<PAGE>
==============================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
----------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-27264
UROGEN CORP.
------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0687976
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
11099 North Torrey Pines Road, Suite 292, La Jolla, CA, 92037
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code: (619) 535-1590
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
The number of shares of the Common Stock of the registrant outstanding as of May
10, 1996, was 5,616,528. This Common Stock is restricted from transfer until
December 31, 1997, except as specified on Page 11 (See Item 5. "Other
Information" - "Market for Registrants Common Equity").
<PAGE>
UROGEN CORP.
(A Development-Stage Enterprise)
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
------------------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 1. Financial Statements
Condensed Balance Sheets......................... 2
March 31, 1996 (Unaudited) and
December 31, 1995
Condensed Statements of Operations (Unaudited)... 3
Three Months Ended March 31, 1996
and 1995 and July 1, 1991 (inception)
to March 31, 1996
Condensed Statement of Stockholders'/ Division... 4
Equity (Unaudited) July 1, 1991
(inception) to March 31, 1996
Condensed Statements of Cash Flows (Unaudited)... 5
Three Months Ended March 31, 1996
and 1995 and July 1, 1991 (inception)
to March 31, 1996
Notes to Unaudited Condensed Financial
Statements.................................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 9
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings................................ 11
Item 2. Changes in Securities............................ 11
Item 3. Defaults Upon Senior Securities.................. 11
Item 4. Submission of Matters to a Vote
of Security Holders.......................... 11
Item 5. Other Information................................ 11
Market For Registrants Common Equity
Item 6. Exhibits and Reports on Form 8-K................. 11
Signatures................................................. 12
</TABLE>
1
<PAGE>
UROGEN CORP.
(A Development-Stage Enterprise)
CONDENSED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
Unaudited
March 31, December 31,
1996 1995
----------- -------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and equivalents $ 474,470 $ 1,000
--------- ------------
Total current assets 474,470 1,000
Property and equipment:
Equipment 202,036 202,036
Furniture and fixtures 162,699 162,699
--------- ------------
364,735 364,735
Less accumulated depreciation
and amortization (280,287) (238,063)
--------- ------------
Net property and equipment 84,448 126,672
Other assets 35,410 35,410
Less accumulated amortization (11,803) -
--------- ------------
Net other assets 23,607 35,410
--------- ------------
$ 582,525 $ 163,082
========= ============
LIABILITIES AND STOCKHOLDERS'/DIVISION EQUITY
- ---------------------------------------------
Current liabilities:
Amount due officer/shareholder $ 5,000 -
--------- ------------
Total current liabilities 5,000 -
Stockholders'/division equity:
Preferred Sock - $0.01 par value, - -
5,000,000 shares authorized,
none issued at March 31, 1996
and December 31, 1995
Common Stock - $.001 par value, 5,617 -
40,000,000 shares authorized,
5,616,528 issued at March 31,
1996 and none at December 31,
1995
Additional paid-in capital 657,465 -
Accumulated (deficit) (85,557) -
Advances from Medstone - 3,888,875
Divisional accumulated (deficit) - ( 3,725,793)
--------- ------------
Total stockholders'/division equity $ 577,525 $ 163,082
--------- ------------
$ 582,525 $ 163,082
========= ============
</TABLE>
See accompanying notes.
2
<PAGE>
UROGEN CORP.
(A Development-Stage Enterprise)
CONDENSED STATEMENTS OF OPERATIONS
----------------------------------
UNAUDITED
---------
<TABLE>
<CAPTION>
Three Months Ended July 1, 1991
------------------------- (inception) to
March 31, March 31, March 31,
1996 1995 1996
------------ ---------- ---------------
<S> <C> <C> <C>
Net laboratory sales $ - $ - $ 455,580
Costs and expenses:
Cost of sales - - 821,878
Research and development 42,224 17,925 2,868,054
Selling - - 11,448
General and administrative 44,237 - 566,454
Interest income (904) - (904)
--------- --------- ------------
Total costs and expenses 85,557 17,925 4,266,930
--------- --------- ------------
Net (loss) $ (85,557) $ (17,925) $ (3,811,350)
========= ========= ============
Net (loss) per share $ (.02)
=========
Number of shares used in the
computation of loss per share 5,616,528
=========
</TABLE>
See accompanying notes.
3
<PAGE>
UROGEN CORP.
