Urigen Pharmaceuticals, Inc. - Quarter Report: 2008 March (Form 10-Q)

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

ý Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended March 31, 2008.

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

For the transition period from to

Commission File Number 0-22987

Urigen Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		94-3156660
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

875 Mahler Road, Suite 235, Burlingame, CA		94010
(Address of Principal Executive Offices)		(Zip Code)

(650) 259-0239

(Registrant’s Telephone Number Including Area Code)

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.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company ý

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 69,289,535 as of May 13, 2008.

URIGEN PHARMACEUTICALS, INC.

(a development stage enterprise)

INDEX

PART I: FINANCIAL INFORMATION
ITEM 1:	FINANCIAL STATEMENTS (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to the Condensed Consolidated Financial Statements	6
ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	17
	Overview	17
	Results of Operations	19
	Liquidity and Capital Resources	20
ITEM 3 :	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	21
ITEM 4:	CONTROLS AND PROCEDURES	21
PART II: OTHER INFORMATION
Item 1	Legal Proceedings	22
ITEM 1A :	RISK FACTORS	22
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	22
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	22
ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	22
ITEM 5	OTHER INFORMATION	22
ITEM 6:	EXHIBITS	22
SIGNATURES		23

URIGEN PHARMACEUTICALS, INC.

(a development stage enterprise)

CONDENSED CONSOLIDATED BALANCE SHEETS

( Unaudited )

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ASSETS
	March 31, 2008			June 30, 2007

Current assets:
Cash	$	136		$	101,608
Accounts Receivable		21,004			-
Prepaid expenses		285,852			-
Other current assets		15,132			21,204
Total current assets		322,124			122,812

Fixed assets, net		9,809			4,526
Intangible assets, net		248,688			259,509
Other assets		2,300			1,024
Total assets	$	582,921		$	387,871


LIABILITIES AND STOCKHOLDERS' DEFICIT


Current liabilities:
Account payable	$	611,436		$	693,217
Accrued expenses		1,055,267			385,341
Series B convertible preferred stock liability		93,789			-
Series B convertible preferred beneficial conversion feature		61,264			-
Due to related parties		181,196			226,068
Notes payable - related party		476,000			300,000
Total current liabilities		2,478,952			1,604,626

Stockholders' deficit:
Urigen N.A. Series B convertible preferred stock		-			1,336,757
Series B convertible preferred stock		1,087,579			-
Common stock		69,289			199
Stock subscribed		274,003			79,073
Additional paid-in capital		5,553,503			2,139,864
Accumulated other comprehensive income		20,120			19,800
Deficit accumulated during the development stage		(8,900,525	)		(4,792,448	)
Total stockholders' equity (deficit)		(1,896,031	)		(1,216,755	)
Total liabilities and stockholders' equity (deficit)	$	582,921		$	387,871

See accompanying notes.

URIGEN PHARMACEUTICALS, INC.

(a development stage enterprise)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

for the three and nine months ended March 31, 2008 and 2007 and for the period from July 18, 2005 (date of inception) to

March 31, 2008

( Unaudited )

										Cumulative period
		Three Months Ended				Nine Months Ended				from July 18, 2005
		March 31,				March 31,				(date of inception) to
Operating expenses:		2008		2007		2008		2007		March 31, 2008

Research and development	$	158,173	$	95,605	$	600,350	$	682,637	$	2,162,385
General and administrative		579,579		499,710		2,269,658		1,138,702		5,083,749
Sales and marketing		89,324		204,276		206,415		293,717		513,482
Total operating expenses		827,076		799,591		3,076,423		2,115,056		7,759,616

Loss from operations		(827,076)		(799,591)		(3,076,423)		(2,115,056)		(7,759,616)

Other income and expense, net:
Interest income		1,460		4,117		18,145		12,343		40,496
Interest expense		(5,378)		(1,253)		(2,169,861)		(2,541)		(2,271,260)
Other income		54,440		-		1,151,561		-		1,151,561
Other expense		-		-		(31,500)		-		(31,500)
Exchange gain (loss)		-		-		-		-		(30,206)
Total other income and expense, net		50,522		2,864		(1,031,655)		9,802		(1,140,909)

Net loss	$	(776,554)	$	(796,727)	$	(4,108,078)	$	(2,105,254)	$	(8,900,525)

Basic and diluted net loss per share	$	(0.01)	$	(0.01)	$	(0.06)	$	(0.03)
Shares used in computing basic and diluted net loss per common share (in thousands)		70,509		64,513		69,216		63,191

See accompanying notes.

