Urigen Pharmaceuticals, Inc. - Quarter Report: 2009 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, 2009.

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.)

27 Maiden Lane, San Francisco, CA		94108
(Address of Principal Executive Offices)		(Zip Code)

(415) 781-0350

(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. ý Yes o No

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

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).

o Yes ý No

The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was 73,494,327 as of May 14, 2009.

URIGEN PHARMACEUTICALS, INC.

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 Unaudited Condensed Consolidated Financial Statements	6
ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
	Overview	18
	Results of Operations	26
	Liquidity and Capital Resources	27
ITEM 3 :	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28
ITEM 4:	CONTROLS AND PROCEDURES	28
PART II: OTHER INFORMATION		28
ITEM 1:	LEGAL PROCEEDINGS	29
ITEM 1A:	RISK FACTORS	29
ITEM 2:	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	29
ITEM 3:	DEFAULTS UPON SENIOR SECURITIES	29
ITEM 4:	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	29
ITEM 5:	OTHER INFORMATION	29
ITEM 6:	EXHIBITS	30
SIGNATURES		31

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

URIGEN PHARMACEUTICALS, INC.

(a development stage company)

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


ASSETS

	March 31, 2009			June 30, 2008
Current assets:
Cash	$	56,918		$	45,509
Prepaid expenses and other assets		54,374			45,934
Total current assets		111,292			91,443

Due from related party		16,237			15,132
Property and equipment, net		2,070			7,418
Intangible assets, net		234,260			245,081
Other assets		80,000			104,800
Total assets	$	443,859		$	463,874

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Account payable	$	576,974		$	573,585
Accrued expenses		2,031,671			1,365,143
Series B convertible preferred stock liability		748,600			62,526
Series B convertible preferred beneficial conversion feature		75,264			61,264
Series B dividends payable		133,843			55,633
Due to related parties		261,359			206,366
Notes payable		32,500			-
Notes payable - related parties		923,783			476,000
Total current liabilities		4,783,994			2,800,517

Commitments and contingencies (Note 3)

Stockholders' equity (deficit):
Series B convertible preferred stock		1,087,579			1,087,579

Common stock		73,495			69,670

Subscribed stock		18,111			424,536
Additional paid-in capital		5,786,356			5,698,358
Accumulated other comprehensive income		20,120			20,120
Deficit accumulated during the development stage		(11,325,796	)		(9,636,906	)
Total stockholders' deficit		(4,340,135	)		(2,336,643	)
Total liabilities and stockholders' deficit	$	443,859		$	463,874

See accompanying notes to financial statements

URIGEN PHARMACEUTICALS., INC.
(a development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine months ended March 31, 2009 and 2008 and for the period July 18, 2005 (date of inception) to March 31, 2009
(Unaudited)


													Cumulative
													period from
													July 18, 2005
													(date of
	Three Months Ended March 31,						Nine Months Ended March 31,						inception) to
	2009			2008			2009			2008			March 31, 2009
Operating expenses:

Research and development	$	11,832		$	158,173		$	165,634		$	600,350		$	2,411,973
General and administrative		288,126			579,579			1,030,444			2,269,658			6,606,071
Sales and marketing		(11,670	)		89,324			77,010			206,415			648,346
Total operating expenses		288,288			827,076			1,273,088			3,076,423			9,666,390

Loss from operations		(288,288	)		(827,076	)		(1,273,088	)		(3,076,423	)		(9,666,390	)

Other income (expense), net:
Interest income		683			1,460			1,339			18,145			41,784
Interest expense		(46,404	)		(5,378	)		(115,559	)		(2,169,861	)		(2,452,244	)
Other income (expense), net		(461,913	)		54,440			(301,582	)		1,120,061			751,054
Total other income (expense), net		(507,634	)		50,522			(415,802	)		(1,031,655	)		(1,659,406	)

Net loss	$	(795,922	)	$	(776,554	)	$	(1,688,890	)	$	(4,108,078	)	$	(11,325,796	)
Basic and diluted net loss per share	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.06	)
Shares used in computing basic and diluted net loss per share (in thousands)		72,519			70,509			72,243			69,216

See accompanying notes to financial statements

URIGEN PHARMACEUTICALS., INC.

(a development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the nine months ended March 31, 2009 and 2008

and for the period from July 18, 2005 (date of inception) to March 31, 2009

(Unaudited)


							Cumulative
							period from
							July 18, 2005
							(date of
	Nine Months Ended March 31,						inception) to
	2009			2008			March 31, 2009
Cash flows from operating activities:
Net loss	$	(1,688,890	)	$	(4,108,078	)	$	(11,325,796	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		4,017			4,394			12,130
Amortization of intangible assets		10,821			10,821			44,377
Non-cash expenses: compensation, interest, rent, and other		56,108			213,789			1,572,778
Preferred Series B discount and imputed interest		14,000			2,140,567			2,156,270
Change in fair value of Series B convertible preferred stock liability		406,074			(866,120	)		(543,821	)
Changes in operating assets and liabilities:
Prepaid expenses and other assets		16,360			(85,454	)		87,232
Due from related party		(1,105	)		-			(16,237	)
Accounts payable		9,172			(81,781	)		582,758
Accrued expenses		666,528			300,022			1,822,956
Due to related parties		54,993			(44,872	)		261,359
Net cash used in operating activities		(451,922	)		(2,516,712	)		(5,345,994	)