(A Development-Stage Enterprise)
CONDENSED STATEMENT OF STOCKHOLDERS'/DIVISION EQUITY
----------------------------------------------------
FOR THE PERIOD JULY 1, 1991 (INCEPTION) TO MARCH 31, 1996
---------------------------------------------------------
UNAUDITED
---------
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional Advances Divisional
Number of paid-in Accumulated from Accumulated
shares Amount Capital (Deficit) Medstone (Deficit) Total
--------- ---------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Advances from Medstone
July 1, 1991 to
December 31, 1994 - - - - $ 3,852,465 - $ 3,852,465
Net loss July 1, 1991
to December 31, 1994 - - - - $(3,651,153) (3,651,153)
--------- ---------- ---------- ----------- ----------- ----------- -----------
- - - - 3,852,465 (3,651,153) 201,312
Advances from Medstone
January 1, 1995 to
December 31, 1995 - - - - 36,410 - 36,410
Net loss January 1, 1995
to December 31, 1995 - - - - (74,640) (74,640)
--------- ---------- ---------- ----------- ----------- ----------- -----------
- - - - 3,888,875 (3,725,793) 163,082
Distribution of stock
dividend and net
assets February 9,
1996 5,616,528 $ 5,617 $ 657,465 (3,888,875) 3,725,793 500,000
--------- ---------- ---------- ----------- ----------- ----------- -----------
5,616,528 5,617 657,465 - - - 663,082
Net loss January 1
1996 to March 31,
1996 - - - (85,557) - - (85,557)
--------- ---------- ---------- ----------- ----------- ----------- -----------
Balance at March 31,
1996 5,616,528 $ 5,617 $ 657,465 $ (85,557) $ - $ - $ 577,525
========= ========== ========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
UROGEN CORP.
(A Development-Stage Enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
UNAUDITED
---------
<TABLE>
<CAPTION>
Three Months Ended July 1, 1991
------------------------- (inception)
March 31, March 31, to March 31,
1996 1995 1996
--------- ------------ ------------
<S> <C> <C> <C>
Net loss (85,557) (17,925) (3,811,350)
Adjustments to reconcile net loss
to net cash (used in) operating
activities:
Depreciation 42,224 17,925 415,850
Amortization 11,803 - 11,803
Increase in amount due officer/
shareholder 5,000 - 5,000
Other, net - - (30,000)
--------- ------------ ------------
Net cash (used in)
operating activities (26,530) - (3,408,697)
Cash flows from investing activities:
Purchase of property and
equipment - - (512,267)
Disposal of property and
equipment - - 11,969
--------- ------------ ------------
Net cash (used in)
investing activities - - (500,298)
Cash flows from financing activities:
Net advances from Medstone - 3,883,465
Capital contribution of cash
by Medstone 500,000 - 500,000
--------- ------------ ------------
Net cash provided by
investing activities 500,000 - 4,383,465
--------- ------------ ------------
Net increase in cash and
equivalents 473,470 - 474,470
--------- ------------ ------------
Cash and equivalents,
beginning of period 1,000 - -
--------- ------------ ------------
Cash and equivalents,
end of period $ 474,470 $ - $ 474,470
========= ============ ============
</TABLE>
See accompanying notes.
5
<PAGE>
UROGEN CORP.
(A Development-Stage Enterprise)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
-------------------------------------------------
MARCH 31, 1996
--------------
A. ORGANIZATION AND OPERATIONS OF THE COMPANY
Urogen Corp. (the "Company"), a Delaware corporation, was incorporated on June
30, 1995, as a wholly-owned subsidiary of Medstone International, Inc.
("Medstone"). The Company was formed from the medical biology and small
molecule pharmaceuticals divisions of Medstone to continue the effort, started
in 1991, to develop pharmaceuticals to treat diseases in urology, with a
particular interest in prostate cancer. Urogen operated as a division of
Medstone from July 1, 1991 to December 29, 1995.
B. DISTRIBUTION AND CAPITALIZATION
On December 29, 1995, Medstone declared a dividend of all of the stock of Urogen
Corp. to be distributed to all Medstone stockholders. Each stockholder of
Medstone received, on February 9, 1996, one share of Urogen Common Stock for
every one share of Medstone Common Stock held on the Record Date, December 29,
1995. The Distribution resulted in the receipt, by record holders of Medstone
Common Stock, of all of Urogen's outstanding Common Stock. Upon completion of
the Distribution, there were 5,616,528 shares of Urogen Common Stock
outstanding.
