Unassociated Document
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
| x |
Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31,
2004 |
| 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 0-27282
|
MANHATTAN
PHARMACEUTICALS, INC. |
|
(Exact
name of issuer as specified in its charter) |
|
Delaware |
|
36-3898269 |
|
(State
or other jurisdiction of incorporation or organization) |
|
(IRS
Employer Identification No.) |
|
(212)
582-3950 |
|
(Issuer’s
telephone number) |
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Securities
registered pursuant to Section 12(b) of the Exchange Act:
None
Securities
registered pursuant to Section 12(g) of the Exchange Act:
Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x No o
Check if
there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained herein, and no disclosure will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. o
The
issuer’s revenues for the fiscal year ended December 31, 2004 were $0.
As of
March 21, 2005 there were 29,608,883 outstanding shares of common stock,
par value $.001 per share.
The
aggregate market value of the voting common stock of the issuer held by
non-affiliates of the issuer on March 21, 2005 based on the closing price of the
common stock as quoted by the NASD Over-the-Counter Bulletin Board on such date
was $47,966,390.
Transitional
Small Business Disclosure Format: Yes o No
x
TABLE
OF CONTENTS
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PART
I |
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Item
1 |
Description
of Business |
1 |
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Item
2 |
Legal
Proceedings |
23 |
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Item
3 |
Description
of Property |
23 |
|
Item
4 |
Submission
of Matters to a Vote of Security Holders |
23 |
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PART
II |
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Item
5 |
Market
for Common Equity and Related Stockholder Matters |
23 |
|
Item
6 |
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
or Plan of Operations |
24 |
|
Item
7 |
Consolidated
Financial Statements |
30 |
|
Item
8 |
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure |
31 |
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Item
8A |
Controls
and Procedures |
31 |
|
Item
8B |
Other
Information |
31 |
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PART
III |
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Item
9 |
Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section
16(a) of the Exchange Act |
32 |
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Item
10 |
Executive
Compensation |
36 |
|
Item
11 |
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matter |
39 |
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Item
12 |
Certain
Relationships and Related Transactions |
41 |
|
Item
13 |
Exhibit
List |
42 |
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Item
14 |
Principal
Accountant Fees and Services |
45 |
|
Index
to Consolidated Financial Statements |
F-1 |
References
to the “Company,” the “Registrant,” “we,” “us,” or “our” or in this Annual
Report on Form 10-KSB refer to Manhattan Pharmaceuticals, Inc., a Delaware
corporation, and our consolidated subsidiaries, together taken as a whole,
unless the context indicates otherwise.
Forward-Looking
Statements
This
Annual Report on Form 10-KSB contains statements that are not historical but are
forward-looking in nature, including statements regarding the expectations,
beliefs, intentions or strategies regarding the future. In particular, the “Risk
Factors” section following Item 1 and the “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” section in Item 6 of this
annual report include forward-looking statements that reflect our current views
with respect to future events and financial performance. We use words such as we
“expect,” “anticipate,” “believe,” and “intend” and similar expressions to
identify forward-looking statements. Investors should be aware that actual
results may differ materially from our expressed expectations because of risks
and uncertainties inherent in future events, particularly those risks identified
in the subsection entitled “Risk Factors” following Item 1 in this Annual
Report, and should not unduly rely on these forward looking
statements.
PART
I
ITEM
1. DESCRIPTION
OF BUSINESS
Overview
We are
engaged in the business of developing and commercializing biomedical and
pharmaceutical technologies. We aim to acquire proprietary rights to these
technologies by licensing or otherwise acquiring an ownership interest, funding
their research and development and eventually bringing the technologies to
market. We do not have any drugs or other products available for sale, but we
are currently researching and developing two biomedical
technologies:
| · |
Oleoyl-estrone,
an orally administered hormone attached to a fatty-acid that has been
shown to cause significant weight loss in preclinical animal studies
regardless of dietary modifications; and |
| · |
Lingual
spray propofol, a proprietary lingual spray technology to deliver propofol
for pre-procedural sedation prior to diagnostic, therapeutic or endoscopic
procedures. |
Although
we are primarily focused on developing these technologies, we continue to seek
to acquire proprietary rights to other biomedical and pharmaceutical
technologies, by licensing or acquiring an ownership interest, funding their
research and development and bringing the technologies to market. We have signed
a letter
of intent to acquire Tarpan Therapeutics, Inc. ("Tarpan"), a privately-held, New
York-based biopharmaceutical company developing dermatological therapeutics, in
an all stock transaction. Upon consummation of the transaction, Tarpan
shareholders will own approximately 20% of the shares of Manhattan on a
fully-diluted basis. Upon the
close of the Tarpan transaction, our expanded therapeutic portfolio will consist
of three product candidates having the potential to address various large,
underserved medical markets. Through the acquisition, we will acquire Tarpan’s
primary product candidate, PTH (1-34), a peptide believed to be a regulator of
epidermal cell growth and differentiation.
Several
of Tarpan’s stockholders are directors or significant stockholders of our
company. For example, Joshua Kazam, Timothy McInerney, David Tanen and Dr.
Michael Weiser, all directors of our company, collectively hold approximately
13.4 percent of Tarpan’s outstanding common stock. In addition, Dr. Lindsay
Rosenwald and various trusts established for the benefit of Dr. Rosenwald and
members of his immediate family collectively beneficially own approximately 46
percent of Tarpan’s common stock and beneficially own approximately 26 percent
our common stock. Because of these relationships, our board has established a
committee of disinterested directors to consider the Tarpan transaction.
Although not yet closed, we anticipate completing the transaction with Tarpan in
the near future.
We were
incorporated originally under the name “Atlantic Pharmaceuticals, Inc.” and in
March 2000, we changed our name to “Atlantic Technology Ventures, Inc.” On
February 21, 2003, we completed a “reverse” acquisition of privately-held
Manhattan Research Development, Inc. (formerly known as Manhattan
Pharmaceuticals, Inc.), a Delaware corporation. To effect this transaction,
Manhattan Pharmaceuticals Acquisition Corp., a wholly-owned subsidiary of
Atlantic Technology Ventures, merged with and into Manhattan Research
Development, with Manhattan Research Development surviving as a wholly owned
subsidiary of Atlantic Technology Ventures. In accordance with the terms of the
merger, the outstanding shares of common stock of Manhattan Research Development
automatically converted into an aggregate of approximately 80 percent of the
outstanding common stock of Atlantic Technology Ventures (after giving effect to
the transaction). While in connection with the merger, Atlantic Technology
Ventures changed its name to “Manhattan Pharmaceuticals, Inc.”, for accounting
purposes, Manhattan Research Development was treated as the acquiring company.
Accordingly, when we refer to our business or financial information for periods
prior to the merger, we are referring to the business and financial information
of Manhattan Research Development, unless the context indicates
otherwise.
We
acquired the rights to develop and commercialize oleoyl-estrone, a hormone
modified by an attachment to a fatty acid, pursuant to a February 2002 license
agreement with Oleoylestrone Development, SL., a Spanish corporation.
Oleoyl-estrone is an orally administered small molecule that has been shown to
cause significant weight loss in preclinical animal studies regardless of
dietary modifications. We believe that oleoyl-estrone causes weight loss in two
ways. First, the scientific community believes that weight loss is regulated by
a part of the hypothalamus, located in the brain, called the ponderostat. It is
believed that the ponderostat regulates the body’s weight in a manner similar to
the way in which a thermostat regulates a room’s temperature. Preclinical
studies suggest that oleoyl-estrone resets the ponderostat, telling the body
that a lower weight is normal. We believe that this signal then decreases
appetite, which leads to weight loss that may be maintained even after
oleoyl-estrone treatment is discontinued. Second, fat cells that have been
treated with oleoyl-estrone appear to shrink in size, indicating a local effect
of oleoyl-estrone acting directly on cells. The apparent dual effect of
oleoyl-estrone leads us to believe that the drug has the potential to cause
weight loss in a variety of obese and overweight patients.
Oleoyl-estrone
was initially developed by researchers at the University of Barcelona (“UB”) in
Spain. Through a decade of research, scientists of the Nitrogen-Obesity Research
Group at UB noted that hormones that effect metabolism play a significant role
in body weight regulation. At the same time, the obesity research community
suggested that weight is regulated by the ponderostat, a central mechanism in
the hypothalamus of the brain believed to set the point of ideal weight.
Researchers at UB believe that a hormone controls the ponderostat, raising or
lowering body weight by changing the central set point for the entire
body.
After
examining the available work related to estrogens, changes in body weight and
body fat percentage (such as during pregnancy), researchers at UB noted that the
estrogen-like hormone, estrone, was elevated in the blood of both obese men and
women. Initially thought to be a simple estrogen, UB researchers noticed that
although estrone levels were elevated, very few obese men manifest the effects
of elevated estrogen levels. Further testing revealed that oleoyl-estrone was
the main form of estrone that existed in obese patients. The researchers
suggested that when cells become filled with fat they produce oleoyl-estrone,
signaling the brain to lose weight. They further suggested that fat cells in
obese people do not produce sufficiently high levels of oleoyl-estrone to signal
the ponderostat to suppress appetite and cause weight loss. Based on this
concept, investigators at UB believed that they could induce weight loss by
increasing levels of oleoyl-estrone in obese individuals. When oleoyl-estrone
was given to rats, the rats lost weight in a dose-dependent manner, supporting
the idea that oleoyl-estrone is a primary weight loss signal produced by fat
cells. At the doses employed, no side effects were observed in the rats and, in
female rats, uterine size remained unchanged, indicating that oleoyl-estrone did
not act as an estrogen.
In
January 2005, the
United States Food and Drug Administration (“FDA”) accepted our filed
Investigational New Drug Application (“IND”) for the human clinical testing of
oleoyl estrone. This IND allowance moves us forward into the next stage of
oleoyl-estrone’s development and was granted on the preclinical chemistry,
manufacturing, and safety data which we submitted to the FDA.
In
February 2005, we began dosing patients in our first Phase I trial of
oleoyl-estrone in Basel, Switzerland to evaluate the safety and tolerability of
defined doses of orally administered oleoyl-estrone in obese adults, in
accordance with FDA guidelines. The objective of this human Phase I
dose-escalation study is to determine the pharmacokinetic profile of
oleoyl-estrone, as well as its safety and tolerability in obese adult volunteers
of both genders. In total, 36 obese volunteers will be randomixed to receive a
single dose of either OE or a placebo, in a dose-escalating manner. The Swiss
medical regulatory authority, SwissMedic, issued its formal approval to initiate
such a trial last month. The trial is being conducted under the IND Application
recently accepted by the FDA in February 2005 and the results will be use as a
part of the U.S. regulatory approval process.
Lingual
Spray Propofol
On April
4, 2003, we entered into a License and Development Agreement (the “Propofol
License”) with NovaDel Pharma Inc. (“NovaDel”) for the worldwide, exclusive
rights to NovaDel’s proprietary lingual spray technology to deliver propofol for
preprocedural sedation prior to diagnostic, therapeutic or endoscopic
procedures.
Propofol
is currently delivered in an oily emulsion for intravenous infusion for
induction and maintenance of general anesthesia or “monitored anesthesia care”
in operating rooms, or deep sedation in intensive care units. Propofol has
previously not been available for dosing via a convenient route of
administration for office-based and other ambulatory uses. Accordingly, we have
filed a patent application for this new method of use. Other patent applications
are being prepared related to our non-oily, novel formulation.
We
believe that delivering propofol via this proprietary delivery system provides
many advantages over currently formulated sedatives. In addition to the
convenience and ease of administration, we believe the lingual spray route will
eliminate delayed onset and poor coordination of timing associated with
administering oral sedatives, and allow for rapid clinical responses typical of
intravenous delivery (i.e., less than 5 minutes). Lingual spray propofol is
intended to allow patients to tolerate unpleasant procedures, by relieving
anxiety and producing a pleasant, short-term amnesia. Particularly in children
and adults unable to cooperate, mild sedation expedites the conduct of numerous
ambulatory procedures that are not particularly painful, but which require the
patient to remain still for the best technical result.
Novadel’s
delivery systems (both patented and patent-pending) are lingual sprays, enabling
drug absorption through the oral mucosa and more rapid absorption into the
bloodstream than presently available oral delivery systems. NovaDel refers to
its delivery system as Immediate-Immediate Release (I2R
TM) because
its delivery system is designed to provide therapeutic benefits within minutes
of administration. We are working with NovaDel to develop, manufacture and
commercialize the licensed product, having jointly announced commencement of a
development program for lingual spray propofol in June 2003.
In July
2004, we released the results of the first human trial for our proprietary
lingual spray formulation of propofol. The
study, which took place in the United Kingdom, was a single-center, randomized,
double-blind, placebo-controlled dose-escalating study of propofol lingual spray
in twelve healthy adult volunteers. The primary objectives were to compare the
safety and tolerability of three dose levels of the propofol spray to a single
intravenous bolus low dose of propofol, as well as to determine the respective
pharmacokinetic profiles and relative bioavailability of the three escalating
doses.
No
serious adverse events, nor dose-dependent changes in vital signs, occurred in
any group. The mean time to maximum blood concentration of propofol following
spray was approximately 30 min across all doses. Propofol was detectable in
blood as early as 4 minutes following spray administration. The mean maximum
blood concentrations plateaued at the highest of the three doses tested, and the
mean bioavailability of the current spray formulation was up to 18% of that of
the intravenous formulation.
In
January 2005, the FDA accepted our IND for the initiation of the human clinical
trials in the United States required for FDA approval of Propofol Lingual Spray
(Propofol LS). We continue to pursue FDA approval of Propofol LS under 505(b)2
regulatory pathway. Section
505(b)2 of the U.S. Food, Drug & Cosmetic Act allows the FDA to approve a
drug on the basis of existing data in the scientific literature or data used by
the FDA in the approval of other drugs. Accordingly, the FDA has indicated to us
that we will be able to utilize Section 505(b)2 to proceed directly to a pivotal
Phase III trial for lingual spray propofol following completion of Phase 1
trials. We are actively planning the next steps of the clinical development
process for Propofol LS, meeting with scientific advisors and Novadel regarding
formulation, reviewing existing data, developing trial design, and evaluating
plans to re-enter the clinic in mid-2005. See also “Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Research and Development Projects - Lingual Spray Propofol.
Although
we have the sole right and obligation to develop and commercialize lingual spray
propofol on a worldwide basis, NovaDel has undertaken to perform certain
development activities on our behalf. NovaDel’s responsibilities include
formulation development, formulation stability testing, formulation analytic
method development and testing and manufacture of clinical trial material for
the pre-clinical and early clinical development. We will oversee pre-clinical
testing, as necessary, and have responsibility for overall product development
and product management. In addition, we will design and oversee clinical trials
and be responsible for regulatory filings and meetings. The license agreement
provides that these development activities are to be performed under the
supervision of a development committee, which is comprised of an equal number of
appointees of us and NovaDel. Within 30 days of the end of each calendar quarter
in which any agreed-upon development activities are to be performed, each of us
and NovaDel are to provide a written progress report to the development
committee, which should describe the activities that have been performed and
evaluate the work performed in relation to the goals of the development plan and
budget. Currently, a proprietary formulation has been prepared and is undergoing
one, two, three and six month stability tests, as well as specification
analysis. The NovaDel license agreement also provides that NovaDel will
manufacture and supply us with lingual spray propofol for use in clinical
development and for commercial purposes pursuant to a manufacturing agreement to
be entered into between us and NovaDel.
Market
and Competition
According
to estimates, the market for prescription anti-obesity drugs is approximately
$10 billion, or equal to that of diabetes. It is estimated that 61 percent of
Americans are overweight and that 26 percent are obese. According to the
National Institute of Health’s estimate, direct costs for the treatment of
obesity in 1988 were in excess of $45 billion and accounted for nearly 8 percent
of the total national cost of health care in the United States. By 1999, direct
costs for the treatment of obesity had reached $102.2 billion dollars. Meridia®
and Xenical®, two currently approved anti-obesity medications, together
accounted for approximately $800 million in sales in 2001. We believe that the
disease currently lacks a treatment that is safe and effective for most patient
groups, and that oleoyl-estrone has the potential to meet the needs of this
market.
To date,
Midazolam (now a generic), which is delivered both intravenously and orally, has
dominated the preprocedural sedation market, posting sales of $536 million in
1999. However, serious adverse events are reported in midazolam’s package
insert, including respiratory depression, airway obstruction, oxygen
desaturation, apnea and even respiratory arrest. In contrast, at the doses being
developed by us, we believe that Propofol Lingual Spray may offer a safer,
noninvasively administered alternative to midazolam. Propofol’s rapid onset
profile will allow clinicians to more accurately time its peak effects during
procedures, as well as to determine the precise concentration needed for desired
levels of sedation.
Competition
in the pharmaceutical industry, and the anti-obesity drug market in particular,
is intensely competitive. In addition to Abbott Laboratories, Inc. and Roche
Holdings AG, the makers of Meridia® and Xenical,® respectively, some of the
largest drug companies in the world have anti-obesity drugs currently in
development, including GlaxoSmithKline PLC, Johnson & Johnson, Inc.,
Bristol-Myers Squibb Company, Regeneron Pharmaceutical, Inc., Phytopharm, PLC,
Amgen, Inc. These companies are all substantially larger and more established
than we are and have significantly greater financial and other resources than we
do.
Intellectual
Property and License Agreements
Our goal
is to obtain, maintain and enforce patent protection for our products,
formulations, processes, methods and other proprietary technologies, preserve
our trade secrets, and operate without infringing on the proprietary rights of
other parties, both in the United States and in other countries. Our policy is
to actively seek to obtain, where appropriate, the broadest intellectual
property protection possible for our product candidates, proprietary information
and proprietary technology through a combination of contractual arrangements and
patents, both in the U.S. and elsewhere in the world.
We also
depend upon the skills, knowledge and experience of our scientific and technical
personnel, as well as that of our advisors, consultants and other contractors,
none of which is patentable. To help protect our proprietary know-how which is
not patentable, and for inventions for which patents may be difficult to
enforce, we rely on trade secret protection and confidentiality agreements to
protect our interests. To this end, we require all employees, consultants,
advisors and other contractors to enter into confidentiality agreements which
prohibit the disclosure of confidential information and, where applicable,
require disclosure and assignment to us of the ideas, developments, discoveries
and inventions important to our business.
