established hourly rates, plus related out-of-pocket expenses. Payment of
invoices is not contingent upon results. LSSG may terminate the agreement if
payment of fees is not made within 45 days of receipt of the invoice. There is
no definitive termination date of the agreement, but the estimated timing for
all of the projects ranges from 30 to 42 months. As appropriate,
co-promotional agreements will be established with interested parties to ensure
that URG101 is adequately promoted to the entire United States healthcare
community. As of June 30, 2008 LSSG has invoiced the Company
$28,000. $3,000 was paid in cash. LSSG principals have
agreed to accept 147,059 shares of subscribed common stock at $0.17 per share in
lieu of the remaining $25,000.
We also
have two license agreements pursuant to which we license certain patent rights
and technologies:
In
January 2006, Urigen N.A. entered into an asset-based transaction
agreement with a related party, Urigen, Inc. Simultaneously, Urigen
N.A. entered into a license agreement with the University of California,
San Diego, or UCSD, for certain patent rights. In exchange for this
license, Urigen N.A. issued 1,846,400 common shares and is required to make
annual maintenance payments of $15,000 and milestone payments of up to $625,000,
which are based on certain events related to FDA approval. As of June 30,
2008, $25,000 of milestone payments has been incurred. Urigen is also required
to make royalty payments of 1.5-3.0% of net sales of licensed products, with a
minimum annual royalty of $35,000. The term of the agreement ends on the earlier
of the expiration of the longest-lived of the patents rights or the tenth
anniversary of the first commercial sale. Either party may terminate the license
agreement for cause in the event that the other party commits a material breach
and fails to cure such breach. In addition, Urigen may terminate the license
agreement at any time and for any reason upon a 90-day written
notice.
9
Pursuant
to our license agreement with Kalium, Inc., made as of May 12, 2006, the
Company and our affiliates have an exclusive license to the patent rights
and technologies, and the right to sublicense to third parties. As partial
consideration for the rights under the license agreement and as a license fee,
Urigen N.A., Inc. was required to issue 1,623,910 shares of our common
stock. We are required to pay royalties ranging from 2.0% to 4.5% of net sales,
and milestone payments of up to $457,500 upon the occurrence of certain events
related to FDA approval, and any applicable sublicense payments in an amount
equal to 22.5% of fees received for any sublicense. Pursuant to the terms of the
license agreement, we must indemnify Kalium against any and all liabilities or
damages arising out of the development or use of the licensed products or
technology, the use by third parties of licensed products or technology, or any
representations or warranty by us. In the event that any licensed product
becomes the subject of a third-party claim, we have the right to conduct the
defense at our own expense, and may settle claims in our sole discretion;
provided, however, that Kalium must cooperate with us. The term of the license
agreement ends on the earlier of the expiration date of the last to expire of
any patent or the tenth anniversary of the first commercial sale. The license
agreement may be terminated by either party if the other party fails to
substantially perform or otherwise materially breaches any material terms or
covenants of the agreement, and such failure or breach is not cured within
30 days of notice thereof. In addition, Kalium may terminate the agreement
or convert the license to non-exclusive rights if we fail to meet certain
milestones over the next three years.
On October 3, 2007, the Company
retained Dennis Giesing, Ph.D. as Chief Scientific Officer of the Company for a
term of four years. Prior to this, Dr. Giesing performed consulting
services for the Company for one day per calendar week, at an agreed upon fee of
$4,000 per month.
In
countries outside of the United States, we anticipate we will either assign
licensing rights to or establish supply and distribution agreements with
interested parties. Initial discussions to acquire such rights have begun with
interested parties who have a strategic interest in urology and painful bladder
syndrome and have the requisite infrastructure and resources to successfully
commercialize URG101.
Like many
companies our size, we do not have the ability to conduct preclinical or
clinical studies for our product candidates without the assistance of third
parties who conduct the studies on our behalf. These third parties are usually
toxicology facilities and clinical research organizations (“CROs”) that have
significant resources and experience in the conduct of pre-clinical and clinical
studies. The toxicology facilities conduct the pre-clinical safety studies as
well as all associated tasks connected with these studies. The CROs typically
perform patient recruitment, project management, data management, statistical
analysis, and other reporting functions.
Third
parties that we use, and have used in the past, to support clinical trials
include Clinimetrics, Research Canada, Inc., EMB Statistical Solutions, LLC
(“EMB”), and Hyaluron. Inc. (“HCM”).
Pursuant
to a purchase order dated September 2007, HCM has provided us with services
related to documentation and drug development. Various services were
provided by the other vendors listed.
We intend
to continue to rely on third parties to conduct clinical trials of our product
candidates and to use different toxicology facilities and CROs for all of our
pre-clinical and clinical studies.
10
We have
multiple intellectual property filings around our products. In general, we plan
to file for broad patent protection in all markets where we intend to
commercialize our products. Typically, we will file our patents first in the
United States or Canada and expand the applications internationally under the
Patent Cooperation Treaty, or PCT.
Currently,
we own or have licensed three (3) issued patents and three (3) patent
applications. Based on these filings, we anticipate that our lead product
URG101, may be protected until at least 2026 and our URG300 urethral suppository
platform including URG301 will be protected until at least 2018 and potentially
beyond 2025.
Summary
of our Patents and Patent Applications for URG101 and URG301 Product
Development:
|
1)
|
(URG101)
We have licensed U.S.
Patent 7,414,039 entitled “Novel Interstitial Therapy for Immediate
Symptom Relief and Chronic Therapy in Interstitial Cystitis” from the
University of California San Diego. The patent claims treatment
formulations and methods for reducing the symptoms of urinary frequency,
urgency and/or pelvic pain, including interstitial
cystitis.
|
|
2)
|
(URG101)
We have filed PCT Application PCT/US2006/019745 entitled “Kits and
Improved Compositions for Treating Lower Urinary Tract Disorders:
Formulations for Treating Lower Urinary Tract Symptoms: which is directed
to superior buffered formulations and kits for treating lower urinary
tract symptoms and disorders.
|
|
3)
|
(URG301)
We have licensed
U.S. Patent No. 6,464,670 entitled “Method of Delivering
Therapeutic Agents to the Urethra and an Urethral Suppository” from
Kalium, Inc. The patent describes a meltable suppository having a
“baseball bat” shape for the administration of therapeutic agents to the
urethra. This shape is suited for the female
urethra.
|
|
4)
|
(URG301)
We have licensed
U.S. Patent No. 7,267,670 entitled “Reinforced Urethral
Suppository” from Kalium, Inc. This application covers the mechanical
structure of a reinforced suppository that can be used to deliver a range
of therapeutic agents to the
urethra.
|
|
5)
|
(URG301)
We have licensed
U.S. Patent Application Serial No. 11/475809, entitled
“Transluminal Drug Delivery Methods and Devices” from Kalium, Inc.
The application is directed to a urethral suppository that includes a
carrier base, an anesthetic, a buffering agent, and, optionally a
polysaccharide.
|
|
|
6)
|
(URG301)
We have filed PCT Application 60/891,454 entitled "Urethral Suppositories
for Overactive Bladder" which is directed to the use of mixed-activity
anti-cholinergic agents to treat the symptoms of overactive
bladder.
|
Our
failure to obtain patent protection or otherwise protect our proprietary
technology or proposed products may have a material adverse effect on our
competitive position and business prospects. The patent application process
takes several years and entails considerable expense. There is no assurance that
additional patents will issue from these applications or, if patents do issue,
that the claims allowed will be sufficient to protect our
technology.
The
patent positions of pharmaceutical and biotechnology firms are often uncertain
and involve complex legal and factual questions. Furthermore, the breadth of
claims allowed in biotechnology patents is unpredictable. We cannot be certain
that others have not filed patent applications for technology covered by our
pending applications or that we were the first to invent the technology that is
the subject of such patent applications. Competitors may have filed applications
for, or may have received patents and may obtain additional patents and
proprietary rights relating to compounds, products or processes that block or
compete with ours. We are aware of patent applications filed and patents issued
to third parties relating to urological drugs, urological delivery technologies
and urological therapeutics, and there can be no assurance that any of those
patent applications or patents will not have a material adverse effect on
potential products we or our corporate partners are developing or may seek to
develop in the future.
11
Patent
litigation is widespread in the biotechnology industry. Litigation may be
necessary to defend against or assert claims of infringement, to enforce patents
issued to us, to protect trade secrets or know-how owned or licensed by us, or
to determine the scope and validity of the proprietary rights of third parties.
Although no third party has asserted that we are infringing such third party’s
patent rights or other intellectual property, there can be no assurance that
litigation asserting such claims will not be initiated, that we would prevail in
any such litigation or that we would be able to obtain any necessary licenses on
reasonable terms, if at all. Any such claims against us, with or without merit,
as well as claims initiated by us against third parties, can be time-consuming
and expensive to defend or prosecute and to resolve. If other companies prepare
and file patent applications in the United States that claim technology also
claimed by us, we may have to participate in interference proceedings to
determine priority of invention which could result in substantial cost to us
even if the outcome is favorable to us. There can be no assurance that third
parties will not independently develop equivalent proprietary information or
techniques, will not gain access to our trade secrets or disclose such
technology to the public or that we can maintain and protect unpatented
proprietary technology. We typically require our employees, consultants,
collaborators, advisors and corporate partners to execute confidentiality
agreements upon commencement of employment or other relationships with us. There
can be no assurance, however, that these agreements will provide meaningful
protection or adequate remedies for our technology in the event of unauthorized
use or disclosure of such information, that the parties to such agreements will
not breach such agreements or that our trade secrets will not otherwise become
known or be discovered independently by our competitors.
GOVERNMENT
REGULATION
The
production and marketing of any of our potential products will be subject to
extensive regulation for safety, efficacy and quality by numerous governmental
authorities in the United States and other countries. In the United States,
pharmaceutical products are subject to rigorous regulation by the United States
Food and Drug Administration (“FDA”). We believe that the FDA and comparable
foreign regulatory bodies will regulate the commercial uses of our potential
products as drugs. Drugs are regulated under certain provisions of the Public
Health Service Act and the Federal Food, Drug, and Cosmetic Act. These laws and
the related regulations govern, among other things, the testing, manufacturing,
safety, efficacy, labeling, storage, record keeping, and the promotion,
marketing and distribution of drug products. At the FDA, the Center for Drug
Evaluation and Research is responsible for the regulation of drug
products.
The
necessary steps to take before a new drug may be marketed in the United States
include the following: (i) laboratory tests and animal studies;
(ii) the submission to the FDA of an IND for clinical testing, which must
become effective before clinical trials commence; (iii) under certain
circumstances, approval by a special advisory committee convened to review
clinical trial protocols involving drug therapeutics; (iv) adequate and
well-controlled clinical trials to establish the safety and efficacy of the
product; (v) the submission to the FDA of a new drug application (“NDA”);
and (vi) FDA approval of the new drug application prior to any commercial
sale or shipment of the drug.
Facilities
used for the manufacture of drugs are subject to periodic inspection by the FDA
and other authorities, where applicable, and must comply with the FDA’s Good
Manufacturing Practice (“GMP”), regulations. Manufacturers of drugs also must
comply with the FDA’s general drug product standards and may also be subject to
state regulation. Failure to comply with GMP or other applicable regulatory
requirements may result in withdrawal of marketing approval, criminal
prosecution, civil penalties, recall or seizure of products, warning letters,
total or partial suspension of production, suspension of clinical trials, FDA
refusal to review pending marketing approval applications or supplements to
approved applications, or injunctions, as well as other legal or regulatory
action against us or our corporate partners.
Clinical trials are conducted in three
sequential phases, but the phases may overlap. In Phase I (the initial
introduction of the product into human subjects or patients), the drug is tested
to assess safety, metabolism, pharmacokinetics and pharmacological actions
associated with increasing doses. Phase II usually involves studies in a
limited patient population to (i) determine the efficacy of the potential
product for specific, targeted indications, (ii) determine dosage tolerance
and optimal dosage, and (iii) further identify possible adverse effects and
safety risks. If a compound is found to be effective and to have an acceptable
safety profile in Phase II evaluations, Phase III trials are
undertaken to further evaluate clinical efficacy and test for safety within a
broader patient population at geographically dispersed clinical sites. There can
be no assurance that Phase I, Phase II or Phase III testing will
be completed successfully within any specific time period, if at all, with
respect to any of our or our corporate partners’ potential products subject to
such testing. In addition, after marketing approval is granted, the FDA may
require post-marketing clinical studies that typically entail extensive patient
monitoring and may result in restricted marketing of the product for an extended
period of time.
12
The
results of product development, preclinical animal studies, and human studies
are submitted to the FDA as part of the NDA. The NDA must also contain extensive
manufacturing information, and each manufacturing facility must be inspected and
approved by the FDA before the NDA will be approved. Similar regulatory approval
requirements exist for the marketing of drug products outside the
United States (e.g., Europe and Japan). The testing and approval process is
likely to require substantial time, effort and financial and human resources,
and there can be no assurance that any approval will be granted on a timely
basis, if at all, or that any potential product developed by us and/or our
corporate partners will prove safe and effective in clinical trials or will meet
all the applicable regulatory requirements necessary to receive marketing
approval from the FDA or the comparable regulatory body of other countries. Data
obtained from preclinical studies and clinical trials are subject to
interpretations that could delay, limit or prevent regulatory approval. The FDA
may deny the NDA if applicable regulatory criteria are not satisfied, require
additional testing or information, or require post-marketing testing and
surveillance to monitor the safety or efficacy of a product. Moreover, if
regulatory approval of a biological product candidate is granted, such approval
may entail limitations on the indicated uses for which it may be marketed.
Finally, product approvals may be withdrawn if compliance with regulatory
standards is not maintained or if problems occur following initial marketing.
Among the conditions for NDA approval is the requirement that the prospective
manufacturer’s quality control and manufacturing procedures conform to the
appropriate GMP regulations, which must be followed at all times. In complying
with standards set forth in these regulations, manufacturers must continue to
expend time, financial resources and effort in the area of production and
quality control to ensure full compliance.
For clinical investigation and
marketing outside the United States, we and our corporate partners may be
subject to FDA as well as regulatory requirements of other countries. The FDA
regulates the export of drug products, whether for clinical investigation or
commercial sale. In Europe, the approval process for the commencement of
clinical trials varies from country to country. The regulatory approval process
in other countries includes requirements similar to those associated with FDA
approval set forth above. Approval by the FDA does not ensure approval by the
regulatory authorities of other countries.
GENERAL
COMPETITION WITHIN THE UROLOGICAL THERAPEUTIC INDUSTRY
Competition
in the pharmaceutical industry is intense and is characterized by extensive
research efforts and rapid technological progress. Several pharmaceutical
companies are also actively engaged in the development of therapies for the
treatment of PBS and overactive bladder. Such competitors may develop
safer, more effective or less costly urological therapeutics. We face
competition from such companies, in establishing corporate collaborations with
pharmaceutical and biotechnology companies, relationships with academic and
research institutions and in negotiating licenses to proprietary technology,
including intellectual property.
Many competitors and potential
competitors have substantially greater product development capabilities and
financial, scientific, manufacturing, managerial and human resources than we do.
There is no assurance that research and development by such competitors will not
render our potential products and technologies, or the potential products and
technologies developed by our corporate partners, obsolete or non-competitive,
or that any potential product and technologies us or our corporate partners
develop would be preferred to any existing or newly developed products and
technologies. In addition, there is no assurance that competitors will not
develop safer, more effective or less costly PBS therapies, achieve
superior patent protection or obtain regulatory approval or product
commercialization earlier than us or our corporate partners, any of which could
have a material adverse effect on our business, financial condition or results
of operations.
PRODUCT
LIABILITY INSURANCE
The
manufacture and sale of human therapeutic products involve an inherent risk of
product liability claims and associated adverse publicity. We currently have
only limited product liability insurance, and there can be no assurance that we
will be able to maintain existing or obtain additional product liability
insurance on acceptable terms or with adequate coverage against potential
liabilities. Such insurance is expensive, difficult to obtain and may not be
available in the future on acceptable terms, or at all. An inability to obtain
sufficient insurance coverage on reasonable terms or to otherwise protect
against potential product liability claims could inhibit our business. A product
liability claim brought against us in excess of our insurance coverage, if any,
could have a material adverse effect upon our business, financial condition and
results of operations.
EMPLOYEES
We currently employ six individuals
full-time, including three who hold doctoral degrees. Current employees are
engaged in product development, marketing, finance and administrative
activities, including assessing strategic opportunities that may be available to
us. Our employees are not represented by a collective bargaining agreement.
13
|
ITEM
1A.
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RISK
FACTORS
|
The
following risk factors outline certain risks and uncertainties concerning future
results and should be read in conjunction with the information contained in this
Annual Report on Form 10-K. Any of these risk factors could materially and
adversely affect our business, operating results and financial condition.
Additional risks and uncertainties not presently known to us, or those we
currently deem immaterial, may also materially harm our business, operating
results and financial condition.
We
have received a “going concern” opinion from our independent registered public
accounting firm, which may negatively impact our business.
We have
received a report from Burr, Pilger & Mayer LLP, our independent registered
public accounting firm, regarding our consolidated financial statements for the
fiscal year ended June 30, 2008, which includes an explanatory
paragraph stating that the financial statements were prepared assuming we will
continue as a going concern. The report also stated that our recurring operating
losses and need for additional financing have raised substantial doubt about our
ability to continue as a going concern.
In
connection with the audit of our June 30, 2008 financial statements our
independent registered public accounting firm identified material weaknesses in
our internal controls over financial reporting. We have identified
additional material weaknesses in the course of our management assessment of
internal controls.
We have
been informed that during the course of our audit that our independent
registered public accounting firm concluded that our internal controls over
financial reporting suffer from certain “material weaknesses” as defined in
standards established by the Public Company Accounting Oversight Board and the
American Institute of Certified Public Accountants. We intend to commence a
process of developing, adopting and implementing policies and procedures to
address such material weaknesses that are consistent with those of small, public
companies. However, that process may be time consuming and costly and there is
no assurance as to when we will effectively address such material
weaknesses.
We have a history of losses and
may never be profitable.
We have
engaged in research and development activities since our inception. We incurred
losses from operations of approximately $4.8 million, and $3.3 million, for
our fiscal years ended June 30, 2008 and 2007, respectively. As of
June 30, 2008, we had an accumulated deficit totaling approximately
$9.6 million. Our products are in the development stage and, accordingly,
our business operations are subject to all of the risks inherent in the
establishment and maintenance of a developing business enterprise, such as those
related to competition and viable operations management. We have not generated revenues from the commercialization of any
products. Our net operating losses over the near-term and the next several years
are expected to continue as a result of the further clinical trial activity and
preparation for regulatory submission necessary to support regulatory approval
of our products. Costs associated with Phase III clinical trials are generally
substantially greater than Phase II clinical trials, as the number of clinical
sites and patients required is much larger.
There can be no assurance that we will
be able to generate sufficient product revenue to become profitable at all or on
a sustained basis. We expect to have quarter-to-quarter fluctuations in
expenses, some of which could be significant, due to expanded research,
development, and clinical trial activities.
Our
potential products and technologies are in early stages of
development.
The
development of new pharmaceutical products is a highly risky undertaking, and
there can be no assurance that any future research and development efforts we
might undertake will be successful. All of our potential products will require
extensive additional research and development prior to any commercial
introduction. There can be no assurance that any future research and development
and clinical trial efforts will result in viable products.
We do not
yet have the required clinical data and results to successfully market our
forerunner product, URG101, or any other potential product in any jurisdiction,
and future clinical or preclinical results may be negative or insufficient to
allow us to successfully market any of our product candidates. Obtaining needed
data and results may take longer than planned or may not be obtained at
all.
14
We
are subject to substantial government regulation, which could materially
adversely affect our business.
The
production and marketing of our potential products and our ongoing research and
development, pre-clinical testing and clinical trial activities are currently
subject to extensive regulation and review by numerous governmental authorities
in the United States and will face similar regulation and review for overseas
approval and sales from governmental authorities outside of the United States.
All of the products we are currently developing must undergo rigorous
pre-clinical and clinical testing and an extensive regulatory approval process
before they can be marketed. This process makes it longer, harder and more
costly to bring our potential products to market, and we cannot guarantee that
any of our potential products will be approved. The pre-marketing approval
process can be particularly expensive, uncertain and lengthy, and a number of
products for which FDA approval has been sought by other companies have never
been approved for marketing. In addition to testing and approval procedures,
extensive regulations also govern marketing, manufacturing, distribution,
labeling, and record-keeping procedures. If we or our business partners do not
comply with applicable regulatory requirements, such violations could result in
non-approval, suspensions of regulatory approvals, civil penalties and criminal
fines, product seizures and recalls, operating restrictions, injunctions, and
criminal prosecution.
Withdrawal
or rejection of FDA or other government entity approval of our potential
products may also adversely affect our business. Such rejection may be
encountered due to, among other reasons, lack of efficacy during clinical
trials, unforeseen safety issues, inability to follow patients after treatment
in clinical trials, inconsistencies between early clinical trial results and
results obtained in later clinical trials, varying interpretations of data
generated by clinical trials, or changes in regulatory policy during the period
of product development in the United States and abroad. In the United States,
there is stringent FDA oversight in product clearance and enforcement
activities, causing medical product development to experience longer approval
cycles, greater risk and uncertainty, and higher expenses. Internationally,
there is a risk that we may not be successful in meeting the quality standards
or other certification requirements. Even if regulatory approval of a product is
granted, this approval may entail limitations on uses for which the product may
be labeled and promoted, or may prevent us from broadening the uses of our
current potential products for different applications. In addition, we may not
receive FDA approval to export our potential products in the future, and
countries to which potential products are to be exported may not approve them
for import.
Manufacturing
facilities for our products will also be subject to continual governmental
review and inspection. The FDA has stated publicly that compliance with
manufacturing regulations will continue to be strictly scrutinized. To the
extent we decide to manufacture our own products, a governmental authority may
challenge our compliance with applicable federal, state and foreign regulations.
In addition, any discovery of previously unknown problems with one of our
potential products or facilities may result in restrictions on the potential
product or the facility. If we decide to outsource the commercial production of
our products, any challenge by a regulatory authority of the compliance of the
manufacturer could hinder our ability to bring our products to
market.
From time
to time, legislative or regulatory proposals are introduced that could alter the
review and approval process relating to medical products. It is possible that
the FDA or other governmental authorities will issue additional regulations
which would further reduce or restrict the sales of our potential products. Any
change in legislation or regulations that govern the review and approval process
relating to our potential and future products could make it more difficult and
costly to obtain approval for these products.
We
rely on third parties to assist us in conducting clinical trials. If these third
parties do not successfully carry out their contractual duties or meet expected
deadlines, we may not be able to obtain regulatory approval for or commercialize
our product candidates.
Like many
companies our size, we do not have the ability to conduct preclinical or
clinical studies for our product candidates without the assistance of third
parties who conduct the studies on our behalf. These third parties are usually
toxicology facilities and clinical research organization, or CROs that have
significant resources and experience in the conduct of pre-clinical and clinical
studies. The toxicology facilities conduct the pre-clinical safety studies as
well as all associated tasks connected with these studies. The CROs typically
perform patient recruitment, project management, data management, statistical
analysis, and other reporting functions.
Third
parties that we use, and have used in the past, to support
clinical development include Clinimetrics Research Canada, Inc., Cardinal
Health PTS, LLC, Hyaluron, Inc. and EMB Statistical Solutions, LLC. We intend to
continue to rely on third parties to conduct clinical trials of our product
candidates and to use different toxicology facilities and CROs for all of our
pre-clinical and clinical studies.
15
Our
reliance on these third parties for development activities reduces our control
over these activities. If these third parties do not successfully carry out
their contractual duties or obligations or meet expected deadlines, or if the
quality or accuracy of the clinical data they obtain is compromised due to the
failure to adhere to our clinical protocols or for other reasons, our clinical
trials may be extended, delayed or terminated. If these third parties do not
successfully carry out their contractual duties or meet expected deadlines, we
may be required to replace them. Although we believe there are a number of
third-party contractors we could engage to continue these activities, replacing
a third-party contractor may result in a delay of the affected trial.
Accordingly, we may not be able to obtain regulatory approval for or
successfully commercialize our product candidates.
Delays
in the commencement or completion of clinical testing of our product candidates
could result in increased costs to us and delay our ability to generate
significant revenues.
Delays in
the commencement or completion of clinical testing could significantly impact
our product development costs. We do not know whether current or planned
clinical trials will begin on time or be completed on schedule, if at all. The
commencement of clinical trials can be delayed for a variety of reasons,
including delays in:
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·
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obtaining
regulatory approval to commence a clinical
trial;
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·
|
reaching
agreement on acceptable terms with prospective contract research
organizations and clinical trial
sites;
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·
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obtaining
sufficient quantities of clinical trial materials for any or all product
candidates;
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·
|
obtaining
institutional review board approval to conduct a clinical trial at a
prospective site; and
|
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·
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recruiting
participants for a clinical trial.
|
In
addition, once a clinical trial has begun, it may be suspended or terminated by
us or the FDA or other regulatory authorities due to a number of factors,
including:
|
·
|
failure
to conduct the clinical trial in accordance with regulatory
requirements;
|
|
·
|
inspection
of the clinical trial operations or clinical trial site by the FDA or
other regulatory authorities resulting in the imposition of a clinical
hold; or
|
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·
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lack
of adequate funding to continue the clinical
trial.
|
Clinical
trials require sufficient participant enrollment, which is a function of many
factors, including the size of the target population, the nature of the trial
protocol, the proximity of participants to clinical trial sites, the
availability of effective treatments for the relevant disease, the eligibility
criteria for our clinical trials and competing trials. Delays in enrollment can
result in increased costs and longer development times. Our failure to enroll
participants in our clinical trials could delay the completion of the clinical
trials beyond current expectations. In addition, the FDA could require us to
conduct clinical trials with a larger number of participants than we may project
for any of our product candidates. As a result of these factors, we may not be
able to enroll a sufficient number of participants in a timely or cost-effective
manner.
Furthermore,
enrolled participants may drop out of clinical trials, which could impair the
validity or statistical significance of the clinical trials. A number of factors
can influence the discontinuation rate, including, but not limited to: the
inclusion of a placebo in a trial; possible lack of effect of the product
candidate being tested at one or more of the dose levels being tested; adverse
side effects experienced, whether or not related to the product candidate; and
the availability of numerous alternative treatment options that may induce
participants to discontinue from the trial.
We, the
FDA or other applicable regulatory authorities may suspend clinical trials of a
product candidate at any time if we or they believe the participants in such
clinical trials, or in independent third-party clinical trials for drugs based
on similar technologies, are being exposed to unacceptable health risks or for
other reasons.
16
We
rely on third parties to manufacture sufficient quantities of compounds for use
in our clinical trials and future commercial operations and an interruption to
this service may harm our business.
We
rely on various third parties to manufacture the materials we use in our
clinical trials and future commercial operations. There can be no
assurance that we will be able to identify, qualify and obtain prior regulatory
approval for additional sources of clinical materials. If interruptions in this
supply, as evidenced by the heparin recall in 2008, should occur for any reason,
including a decision by the third parties to discontinue manufacturing,
technical difficulties, labor disputes or a failure of the third parties to
follow regulations, we may not be able to obtain regulatory approvals to
successfully commercialize our investigational product candidates.
We
have contracted with a third party vendor to develop the individual vials
contained in our URG101 kit. This vendor will be our sole-source of clinical
supplies for URG101. There can be no assurance that the final vial formulations
will result in sufficient safety and efficacy for approval. A failure on the
stability or manufacturability of our individual vial formulations or the
inability of this vendor to carry out its contractual duties or meet expected
timelines could cause our URG101 clinical studies to be delayed which may have a
material adverse impact on our development plan, stock price and financial
condition.
We
do not have commercial-scale manufacturing capability, and we lack
commercial manufacturing experience.
If we are
successful in achieving regulatory approval and developing the markets for our
potential products, we would have to arrange for the scaled-up manufacture of
our products. At the present time, we have not arranged for the large-scale
manufacture of our products. There can be no assurance that we will, on a timely
basis, be able to make the transition from manufacturing clinical trial
quantities to commercial production quantities successfully or be able to
arrange for contract manufacturing. We believe one or more contractors will be
able to manufacture our products for initial commercialization if the products
obtain FDA and other regulatory approvals. Potential difficulties in
manufacturing our products, including scale-up, recalls or safety alerts, could
have a material adverse effect on our business, financial condition, and results
of operations.
Our
products can only be manufactured in a facility that has undergone a
satisfactory inspection by the FDA and other relevant regulatory authorities.
For these reasons, we may not be able to replace manufacturing capacity for our
products quickly if we or our contract manufacturer(s) are unable to use
manufacturing facilities as a result of a fire, natural disaster (including an
earthquake), equipment failure, or other difficulty, or if such facilities were
deemed not in compliance with the regulatory requirements and such
non-compliance could not be rapidly rectified. An inability or reduced capacity
to manufacture our products would have a material adverse effect on our
business, financial condition, and results of operations.
We expect
to enter into definitive and perhaps additional arrangements with contract
manufacturing companies in order to secure the production of our products or to
attempt to improve manufacturing costs and efficiencies. If we are unable to
enter into definitive agreements for manufacturing services and encounters
delays or difficulties in finalizing or otherwise establishing relationships
with manufacturers to produce, package, and distribute our products, then market
introduction and subsequent sales of such products would be adversely
affected.
If
we fail to obtain acceptable prices or appropriate reimbursement for our
products, our ability to successfully commercialize our products will be
impaired.
Government
and insurance reimbursements for healthcare expenditures play an important role
for all healthcare providers, including physicians and pharmaceutical companies
such as ours, which plan to offer various products in the United States and
other countries in the future. Our ability to earn sufficient returns on our
potential products will depend in part on the extent to which reimbursement for
the costs of such products will be available from government health
administration authorities, private health coverage insurers, managed care
organizations, and other organizations. In the United States, our ability to
have our products eligible for Medicare, Medicaid or private insurance
reimbursement will be an important factor in determining the ultimate success of
our products. If, for any reason, Medicare, Medicaid or the insurance companies
decline to provide reimbursement for our products, our ability to commercialize
our products would be adversely affected. There can be no assurance that our
potential drug products will be eligible for reimbursement.