The Distribution occurred on February 9, 1996, on which date Medstone also
contributed to the capital of Urogen Corp. $500,000 cash. For financial
reporting purposes, the Distribution and contribution to capital have been
considered effective as of January 1, 1996, and the operations of the business
have been considered those of Urogen Corp. effective that date.
Additionally, effective January 1, 1996, Medstone executed a forgiveness of all
intercompany advances resulting from the prior divisional funding of operations
between Medstone and Urogen.
C. PER SHARE INFORMATION
Net loss per share for the quarter ended March 31, 1996, is based on 5,616,528
common shares outstanding. As of March 31, 1996, there are outstanding, options
to purchase 1,160,000 shares of Urogen Common Stock. Additionally, there are
690,000 shares reserved and available for future grant under The 1995 Stock
Plan. Such outstanding stock options have not been included in the computation
of net loss per share as their effect would be antidilutive.
6
<PAGE>
D. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Continued Existence
---------------------------------------------
The Company is in the development stage. From July 1, 1991 (inception) through
March 31, 1996, the Company has incurred losses of $3,811,350. Recovery of the
Company's assets is dependent upon future events, the outcome of which is
indeterminable. Additionally, successful completion of the Company's
development program and its transition, ultimately, to attaining profitable
operations is dependent upon obtaining additional financing adequate to fulfill
its research and development activities, and achieving a level of revenues
adequate to support the Company's cost structure. There can be no assurance
that the Company will be successful in these areas.
In the opinion of the Company's management, the accompanying unaudited financial
statements include all adjustments (which consist only of normal recurring
adjustments) necessary for a fair presentation of its financial position as of
March 31, 1996 and results of operations and cash flows for the periods
presented. Although the Company believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading, certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted and should be read in conjunction with the
Company's audited financial statements included in the Company's 1995 Annual
Report on Form 10-K filed with the Securities and Exchange Commission. Results
of operations for the three months ended March 31, 1996, are not necessarily
indicative of results for the full year.
Property and equipment and other assets
---------------------------------------
Property and equipment is carried at cost. Depreciation and amortization is
computed using the straight-line method over the following estimated remaining
useful lives:
Equipment 9 Months
Furniture and fixtures 9 Months
Other assets 9 Months
Stock Options
-------------
In October 1995, the Financial Accounting Standards Board issued FASB Statement
No. 123 "Accounting for Stock-based Compensation." The Company currently
accounts for stock options per the requirements contained in APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and the Company will make its
election in 1996 as to its method of accounting for stock-based compensation.
7
<PAGE>
E. INCOME TAXES
Prior to the Distribution, income taxes have been allocated to the Company on a
"separate return" basis whereby such amounts are determined as if the Company
were a separate taxable entity. However, the Company's net operating losses and
research and development credits incurred through December 31, 1995, have been
included in the consolidated tax returns of Medstone and have been fully
utilized. As a result, the Company's available net operating losses and
research and development credits to offset future taxable income are limited to
amounts incurred during the three months ended March 31, 1996. The Company has
established a valuation allowance to fully offset its deferred tax assets in
accordance with Statements of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Accordingly, no benefit for Company's deferred
tax assets has been recognized, as their realization is not assured.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
GENERAL
Urogen Corp. (the "Company") is a development-stage company which is primarily
engaged in the development of pharmaceuticals to treat prostate cancer. The
Company was incorporated in Delaware on June 30, 1995. It was inactive until
January 1, 1996, at which date, the operations of the business, which previously
operated as a division of Medstone International, Inc. ("Medstone") from July 1,
1991 through December 31, 1995, were transferred to the new company.
The Company, a division of Medstone prior to January 1, 1996, had no independent
operating history of its own and, to date, has generated an operating loss of
$3,811,350. Accordingly, there can be no assurances that the Company will be
able to generate sufficient revenue and cash flow to maintain its operations
beyond the $474,470 existing cash balance. The Company must develop new
products and raise substantial additional financing.
PLAN OF OPERATION
The Company expects that its capital resources will enable it to maintain its
current and planned operations for approximately the next six to twelve months.
Thereafter, the Company will need to raise substantial additional capital to
fund its operations. In the next twelve months Urogen will be actively pursuing
opportunities to develop new prostate cancer therapeutics and diagnostics.
Depending on the Company's success in identifying promising opportunities in
prostate cancer therapy, and if it is successful in attracting additional
capital, Urogen could substantially increase its number of employees. However,
it is the Company's current intention to use human resources on a part-time and
consulting basis for the near-term, if at all possible.