Oleoyl-estrone
License Agreement
We
currently have worldwide, exclusive license rights to the U.S. and foreign
patents and patent applications regarding oleoyl-estrone and its use for the
treatment of human disease:
|
1. |
US
Patent No. 5,798,348 entitled “Fatty-acid monesters of estrogens for the
treatment of obesity and/or overweight.” M. Alemany, Inventor. Application
filed, October 30, 1996. Patent issued August 25, 1998. This patent
expires on October 30, 2016. |
|
2. |
European
Patent No. 771.817 entitled “Oleate monoesters of estrogens for the
treatment of obesity and/or overweight.” M. Alemany, Inventor. Application
filed, October 28, 1996. Patent issued March 26, 2003. This patent expires
on October 28, 2016. |
|
3. |
Spanish
Patent Application No. ES 200100785 entitled “Fatty-acid monoesters of
estrogens acting as anti-diabetic and hypolipidemia agents.” M. Alemany
Lamana, Francisco Javier Remesar Betiloch, and Jose Antonio Fernandez
Lopez, Inventors. Application filed March 28, 2001, European Patent
Application No. EP1380300A1, filed March 25, 2002, and Canadian Patent
Application No. 2441890, filed March 25, 2002.
|
The U.S.
and European patents have numerous, detailed, and specific claims for both the
composition of oleoyl-estrone, and its method of use for weight loss. Our rights
to these patents are subject to the terms of a February 2002 license agreement
between us and Oleoylestrone Developments. The license agreement provides us
with an exclusive, worldwide right to the intellectual property covered by the
license agreement, including the right to grant sublicenses. Our success in
developing oleoyl-estrone depends on our ability to maintain and enforce the
patents relating to oleoyl-estrone.
In
consideration for the license, we paid an initial license fee of $175,000. The
license agreement provides for further cash payments of $9,250,000 in the
aggregate, payable as follows: $250,000 payable upon treatment of the first
patient in a Phase I clinical trial under an IND sponsored by us; $250,000 upon
treatment of the first patient in a Phase II clinical trial; $750,000 upon the
first successful completion of a Phase II clinical trial; $2,000,000 upon the
first successful completion of a Phase III clinical trial; and $6,000,000 upon
the first final approval of a New Drug Application (“NDA”) for oleoyl-estrone by
the FDA. The license agreement does not require us to make any royalty
payments.
Subject
to earlier termination as described below, the term of the license expires on
the last to expire patent right licensed under the agreement, which is currently
October 2016. Oleoylestrone Developments has the right to terminate the license
agreement sooner, subject to certain requirements to provide us advance notice,
in the event we become bankrupt or similar proceedings are initiated, fail to
make the required milestone payments required under the agreement or otherwise
materially breach the license agreement. We have the right to terminate the
license agreement for any reason upon written notice.
Propofol
LS License Agreement
Pursuant
to the NovaDel license agreement, we have an exclusive, worldwide license to
NovaDel’s proprietary lingual spray technology to deliver propofol for
preprocedural sedation prior to diagnostic, therapeutic or endoscopic
procedures. Our rights under the NovaDel License include license rights to the
following patents held by NovaDel:
|
1. |
U.S.
Patent No. 5,955,098, entitled “Buccal Non Polar Spray or Capsule.” H.A.
Dugger, III, Inventor. Application filed April 12, 1996. Patent issued
September 21, 1999. This patent expires April 12,
2016. |
|
2. |
U.S.
Patent No. 6,110,486, entitled “Buccal Polar Spray or Capsule.” H.A.
Dugger, III, Inventor. Application filed November 25, 1998. Patent issued
August 29, 2000. This patent expires April 12,
2016. |
|
3. |
European
Patent No. 0904055 entitled “Buccal, Non-Polar Spray or Capsule.” H.A.
Dugger, III, Inventor. Application filed, February 21, 1997. Patent issued
April 16, 2003. This patent expires February 21,
2017. |
|
4. |
U.S.
Patent Application No. 10/834815 entitled “Buccal, Polar and Non-Polar
Sprays Containing Propofol.” H.A. Dugger and M.A. El-Shafy, Inventors.
Application filed April 27, 2004. |
These
issued patents have numerous, detailed, and specific claims relating to the
formulation for lingual spray applications and their method of use. We have the
right to use the technology in connection with one application - delivering
propofol. Our success in developing lingual spray propofol depends substantially
on the maintenance and enforcement of NovaDel’s patents covering its proprietary
spray technology. In consideration for our rights under the NovaDel license
agreement, we paid NovaDel an initial license fee of $500,000 upon the
completion of our $10 million private placement of Series A Convertible
Preferred Stock in November 2003. In addition, the license agreement requires us
to make certain milestone payments as follows: $1,000,000 payable following the
date that the first IND for lingual spray propofol is accepted for review by the
FDA; $1,000,000 following the date that the first European Marketing Application
is accepted for review by any European Union country; $2,000,000 following the
date when the first filed NDA for lingual spray propofol is approved by the FDA;
$2,000,000 following the date when the first filed European Marketing
Application for lingual spray propofol is approved by a European Union country;
$1,000,000 following the date on which an application for commercial approval of
lingual spray propofol is approved by the appropriate regulatory authority in
each of Australia, Canada, Japan and South Africa; and $50,000 following the
date on which an application for commercial approval for lingual spray propofol
is approved in any other country (other than the U.S. or a member of the
European Union). In addition, we are obligated to pay NovaDel an annual royalty
based on a fixed rate of net sales of licensed products, or if greater, the
annual royalty is based on our net profits from the sale of licensed products at
a rate that is twice the net sales rate.
Subject
to certain requirements to provide us with notice and an opportunity to cure,
NovaDel may terminate the license agreement in the event we (1) become subject
to a bankruptcy or similar proceeding that is not dismissed within 60 days, (2)
default in our obligation to make a required payment under the license
agreement, or (3) otherwise materially breach the license agreement. The license
agreement also provided that NovaDel could terminate the license agreement in
the event we did not raise $5 million in financing on or before March 31, 2004;
however, we satisfied that condition in November 2003 in connection with the $10
million private placement of our Series A Convertible Preferred Stock. We may
terminate the license agreement for any reason upon 90 days’ notice to
NovaDel.
Manufacturing
We do not
have any manufacturing capabilities. We have been in contact with several
contract “Good Manufacturing Process” (GMP) manufacturers for the supply of both
oleoyl-estrone and lingual spray propofol that will be necessary to conduct
Phase I human clinical trials. A method has been identified for synthesizing
oleoyl-estrone, and can be done through simple reactions that produce the
substance at above 99 percent purity. We believe that the production of
oleoyl-estrone will involve one contract manufacturer for clinical trials. Bids
are being received from multiple providers, so that provider redundancy can be
maintained during product launch.
The
research, development, testing, manufacture, labeling, promotion, advertising,
distribution, and marketing, among other things, of our products are extensively
regulated by governmental authorities in the United States and other countries.
In the United States, the FDA regulates drugs under the Federal Food, Drug, and
Cosmetic Act, or the “FDCA,” and its implementing regulations. Failure to comply
with the applicable U.S. requirements may subject us to administrative or
judicial sanctions, such as FDA refusal to approve pending NDAs, warning
letters, product recalls, product seizures, total or partial suspension of
production or distribution, injunctions, and/or criminal prosecution.
Drug
Approval Process. None
of our drugs may be marketed in the U.S. until the drug has received FDA
approval. The steps required before a drug may be marketed in the U.S. include:
| · |
preclinical
laboratory tests, animal studies, and formulation
studies, |
| · |
submission
to the FDA of an IND for human clinical testing, which must become
effective before human clinical trials may
begin, |
| · |
adequate
and well-controlled human clinical trials to establish the safety and
efficacy of the drug for each indication, |
| · |
submission
to the FDA of an NDA, |
| · |
satisfactory
completion of an FDA inspection of the manufacturing facility or
facilities at which the drug is produced to assess compliance with current
good manufacturing practices, or “cGMPs,”
and |
| · |
FDA
review and approval of the NDA. |
Preclinical
tests include laboratory evaluation of product chemistry, toxicity, and
formulation, as well as animal studies. The conduct of the preclinical tests and
formulation of the compounds for testing must comply with federal regulations
and requirements. The results of the preclinical tests, together with
manufacturing information and analytical data, are submitted to the FDA as part
of an IND, which must become effective before human clinical trials may begin.
An IND will automatically become effective 30 days after receipt by the FDA,
unless before that time the FDA raises concerns or questions about issues such
as the conduct of the trials as outlined in the IND. In such a case, the IND
sponsor and the FDA must resolve any outstanding FDA concerns or questions
before clinical trials can proceed. We cannot be sure that submission of an IND
will result in the FDA allowing clinical trials to begin.
Clinical
trials involve the administration of the investigational drug to human subjects
under the supervision of qualified investigators. Clinical trials are conducted
under protocols detailing the objectives of the study, the parameters to be used
in monitoring safety, and the effectiveness criteria to be evaluated. Each
protocol must be submitted to the FDA as part of the IND.
Clinical
trials typically are conducted in three sequential phases, but the phases may
overlap. The study protocol and informed consent information for study subjects
in clinical trials must also be approved by an Institutional Review Board for
each institution where the trials will be conducted. Study subjects must sign an
informed consent form before participating in a clinical trial. Phase I usually
involves the initial introduction of the investigational drug into people to
evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics
and pharmacologic actions, and, if possible, to gain an early indication of its
effectiveness. Phase II usually involves trials in a limited patient population
to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possible
adverse effects and safety risks; and (iii) evaluate preliminarily the efficacy
of the drug for specific indications. Phase III trials usually further evaluate
clinical efficacy and test further for safety by using the drug in its final
form in an expanded patient population. There can be no assurance that phase I,
phase II, or phase III testing will be completed successfully within any
specified period of time, if at all. Furthermore, the Company or the FDA may
suspend clinical trials at any time on various grounds, including a finding that
the subjects or patients are being exposed to an unacceptable health risk.
The FDCA
permits FDA and the IND sponsor to agree in writing on the design and size of
clinical studies intended to form the primary basis of an effectiveness claim in
an NDA application. This process is known as Special Protocol Assessment, or
SPA. These agreements may not be changed after the clinical studies begin,
except in limited circumstances.
Assuming
successful completion of the required clinical testing, the results of the
preclinical studies and of the clinical studies, together with other detailed
information, including information on the manufacture and composition of the
drug, are submitted to the FDA in the form of an NDA requesting approval to
market the product for one or more indications. The testing and approval process
requires substantial time, effort, and financial resources. The agencies review
the application and may deem it to be inadequate to support the registration and
we cannot be sure that any approval will be granted on a timely basis, if at
all. The FDA may also refer the application to the appropriate advisory
committee, typically a panel of clinicians, for review, evaluation and a
recommendation as to whether the application should be approved. The FDA is not
bound by the recommendations of the advisory committee.
The FDA
has various programs, including fast track, priority review, and accelerated
approval, that are intended to expedite or simplify the process for reviewing
drugs, and/or provide for approval on the basis surrogate endpoints. Generally,
drugs that may be eligible for one or more of these programs are those for
serious or life-threatening conditions, those with the potential to address
unmet medical needs, and those that provide meaningful benefit over existing
treatments. We cannot be sure that any of our drugs will qualify for any of
these programs, or that, if a drug does qualify, that the review time will be
reduced.
Section
505(b)2 of the FDCA allows the FDA to approve a follow-on drug on the basis of
data in the scientific literature or data used by FDA in the approval of other
drugs. This procedure potentially makes it easier for generic drug manufacturers
to obtain rapid approval of new forms of drugs based on proprietary data of the
original drug manufacturer.
Before
approving an NDA, the FDA usually will inspect the facility or the facilities at
which the drug is manufactured, and will not approve the product unless cGMP
compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing
facilities as acceptable, the FDA may issue an approval letter, or in some
cases, an approvable letter followed by an approval letter. Both letters usually
contain a number of conditions that must be met in order to secure final
approval of the NDA. When and if those conditions have been met to the FDA’s
satisfaction, the FDA will issue an approval letter. The approval letter
authorizes commercial marketing of the drug for specific indications. As a
condition of NDA approval, the FDA may require postmarketing testing and
surveillance to monitor the drug’s safety or efficacy, or impose other
conditions.
After
approval, certain changes to the approved product, such as adding new
indications, making certain manufacturing changes, or making certain additional
labeling claims, are subject to further FDA review and approval. Before we can
market our product candidates for additional indications, we must obtain
additional approvals from FDA. Obtaining approval for a new indication generally
requires that additional clinical studies be conducted. We cannot be sure that
any additional approval for new indications for any product candidate will be
approved on a timely basis, or at all.
Post-Approval
Requirements. Often
times, even after a drug has been approved by the FDA for sale, the FDA may
require that certain post-approval requirements be satisfied, including the
conduct of additional clinical studies. If such post-approval conditions are not
satisfied, the FDA may withdraw its approval of the drug. In addition, holders
of an approved NDA are required to: (i) report certain adverse reactions to the
FDA, (ii) comply with certain requirements concerning advertising and
promotional labeling for their products, and (iii) continue to have quality
control and manufacturing procedures conform to cGMP after approval. The FDA
periodically inspects the sponsor’s records related to safety reporting and/or
manufacturing facilities; this latter effort includes assessment of compliance
with cGMP. Accordingly, manufacturers must continue to expend time, money, and
effort in the area of production and quality control to maintain cGMP
compliance. We intend to use third party manufacturers to produce our products
in clinical and commercial quantities, and future FDA inspections may identify
compliance issues at the facilities of our contract manufacturers that may
disrupt production or distribution, or require substantial resources to correct.
In addition, discovery of problems with a product after approval may result in
restrictions on a product, manufacturer, or holder of an approved NDA, including
withdrawal of the product from the market.
Orphan
Drug. The
FDA may grant orphan drug designation to drugs intended to treat a “rare disease
or condition,” which generally is a disease or condition that affects fewer than
200,000 individuals in the United States. Orphan drug designation must be
requested before submitting an NDA. If the FDA grants orphan drug designation,
which it may not, the identity of the therapeutic agent and its potential orphan
use are publicly disclosed by the FDA. Orphan drug designation does not convey
an advantage in, or shorten the duration of, the review and approval process. If
a product which has an orphan drug designation subsequently receives the first
FDA approval for the indication for which it has such designation, the product
is entitled to orphan exclusivity, meaning that the FDA may not approve any
other applications to market the same drug for the same indication, except in
certain very limited circumstances, for a period of seven years. Orphan drug
designation does not prevent competitors from developing or marketing different
drugs for that indication.
Non-United
States Regulation. Before
our products can be marketed outside of the United States, they are subject to
regulatory approval similar to that required in the United States, although the
requirements governing the conduct of clinical trials, including additional
clinical trials that may be required, product licensing, pricing and
reimbursement vary widely from country to country. No action can be taken to
market any product in a country until an appropriate application has been
approved by the regulatory authorities in that country. The current approval
process varies from country to country, and the time spent in gaining approval
varies from that required for FDA approval. In certain countries, the sales
price of a product must also be approved. The pricing review period often begins
after market approval is granted. Even if a product is approved by a regulatory
authority, satisfactory prices may not be approved for such product.
In
Europe, marketing authorizations may be submitted at a centralized, a
decentralized or national level. The centralized procedure is mandatory for the
approval of biotechnology products and provides for the grant of a single
marketing authorization that is valid in all EU members states. As of January
1995, a mutual recognition procedure is available at the request of the
applicant for all medicinal products that are not subject to the centralized
procedure. There can be no assurance that the chosen regulatory strategy will
secure regulatory approvals on a timely basis or at all.
Tarpan
Product Candidate
Pending a
planned merger with Tarpan Therapeutics, Inc., Manhattan Pharmaceuticals, Inc.
will have a third biomedical technology under development:
| · |
PTH
(1-34), a peptide believed to be a regulator of epidermal cell gowth and
differentiation currently under development as a topical treatment for
psoriasis and additional dermatological
indications. |
To date,
researchers,
led by Michael Holick, MD, PhD, Professor of Medicine, Physiology, and
Biophysics at Boston University Medical Center, recently reported positive
results from a US Phase I and II clinical trial evaluating the safety and
efficacy of PTH (1-34) as a topical treatment for psoriasis. This
double-blinded, controlled trial in 15 patients comparing PTH (1-34) formulated
in the Novasome® Technology versus the Novasome® vehicle alone showed PTH (1-34)
to be a potentially safe and effective treatment for plaque psoriasis. Following
8 weeks of treatment, the application of PTH (1-34) resulted in complete
clearing of the treated lesion in 60% of patients and partial clearing in 85% of
patients. Additionally, there was a statistically significant improvement in the
global severity score. Ten patients continued into an open label extension study
in which the Psoriasis Area and Severity Index (PASI) was measured; PASI
improvement across all 10 patients achieved statistically significant
improvement compared to baseline. No patients experienced any significant
adverse events.
Due to
the high response rate seen in psoriasis patients in the initial trial PTH
(1-34) may have an important clinical advantage over current topical psoriasis
treatments. Following the acquisition, Manhattan intends to initiate additional
clinical activities with PTH (1-34) in 2005. Through the transaction with
Tarpan, Manhattan obtains rights to issued and pending patents for all topical
uses of PTH (1-34) as well as access to the Novasome® technology and patents for
these applications. Novasome® is a registered trademark of IGI, Inc., Buena
Park, NJ.
Market
and Competition
The
efficacy and safety profile of PTH (1-34) will potentially make it an attractive
alternative to existing topical treatments, photo therapies and systemic
treatments such as methotrexate and biologics for the treatment of psoriasis. We
intend to achieve market share as a monotherapy at the expense if existing and
established products to be used in combination with currently available
therapies. Some of PTH (1-34)’s competitors would include, but are not limited
to over-the-counter, or “OTC,” and prescription topical treatments, Dovonex,
phototherapies, laser treatment, methotrexate, cyclosporine, Johnson &
Johnson (Remicade), Amgen (Enbrel), BiogenIdec (Amevive) and Genentech
(Raptiva).