17
There has been a trend toward declining
government and private insurance expenditures for many healthcare items.
Third-party payers are increasingly challenging the price of medical and
pharmaceutical products.
If
purchasers or users of our products and related treatments are not able to
obtain appropriate reimbursement for the cost of using such products, they may
forgo or reduce such use. Even if our products are approved for reimbursement by
Medicare, Medicaid and private insurers, of which there can be no assurance, the
amount of reimbursement may be reduced at times, or even eliminated. This would
have a material adverse effect on our business, financial condition and results
of operations.
Significant
uncertainty exists as to the reimbursement status of newly approved
pharmaceutical products, and there can be no assurance that adequate third-party
coverage will be available.
We
have limited sales, marketing and distribution experience.
We have
very limited experience in the sales, marketing, and distribution of
pharmaceutical products. There can be no assurance that we will be able to
establish sales, marketing, and distribution capabilities or make arrangements
with our current collaborators or others to perform such activities or that such
effort will be successful. If we decide to market any of our products directly,
we must either acquire or internally develop a marketing and sales force with
technical expertise and with supporting distribution capabilities. The
acquisition or development of a sales, marketing and distribution infrastructure
would require substantial resources, which may not be available to us or, even
if available, divert the attention of our management and key personnel, and have
a negative impact on further product development efforts.
We
intend to seek additional collaborative arrangements to develop and
commercialize our products. These collaborations, if secured, may not be
successful.
We intend
to seek additional collaborative arrangements to develop and commercialize some
of our potential products, including URG101 in North America and Europe. There
can be no assurance that we will be able to negotiate collaborative arrangements
on favorable terms or at all or that our current or future collaborative
arrangements will be successful.
Our
strategy for the future research, development, and commercialization of our
products is based on entering into various arrangements with corporate
collaborators, licensors, licensees, health care institutions and principal
investigators and others, and our commercial success is dependent upon these
outside parties performing their respective contractual obligations responsibly
and with integrity. The amount and timing of resources such third parties will
devote to these activities may not be within our control. There can be no
assurance that such parties will perform their obligations as expected. There
can be no assurance that our collaborators will devote adequate resources to our
products.
If
our product candidates do not gain market acceptance, we may be unable to
generate significant revenues.
Even if
our products are approved for sale, they may not be successful in the
marketplace. Market acceptance of any of our products will depend on a number of
factors, including demonstration of clinical effectiveness and safety; the
potential advantages of our products over alternative treatments; the
availability of acceptable pricing and adequate third-party reimbursement; and
the effectiveness of marketing and distribution methods for the products. If our
products do not gain market acceptance among physicians, patients, and others in
the medical community, our ability to generate significant revenues from our
products
18
If
we are not successful in acquiring or licensing additional product candidates on
acceptable terms, if at all, our business may be adversely
affected.
As part
of our strategy, we may acquire or license additional product candidates for
treatment of urinary tract disorders. We may not be able to identify promising
urinary tract product candidates. Even if we are successful in identifying
promising product candidates, we may not be able to reach an agreement for the
acquisition or license of the product candidates with their owners on acceptable
terms or at all.
We intend
to in-license, acquire, develop and market additional products and product
candidates so that we are not solely reliant on URG101 and URG301 sales for our
revenues. Because we have limited internal research capabilities, we are
dependent upon pharmaceutical and biotechnology companies and other researchers
to sell or license products or technologies to us. The success of this strategy
depends upon our ability to identify, select and acquire the right
pharmaceutical product candidates, products and technologies.
We may
not be able to successfully identify any other commercial products or product
candidates to in-license, acquire or internally develop. Moreover, negotiating
and implementing an economically viable in-licensing arrangement or acquisition
is a lengthy and complex process. Other companies, including those with
substantially greater resources, may compete with us for the in-licensing or
acquisition of product candidates and approved products. We may not be able to
acquire or in-license the rights to additional product candidates and approved
products on terms that we find acceptable, or at all. If we are unable to
in-license or acquire additional commercial products or product candidates, we
may be reliant solely on URG101 and URG301 sales for revenue. As a result, our
ability to grow our business or increase our profits could be severely
limited.
If
our efforts to develop new product candidates do not succeed, and product
candidates that we recommend for clinical development do not actually begin
clinical trials, our business will suffer.
We intend
to use our proprietary licenses and expertise in urethral tract disorders to
develop and commercialize new products for the treatment and prevention of
urological disorders. Once recommended for development, a candidate undergoes
drug substance scale up, preclinical testing, including toxicology tests, and
formulation development. If this work is successful, an IND, would need to be
prepared, filed, and approved by the FDA and the product candidate would then be
ready for human clinical testing.
The
process of developing new drugs and/or therapeutic products is inherently
complex, time-consuming, expensive and uncertain. We must make long-term
investments and commit significant resources before knowing whether our
development programs will result in products that will receive regulatory
approval and achieve market acceptance. Product candidates that may appear to be
promising at early stages of development may not reach the market for a number
of reasons. In addition, product candidates may be found ineffective or may
cause harmful side effects during clinical trials, may take longer to progress
through clinical trials than had been anticipated, may not be able to achieve
the pre-defined clinical endpoint due to statistical anomalies even though
clinical benefit was achieved, may fail to receive necessary regulatory
approvals, may prove impracticable to manufacture in commercial quantities at
reasonable cost and with acceptable quality, or may fail to achieve market
acceptance. To date, our development efforts have been focused on URG101 for
PBS/IC. While we have experience in developing urethral suppositories, our
development efforts for URG301 have just begun. There can be no assurance that
we will be successful with the limited knowledge and resources we have available
at the present time.
All
of our product candidates are in preclinical or clinical development and have
not received regulatory approval from the FDA or any foreign regulatory
authority. An IND has been filed and is effective for URG101 for the treatment
of painful bladder syndrome/interstitial cystitis, which has completed a
positive Phase II clinical trial; however, an IND has not been filed for URG301.
Typically, the regulatory approval process is extremely expensive, takes many
years to complete and the timing or likelihood of any approval cannot be
accurately predicted.
As part
of the regulatory approval process, we must conduct preclinical studies and
clinical trials for each product candidate to demonstrate safety and efficacy.
The number of preclinical studies and clinical trials that will be required
varies depending on the product candidate, the indication being evaluated, the
trial results and regulations applicable to any particular product
candidate.
19
The
results of preclinical studies and initial clinical trials of our product
candidates do not necessarily predict the results of later-stage clinical
trials. Product candidates in later stages of clinical trials may fail to show
the desired safety and efficacy despite having progressed through initial
clinical trials. We cannot assure you that the data collected from the
preclinical studies and clinical trials of our product candidates will be
sufficient to support FDA or other regulatory approval. In addition, the
continuation of a particular study after review by an institutional review board
or independent data safety monitoring board does not necessarily indicate that
our product candidate will achieve the clinical endpoint.
The FDA
and other regulatory agencies can delay, limit or deny approval for many
reasons, including:
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changes
to the regulatory approval process for product candidates in those
jurisdictions, including the United States, in which we may be seeking
approval for our product
candidates;
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a
product candidate may not be deemed to be safe or
effective;
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the
ability of the regulatory agency to provide timely responses as a result
of its resource constraints;
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the
manufacturing processes or facilities may not meet the applicable
requirements; and
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changes
in their approval policies or adoption of new regulations may require
additional clinical trials or other
data.
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Any delay
in, or failure to receive, approval for any of our product candidates or the
failure to maintain regulatory approval could prevent us from growing our
revenues or achieving profitability.
Our
potential international business would expose us to a number of
risks.
We
anticipate that a substantial amount of future sales of our potential products
will be derived from international markets. Accordingly, any failure to achieve
substantial foreign sales could have a material adverse effect on our overall
sales and profitability. Depreciation or devaluation of the local currencies of
countries where we sell our products may result in these products becoming more
expensive in local currency terms, thus reducing demand, which could have an
adverse effect on our operating results. Our ability to engage in non-United
States operations and the financial results associated with any such operations
also may be significantly affected by other factors, including:
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foreign
government regulatory authorities;
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product
liability, intellectual property and other
claims;
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export
license requirements;
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political
or economic instability in our target
markets;
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trade
restrictions;
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changes
in tax laws and tariffs;
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managing
foreign distributors and
manufacturers;
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managing
foreign branch offices and staffing;
and
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competition.
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If these
risks actually materialize, our anticipated sales to international customers may
decrease or not be realized at all.
20
Competition
in our target markets is intense, and developments by other companies could
render our product candidates obsolete.
The
pharmaceutical industry is not a static environment, and market share can change
rapidly if competing products are introduced. While we believe we are in the
process of developing products unique in the delivery and application for
treatment of urological maladies, we face competition from
Ortho-McNeil, Inc., BioNiche, Inc., Plethora Solutions Ltd., and SJ
Pharmaceuticals, Inc., among others, who have either already developed or
are in the process of developing products similar to ours. Further, there can be
no assurance that we can avoid intense competition from other medical technology
companies, pharmaceutical or biotechnology companies, universities, government
agencies, or research organizations that might decide to develop products
similar to ours. Many of these existing and potential competitors have
substantially greater financial and/or other resources. Our competitors may
succeed in developing technologies and products that are more effective or
cheaper to use than any that we may develop. These developments could render our
products obsolete and uncompetitive, which would have a material adverse effect
on our business, financial condition and results of operations.
If
we suffer negative publicity concerning the safety of our products in
development, our sales may be harmed and we may be forced to withdraw such
products.
If
concerns should arise about the safety of our products once developed and
marketed, regardless of whether or not such concerns have a basis in generally
accepted science or peer-reviewed scientific research, such concerns could
adversely affect the market for these products. Similarly, negative publicity
could result in an increased number of product liability claims, whether or not
these claims are supported by applicable law.
Adverse
events in the field of drug therapies may negatively impact regulatory
approval or public perception of our potential products and
technologies.
The FDA
may become more restrictive regarding the conduct of clinical trials
including urological and other therapies. This approach by the FDA could lead to
delays in the timelines for regulatory review, as well as potential delays in
the conduct of clinical trials. In addition, negative publicity may affect
patients’ willingness to participate in clinical trials. If fewer patients are
willing to participate in clinical trials, the timelines for recruiting patients
and conducting such trials will be delayed.
If
our intellectual property rights do not adequately protect our products, others
could compete against us more directly, which would hurt our
profitability.
Our
success depends in part on our ability to obtain patents or rights to patents,
protect trade secrets, operate without infringing upon the proprietary rights of
others, and prevent others from infringing on our patents, trademarks and other
intellectual property rights. We will be able to protect our intellectual
property from unauthorized use by third parties only to the extent that it is
covered by valid and enforceable patents, trademarks or licenses. Patent
protection generally involves complex legal and factual questions and,
therefore, enforceability of patent rights cannot be predicted with certainty;
thus, any patents that we own or license from others may not provide us with
adequate protection against competitors. Moreover, the laws of certain foreign
countries do not recognize intellectual property rights or protect them to the
same extent as do the laws of the United States.
In
addition to patents and trademarks, we rely on trade secrets and proprietary
know-how. We seek protection of these rights, in part, through confidentiality
and proprietary information agreements. These agreements may not provide
sufficient protection or adequate remedies for violation of our rights in the
event of unauthorized use or disclosure of confidential and proprietary
information. Failure to protect our proprietary rights could seriously impair
our competitive position.
If
third parties claim we are infringing their intellectual property rights, we
could suffer significant litigation or licensing expenses or be prevented from
marketing our products.
Any future commercial success by the
Company depends significantly on our ability to operate without infringing on
the patents and other proprietary rights of others. However, regardless of the
Company’s intent, our potential products may infringe upon the patents or
violate other proprietary rights of third parties. In the event of such
infringement or violation, we may face expensive litigation, may be obliged to
enter into expensive licensing agreements, or may be prevented from pursuing
product development or commercialization of our potential products or selling
our products.
21
Litigation
may harm our business or otherwise distract our management.
Substantial,
complex or extended litigation could cause us to incur large expenditures and
distract our management, and could result in significant monetary or equitable
judgments against us. For example, lawsuits by employees, patients, customers,
licensors, licensees, suppliers, distributors, stockholders, or competitors
could be very costly and substantially disrupt our business. Disputes from time
to time with such companies or individuals are not uncommon, and we cannot
assure that we will always be able to resolve such disputes out of court or on
terms favorable to us.
In
previous years, there has been significant litigation in the United States
involving patents and other intellectual property rights. Competitors in the
biotechnology industry may use intellectual property litigation against us
to gain advantage. In the future, we may be a party to litigation to
protect our intellectual property or as a result of an alleged infringement of
others’ intellectual property. These claims and any resulting lawsuit, if
successful, could subject us to significant liability for damages and
invalidation of our proprietary rights. Any potential intellectual property
litigation, if successful, also could force us to stop selling, incorporating or
using our potential products that use the challenged intellectual property;
obtain from the owner of the infringed intellectual property right a license to
sell or use the relevant technology, which license may not be available on
reasonable terms, or at all; or redesign our potential products that use the
technology. We may also be required in the future to initiate claims or
litigation against third parties for infringement of our intellectual property
rights to protect such rights or determine the scope or validity of our
intellectual property or the rights of our competitors. The pursuit of these
claims could result in significant expenditures and the diversion of our
technical and management personnel and we may not have sufficient cash and
manpower resources to pursue any such claims. If we are forced to take any of
these actions, our business may be seriously harmed.
Any
claims, with or without merit, and regardless of whether we prevail in the
dispute, would be time-consuming, could result in costly litigation and the
diversion of technical and management personnel and could require us to develop
non-infringing technology or to enter into royalty or licensing agreements. An
adverse determination in a judicial or administrative proceeding and failure to
obtain necessary licenses or develop alternate technologies could prevent us
from developing and selling our potential products, which would have a material
adverse effect on our business, results of operations and financial
condition.
If
we fail to attract and keep key management and scientific personnel, we may be
unable to develop or commercialize our product candidates
successfully.
Our
success depends on our continued ability to attract, retain and motivate highly
qualified management and scientific personnel. The loss of the services of any
principal member of our senior management, including William J. Garner,
M.D., Chief Executive Officer, Martin E. Shmagin, Chief Financial Officer,
Terry M. Nida, Chief Operating Officer and Dennis Giesing Ph.D., Chief
Scientific Officer, could delay or prevent the commercialization of our product
candidates. We employ these individuals on an at-will basis and their employment
can be terminated by us or them at any time, for any reason and with or without
notice, subject to the terms contained in their employment
agreements.
Competition
for qualified personnel in the biotechnology field is intense. We may not be
able to attract and retain quality personnel on acceptable terms given the
competition for such personnel among biotechnology, pharmaceutical and other
companies.
We have
established a scientific advisory board consisting of C. Lowell Parsons, M.D.
who is a Professor of the Department of Urology at the University of California,
San Diego, S. Grant Mulholland, M.D. who is Chair Emeritus of Urology at
Jefferson Medical College of Thomas Jefferson University and Christian Stief,
M.D. who is Professor and Chairman of the Department of Urology at Ludwig
Maximilians University in Munich, Germany. These members assist us in
formulating research and development strategies. These scientific advisors are
not our employees and may have commitments to, or consulting or advisory
contracts with, other entities that may limit their availability to us. The
failure of our scientific advisors to devote sufficient time and resources to
our programs could harm our business. In addition, our scientific advisors may
have arrangements with other companies to assist those companies in developing
products or technologies that may compete with our products.
22
If
the results of future pre-clinical studies, clinical testing and/or clinical
trials indicate that our proposed products are not safe or effective for human
use, our business will suffer.
Unfavorable
results from future clinical testing and/or clinical trials could result in
delays, modifications or abandonment of future clinical trials. A number of
companies in the pharmaceutical industry have suffered significant setbacks in
late stage clinical trials, even after promising results in initial-stage
trials. Clinical results are frequently susceptible to varying interpretations
that may delay, limit or prevent regulatory approvals. Negative or inconclusive
results or adverse medical events during a clinical trial could cause a clinical
trial to be delayed, repeated, modified or terminated. In addition, failure to
design appropriate clinical trial protocols could result in the test or control
group experiencing a disproportionate number of adverse events and could cause a
clinical trial to be delayed, repeated, modified or terminated.
The
investigational product candidates that we are currently developing may require
extensive pre-clinical and/or clinical testing before we can submit any
application for regulatory approval. Before obtaining regulatory approvals for
the commercial sale of any of our investigational product candidates, we must
demonstrate through pre-clinical testing and/or clinical trials that our
investigational product candidates are safe and effective in humans. Conducting
clinical trials is a lengthy, expensive and uncertain process. Completion of
clinical trials may take several years or more. Our ability to complete clinical
trials may be delayed by many factors, including, but not limited
to:
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inability
to manufacture sufficient quantities of compounds for use in clinical
trials;
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failure
to receive approval by the FDA of our clinical trial
protocols;
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changes
in clinical trial protocols made by us or imposed by the
FDA;
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the
effectiveness of our investigational product
candidates;
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slower
than expected rate of and higher than expected cost of patient
recruitment;
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inability
to adequately follow patients after
treatment;
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unforeseen
safety issues;
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government
or regulatory delays; or
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our
ability to raise the necessary funds to start or complete the
trials.
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These
factors may also ultimately lead to denial of regulatory approval of a current
or investigational drug candidate. If we experience delays, suspensions or
terminations in our clinical trials for a particular investigational product
candidate, the commercial prospects for that investigational candidate will be
harmed, and we may be unable to raise additional funds, generate product
revenues, or revenues from that investigational candidate could be
delayed.
Commercial
supplies of one of the active ingredients in URG101, heparin, were recalled by
the manufacturer as the supply was compromised due to non-cGMP practices that
resulted in such supplies failing to meet FDA approved product
specifications. While the FDA has tightened the manufacturing process
of heparin by requiring the use of more sensitive assays to ensure compliance
with approved product specifications, such changes in and of themselves cannot
guarantee uninterrupted commercial supplies in the future.
23
We may not achieve
projected development goals in the time frame we announce and
expect.
We may
set goals for and make public statements regarding timing of the accomplishment
of objectives material to our success, such as the commencement and completion
of clinical trials, anticipated regulatory approval dates, and time of product
launch. The actual timing of these events can vary dramatically due to factors
such as delays or failures in its clinical trials, the uncertainties inherent in
the regulatory approval process, and delays in achieving product development,
manufacturing or marketing milestones necessary to commercialize the combined
company’s products. There can be no assurance that our clinical trials will be
completed, that we will make regulatory submissions or receive regulatory
approvals as planned, or that the combined company will be able to adhere to its
current schedule for the scale-up of manufacturing and launch of any of our
products. If we fail to achieve one or more of these milestones as planned, the
price of our common shares could decline.
We
will need to obtain additional financing in order to continue our operations,
which financing might not be available or which, if it is available, may be
on terms that are not favorable to us.
Our
ability to engage in future development and clinical testing of our potential
products will require substantial additional financial resources. We currently
use approximately $200,000 per month to operate our business. Our future funding
requirements will depend on many factors, including:
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Our
financial condition;
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timing
and outcome of the Phase II clinical trials for
URG101;
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developments
related to our collaboration agreements, license agreements, academic
licenses and other material
agreements;
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our
ability to establish and maintain corporate
collaborations;
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the
time and costs involved in filing, prosecuting and enforcing patent
claims; and
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competing
pharmacological and market
developments.
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We
may have insufficient working capital to fund our cash needs unless we are
able to raise additional capital in the future. We have financed our operations
to date primarily through the sale of equity securities and through corporate
collaborations. If we raise additional funds by issuing equity securities,
substantial dilution to our stockholders may result. We may not be
able to obtain additional financing on acceptable terms, or at all. Any failure
to obtain an adequate and timely amount of additional capital on commercially
reasonable terms will have a material adverse effect on our business and
financial condition, including our viability as an enterprise. As a result of
these concerns, our management is assessing, and may pursue other strategic
opportunities, including the sale of our securities or other
actions.
We
may continue to incur losses for the foreseeable future, and might never achieve
profitability.
We may
never become profitable, even if we are able to commercialize additional
products. We will need to conduct significant research, development, testing and
regulatory compliance activities that, together with projected general and
administrative expenses, is expected to result in substantial increase in
operating losses for at least the next several years. Even if we achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis.
24
Our
stock price is
expected to be volatile, and the market price of our common stock may
fluctuate.
The
market price of our common stock is subject to significant fluctuations. Market
prices for securities of early-stage pharmaceutical, biotechnology and other
life sciences companies have historically been particularly volatile. Some of
the factors that may cause the market price of our common stock to fluctuate
include:
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the
results of our current and any future clinical trials of our product
candidates;
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the
entry into, or termination of, key agreements, including, among others,
key collaboration and license
agreements;
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the
results and timing of regulatory reviews relating to the approval of our
product candidates;
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the
initiation of, material developments or conclusion of litigation to
enforce or defend any of our intellectual property
rights;
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failure
of any of our product candidates, if approved, to achieve commercial
success;
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general
and industry-specific economic conditions that may affect our research and
development expenditures;
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the
results of clinical trials conducted by others on drugs that would compete
with our product candidates;
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issues
in manufacturing our product candidates or any approved
products;
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the
loss of key employees;
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the
introduction of technological innovations or new commercial products by
our competitors;
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changes
in estimates or recommendations by securities analysts, if any, who cover
our common stock;
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future
sales of our common stock; and
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period-to-period
fluctuations in our financial
results.
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Moreover,
the stock markets in general have experienced substantial volatility that has
often been unrelated to the operating performance of individual companies. These
broad market fluctuations may also adversely affect the trading price of our
common stock.
In the
past, following periods of volatility in the market price of a company’s
securities, stockholders have often instituted class action securities
litigation against those companies. Such litigation, if instituted, could result
in substantial costs and diversion of management attention and resources, which
could significantly harm our financial position, results of operations and
reputation.
25
Our
common stock is quoted on the OTC Bulletin Board. As a result, our common stock
is subject to trading restrictions as a “penny stock,” which could adversely
affect the liquidity and price of such stock.
Our
common stock has been quoted on the OTC Bulletin Board since June 19, 2007.
Because our common stock is not listed on any national securities exchange, our
shares are subject to the regulations regarding trading in “penny stocks,” which
are those securities trading for less than $5.00 per share. The following is a
list of the general restrictions on the sale of penny stocks:
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Prior
to the sale of penny stock by a broker-dealer to a new purchaser, the
broker-dealer must determine whether the purchaser is suitable to invest
in penny stocks. To make that determination, a broker-dealer must obtain,
from a prospective investor, information regarding the purchaser's
financial condition and investment experience and objectives.
Subsequently, the broker-dealer must deliver to the purchaser a written
statement setting forth the basis of the suitability finding and obtain
the purchaser’s signature on such
statement.
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A
broker-dealer must obtain from the purchaser an agreement to purchase the
securities. This agreement must be obtained for every purchase until the
purchaser becomes an “established customer.” A broker-dealer may not
effect a purchase of a penny stock less than two business days after a
broker-dealer sends such agreement to the
purchaser.
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The
Exchange Act requires that prior to effecting any transaction in any penny
stock, a broker-dealer must provide the purchaser with a “risk disclosure
document” that contains, among other things, a description of the penny
stock market and how it functions and the risks associated with such
investment. These disclosure rules are applicable to both purchases and
sales by investors.
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A
dealer that sells penny stock must send to the purchaser, within ten days
after the end of each calendar month, a written account statement
including prescribed information relating to the
security.
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These
requirements can severely limit the liquidity of securities in the secondary
market because few brokers or dealers are likely to be willing to undertake
these compliance activities. Because our common stock is subject to the rules
and restrictions regarding penny stock transactions, an investor’s ability to
sell to a third party and our ability to raise additional capital may be
limited. We make no guarantee that our market-makers will make a market in our
common stock, or that any market for our common stock will
continue.
Our
stock price could be adversely affected by dispositions of our shares pursuant
to registration statements currently in effect.
Some of
our current stockholders hold a substantial number of shares, which they are
currently able to sell in the public market under certain registration
statements currently in effect, or otherwise. Sales of a substantial number of
our shares or the perception that these sales may occur, could cause the
trading price of our common stock to fall and could impair our ability to raise
capital through the sale of additional equity securities.
As of
June 30, 2008, we had issued and outstanding 69,669,535 shares of our
common stock. This amount does not include, as of
June 30, 2008:
|
·
|
approximately
3.8 million shares of unregistered, subscribed common stock currently
issuable;
|
|
·
|
approximately
1.4 million shares of our common stock issuable upon the exercise of
all of our outstanding options;
|
|
·
|
approximately
19.6 million shares of our common stock issuable upon the exercise of
all of our outstanding warrants;
and
|
|
·
|
approximately
1.3 million shares of restricted stock awards that have not
vested.
|
26
These
shares of common stock, if and when issued or vested, may be sold in the
public market assuming the applicable registration statements continue to remain
effective and subject in any case to trading restrictions to which our insiders
holding such shares may be subject to from time to time. If these options
or warrants are exercised and sold, our stockholders may experience
additional dilution and the market price of our common stock could
fall.
In
addition, in connection with the Merger, stockholders of Urigen N.A. may sell a
significant number of shares of our common stock they received in the Merger.
Such holders have had no ready market for their Urigen N.A. shares and might be
eager to sell some or all of their shares. Further, Urigen N.A. recently entered
into agreements with a couple of its vendors and business partners which give
Urigen N.A. the right to pay certain amounts due to such vendors and business
partners for goods and services with shares of its common stock in lieu of cash.
Such vendors and business partners may be more inclined to sell our common stock
than other investors as they have not been long-term investors of Urigen
N.A. Significant sales could adversely affect the market price for
our common stock for a period of time.
Our
amended and restated certificate of incorporation and by-laws, include
anti-takeover provisions that may enable our management to resist an
unwelcome takeover attempt by a third party.
Our basic
corporate documents and Delaware law contain provisions that enable our
management to attempt to resist a takeover unless it is deemed by our management
and board of directors to be in the best interests of our stockholders. Those
provisions might discourage, delay or prevent a change in control of our company
or a change in our management. Our board of directors may also choose to
adopt further anti-takeover measures without stockholder approval. The existence
and adoption of these provisions could adversely affect the voting power of
holders of our common stock and limit the price that investors might be willing
to pay in the future for shares of our common stock.
We
may not be able to meet the initial listing standards to trade on a national
securities exchange such as the Nasdaq Capital Market or the American Stock
Exchange, which could adversely affect the liquidity and price of the combined
company’s common stock.
The
initial listing qualification standards for new issuers are stringent and,
although we may explore various actions to meet the minimum initial listing
requirements for a listing on a national securities exchange, there is no
guarantee that any such actions will be successful in bringing us into
compliance with such requirements.
If we
fail to achieve listing of our common stock on a national securities exchange,
our common shares may continue to be traded on the OTC Bulletin Board or other
over-the-counter markets in the United States, although there can be no
assurance that our common shares will be eligible for trading on any such
alternative markets or exchanges in the United States.
In the
event that we are not able to obtain a listing on a national securities exchange
or maintain our reporting on the OTC Bulletin Board or other quotation service
for our common shares, it may be extremely difficult or impossible for
stockholders to sell their common shares in the United States. Moreover,
if our common stock remains quoted on the OTC Bulletin Board or other
over-the-counter market, the liquidity will likely be less, and therefore the
price will be more volatile, than if our common stock was listed on a national
securities exchange. Stockholders may not be able to sell their common shares in
the quantities, at the times, or at the prices that could potentially be
available on a more liquid trading market. As a result of these factors, if our
common shares fail to achieve listing on a national securities exchange, the
price of our common shares may decline. In addition, a decline in the price of
our common shares could impair our ability to achieve a national securities
exchange listing or to obtain financing in the future.
27
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS
|
|
ITEM
2.
|
PROPERTIES
|
We pay a
fee of $3,211 per month, which is based on estimated fair market value, to
EGB Advisors, LLC for rent and other office services at our headquarters in
Burlingame, California. EGB Advisors, LLC is owned solely by William J. Garner,
president and Chief Executive Officer of Urigen Pharmaceuticals,
Inc.
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Our
common stock is quoted on the OTC Bulletin Board under the symbol “URGP.OB.”
Previously, commencing June 19, 2007 our common stock was quoted on the OTC
Bulletin Board under the symbol VLTS.OB. The following table sets forth, for the
calendar periods indicated, the high and low per share sales prices for our
common stock as reported by the OTC Bulletin Board since after the
Merger.
|
High
|
Low
|
|||||||
|
2008
|
||||||||
|
First
Quarter
|
$
|
0.50
|
$
|
0.10
|
||||
|
Second
Quarter
|
0.22
|
0.08
|
||||||
|
Third
Quarter
|
0.19
|
0.09
|
||||||
|
Fourth
Quarter
|
0.17
|
0.07
|
||||||
On
October 13, 2008 the last sale price reported on the OTC Bulletin Board for
our common stock was $0.10 per share. As of September 30 2008, the Company was
aware of 350 stockholders of record of our common stock. We believe that the
number of beneficial owners is substantially greater than the number of record
holders because a large portion of our common stock is held of record through
brokerage firms in “street name.”
28
Sales
and Repurchases of Securities
In April,
May, and June 2008, the Company completed eight separate private placements of
unregistered subscribed common stock, for gross proceeds of $8,500, $75,000,
$25,000, $15,000, $4,500, $40,000, $25,000 and $25,000 respectively for a total
gross proceeds of $218,000. These agreements provided one common
share warrant for every 2 shares subscribed, with a $0.22 warrant exercise
price, and a five year warrant term.
In April
2008, the Company negotiated a vendor agreement providing 147,059 shares of
unregistered subscribed common stock to a vendor to settle a $25,000 payable
arising from services provided by the vendor to the Company.
In May
2008, the Company negotiated a vendor agreement providing 60,000 shares of
unregistered subscribed common stock to a vendor in exchange for services
provided by the vendor to the Company, at a fair value of approximately
$7,200.
In June
2008, the Company negotiated a vendor agreement providing 24,000 shares of
unregistered subscribed common stock to a vendor in exchange for the settlement
of a previous agreement requiring the issuance of 300,815 shares for services
provided by the vendor to the Company.
Dividends
The
Company has never paid any cash dividends on common stock. During the
year ended June 30, 2008 the Company recorded $55,633 of accrued imputed
dividends on Series B preferred stock classified as equity.