Cash flows from investing activities:
Purchases of property and equipment		-			(5,180	)		(11,036	)
Proceeds from sale of property and equipment		1,331			-			1,331
Asset-based purchase, net of cash acquired, from Urigen, Inc.		-			-			470,000
Net cash provided by (used in) investing activities		1,331			(5,180	)		460,295

Cash flows from financing activities:
Cash acquired in consummation of reverse merger, net		-			220,099			222,351
Proceeds from issuance of notes payable		20,000			-			20,000
Proceeds from issuance of notes payable - related parties		442,000			-			742,000
Payment of receivables from stockholders		-			-			45,724
Proceeds from stock and warrant subscriptions, and exercise of stock options		-			100,000			333,310
Proceeds from issuance of Urigen N.A. Series B convertible preferred stock,
net of issuance costs		-			-			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		462,000			2,420,099			4,880,520
Effect of exchange rate changes on cash		-			321			62,097
Net increase in cash		11,409			(101,472	)		56,918
Cash, beginning of period		45,509			101,608			-
Cash, end of period	$	56,918		$	136		$	56,918

See accompanying notes to financial statements

URIGEN PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Organization

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 accounting principles generally accepted in the United States of America (GAAP) and 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. Accordingly, 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, 2009 and the results of operations for the interim periods ended March 31, 2009 and 2008 and for the cumulative period from July 18, 2005 (date of inception) to March 31, 2009. The condensed consolidated balance sheet data as of June 30, 2008 was derived from audited financial statements, but does not include all disclosures required.

The results of operations for the three and nine months ended March 31, 2009 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, 2009. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended June 30, 2008, which are contained in Urigen’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

2.	Significant Accounting Policies

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 March 31, 2009, the Company has accumulated net losses of $11,325,796 and negative cash flows from operations of $5,345,994 and as of March 31, 2009 the Company has a negative working capital of $4,672,702. 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, especially in light of current economic conditions and a resultant credit freeze. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company has had recurring operating losses and has been unable to obtain financing to fully fund its operations. As such, the Company continues to explore alternatives, including strategic transactions, or licensing of intellectual property. Pending the outcome of the Company’s review of its alternatives, the Company will continue to prepare its financial statements on the assumption that it will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As such, the financial statements do not include any adjustments to reflect possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from any decisions made with respect to the Company’s assessment of its strategic alternatives. If at some point the Company were to decide to pursue alternative plans, the Company may be required to present the financial statements on a different basis.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Urigen Pharmaceuticals, Inc. and its wholly-owned subsidiary Urigen N.A. 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.

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 stock 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 March 31, 2009, 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 $250,000.

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.

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 adoption 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, costs for outside consultants and contractors, and costs related to 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 is a significant estimate used in the preparation of our condensed 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 as follows:

	Three Months Ended March 31, 2009			Nine Months Ended March 31, 2009			Period from July 18, 2005 (date of inception) to March 31, 2009


Net loss	$	(795,922	)	$	(1,688,890	)	$	(11,325,796	)
Foreign currency translation adjustments, net of tax		-			-			20,120
Comprehensive loss	$	(795,922	)	$	(1,688,890	)	$	(11,305,676	)

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, for consultant stock-based compensation, 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 5%. 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.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards 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. The Company adopted SFAS 157 effective July 1, 2008 and currently does not expect the pronouncement to have a material effect 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 adopted SFAS 159 effective July 1, 2008. The Company did not make any elections for fair value accounting and therefore, it did not record a cumulative-effect adjustment to its opening accumulated deficit balance.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R changes accounting for acquisitions made by the Company with closing dates on or after July 1, 2009. More transactions and events will qualify as business combinations and will be accounted for at fair value under the new standard. SFAS 141R promotes greater use of fair values in financial reporting. Some of the changes will introduce more volatility into earnings. SFAS 141R is effective for fiscal years beginning on or after December 15, 2008. SFAS 141R will have an impact on the Company’s financial position, results of operations, and cash flows, but the effect is dependant upon the acquisitions that may be made in the future.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated 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 presentation and disclosure requirements for existing minority interests. The Company is currently assessing the impact that SFAS 160 may have on its financial position, results of operations, and cash flows.

In December 2007, the FASB issued Emerging Issues Task Force (“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. This issue is effective for financial statements issued for fiscal years beginning after December 15, 2008 and is to be applied retrospectively for all collaborative arrangements existing as of the effective date. The Company is currently assessing the impact that EIFT 07-1 may have on its financial position, results of operations, and cash flows.

In July 2008, FASB issued EITF 07-5, "Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock". This issue was added to the EITF's agenda with the purpose of providing an overall framework for determining whether an instrument is indexed to an entity's own stock and whether such instruments or embedded features are classified as equity or a liability. This Issue is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company is currently assessing the impact that EITF 07-5 may have on its financial position, results of operations, and cash flows.

In October 2008, the FASB issued FASB Staff Position FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 became effective immediately, including prior periods for which financial statements have not been issued. Therefore, the Company adopted the provisions of FSP 157-3 in its financial statements in the quarter ended September 30, 2008. The adoption did not have an impact on the Company's consolidated results or operations or financial condition.