Topical
treatments include numerous OTC ointments that help to reduce inflammation,
soothe skin and enhance the efficacy of other therapies. Additionally, steroids
are prescribed as an adjunct therapy for pain and anti-inflammation. One of the
most frequently prescribed topical treatments is Calcipotriene (Dovonex), which
is an active vitamin D3 analogue. Approximately 60% of patients show some
response to Dovonex in the first few months of treatment, however, 60% of these
become resistant to treatment in 6-12 months. Dovonex achieved $700 million in
sales in its first tow years after launch but sales have not declined to $130
million due to high incidence of resistance.
There are
two main types of phototherapy, Ultra-violet A, or “UVA” and Ultra-violet B, or
“UVB.” UVA penetrates deeper into the skin but requires the use of
photo-sensitizing agent and carries a higher risk of skin cancer. UVB, on the
other hand, is 1,000 times more powerful than UVA in producing sunburn. UV
treatments are often combined with other treatments such as topicals and
methotrexate. Phototherapy treatments have been shown to clear the disease and
induce remission but they require frequent doctor visits, making treatment
expensive and inconvenient.
Systemic
treatments are generally reserved for severe patients due to their harsh side
effect profiles. The most effective systemic treatments are methotrexate and
cyclosponine. Methotrexate is a classical antifolate commonly used for the
treatment of widespread plaque psoriasis the psoriatic arthritis and other
autoimmune diseases. The low cost and effectiveness of methotrexate is counter
balanced by the significant risk of liver and kidney toxicity and inability to
be used by pregnant women. Cyclosporine inhibits Nuclear Factor of Activated
T-Cells (NFAT), which requires the transcription of cytokines and the immune
response. It is only indicated in patients who have failed prior systemic
therapies and carries the risk of impaired renal function and severe
immunosuppression. Unlike methotrexate, cyclosporine is relatively expensive and
costs over $6,000 per year.
Biologics
are likely to play a large role in the treatment of patients with moderate to
severe psoriasis but due to their high cost, use will likely be limited to
patients that have failed all other treatments or have experienced intolerable
side effects or toxicity with other therapies. Therefore the market will likely
be limited to the patient population that can no longer be treated with
methotrexate or cyclosporine. Amgen’s TNF-a inhibitor, Enbrel, recently received
marketing approval for psoriasis and is expected to have strong sales due to
physician familiarity and efficacy data. However, Enbrel has been shown to cause
serious infections and sepsis. Genentech and Serono’s Raptiva received FDA
approval in 2003 for the treatment of chronic moderate to severe plaque
psoriasis in adults. Raptive is a humanized nonoclonal antibody that binds to
CD11a, which leads to the inhibition of T-cell activation and migration to sites
of inflammation. Clinical trials showed Raptive to have a fast onset of action
and to be relatively effective, however, the companies are required to conduct
post market safety and efficacy studies. There are other biologics that are
either approved or in clinical studies for psoriasis, including BiogenIdec’s
Amevive and Johnson & Johnson’s Remicade. Use of many of these will be
limited by their side effect profiles, cost and method of delivery.
Intellectual
Property
|
1. |
PTH
(1-34): In April 2004, Tarpan entered into an exclusive worldwide royalty
bearing License Agreement with IGI, Inc., for the rights to the
intellectual property and know-how relating to all topical uses of PTH
(1-34). The topical application of PTH (1-34) for the treatment of
hyperproliferative skin disorders (including psoriasis) is protected by US
patents 5,527,772, 5,840,690, and 6,066,618 and European Patent
Specification PCT/US88/03639. |
|
2. |
Novasome
Delivery Technology: In April 2004, Tarpan entered into a non-exclusive,
non-royalty bearing, world-wide License Agreement with IGI Inc., for the
rights to use the Novosome delivery technology for the development,
commercialization and sale of PTH (1-34). IGI will supply product
utilizing the Novasome Technology at IGI’s
cost. |
Employees
We
currently have 7 employees, including 3 persons devoted to research and
development and 4 persons in administration and finance, including our senior
management.
Risk
Factors
An
investment in our securities is speculative in nature, involves a high degree of
risk, and should not be made by an investor who cannot bear the economic risk of
its investment for an indefinite period of time and who cannot afford the loss
of its entire investment. You should carefully consider the following risk
factors and the other information contained elsewhere in this Annual Report
before making an investment in our securities.
Risks
Related to Our Business
We
currently have no product revenues and will need to raise additional funds in
the future. If we are unable to obtain the funds necessary to continue our
operations, we will be required to delay, scale back or eliminate one or more of
our drug development programs.
We have
generated no product revenues to date and will not until, and if, we receive
approval from the FDA and other regulatory authorities for our product
candidates. We have already spent substantial funds developing our potential
products and business, however, and we expect to continue to have negative cash
flow from our operations for at least the next several years. As of December 31,
2004, we had $905,656 of cash and cash equivalents and $4,514,216 of short-term
investments. We will
have to raise a significant amount of additional funds to complete the
development of our drug candidates and to bring them to market. Our future
capital requirements will depend on numerous factors, including:
| · |
the
results of any clinical trials; |
| · |
the
scope and results of our research and development
programs; |
| · |
the
time required to obtain regulatory
approvals; |
| · |
our
ability to establish and maintain marketing alliances and collaborative
agreements; and |
| · |
the
cost of our internal marketing activities. |
Additional
financing may not be available on acceptable terms, if at all. If adequate funds
are not available, we will be required to delay, scale back or eliminate one or
more of our drug development programs or obtain funds through arrangements with
collaborative partners or others that may require us to relinquish rights to
certain of our technologies or products that we would not otherwise
relinquish.
We
are not currently profitable and may never become
profitable.
We have a
history of losses and expect to incur substantial losses and negative operating
cash flow for the foreseeable future, and we may never achieve or maintain
profitability. For each of the fiscal years ended December 31, 2004, 2003 and
2002 and from August 6, 2001 (inception) through December 31, 2001, we incurred
net losses of $5,896,031, $5,960,907, $1,037,320, and $56,796, respectively.
Even if we succeed in developing and commercializing one or both of our product
candidates, we expect to incur substantial losses for the foreseeable future and
may never become profitable. We also expect to continue to incur significant
operating and capital expenditures and anticipate that our expenses will
increase substantially in the foreseeable future as we:
| · |
continue
to undertake pre-clinical development and clinical trials for our product
candidates; |
| · |
seek
regulatory approvals for our product
candidates; |
| · |
implement
additional internal systems and infrastructure;
|
| · |
lease
additional or alternative office facilities;
and |
| · |
hire
additional personnel. |
We also
expect to experience negative cash flow for the foreseeable future as we fund
our operating losses and capital expenditures. As a result, we will need to
generate significant revenues in order to achieve and maintain profitability. We
may not be able to generate these revenues or achieve profitability in the
future. Our failure to achieve or maintain profitability could negatively impact
the value of our common stock.
We
have a limited operating history upon which to base an investment decision.
We are a
development-stage company and have not yet demonstrated any ability to perform
the functions necessary for the successful commercialization of any product
candidates. The successful commercialization of our product candidates will
require us to perform a variety of functions, including:
| · |
continuing
to undertake pre-clinical development and clinical
trials; |
| · |
participating
in regulatory approval processes; |
| · |
formulating
and manufacturing products; and |
| · |
conducting
sales and marketing activities. |
Since
inception as Manhattan Research Development, Inc., our operations have been
limited to organizing and staffing, and acquiring, developing and securing our
proprietary technology and undertaking pre-clinical trials of principal product
candidates. These operations provide a limited basis for you to assess our
ability to commercialize our product candidates and the advisability of
investing in our securities.
We
may not obtain the necessary U.S. or worldwide regulatory approvals to
commercialize our product candidates.
We will
need FDA approval to commercialize our product candidates in the U.S. and
approvals from the FDA equivalent regulatory authorities in foreign
jurisdictions to commercialize our product candidates in those jurisdictions. In
order to obtain FDA approval of any of our product candidates, we must submit to
the FDA an Investigational New Drug Application, or an “IND”, which will set
forth our plans for clinical testing of our product candidates. In January 2005,
the FDA accepted IND’s for both our Oleoyl-estrone and Propofol LS product
candidates. We have not yet filed an IND for PTH (1-34). In
February 2005, we began dosing patients in our first Phase I trial in Basel,
Switzerland to evaluate the safety and tolerability of defined doses of orally
administered oleoyl-estrone in obese adults, in accordance with FDA guidelines.
Pending completion of formulation work, we expect to conduct a Phase I clinical
study for propofol lingual spray as early as 2005 assuming formulation work is
completed satisfactorily. Because
propofol has already been approved by the FDA for intravenous use, the FDA has
informed us that we may utilize a rapid development strategy that will enable us
to go directly to a Pivotal Phase III trial following completion of our planned
Phase I trials. Accordingly, we currently anticipate that development of
propofol lingual spray may be completed as early as 2006. See “Business -
Lingual Spray Propofol.” We are unable to estimate the size and timing of all
the Phase II and Phase III programs for oleoyl-estrone at this time and,
accordingly, cannot estimate the time when development of that product candidate
will be completed.
When the
clinical testing for our product candidates is complete, we will submit to the
FDA a New Drug Application, or “NDA,” demonstrating that the product candidate
is safe for humans and effective for its intended use. This demonstration
requires significant research and animal tests, which are referred to as
pre-clinical studies, as well as human tests, which are referred to as clinical
trials. Satisfaction of the FDA’s regulatory requirements typically takes many
years, depends upon the type, complexity and novelty of the product candidate
and requires substantial resources for research, development and testing. We
cannot predict whether our research and clinical approaches will result in drugs
that the FDA considers safe for humans and effective for indicated uses. The FDA
has substantial discretion in the drug approval process and may require us to
conduct additional pre-clinical and clinical testing or to perform
post-marketing studies. The approval process may also be delayed by changes in
government regulation, future legislation or administrative action or changes in
FDA policy that occur prior to or during our regulatory review. Delays in
obtaining regulatory approvals may:
| · |
delay
commercialization of, and our ability to derive product revenues from, our
product candidates; |
| · |
impose
costly procedures on us; and |
| · |
diminish
any competitive advantages that we may otherwise
enjoy. |
Even if
we comply with all FDA requests, the FDA may ultimately reject one or more of
our NDAs. We cannot be sure that we will ever obtain regulatory clearance for
our product candidate. Failure to obtain FDA approval of any of our product
candidate will severely undermine our business by reducing our number of salable
products and, therefore, corresponding product revenues.
In
foreign jurisdictions, we must receive approval from the appropriate regulatory
authorities before we can commercialize our drugs. Foreign regulatory approval
processes generally include all of the risks associated with the FDA approval
procedures described above. We have not yet made any determination as to which
foreign jurisdictions we may seek approval and have not undertaken any steps to
obtain approvals in any foreign jurisdiction.
Clinical
trials are very expensive, time-consuming and difficult to design and
implement.
Human
clinical trials are very expensive and difficult to design and implement, in
part because they are subject to rigorous regulatory requirements. The clinical
trial process is also time consuming. We estimate that clinical trials of our
product candidates will take at least several years to complete. Furthermore,
failure can occur at any stage of the trials, and we could encounter problems
that cause us to abandon or repeat clinical trials. The commencement and
completion of clinical trials may be delayed by several factors,
including:
| · |
unforeseen
safety issues; |
| · |
determination
of dosing issues; |
| · |
lack
of effectiveness during clinical trials; |
| · |
slower
than expected rates of patient recruitment; |
| · |
inability
to monitor patients adequately during or after treatment;
and |
| · |
inability
or unwillingness of medical investigators to follow our clinical
protocols. |
In
addition, we or the FDA may suspend our clinical trials at any time if it
appears that we are exposing participants to unacceptable health risks or if the
FDA finds deficiencies in our IND submissions or the conduct of these
trials.
The
results of our clinical trials may not support our product candidate
claims.
Even if
our clinical trials are completed as planned, we cannot be certain that their
results will support our product candidate claims. Success in pre-clinical
testing and early clinical trials does not ensure that later clinical trials
will be successful, and we cannot be sure that the results of later clinical
trials will replicate the results of prior clinical trials and pre-clinical
testing. The clinical trial process may fail to demonstrate that our product
candidates are safe for humans and effective for indicated uses. This failure
would cause us to abandon a product candidate and may delay development of other
product candidates. Any delay in, or termination of, our clinical trials will
delay the filing of our NDAs with the FDA and, ultimately, our ability to
commercialize our product candidates and generate product revenues. In addition,
we anticipate that our clinical trials will involve only a small patient
population. We expect that our clinical trials will only involve a small sample
size. Accordingly, the results of such trials may not be indicative of future
results over a larger patient population.
Physicians
and patients may not accept and use our drugs.
Even if
the FDA approves our product candidates, physicians and patients may not accept
and use them. Acceptance and use of our product will depend upon a number of
factors including:
| · |
perceptions
by members of the health care community, including physicians, about the
safety and effectiveness of our drugs; |
| · |
cost-effectiveness
of our product relative to competing
products; |
| · |
availability
of reimbursement for our products from government or other healthcare
payers; and |
| · |
effectiveness
of marketing and distribution efforts by us and our licensees and
distributors, if any. |
Because
we expect sales of our current product candidates, if approved, to generate
substantially all of our product revenues for the foreseeable future, the
failure of any of these drugs to find market acceptance would harm our business
and could require us to seek additional financing.
Our
drug-development program depends upon third-party researchers who are outside
our control.
We
currently are collaborating with NovaDel Pharma, from which we license our
rights to lingual spray propofol, in the development of that product candidate
in the pre-clinical and early clinical trial stages. Under our agreement with
NovaDel, it has agreed to perform certain development on our behalf and at our
expense, including formulation stability testing, formulation analytic method
development and testing and manufacture of clinical trial material for the
pre-clinical and early clinical development of propofol lingual spray. Beyond
those limited activities, we need to engage independent investigators and other
third party collaborators to conduct pre-clinical and clinical trials for
lingual spray propofol. We are not currently collaborating with any third party
with respect to the development of oleoyl-estrone, but we intend to engage third
party independent investigators and collaborators, which may include
universities and medical institutions, to conduct our pre-clinical and clinical
trials for that product candidate, as well. Accordingly, the successful
development of our product candidates will depend on the performance of these
third parties. These collaborators will not be our employees, however, and we
cannot control the amount or timing of resources that they will devote to our
programs. Our collaborators may not assign as great a priority to our programs
or pursue them as diligently as we would if we were undertaking such programs
ourselves. If outside collaborators fail to devote sufficient time and resources
to our drug-development programs, or if their performance is substandard, the
approval of our FDA applications, if any, and our introduction of new drugs, if
any, will be delayed. These collaborators may also have relationships with other
commercial entities, some of whom may compete with us. If our collaborators
assist our competitors at our expense, our competitive position would be
harmed.
We
rely exclusively on third parties to formulate and manufacture our product
candidates.
We have
no experience in drug formulation or manufacturing and do not intend to
establish our own manufacturing facilities. We lack the resources and expertise
to formulate or manufacture our own product candidates. We currently have no
contract for the manufacture of our product candidate. We intend to contract
with one or more manufacturers to manufacture, supply, store and distribute drug
supplies for our clinical trials. If any of
our product candidates receive FDA approval, we will rely on one or more
third-party contractors to manufacture our drugs. Our anticipated future
reliance on a limited number of third-party manufacturers, exposes us to the
following risks:
| · |
We
may be unable to identify manufacturers on acceptable terms or at all
because the number of potential manufacturers is limited and the FDA must
approve any replacement contractor. This approval would require new
testing and compliance inspections. In addition, a new manufacturer would
have to be educated in, or develop substantially equivalent processes for,
production of our products after receipt of FDA approval, if
any. |
| · |
Our
third-party manufacturers might be unable to formulate and manufacture our
drugs in the volume and of the quality required to meet our clinical needs
and commercial needs, if any. |
| · |
Our
future contract manufacturers may not perform as agreed or may not remain
in the contract manufacturing business for the time required to supply our
clinical trials or to successfully produce, store and distribute our
products. |
| · |
Drug
manufacturers are subject to ongoing periodic unannounced inspection by
the FDA, the DEA, and corresponding state agencies to ensure strict
compliance with good manufacturing practice and other government
regulations and corresponding foreign standards. We do not have control
over third-party manufacturers’ compliance with these regulations and
standards. |
| · |
If
any third-party manufacturer makes improvements in the manufacturing
process for our products, we may not own, or may have to share, the
intellectual property rights to the
innovation. |
We may be
unable to identify manufacturers on acceptable terms or at all because the
number of potential manufacturers is limited and the FDA must approve any
replacement contractor. This approval would require new testing and compliance
inspections. In addition, a new manufacturer would have to be educated in, or
develop substantially equivalent processes for, production of our products after
receipt of FDA approval, if any.
Our
third-party manufacturers might be unable to formulate and manufacture our drugs
in the volume and of the quality required to meet our clinical needs and
commercial needs, if any.
Our
future contract manufacturers may not perform as agreed or may not remain in the
contract manufacturing business for the time required to supply our clinical
trials or to successfully produce, store and distribute our products. Drug
manufacturers are subject to ongoing periodic unannounced inspection by the FDA,
the DEA, and corresponding state agencies to ensure strict compliance with good
manufacturing practice and other government regulations and corresponding
foreign standards. We do not have control over third-party manufacturers’
compliance with these regulations and standards. If any third-party manufacturer
makes improvements in the manufacturing process for our products, we may not
own, or may have to share, the intellectual property rights to the
innovation.
Each of
these risks could delay our clinical trials, the approval, if any of our product
candidates by the FDA or the commercialization of our product candidates or
result in higher costs or deprive us of potential product revenues.
We
have no experience selling, marketing or distributing products and no internal
capability to do so.
We
currently have no sales, marketing or distribution capabilities. We do not
anticipate having the resources in the foreseeable future to allocate to the
sales and marketing of its proposed products. Our future success depends, in
part, on our ability to enter into and maintain such collaborative
relationships, the collaborator’s strategic interest in the products under
development and such collaborator’s ability to successfully market and sell any
such products. We intend to pursue collaborative arrangements regarding the
sales and marketing of our products, however, there can be no assurance that we
will be able to establish or maintain such collaborative arrangements, or if
able to do so, that they will have effective sales forces. To the extent that we
decide not to, or are unable to, enter into collaborative arrangements with
respect to the sales and marketing of its proposed products, significant capital
expenditures, management resources and time will be required to establish and
develop an in-house marketing and sales force with technical expertise. There
can also be no assurance that we will be able to establish or maintain
relationships with third party collaborators or develop in-house sales and
distribution capabilities. To the extent that we depend on third parties for
marketing and distribution, any revenues we receive will depend upon the efforts
of such third parties, and there can be no assurance that such efforts will be
successful. In addition, there can also be no assurance that we will be able to
market and sell our product in the United States or overseas.