29
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
The data
set forth below should be read in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and the consolidated
financial statements and related notes included elsewhere in this report.
|
Cumulative
|
||||||||||||
|
period
from
|
||||||||||||
|
July
18, 2005
|
||||||||||||
|
Year
ended June 30,
|
(inception
to date) to
|
|||||||||||
|
2008
|
2007
|
June
30, 2008
|
||||||||||
|
(in
thousands)
|
(in
thousands)
|
|||||||||||
|
Consolidated
Statement of Operations Data:
|
||||||||||||
|
Operating
expenses:
|
||||||||||||
|
Research
and development
|
$ | 684 | $ | 758 | $ | 2,246 | ||||||
|
General
and administrative
|
2,762 | 2,176 | 5,576 | |||||||||
|
Sales
and marketing
|
264 | 296 | 571 | |||||||||
|
Total
operating expenses
|
3,710 | 3,230 | 8,393 | |||||||||
|
Loss
from operations
|
(3,710 | ) | (3,230 | ) | (8,393 | ) | ||||||
|
Interest,
other income and and expense, net
|
(1,134 | ) | (22 | ) | (1,244 | ) | ||||||
|
Net
loss
|
$ | (4,844 | ) | $ | (3,252 | ) | $ | (9,637 | ) | |||
|
Basic
and diluted net loss per share
|
$ | (0.07 | ) | $ | (0.05 | ) | ||||||
|
Shares
used in computing basic and diluted net loss per common
share
|
69,860 | 64,107 | ||||||||||
|
As
of June 30,
|
|||||||||
|
2008
|
2007
|
||||||||
|
(in
thousands)
|
|||||||||
|
Consolidated
Balance Sheet Data:
|
|||||||||
|
Cash
|
$ | 46 | $ | 102 | |||||
|
Working
capital
|
(2,709 | ) | (1,482 | ) | |||||
|
Total
assets
|
464 | 388 | |||||||
|
Deficit
accumulated during development stage
|
(9,637 | ) | (4,792 | ) | |||||
|
Total
stockholders' (deficit)
|
(2,337 | ) | (1,217 | ) | |||||
30
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements include,
without limitation, statements containing the words “believes,” “anticipates,”
“expects,” “intends,” “projects,” “will,” and other words of similar import or
the negative of those terms or expressions. Forward-looking statements in this
report include, but are not limited to, expectations of future levels of
research and development spending, general and administrative spending, levels
of capital expenditures and operating results, sufficiency of our capital
resources, our intention to pursue and consummate strategic opportunities
available to us, including sales of certain of our assets. Forward-looking
statements subject to certain known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These risks
and uncertainties include, but are not limited to, those described in Part I,
“Item 1A. Risk Factors” of 10-K reports filed with the Securities and Exchange
Commission and those described from time to time in our future reports filed
with the Securities and Exchange Commission.
CORPORATE
OVERVIEW
We were
formerly known as Valentis, Inc. and were formed as the result of the merger of
Megabios Corp. and GeneMedicine, Inc. in March 1999. We were incorporated in
Delaware on August 12, 1997. In August 1999, we acquired U.K.-based
PolyMASC Pharmaceuticals plc.
On
October 5, 2006, we entered into an Agreement and Plan of Merger, as
subsequently amended (the “Merger”) with Urigen N.A., Inc., a Delaware
corporation (“Urigen N.A.”), and Valentis Holdings, Inc., our newly formed
wholly-owned subsidiary (“Valentis Holdings”). Pursuant to the Merger Agreement,
on July 13, 2007, Valentis Holdings was merged with and into Urigen N.A., with
Urigen N.A. surviving as our wholly-owned subsidiary. In connection with the
Merger, each Urigen stockholder received, in exchange for each share of Urigen
N.A. common stock held by such stockholder immediately prior to the closing of
the Merger, 2.2554 shares of our common stock. At the effective time of the
Merger, each share of Urigen N.A. Series B preferred stock was exchanged
for 11.277 shares of our common stock. An aggregate of 51,226,679 shares of our
common stock were issued to the Urigen N.A. stockholders. Upon completion of the
Merger, we changed our name from Valentis, Inc. to Urigen Pharmaceuticals,
Inc.
From and
after the Merger, our business is conducted through our wholly owned subsidiary
Urigen N.A. The discussion of our business in this annual report is that of our
current business which is conducted through Urigen
N.A.
BUSINESS
We
specialize in the design and implementation of innovative products for patients
with urological ailments including, specifically, the development of innovative
products for amelioration of Painful Bladder Syndrome (PBS), Urethritis,
Nocturia and Overactive Bladder (OAB).
Urology
represents a specialty pharmaceutical market of approximately 12,000 physicians
in North America. Urologists treat a variety of ailments of the urinary tract
including urinary tract infections, bladder cancer, overactive bladder, urgency
and incontinence and interstitial cystitis, a subset of PBS. Many of these
indications represent significant, underserved therapeutic market
opportunities.
Over the
next several years a number of key demographic and technological factors should
accelerate growth in the market for medical therapies to treat urological
disorders, particularly in our product categories. These factors include the
following:
|
·
|
Aging
population. The incidence of urological disorders increases with age. The
over-40 age group in the United States is growing almost twice as fast as
the overall population. Accordingly, the number of individuals developing
urological disorders is expected to increase significantly as the
population ages and as life expectancy continues to
rise.
|
|
·
|
Increased
consumer awareness. In recent years, the publicity associated with new
technological advances and new drug therapies has increased the number of
patients visiting their urologists to seek treatment for urological
disorders.
|
31
Urigen’s
two clinical stage products target significant unmet medical needs with
meaningful market opportunities in urology:
|
·
|
URG101,
a bladder instillation for Painful Bladder Syndrome/Interstitial
Cystitis
|
|
·
|
URG301,
a female urethral suppository for urethritis and
nocturia
|
URG101
targets Painful Bladder Syndrome/Interstitial Cystitis (PBS) which affects
approximately 10.5 million men and women in North America. URG101 is
a unique, proprietary combination therapy of components that is locally
delivered to the bladder for rapid relief of pain and urgency as demonstrated in
Urigen’s positive Phase II Pharmacodynamic Crossover study.
URG301
targets urethritis and nocturia, typically seen in overactive bladder patients.
URG301 is a proprietary dosage form of an approved drug that is locally
delivered to the female urethra. Urethritis pain commonly occurs with urinary
tract infections (UTIs) which cause more than 8 million visits to the doctor
annually. Nocturia, or nighttime urgency and frequency, is secondary to
overactive bladder and can severely impact quality of life by disrupting the
normal sleep pattern.
The novel
urethral suppository platform presents excellent opportunities for effective
product lifecycle management. As market penetration of URG301
deepens, line extensions will be available through alternate generic drugs as
well as new chemical entities. To further expand the pipeline, the
Company will identify and prioritize both marketed and development-stage
products for acquisition. The commercial opportunity for such
candidates will benefit significantly from the synergy provided by URG101 and
URG301 in the urology marketplace.
We plan
to market our products to urologists and urogynecologists in the United States
via a specialty sales force managed internally. As appropriate, our specialty
sales force will be augmented by co-promotion and licensing agreements with
pharmaceutical companies that have the infrastructure to market our products to
general practitioners. In all other countries, we plan to license marketing and
distribution rights to our products to pharmaceutical companies with strategic
interests in urology and gynecology.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements” (“SFAS 157”). The standard provides guidance for using fair
value to measure assets and liabilities. The standard also responds to
investors’ requests for expanded information about the extent to which companies
measure assets and liabilities at fair value, the information used to measure
fair value, and the effect of fair value measurements on earnings. The standard
applies whenever other standards require or permit assets or liabilities to be
measured at fair value. The standard does not expand the use of fair value in
any new circumstances. SFAS 157 must be adopted prospectively as of the
beginning of the year it is initially applied. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years, except for the impact of
FASB Staff Position (FSP) 157-2. FSP 157-2 deferred the adoption of SFAS 157 for
non financial assets and liabilities until years beginning after November 15,
2008. We are still evaluating the impact this standard will have on our
financial position and/or results of operations.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Liabilities” (“SFAS 159”). SFAS 159 provides entities with
the option to report selected financial assets and liabilities at fair value.
Business entities adopting SFAS 159 will report unrealized gains and losses in
their statement of operations at each subsequent reporting date on items for
which the fair value option has been elected. SFAS 159 establishes presentation
and disclosure requirements designed to facilitate comparisons between entities
that choose different measurement attributes for similar types of assets and
liabilities. SFAS 159 requires additional information that will help investors
and other financial statement users to understand the effect of an entity’s
choice to use fair value on its results of operations. SFAS 159 is effective for
fiscal years beginning after November 15, 2007, with earlier adoption permitted.
The Company is currently assessing the impact that the adoption of SFAS 159 may
have on its financial position, results of operations and/or cash
flows.
In June
2007, the FASB ratified a consensus opinion reached by the EITF on EITF Issue
07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services
Received for Use in Future Research and Development Activities”
(“EITF 07-3”). The guidance in EITF 07-3 requires us to defer and
capitalize nonrefundable advance payments made for goods or services to be used
in research and development activities until the goods have been delivered or
the related services have been performed. If the goods are no longer expected to
be delivered or the services are no longer expected to be performed, we would be
required to expense the related capitalized advance payments. EITF 07-3 is
effective for fiscal years beginning after December 15, 2007 and is to be
applied prospectively to new contracts entered into on or after the commencement
of that fiscal year. Early adoption is not permitted. Retrospective application
of EITF 07-3 also is not permitted. We intend to adopt EITF 07-3 effective
July 1, 2008 and do not expect the pronouncement to have a material effect
on our consolidated financial statements.
32
In
December 2007, the U.S. Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 110 (SAB 110) to amend the SEC’s views discussed in
Staff Accounting Bulletin 107 (SAB 107) regarding the use of the simplified
method in developing an estimate of the expected life of stock options in
accordance with SFAS 123R. SAB 110 is effective for us beginning in
the first quarter of fiscal 2009. The adoption of SAB 110 is not expected
to have a significant impact on our consolidated financial
statements.
In
December 2007, the FASB issued SFAS No. 141R (revised 2007), “Business
Combinations” (“SFAS 141R”). SFAS 141R amends SFAS 141
and provides revised guidance for recognizing and measuring identifiable assets
and goodwill acquired, liabilities assumed, and any noncontrolling interest in
the acquiree. It also provides disclosure requirements to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141R is effective for fiscal years beginning
on or after December 15, 2008 and will be applied prospectively. This
statement is effective for our fiscal year beginning July 1, 2009. We are
currently evaluating the impact of adopting SFAS No. 141R on our
consolidated financial statements, which is dependent upon the future
acquisition activities.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Financial Statements, an amendment of ARB No. 51”
(“SFAS 160”). SFAS 160 will change the accounting and reporting for
minority interests which will be recharacterized as noncontrolling interests and
classified as a component of equity in the financial statements and separate
from the parent’s equity, and it eliminates “minority interest” accounting in
results of operations with earnings/losses attributable to non-controlling
interests reported as part of consolidated earnings/losses. SFAS 160
also establishes reporting requirements that provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of non-controlling owners. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008. SFAS 160 requires retroactive
adoption of the presentation and disclosure requirements for existing minority
interests. We are currently assessing the impact that SFAS 160 may have on
our financial position, results of operations, and cash flows.
In
December 2007, the FASB issued EITF Issue 07-1, “Accounting for Collaborative
Arrangements” (“EITF 07-1”). Collaborative arrangements are
agreements between parties to participate in some type of joint operating
activity. EITF 07-1 provides indicators to help identify collaborative
arrangements and provides for reporting of such arrangements on a gross or net
basis pursuant to guidance in existing authoritative literature. EITF 07-1 also
expanded disclosure requirements about collaborative arrangements. Conclusions
within EITF 07-1 are to be applied retrospectively. EITF 07-1 is effective for
fiscal years beginning on or after December 15, 2008. We are currently assessing
the impact that EITF 07-1 may have on our financial position, results of
operations, and cash flows.
Critical
Accounting Policies
Clinical
trial expenses
We
believe the accrual for clinical trial expenses are a significant estimate used
in the preparation of our consolidated financial statements. Our accruals for
clinical trial expenses are based in part on estimates of services received and
efforts expended pursuant to agreements established with clinical research
organizations and clinical trial sites. We have a history of contracting with
third parties that perform various clinical trial activities on our behalf in
the ongoing development of our biopharmaceutical drugs. The financial terms of
these contracts are subject to negotiations and may vary from contract to
contract and may result in uneven payment flows. We determine our estimates
through discussion with internal clinical personnel and outside service
providers as to progress or stage of completion of trials or services and the
agreed upon fee to be paid for such services. The objective of our clinical
trial accrual policy is to reflect the appropriate trial expenses in our
financial statements by matching period expenses with period services and
efforts expended. In the event of early termination of a clinical trial, we
accrue expenses associated with an estimate of the remaining, non-cancelable
obligations associated with the winding down of the trial. Our estimates and
assumptions for clinical trial expenses have been materially accurate in the
past.
Intangible
Assets
Intangible
assets include the intellectual property and other patented rights acquired.
Consideration paid in connection with acquisitions is required to be allocated
to the acquired assets, including identifiable intangible assets, and
liabilities acquired. Acquired assets and liabilities are recorded based on the
Company’s estimate of fair value, which requires significant judgment with
respect to future cash flows and discount rates. For intangible assets other
than goodwill, the Company is required to estimate the useful life of the asset
and recognize its cost as an expense over the useful life. The Company uses the
straight-line method to expense long-lived assets (including identifiable
intangibles). The intangible assets were recorded based on their estimated fair
value and are being amortized using the straight-line method over the estimated
useful life of 20 years, which is the life of the intellectual property
patents.
33
Contractual
Obligations and Notes Payable
In
November 2007, the Company entered into an agreement with M & P Patent AG
(Mattern) under which we licensed worldwide rights to Mattern’s intra-nasal
testosterone product for men. The Mattern patent and intellectual
property rights were not placed in service and were not being amortized, nor
included in future amortization estimates, as of December 31, 2007. At December
31 2007, the Company had recorded a license payment to Mattern of one million
shares of Urigen common stock and accrued $1,500,000 in milestone
payments. The Company terminated its license agreement with Mattern
effective March 31, 2008. Accordingly, the accrued liability and
intangible asset has been reversed and a general and administrative impairment
expense of $99,750 has been recorded, which represents the fair value of the one
million shares of restricted stock that were issued. The Company
believes there will be no further payments to Mattern as a result of this
transaction.
On
January 31, 2008 the Company entered into an agreement with Redington Inc. to
provide investor relations services. Under the terms of the agreement
Redington received subscribed common stock in the amount of 380,000 shares
with an initial estimated fair value of $39,710. The agreement
provides warrants for Redington Inc. to purchase additional common stock at
$0.15 per share. The number of warrants to be issued is contingent
upon the increase in value of the Company’s stock from an initial closing price
of $0.12 per share on January 31, 2008 with a maximum number of approximately 1
million warrants issuable under the agreement.
On
November 17, 2006, the Company entered into an unsecured promissory note with C.
Lowell Parsons, a director of the Company, in the amount of $200,000. Under the
terms of the note, the Company is to pay interest at a rate per annum computed
on the basis of a 360-day year equal to 12% simple interest. The foregoing
amount is due and payable on the earlier of (i) forty-five (45) days after
consummation of the Merger (as defined in the Agreement and Plan of Merger,
dated as of October 5, 2006, between the Company and Valentis, Inc., or (ii) two
(2) calendar years from the note issuance date (in either case, the “Due
Date”). All amounts due under the note agreement are still
outstanding as of June 30, 2008. Also, the Company had issued 11,277
shares of Urigen N.A. Series B preferred stock, in connection with this note
agreement, which was converted to common stock at the time of the
Merger. Interest expense paid was $8,000 and $12,933 for the years
ended June 30, 2008 and 2007, respectively. At June 30, 2008 and
2007, the Company owed accrued interest expense of $18,000 and $2,000,
respectively.
On
January 5, 2007, the Company entered into an unsecured promissory note with KTEC
Holdings, Inc. in the amount of $100,000. Tracy Taylor who is the Company’s
Chairman of the Board of Directors, is President and Chief Executive Officer of
the Kansas Technology Enterprise Corporation (KTEC). Under the terms
of the note, the Company is to pay interest at a rate of 12% per annum until
paid in full, with interest compounded as additional principal on a monthly
basis if said interest is not paid in full by the end of each month. Interest
shall be computed on the basis of a 360 day year. All amounts owed
are due and payable by the Company at its option, without notice or demand, on
the earlier of (i) ninety (90) days after consummation of the Merger as defined
in the Agreement and Plan of Merger, dated as of October 5, 2006, between the
Company and Valentis, Inc., or (ii) two (2) calendar years from the note
issuance date (in either case, the “Due Date”). Also, the Company had issued
5,639 shares of Urigen N.A. Series B preferred stock in connection with this
note agreement, which was converted to common stock at the time of the
Merger. If this note is not paid when due, interest shall accrue
thereafter at the rate of 18% per annum. All principal amounts due under the
note agreement are still outstanding as of June 30, 2008. Interest paid was
$4,088 and $4,945 for the years ended June 30, 2008 and 2007,
respectively. At June 30, 2008 and 2007, the Company owed accrued
interest expense of $9,536 and $1,000, respectively.
On June
25, 2007, Valentis, Inc., upon approval of its Board of Directors, issued
Benjamin F. McGraw, III, Pharm.D., who was the Company’s Chief Executive
Officer, President and Treasurer prior to the Merger, a promissory note in the
amount of $176,000 in lieu of accrued bonus compensation owed to Dr.
McGraw This note was assumed by the Company pursuant to the Merger.
The note bears interest at the rate of 5.0% per annum, may be prepaid by the
Company in full or in part at anytime without premium or penalty and was due and
payable in full on December 25, 2007. On December 25, 2007, the note
was extended through June 25, 2008. On August 11, 2008, the note was
extended through December 25, 2008. Dr. McGraw is currently a member
of the Board of Directors. At June 30, 2008 and June 30, 2007, the
Company owed accrued interest expense of $8,800 and $0,
respectively.
34
Off
Balance Sheet Arrangements
At
June 30, 2008 and 2007, the only off balance sheet arrangements were
the operating sublease payments of $3,211 and $2,683 per month, respectively,
to EGB Advisors, LLC. EGB Advisors, LLC is owned solely by William J.
Garner, M.D. Chief Executive Officer of the Company. The fees are for rent,
telephone and other office services which are based on estimated fair market
value.
Results
of Operations
Fiscal
Years Ended June 30, 2008 and 2007
Revenue
There
were no operating revenues for the years ended June 30, 2008 and
2007.
Research
and Development Expenses
Research
and development expenses were $684,304 and $758,081 for the years ended June
30, 2008 and 2007, respectively. The decrease was primarily due to
decreases in clinical trial expenses overall in the year ended June 30,
2008. We expect research and development expenses to increase in future
quarters as we continue our clinical studies of our two product lines and pursue
our strategic opportunities.
General
and Administrative Expenses
General
and administrative expenses were $2,761,535 and $2,175,908 for the years ended
June 30, 2008 and 2007, respectively. The increase was due to increased
legal and accounting fees in connection with the Merger, convertible preferred
stock transaction, and public company operating expenses. We expect
general and administrative expenses to increase going forward, in the long term,
as we proceed to move our technologies forward toward
commercialization.
Sales
and Marketing Expenses
Sales and
marketing expenses were $264,269 and $295,655 for the years ended June 30, 2008
and 2007, respectively. The decrease is mainly due to decreased market research
activities. We expect sales and marketing expenses to increase going
forward as we proceed to move our technologies forward toward
commercialization.
35
Interest
and Other Income and Expenses, net
Interest
income was $18,094 and $14,104 for the years ended June 30, 2008 and 2007,
respectively. The increase in interest income is mainly due to the higher
average cash balances during the year due to current year equity
financing. We do not expect interest income to increase unless the
Company is able to raise additional capital through an equity financing or a
partnering arrangement.
Interest
expense was $2,235,286 and $36,496 for the years ended June 30, 2008 and 2007,
respectively. The increase is due primarily to the $2,100,000 of
non-cash interest expense recorded in conjunction with the Series B convertible
preferred stock which was classified as a liability at issuance. This
level of interest expense is not expected to reoccur.
Other income
and expenses net was $1,082,842 and $0 for the years ended June 30, 2008 and
2007, respectively. The increase is due to $200,000 in other income
related to technology licensing and mark-to-market valuations on Series B
preferred stock classified as a liability during the year and was offset by
penalties on unpaid accrued payroll taxes and liquidated damages paid associated
with Series B preferred stock registration rights agreement. This
level of income and expense net is not expected to reoccur.
Liquidity
and Capital Resources
As
discussed elsewhere in this report, including further below, we have received a
report from our independent registered public accounting firm regarding the
consolidated financial statements for the fiscal year ended
June 30, 2008 that includes an explanatory paragraph stating that the
financial statements have been prepared assuming we will continue as a going
concern. The explanatory paragraph and note 2 to our consolidated financial
statements state the following conditions, which raise substantial doubt about
our ability to continue as a going concern: we have incurred operating losses
since inception, including a net loss of $4.84 million for the fiscal year
ended June 30, 2008, negative cash flows from operations of $2.69
million for the fiscal year ended June 30, 2008, and our accumulated
deficit was $9.64 million at June 30, 2008. We
anticipate requiring additional financial resources to enable us to fund the
completion of our development plan. These funds may be derived from the sale of
a current license, licensing and distribution agreements outside the
U.S., corporate partnerships, and/or additional
financing.
If we are
unable to obtain the required additional financial resources to enable us to
fund current development projects or the completion of the strategic
opportunities that may be available to us, or if we are otherwise unsuccessful
in completing any strategic alternative, our business, results of operation and
financial condition would be materially adversely affected and we may be
required to seek bankruptcy protection.
The
Company currently subleases office facilities on a month-to-month basis at a
rate of $3,211 per month from EGB Advisors, LLC. EGB Advisors, LLC is owned
solely by William J. Garner, President and Chief Executive Officer of Urigen
Pharmaceuticals, Inc. The sublease is terminable upon 30 days’
notice.
Net cash
used in operating activities for the year ended June 30, 2008 was
approximately $2.69 million, which primarily reflected the net loss of
$4.84 million, adjusted for non-cash preferred Series B discount and
imputed interest expense of $2.14 million, other non cash expenses of
$234,560 and the net increase in operating assets and liabilities of
approximately $705,000, offset by the change in the fair value of the Series B
convertible preferred stock liability of $949,895. Net cash used in operating
activities for the year ended June 30, 2007 was approximately
$1.23 million, which primarily reflected the net loss of
$3.25 million, adjusted for non-cash expenses of $1.04 million and the net
increase in operating assets and liabilities of approximately
$970,000.
Net cash
used in used in investing activities was approximately $4,000 and $2,700 for the
fiscal year ended June 30, 2008 and 2007, respectively, which
primarily reflected the purchase of equipment.
Net cash
provided by financing activities was approximately $2.64 million for the fiscal
year ended June 30, 2008, which primarily reflected the $2.10 million
receipt of proceeds from the issuance of Series B preferred stock and $318,000
in proceeds from common stock subscriptions. Net cash provided
by financing activities was approximately $767,000 for the fiscal year ended
June 30, 2007, which consisted primarily of net proceeds received from
private placements of Urigen N.A. Series B preferred stock and notes
payable.
36
QUARTERLY
FINANCIAL INFORMATION (UNAUDITED)
Our
consolidated financial statements and notes thereto appear on pages 53
to 87 of this Annual Report on Form 10-K. The
quarterly financial information (unaudited) is described in Note 17 of the
consolidated financial statements.
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Urigen’s
exposure to market risk for changes in interest rates relates primarily to our
cost of capital and our ability to raise capital. We maintain a strict
investment policy that is designed to limit default risk, market risk, and
reinvestment risk. Our cash consists of cash and money market
accounts. The balance of our accounts as of June 30, 2008
and 2007 was $45,509 and $101,608, respectively.
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Our
consolidated financial statements and notes thereto appear on pages 53
to 87 of this Annual Report on Form 10-K.
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
|
None.
37
|
ITEM
9A(T).
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures. The Securities and Exchange
Commission defines the term “disclosure controls and procedures” to mean a
company’s controls and other procedures that are designed to ensure that
information required to be disclosed in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported, within the time periods specified in the Commission’s rules and forms.
Our Chief Executive Officer and Chief Financial Officer have concluded, based on
the evaluation of the effectiveness of the disclosure controls and procedures by
our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, as of the end of the period covered by this report, that our
disclosure controls and procedures were not effective for this
purpose.
Management’s Annual Report on
Internal Control over Financial Reporting. Management of the
Company is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness of
internal control over financial reporting. Internal control over financial
reporting is a process designed by, or under the supervision of, the Chief
Executive Officer and Chief Financial Officer, or persons performing similar
functions, and effected by the issuer's board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
·
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and disposition of our
assets;
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being
made only in accordance with authorization of our management and
directors; and
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
|
As of the end of the period covered by
this report, the Company’s management, including the Chief Executive Officer and
Chief Financial Officer, completed our evaluation of the effectiveness of our
internal control over financial reporting, which we had been conducting based on
the criteria for effective internal control over financial reporting described
in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treasury Commission (“COSO”).
Management completed its assessment of
internal control over financial reporting, and has identified material
weaknesses that existed in the design or operation of our internal control over
financial reporting. The Public Company Accounting Oversight Board has defined a
material weakness as a “deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis. The following
material weaknesses were identified in our 2008 assessment:
|
·
|
Management
noted an insufficient quantity of experienced, dedicated resources
involved in control activities and financial reporting. This material
weakness contributed to a control environment where there is a reasonable
possibility that a material misstatement of the interim and annual
financial statements could occur and not be prevented or detected on a
timely basis.
|
|
·
|
The
Company’s design and operation of controls with respect to the process of
preparing and reviewing the annual and interim financial statements are
ineffective. This material weakness includes failures in the design and
operating effectiveness of controls which would insure (i) preparation of
financial statements and disclosures on a timely basis; (ii) that all
journal entries and financial disclosures are thoroughly reviewed and
approved internally and documentation of this review process is retained;
(iii) adequate separation of duties in the reporting process, and (iv)
timely reconciliation of balance sheet and expense
accounts. These control deficiencies could result in a material
misstatement of the financial statements due to the significance of the
financial closing and reporting process to the preparation of reliable
financial statements.
|
38
This
annual report does not include an attestation report of our independent
registered public accounting firm regarding the effectiveness of internal
control over financial reporting. The effectiveness of internal control over
financial reporting was not subject to attestation by the Company’s independent
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management’s
report in this annual report.
Changes in Internal
Controls. In connection with its audit of our consolidated financial
statements for the year ended June 30, 2008, Burr, Pilger & Mayer LLP
identified significant deficiencies, which represent material weaknesses. The
material weaknesses were related to a lack of adequate segregation of duties and
experienced personnel. In addition, significant audit adjustments were needed to
accrued expenses and equity that were the result of an insufficient quantity of
experienced resources involved with the financial reporting and year end closing
process.
Prior to the issuance of our consolidated financial statements, we completed the
account reconciliations, analyses and our management review such that we can
certify that the information contained in our consolidated financial statements
for the year ended June 30, 2008, fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Limitations on Effectiveness of
Controls and Procedures. Our management, including our Chief Executive
Officer and Chief Financial Officer, does not expect that our disclosure
controls and procedures or our internal controls will prevent all errors and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact
that there are resource constraints and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include, but are not limited to, the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
|
ITEM
9B.
|
OTHER
INFORMATION
|
None.
39
|
ITEM
10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE
REGISTRANT
|
Executive
Officers and Directors
Upon
consummation of the Merger, July 13, 2007, the Valentis Inc.'s sole officer,
Benjamin F. McGraw, III, Pharm.D. was terminated as the Company's Chief
Executive Officer, President, Treasurer, and Secretary. The following table
lists the names and ages and positions of our current executive officers and
directors. Each of the executive officers was appointed on July 16, 2007,
with the exception of Mr. Robert Watkins who was appointed September 28, 2007
and Ms. Cynthia Sullivan, who was appointed on November 2, 2007.
|
Name
|
Age
|
Position | ||
|
William
J. Garner, M.D.
|
42
|
President,
Chief Executive Officer and Director
|
||
|
Martin
E. Shmagin
|
58
|
Chief
Financial Officer and Director
|
||
|
Terry
M. Nida
|
60
|
Chief
Operating Officer
|
||
| Dennis H. Giesing, Ph.D., |
56
|
Chief Scientific Officer | ||
|
Benjamin
F. McGraw, III, Pharm.D.
|
59
|
Director
|
||
|
Tracy
Taylor
|
54
|
Chairman
of the Board
|
||
|
C.
Lowell Parsons, M.D.
|
64
|
Director
|
||
|
George
M. Lasezkay, Pharm.D., J.D.
|
56
|
Director
|
||
|
Cynthia
Sullivan
|
52
|
Director
|
||
|
Robert
Watkins
|
65
|
Director
|
The
principal occupations and positions for the past five years, and in some cases
prior years, of the executive officers and directors named above, are as follows
unless set forth elsewhere in this report:
William J. Garner, M.D., 42, was appointed President
and Chief Executive Officer on July 13, 2007. Prior to that date, Dr.
Garner was President and Chief Executive Officer of Urigen N.A.,
Inc. Dr. Garner is an experienced entrepreneur. Prior to
founding Urigen N.A., Dr. Garner had been the founder and managing director
of EGB Advisors, LLC, a pharmaceutical commercialization boutique. Through
this entity, Dr. Garner worked on a number of biopharmaceutical business
transactions and has raised financing for another company that he founded called
Inverseon, Inc., developing a novel therapy for asthma. Before this,
Dr. Garner worked in medical affairs at Hoffmann LaRoche in oncology. Prior
to Hoffmann LaRoche, Dr. Garner was in the venture capital department at
Paramount Capital Investments in New York City. Dr. Garner has a Master of
Public Health from Harvard and received his M.D. degree from New York Medical
College. Dr. Garner did residency training in Anatomic Pathology at
Columbia-Presbyterian and is currently a licensed physician in the State of New
York.