URIGEN PHARMACEUTICALS, INC.

(a development stage enterprise)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the nine months ended March 31, 2008 and 2007

and for the period from July 18, 2005 (date of inception) to March 31, 2008

unaudited

							Cumulative
							period from
							July 18, 2005
	Nine Months			Nine Months			(date of
	Ended			Ended			inception) to
	March 31,			March 31,			March 31,
Cash flows from operating activities:	2008			2007			2008

Net loss	$	(4,108,078	)	$	(2,105,254	)	$	(8,900,525	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of fixed assets		4,394			2,243			6,679
Amortization of intangible assets		10,821			10,821			29,919
Stock based compensation expensed		54,851			-			54,851
Non-cash expenses: compensation, interest, rent, and other		158,938			388,011			1,441,048
Preferred Series B discount and imputed interest		2,140,567			-			2,140,567
Change in fair value of Series B convertible preferred stock liability		(866,120	)		-			(866,120	)
Changes in operating assets and liabilities, net of assets acquired in merger:
Other assets		(85,454	)		(18,019	)		(102,682	)
Accounts payable		(81,781	)		421,221			611,436
Accrued expenses		300,022			219,874			685,363
Amounts due to related parties		(44,872	)		(59,594	)		181,196
Net cash used in operating activities		(2,516,712	)		(1,140,697	)		(4,718,268	)

Cash flows from investing activities:
Purchases of fixed assets, net of assets acquired in merger		(5,180	)		(5,096	)		(11,961	)
Asset-based purchase, net of cash acquired, from Urigen, Inc.		-			-			470,000
Net cash (used in) provided by investing activities		(5,180	)		(5,096	)		458,039

Cash flows from financing activities:
Cash acquired in consummation of reverse merger		220,099			-			220,099
Proceeds from issuance of notes payable		-			300,000			300,000
Proceeds from stock and warrant subscription, and exercise of stock options		100,000			95,451			161,034
Proceeds from preferred stock, net of issuance costs		2,100,000			450,000			3,517,135
Net cash provided by financing activities		2,420,099			845,451			4,198,268
Effect of exchange rate changes on cash		321			(2,193	)		62,097
Net increase (decrease) in cash		(101,472	)		(302,535	)		136
Cash, beginning of period		101,608			567,489			-
Cash, end of period	$	136		$	264,954		$	136

See accompanying notes.

URIGEN PHARMACEUTICALS, INC.

(a development stage enterprise)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Organization and Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Urigen Pharmaceuticals, Inc. (“Urigen,” the “Company,” “we,” “us” or “our”) in accordance with the rules and regulations of the Securities and Exchange Commission for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements as required by accounting principles generally accepted in the United States have been condensed or omitted. The interim condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of financial position at March 31, 2008 and the results of operations for the interim periods ended March 31, 2008 and 2007 and for the cumulative period from July 18, 2005 (date of inception) to March 31, 2008.

The results of operations for the three and nine months ended March 31, 2008 are not necessarily indicative of the results of operations to be expected for the fiscal year, although Urigen expects to incur a substantial loss for the year ended June 30, 2008. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended June 30, 2007, which are contained in Urigen’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The accompanying condensed consolidated financial statements include the accounts of Valentis, Inc. and its wholly-owned subsidiaries, Urigen N.A., Inc. and PolyMASC Pharmaceuticals plc. All significant inter-company balances and transactions have been eliminated.

URIGEN PHARMACEUTICALS, INC.

(a development stage enterprise)

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and have been presented on a basis that contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

2.	Significant Accounting Policies

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 March 31, 2008, the Company has accumulated net losses of $8,900,525 and accumulated negative cash flows from operations of $4,718,268 and as of March 31, 2008 has a negative working capital of $2,156,828. 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 financings, loans, 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.

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.

URIGEN PHARMACEUTICALS, INC.

(a development stage enterprise)

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 are translated at historical exchange rates. Translation gains and losses are deferred and recorded in accumulated other comprehensive income (loss) as a component of stockholders’ 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 period presented.