If
we cannot compete successfully for market share against other drug companies, we
may not achieve sufficient product revenues and our business will suffer.
The
market for our product candidates is characterized by intense competition and
rapid technological advances. If our product candidates receive FDA approval,
they will compete with a number of existing and future drugs and therapies
developed, manufactured and marketed by others. Existing or future competing
products may provide greater therapeutic convenience or clinical or other
benefits for a specific indication than our products, or may offer comparable
performance at a lower cost. If our products fail to capture and maintain market
share, we may not achieve sufficient product revenues and our business will
suffer.
We will
compete against fully integrated pharmaceutical companies and smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have product candidates that will
compete with ours already approved or in development. In addition, many of these
competitors, either alone or together with their collaborative partners, operate
larger research and development programs and have substantially greater
financial resources than we do, as well as significantly greater experience
in:
| · |
undertaking
pre-clinical testing and human clinical
trials; |
| · |
obtaining
FDA and other regulatory approvals of
drugs; |
| · |
formulating
and manufacturing drugs; and |
| · |
launching,
marketing and selling drugs. |
Developments
by competitors may render our products or technologies obsolete or
non-competitive.
Companies
that currently sell both generic and proprietary anti-obesity compounds
formulations include among others Abbot Laboratories, Inc., Amgen, Inc., and
Regeneron Pharmaceuticals, Inc. Alternative technologies are being developed to
treat obesity and overweight disease, several of which are in advanced clinical
trials. In addition, companies pursuing different but related fields represent
substantial competition. Many of these organizations competing with us have
substantially greater capital resources, larger research and development staffs
and facilities, longer drug development history in obtaining regulatory
approvals and greater manufacturing and marketing capabilities than we do. These
organizations also compete with us to attract qualified personnel, parties for
acquisitions, joint ventures or other collaborations.
If
we fail to adequately protect or enforce our intellectual property rights or
secure rights to patents of others, the value of our intellectual property
rights would diminish.
Our
success, competitive position and future revenues will depend in part on our
ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to
preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing the proprietary rights of
third parties.
We
currently do not directly own the rights to any patents or patent applications.
We license the exclusive rights to two issued patents relating to
oleoyl-estrone, which expire in 2016, and three patent applications. We also
license the exclusive rights to three issued patents relating to lingual spray
propofol, which expire from 2016 to 2017. In addition, our license for propofol
lingual spray covers one pending patent application. See “Business -
Intellectual Property and License Agreements.” There are no other pending patent
applications relating to either of our product candidates, although we
anticipate the need to file additional patent applications both in the U.S. and
in other countries, as appropriate.
However,
with regard to the patents covered by our license agreements and any future
patents issued to which we will have rights, we cannot predict:
| · |
the
degree and range of protection any patents will afford us against
competitors including whether third parties will find ways to invalidate
or otherwise circumvent our patents; |
| · |
if
and when patents will issue; |
| · |
whether
or not others will obtain patents claiming aspects similar to those
covered by our patents and patent applications;
or |
| · |
whether
we will need to initiate litigation or administrative proceedings which
may be costly whether we win or lose. |
Our
success also depends upon the skills, knowledge and experience of our scientific
and technical personnel, our consultants and advisors as well as our licensors
and contractors. To help protect our proprietary know-how and our inventions for
which patents may be unobtainable or difficult to obtain, we rely on trade
secret protection and confidentiality agreements. To this end, we require all of
our employees, consultants, advisors and contractors to enter into agreements
which prohibit the disclosure of confidential information and, where applicable,
require disclosure and assignment to us of the ideas, developments, discoveries
and inventions important to our business. These agreements may not provide
adequate protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use or disclosure or the lawful
development by others of such information. For example, despite covenants in our
license agreements with Oleoylestrone Developments and NovaDel Pharma, from
which we license oleoyl-estrone and lingual spray propofol, respectively, that
generally prohibit those companies from disclosing information relating to our
licensed technology, the respective license agreements allow for each company to
publish data and other information relating to our licensed technology. If any
of our trade secrets, know-how or other proprietary information is disclosed,
the value of our trade secrets, know-how and other proprietary rights would be
significantly impaired and our business and competitive position would
suffer.
If
we infringe the rights of third parties we could be prevented from selling
products, forced to pay damages, and defend against litigation.
Our
business is substantially dependent on the intellectual property on which our
product candidates are based. To date, we have not received any threats or
claims that we may be infringing on another’s patents or other intellectual
property rights. If our products, methods, processes and other technologies
infringe the proprietary rights of other parties, we could incur substantial
costs and we may have to:
| · |
obtain
licenses, which may not be available on commercially reasonable terms, if
at all; |
| · |
redesign
our products or processes to avoid
infringement; |
| · |
stop
using the subject matter claimed in the patents held by
others; |
| · |
defend
litigation or administrative proceedings which may be costly whether we
win or lose, and which could result in a substantial diversion of our
valuable management resources. |
Our
ability to generate product revenues will be diminished if our drugs sell for
inadequate prices or patients are unable to obtain adequate levels of
reimbursement.
Our
ability to commercialize our drugs, alone or with collaborators, will depend in
part on the extent to which reimbursement will be available from:
| · |
government
and health administration authorities; |
| · |
private
health maintenance organizations and health insurers;
and |
| · |
other
healthcare payers. |
Significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. Healthcare payers, including Medicare, are challenging the prices
charged for medical products and services. Government and other healthcare
payers increasingly attempt to contain healthcare costs by limiting both
coverage and the level of reimbursement for drugs. Even if our product
candidates are approved by the FDA, insurance coverage may not be available, and
reimbursement levels may be inadequate, to cover our drugs. If government and
other healthcare payers do not provide adequate coverage and reimbursement
levels for any of our products, once approved, market acceptance of our products
could be reduced.
We
may not successfully manage our growth.
Our
success will depend upon the expansion of our operations and the effective
management of our growth, which will place a significant strain on our
management and on our administrative, operational and financial resources. To
manage this growth, we must expand our facilities, augment our operational,
financial and management systems and hire and train additional qualified
personnel. If we are unable to manage our growth effectively, our business may
suffer.
If
we are unable to hire additional qualified personnel, our ability to grow our
business may be harmed.
We will
need to hire additional qualified personnel with expertise in pre-clinical
testing, clinical research and testing, government regulation, formulation and
manufacturing and sales and marketing. We compete for qualified individuals with
numerous biopharmaceutical companies, universities and other research
institutions. Competition for such individuals is intense, and we cannot be
certain that our search for such personnel will be successful. Attracting and
retaining qualified personnel will be critical to our success.
We
may incur substantial liabilities and may be required to limit commercialization
of our products in response to product liability lawsuits.
The
testing and marketing of medical products entail an inherent risk of product
liability. If we cannot successfully defend ourselves against product liability
claims, we may incur substantial liabilities or be required to limit
commercialization of our products. We currently carry clinical trial insurance
in an amount up to $2,000,000, which may be inadequate to protect against
potential product liability claims or may inhibit the commercialization of
pharmaceutical products we develop, alone or with corporate collaborators.
Although we intend to maintain clinical trial insurance during any clinical
trials, this may be inadequate to protect us against any potential claims. Even
if our agreements with any future corporate collaborators entitle us to
indemnification against losses, such indemnification may not be available or
adequate should any claim arise.
We
are controlled by current officers, directors and principal
stockholders.
Our
directors, executive officers and principal stockholders beneficially own
approximately 47 percent of our outstanding voting stock and, including shares
underlying outstanding options and warrants, this group beneficially owns
approximately 51 percent of our common stock. Accordingly, these persons and
their respective affiliates will have the ability to exert substantial influence
over the election of our Board of Directors and the outcome of issues submitted
to our stockholders.
Risks
Related to Our Securities
Trading
of our common stock is limited.
Trading
of our common stock is conducted on the National Association of Securities
Dealers’ Over-the-Counter Bulletin Board, or “OTC Bulletin Board.” This has
adversely effected the liquidity of our securities, not only in terms of the
number of securities that can be bought and sold at a given price, but also
through delays in the timing of transactions and reduction in security analysts’
and the media’s coverage of us. This may result in lower prices for our common
stock than might otherwise be obtained and could also result in a larger spread
between the bid and asked prices for our common stock.
Because
it is a “penny stock,” it will be more difficult for you to sell shares of our
common stock.
In
addition, our common stock is a “penny stock.” Broker-dealers who sell penny
stocks must provide purchasers of these stocks with a standardized
risk-disclosure document prepared by the SEC. This document provides information
about penny stocks and the nature and level of risks involved in investing in
the penny-stock market. A broker must also give a purchaser, orally or in
writing, bid and offer quotations and information regarding broker and
salesperson compensation, make a written determination that the penny stock is a
suitable investment for the purchaser, and obtain the purchaser’s written
agreement to the purchase. The penny stock rules may make it difficult for you
to sell your shares of our stock. Because of the rules, there is less trading in
penny stocks. Also, many brokers choose not to participate in penny-stock
transactions. Accordingly, you may not always be able to resell shares of our
common stock publicly at times and prices that you feel are
appropriate.
Our
stock price is, and we expect it to remain, volatile, which could limit
investors’ ability to sell stock at a profit.
During
the last two fiscal years, our stock price has traded at a low of $0.25 (in the
first quarter of 2003) to a high of $2.50 (in the third quarter of 2003), as
adjusted for our 1-for-5 reverse stock split in September 2003. The volatile
price of our stock makes it difficult for investors to predict the value of
their investment, to sell shares at a profit at any given time, or to plan
purchases and sales in advance. A variety of factors may affect the market price
of our common stock. These include, but are not limited to:
| · |
publicity
regarding actual or potential clinical results relating to products under
development by our competitors or us; |
| · |
delay
or failure in initiating, completing or analyzing pre-clinical or clinical
trials or the unsatisfactory design or results of these
trials; |
| · |
achievement
or rejection of regulatory approvals by our competitors or
us; |
| · |
announcements
of technological innovations or new commercial products by our competitors
or us; |
| · |
developments
concerning proprietary rights, including
patents; |
| · |
developments
concerning our collaborations; |
| · |
regulatory
developments in the United States and foreign
countries; |
| · |
economic
or other crises and other external factors;
|
| · |
period-to-period
fluctuations in our revenues and other results of
operations; |
| · |
changes
in financial estimates by securities analysts;
and |
| · |
sales
of our common stock. |
We will
not be able to control many of these factors, and we believe that
period-to-period comparisons of our financial results will not necessarily be
indicative of our future performance.
In
addition, the stock market in general, and the market for biotechnology
companies in particular, has experienced extreme price and volume fluctuations
that may have been unrelated or disproportionate to the operating performance of
individual companies. These broad market and industry factors may seriously harm
the market price of our common stock, regardless of our operating
performance.
We
have never paid dividends.
We have
never paid dividends on our capital stock and do not anticipate paying any
dividends for the foreseeable future. You should not rely on an investment in
our stock if you require dividend income. Further, you will only realize income
on an investment in our stock in the event you sell or otherwise dispose of your
shares at a price higher than the price you paid for your shares. Such a gain
would result only from an increase in the market price of our common stock,
which is uncertain and unpredictable.
ITEM
2. LEGAL
PROCEEDINGS
We are
not a party to any legal proceedings.
ITEM
3. DESCRIPTION
OF PROPERTY
Our
executive offices are located at 810 Seventh Avenue, 4th Floor, New York, New
York 10019. We currently occupy this space pursuant to a written lease for a
term of four years under which we pay rent of approximately $11,800 per month.
We
believe that our existing facilities are adequate to meet our current
requirements. We do not own any real property.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During
the fourth quarter of our fiscal year ended December 31, 2004, there were no
matters submitted to a vote of our stockholders.
PART
II
ITEM
5. MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
for Common Stock
Our
common stock is quoted on the Over-the-Counter Bulletin Board, or “OTC Bulletin
Board” under the symbol “MHTT.OB.” The following table lists the high and low
price for our common stock as quoted, in U.S. dollars, on the OTC Bulletin Board
during each quarter within the last two fiscal years:
| |
|
Price
Range |
|
| |
|
2004 |
|
2003 |
|
|
Quarter
Ended |
|
High |
|
Low |
|
High |
|
Low |
|
|
March
31 |
|
$ |
2.000 |
|
$ |
1.350 |
|
$ |
0.900 |
|
$ |
0.250 |
|
|
June
30 |
|
|
2.480 |
|
|
1.270 |
|
|
1.650 |
|
|
0.600 |
|
|
September
30 |
|
|
1.600 |
|
|
0.700 |
|
|
2.500 |
|
|
1.000 |
|
|
December
31 |
|
|
1.050 |
|
|
0.650 |
|
|
2.000 |
|
|
1.200 |
|
The
quotations from the OTC Bulletin Board reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
Record
Holders
The
number of holders of record of our common stock as of March 23, 2005 was
314.
Dividends
We have
not paid or declared any dividends on our common stock and we do not anticipate
paying dividends on our common stock in the foreseeable future.
Stock
Repurchases
We did
not make any repurchases of our common stock during 2004.
| ITEM
6. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OR PLAN OF OPERATIONS. |
Overview
Our
company resulted from the February 21, 2003 reverse merger between Atlantic
Technology Ventures, Inc., which was incorporated on May 18, 1993, and
privately-held Manhattan Research Development, Inc., incorporated on August 6,
2001. We are incorporated in the State of Delaware. In connection with the
merger, the former stockholders of Manhattan Research received a number of
shares of Atlantic's common stock so that following the merger they collectively
owned 80 percent of the outstanding shares. Upon completion of the merger,
Atlantic changed its name to Manhattan Pharmaceuticals, Inc. and thereafter
adopted the business of Manhattan Research Development.
We are a
development stage biopharmaceutical company that holds an exclusive world-wide,
royalty-free license to certain intellectual property related to oleoyl-estrone,
which is owned by Oleoyl-Estrone Developments, SL (“OED”) of Barcelona, Spain.
Oleoyl-estrone is an orally administered small molecule that has been shown to
cause significant weight loss in pre-clinical animal studies regardless of
dietary modifications. We also hold the worldwide, exclusive rights to
proprietary lingual spray technology to deliver the drug propofol for
proprocedural sedation prior to diagnostic, therapeutic or endoscopic
procedures.
Although
we are primarily focused on developing these technologies, we continue to seek
to acquire proprietary rights to other biomedical and pharmaceutical
technologies, by licensing or acquiring an ownership interest, funding their
research and development and bringing the technologies to market. We have signed
a letter
of intent to acquire Tarpan Therapeutics, Inc. ("Tarpan"), a privately-held, New
York-based biopharmaceutical company developing dermatological therapeutics, in
an all stock transaction. Upon consummation of the transaction, Tarpan
shareholders will own approximately 20% of the shares of Manhattan on a
fully-diluted basis. Assuming the completion of the Tarpan transaction, through
the acquisition we will acquire Tarpan’s primary product candidate, PTH (1-34),
a peptide believed to be a regulator of epidermal cell growth and
differentiation, which is being developed for the treatment of psoriasis.
Several
of Tarpan’s stockholders are directors or significant stockholders of our
company. For example, Joshua Kazam, Timothy McInerney, David Tanen and Dr.
Michael Weiser, all directors of our company, collectively hold approximately
13.4 percent of Tarpan’s outstanding common stock. In addition, Dr. Lindsay
Rosenwald and various trusts established for the benefit of Dr. Rosenwald and
members of his immediate family collectively beneficially own approximately 46
percent of Tarpan’s common stock and beneficially own approximately 26 percent
our common stock. Because of these relationships, our board has established a
committee of disinterested directors to consider the Tarpan transaction.
Although not yet closed, we anticipate completing the transaction with Tarpan in
the near future.
You
should read the following discussion of our results of operations and financial
condition in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere in this Form 10-KSB. This discussion includes
“forward-looking” statements that reflect our current views with respect to
future events and financial performance. We use words such as we “expect,”
“anticipate,” “believe,” and “intend” and similar expressions to identify
forward-looking statements. Investors should be aware that actual results may
differ materially from our expressed expectations because of risks and
uncertainties inherent in future events, particularly those risks identified
under the heading “Risk Factors” following Item 1 in this Annual Report, and
should not unduly rely on these forward looking statements. All share and per
share information in this discussion has been adjusted for the 1-for-5
combination of our common stock effected on September 25, 2003.
Results
Of Operations
2004
Versus 2003
During
each of the years ended December 31, 2004 and 2003, we had no revenue. We do not
expect to have revenues relating to our technologies prior to December 31,
2005.
For the
year ended December 31, 2004, research and development expense was $4,152,994 as
compared to $1,724,043 for the year ended December 31, 2003. The increase of
$2,428,951 is due primarily to an acceleration of pre-clinical development of
our Oleoyl-estrone drug to the pre-clinical and clinical development of our
Propofol Lingual Spray.
For the
year ended December 31, 2004, general and administrative expense was $1,989,829
as compared to $1,786,080 for the year ended December 31, 2003. The increase of
$203,749 is due primarily to investor relations expenses of approximately
$160,000 and consulting expenses of approximately $67,000. In addition, we had
increases in expenses associated with travel of approximately $85,000 and
meetings and conferences of approximately $54,000 as well as rent and other
expenses of approximately $19,000 and $55,000, respectively. These increases are
partially offset by a net reduction in legal and accounting fees of
approximately $91,000. Finally, in 2003 we had amortization of intangible assets
of approximately $145,000 which we did not have in the current
year.
For the
year ended December 31, 2004, interest and other income was $246,792 as compared
to $11,324 for the year ended December 31, 2003. The increase of $235,468 is a
result of an increase in cash balances and a gain on sale of short-term
investments.
Net loss
for the year ended December 31, 2004, was $5,896,031 as compared to $5,960,907
for the year ended December 31, 2003. This decrease in net loss is attributable
primarily to losses in 2003 on the disposition of intangible assets as a result
of our sale of our remaining rights to CT-3 to Indevus Pharmaceuticals, Inc. of
$1,213,878 as well as an impairment of intangible assets of $1,248,230 as a
result of a decision by Bausch & Lomb not to pursue the Avantix cataract
removal technology. This decrease in net loss is partially offset by an increase
in research and development expenses of $2,428,951 and an increase in general
and administrative expenses of $203,749. These expense increases are partially
offset by an increase in interest and other income of $235,468.