Martin E. Shmagin, 58, was appointed as our
Chief Financial Officer on July 13, 2007. Prior to that date, Mr. Shmagin served
as Chief Financial Officer of Urigen N.A., Inc. For over ten years
Mr. Shmagin served as President of Innovative Financial Solutions Ltd., an
accounting and financial consulting firm that serves as Chief Financial Officer
and Controller for start-up through mid-size businesses. From 1978 to 1986,
Mr. Shmagin was Vice President, Finance/Chief Financial Officer of
Fisher & Brother, Inc. From 1986 to 1989, he was Comptroller of
Strober Bros., Inc. and supported the company’s successful initial public
offering. He then opened his own consulting firm where he assisted Stenograph
Corporation with its acquisition of Baron Data Corporation and Hanover Direct
with its acquisition of Gumps. He also supported a $24 million global systems
conversion of American President Companies, Ltd., a $2.6 billion transportation
company, where he coordinated the data conversion of eighty-three subsidiaries
in multiple currencies. Mr. Shmagin holds a B.S. degree in accounting from
New York University.
Terry M. Nida, 60, was appointed as
Chief Operating Officer on July 13, 2007. Prior to that, Mr. Nida served as
Urigen N.A., Inc.’s vice president for sales, marketing and corporate
development. Prior to joining Urigen, Mr. Nida served as vice president,
worldwide sales, marketing and corporate development for VIVUS, Inc. From
November 1995 to August 1998, Mr. Nida was vice president,
Europe, for VIVUS and effective March 28, 1996 was appointed as an
executive officer. Prior to joining VIVUS, Mr. Nida was vice president,
sales, marketing and business development at Carrington Laboratories, with
responsibility for all sales, marketing and business development activities.
Mr. Nida was senior director, worldwide sales, marketing and business
development for Centocor, Inc. from 1993 to 1994, and director of sales and
marketing in Europe for Centocor, Inc. from 1990 to 1993. He holds a B.S.
degree in english and an M.A. degree in administration of justice from Wichita
State University.
Dennis
H. Giesing, Ph.D., 56, was appointed as our Chief Scientific Officer on
October 4, 2007. Dr. Giesing has more that thirty years of experience in
pharmaceutical drug development, most recently as CEO and co-founder of
CepheidRX, LLC, a pharmaceutical design and development company. At Aventis
Pharmaceuticals, Dr. Giesing served as Senior Vice President of Lead
Optimization and Vice President, Global Drug Metabolism & Pharmacokinetics.
Previously, he held numerous leadership roles at Hoechst Marion Roussel, Marion
Merrell Dow, and Marion Laboratories. Dr. Giesing has participated in numerous
development programs that have resulted in global regulatory approvals in a
variety of therapeutic areas, including anti-infectives, arthritis, bone,
cardiovascular, gastrointestinal, genitourinary, metabolism and respiratory. Dr.
Giesing earned his Ph.D. in Biochemical Pharmacology from the University of
Missouri, Kansas City and also has a B.S. in Chemistry.
40
Benjamin F. McGraw, III,
Pharm.D., 59, a director of Urigen, served as the President and Chief
Executive Officer of Valentis from September 1994, when he
joined Megabios Corp., and as Chairman since May 1997. Effective upon the
closing of the Merger on July 13, 2007, Dr. McGraw resigned as President and
Chief Executive Officer. In March 1999, Megabios merged with
GeneMedicine, Inc. to form Valentis. Prior to Megabios, Dr. McGraw
gained experience in R&D as Vice President, Development for Marion and
Marion, Merrell Dow; in business development as Corporate Vice President,
Corporate Development at Allergan, Inc.; and in finance as President of
Carerra Capital Management. Dr. McGraw currently serves on the board of
directors of ISTA Pharmaceuticals, Inc. Dr. McGraw received his Doctor
of Pharmacy from the University of Tennessee Center for the Health Sciences,
where he also completed a clinical practice residency.
Tracy Taylor, 54, a director
of Urigen and serves as president and Chief Executive Officer of Kansas
Technology Enterprise Corporation, or KTEC, a private-public partnership
dedicated to stimulating technology-based economic development in the State of
Kansas. Mr. Taylor’s extensive corporate and entrepreneurial experience has
been integral to the success of KTEC. After his initial position in
corporate finance at Ford Motor Company, Mr. Taylor jointed United Telecom
in 1982 to work on the company’s mergers and acquisitions. Less than two years
later, Mr. Taylor was selected to a 12-person team that developed a
business plan for what eventually became the Sprint Corporation. As Sprint grew
into a Fortune 100 company, Mr. Taylor played a leadership role in the
management side, serving as the treasurer of US Sprint. Mr. Taylor led the
regional site selection for Sprint’s World Headquarters in Overland Park,
Kansas, which covers over 300 acres and holds more than 16,000 employees.
Mr. Taylor graduated from Bethany College and received his M.B.A. degree
from the University of Kansas. Mr. Taylor’s experience in business,
entrepreneurial endeavors and technology-oriented business growth place him in a
position to contribute to a wide variety of boards and organizations. While
Mr. Taylor has served on several boards across the state and country, his
most recent contributions have been on the Enterprise Center of Johnson County,
a working incubator focused on the commercialization of technology; Mid-America
Manufacturing Technology Center (MAMTC); KansasBio; and Catalyst Lighting, a
publicly-traded company. Mr. Taylor has served on Urigen N.A., Inc.’s board
of directors since December 2005.
C. Lowell Parsons, M.D., 64, a director of Urigen,
is a leader in medical research into the causes and treatment of interstitial
cystitis, which is a painful bladder syndrome with typical cystoscopic and/or
histological features in the absence of infection or other pathology, and has
published over 200 scientific articles and book chapters in this area describing
his work. Dr. Parsons received his M.D. degree from the Yale University
School of Medicine in New Haven, CT, in 1970. After completing his medical
internship at Yale in 1971, Dr. Parsons spent two years as a staff
associate in the Laboratory of Microbiology at the National Institutes of Health
in Bethesda, Maryland. He then completed his urology residency training at the
Hospital of the University of Pennsylvania in Philadelphia, Pennsylvania, in
1977. Dr. Parsons joined the Division of Urology faculty at the University
of California, San Diego, or UCSD, in 1977 as assistant professor. He served as
Chief of Urology at the UCSD-affiliated Veterans Affairs Medical Center in
La Jolla from 1977 to 1985. Since 1988, he has been Professor of
Surgery/Urology at UCSD.
George M. Lasezkay, Pharm.D.,
J.D., 56, has
served as one of our directors since May 2004. Since September 2003,
Dr. Lasezkay has provided business development and strategic advisory
services to biotechnology and emerging pharmaceutical companies through his
consulting firm, Turning Point Consultants. From 1989 to 2002, Dr. Lasezkay
served in various positions at Allegan, Inc., including Assistant General
Counsel from 1994 to 1996, Vice President, Corporate Development from 1996 to
1998, and Corporate Vice President, Corporate Development from 1998 to 2002.
Dr. Lasezkay currently serves on the board of directors of a number of
privately-held companies. Dr. Lasezkay received his J.D. from the
University of Southern California Law Center and his Doctor of Pharmacy and
Bachelor of Science in Pharmacy from the State University of New York at
Buffalo.
Cynthia Sullivan, 52,
currently serves as President and Chief Executive Officer of Immunomedics
(NasdaqGM: IMMU), a biopharmaceutical company focused on the development of
products for cancer, autoimmune, and other serious diseases. She has been
employed by Immunomedics since 1985 and has held various positions, including
Executive Vice President, Chief Operating Officer, and President. Prior to
joining Immunomedics, Ms. Sullivan was employed by Ortho Diagnostic Systems,
Inc., a subsidiary of Johnson & Johnson. She earned a BS from Merrimack
College, North Andover, Massachusetts, followed by a year of clinical internship
with the school of Medical Technology at Muhlenberg Hospital, Plainfield, New
Jersey, resulting in a M.T. (ASCP) certification. She completed an MS
degree from Fairleigh Dickinson University where she also received her
MBA.
41
Robert Watkins, 65,
established R.J. Watkins & Company, Ltd., an executive recruiting and
consulting firm, and currently serves as President and Chairman. Mr. Watkins’
experience includes President and Chief Executive Officer of a $200 million
entertainment company and Managing Director for the San Diego office of the
international consulting firm of Russell Reynolds Associates. He has held
executive positions with American Hospital Supply Corporation, serving on the
corporation’s acquisition and divestiture team. He also served as Management
Consultant for the national accounting firm Deloitte &
Touche. Mr. Watkins holds a BA degree from San Diego State
University.
Committees
of the Board of Directors
Our Board
of Directors has a standing Audit Committee, Compensation Committee and
Nominating and Governance Committee.
Audit
Committee
The Audit
Committee meets with the independent registered accounting firm at least
annually to review the results of the annual audit and discuss the financial
statements, recommends to the Board of Directors the independent registered
accounting firm to be retained and receives and considers the accountants’
comments as to controls, adequacy of staff and management performance and
procedures in connection with audit and internal controls. The Audit Committee
also meets with the independent registered accounting firm to review the
quarterly financial results and to discuss the results of the independent
registered accounting firm’s quarterly review and any other matters required to
be communicated to the Audit Committee by the independent registered accounting
firm under generally accepted auditing standards. During the fiscal year ended
June 30, 2008, the Audit Committee was composed of three directors: Dr.
McGraw, Ms. Sullivan and Mr. Taylor. Ms. Sullivan and Mr. Taylor
are independent non-employee directors. Dr. McGraw served as
President and Chairman of the Board of Valentis Inc., from September 1994
through July 13, 2007. The Audit Committee has adopted a written
charter, a copy of which was included as an appendix to the proxy statement
filed with the Securities and Exchange Commission for the Company’s 2004 Annual
Meeting of Stockholders.
AUDIT
COMMITTEE EXPERT
The
chairman of our audit committee is Mr. Tracy Taylor. He is an
independent director of the Company. His attributes as an audit committee
financial expert are:
(1) An
understanding of generally accepted accounting principles and financial
statements;
(2) The
ability to assess the general application of such principles in connection with
the accounting for estimates, accruals and reserves;
(3)
Experience preparing, auditing, analyzing or evaluating financial statements
that present a breadth and level of complexity of accounting issues that are
generally comparable to the breadth and complexity of issues that can reasonably
be expected to be raised by the Company's financial statements, or experience
actively supervising one or more persons engaged in such
activities;
(4) An
understanding of internal controls and procedures for financial reporting;
and
(5) An
understanding of audit committee functions.
Compensation
Committee
The
Compensation Committee makes recommendations concerning salaries and incentive
compensation, awards stock options to employees and consultants under the
Company’s stock option plans and otherwise determines compensation levels and
performs such other functions regarding compensation as the Board of Directors
may delegate. During the fiscal year ended June 30, 2008, the
Compensation Committee was composed of three directors: Mr. Watkins and
Drs. McGraw and Lasezkay. Mr. Watkins and Dr. Lasezkay are independent
non-employee directors. Dr. McGraw served as President and Chairman
of the Board of Valentis Inc., from September 1994 through July 13, 2007. The
Compensation Committee has adopted a written charter, a copy of which was
included as an appendix to the proxy statement filed with the Securities and
Exchange Commission for the Company’s 2004 Annual Meeting of
Stockholders. Details of stock compensation and stock option award
plans are described in Note 14 - Equity Compensation of the notes to the
consolidated financial statements included in this annual report.
42
Nominating
and Governance Committee
The
Nominating and Governance Committee assists the Board of Directors in
discharging the Board of Directors’ responsibilities regarding identifying
qualified candidates to become members of the Board of Directors, selecting
candidates to fill any vacancies on the Board of Directors, ensuring that we
have and follow the appropriate governance standards and overseeing the
evaluation of the Board of Directors. During the fiscal year ended
June 30, 2008, the Nominating and Governance Committee was composed of
three directors: Mr. Taylor and Drs. McGraw and Lasezkay. Mr. Taylor
and Dr. Lasezkay are independent non-employee directors. Dr. McGraw
served as President and Chairman of the Board of Valentis Inc., from September
1994 through July 13, 2007. The Nominating and Governance Committee
has adopted a written charter, a copy of which was included as an appendix to
the proxy statement filed with the Securities and Exchange Commission for the
Company’s 2004 Annual Meeting of Stockholders.
The
Nominating and Governance Committee will consider and has adopted a policy with
regard to the consideration of any director candidates recommended by security
holders. The Nominating and Governance Committee uses a process similar to that
contained in the Nominating and Governance Committee Charter for identifying and
evaluating director nominees recommended by our stockholders. In the fiscal year
ended June 30, 2008, there have been no material changes to the
procedures by which security holders may recommend nominees to the Board of
Directors.
Compensation
of Directors
The
Company policy compensates our outside directors as follows: For compensation
purposes Dr. Parsons, Dr. Garner, and Mr. Shmagin are not considered outside
directors. Each director receives an annual retainer of $15,000 and a
per meeting fee of $1,000. The chairman of the board receives an annual retainer
of $10,000. The chairman of the Audit Committee receives an annual
retainer of $4,500 and a per meeting fee of $500 and the other members of the
Audit Committee receive a per meeting fee of $500. The chairman of the
Compensation Committee receives an annual retainer of $3,500 and a per meeting
fee of $500 and the other members of the Compensation Committee receive a per
meeting fee of $500. The chairman of the Nominating and Governance Committee
receives an annual retainer of $3,500 and a per meeting fee of $500 and the
other members of the Nominating and Governance Committee receive a per meeting
fee of $500. The members of the Board of Directors are also eligible for
reimbursement for their expenses incurred in connection with attendance at Board
of Directors and committee meetings.
On
January 7, 2008 each outside Board member was granted 46,500 shares of common
stock to be issued after one year of service.
For the
fiscal year ended June 30, 2008, director compensation expense was accrued as
follows:
|
Director
|
Total
|
Board
Member Fees
|
Board
Meeting Fees
|
Audit
Member Fee
|
Compensation
Member Fee
|
Governance
Member Fee
|
||||||||||||||||||
|
William
Garner
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
|
Martin
Shmagin
|
- | - | - | - | - | - | ||||||||||||||||||
|
Lowell
Parsons
|
- | - | - | - | - | - | ||||||||||||||||||
|
George
Lasezkay
|
26,500 | 15,000 | 4,000 | - | 2,000 | 5,500 | ||||||||||||||||||
|
Tracy
Taylor
|
37,500 | 25,000 | 4,000 | 6,500 | - | 2,000 | ||||||||||||||||||
|
Cynthia
Sullivan
|
21,000 | 15,000 | 4,000 | 2,000 | - | - | ||||||||||||||||||
|
Robert
Watkins
|
24,500 | 15,000 | 4,000 | - | 5,500 | - | ||||||||||||||||||
|
Benjamin
McGraw
|
25,000 | 15,000 | 4,000 | 2,000 | 2,000 | 2,000 | ||||||||||||||||||
|
Total
|
$ | 134,500 | $ | 85,000 | $ | 20,000 | $ | 10,500 | $ | 9,500 | $ | 9,500 | ||||||||||||
43
Compliance
with Section 16(a) of the Exchange Act
Section 16(a) of
the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) requires
that our directors, executive officers and persons who own more than ten percent
of a registered class of our equity securities, file reports of ownership and
changes in ownership (Forms 3, 4 and 5) with the Securities and Exchange
Commission. Our directors, executive officers and, beneficial owners of more
than ten percent of our common stock are required to furnish us with copies of
all of these forms, which they file.
Based
solely upon our review of these reports, any amendments thereto or written
representations from certain reporting persons, we believe that during the
fiscal year ended June 30, 2008, all filing requirements applicable to
our directors, executive officers, beneficial owners of more than ten percent of
our common stock and other persons subject to Section 16(a) of the
Exchange Act were met, except Tracy Taylor, C. Lowell Parsons, Cynthia Sullivan,
and Robert Watkins did not timely file a Form 3 upon their appointment as
directors.
Code
of Business Conduct and Ethics
The Board
of Directors has adopted a Code of Business Conduct and Ethics that applies to
all our directors, officers and employees, including our Chief Executive
Officer, who is our principal executive officer, our Chief Financial Officer,
who is our principal financial officer and principal accounting officer. Our
Code of Business Conduct and Ethics is posted on our website www.urigen.com.
We will also provide a copy of our Code of Business Conduct and Ethics to any
person without charge upon request made in writing to the Company, Attention:
Martin Shmagin, Chief Financial Officer, 875 Mahler Road, Suite 235, Burlingame,
California 94010. We intend to disclose any amendment to, or a waiver from, a
provision of our Code of Business Conduct and Ethics that applies to our
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions and that relates
to any element of its Code of Business Conduct and Ethics by posting such
information on our website www.urigen.com.
44
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The
following table shows for the fiscal years ended June 30, 2008 and 2007,
compensation awarded or paid to, or earned by, the Company’s Chief Executive
Officer and its executive officers, other than the Chief Executive Officer,
whose total annual salary and bonus exceeded $100,000 for the fiscal years ended
June 30, 2008 and 2007, referred to as our named executive
officers:
|
|
|
|
|
|||||||||||||
|
Restricted Stock |
All Other |
|||||||||||||||
|
Name and Principal Position
|
Fiscal
Year
|
Salary
|
Bonus
|
Awards
|
Compensation
|
|||||||||||
|
William
J. Garner M.D, President,
|
2008
|
$
|
250,000
|
(1)
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Chief
Executive Officer, and Director
|
2007
|
$
|
346,528
|
(2)
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Martin
E. Shmagin,
|
2008
|
$
|
225,000
|
(3)
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Chief
Financial Officer
|
2007
|
$
|
309,329
|
(4)
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Dennis
H. Giesing. Ph. D., Chief Scientific
Officer
|
2008
|
$
|
183,333
|
(5)
|
$
|
—
|
$
|
13,869
|
(6)
|
$
|
4,000
|
(7)
|
||||
|
2007
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
76,000
|
(8)
|
|||||||
|
Terry
M. Nida, Chief Operating Officer
|
2008
|
$
|
187,974
|
(9)
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
2007
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
225,000
|
(10)
|
|||||||
|
Benjamin
McGraw, III, Pharm.D., Director, Chief
|
2008
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
16,339
|
(11)
|
||||||
|
Executive
Officer of previous entity
|
2007
|
$
|
370,000
|
$
|
176,000
|
(12)
|
$
|
—
|
$
|
111,329
|
(13)
|
|||||
|
(1)
Salary includes $145,833 of cash payments and $104,167 of accrued but
unpaid salary.
|
|
(2)
Salary Includes 85,863 shares Series B Preferred Stock issued at a fair
value of $2.50 per share in lieu of cash compensation of
$337,361. On July 13, 2007 the shares were converted to 968,289
shares of Urigen Pharmaceuticals, Inc. common stock.
|
|
|
|
(3)
Salary includes $131,250 of cash payments and $ 93,750 of accrued by
unpaid salary.
|
|
(4)
Salary includes 85,659 shares Series B Preferred Stock issued at a fair
value of $2.50 per share in lieu of cash compensation of
$300,996. On July 13, 2007 the shares were converted to 965,990
shares of Urigen Pharmaceuticals, Inc. common stock.
|
|
|
|
(5)
Salary includes $91,667 of cash payments and $91,666 of accrued but unpaid
salary.
|
|
(6)
2008 restricted stock award (RSA) expense.
|
|
(7)
Represents payment on an independent consulting agreement from December,
2006. (See below)
|
|
(8) Dr.
Giesing received 25,600 shares Series B Preferred Stock as part of an
independent consulting agreement in December, 2006 The shares were issued
at a fair value of $2.50 per share and converted on July 13, 2007 to
288,695 shares of Urigen Pharmaceuticals, Inc. common
stock. Other compensation also includes $12,000 cash paid in
fiscal year ended June 30, 2007 as part of the same
agreement.
|
45
|
(9)
Salary includes $109,307 of cash payments and $78,667 of accrued but
unpaid salary.
|
||||||||||||||||
|
(10)
Mr. Nida received 10,000 shares Series B Preferred Stock as an independent
consultant, monthly from October 1, 2006 through June 30,
2007. The shares were issued at a fair value of $2.50 per share
and converted on July 13,2007 to 1,014,944 shares of Urigen
Pharmaceuticals, Inc. common stock.
|
||||||||||||||||
|
|
||||||||||||||||
|
(11)
Other compensation consists of COBRA health insurance
payments.
|
||||||||||||||||
|
(12)
The company has issued to Dr. McGraw a promissory note in the amount of
$176,000 in lieu of accrued bonus compensation. The note bears interest at
the rate of 5.0% per annum and may be paid by the company in full or in
part at any time without premium or penalty. The note is due
and payable in full on December 25, 2008.
|
||||||||||||||||
|
(13)
Represents insurance premiums of $3,412 paid by the Company with respect
to group life insurance for the benefit of Dr. McGraw and $ 107,917
severance payment earned in fiscal year ended June 30, 2007 which was paid
in July, 2007.
|
46
Stock
Option Grants and Exercises
None.
Employment
Agreements
On August
6, 2008, the Company entered into an employment agreement with William J.
Garner, M.D., its Chief Executive Officer since July 2007 (the "Garner
Agreement"). Pursuant to the terms of the Garner Agreement, Dr. Garner shall
serve as President and Chief Executive Officer of the Company for a term of two
years which shall be renewed for successive one-year terms unless terminated by
either party upon written notice 30 days prior to the expiration of the term.
The Garner Agreement provides for an annual base salary of $250,000 during the
first year of the initial term of the Garner Agreement, and a bonus based upon
the discretion of the Board of Directors.
In the
event the Company terminates Dr. Garner for any reason other than for cause,
death or disability or Dr. Garner terminates the Garner Agreement for good
reason (as defined in the Garner Agreement), the Company shall (i) pay any
accrued but unpaid compensation in a lump sum payment within thirty days and
(ii) continue to pay the annual base salary and bonus for the greater of the
remainder of the term or for a period of twelve months. However, if during the
six months after a non-negotiated change of control (as defined in the Garner
Agreement), either the Company or Dr. Garner terminates the Garner Agreement for
any reason or no reason or Dr. Garner is terminated at any time without cause
(as defined in the Garner Agreement) or Dr. Garner terminates his employment for
good reason (as defined in the Garner Agreement), the Company shall pay to Dr.
Garner a lump sum in cash within thirty (30) days after the date of termination
in an amount equal to twenty four (24) months of his annual base
salary.
If Dr.
Garner's employment is terminated by the Company for cause or if Dr. Garner
terminates his employment other than for good reason (as defined in the Garner
Agreement), Dr. Garner shall receive the accrued but unpaid portion of his
annual base salary and bonus, if any.
Under the
terms of the Garner Agreement, Dr. Garner shall be entitled to customary
benefits and expense reimbursements.
Dr.
Garner also agreed to customary non-solicitation and non-competition
provisions.
On August
6, 2008, the Company also entered into an employment agreement with Martin E.
Shmagin, our Chief Financial Officer since July 2007 (the "Shmagin Agreement").
Pursuant to the terms of the Shmagin Agreement, Mr. Shmagin shall continue to
serve as Chief Financial Officer of the Company for a term of two years which
shall be renewed for successive one-year terms unless terminated by either party
upon written notice 30 days prior to the expiration of the term. The Shmagin
Agreement provides for an annual base salary of $225,000 during the first year
of the initial term of the Shmagin Agreement, and a bonus based upon the
discretion of the Board of Directors.
In the
event the Company terminates Mr. Shmagin for any reason other than for cause,
death or disability or Mr. Shmagin terminates the Shmagin Agreement for good
reason (as defined in the Shmagin Agreement), the Company shall (i) pay any
accrued but unpaid compensation in a lump sum payment within thirty days and
(ii) continue to pay the annual base salary and bonus for the greater of the
remainder of the term or for a period of twelve months. However, if during the
six months after a non-negotiated change of control (as defined in the Shmagin
Agreement), either the Company or the Mr. Shmagin terminates the Shmagin
Agreement for any reason or no reason or Mr. Shmagin is terminated at any time
without cause (as defined in the Shmagin Agreement) or Mr. Shmagin terminates
his employment for good reason (as defined in the Shmagin Agreement), the
Company shall to Mr. Shmagin a lump sum in cash within thirty (30) days after
the date of termination in an amount equal to twenty four (24) months of his
annual base salary.
If Mr.
Shmagin employment is terminated by the Company for cause or if Mr. Shmagin
terminates his employment other than for good reason (as defined in the Shmagin
Agreement), Mr. Shmagin shall receive the accrued but unpaid portion of his
annual base salary and bonus, if any.
Under the
terms of the Shmagin Agreement, Mr. Shmagin shall be entitled to customary
benefits and expense reimbursements.
Mr.
Shmagin also agreed to customary non-solicitation and non-competition
provisions.
Compensation
Committee Interlocks and Insider Participation
During
the fiscal year ended June 30, 2008, none of the Company’s executive
officers served on the board of directors of any entities whose directors or
officers serve on the Company’s Compensation Committee. No current or former
executive officer or employee of the Company serves on the Compensation
Committee, with the exception of Dr. McGraw, who served as President and
Chairman of the Board of Valentis Inc., from September 1994 through July 13,
2007.
47
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The
following table provides information at to shares of common stock beneficially
owned as of June 30, 2008 by:
|
·
|
each
director;
|
|
·
|
each
officer named in the summary compensation
table;
|
|
·
|
each
person owning of record or known by us, based on information provided to
us by the persons named below, to own beneficially at least 5% of our
common stock; and
|
|
·
|
all
directors and executive officers as a
group.
|
Unless
otherwise indicated, the persons named in the table below have sole voting and
investment power with respect to the number of shares indicated as beneficially
owned by them. Furthermore, unless otherwise indicated, the address of the
beneficial owner is c/o Urigen Pharmaceuticals, Inc. 875 Mahler Road, Suite 235,
Burlingame, CA 94010.
|
Name
|
Shares
of Common Stock Beneficially Owned
|
Percentage
|
||||||
|
William
J. Garner M.D., President, Chief Executive Officer and
Director
|
18,476,540 | 26.52 | % | |||||
|
Martin
E. Shmagin, Chief Financial Officer and Director
|
2,914,073 | 4.18 | % | |||||
|
Terry
M. Nida, Chief Operating Officer
|
3,135,049 | 4.50 | % | |||||
|
Dennis
Giesing, Ph.D., Chief Scientific Officer
|
* | * | ||||||
|
Benjamin
F. McGraw, Pharm.D, Director
|
1,294,179 | 1.86 | % | |||||
|
Tracy
Taylor, Director, Chairman of the Board
|
- | - | ||||||
|
C.
Lowell Parsons, M.D., Director
|
1,802,693 | 2.59 | % | |||||
|
George
M. Lasezkay, Pharm.D., J.D., Director
|
* | * | ||||||
|
Cynthia
Sullivan, Director
|
- | - | ||||||
|
Robert
Watkins, Director
|
- | - | ||||||
|
All
officers and directors as a group (7 individuals owning
stock)
|
27,622,534 | 39.65 | % | |||||
* Less
than 1%
48
Except as
otherwise indicated each person has the sole power to vote and dispose of all
shares of common stock beneficially owned listed opposite his or her
name. Each person is deemed to own beneficially shares of common
stock which are issuable upon exercise of warrants or options or upon conversion
of convertible securities if they are exercisable or convertible within 60 days
of October 1, 2008.
The
assumptions and fair value accounting for stock based compensation plans is
described in Note 14 of the consolidated financial statements included in this
report.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
As of
June 30, 2008 and 2007, the Company is paying a fee of $3,211 and $2,683 per
month to EGB Advisors, LLC. EGB Advisors, LLC is owned solely by William J.
Garner, M.D. Chief Executive Officer of the Company. The fees are for
rent, telephone and other office services which are based on estimated fair
market value. For the fiscal year ended June 30, 2007, Dr. Garner also received
payment for services provided as a consultant to the Company. As of June 30,
2008 and 2007, Dr. Garner and EGB Advisors, LLC were owed $0 and $14,610,
respectively. From the inception of the Company to June 30, 2008 and 2007,
respectively, the Company has paid $175,428 and $128,337 to these related
parties.
Several
stockholders provided consulting services and were paid $171,708 and $165,885
for those services from the inception of the Company to June 30, 2008 and 2007,
respectively. As of June 30, 2008 and 2007, respectively, $456 and
$8,457 was owed to these consultants.
As of
June 30, 2008 and 2007, the Company’s legal counsel in Canada was owed $67,169
and $55,389, respectively. From the inception of the Company to June
30, 2008 and 2007, the Company paid $78,299 and $77,299, respectively, for
legal expenses to the related party stockholders’ company.
As of
June 30, 2008 and 2007, the Company’s legal counsel was owed $102,861 and
$145,612, respectively. From the inception of the Company to June 30, 2008 and
2007, the Company paid $173,325 and $47,814, respectively, for legal expenses to
the related party stockholder’s company.
49
On August
27, 2007, the Company settled a debt with one of its former legal
counsels. As part of the settlement, the Company paid $15,132 on
behalf of Inverseon, Inc. William J. Garner, M.D., the Chief
Executive Officer and a director and Martin E. Shmagin, the Chief Financial
Officer and a director are also officers, directors and shareholders in
Inverseon, Inc. On August 22, 2008, Inverseon, Inc. converted its
$15,132 receivable to an unsecured promissory note.
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
Fees paid
or accrued by the Company for services provided by the Company’s independent
registered accounting firm, Burr, Pilger & Mayer LLP (BPM), for fiscal years
2008 and 2007 are as follows:
Audit Fees: The
aggregate fees billed for professional services rendered for the audit of the
Company's annual financial statements and review of the financial statements
included in the Company’s Forms 10-Q, and services in connection with statutory
and regulatory filings for the fiscal years ended June 30, 2008 and 2007 were
$172,313 and $370,516 respectively.
Audit Related Fees:
None
Tax Fees: None
All Other Fees:
None
Pre-Approval Policy for Services by
Independent Registered Accounting Firm: During fiscal years 2008
and 2007, all services provided by BPM were pre-approved by the Audit Committee.