Fair Value of Financial Instruments

The carrying amounts of certain of the Company’s financial instruments including cash, prepaid expenses, notes payable, accounts payable, accrued expenses, and due to related parties approximate fair value due to their short maturities.

Cash Concentration

At March 31, 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.

URIGEN PHARMACEUTICALS, INC.

(a development stage enterprise)

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.

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.

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.

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) consists of net loss and foreign currency translation adjustments. Comprehensive income (loss) and the components of accumulated other comprehensive income (loss) are as follows:

	Three Months			Nine Months			Period from
	Ended			Ended			July 18, 2005
	March 31, 2008			March 31, 2008			(date of inception) to
							March 31, 2008
Net loss	$	(776,554	)	$	(4,108,078	)	$	(8,900,525	)
Foreign currency translation adjustments, net of tax		-			773			20,120
Comprehensive loss	$	(776,554	)	$	(4,107,305	)	$	(8,880,405	)

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 investments issued as they vest over a performance period.

URIGEN PHARMACEUTICALS, INC.

(a development stage enterprise)

Recent Accounting Pronouncements

In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements,” or 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 of this standard will have on our financial position and/or results of operations.

In February 2007, the FASB issued Statement of Financial Accounting Standards 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 earnings at each subsequent reporting date on items for which 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 earnings. 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 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. As a result of the implementation of FIN 48, we recognized no material adjustments in the liability for unrecognized income tax benefits. 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).

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations (“SFAS 141(R)”). SFAS 141(R) changes accounting for acquisitions that close beginning in 2009. More transactions and events will qualify as business combinations and will be accounted for at fair value under the new standard. SFAS 141(R) promotes greater use of fair values in financial reporting. Some of the changes will introduce more volatility into earnings. SFAS 141(R) is effective for fiscal years beginning on or after December 15, 2008. We are currently assessing the impact that SFAS 141(R) may have on our financial position, results of operations, and cash flows.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Financial Statements (“SFAS 160”), an amendment of ARB No. 51. 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. 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. The task force provided 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. The task force 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 a University for certain patent rights.

The agreement with the University was for a license previously licensed to Urigen, Inc. In exchange for this license, the Company issued 818,646 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 March 31, 2008, $25,000 of milestone payments have been incurred. The Company is also required to make royalty payments of 1.5% to 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, Urigen may terminate the license agreement at any time and for any reason upon a 90-day written notice.

URIGEN PHARMACEUTICALS, INC.

(a development stage enterprise)

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 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 720,000 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.

In November 2007, we 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 $1,500,000 accrued liability and $1,599,750 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 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.

The summary of intangible assets acquired and related accumulated amortization as of March 31, 2008 is as follows:

Patent and intellectual property rights	$	278,637
Less: Accumulated amortization		(29,949	)
Intangible assets, net	$	248,688

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 $3,607 and $3,607 for the quarters ended March 31, 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:

April 1, 2008 – March 31, 2009	$	14,428
April 1, 2009 – March 31, 2010		14,428
April 1, 2010 – March 31, 2011		14,428
April 1, 2011 – March 31, 2012		14,428
April 1, 2012 – March 31, 2013		14,428
Thereafter		176,548
	$	248,688

URIGEN PHARMACEUTICALS, INC.

(a development stage enterprise)

4.	Notes Payable – related party

On November 17, 2006, the Company entered into an unsecured promissory note with 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, which is being accrued as of March 31, 2008. 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”)). Also, the Company issued 1,000 shares of Urigen N.A. Series B Preferred Stock, par value $0.00001 per share, in connection with this note agreement. These shares converted to common stock at the time of the Merger.

On January 5, 2007, the Company entered into an unsecured promissory note with a related party in the amount of $100,000. 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. Interest is being accrued as of March 31, 2008. All amounts owed by the Company to Lender hereunder 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 October 5, 2006, by and among Valentis, Inc., Valentis Holdings, Inc. and Urigen N.A. Inc.) or the consummation of any other business combination or similar transaction that results in a change of control (as defined in the note agreement) of the Company, (ii) the occurrence of an Event of Default, or (iii) the second anniversary of the date hereof (in each case, the “Due Date”). Also, the Company issued 500 shares of Urigen N.A. Series B Preferred Stock, par value $0.00001 per share, in connection with this note agreement. These shares converted to common stock at the time of the Merger.

On June 25, 2007, the Company, 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. 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. Dr. McGraw is currently a member of the Board of Directors.