In April 2009, the FASB issued FASB Staff Position FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”). FSP 157-4 supersedes FSP 157-3 and provides significant guidance for determining when a market has become inactive as well as guidance for determining whether transactions are not orderly. FSP 157-4 also provides guidance on the use of valuation techniques and the use of broker quotes and pricing services. It reiterates that fair value is based on an exit price and also that fair value is market-driven and not entity-specific. FSP 157- 4 applies to all assets and liabilities within the scope of FAS 157. In addition, FSP 157-4 amends SFAS 157 to require interim disclosures of the inputs and valuation technique(s) used to measure fair value as well as disclosure of information regarding changes in valuation techniques and related inputs, if any, on an interim basis. FSP 157-4 is effective for all interim and annual periods ending after June 15, 2009. It may be early adopted for periods ending after March 15, 2009 but may not be early adopted for periods ending before March 15, 2009. The Company is currently assessing the impact that FSP 157-4 may have on its financial position, results of operations, and cash flows.

In April 2009, the FASB issued FASB Staff Position FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP 115-2”). FSP 115-2 provides guidance related to determining the amount of an other-than-temporary impairment (“OTTI”) of debt securities and prescribes the method to be used to present information about an OTTI in the financial statements. In addition, FSP 115-2 extends the disclosure requirements of SFAS 115 and FSP 115-1, which were previously generally only required for annual periods, to interim periods. FSP 115-2 is effective for all interim and annual periods ending after June 15, 2009. It may be early adopted for periods ending after March 15, 2009 but may not be early adopted for periods ending before March 15, 2009. If FSP 115-2 is early adopted, FSP 157-4 must also be early adopted. The Company is currently assessing the impact that FSP 115-2 may have on its financial position, results of operations, and cash flows.

In April 2009, the FASB issued FASB Staff Position FAS 107-1 and APB 28-1, “Interim Disclosures About Fair Value of Financial Instruments” (“FSP 107-1”). FSP 107-1 amends SFAS 107, “Disclosures about Fair Value of Financial Instruments,” to require its disclosures in the interim financial statements of publicly traded companies. FAS 107 requires disclosures of the fair value of all financial instruments (recognized or unrecognized) except for those specifically excepted by paragraph 8 of SFAS 107, when practicable to do so. An entity must also disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. FSP 107-1 is effective for all interim and annual periods ending after June 15, 2009. It may be early adopted for periods ending after March 15, 2009 but may not be early adopted for periods ending before March 15, 2009. If FSP 107-1 is early adopted, both FSP 115-2 and FSP 157-4 must also be early adopted. Because FSP 107-1 requires only additional disclosures, the Company does not expect the adoption of FSP 107-1 to have a significant impact on its 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 March 31, 2009, $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.

On December 22, 2008, the Company, entered into Amendment No.2 (the “Amendment”) to the license agreement between the Company and the Regents of the University of California, San Diego. Pursuant to the terms of the Amendment, the annual license maintenance fees were amended to provide for future payments as follows:

A. $5,000 on May 6, 2009,

B. $15,000 on June 6, 2009,

C. $20,000 on June 6, 2010,

$25,000 on June 6, 2011 and annually thereafter on each anniversary until the Company is commercially selling the licensed product.

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 a three year period ending May 2009.

On November 10, 2008, the Company entered into an amendment with Kalium, Inc. to amend the May 2006 license agreement to extend the time period from three years to four years in which the Company will be required to complete a clinical trial or license the product in a territory.

The summary of intangible assets acquired and related accumulated amortization as of March 31, 2009 is as follows:

Patent and intellectual property rights	$	278,637
Less: Accumulated amortization		(44,377	)
Intangible assets, net	$	234,260

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 $10,821 for the three and nine months ended March 31, 2009, respectively, which is included in research and development expense in the accompanying statements of operations. Future estimated amortization expense is as follows:

Remaining three months of fiscal year 2009	$	3,607
Fiscal year 2010		14,428
Fiscal year 2011		14,428
Fiscal year 2012		14,428
Fiscal year 2013		14,428
Thereafter		172,941
	$	234, 260

4.	Accrued Expenses

At March 31, 2009 and June 30, 2008, the accrued expenses were as follows:

	March 31, 2009		June 30, 2008
Accrued payroll	$	1,090,933	$	465,139
Accrued payroll taxes		528,390		530,837
Accrued other		412,348		369,167
	$	2,031,671	$	1,365,143

5.	Contractual Obligations and Notes Payable

Notes Payable

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 March 31, 2009. 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. On January 6, 2009, the maturity date of this note was extended to December 31, 2009. Interest expense related to this note was $6,000 and $18,000 for the three and nine-month periods ended March 31, 2009, respectively, and $6,000 and $18,000 for the three and nine month periods ended March 31, 2008, respectively. At March 31, 2009 and June 30, 2008, the Company owed accrued interest of $36,000 and $18,000, respectively, related to this note.

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 March 31, 2009. On January 7, 2009, the maturity date of the note was extended to December 31, 2009. Interest expense related to this note was $3,528 and $10,420 for the three and nine month periods ended March 31, 2009, respectively, and $3,160 and $9,367 for the three and nine month periods ended March 31, 2008, respectively. At March 31, 2009 and June 30, 2008, the Company owed accrued interest of $19,956 and $9,536, respectively, related to this note.