Pursuant to our Audit Committee Charter, before the independent registered
accounting firm is engaged by Urigen Pharmaceuticals Inc. to render audit or
non-audit services, the Audit Committee pre-approves the engagement. Audit
Committee pre-approval of audit and non-audit services is not required if the
engagement for the services is entered into pursuant to pre-approval policies
and procedures established by the Audit Committee regarding the Company’s
engagement of the independent registered accounting firm. The Audit Committee
has established a pre-approved policy and procedure where pre-approval of
specific audit and non-audit services that equal or are not expected to exceed
$30,000 is not required so long as the Audit Committee is informed of each
service provided by the independent registered accounting firm and such policies
and procedures do not result in the delegation of the Audit Committee’s
responsibilities under the Securities Exchange Act of 1934, as amended. Audit
and non-audit services expected to exceed $30,000 require pre-approval of such
audit and non-audit services by the Audit Committee. The Audit Committee may
delegate to one or more designated members of the Audit Committee the authority
to grant pre-approvals, provided such approvals are presented to the Audit
Committee at a subsequent meeting. Audit Committee pre-approval of non-audit
services other than review and attest services also is not required if such
services fall within available exceptions established by the Securities and
Exchange Commission.
50
|
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
(a)(1)
Index to Financial Statements
The
Financial Statements and report of the independent registered accounting firm
required by this item are submitted in a separate section beginning on
page 53 of this Report.
|
Page No.
|
||||
|
Report
of Burr, Pilger & Mayer LLP, Independent Registered Public Accounting
Firm
|
53
|
|||
|
Consolidated
Balance Sheets
|
54
|
|||
|
Consolidated
Statements of Operations
|
55
|
|||
|
Consolidated
Statements of Stockholders’ Equity (Deficit)
|
56-60
|
|||
|
Consolidated
Statements of Cash Flows
|
61
|
|||
|
Notes
to Consolidated Financial Statements
|
62
|
|||
(a)(2) No
schedules have been filed, as they were not required or are inapplicable and
therefore have been omitted.
(a)(3) Exhibits
| Exhibit
Footnote
|
Exhibit
Number
|
Description
of Document
|
||
|
|
||||
|
(10)
|
3.1
|
Amended
and Restated Certificate of Incorporation of the
Registrant.
|
||
|
(1)
|
3.2
|
Bylaws
of the Registrant.
|
||
|
(3)
|
3.3
|
Certificate
of Designations of Series A Convertible Redeemable Preferred
Stock.
|
||
|
(4)
|
3.4
|
Certificate
of Amendment to the Bylaws of the Registrant.
|
||
|
(1)
|
10.5
|
Form of
Indemnification Agreement entered into between the Registrant and its
directors and executive officers.
|
||
|
(13)
|
10.33
|
Employment
Agreement, dated August 6, 2008, between the Company and William J. Garner
M.D.
|
||
|
(13)
|
10.34
|
Employment
Agreement, dated August 6, 2008, between the Company and Martin E.
Shmagin.
|
||
|
(26)
|
Series
B Convertible Preferred Stock Purchase Agreement dated as of July 31, 2007
between Urigen Pharmaceuticals, Inc. and Platinum-Montaur Life Sciences,
LLC
|
|||
|
(26)
|
Registration
Rights Agreement dated as of August 1, 2007 between Urigen
Pharmaceuticals, Inc. and Platinum-Montaur Life Sciences,
LLC
|
|||
|
(26)
|
Form
of Warrant issued to Platinum-Montaur Life Sciences,
LLC
|
|||
|
(27)
|
Amendment
to Agreement between Valentis, Inc., Acacia Patent Acquisition
Corporation and Urigen Pharmaceuticals, Inc.
|
|||
|
21.1
|
Subsidiaries
of the Registrant **
|
|||
|
23.1
|
Consent
of Independent Registered Accounting Firm **
|
|||
|
31.1
|
Certification
of Principal Executive Officer Section 302.**
|
|||
|
31.2
|
Certification
of Principal Financial Officer Section 302.**
|
|||
|
32.1
|
Certification
of Principal Executive Officer Section 906.**
|
|||
|
32.2
|
Certification
of Principal Financial Officer
Section 906.**
|
|
(13)
|
Filed
as an exhibit to the Report on Form 8-K, filed with the Securities
and Exchange Commission on August 8, 2008 and incorporated herein by
reference.
|
|
(26)
|
Filed
as an exhibit to the Report on Form 8-K filed with the Securities and
Exchange Commission on August 6, 2007 and incorporated herein by
reference.
|
|
(27)
|
Filed
as an exhibit to the Report on Form 8-K filed with the Securities and
Exchange Commission on August 10, 2007 and incorporated herein by
reference.
|
|
**
|
Filed
herewith
|
51
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, on October
14, 2008 .
|
/s/Martin
E. Shmagin
|
/s/
William J. Garner, M.D.
|
|||
|
MARTIN
E. SHMAGIN
|
WILLIAM
J. GARNER, M.D.
|
|||
|
Chief
Financial Officer
|
President
and Chief Executive Officer
|
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints William J. Garner, MD and Martin Shmagin, and each or
any one of them, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Annual Report, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/
William J. Garner
|
President
and Chief Executive Officer
|
October
14, 2008
|
||
|
WILLIAM
J. GARNER, M.D.
|
(Principal
Executive Officer)
|
|||
|
/s/
Martin E. Shmagin
|
Chief
Financial Officer and Director
|
October
14, 2008
|
||
|
MARTIN
E. SHMAGIN
|
(Principal
Financial and Accounting Officer)
|
|||
|
/s/
George M. Lasezkay
|
Director
|
October
14, 2008.
|
||
|
GEORGE
M. LASEZKAY, JD, Pharm. D.
|
||||
|
/s/
C. Lowell Parsons
|
Director
|
October
14, 2008.
|
||
|
C.
LOWELL PARSONS, M.D.
|
||||
|
/s/
Benjamin F. McGraw
|
Director
|
October
14, 2008.
|
||
|
BENJAMIN
F. MCGRAW III, Pharm. D.
|
||||
|
/s/
Tracy Taylor
|
Chairman
of the Board
|
October
14, 2008.
|
||
|
TRACY
TAYLOR
|
||||
|
/s/
Cynthia Sullivan
|
Director
|
October
14, 2008.
|
||
|
CYNTHIA
SULLIVAN
|
52
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders of
Urigen
Pharmaceuticals, Inc.
We have
audited the accompanying consolidated balance sheets of Urigen Pharmaceuticals,
Inc. (a development stage company) and its subsidiaries (the “Company”) as of
June 30, 2008 and 2007 and the related consolidated statements of operations,
stockholders’ equity (deficit), and cash flows for the years then ended and
cumulatively for the period from July 18, 2005 (date of inception) to June 30,
2008. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of the
Company’s internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Urigen
Pharmaceuticals, Inc. and its subsidiaries as of June 30, 2008 and 2007, and the
results of their operations and their cash flows for the years then ended and
cumulatively for the period from July 18, 2005 (date of inception) to June 30,
2008 in conformity with accounting principles generally accepted in the United
States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2
to the consolidated financial statements, the Company’s recurring losses from
operations, negative cash flow from operations and accumulated deficit raise
substantial doubt about its ability to continue as a going
concern. Management’s plans as to these matters are also described in
Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As
discussed in Note 1 to the consolidated financial statements, effective July 13,
2007, the Company completed a reverse merger with Urigen N.A., Inc. a private,
development stage company and changed its name to Urigen Pharmaceuticals, Inc.
on July 30, 2007.
|
|
By:
|
/s/ Burr, Pilger & Mayer LLP | |
|
Palo
Alto, California
|
|||
|
October
13, 2008
|
|||
53
URIGEN
PHARMACEUTICALS, INC.
(a
development stage company)
CONSOLIDATED
BALANCE SHEETS
ASSETS
|
June
30, 2008
|
June
30, 2007
|
|||||||
|
Current
assets:
|
||||||||
|
Cash
|
$ | 45,509 | $ | 101,608 | ||||
|
Prepaid
expenses and other assets
|
45,934 | 21,204 | ||||||
|
Total
current assets
|
91,443 | 122,812 | ||||||
|
Due
from related party
|
15,132 | - | ||||||
|
Property
and equipment, net
|
7,418 | 4,526 | ||||||
|
Intangible
assets, net
|
245,081 | 259,509 | ||||||
|
Long
term prepaids and deposits
|
104,800 | 1,024 | ||||||
|
Total
assets
|
$ | 463,874 | $ | 387,871 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
|
Current
liabilities:
|
||||||||
|
Account
payable
|
$ | 573,585 | $ | 693,217 | ||||
|
Accrued
expenses
|
1,365,143 | 385,341 | ||||||
|
Series
B convertible preferred stock liability
|
62,526 | - | ||||||
|
Series
B convertible preferred beneficial conversion feature
|
61,264 | - | ||||||
|
Series
B dividends payable
|
55,633 | - | ||||||
|
Due
to related parties
|
206,366 | 226,068 | ||||||
|
Notes
payable - related parties
|
476,000 | 300,000 | ||||||
|
Total
current liabilities
|
2,800,517 | 1,604,626 | ||||||
|
Commitments
and contingencies (Notes 3 and 13)
|
||||||||
|
Stockholders'
equity (deficit):
|
||||||||
|
Urigen
N.A. Series B convertible preferred stock, par value
$0.0001,
|
||||||||
|
11,277,156
shares authorized, 0 and 6,029,929 shares issued and
|
||||||||
|
outstanding
at June 30, 2008 and 2007, respectively
|
||||||||
|
(Liquidation
Preference: $0 and $1,336,757 at June 30, 2008 and 2007, respectively)
*
|
- | 1,336,757 | ||||||
|
Series
B convertible preferred stock, par value $0.001,
10,000,000
|
||||||||
|
shares
authorized, 210 and 0 shares issued and outstanding
|
||||||||
|
at
June 30, 2008 and June 30, 2007, respectively (liquidation
|
||||||||
|
preference:
$2,100,000 and $0 at June 30, 2008 and 2007
|
||||||||
|
respectively)
|
1,087,579 | - | ||||||
|
Urigen
N.A. Common stock, par value $0.00002, 45,108,623
|
||||||||
|
shares
authorized, 0 and 44,805,106 shares issued and
|
||||||||
|
outstanding
at June 30, 2008 and 2007, respectively **
|
- | 896 | ||||||
|
Common
stock, par value $0.001 at June 30, 2008, 190,000,000
|
||||||||
|
shares
authorized and 69,669,535 and 0 shares issued and
|
||||||||
|
outstanding
at June 30, 2008 and 2007, respectively
|
69,670 | - | ||||||
|
Subscribed
stock
|
424,536 | 79,073 | ||||||
|
Additional
paid-in capital
|
5,698,358 | 2,139,167 | ||||||
|
Accumulated
other comprehensive income
|
20,120 | 19,800 | ||||||
|
Deficit
accumulated during the development stage
|
(9,636,906 | ) | (4,792,448 | ) | ||||
|
Total
stockholders' equity (deficit)
|
(2,336,643 | ) | (1,216,755 | ) | ||||
|
Total
liabilities and stockholders' equity (deficit)
|
$ | 463,874 | $ | 387,871 | ||||
* reflects a
11.277-for-1 merger exchange
**
reflects a 2.25541-for-1 merger exchange
See
accompanying notes to financial statements
54
URIGEN
PHARMACEUTICALS., INC.
(a
development stage company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
Period
from
|
||||||||||||
|
July
18, 2005
|
||||||||||||
|
Year
ended June 30,
|
(date
of inception)
|
|||||||||||
|
2008
|
2007
|
to
June 30, 2008
|
||||||||||
|
Operating
expenses:
|
||||||||||||
|
Research
and development
|
$ | 684,304 | $ | 758,081 | $ | 2,246,339 | ||||||
|
General
and administrative
|
2,761,535 | 2,175,908 | 5,575,627 | |||||||||
|
Sales
and marketing
|
264,269 | 295,655 | 571,336 | |||||||||
|
Total
operating expenses
|
3,710,108 | 3,229,644 | 8,393,302 | |||||||||
|
Loss
from operations
|
(3,710,108 | ) | (3,229,644 | ) | (8,393,302 | ) | ||||||
|
Other
income and expense, net:
|
||||||||||||
|
Interest
income
|
18,094 | 14,104 | 40,445 | |||||||||
|
Interest
expense
|
(2,235,286 | ) | (36,496 | ) | (2,336,685 | ) | ||||||
|
Other
income (expense), net
|
1,082,842 | - | 1,052,636 | |||||||||
|
Total
other income (expense), net
|
(1,134,350 | ) | (22,392 | ) | (1,243,604 | ) | ||||||
|
Net
loss
|
$ | (4,844,458 | ) | $ | (3,252,036 | ) | $ | (9,636,906 | ) | |||
|
Basic
and diluted net loss per share
|
$ | (0.07 | ) | $ | (0.05 | ) | ||||||
|
Shares
used in computing basic and diluted net loss per share
|
69,860,358 | 64,107,390 | ||||||||||
See
accompanying notes to financial statements
55
(a
development stage company)
STATEMENTS
OF STOCKHOLDERS' EQUITY (DEFICIT)
for the
period from July 18, 2005 (date of inception) to June 30, 2008
|
Urigen
N.A., Inc. Series A Preferred Stock
|
Urigen
N.A., Inc. Series A Preferred Stock Subscribed
|
Urigen
Pharmaceuticals, Inc. Series B Preferred Stock
|
Urigen
N.A., Inc. Series B Preferred Stock
|
Urigen
N.A., Inc. Series B Preferred Stock Subscribed
|
Urigen
Pharmaceuticals, Inc. Common Stock
|
Urigen
N.A., Inc. Common Stock
|
Common
Stock Subscribed
|
Additional
Paid-In
|
Accumulated
other comprehensive
|
Deficit
accumulated during development
|
Total
stockholders' equity
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
income
|
stage
|
(deficit)
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
upon
incorporation in July 2005*
|
5 | $ | 1 | $ | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred
stock subscribed at
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.19546
per share in July 2005*
|
225,543 | $ | 44,085 | 44,085 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred
stock subscribed at
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.19453
per share in August 2005*
|
338,315 | 65,813 | 65,813 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred
stock subscribed at a range of
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.19453
to $0.19497 per share in September 2005*
|
676,629 | 131,725 | 131,725 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred
stock subscribed at a range of
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.19200
to $0.19546 per share in October 2005*
|
696,603 | 135,054 | 135,054 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred
stock subscribed at
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.19457
per share in November 2005*
|
530,974 | 103,314 | 103,314 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at $0.00002 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
Urigen, Inc. shareholders in December 2005*
|
27,065,169 | 559 | 559 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred
stock subscribed at a range of
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.19238
to $0.20187 per share in December 2005*
|
593,233 | 116,709 | 116,709 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at $0.00002 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
Urigen, Inc. shareholders in January 2006*
|
3,947,004 | 88 | 88 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at $0.19316 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
in
lieu of rent payment in January 2006*
|
9,473 | 1,830 | 1,830 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred
stock subscribed at a range of
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.12505
to $0.19801 per share in January 2006*
|
4,293,448 | 822,017 | 822,017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred
stock subscribed at a range of
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.19072
to $0.19305 per share in February 2006*
|
925,146 | 178,286 | 178,286 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at $0.18994 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
in
lieu of rent payment in March 2006*
|
9,473 | 1,798 | 1,798 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred
stock subscribed at a range of
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.18994
to $0.19564 per share in March 2006*
|
583,827 | 111,640 | 111,640 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at $0.18972 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to an exercise of a stock option in
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
April
2006*
|
45,109 | 8,558 | 8,558 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred
stock subscribed at a range of
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.19070
to $0.19546 per share in April 2006*
|
331,197 | 63,661 | 63,661 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at $0.05542 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a consulting agreement net of
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
issuance
cost of $2,926 in May 2006*
|
1,894,562 | 102,074 | 102,074 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at $0.05542 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a licensing agreement in May 2006*
|
1,623,910 | 90,000 | 90,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred
stock subscribed at $0.19990
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
per
share in May 2006*
|
132,746 | 26,535 | 26,535 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at $0.19799 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
in
lieu of rent payment in June 2006*
|
9,473 | 1,875 | 1,875 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Preferred
stock subscribed at a range of
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.19799
to $0.20063 per share in June 2006*
|
499,023 | 99,430 | 99,430 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
issuance costs in June 2006
|
(5,977 | ) | (5,977 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
A Preferred stock issued in June 2006*
|
9,826,684 | $ | 1,892,292 | (9,826,684 | ) | (1,892,292 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Foreign
currency adjustment
|
$ | 20,088 | 20,088 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net
loss
|
$ | (1,540,412 | ) | (1,540,412 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Total
comprehensive loss
|
(1,520,324 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balances
at June 30, 2006
|
9,826,684 | $ | 1,892,292 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 34,604,178 | $ | 206,783 | - | $ | - | $ | - | $ | 20,088 | $ | (1,540,412 | ) | $ | 578,751 | |||||||||||||||||||||||||||||||||||||||||||||||
*reflects
a 2-for-1 stock split and a 2.2554-for-1 merger exchange
See
accompanying notes to financial statements
56
(a
development stage company)
STATEMENTS
OF STOCKHOLDERS' EQUITY (DEFICIT), continued
for the
period from July 18, 2005 (date of inception) to June 30, 2008
|
Urigen
N.A., Inc. Series A Preferred Stock
|
Urigen
N.A., Inc. Series A Preferred Stock Subscribed
|
Urigen
Pharmaceuticals, Inc. Series B Preferred Stock
|
Urigen
N.A., Inc. Series B Preferred Stock
|
Urigen
N.A., Inc. Series B Preferred Stock Subscribed
|
Urigen
Pharmaceuticals, Inc. Common Stock
|
Urigen
N.A., Inc. Common Stock
|
Common
Stock Subscribed
|
Additional
Paid-In
|
Accumulated
other comprehensive
|
Deficit
accumulated during development
|
Total
stockholders' equity
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
income
|
stage
|
(deficit)
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balances
at June 30, 2006
|
9,826,684 | $ | 1,892,292 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 34,604,178 | $ | 206,783 | - | $ | - | $ | - | $ | 20,088 | $ | (1,540,412 | ) | $ | 578,751 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at $0.05542 per share pursuant
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
a consulting agreement in August 2006*
|
112,772 | 6,250 | 6,250 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock subscribed at $0.19956 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a stock option plan in August 2006*
|
33,831 | 6,752 | 6,752 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at a range of $0.19666 to
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.19801
per share in lieu of consulting fees
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
in
September 2006*
|
112,072 | 22,102 | 22,102 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at $0.19956 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a stock option plan in September 2006*
|
22,554 | 4,501 | (22,554 | ) | (4,501 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at $0.05542 per share pursuant
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
a consulting agreement in September 2006*
|
112,772 | 6,250 | 6,250 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at $0.19899 per share in lieu of
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
rent
payment in September 2006*
|
9,473 | 1,885 | 1,885 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Correction
of previously issued Series A preferred
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
stock*
|
4,601 | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Reclassification
of common stock to additional
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
paid-in
capital upon re-domestication
|
- | (246,919 | ) | 246,919 | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock subscribed at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
in
October 2006**
|
518,749 | 115,000 | 115,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
in
October 2006**
|
518,749 | 115,000 | (518,749 | ) | (115,000 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to an exchange agreement in October 2006**
|
11,277 | 2,500 | 2,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a vendor agreement in October 2006**
|
45,109 | 10,000 | 10,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a promissory note in October 2006**
|
11,277 | 2,500 | 2,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a vendor agreement in November 2006**
|
45,109 | 10,000 | 10,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock subscribed at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
in
November 2006**
|
1,127,716 | 250,000 | 250,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
in
November 2006**
|
1,127,716 | 250,000 | (1,127,716 | ) | (250,000 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a vendor agreement in December 2006**
|
45,109 | 10,000 | 10,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock subscribed at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
officers in lieu of cash payroll in December 2006**
|
840,825 | 186,400 | 186,400 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
an officer in lieu of cash payroll in January 2007**
|
338,315 | 75,000 | (338,315 | ) | (75,000 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a vendor agreement in January 2007**
|
45,109 | 10,000 | 10,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a consulting agreement in January 2007**
|
216,521 | 48,000 | 48,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a promissory note in January 2007**
|
5,639 | 1,250 | 1,250 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
an officer in lieu of cash payroll in January 2007**
|
112,771 | 25,000 | 25,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
in
January 2007**
|
225,543 | 50,000 | 50,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
*
reflects a two-for-one stock split and a 2.2554:1 merger exchange
**
reflects a 11.277:1 merger exchange
See
accompanying notes to financial statements
57
(a
development stage company)
STATEMENTS
OF STOCKHOLDERS' EQUITY (DEFICIT), continued
for the
period from July 18, 2005 (date of inception) to June 30, 2008
|
Urigen
N.A., Inc. Series A Preferred Stock
|
Urigen
N.A., Inc. Series A Preferred Stock Subscribed
|
Urigen
Pharmaceuticals, Inc. Series B Preferred Stock
|
Urigen
N.A., Inc. Series B Preferred Stock
|
Urigen
N.A., Inc. Series B Preferred Stock Subscribed
|
Urigen
Pharmaceuticals, Inc. Common Stock
|
Urigen
N.A., Inc. Common Stock
|
Common
Stock Subscribed
|
Additional
Paid-In
|
Accumulated
other comprehensive
|
Deficit
accumulated during development
|
Total
stockholders' equity
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
income
|
stage
|
(deficit)
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a vendor agreement in February 2007**
|
45,109 | $ | 10,000 | $ | 10,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
an officer in lieu of cash payroll in February 2007**
|
112,771 | 25,000 | 25,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a vendor agreement in March 2007**
|
45,109 | 10,000 | 10,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
an officer in lieu of cash payroll in March 2007**
|
112,771 | 25,000 | 25,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a vendor agreement in April 2007**
|
45,109 | 10,000 | 10,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
an officer in lieu of cash payroll in April 2007**
|
112,771 | 25,000 | 25,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a vendor agreement in May 2007**
|
45,109 | 10,000 | 10,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
officers in lieu of cash payroll in May 2007**
|
1,982,828 | 439,567 | (502,510 | ) | $ | (111,400 | ) | 328,167 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a vendor agreement in May 2007**
|
5,639 | 1,250 | 1,250 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
a consultant in lieu of cash in May 2007**
|
287,297 | 63,690 | 63,690 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a consulting agreement in May 2007**
|
36,087 | 8,000 | 8,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
an officer in lieu of cash payroll in May 2007**
|
112,771 | 25,000 | 25,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to consulting agreements in May 2007**
|
180,434 | 40,000 | 40,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a vendor agreement in June 2007**
|
45,109 | 10,000 | 10,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
an officer in lieu of cash payroll in June 2007**
|
112,771 | 25,000 | 25,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock subscribed at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a consulting agreement in June 2007**
|
36,087 | 8,000 | 8,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock subscribed at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
a consultant in lieu of cash in June 2007**
|
35,917 | 7,962 | 7,962 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock subscribed at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
officers in lieu of cash payroll in June 2007**
|
274,531 | 60,860 | 60,860 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Reclassification
of Series A preferred stock to
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
common
pursuant to a stockholder vote in
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
June
2007**
|
(9,831,285 | ) | (1,892,292 | ) | 9,831,285 | 44 | $ | 1,892,248 | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Foreign
currency adjustment
|
$ | (288 | ) | (288 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net
loss
|
$ | (3,252,036 | ) | (3,252,036 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Total
comprehensive loss
|
(3,252,324 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balances
at June 30, 2007
|
- | $ | - | - | $ | - | - | $ | - | 6,029,929 | $ | 1,336,757 | 346,535 | $ | 76,822 | - | $ | - | 44,805,106 | $ | 896 | 11,277 | $ | 2,251 | $ | 2,139,167 | $ | 19,800 | $ | (4,792,448 | ) | $ | (1,216,755 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
*
reflects a two-for-one stock split and a 2.2554:1 merger exchange
**
reflects a 11.277:1 merger exchange
See
accompanying notes to financial statements
58
(a
development stage company)
STATEMENTS
OF STOCKHOLDERS' EQUITY (DEFICIT), continued
for the
period from July 18, 2005 (date of inception) to June 30, 2008
|
Urigen
N.A., Inc. Series A Preferred Stock
|
Urigen
N.A., Inc. Series A Preferred Stock Subscribed
|
Urigen
Pharmaceuticals Inc. Series B Preferred Stock
|
Urigen
N.A., Inc. Series B Preferred Stock
|
Urigen
N.A., Inc. Series B Preferred Stock Subscribed
|
Urigen
Pharmaceuticals Inc. Common Stock
|
Urigen
N.A., Inc. Common Stock
|
Common
Stock Subscribed
|
Additional
Paid-In
|
Accumulated
other comprehensive
|
Deficit
accumulated during development
|
Total
stockholders' equity
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
income
|
stage
|
(deficit)
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balances
at June 30, 2007
|
- | $ | - | - | $ | - | - | $ | - | 6,029,929 | $ | 1,336,757 | 346,535 | $ | 76,822 | - | $ | - | 44,805,106 | $ | 896 | 11,277 | $ | 2,251 | $ | 2,139,167 | $ | 19,800 | $ | (4,792,448 | ) | $ | (1,216,755 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a vendor agreement in July 2007**
|
45,109 | 10,000 | 10,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to a consulting agreement in July 2007**
|
36,087 | 8,000 | (36,087 | ) | (8,000 | ) | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
officers in lieu of cash payroll in July 2007**
|
274,531 | 60,860 | (274,531 | ) | (60,860 | ) | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Series
B preferred stock issued at $0.22169 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
to
a consultant in lieu of cash in July 2007**
|
35,917 | 7,962 | (35,917 | ) | (7,962 | ) | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Write-off
common stock subscribed in July 2007
|
(11,277 | ) | (2,251 | ) | (2,251 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
To
reclassify Urigen N.A., Inc. Series B Preferred
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
stock
to Urigen Pharmaceuticals, Inc. pursuant to
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
merger
in July 2007
|
(6,421,573 | ) | (1,423,579 | ) | 6,421,573 | 6,422 | 1,417,157 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
To
reclassify Urigen N.A., Inc. Common stock to
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Urigen
Pharmaceuticals, Inc. pursuant to
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
merger
in July 2007
|
44,805,106 | 44,805 | (44,805,106 | ) | (896 | ) | (43,909 | ) | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Valentis
common shares outstanding at time of merger, July 2007
|
17,062,856 | 17,063 | 41,584 | 58,647 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of Series B preferred stock with warrants
in
July 2007 (Note 10)
|
1,127,557 | 1,127,557 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock issued at $0.09875 per share
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
pursuant
to license agreement in November 2007
|
1,000,000 | 1,000 | 98,750 | 99,750 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Reclassification
of Series B preferred stock upon effective
registration
of a portion of shares issued at $0.10500
per
underlying share in December 2007 (Note 10)
|
210 | 1,087,579 | 911,179 | 1,998,758 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock subscribed at a range of
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.09975
to $0.27550 per share pursuant to
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
vendor
agreements, recognized in December 2007
|
540,815 | 71,320 | 71,320 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock subscribed at a range
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
of
$0.09975 to $0.27550 per share pursuant to
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
employee
agreements, recognized in December 2007
|
63,150 | 6,299 | 6,299 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock subscribed at $0.17100
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
per
share pursuant to consultant agreement
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
in
January 2008
|
20,000 | 3,420 | 3,420 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock and warrants subscribed
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
at
$0.20 per share pursuant to cash
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
investment
in January 2008
|
500,000 | 100,000 | 100,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock subscribed at
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.10450
per share pursuant to a vendor
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
agreement
in January 2008
|
380,000 | 39,710 | 39,710 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock subscribed at $0.1805
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
per
share pursuant to Directors' Compensation
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
agreement
in January 2008
|
58,125 | 10,491 | 10,491 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
*
reflects a two-for-one stock split and a 2.2554:1 merger exchange
**
reflects a 11.277:1 merger exchange
See
accompanying notes to financial statements
59
(a
development stage company)
STATEMENTS
OF STOCKHOLDERS' EQUITY (DEFICIT), continued
for the
period from July 18, 2005 (date of inception) to June 30, 2008
|
Urigen
N.A., Inc. Series A Preferred Stock
|
Urigen
N.A., Inc. Series A Preferred Stock Subscribed
|
Urigen
Pharmaceuticals Inc. Series B Preferred Stock
|
Urigen
N.A., Inc. Series B Preferred Stock
|
Urigen
N.A., Inc. Series B Preferred Stock Subscribed
|
U
rigen Pharmaceuticals Inc. Common Stock
|
Urigen
N.A., Inc. Common Stock
|
Common
Stock Subscribed
|
Additional
Paid-In
|
Accumulated
other comprehensive
|
Deficit
accumulated during development
|
Total
stockholders'
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
income
|
stage
|
equity
(deficit)
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock subscribed at $0.17 per share pursuant to a cash
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
investments
in April, 2008
|
726,470 | 123,500 | 123,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock and subscribed at $0.17 per share pursuant to a
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
vendor
agreement in April 2008
|
147,059 | 25,000 | 25,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock subscribed at $0.17 per share pursuant to a cash
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
investments
in May 2008
|
555,883 | 94,500 | 94,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock and subscribed at $0.12 per share pursuant to a
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
vendor
agreement in May 2008
|
60,000 | 7,200 | 7,200 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Adjustment
of common stock subscribed at a range of $0.114 to
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
$0.2755
per share due to a settlement agreement with a vendor
|
(276,815 | ) | (44,873 | ) | (44,873 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Subscribed
common stock issued in June, 2008 at subscribed fair value
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
of
$0.10450 per share and current fair value of $0.0855 per
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
share
|
380,000 | 380 | (380,000 | ) | (39,710 | ) | 32,110 | (7,220 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Revaluation
of unearned vendor warrants to fair value
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
in
June 2008
|
2,447 | 2,447 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock subscribed at $0.08551 per share pursuant to
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Directors'
compensation agreement in June 2008
|
58,125 | 4,970 | 4,970 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
based compensation expense on Valentis options
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
recognized
in fiscal 2008
|
2,247 | 27,949 | 30,196 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
based compensation expense on Restricted Stock agreements
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
recognized
in fiscal 2008
|
1,300,000 | 20,462 | 20,462 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Imputed
Dividends - Series B Preferred recognized in fiscal 2008
|
(55,633 | ) | (55,633 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Foreign
currency adjustment
|
$ |
320
|
320 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net
loss
|
$(4,844,458) | (4,844,458 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Total
comprehensive loss
|
(4,844,138 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balances
at June 30, 2008
|
- | $ | - | - | $ | - | 210 | $ | 1,087,579 | - | $ | - | - | $ | - | 69,669,535 | $ | 69,670 | - | $ | - | 3,752,812 | $ | 424,536 | $ | 5,698,358 | $20,120 | $(9,636,906) | $ | (2,336,643 | ) | ||||||||||||||||||||||||||||||||||||||||||
*
reflects a two-for-one stock split and a 2.2554:1 merger exchange
**
reflects a 11.277:1 merger exchange
See
accompanying notes to financial statements
60
URIGEN
PHARMACEUTICALS., INC.