5.	Stockholders’ Deficit

Reverse Merger

On October 5, 2006, the Company entered into an Agreement and Plan of Merger with Valentis, Inc., and Valentis Holdings, Inc., a newly formed wholly-owned subsidiary of Valentis (“Merger Sub”), as subsequently amended. Pursuant to the Merger Agreement, on July 13, 2007, Valentis Holdings was merged with and into the Company with the Company surviving as a wholly-owned subsidiary of Valentis. In connection with the Merger, each stockholder of the Company received, in exchange for each share of the Company’s common stock held by such stockholder immediately prior to the closing of the Merger, 2.2554 shares of Valentis 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 Valentis common stock. An aggregate of 51,226,679 shares of Valentis common stock were issued to the Company’s stockholders.

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 does not include the historical financial results of Valentis prior to the completion of the merger. Stockholders’ deficit and 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.

URIGEN PHARMACEUTICALS, INC.

(a development stage enterprise)

The unaudited condensed 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 and 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, Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business (“EITF 98-3”), because Valentis had no material assets or liabilities at the time of closing of the merger and these assets and liabilities do not constitute a business pursuant to SFAS No. 141 and EITF 98-3. 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 was measured at net assets acquired.

Restricted Stock

On January 7, 2008, the Board of Directors approved the annual restricted stock grant for each outside director for the fiscal year ending June 30, 2008 of 46,500 shares with an exercise price based on the $0.19 closing price of the Company’s stock on January 7, 2008.

Subscribed Stock and Warrants

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 common stock subscribed in the amount of 380,000 shares with an 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. Vesting of these warrants is also contingent on increase in value. If the Company raises debt or equity exceeding $3 million by January 31, 2009 then Redington Inc. has the option to return the 380,000 shares for $134,000.

On February 6, 2008 the Company raised $100,000 from the sale of subscribed stock to an independent investor, at $0.20 per share for a total of 500,000 shares, along with 250,000 warrants at $0.25 per share exercisable until January 29, 2013.

The Company granted 20,000 additional shares of unregistered subscribed common stock to a vendor during the three month period ended March 31, 2008, valued at the estimated fair value of the stock on the grant dates.

Stock-Based Compensation

For the three and nine months ended March 31, 2008, the Company recorded $10,740 and $54,851, respectively, of stock-based compensation expenses which was included in general and administrative expense. There was no stock-based compensation expense in the nine months ended March 31, 2007.

Over the nine months ended March 31, 2008, stock based compensation to employees represented less than 20% of the stock based compensation total. The balance consisted of stock compensation to vendors, recorded at the estimated fair value of the stock.

Fair value of stock awards granted to employees is recognized as expense over the service period, net of estimated forfeitures. The Company estimated forfeitures at a rate based on historical data and anticipated future conditions. The estimation of forfeitures requires significant judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised.

6.	Series B Convertible Preferred Stock

On July 26, 2007, the Board of Directors of 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 $.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 in 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.

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 sell 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 equivalent 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;

(iv) securities issued to Platinum pursuant to the Purchase Agreement.

As of March 31 2008, there are no adjustments to the Series B Preferred 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.

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.

URIGEN PHARMACEUTICALS, INC.

(a development stage enterprise)

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.

The Company received an SEC comment letter on October 26, 2007 related to the filing of its Form S-1. 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-Montaur Life Sciences, LLC 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.

·	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 will result in the imposition of liquidated damages of 1.5% per month until the amendment to the Bylaw is effected. On October 3, 2007, Platinum extended the amendment deadline to October 17, 2007, without penalty. The bylaw amendment became effective October 16, 2007.

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 upon conversion 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 Emerging Issues Task Force No. 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.

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 as a discount to equity. In accordance with EITF 00-27, 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 00-27, amortized that amount and the relative fair value amount allocated to the warrants immediately, as the Series B Preferred Stock is immediately convertible. This amount was also included in non-cash interest expense.

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 three month period ended March 31, 2008, based on changes in market value of the remaining unregistered shares classified as debt, the Company, in accordance with EITF 00-19, recognized the change in fair value as other income in the amount of $24,316.

7.	Net Loss Per Share

Basic net 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 net loss per share includes the effect of convertible securities, 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.