On June 25, 2007, Valentis, Inc., the Company’s predecessor, 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. On January 6, 2009, the note was extended through December 25, 2009. Dr. McGraw is currently a member of the Board of Directors. Interest expense related to this note was $2,200 and $6,600 for the three and nine month periods ended March 31, 2009, respectively, and $2,200 and $6,600 for the three and nine-month periods ended March 31, 2008, respectively. At March 31, 2009 and June 30, 2008, the Company owed accrued interest of $15,400 and $8,800, respectively, related to this note.

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. All principal amounts due under the note agreement are still outstanding as of March 31, 2009. Interest expense related to this note was $1,614 and $4,125 for the three and nine month periods ended March 31, 2009, respectively. At March 31, 2009, the Company owed accrued interest of $4,125 related to this note.

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. Interest expense related to this note was $807 and $2,062 for the three and nine month periods ended March 31, 2009, respectively. At March 31, 2009, the Company owed accrued interest of $2,062 related to this note.

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. Interest expense related to this note was $201 and $502 for the three and nine month periods ended March 31, 2009, respectively. At March 31, 2009, the Company owed accrued interest of $502 related to this note.

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. Interest expense related to this note was $792 and $1,664 for the three and nine month periods ended March 31, 2009, respectively. At March 31, 2009, the Company owed accrued interest of $1,664 related to this note.

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. Interest expense related to this note was $1,187 and $2,456 for the three and nine month periods ended March 31, 2009, respectively. At March 31, 2009, the Company owed accrued interest of $2,456 related to this note.

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. Interest expense related to this note was $2,767 and $5,636 for the three and nine month periods ended March 31, 2009, respectively. There was $5,636 accrued interest at March 31, 2009 related to this note.

On October 6, 2008, the Company entered into an unsecured promissory note with a third party, 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. The note holder may, in their 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. Interest expense related to this note was $787 and $1,512 for the three and nine month periods ended March 31, 2009, respectively. There was $1,512 accrued interest at March 31, 2009 related to this note.

The Company entered into a Note Purchase Agreement dated as of January 9, 2009 with Platinum-Montaur Life Science, LLC for the sale of 10% senior secured convertible promissory notes in the aggregate principal amount of $257,000. The Note matures on October 9, 2009. Interest at the rate of 10% per annum is payable quarterly commencing April 1, 2009 and on the maturity date. Interest is payable at the option of the Company, in cash or in registered shares of the Company’s stock under certain conditions. However, the Company may not issue shares toward the payment of interest in excess of 20% of the aggregate dollar trading volume of the Company’s stock over the 20 consecutive trading days immediately prior to the interest payment date.

The Note is convertible into shares of the Company’s common stock at a conversion price of $0.10 per share.

Pursuant to the terms of the Note, events of default include, but are not limited to: (i) failure to pay principal or any payments due under the Note or to timely deliver any shares of common stock upon conversion of the Note or any interest, (ii) failure to comply with any covenant or agreement contained in the Note, the Purchase Agreement or any other document executed in connection with the Purchase Agreement, (iii) suspension of listing or failure to be listed on at least the OTC Bulletin Board, the AMEX, the Nasdaq Capital Markers, the Nasdaq Global Market, the Nasdaq Global Select Market or the NYSE for a period of 5 consecutive trading days, (iv) the Company’s notice to the Holder of its inability to comply or its intention not to comply with requests for conversion of the Note into shares of the Company’s common stock, (v) failure of the Company to instruct its transfer agent to remove any legends from shares eligible to be sold under Rule 144 and issued such clean stock certificates within 3 business days of the Holder’s request, (vi) the Company shall apply for or consent to the appointment of or the taking of possession by a receive, custodian, trustee or liquidator or makes a general assignment for the benefit of its creditors or commences a voluntary case of bankruptcy, files a petition seeking protection of bankruptcy, insolvency, moratorium, reorganization or other similar law, acquiesces in the filing of a petition against it in an involuntary case under the United States Bankruptcy Code, issues a notice of bankruptcy or winding down of its operations or issues a press release regarding same.

In addition to the foregoing:

The Company granted to Platinum the right to subscribe for an additional amount of securities of the Company in any subsequent financing conducted by the Company for the period commencing on the closing date of this Note through the date the Note is repaid. In addition, if the Company enters into any Subsequent Financing on terms more favorable than the terms of the Note then the Holder has the option to exchange the Note together with accrued and unpaid interest for the securities to be issued in the Subsequent Financing.

The Company agreed not to issue any Variable Equity Securities, as such term is defined in the Purchase Agreement, unless the Company receives the prior written approval of Platinum. Variable Equity Securities include, but are not limited to, (A) any debt or equity securities which are convertible into, exercisable or exchangeable for, or carry the right to receive addition share of common stock, (B) any amortizing convertible security which amortizes prior to its maturity date, where the Company is required to or has the option to make such amortization payment in shares of common stock, or (C) any equity line transaction.

·	The Company granted Platinum piggy-back registration rights in connection with the shares of common stock issuable upon conversion of the Note.

·	The Company has agreed to reserve 120% of the number of shares into with the Note is convertible.

As security for the payment of the Note the Company and its wholly owned subsidiary, Urigen, N.A., Inc. (“Urigen N.A.”) entered into a security agreement and Patent, Trademark and Copyright Security Agreement pursuant to which they pledged all of their assets. In addition, Urigen N.A. executed a Guaranty guaranteeing the obligations of the Company under the Purchase Agreement.