(a
development stage company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Cumulative
period
|
||||||||||||
|
from
July 18, 2005
|
||||||||||||
|
Year
ended June 30,
|
(date
of inception) to
|
|||||||||||
|
2008
|
2007
|
June
30, 2008
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
loss
|
$ | (4,844,458 | ) | $ | (3,252,036 | ) | $ | (9,636,906 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Depreciation
|
5,858 | 2,255 | 8,113 | |||||||||
|
Amortization
of intangible assets
|
14,428 | 14,428 | 33,556 | |||||||||
|
Non-cash
expenses: compensation, interest, rent, and other
|
234,560 | 1,035,066 | 1,516,670 | |||||||||
|
Preferred
Series B discount and imputed interest
|
2,142,270 | - | 2,142,270 | |||||||||
|
Change
in fair value of Series B convertible preferred stock
liability
|
(949,895 | ) | - | (949,895 | ) | |||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Prepaid
expenses and other assets
|
88,100 | (17,228 | ) | 70,872 | ||||||||
|
Due
from related party
|
(15,132 | ) | - | (15,132 | ) | |||||||
|
Accounts
payable
|
(119,631 | ) | 652,659 | 573,586 | ||||||||
|
Accrued
expenses
|
771,087 | 354,283 | 1,156,428 | |||||||||
|
Due
to related parties
|
(19,702 | ) | (19,771 | ) | 206,366 | |||||||
|
Net
cash used in operating activities
|
(2,692,515 | ) | (1,230,344 | ) | (4,894,072 | ) | ||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Purchases
of property and equipment
|
(4,255 | ) | (2,725 | ) | (11,036 | ) | ||||||
|
Asset-based
purchase, net of cash acquired, from Urigen, Inc.
|
- | - | 470,000 | |||||||||
|
Net
cash (used in) provided by investing activities
|
(4,255 | ) | (2,725 | ) | 458,964 | |||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Cash
acquired in consummation of reverse merger, net
|
222,351 | - | 222,351 | |||||||||
|
Proceeds
from issuance of notes payable - related parties
|
- | 300,000 | 300,000 | |||||||||
|
Payment
of receivables from stockholders
|
- | 45,724 | 45,724 | |||||||||
|
Proceeds
from stock and warrant subscriptions, and exercise of stock
options
|
318,000 | 6,752 | 333,310 | |||||||||
|
Proceeds
from issuance of Urigen N.A. Series B convertible preferred
stock,
|
||||||||||||
|
net
of issuance costs
|
- | 415,000 | 415,000 | |||||||||
|
Proceeds
from issuance of Urigen N.A. Series A preferred stock,
|
||||||||||||
|
net
of issuance costs
|
- | - | 1,002,135 | |||||||||
|
Proceeds
from issuance of Series B convertible preferred stock
|
2,100,000 | - | 2,100,000 | |||||||||
|
Net
cash provided by financing activities
|
2,640,351 | 767,476 | 4,418,520 | |||||||||
|
Effect
of exchange rate changes on cash
|
320 | (288 | ) | 62,097 | ||||||||
|
Net
decrease in cash
|
(56,099 | ) | (465,881 | ) | 45,509 | |||||||
|
Cash,
beginning of period
|
101,608 | 567,489 | - | |||||||||
|
Cash,
end of period
|
$ | 45,509 | $ | 101,608 | $ | 45,509 | ||||||
|
Non-cash
investing and financing activities:
|
||||||||||||
|
Intangible
assets acquired through issuance of common stock
|
$ | - | $ | - | $ | 90,560 | ||||||
|
Non-cash
portion related to asset-based purchase from Urigen, Inc.:
|
||||||||||||
|
Assumption
of notes payable subsequently converted to preferred stock
|
$ | - | $ | - | $ | 255,000 | ||||||
|
Amount
due from stockholders for issuance of preferred stock
|
$ | - | $ | - | $ | 45,724 | ||||||
|
Reclassification
of Preferred stock liability to equity
|
$ | 1,087,579 | $ | - | $ | 1,087,579 | ||||||
|
Reclassification
of Preferred beneficial conversion feature from liability to
equity
|
$ | 911,179 | $ | - | $ | 911,179 | ||||||
|
Valentis
net equity received in connection with reverse merger
|
$ | 58,647 | $ | - | $ | 58,647 | ||||||
|
Supplemental
Cash Flow Information:
|
||||||||||||
|
Cash
paid for interest
|
$ | 12,088 | $ | 31,298 | $ | 43,673 | ||||||
See
accompanying notes to financial statements
61
URIGEN
PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(a
development stage company)
|
1. Nature
of Operations and Business Risks
|
Urigen
Pharmaceuticals, Inc. (“the Company”), formerly Valentis, Inc. (“Valentis”) a
Delaware incorporated company, is a specialty pharmaceutical company dedicated
to the development and commercialization of therapeutic products for urological
disorders. The pipeline includes URG101, for the treatment of Painful
Bladder Syndrome (PBS) which has completed a Phase II double blinded, placebo
controlled, multi-center trial achieving statistically significant results on
all end points; and URG301, targeting urethritis and nocturia.
Urigen
N.A., Inc. was originally incorporated in British Columbia on July 18, 2005
(date of inception) as Urigen Holdings, Inc. and on October 4, 2006, in
accordance with the vote of the stockholders, the company re-domesticated to
Delaware and changed its name to Urigen N.A., Inc. Management and the
Board of Directors of the Company concluded that continuation and
re-incorporation of the Company as a Delaware company was in the best interests
of the Company and its stockholders. In addition, the stockholders approved the
following changes:
|
|
·
|
To
reduce the number of authorized common shares from unlimited to 20,000,000
and to authorize 6,000,000 of preferred shares (5,000,000 designated for
Series A).
|
|
|
·
|
To
establish a stated par value of
$0.00001.
|
|
|
·
|
Upon
re-domestication to the U.S., all existing stockholders would receive 2
shares for every outstanding share of common and preferred
stock.
|
On
October 5, 2006, the Company entered into an Agreement and Plan of
Merger, as subsequently amended (the “Merger”) with Urigen N.A., Inc., a
Delaware corporation (“Urigen N.A.”), and Valentis Holdings, Inc., our newly
formed wholly-owned subsidiary (“Valentis Holdings”). Pursuant to the Merger
Agreement, on July 13, 2007, Valentis Holdings was merged with and into Urigen
N.A. with Urigen N.A., Inc. surviving as our wholly-owned subsidiary. In
connection with the Merger, each Urigen N.A. stockholder received, in exchange
for each share of Urigen N.A. common stock held by such stockholder immediately
prior to the closing of the Merger, 2.2554 shares of our common stock. At the
effective time of the Merger, each share of Urigen N.A. Series B preferred
stock was exchanged for 11.277 shares of our common stock. An aggregate of
51,226,679 shares of our common stock were issued to the Urigen N.A.
stockholders. Upon completion of the Merger, the Company changed its
name from Valentis, Inc. to Urigen Pharmaceuticals, Inc.
Background
to the Merger
On
July 11, 2006, Valentis issued a press release announcing the negative
results of the Phase IIb clinical trial for VLTS 934. The press release noted
that Valentis had no plans for further development of its products and was
assessing strategic alternatives, including the sale or merger of Valentis, the
sale of certain of Valentis’ assets or other alternatives. In
July and August 2006, Valentis communicated with potential reverse
merger candidates regarding its review process. On July 22, 2006, William
J. Garner M.D., Urigen N.A.’s president and chief executive officer, left a
message for Dr. Benjamin F. McGraw III, Valentis’ president and chief
executive officer, to discuss a possible merger of Valentis and Urigen N.A.
resulting in the obtaining of a public listing by Urigen N.A. On
July 24, 2006, Dr. Garner spoke with Dr. McGraw about a possible
merger of the two companies. Valentis chose to pursue a reverse
merger with Urigen N.A. because, among other things, Urigen N.A. had a product
that had completed a successful Phase IIa trial and, at the time, was close to
completion of a Phase IIb trial, and Urigen N.A. had a modest valuation that was
in an acceptable range to Valentis.
62
Reverse
Merger
Urigen
N.A. security holders owned, immediately after the closing of the Merger,
approximately two-thirds of the combined company on a fully-diluted basis.
Further, Urigen N.A. directors constitute a majority of the combined company's
board of directors and all members of the executive management of the combined
company are from Urigen N.A. Therefore, Urigen N.A. was deemed to be the
acquiring company for accounting purposes and the Merger transaction was
accounted for as a reverse merger and a recapitalization. The financial
statements of the combined entity after the Merger reflect the historical
results of Urigen N.A. prior to the Merger and do not include the historical
financial results of Valentis prior to the completion of the
Merger. Stockholders' equity (deficit) and net
loss per share of the combined entity after the Merger were retroactively
restated to reflect the number of shares of common stock received by Urigen N.A.
security holders in the Merger, after giving effect to the difference between
the par values of the capital stock of Urigen N.A. and Valentis, with the offset
to additional paid-in capital. The consolidated financial statements have been
prepared to give effect to the Merger of Urigen N.A. and Valentis as a reverse
acquisition of assets and a recapitalization in accordance with accounting
principles generally accepted in the United States. For accounting purposes,
Urigen N.A. is considered to be acquiring Valentis in the Merger as Valentis
does not meet the definition of a business in accordance with Statement of
Financial Accounting Standards, SFAS No. 141, Business Combinations ("SFAS No.
141"), and Emerging Issue Task Force 98-3 ("EITF 98-3"), Determining Whether a
Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business,
because Valentis had no material assets or liabilities at the time of finalizing
the Merger. Consequently, all of the assets and liabilities of
Valentis have been reflected in the financial statements at their respective
fair values and no goodwill or other intangibles were recorded as part of
acquisition accounting and the cost of the Merger is measured at net assets
acquired.
Accounting
for the Merger
The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of the Merger:
|
Cash
|
$ | 222,351 | ||
|
Prepaid
legal
|
18,170 | |||
|
Other
current assets
|
3,265 | |||
|
Property
and equipment
|
4,405 | |||
|
Prepaid
insurance
|
195,171 | |||
|
Accrued
liabilities
|
(208,715 | ) | ||
|
Notes
payable
|
(176,000 | ) | ||
|
Net
assets acquired
|
$ | 58,647 | ||
Other
assets acquired in the Merger included the public OTCBB listing, various patent
rights without significant fair value, and two storage units containing files,
used office equipment, and furniture, also without significant fair
value. At the time of the Merger, Valentis’ Accumulated
Comprehensive loss of ($244,904,871) was charged to Valentis’ Additional Paid-in
Capital. From an accounting standpoint, Urigen N.A., a wholly-owned
subsidiary of Urigen Pharmaceuticals Inc., remains as the operating
entity. Post-Merger financials contained in this report are presented
consolidated, with inter-company transactions eliminated. Pre-Merger
financials are those of Urigen N.A. Equity transactions in Urigen
N.A. securities have been converted into an approximately equivalent number of
shares of Urigen Pharmaceuticals Inc.
As of the
date of this filing, the Company has realized an additional $300,000 in
unexpected gross other revenue from two agreements for the licensing of Valentis
technology. As described in Note 14 to these financial statements, an
additional non-cash expense charged to Additional Paid-in Capital from Valentis
related equity compensation agreements assumed by the Company totaled
approximately $30,000 during fiscal 2008, and is expected to be immaterial in
future periods. The Company is not actively pursuing any development
of Valentis technology obtained in the Merger and no material continuing
revenues or expenses relating to the Merger are anticipated as of the date of
this report.
63
Nature
of Operations and Risks
The
Company is actively seeking corporate partnership, licensing or financing
arrangements necessary to fund its development programs.
The
Company is in the development stage and its programs are in the clinical trial
phase, and therefore has not generated revenues from product sales to date. Even
if development and marketing efforts are successful, substantial time may pass
before significant revenues will be realized, and during this period the Company
will require additional funds, the availability of which can not be
assured.
Consequently,
the Company is subject to the risks associated with development stage companies,
including the need for additional financings; the uncertainty of the Company’s
research and development efforts resulting in successful commercial products as
well as the marketing and customer acceptance of such products; competition from
larger organizations; reliance on the proprietary technology of others;
dependence on key personnel; uncertain patent protection; and dependence on
corporate partners and collaborators. To achieve successful operations, the
Company may require additional capital to continue research and development and
marketing efforts. No assurance can be given as to the timing or ultimate
success of obtaining future funding.
Basis
of Presentation/Liquidity
The
Company’s financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. Since inception through June
30, 2008, the Company has accumulated net losses of $9,636,906 and negative cash
flows from operations of $4,894,072 and has a negative working capital of
$2,709,074. Management expects to incur further losses for the foreseeable
future. The Company expects to finance future cash needs primarily through
proceeds from equity or debt financing, licensing agreements, and/or
collaborative agreements with corporate partners in order to be able to sustain
its operations until the Company can achieve profitability and positive cash
flows, if ever. Management plans to seek additional debt and/or equity financing
for the Company through private or public offerings, but it cannot assure that
such financing will be available on acceptable terms, or at all. These matters
raise substantial doubt about the Company’s ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Urigen
N.A. effected a 2-for-1 stock split of its common stock and Series A preferred
stock on October 4, 2006 on the re-domestication of the Company from British
Columbia to Delaware. These shareholders also received a 2.2554-for-1 merger
exchange at the time of the Merger. The financial statements and
notes to the financial statements have been adjusted retroactively to reflect a
2-for-1 stock split and 2.2554-for-1 merger exchange of the common stock and
Series A preferred stock for common stock of the Company.
Urigen
N.A. effected a 11.277-for-1 merger exchange of its Series B preferred stock at
the time of the Merger. The financial statements and notes to the
financial statements have been adjusted retroactively to reflect an 11.277-for-1
merger exchange of the Series B preferred stock for common stock of the
Company.
64
Principles
of Consolidation
The
consolidated financial statements include the accounts of Urigen
Pharmaceuticals, Inc. and its wholly-owned subsidiaries Urigen N.A. and PolyMASC
Pharmaceuticals plc. (PolyMASC is inactive). All
significant intercompany balances and transactions have been
eliminated.
Use
of Estimates
The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, the reported amounts of
expenses during the reporting period, and amounts disclosed in the notes to the
financial statements. Actual results could differ from those
estimates.
Foreign
Currency
The
functional currency of the Company until October 4, 2006 was the Canadian
dollar (local currency). Starting on October 5, 2006, the functional
currency is the U.S. dollar (local currency). The transactions from date of
inception through October 4, 2006 in these financial statements and notes to the
financial statements of the Company have been translated into U.S. dollars
using period-end exchange rates for assets and liabilities, and monthly average
exchange rates for expenses. Intangible assets and equity were translated at
historical exchange rates. Translation gains and losses are deferred and
recorded in accumulated other comprehensive income (loss) as a component of
stockholders’ equity (deficit). Transaction
gains and losses that arise from exchange rate changes denominated in other than
the local currency are included in other expenses in the statement of operations
and are not considered material for the periods presented.
Fair
Value of Financial Instruments
The
carrying amounts of certain of the Company’s financial instruments including
cash, due from related party, prepaid expenses, notes payable, accounts payable,
accrued expenses, and due to related parties approximate fair value due to their
short maturities.
Company
policy is to value its securities based on the average of the daily open and
close price except where accounting standards or contractual terms specifically
call for a different method. Based on restricted stock valuation
studies the company assumes a 5% valuation discount on unregistered Company
equity instruments due to the restrictions on such instruments.
Cash
Concentration
At June
30, 2008, the Company did not have bank balances at a single U.S. financial
institution in excess of the Federal Deposit Insurance Corporation coverage
limit of $100,000.
Intangible
Assets
Intangible
assets include the intellectual property and other patented rights acquired.
Consideration paid in connection with acquisitions is required to be allocated
to the acquired assets, including identifiable intangible assets, and
liabilities acquired. Acquired assets and liabilities are recorded based on the
Company’s estimate of fair value, which requires significant judgment with
respect to future cash flows and discount rates. For intangible assets other
than goodwill, the Company is required to estimate the useful life of the asset
and recognize its cost as an expense over the useful life. The Company uses the
straight-line method to expense long-lived assets (including identifiable
intangibles). The intangible assets were recorded based on their estimated fair
value and are being amortized using the straight-line method over the estimated
useful life of 20 years, which is the life of the intellectual property
patents.
Impairment
of Long-Lived Assets
The
Company regularly evaluates its business for potential indicators of impairment
of intangible assets. The Company’s judgments regarding the existence of
impairment indicators are based on market conditions, operational performance of
the business and considerations of any events that are likely to cause
impairment. Future events could cause the Company to conclude that impairment
indicators exist and that intangible assets are impaired. The Company currently
operates in one reportable segment, which is also the only reporting unit for
the purposes of impairment analysis.
The
Company evaluates its long-lived assets for indicators of possible impairment by
comparison of the carrying amounts to future net undiscounted cash flows
expected to be generated by such assets when events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. Should an
impairment exist, the impairment loss would be measured based on the excess
carrying value of the asset over the asset’s fair value or discounted estimates
of future cash flows. The Company has not identified any such impairment losses
to date.
65
Income
Taxes
Income
taxes are recorded under the balance sheet method, under which deferred tax
assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be
realized.
In June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes —
an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
prescribes a recognition threshold and measurement attribute for financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return, and also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning
after December 15, 2006. We adopted the provisions of FIN 48 on
July 1, 2007. At the adoption date we did not have any unrecognized
tax benefits and did not have any interest or penalties accrued. The cumulative
effect of this change was not material. Following implementation, the
ongoing changes in measurement of uncertain tax provisions will be reflected as
a component of income tax expense. Interest and penalties incurred
associated with unresolved tax positions will continue to be included in other
income (expense).
Research
and Development
Research
and development expenses include clinical trial costs, outside consultants and
contractors, and insurance for the Company’s research and development
activities. The Company recognizes such costs as expense when they are
incurred.
Clinical
Trial Expenses
We
believe the accrual for clinical trial expenses are a significant estimate used
in the preparation of our consolidated financial statements. Our accruals for
clinical trial expenses are based in part on estimates of services received and
efforts expended pursuant to agreements established with clinical research
organizations and clinical trial sites. We have a history of contracting with
third parties that perform various clinical trial activities on our behalf in
the ongoing development of our biopharmaceutical drugs. The financial terms of
these contracts are subject to negotiations and may vary from contract to
contract and may result in uneven payment flows. We determine our estimates
through discussion with internal clinical personnel and outside service
providers as to progress or stage of completion of trials or services and the
agreed upon fee to be paid for such services. The objective of our clinical
trial accrual policy is to reflect the appropriate trial expenses in our
financial statements by matching period expenses with period services and
efforts expended. In the event of early termination of a clinical trial, we
accrue expenses associated with an estimate of the remaining, non-cancelable
obligations associated with the winding down of the trial. Our estimates and
assumptions for clinical trial expenses have been materially accurate in the
past.
Comprehensive Income (Loss)
The
Company reports comprehensive income (loss) in accordance with the provisions of
Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive
Income”, which establishes standards for reporting comprehensive income (loss)
and its components in the financial statements. The components of other
comprehensive income (loss) consist of net loss and foreign currency translation
adjustments. Comprehensive income (loss) and the components of accumulated other
comprehensive income (loss) are presented in the accompanying statement of
stockholders’ equity (deficit).
|
Year
Ended
June
30, 2008
|
Year
Ended
June
30, 2007
|
Period
from
July
18, 2005 (date of inception)
to June 30, 2008
|
||||||||||
|
Net
loss
|
$ | (4,844,458 | ) | $ | (3,252,036 | ) | $ | (9,636,906 | ) | |||
|
Foreign
currency translation adjustments, net of tax
|
320 | (288 | ) | 20,120 | ||||||||
|
Comprehensive
loss
|
$ | (4,844,138 | ) | $ | (3,252,324 | ) | $ | (9,616,786 | ) | |||
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with Statement of
Financial Accounting Standards No. 123 (revised 2004), “Share-Based
Payment” (“SFAS 123R”), which requires the measurement of all share-based
payments to employees, including grants of stock options, using a
fair-value-based method and the recording of such expense in the statement of
operations for all share-based payment awards made to employees and directors
including employee stock options based on estimated fair values. In addition, as
required by Emerging Issues Task Force Consensus No. 96-18, “Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services”, the Company records stock and
options granted at fair value of the consideration received or the fair value of
the equity instruments issued as they vest over a service period.
Stock-based
compensation expense is recognized based on awards expected to vest, and
forfeitures were estimated at the same rate (5%) used for stock-based
compensation by the Merger partner, Valentis Inc. SFAS 123R requires
forfeitures to be estimated at the time of grant and revised in subsequent
periods, if necessary, if actual forfeitures differ from those
estimates. Fair value accounting details for stock based compensation
is presented in tabular format in Note 14 of the consolidated financial
statements included in this report.
66
Net
Loss Per Share
Basic
loss per share is computed by dividing loss applicable to common stockholders by
the weighted-average number of shares of common stock outstanding during the
period, net of certain common shares outstanding that are held in escrow or
subject to the Company’s right of repurchase. Diluted earnings per share include
the effect of options and warrants, if dilutive. Diluted net loss per share has
not been presented separately as, given our net loss position for all periods
presented, the result would be anti-dilutive.
A
reconciliation of shares used in the calculation of basic and diluted net loss
per share follows (in thousands, except per share amounts):
|
2008
|
2007
|
|||||||
|
Net
loss
|
$
|
(4,844
|
)
|
$
|
(3,252
|
)
|
||
|
Basic
and Diluted:
|
||||||||
|
Weighted-average
shares of common stock used in computing net loss per
share
|
69,860
|
64,107
|
||||||
|
Basic
and diluted net loss per share
|
$
|
(0.07
|
)
|
$
|
(0.05
|
)
|
||
The
following options and warrants have been excluded from the calculation of
diluted net loss per share because the effect of inclusion would be
antidilutive:
|
·
|
approximately
1.4 million shares of our common stock issuable upon the exercise of
all of our outstanding options;
|
|
·
|
approximately
19.6 million shares of our common stock issuable upon the exercise of
all of our outstanding warrants;
and
|
|
·
|
1.3
million shares of restricted stock awards that have not
vested.
|
The
common stock options, warrants, and shares of outstanding common stock subject
to share vesting will be included in the calculation of loss per share at such
time as the effect is no longer antidilutive, as calculated using the treasury
stock method for options and warrants.
67
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements” (“SFAS 157”). The standard provides guidance for using fair
value to measure assets and liabilities. The standard also responds to
investors’ requests for expanded information about the extent to which companies
measure assets and liabilities at fair value, the information used to measure
fair value, and the effect of fair value measurements on earnings. The standard
applies whenever other standards require or permit assets or liabilities to be
measured at fair value. The standard does not expand the use of fair value in
any new circumstances. SFAS 157 must be adopted prospectively as of the
beginning of the year it is initially applied. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years, except for the impact of
FASB Staff Position (FSP) 157-2. FSP 157-2 deferred the adoption of SFAS 157 for
non financial assets and liabilities until years beginning after November 15,
2008. We are still evaluating the impact this standard will have on our
financial position and/or results of operations.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Liabilities” (“SFAS 159”). SFAS 159 provides entities with
the option to report selected financial assets and liabilities at fair value.
Business entities adopting SFAS 159 will report unrealized gains and losses in
their statement of operations at each subsequent reporting date on items for
which the fair value option has been elected. SFAS 159 establishes presentation
and disclosure requirements designed to facilitate comparisons between entities
that choose different measurement attributes for similar types of assets and
liabilities. SFAS 159 requires additional information that will help investors
and other financial statement users to understand the effect of an entity’s
choice to use fair value on its results of operations. SFAS 159 is effective for
fiscal years beginning after November 15, 2007, with earlier adoption permitted.
The Company is currently assessing the impact that the adoption of SFAS 159 may
have on its financial position, results of operations and/or cash
flows.
In June
2007, the FASB ratified a consensus opinion reached by the EITF on EITF Issue
07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services
Received for Use in Future Research and Development Activities”
(“EITF 07-3”). The guidance in EITF 07-3 requires us to defer and
capitalize nonrefundable advance payments made for goods or services to be used
in research and development activities until the goods have been delivered or
the related services have been performed. If the goods are no longer expected to
be delivered or the services are no longer expected to be performed, we would be
required to expense the related capitalized advance payments. EITF 07-3 is
effective for fiscal years beginning after December 15, 2007 and is to be
applied prospectively to new contracts entered into on or after the commencement
of that fiscal year. Early adoption is not permitted. Retrospective application
of EITF 07-3 also is not permitted. We intend to adopt EITF 07-3 effective
July 1, 2008 and do not expect the pronouncement to have a material effect
on our consolidated financial statements.
In
December 2007, the U.S. Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 110 (SAB 110) to amend the SEC’s views discussed in
Staff Accounting Bulletin 107 (SAB 107) regarding the use of the simplified
method in developing an estimate of the expected life of stock options in
accordance with SFAS 123R. SAB 110 is effective for us beginning in
the first quarter of fiscal 2009. The adoption of SAB 110 is not expected
to have a significant impact on our consolidated financial
statements.
In
December 2007, the FASB issued SFAS No. 141R (revised 2007), “Business
Combinations” (“SFAS 141R”). SFAS 141R amends SFAS 141
and provides revised guidance for recognizing and measuring identifiable assets
and goodwill acquired, liabilities assumed, and any noncontrolling interest in
the acquiree. It also provides disclosure requirements to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141R is effective for fiscal years beginning
on or after December 15, 2008 and will be applied prospectively. This
statement is effective for our fiscal year beginning July 1, 2009. We are
currently evaluating the impact of adopting SFAS No. 141R on our
consolidated financial statements, which is dependent upon the future
acquisition activities.
68
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Financial Statements, an amendment of ARB No. 51”
(“SFAS 160”). SFAS 160 will change the accounting and reporting for
minority interests which will be recharacterized as noncontrolling interests and
classified as a component of equity in the financial statements and separate
from the parent’s equity, and it eliminates “minority interest” accounting in
results of operations with earnings/losses attributable to non-controlling
interests reported as part of consolidated earnings/losses. SFAS 160
also establishes reporting requirements that provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of non-controlling owners. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008. SFAS 160 requires retroactive
adoption of the presentation and disclosure requirements for existing minority
interests. We are currently assessing the impact that SFAS 160 may have on
our financial position, results of operations, and cash flows.
In
December 2007, the FASB issued EITF Issue 07-1, “Accounting for Collaborative
Arrangements” (“EITF 07-1”). Collaborative arrangements are
agreements between parties to participate in some type of joint operating
activity. EITF 07-1 provides indicators to help identify collaborative
arrangements and provides for reporting of such arrangements on a gross or net
basis pursuant to guidance in existing authoritative literature. EITF 07-1 also
expanded disclosure requirements about collaborative arrangements. Conclusions
within EITF 07-1 are to be applied retrospectively. EITF 07-1 is effective for
fiscal years beginning on or after December 15, 2008. We are currently assessing
the impact that EITF 07-1 may have on our financial position, results of
operations, and cash flows.
|
3.
|
Intangible
Assets and Related Agreement Commitments/
Contingencies
|
In
January 2006, the Company entered into an asset-based transaction agreement with
a related party, Urigen, Inc. Simultaneously, the Company entered into a license
agreement with the University of California, San Diego for certain patent
rights.
The
agreement with the University of California, San Diego was for a license
previously licensed to Urigen, Inc. In exchange for this license, the
Company issued 1,846,400 common shares and is required to make annual
maintenance payments of $15,000 and milestone payments of up to $625,000, which
are based on certain events related to FDA approval. As of June 30, 2008,
$25,000 of milestone payments have been incurred. The Company is also required
to make royalty payments of 1.5% -3.0% of net sales of licensed products, with a
minimum annual royalty of $35,000. The term of the agreement ends on the earlier
of the expiration of the longest-lived item of the patent rights or the tenth
anniversary of the first commercial sale. Either party may terminate the license
agreement for cause in the event that the other party commits a material breach
and fails to cure such breach. In addition, the Company may terminate the
license agreement at any time and for any reason upon a 90-day written
notice.
The
Company’s agreement with Urigen, Inc. included an assignment of a patent
application and intellectual property rights associated therein, and the
transfer of other assets and liabilities of Urigen, Inc., resulting in the
recognition of net residual intangible assets, as follows:
|
Cash
|
$ | 350,000 | ||
|
Receivable
from Urigen, Inc.
(collected
during the period ended June 30, 2006)
|
120,000 | |||
|
Expenses
paid on behalf of the Company
|
76,923 | |||
|
Convertible
debt
|
(255,000 | ) | ||
|
Subscription
agreements for preferred shares
|
(480,000 | ) | ||
|
Other
|
(560 | ) | ||
|
Net
intangible assets acquired
|
$ | 188,637 |
In May
2006, the Company entered into a license agreement with Kalium, Inc., for patent
rights and technology relating to suppositories for use in the genitourinary or
gastrointestinal system and for the development and utilization of this
technology to commercialize products. Under the terms of the agreement, the
Company issued common stock in the amount of 1,623,910 shares (with an estimated
fair value of $90,000) and shall pay Kalium royalties based on percentages of
2.0-4.5% of net sales of licensed products during the defined term of the
agreement. The Company also is required to make milestone payments (based on
achievement of certain events related to FDA approval) of up to $457,500.
Milestone payments may be made in cash or common stock, at the Company’s
discretion. Kalium shall have the right to terminate rights under this license
agreement or convert the license to non-exclusive rights if the Company fails to
meet certain milestones over the next three years.
The
summary of intangible assets acquired and related accumulated amortization as of
June 30, 2008 is as follows:
|
Patent
and intellectual property rights
|
$ | 278,637 | ||
|
Less:
Accumulated amortization
|
(33,556 | ) | ||
|
Intangible
assets, net
|
$ | 245,081 |
69
Purchased
intangible assets are carried at cost less accumulated amortization.