Preferred
stock dividends of $585,799 increased loss per common share for the year ended
December 31, 2004 by $0.02. There were no preferred stock dividend requirements
in 2003.
2003
Versus 2002
During
each of the years ended December 31, 2003 and 2002, we had no
revenue.
For the
year ended December 31, 2003, research and development expense was $1,724,043 as
compared to $700,798 for the year ended December 31, 2002. The increase of
$1,023,245 is due in part to an acceleration of pre-clinical and clinical
development for product candidates, oleoyl-estrone and propofol lingual spray of
approximately $256,000. Related research and development consulting increased by
approximately $267,000. In addition, in connection with our license agreement
with NovaDel Pharma Inc., we made license payments of $500,000 in 2003 which we
did not have in 2002.
For the
year ended December 31, 2003, general and administrative expense was $1,786,080
as compared to $317,384 for the year ended December 31, 2002. The increase of
$1,468,696 is due primarily to expenses associated with hiring full time
employees and consultants of approximately $572,000 and $261,000, respectively.
In addition, we had increases in legal and accounting fees of approximately
$220,000 associated with becoming subject to the reporting obligations under the
Exchange Act following completion of the Atlantic Technology Ventures, Inc. -
Manhattan Research Development, Inc. merger in February 2003. Insurance,
recruiters fees, travel, transfer agent fees and other expenses increased by
approximately $144,000, $46,000, $32,000, $28,000 and $21,000, respectively.
Finally, in 2003, we had amortization of intangible assets of approximately
$145,000.
Net loss
for the year ended December 31, 2003, was $5,960,907 as compared to $1,037,320
for the year ended December 31, 2002. This increase in net loss is attributable
to the factors described above and to a loss on the disposition of intangible
assets as a result of our sale of our remaining rights to CT-3 to Indevus
Pharmaceuticals, Inc. of $1,213,878 as well as an impairment of intangible
assets of $1,248,230 as a result of a decision by Bausch & Lomb not to
pursue the Avantix cataract removal technology.
Liquidity
and Capital Resources
From
inception to December 31, 2004, we incurred a deficit during the development
stage of $13,955,035 primarily as a result of losses, and we expect to continue
to incur additional losses and negative cash flows from operating activities
through the year ending December 31, 2005 and for the foreseeable future. These
losses have been incurred through a combination of research and development
activities related to the various technologies under our control and expenses
supporting those activities.
We have
financed our operations since inception primarily through equity financing and
our licensing and sale of residual royalty rights of CT-3 to Indevus. During the
year ended December 31, 2004, we had a net decrease in cash and cash equivalents
of $6,508,147. This decrease resulted from net cash provided by financing
activities of $3,390,528, substantially all of which was from the private
placement of 3,368,952 shares of common stock at $1.10 per share and from net
cash used in investing activities of $4,208,230 primarily for the purchase of
short-term investments offset by proceeds from the sale of these investments of
$931,089, offset by net cash used in operating activities of $5,690,445 for the
year ended December 31, 2004. Total cash resources as of December 31, 2004 were
$905,656 compared to $7,413,803 at December 31, 2003.
In April
2003, we entered into a license and development agreement with NovaDel Pharma,
Inc. (“NovaDel”), under which we received certain worldwide, exclusive rights to
develop and commercialize products related to NovaDel’s proprietary lingual
spray technology for delivering propofol for pre-procedural sedation. Under the
terms of this agreement, we agreed to use our commercially reasonable efforts to
develop and commercialize the licensed products, to obtain necessary regulatory
approvals and to thereafter exploit the licensed products. The agreement also
provides that NovaDel will undertake to perform, at our expense, a substantial
portion of the development activities, including without limitation, preparation
and filing of various applications with applicable regulatory
authorities.
In
consideration of the license, we are required to make certain license and
milestone payments. Specifically, we were required to pay a $500,000 license fee
at such time as we had completed a financing transaction resulting in aggregate
gross proceeds of at lease $10,000,000. Accordingly, upon completion of our sale
of $10,000,000 of our Series A Convertible Preferred Stock in November 2003, we
paid and expensed the $375,000 balance of the license fee.
We are
also required to make various milestone payments to NovaDel under the license
agreement as follows: $1,000,000 payable following the date that the first IND
for lingual spray propofol is accepted for review by the FDA; $1,000,000
following the date that the first European Marketing Application is accepted for
review by any European Union country; $2,000,000 following the date when the
first filed NDA for lingual spray propofol is approved by the FDA; $2,000,000
following the date when the first filed European Marketing Application for
lingual spray propofol is approved by a European Union country; $1,000,000
following the date on which an application for commercial approval of lingual
spray propofol is approved by the appropriate regulatory authority in each of
Australia, Canada, Japan and South Africa; and $50,000 following the date on
which an application for commercial approval for lingual spray propofol is
approved in any other country (other than the U.S. or a member of the European
Union).
In
addition, we are obligated to pay to NovaDel an annual royalty based on a fixed
rate of net sales of licensed products, or if greater, the annual royalty is
based on our net profits from the sale of licensed products at a rate that is
twice the net sales rate. In the event we sublicense the licensed product to a
third party, we are obligated to pay royalties based on a fixed rate of fees or
royalties received from the sublicensee until such time as we recover our
out-of-pocket costs, and thereafter the royalty rate doubles. Because of the
continuing development efforts required of NovaDel under the agreement, the
royalty rates are substantially higher than customary for the
industry.
NovaDel
may terminate the agreement (i) upon 10 days’ notice if we fail to make any
required milestone or royalty payments, or (ii) if we become bankrupt or if a
petition in bankruptcy or insolvency is filed and not dismissed within 60 days
or if we become subject to a receiver or trustee for the benefit of creditors.
Each party may terminate the agreement upon 30 days’ written notice and an
opportunity to cure in the event the other party committed a material breach or
default. We may also terminate the agreement for any reason upon 90 days’ notice
to NovaDel.
Our
current liabilities as of December 31, 2004 were $1,195,705 compared to $966,020
at December 31, 2003, an increase of $229,685. The increase was primarily due to
an increase in expenditures associated with the commencement of our Phase I
clinical trial for our Oleoyl-estrone product candidate. As of December 31,
2004, we had working capital of $4,264,293 compared to $6,824,911 at December
31, 2003.
Our
available working capital and capital requirements will depend upon numerous
factors, including progress of our research and development programs, our
progress in and the cost of ongoing and planned pre-clinical and clinical
testing, the timing and cost of obtaining regulatory approvals, the cost of
filing, prosecuting, defending, and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
changes in our existing collaborative and licensing relationships, the resources
that we devote to developing manufacturing and commercializing capabilities,
technological advances, the status of our competitors, our ability to establish
collaborative arrangements with other organizations and our need to purchase
additional capital equipment.
Our
continued operations will depend on whether we are able to raise additional
funds through various potential sources, such as equity and debt financing,
other collaborative agreements, strategic alliances, and our ability to realize
the full potential of our technology in development. Such additional funds may
not become available on acceptable terms and there can be no assurance
that any additional funding that the we do obtain will be sufficient to meet our
needs in the long term. Through
December 31, 2004, a significant portion of our financing has been through
private placements of common stock and warrants. Unless our operations generate
significant revenues and cash flows from operating activities, we will continue
to fund operations from cash on hand and through the similar sources of capital
previously described. We can give no assurances that any additional capital that
we are able to obtain will be sufficient to meet our needs. Management
believes that we will continue to incur net losses and negative cash flows from
operating activities for the foreseeable future. Based on the resources
available to us at December 31, 2004, management believes that we will need
additional equity or debt financing or will need to generate revenues during
2005 through licensing our products or entering into strategic alliances to be
able to sustain our operations through 2005 and we will need additional
financing thereafter until we can achieve profitability, if ever.
We have
reported net losses of $5,896,031 and $5,960,907 for the years ended December
31, 2004 and 2003, respectively. The net loss from date of inception, excluding
preferred stock dividends, August 6, 2001 to December 31, 2004, amounts to
$12,951,054. Management believes that we will continue to incur net losses
through at least December 31, 2005. Based on the current resources available to
us, we will need additional equity or debt or financing or we will need to
generate revenues through licensing our products or entering into strategic
alliances to be able to sustain our operations until we can achieve
profitability, if ever. These matters raise substantial doubt about our ability
to continue as a going concern.
The
report of our independent registered public accounting firm on our consolidated
financial statements includes an explanatory paragraph which states that our
recurring losses and cash used in operating activities raise substantial doubt
about our ability to continue as a going concern. Our consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Research
and Development Projects
Oleoyl-estrone
In
January 2005, The
United States Food and Drug Administration (FDA) accepted our filed
Investigational New Drug Application (IND) for the human clinical testing of
oleoyl estrone. This IND allowance moves Manhattan forward into the next stage
of oleoyl-estrone’s development and was granted on the preclinical chemistry,
manufacturing, and safety data submitted to the FDA by the Company.
In
February 2005, we began dosing patients in our first Phase I trial in Basel,
Switzerland to evaluate the safety and tolerability of defined doses of orally
administered oleoyl-estrone in obese adults, in accordance with FDA guidelines.
The objective of this human Phase I dose-escalation study is to determine the
pharmacokinetic profile of oleoyl-estrone, as well as its safety and
tolerability in obese adult volunteers of both genders. In total, 36 obese
volunteers will be randomixed to receive a single dose of either OE or a
placebo, in a dose-escalating manner. The Swiss medical regulatory authority,
SwissMedic, issued its formal approval to initiate such a trial last month. The
trial is being conducted under the Investigational New Drug Application recently
accepted by the U.S FDA and the results will be use as a part of the U.S.
regulatory approval process. Under
our license agreement with Oleoyl-Estrone Developments, we made a $250,000
milestone payment upon the treatment of the first patient in the Phase I trial.
Given the uncertainties inherent in early human clinical trials, it is difficult
to predict with accuracy when the Phase I program will be
completed.
To date,
we have incurred $3,260,097 of project costs related to our development of
oleoyl-estrone, of which $2,605,766 was incurred in fiscal 2004. Currently, we
anticipate that we will need to expend approximately an additional $1,500,000 to
$2,500,000 in development costs in fiscal 2005. Since oleoyl-estrone is regarded
by the FDA as a new entity, it is not realistic to predict the size and the
design of the study at this time.
Although
we currently have sufficient capital to fund our anticipated 2005 R&D
expenditures relating to oleoyl-estrone, we will need additional raise capital
from debt financings or by selling shares of our capital stock in order to
complete the anticipated five or six year development program for the product.
If we are unable to raise such additional capital, we may have to sublicense our
rights to oleoyl-estrone to a third party as a means of continuing development,
or much less likely, we may be required to abandon further development efforts
altogether, either of which would have a material adverse effect on the
prospects of our business.
In
addition to raising additional capital, whether we are successful in developing
oleoyl-estrone is dependent on numerous other factors, including unforeseen
safety issues, lack of effectiveness, significant unforeseen delays in the
clinical trial and regulatory approval process, both of which could be extremely
costly, and inability to monitor patients adequately before and after
treatments. See also “Item 1. Description of Business - Risk Factors” in this
Form 10-KSB. The existence of any of these factors could increase our
development costs or make successful completion of development impractical,
which would have a material adverse affect on the prospects of our
business.
Lingual
spray propofol
We are
currently working with NovaDel to develop, manufacture and commercialize a
propofol lingual spray. In July of 2004, we released the results of the first
human trial for our proprietary lingual spray formulation of
propofol. In
January of 2005, the U.S. Food and Drug Administration accepted our
Investigational New Drug Application (IND) for the initiation of the human
clinical trials in the United States required for FDA approval of Propofol
Lingual Spray (Propofol LS). We continue to pursue FDA approval of Propofol LS
under 505(b)2 regulatory pathway. Section
505(b)2 of the U.S. Food, Drug & Cosmetic Act allows the FDA to approve a
drug on the basis of existing data in the scientific literature or data used by
the FDA in the approval of other drugs. Accordingly, the FDA has indicated to us
that we will be able to utilize Section 505(b)2 to proceed directly to a pivotal
Phase III trial for lingual spray propofol following completion of Phase 1
trials. We are actively planning the next steps of the clinical development
process for Propofol LS, meeting with scientific advisors and Novadel regarding
formulation, reviewing existing data, developing trial design, and evaluating
plans to re-enter the clinic in mid-2005. See also “Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Research and Development Projects - Lingual Spray
Propofol.
To date,
we have incurred $2,616,940 of project costs related to our development of
propofol lingual spray, of which $1,547,228 was incurred in fiscal 2004.
Currently, we anticipate that we will need to expend an additional $1,000,000 to
$1,500,000 in development costs in fiscal 2005 and at least an aggregate of
approximately $3,000,000 to $5,000,000 until we receive FDA approval for
propofol, should we opt to continue development until then, including
anticipated 2005 costs. As with our development of oleoyl-estrone, we believe we
currently have sufficient capital to fund our development activities of propofol
lingual spray during 2004 and 2005. Since our business does not generate any
cash flow, however, we will need to raise additional capital to continue
development of the product beyond 2005. We expect to raise such additional
capital through debt financings or by selling shares of our capital stock. To
the extent additional capital is not available when we need it, we may be forced
to sublicense our rights to propofol lingual spray or abandon our development
efforts altogether, either of which would have a material adverse effect on the
prospects of our business.
Off-Balance
Sheet Arrangements
We have
not entered into any off-balance sheet arrangements.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants discuss their most
“critical accounting policies” in management’s discussion and analysis of
financial condition and results of operations. The SEC indicated that a
“critical accounting policy” is one which is both important to the portrayal of
the company’s financial condition and results and requires management’s most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently
uncertain.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
Research
and development expenses
Research
and development expenses are expensed as incurred.
Stock-based
Compensation
Options,
warrants and stock awards issued to non-employees and consultants are recorded
at their fair value as determined in accordance with Statement of Financial
Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” and
EITF No. 96-18, “Accounting for Equity Instruments That are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and
recognized as expense over the related vesting period.
Recently
Issued Accounting Standards
In May
2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150
changes the accounting for certain financial instruments with characteristics of
both liabilities and equity that, under pervious pronouncements, issuers could
account for as equity. The new accounting guidance contained in SFAS No. 150
requires that those instruments be classified as liabilities in the balance
sheet.
SFAS No.
150 affects the issuer’s accounting for three types of freestanding financial
instruments. One type is mandatory redeemable shares, which the issuing company
is obligated to buy back in exchange for cash or other assets. A second type
included put options and forward purchase contracts, which involves instruments
that do or may require the issuer to buy back some of its shares in exchange for
cash or other assets. The third type of instruments that are liabilities under
SFAS No. 150 are obligations that can be settled with shares, the monetary value
of which is fixed, tied solely or predominantly to a variable such as market
index, or varies inversely with the value of the issuers’ shares. SFAS No. 150
does not apply to features embedded in a financial instrument that is not a
derivative in its entirety.
Most of
the provisions of SFAS No. 150 are consistent with the existing definition of
liabilities in FASB Concepts Statement No. 6, “Elements of Financial
Statements.” The remaining provisions of SFAS No. 150 are consistent with the
FASB’s proposal to revise that definition to encompass certain obligations that
a reporting entity can or must settle by issuing its own shares. SFAS No. 150
was effective for financial instruments entered into or modified after May 31,
2003 and otherwise was effective at the beginning of the first interim period
beginning after June 15, 2003. There was no effect on the Company’s financial
statements from adopting this statement.
In
December 2004, the FASB issued SFAS No. 123(R) (revised 2004), “Share-Based
Payment”, which amends SFAS Statement No. 123 and will be effective for small
business issuers for interim or annual periods beginning after December 15,
2005. The new standard will require us to expense employee stock options and
other share-based payments over the vesting period. The new standard may be
adopted in one of three ways - the modified prospective transition method, a
variation of the modified prospective transition method or the modified
retrospective transition method. We are currently evaluating how we will adopt
the standard and evaluating the effect that the adoption of SFAS 123(R) will
have on our financial position and results of operations.
| ITEM
7. |
CONSOLIDATED
FINANCIAL STATEMENTS |
For a
list of the consolidated financial statements filed as part of this report, see
the Index to Consolidated Financial Statements beginning at Page F-1 of this
annual report.
| ITEM
8. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE |
None.
| ITEM
8A. |
CONTROLS
AND PROCEDURES |
As of
December 31, 2004, we carried out an evaluation, under the supervision and with
the participation of our chief executive officer and chief financial officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in alerting them on a timely basis to
material information required to be disclosed in our periodic reports to the
Securities and Exchange Commission. During the fourth quarter of 2004, there
were no significant changes in our internal controls over financial reporting
that have significantly affected, or are reasonably likely to significantly
affect, our internal controls over financial reporting subsequent to such
evaluation.
As a
non-accelerated filer with a fiscal year end of December 31, we must first begin
to comply with the requirements of Section 404 of the Sarbanes-Oxley Act
of 2002 for the fiscal year ending December 31, 2006. We believe that our
present internal control program has been effective at a reasonable assurance
level to ensure that our financial reporting has not been materially misstated.
Nonetheless, during the remaining periods through December 31, 2006, we
will review, and where necessary, enhance our internal control design and
documentation, management review, and ongoing risk assessment as part of our
internal control program, including implementing the requirements of Section 404
of the Sarbanes-Oxley Act of 2002.
| ITEM
8B. |
OTHER
INFORMATION |
None.
| ITEM
9. |
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT |
Information
Concerning Directors and Executive Officers
|
Name |
|
Age |
|
Position |
| |
|
|
|
|
|
Nicholas
J. Rossettos, C.P.A. |
|
39 |
|
Chief
Financial Officer, Chief Operating Officer and
Secretary |
|
Neil
Herskowitz |
|
47 |
|
Director |
|
Malcolm
Hoenlein |
|
60 |
|
Director |
|
Joshua
Kazam |
|
27 |
|
Director |
|
Timothy
McInerney |
|
43 |
|
Director |
|
Joan
Pons |
|
55 |
|
Director |
|
Richard
I. Steinhart |
|
47 |
|
Director |
|
David
M. Tanen |
|
33 |
|
Director |
|
Michael
Weiser, M.D., Ph.D. |
|
41 |
|
Director |
Nicholas
J. Rossettos has been
our Chief Financial Officer and Treasurer since April 2000 and our Chief
Operating Officer since February 2003. From February 1999 until joining our
company, Mr. Rossettos was Manager of Finance for Centerwatch, a
pharmaceutical trade publisher headquartered in Boston, Massachusetts, that is a
wholly owned subsidiary of Thomson Corporation of Toronto, Canada. Prior to
that, from 1994, he was Director of Finance and Administration for
EnviroBusiness, Inc., an environmental and technical management-consulting firm
headquartered in Cambridge, Massachusetts. Mr. Rossettos is a certified public
accountant and holds an M.S. in Accounting and M.B.A. from Northeastern
University.