On July 13, 2007, the Company acquired all of the outstanding stock of Urigen N.A. For accounting purposes the acquisition has been treated as a recapitalization of Urigen N.A. with Urigen N.A. as the acquirer (reverse acquisition). The historical financial statements prior to July 13, 2007, are those of Urigen N.A. For net loss per share calculations the shares issued in the reverse merger acquisition have been reflected as if the acquisition took place on July 1, 2006.

A reconciliation of shares used in the calculation of basic and diluted net loss per share follows (in thousands, except per share amounts):

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2008			2007			2008				2007
Net loss (thousands)	$	(777	)	$	(797	)				$	(2,105		)
											63,191
Basic and Diluted (thousands):		70,509			64,513		$	(4,108	)	$
Weighted average shares of common stock outstanding		70,509			64,513			69,216				63,191
Weighted-average shares of common stock used in computing net loss per share								69,216

Basic and diluted net loss per share	$	(0.01	)	$	(0.01	)	$	(0.06	)	$		(0.03	)

URIGEN PHARMACEUTICALS, INC.

(a development stage enterprise)

The following options, common stock purchase warrants, Series B Preferred Stock and warrants will be included in the calculation of income or loss per share at such time as the effect is no longer antidilutive, as calculated using the treasury stock method for convertible shares and warrants.

· Warrants to purchase up to 5 million shares of common stock at a weighted average price of $3.65 per share, outstanding at March 31, 2008.

· Series B Preferred Stock convertible to 14,000,000 or more shares of common stock at a price of $0.15 or less per share and Warrants to purchase up to 14,000,000 shares of common stock at $0.18 per share, outstanding at March 31, 2008.

· Options to purchase approximately 1.4 million shares of common stock at an average price of $11.62 per share, outstanding at March 31, 2008.

8.	Related party Transactions

As of March 31, 2008 and 2007, the Company has been paying a fee of approximately $3,500 per month to EGB Advisors, LLC. EGB Advisors, LLC is owned solely by William J. Garner, M.D., President and CEO of the Company. Dr. Garner owned 18,476,540 shares of common stock at March 31, 2008 and 7,870,556 shares of common stock at March 31, 2007. The fees are for rent, telephone and other office services, and are based on estimated fair value. Dr. Garner personally guarantees the payment of rent. Dr. Garner has also received payment for services provided as an employee to the Company, and in 2006, as a consultant to the Company. Dr. Garner and EGB Advisors, LLC were owed a total of $29,967 as of March 31, 2008 and $23,685, as of March 31, 2007. For the three months ended March 31, 2008 and 2007, the Company paid $33,697 and $27,299 to this related party. From the inception of the Company to March 31, 2008 the Company has paid $299,021 to this related party.

On August 24, 2007, at the time the Company settled an outstanding balance with a vendor, the Company also paid $15,132 on behalf of Inverseon, Inc. William J. Garner, M.D. who is the President and CEO of Urigen is also the principal shareholder in Inverseon, Inc. The $15,132 balance due from Inverseon, Inc. is reported as part of other current assets at March 31, 2008.

On March 19, 2008, the Company entered into a consulting agreement with Benjamin F. McGraw, III, Pharm.D., who is a member of the board of directors. Under the terms of the agreement, Dr. McGraw is to provide consulting services to the Company at a rate of $3,600 per month payable in cash or in stock at the market value on the date of the invoice. No expense has been incurred under this agreement as of March 31, 2008.

9.	Subsequent Events

On April 25, 2008, the Company informed M & P Patent that it intends to file a demand for arbitration against M & P Patent AG with the International Chamber of Commerce pursuant to the terms of the Development and License Agreement entered into on November 22, 2007. Pursuant to various provisions of the Swiss Code of Obligations, the Company intends to seek return of the one million (1,000,000) restricted common shares of the Company issued to M & P under the terms of the Development and License Agreement and relief from any and all payment obligations, if any, under the Development and License Agreement.

Subsequent to March 31, 2008 the Company raised $75,000 from sale of subscribed stock to C. Lowell Parsons M.D., a member of the board of directors, and $118,000 from the sale of subscribed stock to independent investors for a total cash proceeds of $193,000. The company also granted subscribed stock to principals of Life Science Strategy Group, LLC in exchange for forgiveness of $25,000 in debt.