Amortization is computed over the estimated useful lives of the assets, with a
weighted average amortization period of 20 years. The Company reported
amortization expense on purchased intangible assets of $14,428 and $14,428 for
the years ended June 30, 2008 and 2007, respectively, which is included in
research and development expense in the accompanying statements of operations.
Future estimated amortization expense is as follows:
|
July
1, 2008 – June 30, 2009
|
$ | 14,428 | ||
|
July
1, 2009 – June 30, 2010
|
14,428 | |||
|
July
1, 2010 – June 30, 2011
|
14,428 | |||
|
July
1, 2011 – June 30, 2012
|
14,428 | |||
|
July
1, 2012 – June 30, 2013
|
14,428 | |||
|
Thereafter
|
172,941 | |||
| $ | 245,081 |
|
4.
|
Accrued
Expenses
|
At June
30, 2008 and 2007, the accrued expenses were as follows:
|
June
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Accrued
payroll
|
$ | 465,139 | $ | - | ||||
|
Accrued
payroll taxes
|
530,837 | 303,366 | ||||||
|
Accrued
expenses – other
|
369,167 | 81,975 | ||||||
| $ | 1,365,143 | $ | 385,341 | |||||
|
5.
|
Contractual
Obligations and Notes Payable
|
In
November 2007, the Company entered into an agreement with M & P Patent AG
(Mattern) under which we licensed worldwide rights to Mattern’s intra-nasal
testosterone product for men. The Mattern patent and intellectual
property rights were not placed in service and were not being amortized, nor
included in future amortization estimates, as of December 31, 2007. At December
31 2007, the Company had recorded a license payment to Mattern of one million
shares of Urigen common stock and accrued $1,500,000 in milestone
payments. The Company terminated its license agreement with Mattern
effective March 31, 2008. Accordingly, the accrued liability and
intangible asset has been reversed and a general and administrative impairment
expense of $99,750 has been recorded, which represents the fair value of the one
million shares of restricted stock that were issued. The Company
believes there will be no further payments to Mattern as a result of this
transaction.
On
November 17, 2006, the Company entered into an unsecured promissory note with C.
Lowell Parsons, a director of the Company, in the amount of $200,000. Under the
terms of the note, the Company is to pay interest at a rate per annum computed
on the basis of a 360-day year equal to 12% simple interest. The foregoing
amount is due and payable on the earlier of (i) forty-five (45) days after
consummation of the Merger (as defined in the Agreement and Plan of Merger,
dated as of October 5, 2006, between the Company and Valentis, Inc., or (ii) two
(2) calendar years from the note issuance date (in either case, the “Due
Date”). All amounts due under the note agreement are still
outstanding as of June 30, 2008. Also, the Company had issued 11,277
shares of Urigen N.A. Series B preferred stock, in connection with this note
agreement, which was converted to common stock at the time of the
Merger. Interest expense paid was $8,000 and $12,933 for the years
ended June 30, 2008 and 2007, respectively. At June 30, 2008 and
2007, the Company owed accrued interest expense of $18,000 and $2,000,
respectively.
70
On
January 5, 2007, the Company entered into an unsecured promissory note with
Kansas Technology Enterprise Corporation Holdings, Inc. (“KTEC”) in
the amount of $100,000. Tracy Taylor who is the Company’s Chairman of the Board
of Directors, is President and Chief Executive Officer of KTEC. Under
the terms of the note, the Company is to pay interest at a rate of 12% per annum
until paid in full, with interest compounded as additional principal on a
monthly basis if said interest is not paid in full by the end of each month.
Interest shall be computed on the basis of a 360 day year. All
amounts owed are due and payable by the Company at its option, without notice or
demand, on the earlier of (i) ninety (90) days after consummation of the Merger
as defined in the Agreement and Plan of Merger, dated as of October 5, 2006,
between the Company and Valentis, Inc., or (ii) two (2) calendar years from the
note issuance date (in either case, the “Due Date”). Also, the Company had
issued 5,639 shares of Urigen N.A. Series B preferred stock in connection with
this note agreement, which was converted to common stock at the time of the
Merger. If this note is not paid when due, interest shall accrue
thereafter at the rate of 18% per annum. All principal amounts due under the
note agreement are still outstanding as of June 30, 2008. Interest paid was
$4,088 and $4,945 for the years ended June 30, 2008 and 2007,
respectively. At June 30, 2008 and 2007, the Company owed accrued
interest expense of $9,536 and $1,000, respectively.
On June
25, 2007, Valentis, Inc., upon approval of its Board of Directors, issued
Benjamin F. McGraw, III, Pharm.D., who was the Company’s Chief Executive
Officer, President and Treasurer prior to the Merger, a promissory note in the
amount of $176,000 in lieu of accrued bonus compensation owed to Dr.
McGraw This note was assumed by the Company pursuant to the Merger.
The note bears interest at the rate of 5.0% per annum, may be prepaid by the
Company in full or in part at anytime without premium or penalty and was due and
payable in full on December 25, 2007. On December 25, 2007, the note
was extended through June 25, 2008. On August 11, 2008, the note was
extended through December 25, 2008. Dr. McGraw is currently a member
of the Board of Directors. At June 30, 2008 and 2007, the
Company owed accrued interest expense of $8,800 and $0,
respectively.
|
6.
|
Income
Taxes
|
There is
no provision for income taxes because the Company has incurred operating losses
to date. Deferred income taxes reflect the net tax effects of net
operating loss and tax credit carryovers and temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets are as follows as of June 30, 2008 and
2007:
|
2008
|
2007
|
|||||||
|
Deferred
Tax Assets:
|
||||||||
|
Accrued
Compensation
|
$ | 180,904 | ― | |||||
|
Other
Accrued Expenses
|
331,689 | ― | ||||||
|
Restricted
Stock
|
8,151 | ― | ||||||
|
Net
Operating Losses
|
2,003,932 | $ | 1,098,906 | |||||
|
Tax
Credits
|
128,713 | 73,895 | ||||||
|
Total
Deferred Tax Assets
|
2,653,389 | 1,172,801 | ||||||
|
Total
Deferred Tax Liabilities
|
(1,652 | ) | (8,446 | ) | ||||
|
Valuation
Allowance
|
(2,651,737 | ) | (1,164,355 | ) | ||||
|
Net
Deferred Tax Asset
|
$ | ― | $ | ― | ||||
SFAS
No. 109, “Accounting for Income Taxes” (“SFAS 109”) requires that the
tax benefit of net operating losses, temporary differences and credit
carryforwards be recorded as an asset to the extent that management assesses
that realization is "more likely than not." Realization of the future tax
benefits is dependent on the Company's ability to generate sufficient taxable
income within the carryforward period. Because of the Company's recent history
of operating losses, management believes that recognition of the deferred tax
assets arising from the above-mentioned future tax benefits is currently not
likely to be realized and, accordingly, has provided a valuation
allowance. The valuation allowance increased by $1,487,382 at June
30, 2008 and by $640,170 at June 30, 2007.
The
amount of the valuation allowance for deferred tax assets associated with excess
tax deductions from stock-based compensation arrangements is $0.
71
Net
operating losses and tax credit carry forwards as of June 30, 2008 are as
follows:
|
Amount
|
Expiration Years
|
||||
|
Net
operating losses, Federal
|
$ | 5,030,774 |
Beginning
in 2007
|
||
|
Net
operating losses, State
|
$ | 5,029,974 |
Beginning
in 2017
|
||
|
Tax
credits, Federal
|
$ | 75,972 |
Beginning
in 2027
|
||
|
Tax
credits, State
|
$ | 79,910 |
N/A
|
||
The
effective tax rate of the Company's provision (benefit) for income taxes differs
from the federal statutory rate as follows:
|
2008
|
2007
|
|||
|
Statutory
Rate
|
34.00%
|
34.00%
|
||
|
State
Tax
|
4.80%
|
5.84%
|
||
|
Other
|
-8.74%
|
-5.38%
|
||
|
Tax
Credits
|
0.67%
|
1.34%
|
||
|
Valuation
Allowance
|
-30.73%
|
-35.8%
|
||
|
Total
|
0.00%
|
0.00%
|
Our
policy is to recognize interest and penalties related to income taxes as a
component of other income (expense). We are subject to income tax examinations
for U.S. incomes taxes and state income taxes from 2007 forward. We do not
anticipate that total unrecognized tax benefits will significantly change prior
to June 30, 2009.
72
|
7.
|
Common
Stock
|
Issuance
of Urigen N.A. Common Stock
In July
2005, Urigen N.A. issued 5 shares of common stock at $0.22169 per share upon
incorporation.
In
December 2005, Urigen N.A. issued 27,065,169 shares of common stock to Urigen,
Inc. shareholders at $0.00002 per share for aggregate proceeds of
$559.
In
January 2006, Urigen N.A. issued 3,947,004 shares of common stock to Urigen,
Inc. shareholders at $0.00002 per share for aggregate proceeds of $88. Also,
9,473 shares of common stock were issued at $0.19316 per share for aggregate
proceeds of $1,830 in lieu of rent payment.
In March
2006, Urigen N.A. issued 9,473 shares of common stock at $0.19316 per share for
aggregate proceeds of $1,798 in lieu of rent payment.
In April
2006, Urigen N.A. issued 45,109 shares of common stock at $0.18972 per share for
aggregate proceeds of $8,558 pursuant to an exercise of a stock
option.
In May
2006, Urigen N.A. issued 1,894,562 shares of common stock at $0.05542 per share,
net of issuance costs of $2,926, pursuant to a consulting agreement. Urigen N.A.
also issued 1,623,910 shares of common stock at $0.05542 per share pursuant to a
licensing agreement.
In June
2006, Urigen N.A. issued 9,473 shares of common stock at $0.19799 per share for
aggregate proceeds of $1,875 in lieu of rent payment.
In August
2006, Urigen N.A. issued 112,722 shares of common stock at $0.05542 per share
for aggregate proceeds of $6,250 pursuant to a consulting agreement. Urigen N.A.
also received payment for 33,831 shares of subscribed common stock at $0.19956
per share for aggregate proceeds of $6,752. In September 2006, 22,554 shares of
common stock were issued.
In
September 2006, Urigen N.A. issued 112,072 shares of common stock at a range of
$0.19666 to $0.19801 per share for aggregate proceeds of $22,102 in lieu of
consulting payments. Urigen N.A. also issued 112,772 shares of common stock at
$0.05542 per share for aggregate proceeds of $6,250 pursuant to a consulting
agreement. Urigen N.A. also issued 9,473 shares of common stock at $0.19899 per
share for aggregate proceeds of $1,885 in lieu of rent payment.
73
On June
28, 2007, the Urigen N.A. Series A preferred shareholders voted to convert
9,831,285 shares of Urigen N.A. Series A preferred stock to 9,831,285 shares of
Urigen N.A. common stock.
On July
13, 2007, 44,805,106 shares of Urigen N.A. common stock converted to 44,805,106
shares of the Company’s common stock pursuant to the Merger. At the
time of the Merger, Valentis Inc. had 17,062,856 shares of common stock
outstanding.
Issuance
of Urigen Pharmaceuticals Inc. Common Stock
Also at
the time of the Merger, on July 13, 2007, 6,421,573 shares of Urigen N.A. Series
B preferred stock were converted to 6,421,573 shares of the Company’s common
stock. (Note 1)
In
November 2007, the Company issued 1,000,000 shares of common stock at $0.09875
per share to M & P Patent AG under a license
agreement, for a total value of $99,750.
In June
2008, the Company issued 380,000 shares of common stock (subscribed in January
2008) at $0.0855 per share pursuant to a vendor agreement, for a total value of
$32,490.
|
8. Urigen
N.A. Series A Convertible Preferred
Stock
|
From July
18, 2005 (date of inception) to June 27, 2007, Urigen N.A. issued 9,826,684
shares of Series A convertible preferred stock (“Series A”) at a range of $0.13
to $0.20 per share resulting in gross aggregate proceeds of $1,898,292. Issuance
costs of $5,977 were incurred as part of the issuance. These shares
were converted to common stock on June 28, 2007. (Note
7). Presented below is the detail of these issuances from inception
to June 30, 2007.
In July
2005, Urigen N.A. received a payment for 225,543 shares of subscribed Series A
preferred stock at $0.19546 per share for aggregate proceeds of $44,085. The
Series A preferred stock was issued in June 2006.
In August
2005, Urigen N.A. received a payment for 338,315 shares of subscribed Series A
preferred stock at $0.19453 per share for aggregate proceeds of $65,813. The
Series A preferred stock was issued in June 2006.
In
September 2005, Urigen N.A. received payment for 676,629 shares of subscribed
Series A preferred stock at a range of $0.19453 to $0.19497 per share for
aggregate proceeds of $131,725. The Series A preferred stock was issued in
June 2006.
In
October 2005, Urigen N.A. received payment for 696,603 shares of subscribed
Series A preferred stock at a range of $0.19200 to $0.19546 per share for
aggregate proceeds of $135,054. The Series A preferred stock was issued in June
2006.
In
November 2005, Urigen N.A. received payment for 530,974 shares of subscribed
Series A preferred stock at $0.19457 per share for aggregate proceeds of
$103,314. The Series A preferred stock was issued in June 2006.
In
December 2005, Urigen N.A. received payment for 593,233 shares of subscribed
Series A preferred stock at a range of $0.19238 to $0.20187 per share for
aggregate proceeds of $116,709. The Series A preferred stock was issued in
June 2006.
In
January 2006, Urigen N.A. converted then outstanding notes into 4,293,448 shares
of subscribed Series A preferred stock at a range of $0.12505 to $0.19801 per
share for aggregate proceeds of $822,017. The Series A preferred stock was
issued in June 2006. The convertible notes (acquired from an asset-based
purchase discussed in Note 3) had a provision that upon conversion into stock, a
20-35% discount (as stated in individual note agreements) would apply. The
beneficial conversion rate amount of $65,000 was recognized as interest expense
in the 2006 statement of operations.
In
February 2006, Urigen N.A. received payment for 925,146 shares of subscribed
Series A preferred stock at a range of $0.19072 to $0.19305 per share for
aggregate proceeds of $178,286. The Series A preferred stock was issued in June
2006.
In March
2006, Urigen N.A. received payment for 583,827 shares of subscribed Series A
preferred stock at a range of $0.18994 to $0.19564 per share for aggregate
proceeds of $111,640. The Series A preferred stock was issued in June
2006.
In April
2006, Urigen N.A. received payment for 331,197 shares of subscribed Series A
preferred stock at a range of $0.19070 to $0.19546 per share for aggregate
proceeds of $63,661. The Series A preferred stock was issued in June
2006.
74
In May
2006, Urigen N.A. received payment for 132,746 shares of subscribed Series A
preferred stock at $0.19990 per share for aggregate proceeds of $26,535. The
Series A preferred stock was issued in June 2006.
In June
2006, Urigen N.A. received payment or subscription agreements for 499,023 shares
of subscribed Series A preferred stock at a range of $0.19799 to $0.20063 per
share for aggregate proceeds of $99,430. The Series A preferred stock was issued
later in June 2006. Payments for $45,724 in stockholder receivables were
received subsequent to June 30, 2006.
In
September 2006, Urigen N.A. issued 4,601 shares of Series A preferred stock to
correct a previous issuance.
On June
28, 2007, the Urigen N.A. Series A preferred shareholders voted to convert
9,831,285 shares of Urigen N.A. Series A preferred stock to 9,831,285 shares of
Urigen N.A. common stock. These shares were then converted to common
shares of the Company’s stock, at the time of the Merger.
|
9.
|
Urigen
N.A. Series B Convertible Preferred
Stock
|
In the
year ended June 30, 2007, Urigen N.A. issued 1,872,008 shares of Urigen N.A.
Series B preferred stock (“Series B”) at $0.22169 per share resulting in gross
aggregate proceeds of $415,000. In addition, Urigen N.A. issued
4,157,922 shares of Series B preferred stock in lieu of cash compensation to
employees and consultants and for other matters. Presented below is
the detail of these issuances from inception to June 30, 2007.
In
October 2006, Urigen N.A. received payment for 518,749 shares of subscribed
Series B preferred stock at $0.22169 per share for aggregate proceeds of
$115,000. The Series B preferred stock was issued in October 2006. Urigen N.A.
also issued 11,277 shares of Series B preferred stock at $0.22169 per share for
an aggregate of $2,500 pursuant to an exchange agreement. Urigen N.A. also
issued 45,109 shares of Series B preferred stock at $0.22169 per share for an
aggregate of $10,000 pursuant to a vendor agreement. Urigen N.A. issued 11,277
shares of Series B preferred stock at $0.22169 per share for an aggregate of
$2,500 pursuant to a promissory note.
In
November 2006, Urigen N.A. received payment for 1,127,716 shares of subscribed
Series B preferred stock at $0.22169 per share for aggregate proceeds of
$250,000. The Series B preferred stock was issued in November 2006. Urigen N.A.
also issued 45,109 shares of Series B preferred stock at $0.22169 per share for
an aggregate of $10,000 pursuant to a vendor agreement.
In
December 2006, Urigen N.A. issued 45,109 shares of Series B preferred stock at
$0.22169 per share for an aggregate of $10,000 pursuant to a vendor
agreement.
In
January 2007, Urigen N.A. issued 451,086 shares of Series B preferred
stock at $0.22169 per share for an aggregate of $100,000 to an officer in lieu
of payroll. Urigen N.A. also issued 216,521 shares of Series B preferred
stock at $0.22169 per share for an aggregate of $48,000 pursuant to a consulting
agreement. Urigen N.A. also issued 5,639 shares of Series B preferred stock
at $0.22169 per share for an aggregate of $1,250 pursuant to a promissory note.
Also, Urigen N.A. issued 45,109 shares of Series B preferred stock at
$0.22169 per share for an aggregate of $10,000 pursuant to a vendor agreement.
Urigen N.A. also issued 225,543 shares of Series B preferred stock at
$0.22169 per share for aggregate proceeds of $50,000.
In
February 2007, Urigen N.A. issued 112,771 shares of Series B preferred
stock at $0.22169 per share for an aggregate of $25,000 to an officer in lieu of
payroll. Urigen N.A. also issued 45,109 shares of Series B preferred stock at
$0.22169 per share for an aggregate of $10,000 pursuant to a vendor
agreement.
In
March 2007, Urigen N.A. issued 112,771 shares of Series B preferred
stock at $0.22169 per share for an aggregate of $25,000 to an officer in lieu of
payroll. Urigen N.A. also issued 45,109 shares of Series B preferred stock
at $0.22169 per share for an aggregate of $10,000 pursuant to a vendor
agreement.
In April
2007, Urigen N.A. issued 45,109 shares of Series B preferred stock at $0.22169
per share for an aggregate of $10,000 pursuant to a vendor
agreement. Urigen N.A. also issued 112,771 shares of Series B
preferred stock at $0.22169 per share for an aggregate of $25,000 to an officer
in lieu of payroll.
75
In May
2007, Urigen N.A. issued 45,109 shares of Series B preferred stock at $0.22169
per share for an aggregate of $10,000 pursuant to a vendor
agreement. Urigen N.A. also issued 112,771 shares of Series B
preferred stock at $0.22169 per share for an aggregate of $25,000 to an officer
in lieu of payroll. Urigen N.A. also issued 5,639 shares of Series B
preferred stock at $0.22169 per share for an aggregate of $1,250 pursuant to a
vendor agreement. Urigen N.A. also issued 36,087 shares of Series B
preferred stock at $0.22169 per share for an aggregate of $8,000 pursuant to a
consulting agreement. Urigen N.A. also issued 287,297 shares of
Series B preferred stock at $0.22169 per share for an aggregate of $63,690 to a
consultant. Urigen N.A. also issued 1,982,828 shares of Series B
preferred stock at $0.22169 per share for an aggregate of $439,567 to employees
in lieu of cash payroll for the period from October 2006 through May
2007. Urigen N.A. also issued 180,434 shares of Series B preferred
stock at $0.22169 per share for an aggregate of $40,000 to
consultants.
In
June 2007, Urigen N.A. issued 112,771 shares of Series B preferred
stock at $0.22169 per share for an aggregate of $25,000 to an officer in lieu of
payroll. Urigen N.A. also issued 45,109 shares of Series B preferred stock at
$0.22169 per share for an aggregate of $10,000 pursuant to a vendor
agreement.
In July
2007, Urigen N.A. issued 45,109 shares of Series B preferred stock at $0.22169
per share for an aggregate of $10,000 pursuant to a vendor
agreement. Urigen N.A. also issued 72,004 shares of Series B
preferred stock at $0.22169 per share for an aggregate of $15,962 pursuant to a
consulting agreement. Urigen N.A. also issued 274,531 shares of
Series B preferred stock at $0.22169 per share for an aggregate of $60,860
to officers in lieu of payroll.
On July
13, 2007, 6,421,573 shares of Urigen N.A. Series B preferred stock converted to
6,421,573 shares of the Company’s common stock, pursuant to the
Merger.
|
10.
|
Urigen
Pharmaceuticals Inc. Series B Convertible Preferred
Stock
|
On July
26, 2007, the Board of Directors of Urigen Pharmaceuticals, Inc., formerly
Valentis, Inc., authorized the creation of a series of preferred stock of the
Company to be named Series B Convertible preferred stock, consisting of 210
shares, par value $0.001, 10,000,000 shares authorized, which have the
designation, powers, preferences and relative other special rights and the
qualifications, limitations and restrictions as set forth in the Certificate of
Designation filed on July 31, 2007.
On July
31, 2007, Urigen Pharmaceuticals, Inc. entered into a Series B Convertible
preferred stock Purchase Agreement (the “Purchase Agreement”) with
Platinum-Montaur Life Science, LLC (“Platinum”) for the sale of 210 shares of
its Series B Convertible preferred stock, par value $0.001 per share, at a
purchase price of $10,000 per share. Urigen Pharmaceuticals received aggregate
proceeds of $1,817,000, which is net of issuance costs of $283,000.
The
Certificate of Designation, as amended and restated, setting forth the rights
and preferences of the Series B preferred stock, provides for the payment of
dividends equal to 5% per annum payable on a quarterly basis. The Company has
the option to pay dividends in shares of common stock if the shares are
registered in an effective registration statement and the payment would not
result in the holder exceeding any ownership limitations. The Series B preferred
stock is convertible at a maximum price of $0.15 per share, subject to certain
adjustments, other than for an increase in the conversion price in connection
with a reverse stock split by the Company. This conversion
price of the Series B convertible preferred stock will be adjusted upon the
occurrence of the following:
A. Effectuation
of a reverse stock split-conversion price shall be proportionally
decreased.
B. Combination
of the outstanding shares of the Company – price shall be proportionately
increased.
C. Dividend
or other distribution in shares of common stock – conversion price shall be
decreased by multiplying the conversion price by a fraction, the numerator of
which shall be the total number of common stock outstanding immediately prior to
the time of such issuance or the close of business on such record date and the
denominator of which shall be the total number of shares of common stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of common stock issuable
in payment of such dividend or distribution.
D. Dividend
or other distribution in securities other than shares of common stock – the
number of securities the holder would have received had the holder of the Series
B preferred stock converted their shares to/into common stock prior to such
event.
E. If
the common stock is changed to the same or different number of shares of any
class or classes of stock, whether by reclassification, exchange, substitution
or otherwise (other than by way of a stock split or combination of shares or
stock dividends discussed above) – an appropriate revision to the conversion
price so that the holders of the Series B preferred stock shall have the right
to convert into the kind and amount of securities receivable upon
reclassification, exchange, substitution or other change by holders of common
stock into which the Series B preferred stock was convertible into prior to the
trigger event.
76
F. If
reorganization of the Company (other than by way of a stock split or combination
of shares or stock dividends or distributions or reclassification, exchange or
substitution of shares discussed above), or merger or consolidation with or into
another company, or the sale of all or substantially all of the company’s
properties or assets to any other person – appropriate revision in the
conversion price so that the holders will have the right to convert the Series B
preferred stock into the kind and amount of stock and other securities or
property of the Company or any successor corporation as the holder would have
received if the holder had converted into common stock prior to trigger
event.
G. If
the Company issues or sells any additional shares of common stock (other than
provided above or the exercise or conversion of convertible securities issued
prior to the Series B preferred stock) at a price less than the conversion price
– conversion price shall be reset to the price at which such additional shares
are issued or sold.
H. If
the Company issues any securities convertible into or exchangeable for common
stock or any rights or warrants or options to purchase such common stock or
convertible securities (“Common Stock Equivalents”), other than the Series B
preferred stock or warrants issued to the holders, and the aggregate of the
price per share for which additional shares of common may be issued thereafter
pursuant to such Common Stock Equivalent plus the consideration received by the
company for issuance of such Common Stock Equivalents divided by the number of
shares issuable pursuant to such Common Stock Equivalent ( “Aggregate Per Common
Share price”) shall be less than the conversion price-the conversion price shall
be adjusted to the Aggregate Per Common Share Price.
No
adjustment in the conversion price shall be made in the event of the following
issuances:
(i) shares
of common stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan;
(ii) securities
upon the exercise or exchange of or conversion of any securities issued pursuant
to the Certificate of Designation and/or securities exercisable or exchangeable
for or convertible into shares of common stock issued and outstanding on the
date of issuance of the series B preferred stock, provided that such securities
have not been subsequently amended to increase the number of such securities or
to decrease the exercise, exchange or conversion price of any such
securities;
(iii) securities
issued pursuant to acquisitions or strategic transactions (including license
agreements), provided any such issuance shall only be to a person which is,
itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company receives
benefits in addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is investing in
securities; and
(iv) securities
issued to Platinum pursuant to the Purchase Agreement.
As of
June 30, 2008, there are no adjustments to the Series B preferred stock
conversion price which remains $0.15 per share.
The
Series B preferred stock also carries a liquidation preference of $10,000 per
share.
The
holders of Series B preferred stock have no voting rights except that the
Company may not without the consent of a majority of the holders of Series B
preferred stock (i) incur any indebtedness, as defined in the Purchase
Agreement, or authorize, create or issue any shares having rights superior to
the Series B preferred stock; (ii) amend its Articles of Incorporation or Bylaws
or in anyway alter the rights of the Series B preferred stock, so as to
materially and adversely affect the rights, preferences and privileges of the
Series B preferred stock; (iii) repurchase, redeem or pay dividends on any
securities of the Company that rank junior to the Series B preferred stock; or
(iv) reclassify the Company's outstanding stock.
The
Company also issued to Platinum a warrant to purchase 14,000,000 shares of the
Company's common stock at $0.18 per share. The warrants have a term of five
years, and expire on August 1, 2012. The warrants provide a cashless exercise
feature; however, the holders of the warrants may make a cashless
exercise commencing twelve months after the original issue date
of August 1, 2007 only if the underlying shares are not covered by an
effective registration statement and the market value of the Company's common
stock is greater than the warrant exercise price. On December 13,
2007, registration by the Company of 13,120,000 of the underlying shares became
effective. On July 18, 2008, Platinum approved a 180 day extension of
time from July 27, 2008 to January 23, 2009 to file an additional registration
statement for the balance of the shares of common stock.
The terms
of the Warrant provide that it may not be exercised if such exercise would
result in the holder having beneficial ownership of more than 4.99% of the
Company's outstanding common stock. The Amended and Restated Certificate of
Designation contains a similar limitation and provides further that the Series B
preferred stock may not be converted if such conversion, when aggregated with
other securities held by the holder, will result in such holder's ownership of
more than 9.99% of the Company's outstanding common stock. Beneficial ownership
is determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Rule 13d-3 there under. These limitations may be waived
upon 61 days notice to the Company.
77
In
addition to the foregoing:
|
·
|
The
Company agreed that for a period of 3 years after the issuance of the
Series B preferred stock that in the event the Company enters into a
financing, with terms more favorable than those attached to the Series B
preferred stock, then the holders of the Series B preferred stock will be
entitled to exchange their securities for shares issued in the
financing.
|
|
·
|
The
Company agreed to register (i) 120% of the shares issuable upon conversion
of the preferred shares and (ii) the shares issuable upon exercise of the
warrants in a Registration Statement to be filed with the Securities and
Exchange Commission (“SEC”) within 30 days of the closing and shall use
its best efforts to have the registration statement declared effective
with 90 days, or in the event of a review by the SEC, within 120 days of
the closing. The failure of the Company to meet this schedule and
other timetables provided in the registration rights agreement
would result in the imposition of liquidated damages of 1.5%
per month with a maximum of 18% of the initial investment in the Series B
preferred stock and warrants. On September 6, 2007,
Platinum extended the time to file until September 28, 2007, without
penalty. On October 3, 2007, Platinum further extended the time
to file until October 15, 2007 without penalty. The Company
filed a registration statement with the SEC on October 12,
2007.
|
|
·
|
The
Company granted to Platinum the right to subscribe for an additional
amount of securities to maintain its proportionate ownership interest in
any subsequent financing conducted by the Company for a period of 3 years
from the closing date.
|
|
·
|
The
Company agreed to take action within 45 days to amend its bylaws to permit
adjustments to the conversion price of the Series B preferred stock and
the exercise price of the warrant. The failure of the Company
to meet this timetable would have resulted in the imposition of liquidated
damages of 1.5% per month until the amendment to the Bylaw was
effected. On October 3, 2007, Platinum extended the amendment
deadline to October 17, 2007, without penalty. The bylaw
amendment became effective October 16,
2007.
|
The
Company received an SEC comment letter on October 26, 2007 related to the filing
of its Form S-1 Registration Statement. The Company was not in
compliance as of November 9, 2007 with its obligations under the Registration
Rights Agreement dated as of August 1, 2007, entered into
with Platinum to respond to SEC comments within 14 days of receipt of
a comment letter. Failure of the Company to meet this schedule provided in the
Registration Rights Agreement resulted in the imposition of liquidated damages
of $31,500, which was paid in cash.
In
December 2005, the SEC published guidance on the application of the EITF Issue
No. 00-19 “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”) in relation to the
effect of cash liquidated damages provisions in accounting for conversion
features of convertible equity securities. Due to this interpretation of EITF
00-19, the Company classified the $2.1 million private placement of Series B
preferred stock as a liability not equity for the period ended September 30,
2007.