Neil
Herskowitz was
appointed to our board of directors in July 2004. Since 1998, Mr. Herskowitz has
been a Managing Member of ReGen Partners LLC, an New York investment fund, and
is also President of its affiliate, Riverside Claims LLC. Mr. Herskowitz
currently serves on the board of directors of Starting Point Services for
Children a not-for-profit corporation, and on the board of directors of Vacation
Village, a 220-unit development in Sullivan County, New York. Mr. Herskowitz
holds a B.B.A. in Finance from Bernard M. Baruch College.
Malcolm
Hoenlein was
appointed to our board of directors in July 2004. Since January 2001, he has
also served as a director of Keryx Biopharmaceuticals, Inc. (Nasdaq: KERX). Mr.
Hoenlein currently serves as the Executive Vice Chairman of the Conference of
Presidents of Major American Jewish Organizations, a position he has held since
1986. He also serves as a director of Bank Leumi. Mr. Hoenlein received his B.A.
from Temple University and his M.A. from the University of
Pennsylvania.
Joshua
Kazam has been
a director of our company since the completion of our merger transaction with
Manhattan Research Development, Inc. in February 2003. He served as a director
of Manhattan Research Development since December 2001. Since September 2004, Mr.
Kazam has been a partner of Two River Group Holdings, a New York-based [venture
capital and investment bank focused on biotechnology companies], which he
co-founded. Since 2001, Mr. Kazam has been the Director of Investment for the
Orion Biomedical Fund, a New York based private equity fund focused on
biotechnology investments. Mr. Kazam holds a Bachelors degree from the
Wharton School of the University of Pennsylvania.
Timothy
McInerney has been
a director of our company since July 2004. Since 1992, Mr. McInerney has been a
Managing Director of Paramount BioCapital, Inc. where he oversees the overall
distribution of Paramount's private equity product. Prior to 1992, Mr. McInerney
was a research analyst focusing on the biotechnology industry at Ladenburg,
Thalman & Co. Prior to that, Mr. McInerney held equity sales positions at
Bear, Stearns & Co. and Shearson Lehman Brothers, Inc. Mr. McInerney also
has worked in sales and marketing for Bristol-Myers Squibb. He received his B.S.
in pharmacy from St. John's University at New York. He also completed a
post-graduate residency at the New York University Medical Center in drug
information systems.
Joan
Pons has been
a director of our company since February 21, 2003, the date of our merger with
Manhattan Research Development. Prior to the merger, he served as a director of
Manhattan Research Development from 2002. Since 2002, Mr. Pons has served chief
executive officer of Oleoyl-Estrone Development S.L., a spin-off of the
University of Barcelona. Pursuant to a January 2002 license agreement, we hold
an exclusive worldwide license to several patents and patent applications
relating to oleoyl-estrone, which are owned by Oleoyl-Estrone Development. From
1999 until joining Oleoyl-Estrone Development, Mr. Pons has served as Director
of Franchising of Pans & Company, a fast-food company. From 1972 until 1999,
Mr. Pons was employed in various finance and sales capacities by Gallina Blanca
Purina S.A., a joint venture between St. Louis, Missouri based Ralston Purina
Co. and Spanish based Agrolimen S.A., most recently serving as its National
Sales & Marketing Director.
Richard
I. Steinhart has been
a director of our company since July 2004. Since May 1992, Mr. Steinhart has
been principal of Forest Street Capital, a boutique investment banking, venture
capital, and management consulting firm. Prior to Forest Street Capital, from
May 1991 to May 1992, he was the Vice President and Chief Financial Officer of
Emisphere Technologies, Inc., a publicly held biopharmaceutical company that is
working to develop and commercialize a proprietary oral drug delivery system.
Prior to joining Emisphere Technologies, Mr. Steinhart spent seven years at CW
Group, Inc., a venture capital firm focused on medical and healthcare
investments, where he was a General Partner and Chief Financial Officer. Mr.
Steinhart has previously served as a director of a number of privately-held
companies, including ARRIS Pharmaceuticals, Inc., a biotechnology company
involved with rational drug design; Membrex, Inc., a laboratory equipment
manufacturing company; and, Photest, Inc., a diagnostics company. He began his
career working as a certified public accountant and continues to be a New York
State Certified Public Accountant. Mr. Steinhart holds a Bachelors of Business
Administration and Masters of Business Administration from Pace
University.
David
M. Tanen has been
a director of our company since January 2002. Since September 2004, Mr. Tanen
has been a partner of Two River Group Holdings, a New York-based [venture
capital and investment bank focused on biotechnology companies], which he
co-founded. From 1996 to August 2004, Mr. Tanen served as an associate
director of Paramount Capital, where he was involved in the founding of a number
of biotechnology start-up companies. Since February 2003, Mr. Tanen has
also served as a director of VioQuest Pharmaceuticals, Inc. (OTC: VQPH) and he
also serves as an officer or director of several other privately held
development-stage biotechnology companies. Mr. Tanen holds a law degree
from Fordham University School of Law.
Michael
Weiser, M.D., Ph.D., has
been a director of our company since the completion of our merger transaction
with Manhattan Research Development, Inc. in February 2003. He served as a
director of Manhattan Research Development since
December 2001 and as its Chief Medical Officer from its inception until August
2001. Dr. Weiser is currently also the Director of Research of Paramount
BioCapital Asset Management and he is a director of Hana Biosciences, Inc. (OTC:
HNAB), a South San Francisco, California-based technology company focused on
oncology therapeutics. Dr. Weiser is also a member of Orion Biomedical GP, LLC,
and serves on the board of directors of several privately held companies. Dr.
Weiser received an M.D. from New York University School of Medicine and a Ph.D.
in Molecular Neurobiology from Cornell University Medical College. Dr. Weiser
completed a Postdoctoral Fellowship in the Department of Physiology and
Neuroscience at New York University School of Medicine and performed his
post-graduate medical training in the Department of Obstetrics and Gynecology
and Primary Care at New York University Medical Center. Dr. Weiser dedicates
only a portion of his time to our business.
There are
no family relationships among our executive officers or directors.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our officers,
directors and persons who are the beneficial owners of more than 10% of our
common stock to file with the SEC initial reports of ownership and reports of
changes in ownership of our common stock. Officers, directors and beneficial
owners of more than 10% of our common stock are required by SEC regulations to
furnish us with copies of all Section 16(a) forms they file. Based solely on a
review of the copies of the Forms 3, 4 and 5 and amendments that we received
with respect to transactions during 2004, we believe that all such forms were
filed on a timely basis, except for those items listed in the table
below.
The
following table shows the transactions for 2004 that were not in
compliance.
|
Name
of Filer |
|
Description
of Transaction |
|
Transaction
Date |
|
Filing
Date |
| |
|
|
|
|
|
|
|
Lindsay
A. Rosenwald, M.D. |
|
Purchase
of shares between 8/17/04 and 9/3/04 |
|
8/17/04
- 9/3/04 |
|
9/10/04 |
| |
|
|
|
|
|
|
|
Neil
Herskowitz |
|
Initial
Form 3 |
|
7/21/04 |
|
9/8/04 |
| |
|
|
|
|
|
|
|
Timothy
McInerney |
|
Initial
Form 3 |
|
7/21/04 |
|
9/8/04 |
| |
|
|
|
|
|
|
|
Richard
I. Steinhart |
|
Initial
Form 3 |
|
7/21/04 |
|
9/2/04 |
| |
|
|
|
|
|
|
|
Malcolm
Hoenlein |
|
Initial
Form 3 |
|
7/21/04 |
|
9/2/04 |
| |
|
|
|
|
|
|
|
Joan
Pons Gimbert |
|
Sale
of shares by Company of which Mr. Gimbert is CEO |
|
2/26/04 |
|
3/29/04 |
| |
|
|
|
|
|
|
|
Michael
Weiser |
|
Issued
Warrants and Options in a private placement |
|
1/27/04 |
|
2/5/04 |
| |
|
|
|
|
|
|
|
Nicholas
J. Rossettos |
|
Grant
of options |
|
1/28/04 |
|
2/4/04 |
| |
|
|
|
|
|
|
|
Leonard
Firestone, M.D. |
|
Grant
of options on 1/1/04 and 1/28/04 |
|
1/1/04 |
|
2/2/04 |
| |
|
|
|
|
|
|
|
Joshua
A. Kazam |
|
Issued
Warrants and Options in a private placement |
|
1/27/04 |
|
2/4/04 |
| |
|
|
|
|
|
|
|
Joan
Pons Gimbert |
|
Grant
of options |
|
1/28/04 |
|
2/2/04 |
Code
of Business Conduct and Ethics
Our Board
of Directors adopted a Code of Business Conduct and Ethics to be applicable to
all officers, directors and employees. The Code of Business Conduct and Ethics
is intended to be designed to deter wrong-doing and promote honest and ethical
behavior, full, fair, timely, accurate and understandable disclosure, and
compliance with applicable laws. The Board adopted the Code of Business Conduct
and Ethics in July 2004. A copy of the Code of Business Conduct and Ethics can
be obtained and will be provided to any person without charge upon written
request to our Secretary at our executive offices, 810 Seventh Avenue, 4th
Floor, New York, New York 10019.
Audit
Committee Financial Expert
We have
an audit committee comprised of Richard Steinhart, Neil Herskowitz and Malcolm
Hoenlein. Richard
Steinhart satisfies the “audit committee financial expert” as that
term is defined by SEC regulations; he has
practiced as a CPA and in various financial reporting capacities. Further,
all of our audit committee members are independent, as defined by applicable
regulation.
ITEM
10. EXECUTIVE
COMPENSATION
The
following table sets forth, for the last three fiscal years, the compensation
earned for services rendered in all capacities by our chief executive officer
and the other highest-paid executive officers serving as such at the end of 2004
whose compensation for that fiscal year was in excess of $100,000. The
individuals named in the table will be hereinafter referred to as the “Named
Officers.” No other executive officer of Manhattan received compensation in
excess of $100,000 during fiscal year 2004.
Summary
Compensation Table
| |
|
Annual
Compensation |
|
Long-Term
Compensation Awards |
|
All
Other Compensation ($) |
|
|
Name
and Principal Position |
|
Year |
|
Salary($) |
|
Bonus($) |
|
Other
Annual Compensation ($) |
|
Securities
Underlying Options/SARs(#) |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leonard
Firestone (1)
Chief
Executive Officer and
President |
|
|
2004
2003
2002 |
|
|
325,000
250,000
-- |
|
|
73,750
200,000
-- |
|
|
12,300
--
-- |
(3) |
|
600,000
584,060
-- |
|
|
--
--
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas
J. Rossettos
Chief
Operating Officer, Chief Financial Officer, Treasurer
& Secretary |
|
|
2004
2003
2002 |
|
|
150,000
142,788
107,645 |
|
|
22,500
25,000
25,000 |
|
|
7,500
22,397
10,000 |
(3)
(2)
(3) |
|
150,000
292,030
55,000 |
|
|
--
--
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Dr.
Firestone became chief executive officer of Manhattan Research
Development, Inc. in January 2003 and, following the merger with Atlantic
Technology Ventures, Inc. on February 21, 2003, he was appointed chief
executive officer of the Registrant. The above table reflects Dr.
Firestone’s combined compensation received from Manhattan Research
Development and our company during fiscal 2003. Dr. Firestone’s employment
with the Company ended in January
2005. |
| (2) |
Represents
salary deferred from the prior fiscal year and prior to February 24,
2003. |
| (3) |
Represents
matching contributions by us pursuant to our company’s 401(k) and SAR-SEP
retirement plans. |
Options
and Stock Appreciation Rights
The
following table contains information concerning the grant of stock options under
our stock option plans and otherwise to the executive officers identified below
during the 2004 fiscal year. No stock appreciation rights were granted during
the 2004 fiscal year.
Option
Grants in Last Fiscal Year (Individual Grants)
|
Name |
|
Number
of Securities Underlying Options/SARs Granted (#) |
|
Percent
of Total Options/SARs Granted to Employees in Fiscal
Year |
|
Exercise
or Base Price ($/Share)(1) |
|
Expiration
Date |
|
|
Dr.
Firestone |
|
|
600,000 |
|
|
36 |
|
|
1.65 |
|
|
1/28/2014 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr.
Rossettos |
|
|
150,000(2 |
) |
|
9 |
|
|
1.65 |
|
|
1/28/2014 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Exercise
price is based on the closing sale price of our common stock on the last
trading day preceding the grant date. |
| (2) |
Two-thirds
of the option vested as of January 2005; the remaining one-third vests in
January 2006. |
Option
Exercise and Holdings
The
following table provides information with respect to the executive officers
named below concerning the exercisability of options during the 2004 fiscal year
and unexercisable options held as of the end of the 2004 fiscal year. No stock
appreciation rights were exercised during the 2004 fiscal year, and no stock
appreciation rights were outstanding at the end of that fiscal
year.
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
| |
|
|
|
|
|
|
|
|
|
|
|
Value
of Unexercised In-the- |
|
| |
|
|
|
|
|
|
|
|
No.
of Securities Underlying |
|
|
Money Options/SARs at
FY-End |
|
| |
|
|
Shares |
|
|
|
|
|
Unexercised Options/SARs at
|
|
|
(Market price of shares at
FY- |
|
| |
|
|
Acquired |
|
|
Value |
|
|
FY-End (#) |
|
|
End less exercise price) ($)(2) |
|
| Name |
|
|
on
Exercise |
|
|
Realized
(1) |
|
|
Exercisable |
|
|
Unexercisable |
|
|
Exercisable |
|
|
Unexercisable |
|
|
Dr.
Firestone (3) |
|
|
-- |
|
|
-- |
|
|
584,060 |
|
|
600,000 |
|
|
379,639 |
|
|
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr.
Rossettos |
|
|
-- |
|
|
-- |
|
|
258,515 |
|
|
258,515 |
|
|
96,160 |
|
|
94,910 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Equal
to the fair market value of the purchased shares at the time of the option
exercise over the exercise price paid for those
shares. |
| (2) |
Based
on the fair market value of our common stock on December 30, 2004, the
last trading day of fiscal 2004, of $1.05 per share, the closing sale
price per share on that date on the OTC Bulletin
Board. |
| (3) |
Although
the presentation in the above table reflects options exercisable as of the
end of fiscal 2004, 600,000 shares subject to an option held by Dr.
Firestone became exercisable on January 1, 2005. |
Long
Term Incentive Plan Awards
No long
term incentive plan awards were made to any of our executive officers during the
last fiscal year.
Compensation
of Directors
Non-employee
directors are eligible to participate in an automatic stock option grant program
pursuant to the 2003 stock option plan. Non-employee directors are granted an
option for 50,000 shares of common stock upon their initial election or
appointment to the board and an option for 25,000 shares of common stock
annually thereafter. For members of a sub-committee, the annual grant is 30,000
shares and for a Chairman of the Board, the annual grant is 35,000 shares.
During 2004 our board members did not receive any cash compensation for their
services as directors, although directors are reimbursed for reasonable expenses
incurred in connection with attending meetings of the board and of committees of
the board.
Employment
Contracts and Termination of Employment and Change of Control Arrangements
Nicholas
J. Rossettos
Mr. Rossettos’
employment with us is pursuant to a January 2005 employment agreement. This
agreement has a two-year term ending on January 3, 2007, which may be extended
for additional one (1) year periods thereafter. Under the agreement, Mr.
Rossettos is entitled to an annual salary of $175,000 in addition to health,
disability insurance and other benefits. Pursuant to his employment agreement,
on January 3, 2005, Mr. Rossettos was granted an option to purchase an aggregate
of 50,000 shares of common stock at a price of $1.00 per share. The option vests
in two equal installments on each of January 3, 2006 and January 3, 2007.