The terms of the Note provide that it may not be converted if such exercise would result in the Holder having beneficial ownership of more than 4.99% of the Company’s outstanding common stock; provided that the Holder may waive this provision upon 61 days notice; and provided further that such ownership limitation may not exceed 9.9%.

In the event that the Company issues or sells any additional shares of common stock or any rights or warrants or options to purchase shares at a price that is less than the conversion price, then the conversion price shall be adjusted to the lower price at which such additional shares were issued or sold. The Company will not be required to make any adjustment to the conversion price in connection with (A) issuances of shares of Common Stock or options to its employees, officers or directors pursuant to any existing stock or option plan, (B) securities issued pursuant to acquisitions or strategic transactions or (C) issuances of securities upon the exercise or exchange of or conversion of the Note and other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding as of the date of the Purchase Agreement.

·	In the event of a default as described in the Note, the Holder shall have the right to require the Company to repay in cash all or a portion of the Note plus all accrued but unpaid interest at a price of 110% of the aggregate principal amount of the Note plus all accrued and unpaid interest.

The issuance of this Note resulted in a change to the conversion price per share of the Series B Convertible Preferred Stock issued pursuant to the terms of the Series B Convertible Preferred Stock Purchase Agreement dated as of July 31, 2007 (see Note6).

On January 21, 2009, the Company entered into an unsecured non interest bearing convertible Promissory Note of $50,000 with a third party. The Note matures on December 31, 2009. Under the terms of the note, the third party will perform non-cash consulting services to the Company. Under the terms of the Note, the Company may prepay in whole or in part without premium or penalty, at any time. At any time prior to or at the time of prepayment of this Note, the Holder may elect to convert some or all of the principal owing under this Note into shares of the Company’s common stock at the rate of $0.02 per share. The Holder’s right to convert the obligations due under this Note to common stock shall supersede the Company’s right to repay such obligations in cash. The conversion rate of this Note generated a beneficial conversion feature that resulted in a note discount of $50,000. The note discount is being amortized as additional interest expense over the term of the note.

Contractual Obligations

On November 1, 2008, the Company entered into a consulting agreement with FLP Pharma LLC pursuant to which Mr. Nida will provide consulting services to the Company for a term commencing on November 1, 2008 through December 31, 2009. The Consulting Agreement provides for compensation of $200 per hour for a maximum amount of 50 hours monthly. Also, the Consulting Agreement provides that the agreement may be terminated by either party upon two weeks prior written notice; provided however, if the agreement is terminated by Company, the Company shall be obligated to pay to Mr. Nida certain amounts owed pursuant to his employment agreement with the Company dated as of May 1, 2006.

On November 1, 2008, the Company entered into a consulting agreement with Dennis H. Giesing pursuant to which Dr. Giesing will provide consulting services to the Company for a term commencing on November 1, 2008 through November 1, 2009. Pursuant to the terms of the Consulting Agreement, Dr. Giesing will provide services to the Company on an “as needed” basis not to exceed 4 days per month at a rate of $2,000 per day. The Consulting Agreement provides that either party may terminate the agreement upon written notice.

6.	Series B Convertible Preferred Stock

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 July 2007 private placement of Series B Preferred Stock issued to Platinum-Montaur Life Science, LLC (“Platinum”) 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 included in non-cash interest expense for the period ended September 30, 2007.

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. Each quarter since, the Company has continued to mark to market the portion of this financing classified as liability in the accompanying condensed consolidated balance sheet, in accordance with EITF 00-19.

As discussed in Note 5 above, on January 9, 2009, the Company issued secured convertible notes payable at a lower conversion price than the conversion price under the July 2007 Series B Convertible Preferred Stock agreement. This resulted in a change to the conversion price of the July 2007 Series B Convertible Preferred Stock agreement from $0.15 per share to $0.10 per share, which upon conversion by the holder of the preferred stock would result in the conversion to 21 million shares of common stock instead of 14 million shares of common stock as per the terms of the original agreement. The issuance of the January 9, 2009 note also resulted in the price reset of the warrant exercise price from $0.18 per share to $0.125 per share, which would reduce the gross proceeds received upon exercise of the warrants from $2.52 million to $1.75 million.

The impact of this modification to the conversion price of the Company’s Series B Preferred Stock also resulted in a $202,000 incremental beneficial conversion feature from that originally recorded in the quarter ended September 30, 2007 upon the closing of the July 2007 Series B Convertible Preferred Stock agreement. This incremental beneficial conversion feature was allocated by a $14,000 charge to interest expense and an increase in the Series B convertible beneficial conversion feature liability included in the accompanying condensed consolidated balance sheet, with the remaining $188,000 resulting in offsetting entries to additional paid-in capital for the portion of shares registered prior to this new note.