These subscriptions involved a total of 1,282,353 shares subscribed, all at $0.17 per share, along with 567,647 warrants subscribed. These warrants have an exercise price of $0.22 per share and are exercisable over a five year period.

ITEM 2: 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 section 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 are a specialty pharmaceutical company dedicated to the development and commercialization of therapeutic products for urological disorders. Urigen's product candidates target significant acute unmet medical needs and major market opportunities in urology:

URG101 (lidocaine, heparin) a bladder instillation for Painful Bladder Syndrome / Interstitial Cystitis is our most advanced product. An interim analysis of URG101-104 Phase II study was successfully completed. The results demonstrated URG101 was statistically superior to placebo in reducing symptoms of PBS/IC. Due to the positive clinical results the clinical study was closed early at approximately 50% enrollment. Plans are underway to advance the project into late stage clinical development. Additionally, the US Patent office has notified our licensor regarding allowance of claims covering the URG101 product. Finally, Heparin which is a component of URG101 experienced supply disruption due to contaminated raw material originating in China. Both the United States Food and Drug Administration and Baxter, which supplies the heparin used in URG101 are vigorously pursuing resolution of the issue. Due to the medical importance of heparin it is expected resolution of the contamination issue will occur in a reasonable time frame.

·	URG301 (lidocaine) urethral suppository for Urethritis and Nocturia in women is our second product candidate. URG301 contains lidocaine in a meltable matrix and a placebo clinical trial is planned for 2008 for design and tolerability.

·	We have returned the worldwide rights to a nasal testosterone product candidate for male hypogonadism, Nasobal, – that we designated URG201, to the licensor, Mattern Pharmaceuticals, AG of Switzerland.

We currently have no products approved for commercial sale and have not generated operating revenues. We currently maintain the commercial rights to our product candidates in both the United States and in territories outside the United States.

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.

We expect to expend substantial amounts of money for the development of our products. In particular, we are continuing to expend substantial funds for URG101 and other development programs.

There can be no assurance that results of any ongoing or future pre-clinical or clinical trials will be successful, that additional trials will not be required, that any drug or product under development will receive FDA approval in a timely manner or at all, or that such drug or product could be successfully manufactured in accordance with U.S. current Good Manufacturing Practices, or successfully marketed in a timely manner, or at all, or that we will have sufficient funds to develop or commercialize any of our products.

Estimating costs and time to complete development of our programs is difficult due to the uncertainties of the development process and the requirements of the FDA which could necessitate additional and unexpected clinical trials or other development, testing and analysis. Results of any testing could result in a decision to alter or terminate development of a compound, in which case estimated future costs could change substantially. In the event we were to enter into a licensing or other collaborative agreement with a corporate partner involving sharing, funding or assumption by such corporate partner of development costs, the estimated development costs to be incurred by us could be substantially less than the estimates below. Additionally, research and development costs are extremely difficult to estimate for alternate routes of delivery of compounds due to the fact that there is generally less comprehensive data available to determine the development activities that would be required prior to the filing of an NDA. Given these uncertainties and other risks, variables and considerations related to each compound and regulatory uncertainties in general, we estimate remaining budgetary research and development costs, excluding allocation of corporate general and administrative expenses, from April 1, 2008 through the preparation of an NDA for our major programs currently being developed as follows: approximately $14,500,000 for URG101 for painful bladder syndrome and approximately $26,400,000 for URG301. Actual costs to complete any of our products may differ significantly from the estimates. We cannot reasonably estimate the date of completion for any compound that is not at least in Phase III clinical development due to uncertainty of the number, size, and duration of the trials which may be required to complete development.

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 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, we changed our name from Valentis, Inc. to Urigen Pharmaceuticals, Inc.

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’ deficit and 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 unaudited condensed 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. was considered to be acquiring Valentis in the merger and Valentis did 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, Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business (“EITF 98-3”), because Valentis had no material assets or liabilities at the time of closing of the merger and these assets and liabilities do not constitute a business pursuant to SFAS No. 141 and EITF 98-3. 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 was measured at net assets acquired. From and after the Merger, our business is conducted through our wholly owned subsidiary Urigen N.A. The discussion of our business in this quarterly report is that of our current business which is conducted through Urigen N.A. The historical financial results discussed herein are those of Urigen N.A. for the three and nine months ended March 31, 2007.