Mr. Rossettos and his dependents are eligible to receive paid medical and
long term disability insurance and such other health benefits as we make
available to other senior officers and directors. Mr. Rossettos reports to
the Board of Directors of the Company with primary direction being given by the
Chief Executive Officer and President.
| ITEM
11. |
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER
MATTER |
The
following table sets forth certain information regarding beneficial ownership of
the our common stock as of March 26, 2004, by (i) each person known by us to be
the beneficial owner of more than 5 percent of the outstanding common stock,
(ii) each director, (iii) each executive officer, and (iv) all executive
officers and directors as a group. The
number of shares beneficially owned is determined under rules promulgated by the
SEC, and the information is not necessarily indicative of beneficial ownership
for any other purpose. Under those rules, beneficial ownership includes any
shares as to which the individual has sole or shared voting power or investment
power and also any shares which the individual has the right to acquire within
60 days of the date hereof, through the exercise or conversion of any stock
option, convertible security, warrant or other right. Including those shares in
the tables does not, however, constitute an admission that the named stockholder
is a direct or indirect beneficial owner of those shares. Unless otherwise
indicated, each person or entity named in the table has sole voting power and
investment power (or shares that power with that person’s spouse) with respect
to all shares of capital stock listed as owned by that person or entity. Unless
otherwise indicated, the address of each of the following persons is 787 Seventh
Avenue, 48th Floor, New York, New York 10019.
|
Name |
|
Shares
Beneficially
Owned |
|
Percent
of Class |
|
| |
|
|
|
|
|
|
Nicholas
J. Rossettos(1) |
|
|
457,030 |
|
|
1.6 |
|
|
Joshua
Kazam(2) |
|
|
362,532 |
|
|
1.3 |
|
|
Michael
Weiser(3) |
|
|
1,520,215 |
|
|
5.3 |
|
|
Joan
Pons Gimbert(4) |
|
|
4,015,371 |
|
|
14.2 |
|
|
David
M. Tanen(5) |
|
|
440,980 |
|
|
1.6 |
|
|
Neil
Herskowitz (6) |
|
|
77,005 |
|
|
* |
|
|
Malcolm
Hoenlien (7) |
|
|
30,337 |
|
|
* |
|
|
Timothy
McInerney (8) |
|
|
608,695 |
|
|
2.1 |
|
|
Richard
I. Steinhart (7) |
|
|
30,337 |
|
|
* |
|
|
All
directors and officers as a group(9) |
|
|
8,726,562 |
|
|
28.5 |
|
|
Lindsay
A. Rosenwald(10) |
|
|
3,374,023 |
|
|
11.9 |
|
|
Oleoylestrone
Developments, SL(11)
Josep
Samitier 1-5, Barcelona Science Park
08028
Barcelona Spain |
|
|
3,957,037 |
|
|
14.0 |
|
|
Lester
E. Lipschutz(12)
1650
Arch Street - 22nd
Floor
Philadelphia,
PA 19103 |
|
|
3,982,368 |
|
|
14.0 |
|
|
Atlas
Fund, LLC (13)
181
West Madison, Suite 3600
Chicago,
IL 60602 |
|
|
1,818,182 |
|
|
6.4 |
|
| |
|
|
|
|
|
|
|
| (1) |
Includes
457,030 shares issuable upon the exercise of options that are currently
exercisable or will be exercisable within 60 days.
|
| (2) |
Includes
58,334 shares issuable upon the exercise of an option, and 60,173 shares
issuance upon exercise of a warrant. |
| (3) |
Includes
60,000 shares issuable upon the exercise of an option, and 103,655 shares
issuance upon exercise of a warrant. |
| (4) |
Includes
3,957,037 shares held by Oleoylestrone Developments, SL, of which Mr. Pons
is chief executive officer, and 58,334 shares issuable upon the exercise
of options. |
| (5) |
Includes
72,400 shares issuable upon the exercise of options that are currently
exercisable, or will be exercisable within 60 days.
|
| (6) |
Includes
44,168 shares issuable upon conversion of Series A Convertible Preferred
Stock and 30,337 shares issuable upon exercise of options. Also includes
2,500 shares held by Riverside Contracting, LLC, a limited liability
company of which Mr. Herskowitz is a member holding
50%. |
| (7) |
Includes
30,337 shares issuable upon exercise of
options. |
| (8) |
Includes
41,667 shares issuable upon exercise of options; and 58,642 shares
issuable upon exercise of warrants. |
| (9) |
Includes
2,022,836 shares issuance upon exercise of options; 222,470 shares
issuable upon exercise of warrants; and 44,168 shares issuable upon
conversion of Series A Convertible Preferred
Stock. |
| (10) |
Includes
831,213 shares held by certain trusts for the benefit of Dr. Rosenwald, 80
shares owned by his spouse, 33 shares owned by Dr. Rosenwald’s children
and 76 shares held by certain corporation of which Dr. Rosenwald is a
shareholder. Based on a Form 4 filed by Dr. Rosenwald on March 22,
2005. |
| (11) |
Mr.
Pons is the chief executive officer of Oleoylestrone Developments,
SL. |
| (12) |
Includes
3,761,513 shares of common stock held by eight separate trusts with
respect to which Mr. Lipschutz is either trustee or manager and in either
case has investment and voting power, including 220,855 shares of common
stock issuable upon conversion of 24,294 shares of Series A Convertible
Preferred Stock. |
| (13) |
Based
on an Amendment to Schedule 13G filed February 11,
2005. |
Equity
Compensation Plan Information
The
following table summarizes outstanding options under our 1995 Stock Option Plan,
as amended and our 2003 Stock Option Plan, as well as outstanding options that
we have issued to certain officers, directors and employees of our company
outside of any plan.
|
Plan
category |
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
(a) |
|
Weighted
average exercise price of outstanding options, warrants and
rights
(b) |
|
Number
of securities remaining available for future issuance (excluding
securities reflected in column (a))
(c) |
|
|
Equity
compensation plans approved by stockholders (1) |
|
|
1,652,500 |
|
$ |
1.44 |
|
|
3,747,500 |
|
|
Equity
compensation plans approved by stockholders (2) |
|
|
32,400 |
|
$ |
8.28 |
|
|
489,991 |
|
|
Equity
compensation plans not approved by stockholders (3) |
|
|
1,137,240 |
|
$ |
0.57 |
|
|
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
| (1) |
Represent
shares of common stock issuable upon outstanding options issued to
employees and directors under our 2003 Stock option
Plan. |
| (2) |
Represent
shares of common stock issuable upon outstanding options issued to
employees and directors under our 1995 Stock Option Plan, as
amended. |
| (3) |
Represent
shares of common stock issuable upon outstanding options issued to
employees and directors outside of any stock option
plan. |
ITEM
12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Oleoylestrone
Developments, SL
Pursuant
to the terms of a license agreement dated February 15, 2002 by and between
Manhattan Research Development, Inc., our wholly owned subsidiary, and
Oleoylestrone Developments, SL (“OED”), we have an exclusive, worldwide license
to U.S. and foreign patents and patent applications relating to certain
technologies. Although we are not obligated to pay royalties to OED, the license
agreement requires us to make certain performance-based milestone payments. See
“Item 1 - Intellectual Property.” OED currently owns approximately 16 percent of
our outstanding common stock. Additionally, Mr. Pons, a member of our board of
directors, is chief executive officer of OED.
NovaDel
Pharma Inc.
As
discussed above, pursuant to the terms of a license agreement dated April 4,
2003 by and between us and NovaDel Pharma Inc., we have the rights to develop
NovaDel’s proprietary lingual spray technology to deliver propofol for
preprocedural sedation. The license agreement with NovaDel requires us to make
certain license and milestone payments, as well as pay royalties. See “Item 1.
Business - Lingual Spray Propofol.” During 2003, we paid aggregate license fees
of $500,000 to NovaDel under the license agreement, but during 2004 did not make
any payments to NovaDel under the agreement. Lindsay A. Rosenwald, who
beneficially owns more than 10 percent of our common stock, also beneficially
owns in excess of 20 percent of the common stock of NovaDel and may therefore be
deemed to be an affiliate of that company.
Paramount
BioCapital, Inc.
Two
members of our board of directors, Timothy McInerney and Michael Weiser, are
also employees of Paramount BioCapital, Inc. or one of its affiliates. In
addition, two members of our board of directors, Joshua Kazam and David Tanen
were employed by Paramount BioCapital through August 2004. The sole shareholder
of Paramount BioCapital, Inc. is Lindsay A. Rosenwald, M.D. Dr. Rosenwald
beneficially owns approximately 12 percent of our common stock. In November
2003, we paid to Paramount BioCapital approximately $460,000 as commissions
earned in consideration for placement agent services rendered in connection with
the private placement of our Series A Convertible Preferred Stock, which amount
represented 7 percent of the shares sold by Paramount BioCapital in the
offering. In connection with the November 2003 private placement, we did not
engage Paramount BioCapital directly, but rather Paramount BioCapital was
engaged as a sub-agent of Maxim Group, the broker-dealer we engaged for the
offering. In addition, in January 2004, we paid approximately $260,000 as
commissions earned in consideration for placement agent services rendered by
Paramount BioCapital in connection with a private placement of our common stock,
which amount represented 7 percent of the shares sold by Paramount BioCapital in
the private placement. The engagement of Paramount BioCapital in connection with
the January 2004 private placement was approved by all of our disinterested
directors. In connection with both private placements and as a result of their
employment with Paramount BioCapital, Mr. Kazam, Mr. McInerney and Dr. Weiser
were allocated 5-year placement agent warrants to purchase 60,174, 58,642 and
103,655 shares of our common stock, respectively, at a price of $1.10 per
share.
We
believe that all the transactions described above were made on terms no less
favorable to us than could have been obtained from unaffiliated third
parties.
The
following documents are included or referenced in this report.
| 2.1 |
Agreement
and Plan of Merger among the Company, Manhattan Pharmaceuticals
Acquisition Corp. and Manhattan Research Development, Inc. (formerly
Manhattan Pharmaceuticals, Inc.) dated December 17, 2002 (incorporated by
reference to Exhibit 2.1 from Form 8-K filed March 5,
2003). |
| 3.1 |
Certificate
of incorporation, as amended through September 25, 2003 (incorporated by
reference to Exhibit 3.1 to the Registrant’s Form 10-QSB for the quarter
ended September 30, 2003). |
| 3.2 |
Bylaws,
as amended to date (incorporated by reference from Registrant’s
registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 3.3 |
Certificate
of Designations of Series A Convertible Preferred Stock (incorporated by
reference to Exhibit 3.3 to the Registrant’s Registration Statement on
Form SB-2 filed January 13, 2004 (File No.
333-111897). |
| 4.1 |
Form
of unit certificate (incorporated by reference from Registrant’s
registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 4.2 |
Specimen
common stock certificate (incorporated by reference from Registrant’s
registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 4.3 |
Form
of redeemable warrant certificate (incorporated by reference from
Registrant’s registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 4.4 |
Form
of redeemable warrant agreement between the Registrant and Continental
Stock Transfer & Trust Company (incorporated by reference from
Registrant’s registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 4.5 |
Form
of underwriter’s warrant certificate (incorporated by reference from
Registrant’s registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 4.6 |
Form
of underwriter’s warrant agreement between the Registrant and Joseph
Stevens & Company, L.P. (incorporated by reference from Registrant’s
registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 4.7 |
Form
of bridge warrant (incorporated by reference from Registrant’s
registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 4.8 |
Warrant
issued to John Prendergast to purchase 37,500 shares of Registrant’s
common stock (incorporated by reference from Exhibit 10.24 to the
Registrant’s Form 10-QSB for the quarter ended March 31,
1997). |
| 4.9 |
Warrant
No. 2 issued to Joseph Stevens & Company, Inc. to purchase 150,000
shares of Registrant’s Common Stock exercisable January 4, 2001
(incorporated by reference to Exhibit 10.29 to the Registrant’s Form
10-KSB for the year ended December 31,
1999). |
| 4.10 |
Warrant
No. 3 issued to Joseph Stevens & Company, Inc. to purchase 150,000
shares of Registrant’s Common Stock exercisable January 4, 2002
(incorporated by reference to Exhibit 10.30 to the Registrant’s Form
10-KSB for the year ended December 31,
1999). |
| 4.11 |
Form
of stock purchase warrants issued on September 28, 2000 to BH Capital
Investments, L.P., exercisable for shares of common stock of the
Registrant (incorporated by reference to Exhibit 10.6 to the Registrant’s
Form 10-QSB for the quarter ended September 30,
2000). |
| 4.12 |
Form
of stock purchase warrants issued on September 28, 2000 to Excalibur
Limited Partnership, exercisable for shares of common stock of the
Registrant (incorporated by reference to Exhibit 10.7 to the Registrant’s
Form 10-QSB for the quarter ended September 30, 2000).
|
| 4.13 |
Warrant
certificate issued March 8, 2001 by the Registrant to Dian Griesel
(incorporated by reference to Exhibit 10.56 to the Registrant’s Form
10-QSB for the quarter ended March 31,
2001). |
| 4.14 |
Form
of warrant issued by Manhattan Research Development, Inc., which
automatically converted into warrants to purchase shares of the
Registrant’s common stock upon the merger transaction with such company
(incorporated by reference to Exhibit 4.1 to the Registrant’s Form 10-QSB
for the quarter ended March 31, 2003). |
| 4.15 |
Form
of warrant issued to placement agents in connection with the Registrant’s
November 2003 private placement of Series A Convertible Preferred Stock
and the Registrant’s January 2004 private placement (incorporated by
reference to Exhibit 4.18 to the Registrant’s Registration Statement on
Form SB-2 filed January 13, 2004 (File No.
333-111897)). |
| 4.16 |
Form
of subscription agreement between Registrant and the selling stockholders
(incorporated by reference from Registrant's registration statement on
Form SB-2, as amended (File No. 33-98478)). |
|
10.1 |
1995
Stock Option Plan, as amended (incorporated by reference to Exhibit 10.18
to the Registrant’s Form 10-QSB for the quarter ended September 30,
1996). |
| 10.2 |
Common
stock purchase agreement dated March 16, 2001, between Registrant and
Fusion Capital Fund II, LLC (incorporated by reference from Exhibit 10.55
of the Registrant’s Form 10-QSB for the quarter ended March 31,
2001). |
| 10.3 |
Third
Amendment to Employment Agreement dated February 21, 2003 between the
Registrant and Nicholas J. Rossettos (incorporated by reference to Exhibit
10.3 to the Registrant’s Form 10-QSB for the quarter ended March 31,
2003). |
| 10.4 |
Employment
Agreement dated January 2, 2003, between Manhattan Research Development,
Inc. and Leonard Firestone, as assigned to the Registrant effective as of
February 21, 2003 (incorporated by reference to Exhibit 10.4 to the
Registrant’s Form 10-QSB for the quarter ended March 31,
2003). |
| 10.5 |
Employment
Agreement dated February 28, 2003, between the Registrant and Nicholas J.
Rossettos (incorporated by reference to Exhibit 10.5 to the Registrant’s
Form 10-QSB for the quarter ended March 31,
2003). |
| 10.6 |
License
Agreement dated on or about February 28, 2002 between Manhattan Research
Development, Inc. (f/k/a Manhattan Pharmaceuticals, Inc.) and
Oleoyl-Estrone Developments SL (incorporated by reference to Exhibit 10.6
to the Registrant’s Amendment No. 2 to Form 10-QSB/A for the quarter ended
March 31, 2003 filed on March 12, 2004). |
| 10.7 |
License
Agreement dated April 4, 2003 between the Registrant and NovaDel Pharma,
Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s
Amendment No. 1 to Form 10-QSB/A for the quarter ended June 30, 2003 filed
on March 12, 2004).++ |
| 10.8 |
Employment
Agreement dated January 2, 2004 between the Registrant and Leonard
Firestone (incorporated by reference to Exhibit 10.10 to the Registrant’s
Registration Statement on Form SB-2 filed January 13, 2004 (No.
333-111897)). |
| 10.9 |
2003
Stock Option Plan (incorporated by reference to Exhibit 4.1 to
Registrant’s Registration Statement on Form S-8 filed February 17,
2004). |
| 23.1 |
Consent
of J.H. Cohn LLP. |
| 31.1 |
Certification
of Principal Executive and Financial
Officer. |
| 32.1 |
Certifications
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
|
++ |
Confidential
treatment has been granted as to certain portions of this exhibit pursuant
to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended. |
ITEM
14. PRINCIPAL ACCOUNTANT
FEES AND SERVICES.
Fees
Billed to the Company by Its Independent Auditors
The
following is a summary of the fees billed to us by J.H. Cohn LLP, our
independent registered public accounting firm for professional services rendered
for fiscal years ended December 31, 2004 and 2003:
| |
|
J.H.
Cohn LLP |
|
|
Fee
Category |
|
Fiscal
2004 Fees |
|
Fiscal
2003 Fees |
|
| |
|
|
|
|
|
|
Audit
Fees |
|
$ |
73,146 |
|
$ |
88,400 |
|
|
Audit-Related
Fees (1) |
|
|
40,627 |
|
|
8,800 |
|
|
Tax
Fees (2) |
|
|
17,832 |
|
|
5,400 |
|
|
All
Other Fees (3) |
|
|
683 |
|
|
-- |
|
|
Total
Fees |
|
$ |
132,288 |
|
$ |
102,600 |
|
| (1) |
Audit-Related
Fees consist principally of assurance and related services that are
reasonably related to the performance of the audit or review of the
Company’s financial statements but not reported under the caption “Audit
Fees.” These fees include review of registration statements and
participation at board of director and audit committee
meetings. |
| (2) |
Tax
Fees consist of fees for tax compliance, tax advice and tax
planning. |
| (3) |
All
Other Fees consist of aggregate fees billed for products and services
provided by the independent registered public accounting firm, other than
those disclosed above. |
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Registered Public Accounting Firm
At
present, our audit committee approves each engagement for audit or non-audit
services before we engage our independent registered public accounting firm to
provide those services. Our audit committee has not established any pre-approval
policies or procedures that would allow our management to engage our independent
registered public accounting firm to provide any specified services with only an
obligation to notify the audit committee of the engagement for those services.
None of the services provided by our independent registered public accounting
firm for fiscal 2004 was obtained in reliance on the waiver of the pre-approval
requirement afforded in SEC regulations.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act, Manhattan
Pharmaceuticals, Inc. has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on March 31, 2005.
| |
|
|
| |
MANHATTAN
PHARMACEUTICALS, INC. |
|
|
|
|
By: |
/s/ Nicholas J.
Rossettos |
| |
|
| |
Nicholas J. Rossettos
Treasurer,
Secretary, Chief Financial Officer and Chief Operating
Officer |
| |
|
In
accordance with the Securities Exchange Act, this report has been signed below
by the following persons on behalf of Manhattan Pharmaceuticals, Inc. and in the
capacities and on the dates indicated.
|
Signature |
|
Title |
|
Date |
| |
|
|
|
|
|
/s/
Nicholas J. Rossettos |
|
Treasurer,
Secretary, Chief Financial Officer and Chief |
|
March
31, 2005 |
| Nicholas
J. Rossettos |
|
Operating Officer (principal
executive, accounting and financial officer) |
|
|
| |
|
|
|
|
|
/s/
Neil Herskowitz |
|
Director |
|
March
31, 2005 |
| Neil
Herskowitz |
|
|
|
|
| |
|
|
|
|
|
/s/
Malcolm Hoenlein |
|
Director |
|
March
31, 2005 |
| Malcolm
Hoenlein |
|
|
|
|
| |
|
|
|
|
|
/s/
Joshua Kazam |
|
Director |
|
March
31, 2005 |
| Joshua
Kazam |
|
|
|
|
| |
|
|
|
|
|
/s/
Timothy McInerney |
|
Director |
|
March
31, 2005 |
| Timothy
McInerney |
|
|
|
|
| |
|
|
|
|
|
/s/
Joan Pons |
|
Director |
|
March
31, 2005 |
| Joan
Pons |
|
|
|
|
| |
|
|
|
|
|
/s/
Richard Steinhart |
|
Director |
|
March
31, 2005 |
| Richard
Steinhart |
|
|
|
|
| |
|
|
|
|
|
/s/
David M. Tanen |
|
Director |
|
March
31, 2005 |
| David
M. Tanen |
|
|
|
|
| |
|
|
|
|
|
/s/
Michael Weiser |
|
Director |
|
March
31, 2005 |
| Michael
Weiser |
|
|
|
|
Index
to Consolidated Financial Statements
|
|
Page |
|
Report
of J.H. Cohn LLP |
F-2 |
|
Consolidated
Balance Sheets as of December 31, 2004 and 2003 |
F-3 |
|
Consolidated
Statements of Operations for the Years Ended December 31, 2004 and 2003
and the cumulative period from August 6, 2001 (inception) to December
31, 2004 |
F-4 |
|
Consolidated
Statements of Stockholders’ Equity (Deficiency) for the Years Ended
December
31, 2004 and 2003 and the cumulative period from August 6, 2001
(inception) to December 31, 2004 |
F-5 |
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2004 and 2003
and the cumulative period from August 6, 2001 (inception) to December
31, 2004 |
F-6 |
|
Notes
to Consolidated Financial Statements |
F-7 |
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Stockholders
Manhattan
Pharmaceuticals, Inc.