In addition, as a result of 21 million shares of common stock now being issuable upon conversion of the July 2007 Series B Convertible Preferred Stock, the number of unregistered shares under this agreement increased from 880,000 shares to 7,880,000 shares and thereby, the potential cash settlement the Company would be required to make if it were unable to issue registered shares upon conversion also increased. This resulted in a reclassification of $700,000 from additional paid-in capital to Series B convertible preferred stock liability. In accordance with EITF 00-19, the change in fair value of the agreement during the period the agreement was classified as equity should be accounted for as an adjustment to equity and therefore, the Company recorded a $420,000 increase to additional paid-in capital and a decrease to Series B convertible preferred stock liability to reflect the decrease in fair value of the Company’s stock from December 13, 2007 to January 9, 2009. Subsequent to the reclassification from equity to liability, in accordance with EITF 00-19, the portion now classified as a liability should be marked to fair value through earnings/loss. Therefore, for the period from January 9, 2009 to March 31, 2009, a $385,000 mark to market charge increased other expense and increased the Series B convertible preferred stock liability. The net impact of this increase in shares issuable upon conversion and potential cash settlement liability of more unregistered shares resulted in a $665,000 increase to the liability, a $280,000 decrease to additional paid-in capital, and a $385,000 charge to other expense.

On February 11, 2009, Platinum approved an additional 180 day extension of time from January 23, 2009 to July 22, 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.

7.	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, for consultant stock-based compensation, 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 1,875 unvested options as of March 31, 2009. 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 expense recorded for assumed options, employee restricted stock awards, and stock compensation to directors was immaterial for the three and nine month periods ended March 31, 2009 and is expected to remain immaterial in future periods. No grants occurred in the three and nine month periods ending March 31, 2009. No expirations or cancellations occurred in this period.

8.	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 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:

	Three months ended March 31,						Nine months ended March 31,
	2009			2008			2009			2008
Net loss (in thousands)	$	(796	)	$	(777	)	$	(1,689	)	$	(4,108	)

Basic and Diluted (in thousands):
Weighted average shares of common stock outstanding		72,519			70,509			72,243			69,216
Weighted average shares of common stock used in computing net loss per share		72,519			70,509			72,243			69,216

Basic and diluted net loss per share	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.06	)

As of March 31, 2009, and 2008, respectively, approximately 22 million and 20 million options, warrants, and restricted stock had been excluded from the calculation of diluted loss per share as the effect would have been antidilutive.

9.	Related Party Transactions

As of March 31, 2009 and 2008, the Company is paying a fee of $1,083 and $3,487, respectively, 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. As of March 31, 2009 and June 30, 2008, Dr. Garner and EGB Advisors, LLC were owed $2,896 and $0, respectively. The Company paid $3,217 and $15,102 in the three and nine month periods ended March 31, 2009, respectively, and paid $10,181 and $37,800 in the three and nine month periods ended March 31, 2008, respectively, to these related parties. From the inception of the Company to March 31, 2009, the Company has paid $190,209 to these related parties.

Several stockholders provided consulting services and were paid $171,708 for those services from the inception of the Company to March 31, 2009. For the three and nine months ended March 31, 2009, the Company paid $0 and $0 respectively, and paid $0 and $66,899 in the three and nine month periods ended March 31, 2008, respectively, to these related parties. As of March 31, 2009 and June 30, 2008, respectively, $22,408 and $456 was owed to these consultants.

As of March 31, 2009 and June 30, 2008, the Company’s legal counsel in Canada, were owed $67,169 and $67,169, respectively. For the three and nine months ended March 31, 2009, the Company paid $0 to this related party. From the inception of the Company to March 31, 2009, the Company paid $78,299 for legal expenses to the related party stockholders’ company.

As of March 31, 2009 and June 30, 2008, the Company’s legal counsel, was owed $102,861. For the three months ended March 31, 2009 and 2008, the Company paid $0 to this related party. In the nine month periods ended March 31, 2009 and 2008, and the Company paid $0 and $124,434 respectively, to this related party. From the inception of the Company to March 31, 2009, the Company paid $174,211 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, the Company converted the $15,132 receivable to an unsecured promissory note. $1,558 of interest income has been accrued as of March 31, 2009.

From the inception of the Company to date, the Company had accrued an immaterial amount of stock and board fees for Tracy Taylor who is chairman of the board. It was agreed prior to inception of the Company that Mr. Taylor would not receive any form of compensation from the Company. In the current period, the Company reversed all accrued stock and board fees to Mr. Taylor. Mr. Taylor has not received nor will he be entitled to receive any stock or cash from the inception of the Company related to this service on the Board of the Company.

10.	Fair Value Measurements

Effective July 1, 2008, the Company adopted SFAS No. 157 which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. SFAS 157 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

·	Level 1 —Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar valuation techniques that use significant unobservable inputs.

The Company's adoption of SFAS 157 did not have a material impact on our consolidated financial statements. The Company has segregated all financial assets and liabilities that are measured at fair value on a recurring basis (at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. FSP FAS 157-2 delayed the effective date for all nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years, except for those that are recognized or disclosed at fair value in the financial statements on a recurring basis.

Assets and liabilities measured at fair value on a recurring basis are summarized below:

	March 31, 2009

	Level 1		Level 2		Fair Value
Assets:
Cash	$	56,918	$	-	$	56,918
Liabilities:
Series B Convertible Preferred Stock, unregistered portion classified as liability	$	-	$	748,600	$	748,600

11.	Subsequent Events

Effective April 28, 2009, the Company entered into an Amendment (the “Amendment”) to the Note Purchase Agreement dated as of January 9, 2009 (the “Purchase Agreement”) with Platinum-Montaur Life Science, LLC (“Platinum” or the “Holder”). Pursuant to the Amendment the Company issued a 10% senior secured convertible promissory note in the principal amount of $40,000 (the “Note”). The Note matures on October 9, 2009. The terms of the Note are the same as the Note issued by the Company pursuant to the Purchase Agreement on January 9, 2009. It is stipulated in the Note that the proceeds from the issuance of the Note shall be used by the Company to retain CEOcast, Inc. to render investor relations services to Urigen.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS

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 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 quarterly report is that of our current business which is conducted through Urigen N.A.