LIQUIDITY AND CAPITAL RESOURCES
From inception on July 1, 1991, all of the Company's operations have been funded
by Medstone, however, such funding was completed with the $500,000 capital
contribution of cash on February 9, 1996. The Company has incurred net losses
of $3,811,350 since its inception and has never been profitable during its
existence. The Company expects to incur significant additional operating losses
over the next several years as the Company's research and development efforts
expand. The Company's ability to achieve profitability depends upon its
ability, alone or with others, to successfully complete development of
pharmaceutical products, obtain required regulatory approvals and manufacture
and market its products.
9
<PAGE>
The Company's operations to date have consumed substantial amounts of cash. The
negative cash flow from operations is expected to continue and to accelerate in
the foreseeable future. The development of the Company's products will require
a commitment of substantial funds to conduct the costly and time-consuming
research, preclinical and clinical testing necessary to bring such products to
market and to establish manufacturing and marketing capabilities. The Company's
future capital requirements will depend on many factors, including scientific
progress in its research and development programs, the ability of the Company to
establish collaborative arrangements with others for drug development, progress
with preclinical and clinical trials, the time and costs involved in obtaining
regulatory approvals and effective commercialization activities.
The Company expects that its existing capital resources, including the $474,470
existing cash and equivalents, will enable the Company to maintain its current
and planned operations for approximately the next six to twelve months.
Thereafter, the Company will need to raise substantial additional capital to
fund its operations. The Company intends to seek such additional funding either
through collaborative arrangements or through public or private equity or debt
financings. There can be no assurance that additional financing will be
available on acceptable terms or at all. If additional funds are raised by
issuing equity securities, further dilution to stockholders will result. If
adequate funds are not available, the Company may be required to delay or reduce
the scope of its operations or obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights it may have acquired in the interim.
RESULTS OF OPERATIONS
For the three months ended March 31, 1996 and 1995, the Company had no operating
revenues and net losses of $85,557 and $17,925, respectively. The increased
loss for the period reflects primarily one-time costs to execute the
Distribution and operate as a separate entity as well as a change in
depreciation and amortization policies to expense recorded assets more rapidly
based upon shorter expected useful lives.
10
<PAGE>
UROGEN CORP.
(A DEVELOPMENT-STAGE ENTERPRISE)
PART II. OTHER INFORMATION
---------------------------
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGE IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
Market for Registrants Common Equity
No market for the Company's shares of capital stock presently exists and
no assurance can be given that any active trading market will develop or
be sustained. None of the shares of capital stock of the Company issued
in the Distribution or acquired through the exercise of stock options
prior to December 31, 1997, may be transferred before December 31, 1997
unless such restriction is earlier terminated by the Company as to all
such shares, except for the following transfers: (i) transfers by gift,
will, bequest or the applicable laws of descent and distribution; (ii)
non-sale distributions by partnerships, corporations or trusts to their
partners, shareholders or beneficiaries; (iii) transfers to the Company;
and (iv) transfers pursuant to qualified domestic relations order as
defined by the Code or the rules thereunder. In the case of any such
permitted transfers, the shares in the hands of the transferees will
continue to be subject to the same transfer restriction.
Item 6. EXHIBITS AND REPORT ON FORM 8-K
There were no reports on Form 8-K filed with the Commission during the
quarter ended March 31, 1996.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, hereunto duly authorized.
UROGEN CORP.
------------
A Delaware Corporation
Date: May 9, 1996 /s/ Paul D. Quadros
--------------------------------------------
Paul D. Quadros
Chairman of the Board
Chief Financial Officer
Secretary
(Principal financial and accounting officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
BALANCE SHEETS & STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 MAR-31-1995
<CASH> 474,470 1,000
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 388,342 400,145
<DEPRECIATION> (280,287) (238,063)
<TOTAL-ASSETS> 582,525 163,082
<CURRENT-LIABILITIES> 5,000 0
<BONDS> 0 0
0 0
0 0
<COMMON> 5,617 0
<OTHER-SE> 571,908 163,082
<TOTAL-LIABILITY-AND-EQUITY> 582,525 163,082
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 85,557 17,925
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (85,557) (17,925)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (85,557) (17,925)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (85,557) (17,925)
<EPS-PRIMARY> (.02) 0
<EPS-DILUTED> 0 0
</TABLE>