RESULTS OF OPERATIONS

Overview

For the quarter ended March 31, 2008, we recorded other non-cash income due to market changes in the valuation of Series B Convertible Preferred Stock classified as debt, as well as other cash income from a state tax refund.

We expect that operating results will fluctuate from quarter to quarter and that such fluctuations may be substantial. At March 31, 2008, our accumulated deficit was $8,900,525. We expect to incur substantial losses for the foreseeable future and do not expect to generate revenue from the sale of products in the foreseeable future, if at all.

There have been no significant changes in our critical accounting policies during the nine months ended March 31, 2008 as compared to what was previously disclosed in our Annual Report on Form 10-K for the year ended June 30, 2007 filed with the Securities and Exchange Commission (the “SEC”) on October 5, 2007.

Revenue

There were no operating revenues for the three and nine month periods ended March 31, 2008 and 2007.

Research and Development Expenses

Research and development expenses increased $62,568 to $158,173 for the three months ended March 31, 2008 compared to $95,605 for the corresponding period in 2007. The increase was primarily due to expenses for the interim analysis of the URG101-104 Phase II study in the three months then ended.

Research and development expenses decreased $82,287 to $600,350 for the nine months ended March 31, 2008 compared to $682,637 for the corresponding period in 2007. The decrease was primarily due to decreased clinical trial expenses overall in the nine months then ended. 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 increased by $79,869 to $579,579 for the three months ended March 31, 2008, compared to $499,710 for the corresponding period in 2007.

General and administrative expenses increased by $1,130,956 to $2,269,658 for the nine months ended March 31, 2008, compared to $1,138,702 for the corresponding period in 2007.

These increases were due to increasing legal and accounting fees in connection with the reverse 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 decreased $114,952 to $89,324 for the three months ended March 31, 2008, compared to $204,276 for the corresponding period in 2007. The decrease is mainly due to decreased salaries in the current period.

Sales and marketing expenses decreased $87,302 to $206,415 for the nine months ended March 31, 2008, compared to $293,717 for the corresponding period in 2007. The decrease is mainly due to decreased salaries and marketing activities.

We expect sales and marketing expenses to increase going forward as we proceed to move our technologies forward toward commercialization.

Interest Income and Other Income and Expenses, net

Interest income decreased by $2,657 to $1,460 for the three months ended March 31, 2008, compared to $4,117 in the corresponding period of 2007. Interest income increased by $5,802 to $18,145 for the nine months ended March 31, 2008, compared to $12,343 in the corresponding period of 2007. The changes are non-cash income due to market changes in the valuation of Series B Convertible Preferred Stock which is classified as debt and therefore being marked to market each period.

Other income increased to $54,440 and $1,151,561, respectively for the three and nine month periods ended March 31, 2008, compared to $0 in the corresponding periods of 2007. The increase is due primarily to the effective registration of Series B Preferred Stock which is classified as debt, and to the collection of $200,000 in other income related to technology licensing. This income is not expected to reoccur.

Other expense increased to $31,500 for the nine months ended March 31, 2008, compared to $0 in the corresponding periods of 2007. The increase is due to liquidated damages paid associated with Series B Preferred Stock. This expense is not expected to reoccur.

Interest Expense

Interest expense increased by $4,125 to $5,378 for the three months ended March 31, 2008, compared to $1,253 in the corresponding period of 2007. The increase is mainly due to increased borrowing. We expect interest expense to increase going forward, in the long term, as we proceed to move our technologies forward toward commercialization.

Interest expense increased by $2,167,320 to $2,169,861 for the nine months ended March 31, 2008, compared to $2,541 in the corresponding period of 2007. The increase is mainly due to accrued non-cash interest expense associated with Series B Preferred Stock. Interest expense and is expected to decrease going forward.

Liquidity and Capital Resources

We have received a report from our independent registered public accounting firm regarding the financial statements for the fiscal year ended June 30, 2007, that includes an explanatory paragraph stating that the financial statements have been prepared assuming the Company will continue as a going concern. The explanatory paragraph identifies the following conditions, which raise substantial doubt about our ability to continue as a going concern: (i) we have incurred operating losses since inception, including a net loss of $4,792,448 for the fiscal year ended June 30, 2007, and a net loss for the nine months ended March 31, 2008 of $4,108,078 and an accumulated deficit of $8,900,525 at March 31, 2008, and (ii) we anticipate to incur further losses for the foreseeable future. The Company expects to finance future cash needs primarily through proceeds from equity or debt financing, loans, and/or collaborative agreements with corporate partners in order to be able to sustain its operations.