We are located in San Francisco, California, where our headquarters and business operations are located.

BUSINESS OVERVIEW

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:

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.

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 (PBS/IC)

·	URG301, a female urethral suppository for urethritis and nocturia

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.

POTENTIAL PRODUCTS, TECHNOLOGIES AND SERVICES

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.

Proprietary Product Candidates:

URG101

Market Opportunity for Treatment of Painful Bladder Syndrome

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.

Product Development

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 which was amended on December 22, 2008 as follows: (a) $5,000 payable on May 6, 2009, (b) $15,000 payable on June 6, 2009, $20,000 payable on June 6, 2010 and $25,000 payable on June 6, 2011 and annually thereafter on each anniversary until the Company is commercially selling the licensed product, (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.

ELMIRON is a registered trademark of IVAX Research, Inc, under license to Ortho-McNeil-Janssen Pharmaceuticals, Inc.

RIMSO-50 is a registered trademark of Bioniche Pharma USA, LLC.

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.

Clinical Trial Status

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.

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.

URG301

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.

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 cannot 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.

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.)

CORPORATE COLLABORATIONS

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 March 31, 2009.

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 which was amended on December 22, 2008 as follows: (a) $5,000 payable on May 6, 2009, (b) $15,000 payable on June 6, 2009, (c) $20,000 payable on June 6, 2010 and (d) $25,000 payable on June 6, 2011 and annually thereafter on each anniversary until the Company is commercially selling the licensed product, and milestone payments of up to $625,000, which are based on certain events related to FDA approval. As of March 31, 2009, $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.

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 November 10, 2008, Kalium amendment the May 2006 license agreement extending the time period from three years to four years for the time period to complete a clinical trial or license the product in a territory.

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.

INTELLECTUAL PROPERTY

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:

(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.

(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.

(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.

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.

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.

RESULTS OF OPERATIONS

Overview

For the three month period ended March 31, 2009, net loss increased by $19,368 to $795,922, as compared to $776,554 for the corresponding period in 2008. The increase was due primarily to higher other expense related to the adjustment of the Series B convertible preferred stock conversion ratio and by higher interest expense in the 2009 period compared to the 2008 period substantially offset by decreased operating expenses in all areas.

For the nine month period ended March 31, 2009, net loss decreased by $2,419,188 to $1,688,890, as compared to $4,108,078 for the corresponding period in 2008. This decrease was due primarily to decreased operating expenses in all areas and significantly reduced interest expense as a result of lower non-cash charge related to the Series B convertible preferred stock. These factors were partially offset by a reduction in other income as a result of the non-recurrence of other income related to the registration of the Series B preferred stock in the 2008 period and changes in fair value mark-to-market expense on the Series B convertible preferred stock liability.

At March 31, 2009, our cumulative loss since inception was $11,325,796. 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, 2009 as compared to what was previously disclosed in our Annual Report on Form 10-K for the year ended June 30, 2008 filed with the Securities and Exchange Commission (the “SEC”) on October 14, 2008.

Revenue

There were no revenues for the three and nine month periods ended March 31, 2009 and 2008.

Research and Development Expenses

Research and development expenses decreased $146,341 to $11,832 for the three months ended March 31, 2009 from $158,173 for the corresponding period in 2008. This decrease was due to reduced clinical trial expenses and a reduction in staff.

Research and development expenses decreased $434,716 to $165,634 for the nine months ended March 31, 2009 from $600,350 for the corresponding period in 2008. This decrease was due to fewer clinical trial expenses in the current fiscal year and the reduction in staff. 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, if the Company’s liquidity improves.

General and Administrative Expenses

General and administrative expenses decreased $291,453 to $288,126 for the three months ended March 31, 2009, compared to $579,579 for the corresponding period in 2008. The decrease was due to the non-recurrence of legal, consulting and investor relations expenses related to the Merger in the quarter ended March 31, 2008 and to the reduction in staff in the quarter ended March 31, 2009.

General and administrative expenses decreased $1,239,214 to $1,030,444 for the nine months ended March 31, 2009, compared to $2,269,658 for the corresponding period in 2008. The decrease was due to the non-recurrence of legal, consulting and investor relations expenses related to the Merger in the 2008 period and to the reduction in staff in the 2009 period. We expect general and administrative expenses to increase in future quarters, if the Company’s liquidity improves.

Sales and Marketing Expenses

Sales and marketing expenses decreased $100,904 to a credit of $11,670 for the three months ended March 31, 2009, compared to expense of $89,324 for the corresponding period in 2008. The decrease is mainly due to the reduction in staff combined with the elimination of advertising and market research efforts.

Sales and marketing expenses decreased $129,405 to $77,010 for the nine months ended March 31, 2009, compared to $206,415 for the corresponding period in 2008. The decrease is mainly due to the reduction in staff combined with the elimination of advertising and market research efforts. We expect sales and marketing expenses to increase going forward as we proceed to move our technologies forward towards commercialization, if the Company’s liquidity improves.