The
Company determined that the liquidated damages could result in net-cash
settlement of a conversion in accordance with EITF 00-19. EITF 00-19
requires freestanding contracts that are settled in a Company’s own stock to be
designated as an equity instrument, assets or liability. Under the provisions of
EITF 00-19, a contract designated as an asset or liability must be initially
recorded and carried at fair value until the contract meets the requirements for
classification as equity, until the contract is exercised or until the contract
expires.
78
Accordingly,
at September 30, 2007, the Company determined that the Series B preferred stock
should be accounted for as a liability and thus recorded the proceeds received
from the issuance of the Series B preferred stock as a preferred stock liability
on the consolidated balance sheet in the amount of $2,100,000. Since the
warrants issued to the investors were not covered by the net-cash settlement
provision they were determined to be equity in accordance with EITF 00-19. The
Company valued the warrants using the Black-Scholes model and recorded
$1,127,557 to equity. In accordance with EITF 00-19, the Company compared the
amount allocated to the Series B preferred stock to the fair value of the common
stock that would be received upon conversion to determine if a beneficial
conversion feature existed. The Company determined that a beneficial conversion
feature of $972,443 existed and, in accordance with EITF 00-19, accreted that
amount and the relative fair value amount allocated to the warrants immediately,
as the Series B preferred stock is immediately convertible. This accretion was
recorded as non-cash interest expense in the accompanying consolidated statement
of operations.
During
the three month period ended December 31, 2007, based on changes in market value
of the underlying shares, and based on registration of 13,120,000 of the
underlying shares becoming effective on December 13, 2007, the Company, in
accordance with EITF 00-19, recognized the change in fair value as other income
in the amount of $894,316 and reclassified $1,087,579 of liability related to
Series B preferred stock to equity. In addition, the Company
reclassified $911,179 of Series B preferred stock beneficial conversion feature
liability to additional paid-in capital based on the proportion of shares
registered and declared effective by the SEC on December 13,
2007. During the year ended June 30, 2008, based on changes in market
value of the remaining unregistered shares classified as a liability, the
Company, in accordance with EITF 00-19, recognized an additional change in fair
value as other income in the amount of $55,579, for a total of $949,895 for the
year.
|
11.
|
Stock
Subscribed
|
|
In
August 2006, Urigen N.A. received payment for 33,831 shares of subscribed
common stock at $0.19956 per share for aggregate proceeds of
$6,752. In September 2006, 22,554 shares were issued and 11,277
shares at $2,251 remained as subscribed stock at June 30,
2007. Subsequent to June 30, 2007, these 11,277 shares were
written off.
|
|
In
December 2006, Urigen N.A. had 840,825 shares of subscribed Series B
preferred stock at $0.22169 per share for an aggregate of $186,400 to
officers of Urigen N.A. in lieu of cash payroll for the period October 1,
2006 through December 31, 2006. In January 2007 and May 2007,
these shares were issued. (Note
9).
|
In June
2007, Urigen N.A. had 36,087 shares of subscribed Series B preferred stock at
$0.22169 per share for an aggregate of $8,000 to a consultant in lieu of cash
fees. Urigen N.A. also had 35,917 shares of subscribed Series B
preferred stock at $0.22169 per share for an aggregate of $7,962 to another
consultant in lieu of cash fees. Urigen N.A. also had 274,531 shares
of subscribed Series B preferred stock at $0.22169 per share for an aggregate of
$60,860 to officers of Urigen N.A. in lieu of cash payroll for the month of June
2007. These 346,535 shares at $76,822 remained as subscribed stock at
June 30, 2007. In July 2007, Urigen N.A. issued the balance of
346,535 shares of subscribed Series B preferred stock. All Urigen
N.A. Series B preferred stock was then converted to shares of the Company’s
common stock pursuant to the Merger.
In
December 2007, the Company issued 63,150 shares of subscribed common stock at a
range of $0.09975 to $0.27550 per share for an aggregate of $6,299 to two former
employees of the Company. The Company also issued 540,815 shares of
subscribed common stock at a range of $0.09975 to $0.27550 per share for an
aggregate of $71,320 pursuant to vendor agreements. The Company also
issued 1,300,000 shares of subscribed restricted common stock to two employees
pursuant to Employee Restrictive Stock Agreements and recorded
stock-based compensation expense of $20,462 for the year ended June 30,
2008.
In
January 2008, the Company issued 20,000 shares of subscribed common stock at
$0.171 per share for an aggregate of $3,420 to a consultant pursuant to a
consulting agreement. The Company also issued 500,000 shares of
subscribed common stock at $0.20 per share and 250,000 warrants at $0.25 per
share for aggregate proceeds of $100,000. The Company also issued
380,000 shares of subscribed common stock at $0.1045 per share for an aggregate
of $39,710 pursuant to a vendor agreement. The 380,000 shares were
issued in June 2008.
In
January 2008, the Company issued 58,125 shares of subscribed common stock at
$0.1805 per share for an aggregate of $10,491 pursuant to the Company’s
Directors’ Compensation Agreement.
79
In April
2008, the Company issued 726,470 shares of subscribed common stock at $0.17 per
share and 363,235 warrants at $0.22 per share for aggregate proceeds of
$123,500. For a period of one hundred and twenty (120) days following the
closing date of the offering, in the event the Company, should sell any
additional shares of its common stock in an equity financing transaction
subsequent to the closing of the offering at a price per share less than this
purchase price (the “Subsequent Offering Price”), then the purchase price shall
upon each such issuance be adjusted to a price equal to the Subsequent Offering
Price and the Company shall promptly thereafter issue additional shares to the
Subscriber to reflect the Subsequent Offering Price. The Company also
issued 147,059 shares of subscribed common stock at $0.17 per share for an
aggregate of $25,000 pursuant to a vendor agreement.
In May
2008, the Company issued 555,883 shares of subscribed common stock at $0.17 per
share and 277,942 warrants at $0.22 per share for aggregate proceeds of
$94,500. For a period of one hundred and twenty (120) days following
the closing date of the offering, in the event the Company, should sell any
additional shares of its common stock in an equity financing transaction
subsequent to the closing of the offering at a price per share less than the
purchase price (the “Subsequent Offering Price”), then the purchase price shall
upon each such issuance be adjusted to a price equal to the Subsequent Offering
Price and the Company shall promptly thereafter issue additional shares to the
Subscriber to reflect the Subsequent Offering Price. The
Company also issued 60,000 shares of subscribed common stock for an aggregate of
$7,200 at $0.12 per share pursuant to a vendor agreement.
In June
2008, the Company reversed 276,815 shares of subscribed common stock at a range
of $0.114 to $0.2755 per share for an aggregate of $44,873 pursuant to a vendor
settlement agreement. The Company also issued 58,125 shares of
subscribed common stock at $0.08551 per share for an aggregate of $4,970
pursuant to the Company’s Directors’ Compensation Agreement.
|
12.
|
Related
Party Transactions
|
As of
June 30, 2008 and 2007, the Company is paying a fee of $3,211 and $2,683 per
month to EGB Advisors, LLC. EGB Advisors, LLC is owned solely by William J.
Garner, M.D. Chief Executive Officer of the Company. The fees are for rent,
telephone and other office services which are based on estimated fair market
value. For the fiscal year ended June 30, 2007, Dr. Garner also received payment
for services provided as a consultant to the Company. As of June 30, 2008 and
2007, Dr. Garner and EGB Advisors, LLC were owed $0 and $14,610, respectively.
From the inception of the Company to June 30, 2008 and 2007, respectively, the
Company has paid $175,428 and $128,337 to these related parties.
Several
stockholders provided consulting services and were paid $171,708 and $165,885
for those services from the inception of the Company to June 30, 2008 and 2007,
respectively. As of June 30, 2008 and 2007, respectively, $456 and $8,457 was
owed to these consultants.
As of
June 30, 2008 and 2007, the Company’s legal counsel in Canada, were owed $67,169
and $55,389, respectively. From the inception of the Company to June
30, 2008 and 2007, the Company paid $78,299 and $77,299, respectively, for
legal expenses to the related party stockholders’ company.
As of
June 30, 2008 and 2007, the Company’s legal counsel, was owed $102,861 and
$145,612, respectively. From the inception of the Company to June 30, 2008 and
2007, the Company paid $173,325 and $47,814, respectively, for legal expenses to
the related party stockholder’s company.
On August
27, 2007, the Company settled a debt with one of its former legal
counsels. As part of the settlement, the Company paid $15,132 on
behalf of Inverseon, Inc. William J. Garner, M.D., the Chief
Executive Officer and a director of the Company and Martin E. Shmagin, the Chief
Financial Officer and a director of the Company are also officers, directors and
shareholders in Inverseon, Inc. On August 22, 2008, Inverseon, Inc.
converted its $15,132 receivable to an unsecured promissory note.
|
13.
|
Commitments
and Contingencies
|
Indemnification
Under
certain patent agreements, the Company has agreed to indemnify the licensors of
the patented rights and technology against any liabilities or damages arising
out of the development, manufacture, or sale of the licensed asset.
80
|
14.
|
Equity
Compensation
|
The
Company accounts for stock-based compensation in accordance with Statement of
Financial Accounting Standards No. 123 (revised 2004), “Share-Based
Payment” (“SFAS 123R”), which requires the measurement of all share-based
payments to employees, including grants of stock options, using a
fair-value-based method and the recording of such expense in the statement of
operations for all share-based payment awards made to employees and directors
including employee stock options based on estimated fair values. In addition, as
required by Emerging Issues Task Force Consensus No. 96-18, “Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services”, the Company records stock and
options granted at fair value of the consideration received or the fair value of
the equity instruments issued as they vest over a service period.
The
Company assumed the outstanding stock options and plans of its predecessor,
Valentis, at the time of the Merger, July 13, 2007, and has continued to record
stock-based compensation expense for those options as they have
vested. There have not been any exercises nor any new awards under
these prior plans. There were 6,875 unvested options as of June 30,
2008. These options expire after 10 years or 90 days after
termination of service (1 year after termination of service for the Non-Employee
Directors Plan) and are expected to fully vest or expire by June 30, 2010. The
amount of expense recorded for the assumed options totaled approximately $30,000
during fiscal 2008, and is expected to remain immaterial in future
periods.
The
following tables set forth information as of June 30, 2008 with
respect to the Company’s compensation plans under which equity securities of the
Company are authorized for issuance:
|
Plan category
|
Number of securities
to be
issued upon exercise of
outstanding options,
and
restricted
stock awards
|
Weighted-average exercise
price of outstanding
options, and
restricted
stock awards
|
Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities
reflected in column (a))
|
||||||||||
|
(a)
|
(b)
|
(c)
|
|||||||||||
|
Prior
Equity compensation plans approved by security holders
|
1,387,428
|
$6.06
|
2,780,762
|
||||||||||
|
2007
employee RSA grants
|
1,300,000
|
N/A
|
0
|
||||||||||
|
approved
by board
|
|||||||||||||
|
Plan Name
|
Reserved Shares |
Active
Plan Shares |
Inactive
Plan Shares
|
Options Outstanding |
Weighted
Avg. Price |
Weighted
Avg. Contractual
Term (yrs.) |
||||||||||||||||||
|
1997
Equity Incentive Plan (active)
|
3,593,190 | 3,593,190 | 1,304,179 | $ | 6.21 | 6.13 | ||||||||||||||||||
|
1998
Non-Employee Directors Stock Option Plan (active)
|
575,000 | 575,000 | 83,249 | $ | 3.61 | 5.93 | ||||||||||||||||||
|
2001
Nonstatutory Incentive Plan (inactive)
|
690,000 | 690,000 | ||||||||||||||||||||||
|
2003
401 K Reserve (inactive)
|
159,219 | 159,219 | ||||||||||||||||||||||
|
2003
Employee Stock Purchase Plan (inactive)
|
515,500 | 515,500 | ||||||||||||||||||||||
|
401k
Plan (inactive)
|
1,060 | 1,060 | ||||||||||||||||||||||
|
Genemedicine
1993 Stock Option Plan (expired)
|
37,141 | 37,141 | ||||||||||||||||||||||
|
Other
Stock Options (expired)
|
2,564 | 2,564 | ||||||||||||||||||||||
|
Total
|
5,573,674 | 4,168,190 | 1,405,484 | 1,387,428 | ||||||||||||||||||||
|
Period reconciliation
|
Shares
|
Weighted
Avg. Price
|
Weighted
Avg.
Contractual
Term (yrs.)
|
|||||||||
|
Options
outstanding as of 6/30/2007
|
2,569,409 | $ | 5.76 | 7.25 | ||||||||
|
Forfeited
or expired
|
(1,181,981 | ) | $ | 6.14 | 8.53 | |||||||
|
Outstanding
options, 6/30/2008
|
1,387,428 | $ | 6.06 | 6.12 | ||||||||
| Options vested and exercisable, 6/30/2008 | 1,380,553 | $ | 6.06 | 6.12 | ||||||||
81
The 1997
Equity Incentive Plan, as amended and restated in December 2005 (the
“Incentive Plan”), provides for grants of stock options and awards to employees,
directors and consultants of the Company. The exercise price of options granted
under the Incentive Plan is determined by the Board of Directors but cannot be
less than 100% of the fair market value of the common stock on the date of the
grant. Generally, options under the Incentive Plan vest 25% one year after the
date of grant and on a pro rata basis over the following 36 months and expire
upon the earlier of ten years after the date of grant or 90 days after
termination of employment. Options granted under the Incentive Plan cannot be
repriced without the prior approval of the Company’s stockholders. As of
June 30, 2008, an aggregate of 3.6 million shares have been authorized for
issuance and options to purchase approximately 1.3 million shares of common
stock had been granted under the Incentive Plan.
Pursuant
to the terms of the 1998 Non-Employee Directors’ Plan, as amended and restated
in December 2004 (the “Director’s Plan”), each non-employee director, other
than a non-employee director who currently serves on the Board of Directors,
automatically shall be granted, upon his or her initial election or appointment
as a non-employee director, an option to purchase 26,000 shares of common stock,
and each person who is serving as a non-employee director on the day following
each Annual Meeting of Stockholders automatically shall be granted an option to
purchase 10,000 shares of common stock. Generally, options under the 1998
Non-Employee Directors’ Plan vest monthly over 4 years and expire upon the
earlier of ten years after the date of grant or one year after
termination of service. As of June 30, 2008, an aggregate of 575,000
shares have been authorized for issuance under the Directors’ Plan, and options
to purchase approximately 83,000 shares of common stock had been granted to
non-employee directors under the Directors’ Plan.
Two
restricted stock awards (“RSAs”) for a total of 1,300,000 shares were granted to
two employees in fiscal 2008, outside of a predefined plan. These
awards vest over four years with a one year cliff. The restrictions on
these awards are related to the vesting period and to the unregistered nature of
the underlying shares. The Company assumes a 5% forfeiture
rate. The accounting for these awards under FAS123R is presented in
tabular format below.
|
Restricted
Stock Awards (RSAs):
|
Number
of
Shares
|
Aggregrate
Intrinsic Value
|
Fair
Value
(per
share)
|
|||||||||
|
Outstanding
at 6/30/2007
|
- | - | - | |||||||||
|
Granted
|
1,300,000 | $ | 117,000 | $ | 0.11 | |||||||
|
Exercised
|
- | - | ||||||||||
|
Expired
or Canceled
|
- | $ | 0.00 | - | ||||||||
|
Forfeited
|
- | $ | 0.00 | - | ||||||||
|
Outstanding
at 6/30/2008
|
1,300,000 | $ | 117,000 | $ | 0.11 | |||||||
|
Expected
to Vest in the Future at 6/30/2008
|
1,124,602 | $ | 101,214 | |||||||||
|
Exercisable
at 6/30/2008
|
$ | 0.00 | ||||||||||
|
Total
Compensation Expense Recognized in fiscal year 2008:
|
$ | 20,462 | ||||||||||
|
Non-Vested
Shares
|
Number
of
Shares
|
Weighted
Average ("WA")
Grant
Date Fair Value
|
Total
Fair Value Shares Vested
|
WA
Remaing Vesting
Period
(years)
|
||||||||||||
|
Outstanding
Non-vested Shares, at 6/30/2007
|
- |
|
||||||||||||||
|
Non-vested
Shares granted
|
1,300,000 | $ | 0.110000 | $ | - | - | ||||||||||
|
Vested
Shares
|
- | - | $ | - | - | |||||||||||
|
Non-vested
Shares forfeited
|
- | - | $ | - | - | |||||||||||
|
Outstanding
Non-vested shares, at 6/30/08
|
1,300,000 | $ | 0.110000 | $ | - | 3.27 | ||||||||||
|
Total
Unrecognized Compensation Cost for Non-vested Shares at
6/30/08:
|
$ | 101,055 | ||||||||||||||
82
|
15.
|
Warrants
|
The
following tables set forth information as of June 30, 2008 with
respect to the Company’s outstanding warrants:
|
Common
Share Warrants
|
Weighted Average Exercise Price |
Expiration
|
|||||||
|
January
2004 Private Placement
|
1,755,107 | $ | 3.00 |
January
2009
|
|||||
|
June
2004 Private Placement
|
893,868 | $ | 6.59 |
June
2009
|
|||||
|
June
2005 Private Placement
|
903,420 | $ | 3.49 |
June
2010
|
|||||
|
March
2006 Private Placement
|
1,072,500 | $ | 3.00 |
March
2011
|
|||||
|
2006
Swiss Banker Warrants
|
100,000 | $ | 6.20 |
August
2009
|
|||||
|
July
2007 Private Placement
|
14,000,000 | $ | 0.18 |
August
2012
|
|||||
|
2008
Private Placements
|
891,177 | $ | 0.23 |
January
- May 2013
|
|||||
|
Grand
Total
|
19,616,072 | $ | 1.06 | ||||||
On
January 31, 2008 the Company entered into an agreement with Redington Inc. to
provide investor relations services. The number of warrants to be
issued Redington Inc. is contingent upon the increase in value of the Company’s
stock from an initial closing price of $0.12 per share on January 31, 2008 with
a maximum number of approximately 1 million warrants possibly issuable under the
agreement. As of June 30, 2008, no warrants have been earned or issued
under this agreement.
83
16. Subsequent
Events
On July
18, 2008, Platinum-Montaur Life Science, LLC (“Platinum”) approved a 180 day
extension of time from July 27, 2008 to January 23, 2009 to file an additional
registration statement for the balance of the unregistered shares of common
stock. Under the original terms of the agreement, the Company was
required to file an additional registration statement by July 27,
2008.
On August
6, 2008, the Company entered into an unsecured promissory note with C. Lowell
Parsons, M.D. a director of the Company, in the amount of $40,000. Under the
terms of the note, the Company is to pay interest at a rate per annum computed
on the basis of a 360-day year equal to 15% simple interest. The note allows for
an adjustment of the interest rate equal to that of the rate that the Company
procures from a bridge loan of a minimum of $300,000. The
note is due and payable on the earlier of (i) forty-five (45) days
after consummation of a merger, (ii) the completion of a licensing agreement
with a pharmaceutical partner or (iii) two calendar years from the
note issuance date. The Company may, in its discretion, pay this note
in whole or part at any time, without premium or penalty. Dr. Parsons
may, in his discretion, request payment of this note, in whole or in part in
Restricted Common Stock of the Company. The rate of repayment in
Common Stock is based on $0.15 per share.
|
On
August 6, 2008, the Company entered into an unsecured promissory note with
J. Kellogg Parsons, M.D. the son of C. Lowell Parsons, M.D., a director of
the Company, in the amount of $20,000. Under the terms of the note, the
Company is to pay interest at a rate per annum computed on the basis of a
360-day year equal to 15% simple interest. The note allows for
an adjustment of the interest rate equal to that of the rate that the
Company procures from a bridge loan of a minimum of
$300,000. The foregoing amount is due and payable on the
earlier of (i) forty-five (45) days after consummation of a merger, (ii)
the completion of a licensing agreement with a pharmaceutical partner or
(iii) two calendar years from the note issuance date. The
Company may, in its discretion, pay this note in whole or part at any
time, without premium or penalty. Dr. Parsons may, in his
discretion, request payment of this note, in whole or in part in
Restricted Common Stock of the Company. The rate of repayment
in Common Stock is based on $0.15 per
share.
|
On August
6, 2008, the Company entered into an employment agreement with William J.
Garner, M.D., its Chief Executive Officer since July 2007 (the “Garner
Agreement”). Pursuant to the terms of the Garner Agreement, Dr. Garner shall
serve as President and Chief Executive Officer of the Company for a term of two
years which shall be renewed for successive one-year terms unless terminated by
either party upon written notice 30 days prior to the expiration of the term.
The Garner Agreement provides for an annual base salary of $250,000 during the
first year of the initial term of the Garner Agreement, and a bonus based upon
the discretion of the Board of Directors.
In the
event the Company terminates Dr. Garner for any reason other than for cause,
death or disability or Dr. Garner terminates the Garner Agreement for good
reason (as defined in the Garner Agreement), the Company shall (i) pay any
accrued but unpaid compensation in a lump sum payment within thirty days and
(ii) continue to pay the annual base salary and bonus for the greater of the
remainder of the term or for a period of twelve months. However, if during the
six months after a non-negotiated change of control (as defined in the Garner
Agreement), either the Company or Dr. Garner terminates the Garner Agreement for
any reason or no reason or Dr. Garner is terminated at any time without cause
(as defined in the Garner Agreement) or Dr. Garner terminates his employment for
good reason (as defined in the Garner Agreement), the Company shall pay to Dr.
Garner a lump sum in cash within thirty (30) days after the date of termination
in an amount equal to twenty four (24) months of his annual base
salary.
If Dr.
Garner’s employment is terminated by the Company for cause or if Dr. Garner
terminates his employment other than for good reason (as defined in the Garner
Agreement), Dr. Garner shall receive the accrued but unpaid portion of his
annual base salary and bonus, if any.
Under the
terms of the Garner Agreement, Dr. Garner shall be entitled to customary
benefits and expense reimbursements.
Dr.
Garner also agreed to customary non-solicitation and non-competition
provisions.
On August
6, 2008, the Company also entered into an employment agreement with Martin E.
Shmagin, our Chief Financial Officer since July 2007 (the “Shmagin Agreement”).
Pursuant to the terms of the Shmagin Agreement, Mr. Shmagin shall continue to
serve as Chief Financial Officer of the Company for a term of two years which
shall be renewed for successive one-year terms unless terminated by either party
upon written notice 30 days prior to the expiration of the term. The Shmagin
Agreement provides for an annual base salary of $225,000 during the first year
of the initial term of the Shmagin Agreement, and a bonus based upon the
discretion of the Board of Directors.
84
In the
event the Company terminates Mr. Shmagin for any reason other than for cause,
death or disability or Mr. Shmagin terminates the Shmagin Agreement for good
reason (as defined in the Shmagin Agreement), the Company shall (i) pay any
accrued but unpaid compensation in a lump sum payment within thirty days and
(ii) continue to pay the annual base salary and bonus for the greater of the
remainder of the term or for a period of twelve months. However, if during the
six months after a non-negotiated change of control (as defined in the Shmagin
Agreement), either the Company or the Mr. Shmagin terminates the Shmagin
Agreement for any reason or no reason or Mr. Shmagin is terminated at any time
without cause (as defined in the Shmagin Agreement) or Mr. Shmagin terminates
his employment for good reason (as defined in the Shmagin Agreement), the
Company shall to Mr. Shmagin a lump sum in cash within thirty (30) days after
the date of termination in an amount equal to twenty four (24) months of his
annual base salary.
If Mr.
Shmagin’s employment is terminated by the Company for cause or if Mr. Shmagin
terminates his employment other than for good reason (as defined in the Shmagin
Agreement), Mr. Shmagin shall receive the accrued but unpaid portion of his
annual base salary and bonus, if any.
Under the
terms of the Shmagin Agreement, Mr. Shmagin shall be entitled to customary
benefits and expense reimbursements.
Mr.
Shmagin also agreed to customary non-solicitation and non-competition
provisions.
|
On
August 12, 2008, the Company entered into an unsecured promissory note
with William J. Garner, M.D., the Chief Executive Officer and a director
of the Company, in the amount of $5,000. Under the terms of the note, the
Company is to pay interest at a rate per annum computed on the basis of a
360-day year equal to 15% simple interest. The note allows for
an adjustment of the interest rate equal to that of the rate that the
Company procures from a bridge loan of a minimum of
$300,000. The foregoing amount is due and payable on the
earlier of (i) forty-five (45) days after consummation of a merger, (ii)
the completion of a licensing agreement with a pharmaceutical partner or
(iii) two calendar years from the note issuance date. The
Company may, in its discretion, pay this note in whole or part at any
time, without premium or penalty.
|
On August
19, 2008, the United States Patent Office issued patent #7,414,039 on URG101
which is licensed from the University of California San Diego. The
patent provides for methods of treating interstitial cystitis. Additionally,
there was a substantial patent term adjustment of 529 days to the filing date
resulting in a minimum product exclusivity term based on patent protection out
to July 9, 2026.
On August
22, 2008, Inverseon, Inc. converted its $15,132 receivable to an unsecured
promissory note. Inverseon is to pay interest at a rate per annum
computed on a basis of a 360-day year equal to 12% simple
interest. William J. Garner, M.D., the Chief Executive Officer and a
director of the Company and Martin E. Shmagin, the Chief Financial Officer and a
director of the Company are also officers, directors and shareholders in
Inverseon, Inc.
On August
26, 2008, the Company entered into a License Agreement with Phrixus
Pharmaceuticals, Inc. (“Phrixus”) in the amount of $100,000. Under
the terms of the agreement, the Company granted Phrixus a non-exclusive,
worldwide, royalty-free, fully paid up license to use of information for
VLTS-934 and VLTS-934-123. The license covers all research,
development, regulatory, manufacturing, and commercialization purposes without
the right to grant sublicenses, except in connection with a written bona fide
research, development, manufacturing, commercialization, and/or collaboration
agreement with a third party.
On
September 19, 2008, the Company entered into an unsecured promissory note with
William J. Garner, M.D., the Chief Executive Officer and a director of the
Company, in the amount of $20,000. Under the terms of the note, the Company is
to pay interest at a rate per annum computed on the basis of a 360-day year
equal to 15% simple interest. The note allows for an adjustment of
the interest rate equal to that of the rate that the Company procures from a
bridge loan of a minimum of $300,000. The foregoing amount is due and
payable on the earlier of (i) forty-five (45) days after consummation of a
merger, (ii) the completion of a licensing agreement with a pharmaceutical
partner or (iii) two calendar years from the note issuance date. The
Company may, in its discretion, pay this note in whole or part at any time,
without premium or penalty.
On
September 22, 2008, the Company entered into an unsecured promissory note with
C. Lowell Parsons, M.D. a director of the Company, in the amount of $30,000.
Under the terms of the note, the Company is to pay interest at a rate per annum
computed on the basis of a 360-day year equal to 15% simple interest. The note
allows for an adjustment of the interest rate equal to that of the rate that the
Company procures from a bridge loan of a minimum of $300,000. The
note is due and payable on the earlier of (i) forty-five (45) days after
consummation of a merger, (ii) the completion of a licensing agreement with a
pharmaceutical partner or (iii) two calendar years from the note issuance
date. The Company may, in its discretion, pay this note in whole or
part at any time, without premium or penalty. Dr. Parsons may, in his
discretion, request payment of this note, in whole or in part in Restricted
Common Stock of the Company. The rate of repayment in common stock is
based on $0.15 per share.
85
On
September 25, 2008, the Company entered into an unsecured promissory note with
C. Lowell Parsons, M.D. a director of the Company, in the amount of $70,000.
Under the terms of the note, the Company is to pay interest at a rate per annum
computed on the basis of a 360-day year equal to 15% simple interest. The note
allows for an adjustment of the interest rate equal to that of the rate that the
Company procures from a bridge loan of a minimum of $300,000. The
note is due and payable on the earlier of (i) forty-five (45) days after
consummation of a merger, (ii) the completion of a licensing agreement with a
pharmaceutical partner or (iii) two (2) calendar years from the note issuance
date. The Company may, in its discretion, pay this note in whole or
part at any time, without premium or penalty. Dr. Parsons may, in his
discretion, request payment of this note, in whole or in part in Restricted
Common Stock of the Company. The rate of repayment in common stock is
based on $0.15 per share.
On
October 6, 2008, the Company entered into an unsecured promissory note with
Kathleen Hayden, in the amount of $20,000. Under the terms of the note, the
Company is to pay interest at a rate per annum computed on the basis of a
360-day year equal to 15% simple interest. The note allows for an adjustment of
the interest rate equal to that of the rate that the Company procures from a
bridge loan of a minimum of $300,000. The note is due and payable on
the earlier of (i) forty-five (45) days after consummation of a merger, (ii) the
completion of a licensing agreement with a pharmaceutical partner or (iii) two
(2) calendar years from the note issuance date. The Company may, in
its discretion, pay this note in whole or part at any time, without premium or
penalty. Kathleen Hayden may, in her discretion, request payment of
this note, in whole or in part in Restricted Common Stock of the
Company. The rate of repayment in common stock is based on $0.15 per
share.
86
| 17. |
Quarterly
Financial Information (UNAUDITED)
|
|
Quarter
|
||||||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
|
(in thousands, except per share data)
|
||||||||||||||||
|
2008
|
||||||||||||||||
|
Revenue
|
$
|
―
|
$
|
―
|
$
|
―
|
$
|
―
|
||||||||
|
Total
operating expenses
|
(1,209
|
)
|
(1,040
|
)
|
(827
|
)
|
(634
|
)
|
||||||||
|
Total
other income (expenses), net
|
(2,117
|
)
|
1,035
|
50
|
(102
|
)
|
||||||||||
|
Net
loss
|
(3,326
|
)
|
(5
|
)
|
(777
|
)
|
(736
|
)
|
||||||||
|
Basic
and diluted net loss per share
|
$
|
(0.05
|
)
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
||||
|
2007
|
||||||||||||||||
|
Revenue
|
$
|
―
|
$
|
―
|
$
|
―
|
$
|
―
|
||||||||
|
Total
operating expenses
|
(646
|
)
|
(669
|
)
|
(800
|
)
|
(1,115
|
) | ||||||||
|
Total
other income (expenses), net
|
3
|
3
|
3
|
(31
|
)
|
|||||||||||
|
Net
loss
|
(643
|
)
|
(666
|
)
|
(797
|
)
|
(1,146
|
)
|
||||||||
|
Basic
and diluted net loss per share
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
||||
87