Since our inception, we have financed our operations principally through public and private issuances of our common and preferred stock. We have used the net proceeds from the sale of the common and preferred stock for general corporate purposes, which included funding development and increasing our working capital, reducing indebtedness, pursuing and completing acquisitions of technologies that are complementary to our own, and capital expenditures. We expect that proceeds received from any future issuance of stock, if any, will be used to fund our efforts to pursue strategic opportunities.

The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern.

Net cash used in operating activities for the nine months ended March 31, 2008 was $2,516,468, which primarily reflected the net loss of $4,108,078 adjusted for non-cash expenses of 2,354,356 and change in fair value of liability of $866,120 and change in accrued expenses of $300,022. Net cash used in operating activities for the nine months ended March 31, 2007 was $1,140,697, which primarily reflected the net loss of $2,105,254, adjusted for non-cash expenses of $388,011, changes in accounts payable of $421,221, and for changes in accrued expenses of $219,874.

Net cash used by investing activities for the nine month periods ended March 31, 2008 and 2007 was $5,180 and $5,096, respectively, which reflected the purchase of fixed assets.

Net cash provided by financing activities for the nine months ended March 31, 2008 was $2,420,099, which reflected $2,100,000 for the preferred stock issuance transaction and $220,099 of cash received from Valentis, Inc. as part of the merger transaction, and $100,000 of cash from stock and warrant subscriptions. For the nine months ended March 31, 2007, net cash provided by financing activities was $845,451, which was primarily $300,000 from the issuance of notes payable and $450,000 from the issuance of Urigen N.A. Series B preferred stock.

The Company had a working capital deficit of $2,156,828 at March 31, 2008.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Urigen’s exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We maintain a strict investment policy that ensures the safety and preservation of our invested funds by limiting default risk, market risk and reinvestment risk. Our cash consists of cash and money market accounts. The table below presents notional amounts and related weighted-average interest rates for our investment portfolio as of March 31, 2008.

	March 31, 2008
Cash
Estimated market value	$	136
Average interest rate		3.02%

ITEM 4. 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, due to the material weaknesses noted below under "Changes in Internal Controls."

Changes in Internal Controls. In connection with its audit of our consolidated financial statements for the year ended June 30, 2007, our independent registered accounting firm identified significant deficiencies, which represent material weaknesses. The material weaknesses were related to a lack of adequate segregation of duties. In addition, significant audit adjustments were needed to liabilities and stockholders’ equity and financial statement disclosure changes were needed that were the result of an insufficient quantity of experienced resources involved with the financial reporting and period end closing process resulting from staff reductions associated with the downsizing of the Company. In October 2007, the Company hired a corporate controller to begin to address these material weaknesses. As of this filing, the Company has revised it’s code of business conduct and ethics, which is attached as exhibit (14.01) to this filing and which is also accessible on the Company’s website.

Prior to the issuance of our consolidated financial statements, we completed the needed 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, 2007 and the three and nine month periods ended March 31, 2008 and 2007, respectively, fairly present, in all material respects, our financial condition and results of operations.

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 control. 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.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

There are no material changes from the risk factors previously disclosed in our Form 10-K for the year ended June 30, 2007 filed with the SEC on October 5, 2007.

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

In January 2008, the Company issued to Redington, Inc. common stock subscribed in the amount of 380,000 shares with an estimated fair value of $39,710.

In February 2008, the Company issued to an independent investor 500,000 shares of common stock subscribed along with 250,000 of warrants subscribed. These shares were valued at $0.20 per share for an aggregate of $100,000. These warrants have an exercise price of $0.25 per share and are exercisable over a five year period.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

a. Exhibits

14.01	Urigen Pharmaceuticals Inc. Code of Business Conduct and Ethics, effective May 15, 2008
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934*
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934*
32.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350*
32.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350*

* Filed herewith

SIGNATURES

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

	URIGEN PHARMACEUTICALS, INC.



	By:	/s/ William J. Garner, MD
May 15, 2008		WILLIAM J. GARNER, MD
		President and Chief Executive Officer

	By:	/s/ Martin E. Shmagin
		MARTIN E. SHMAGIN
		Chief Financial Officer