Interest Income and Other Income and Expenses, net

Interest income and other income and expenses, net, decreased by $517,130 to a net expense of $461,230 for the three months ended March 31, 2009, compared to a net gain of $55,900 in the corresponding period of 2008. The net gain in the 2008 period resulted from a decrease in the fair value of our Series B Preferred Stock liability as well as the other income related to technology licensing which did not recur in the 2009 period.

Interest income and other income and expenses, net, decreased by $1,438,449 to a net expense of $300,243 for the nine months ended March 31, 2009, compared to a net gain of $1,138,206 in the corresponding period of 2008. The decrease was due to the change in mark-to-market impact on the Company’s Series B Preferred Stock classified as a liability as well as the other income related to technology licensing which occurred during the 2008 fiscal period.

Interest Expense

Interest expense increased by $41,026 to $46,404 for the three months ended March 31, 2009, compared to $5,378 in the corresponding period of 2008. The increase is due to increased borrowings and the amortization of the note discount related to a beneficial conversion feature.

Interest expense decreased by $2,054,302 to $115,559 for the nine months ended March 31, 2009, compared to $2,169,861 in the corresponding period of 2008. The decrease was primarily due to a non-recurring $2.1 million non-cash interest expense recorded in conjunction with the Series B convertible preferred stock issued in 2007.

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, 2008, 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 identified the following conditions which raise substantial doubt about our ability to continue as a going concern, and such conditions include: (i) we have incurred operating losses since inception, including a net loss of $4,844,458 for the fiscal year ended June 30, 2008, and a net loss for the nine months ended March 31, 2009 of $1,688,890, an accumulated deficit of $11,325,796 at March 31, 2009 and a working capital deficit of $4,672,702 at March 31, 2009, and (ii) we anticipate to incur further losses for the foreseeable future.

Since our inception, we have financed our operations principally through public and private issuances of our common and preferred stock and through the issuance of debt financing. We have used the net proceeds from the sale of the common and preferred stock and debt issuance proceeds 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, 2009 was $451,922, which primarily reflected the net loss of $1,688,890, offset by non-cash expenses, primarily related to our Series B convertible preferred stock, totaling $420,074 and an increase in accrued expenses of $666,528. Net cash used in operating activities for the nine months ended March 31, 2008 was $2,516,712, which primarily reflected the net loss of $4,108,078 and the change in the fair value of the Series B convertible preferred stock liability of $866,120, offset by the discount and imputed interest on the Series B preferred stock of $2,140,567, other non-cash expenses totaling $229,004 and an increase in accrued expenses of $300,022.

There were no significant investing activities for the nine months ended March 31, 2009 or 2008.

For the nine months ended March 31, 2009, net cash provided by financing activities was $462,000 resulting from the proceeds from the issuance of notes payable. For the nine months ended March 31, 2008, net cash provided by financing activities was $2,420,099, which included $2,100,000 for the issuance of Series B convertible preferred stock and $220,099 of cash received from Valentis, Inc. as part of the merger transaction.

On April 28, 2009, we entered into an Amendment (the “Amendment”) to the Note Purchase Agreement dated as of January 9, 2009 (the “Purchase Agreement”) with Platinum-Montaur Life Science, LLC (“Platinum” or the “Holder”). Pursuant to the Amendment we issued a 10% senior secured convertible promissory note in the principal amount of $40,000 (the “Note”). The Note matures on October 9, 2009. The terms of the Note are the same as the Note we issued pursuant to the Purchase Agreement on January 9, 2009. It is stipulated in the Note that the proceeds from the issuance of the Note shall be used to retain CEOcast, Inc. to render investor relations services to Urigen.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Urigen’s exposure to market risk for changes in interest rates relates primarily to our cash balances. 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 cash balances as of March 31, 2009.

	March 31, 2009

Cash	$	56,918
Average interest rate		1.26%

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, 2008, our independent registered accounting firm identified significant deficiencies in our internal controls, which represent material weaknesses.

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.

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 condensed consolidated financial statements included in this quarterly report, fairly presents, 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.

Changes in Internal Control Over Financial Reporting. During the most recent quarter ended March 31, 2009, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act)) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

There are no material changes from the risk factors previously disclosed in our Form I0-K for the year ended June 30, 2008 filed with the SEC on October 14, 2008, except for the current global economic environment:

In recent months, worldwide economic conditions have deteriorated significantly in the United States and other countries, and may remain depressed for the foreseeable future. These conditions make it difficult for us to accurately forecast and plan future business activities, and could cause us to slow or reduce spending on our research and development activities. Furthermore, during challenging economic times, we may face issues gaining timely access to financings or capital infusion, which could result in an impairment of our ability to continue our business activities. We cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide, in the United States, or in our industry. These and other economic factors could have a material adverse effect on our financial condition and operating results.

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

On January 19, 2009, the Company issued 60,000 shares of restricted common stock which previously had been accounted for as common stock subscribed.

Except as may be stated otherwise above, all of the above issuances and sales were deemed to be exempt under Rule 506 of Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors and transfer was restricted by the Company in accordance with the requirements of the Securities Act of 1933.

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

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.

May 15, 2009	By:	/s/ William J. Garner, MD
		WILLIAM J. GARNER, MD
		President and Chief Executive Officer



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