We have
audited the accompanying consolidated balance sheets of Manhattan
Pharmaceuticals, Inc. and Subsidiaries (a development stage company) as of
December 31, 2004 and 2003, and the related consolidated statements of
operations, stockholders' equity (deficiency) and cash flows for the years then
ended, and for the period from August 6, 2001 (date of inception) to December
31, 2004. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Manhattan
Pharmaceuticals, Inc. and Subsidiaries as of December 31, 2004 and 2003, and
their consolidated results of operations and cash flows for the years then ended
and for the period from August 6, 2001 (date of inception) to December 31, 2004,
in conformity with accounting principles generally accepted in the United States
of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2, the
Company incurred a net loss of $5,896,031 and used $5,690,445 of cash in
operating activities during the year ended December 31, 2004 and, as of that
date, it had a loss from inception of $12,951,054. These matters raise
substantial doubt about the Company’s ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/J.H.
Cohn LLP
Roseland,
New Jersey
March 18,
2005
|
MANHATTAN
PHARMACEUTICALS, INC. AND SUBSIDIARIES |
|
(A
Development Stage Company) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets |
|
|
|
December
31, |
|
December
31, |
|
|
Assets |
|
2004 |
|
2003 |
|
| Current
assets: |
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
905,656 |
|
$ |
7,413,803 |
|
|
Short-term
investments, available for sale, at market |
|
|
4,514,216
|
|
|
352,147
|
|
|
Prepaid
expenses |
|
|
40,126
|
|
|
24,981
|
|
|
Total
current assets |
|
|
5,459,998
|
|
|
7,790,931
|
|
| |
|
|
|
|
|
|
|
| Property
and equipment, net |
|
|
119,017
|
|
|
8,021
|
|
| Other
assets |
|
|
70,506
|
|
|
—
|
|
|
Total
assets |
|
$ |
5,649,521 |
|
$ |
7,798,952 |
|
| |
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
1,143,603 |
|
$ |
548,595 |
|
|
Accrued
expenses |
|
|
52,102
|
|
|
417,425
|
|
|
Total
liabilities |
|
|
1,195,705
|
|
|
966,020
|
|
| |
|
|
|
|
|
|
|
| Commitments
and contingencies |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Stockholders’
equity: |
|
|
|
|
|
|
|
|
Series
A convertible preferred stock, $.001 par value. |
|
|
|
|
|
|
|
|
Authorized
1,500,000 shares; 854,373 and 1,000,000 shares issued and |
|
|
|
|
|
|
|
|
outstanding
at December 31, 2004 and December 31, 2003, respectively |
|
|
|
|
|
|
|
|
(liquidation
preference aggregating $8,973,730 and $10,000,000 at |
|
|
|
|
|
|
|
|
December
31, 2004 and 2003, respectively) |
|
|
854
|
|
|
1,000
|
|
|
Common
stock, $.001 par value. Authorized 150,000,000 shares; |
|
|
|
|
|
|
|
|
28,309,187
and 23,362,396 shares issued and outstanding |
|
|
|
|
|
|
|
|
at
December 31, 2004 and December 31, 2003, respectively |
|
|
28,309
|
|
|
23,362
|
|
|
Additional
paid-in capital |
|
|
18,083,208
|
|
|
14,289,535
|
|
|
Deficit
accumulated during development stage |
|
|
(13,955,035 |
) |
|
(7,473,205 |
) |
|
Dividends
payable in Series A preferred shares |
|
|
303,411
|
|
|
—
|
|
|
Accumulated
other comprehensive income (loss) |
|
|
13,237
|
|
|
(7,760 |
) |
|
Unearned
consulting costs |
|
|
(20,168 |
) |
|
—
|
|
|
Total
stockholders’ equity |
|
|
4,453,816
|
|
|
6,832,932
|
|
|
Total
liabilities and stockholders' equity |
|
$ |
5,649,521 |
|
$ |
7,798,952 |
|
| |
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements. |
|
MANHATTAN
PHARMACEUTICALS, INC. AND SUBSIDIARIES |
|
(A
Development Stage Company) |
| |
|
Consolidated
Statements of Operations |
| |
|
|
|
|
|
Cumulative |
|
| |
|
|
|
|
|
period
from |
|
| |
|
|
|
|
|
August
6, 2001 |
|
| |
|
|
|
|
|
(inception)
to |
|
| |
|
Years
ended December 31, |
|
December
31, |
|
| |
|
2004 |
|
2003 |
|
2004 |
|
| |
|
|
|
|
|
|
|
|
Revenue |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses: |
|
|
|
|
|
|
|
|
|
|
|
Research
and development |
|
|
4,152,994
|
|
|
1,724,043
|
|
|
6,602,434
|
|
|
General
and administrative |
|
|
1,989,829
|
|
|
1,786,080
|
|
|
4,125,490
|
|
|
Impairment
of intangible assets |
|
|
—
|
|
|
1,248,230
|
|
|
1,248,230
|
|
|
Loss
on disposition of intangible assets |
|
|
—
|
|
|
1,213,878
|
|
|
1,213,878
|
|
|
Total
operating expenses |
|
|
6,142,823
|
|
|
5,972,231
|
|
|
13,190,032
|
|
|
Operating
loss |
|
|
(6,142,823 |
) |
|
(5,972,231 |
) |
|
(13,190,032 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Other
(income) expense: |
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income |
|
|
(175,610 |
) |
|
(16,079 |
) |
|
(191,689 |
) |
|
Interest
expense |
|
|
—
|
|
|
4,755
|
|
|
23,893
|
|
|
Realized
gain on sale of short-term investments |
|
|
(71,182 |
) |
|
—
|
|
|
(71,182 |
) |
|
Total
other income |
|
|
(246,792 |
) |
|
(11,324 |
) |
|
(238,978 |
) |
|
Net
loss |
|
|
(5,896,031 |
) |
|
(5,960,907 |
) |
|
(12,951,054 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends (including imputed amounts) |
|
|
(585,799 |
) |
|
(418,182 |
) |
|
(1,003,981 |
) |
|
Net
loss applicable to common shares |
|
$ |
(6,481,830 |
) |
$ |
(6,379,089 |
) |
$ |
(13,955,035 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted |
|
$ |
(0.24 |
) |
$ |
(0.28 |
) |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares of common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted |
|
|
26,936,658
|
|
|
22,389,755
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements. |
|
MANHATTAN
PHARMACEUTICALS, INC. AND SUBSIDIARIES |
|
(A
Development Stage Company) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statement of Stockholders' Equity
(Deficiency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Series
A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
| |
|
convertible |
|
|
|
|
|
Additional |
|
|
|
during |
|
Series
A |
|
other |
|
Unearned |
|
holders' |
|
| |
|
preferred
stock |
|
Common
stock |
|
paid-in |
|
Subscription |
|
development |
|
preferred |
|
comprehensive |
|
consulting |
|
equity |
|
| |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
capital |
|
receivable |
|
stage |
|
shares |
|
income/(loss) |
|
costs |
|
(deficiency) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued at $0.0004 per share for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subscription
receivable |
|
|
—
|
|
$ |
— |
|
|
10,167,741
|
|
$ |
10,168 |
|
$ |
(6,168 |
) |
$ |
(4,000 |
) |
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Net
loss |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(56,796 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
|
(56,796 |
) |
|
Balance at December 31, 2001 |
|
|
—
|
|
|
—
|
|
|
10,167,741
|
|
|
10,168
|
|
|
(6,168 |
) |
|
(4,000 |
) |
|
(56,796 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
|
(56,796 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from subscription receivable |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,000
|
|
|
Stock
issued at $0.0004 per share for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
license
rights |
|
|
—
|
|
|
—
|
|
|
2,541,935
|
|
|
2,542
|
|
|
(1,542 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
Stock
options issued for consulting services |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60,589
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(60,589 |
) |
|
—
|
|
|
Amortization
of unearned consulting services |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,721
|
|
|
22,721
|
|
|
Sales
of common stock at $0.63 per sharethrough private
placement, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
3,043,332
|
|
|
3,043
|
|
|
1,701,275
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,704,318
|
|
|
Net
loss |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
(1,037,320 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,037,320 |
) |
|
Balance
at December 31, 2002 |
|
|
—
|
|
|
—
|
|
|
15,753,008
|
|
|
15,753
|
|
|
1,754,154
|
|
|
—
|
|
|
(1,094,116 |
) |
|
—
|
|
|
—
|
|
|
(37,868 |
) |
|
637,923
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued at $0.63 per share, net of expenses |
|
|
—
|
|
|
—
|
|
|
1,321,806
|
|
|
1,322
|
|
|
742,369
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
743,691
|
|
|
Effect
of reverse acquisition |
|
|
—
|
|
|
—
|
|
|
6,287,582
|
|
|
6,287
|
|
|
2,329,954
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,336,241
|
|
|
Amortization
of unearned consulting costs |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,868
|
|
|
37,868
|
|
|
Unrealized
loss on short-term investments |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,760 |
) |
|
—
|
|
|
(7,760 |
) |
|
Payment
for fractional shares for stock combination |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(300 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(300 |
) |
|
Preferred
stock issued at $10 per share, net of expenses |
|
|
1,000,000
|
|
|
1,000
|
|
|
—
|
|
|
—
|
|
|
9,045,176
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,046,176
|
|
|
Imputed
preferred stock dividend |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
418,182
|
|
|
—
|
|
|
(418,182 |
) |
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
Net
loss |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,960,907 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,960,907 |
) |
|
Balance
at December 31, 2003 |
|
|
1,000,000
|
|
|
1,000
|
|
|
23,362,396
|
|
|
23,362
|
|
|
14,289,535
|
|
|
—
|
|
|
(7,473,205 |
) |
|
—
|
|
|
(7,760 |
) |
|
—
|
|
|
6,832,932
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options |
|
|
—
|
|
|
—
|
|
|
27,600
|
|
|
27
|
|
|
30,073
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,100
|
|
|
Common
stock issued through private placement at $1.10 per share, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
per share, net of expenses |
|
|
—
|
|
|
—
|
|
|
3,368,952
|
|
|
3,369
|
|
|
3,358,349
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,361,718
|
|
Conversion
of preferred stock to common stock |
|
|
(170,528 |
) |
|
(171 |
) |
|
1,550,239
|
|
|
1,551
|
|
|
(1,380 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Preferred
stock dividends paid by issuance of shares |
|
|
24,901
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
281,073
|
|
|
—
|
|
|
—
|
|
|
(282,388 |
) |
|
—
|
|
|
—
|
|
|
(1,290 |
) |
Preferred
stock dividend accrued |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(585,799 |
) |
|
585,799
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Warrants
issued for consulting services |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
125,558
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(120,968 |
) |
|
4,590
|
|
Amortization
of unearned consulting costs |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100,800
|
|
|
100,800
|
|
|
Reversal
of unrealized loss on short-term investments and unrealized
gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
short-term investments |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,997
|
|
|
—
|
|
|
20,997
|
|
|
Net
loss |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,896,031 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,896,031 |
) |
|
Balance
at December 31, 2004 |
|
|
854,373
|
|
$ |
854 |
|
|
28,309,187
|
|
$ |
28,309 |
|
$ |
18,083,208 |
|
$ |
— |
|
$ |
(13,955,035 |
) |
$ |
303,411 |
|
$ |
13,237 |
|
$ |
(20,168 |
) |
$ |
4,453,816 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements. |
| |
|
MANHATTAN
PHARMACEUTICALS, INC. AND SUBSIDIARIES |
|
(A
Development Stage Company) |
| |
|
Condensed
Consolidated Statements of Cash Flows |
| |
|
|
|
|
|
Cumulative |
|
| |
|
|
|
|
|
period
from |
|
| |
|
|
|
|
|
August
6, 2001 |
|
| |
|
|
|
|
|
(inception)
to |
|
| |
|
Years
ended December 31, |
|
December
31, |
|
| |
|
2004 |
|
2003 |
|
2004 |
|
|
Cash
flows from operating activities: |
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(5,896,031 |
) |
$ |
(5,960,907 |
) |
$ |
(12,951,054 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for license rights |
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
Amortization
of unearned consulting costs |
|
|
100,800
|
|
|
37,868
|
|
|
161,389
|
|
|
Warrants
issued for consulting services |
|
|
4,590
|
|
|
—
|
|
|
4,590
|
|
|
Amortization
of intangible assets |
|
|
—
|
|
|
145,162
|
|
|
145,162
|
|
|
Gain
on sale of short-term investments |
|
|
(71,182 |
) |
|
—
|
|
|
(71,182 |
) |
|
Depreciation |
|
|
27,344
|
|
|
6,216
|
|
|
33,560
|
|
|
Loss
on impairment of intangible assets |
|
|
—
|
|
|
1,248,230
|
|
|
1,248,230
|
|
|
Loss
on disposition of intangible assets |
|
|
—
|
|
|
1,213,878
|
|
|
1,213,878
|
|
|
Changes
in operating assets and liabilities, net of acquisition: |
|
|
|
|
|
|
|
|
|
|
|
(Increase)/decrease
in prepaid expenses and other current assets |
|
|
(15,145 |
) |
|
33,264
|
|
|
18,119
|
|
|
Increase
in other assets |
|
|
(70,506 |
) |
|
—
|
|
|
(70,506 |
) |
|
Increase
in accounts payable |
|
|
595,008
|
|
|
59,961
|
|
|
819,868
|
|
|
Decrease
in accrued expenses |
|
|
(365,323 |
) |
|
(138,869 |
) |
|
(488,219 |
) |
|
Decrease
in due affiliate |
|
|
—
|
|
|
(96,328 |
) |
|
—
|
|
|
Net
cash used in operating activities |
|
|
(5,690,445 |
) |
|
(3,451,525 |
) |
|
(9,935,165 |
) |
|
Cash
flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment |
|
|
(138,340 |
) |
|
(6,554 |
) |
|
(144,894 |
) |
|
Cash
paid in connection with acquisition |
|
|
—
|
|
|
(32,808 |
) |
|
(32,808 |
) |
|
Purchase
of short-term investments |
|
|
(5,000,979 |
) |
|
—
|
|
|
(5,000,979 |
) |
|
Proceeds
from sales of short-term investments |
|
|
931,089
|
|
|
—
|
|
|
931,089
|
|
|
Proceeds
from sale of license |
|
|
—
|
|
|
200,000
|
|
|
200,001
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities |
|
|
(4,208,230 |
) |
|
160,638
|
|
|
(4,047,591 |
) |
|
Cash
flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuances of notes payable to stockholders |
|
|
—
|
|
|
—
|
|
|
233,500
|
|
|
Repayments
of notes payable to stockholders |
|
|
—
|
|
|
(206,000 |
) |
|
(233,500 |
) |
|
Proceeds
from issuance of note payable to bank |
|
|
—
|
|
|
—
|
|
|
600,000
|
|
|
Repayment
of note payable to bank |
|
|
—
|
|
|
(600,000 |
) |
|
(600,000 |
) |
|
Proceeds
from subscriptions receivable |
|
|
—
|
|
|
—
|
|
|
4,000
|
|
|
Payment
for fractional shares for stock combination |
|
|
(1,290 |
) |
|
(300 |
) |
|
(990 |
) |
|
Proceeds
from sale of common stock, net |
|
|
3,361,718
|
|
|
743,691
|
|
|
5,809,126
|
|
|
Proceeds
from sale of preferred stock, net |
|
|
—
|
|
|
9,046,176
|
|
|
9,046,176
|
|
|
Proceeds
from exercise of stock options |
|
|
30,100
|
|
|
—
|
|
|
30,100
|
|
|
Net
cash provided by financing activities |
|
|
3,390,528
|
|
|
8,983,567
|
|
|
14,888,412
|
|
|
Net
increase (decrease) in cash and cash equivalents |
|
|
(6,508,147 |
) |
|
5,692,680
|
|
|
905,656
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period |
|
|
7,413,803
|
|
|
1,721,123
|
|
|
—
|
|
|
Cash
and cash equivalents at end of period |
|
$ |
905,656 |
|
$ |
7,413,803 |
|
$ |
905,656 |
|
|
Supplemental
disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
Interest
paid |
|
$ |
— |
|
$ |
502 |
|
$ |
26,934 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
Stock
options/warrants issued for consulting services |
|
$ |
120,968 |
|
$ |
— |
|
$ |
181,557 |
|
|
Preferred
stock dividends accrued |
|
|
585,799
|
|
|
—
|
|
|
585,799
|
|
|
Conversion
of preferred stock to common stock |
|
|
171
|
|
|
—
|
|
|
171
|
|
|
Preferred
stock dividends paid by issuance of shares |
|
|
282,388
|
|
|
—
|
|
|
282,388
|
|
|
Issuance
of common stock for acquisition |
|
|
—
|
|
|
2,336,242
|
|
|
2,336,242
|
|
Short-term
investments received in connection with sale of
license |
|
|
—
|
|
|
359,907
|
|
|
359,907
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements. |
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
| (1) |
Merger
and Nature of Operations |
On
February 21, 2003, the Company (formerly known as “Atlantic Technology Ventures,
Inc.”) completed a reverse acquisition of privately held Manhattan Research
Development, Inc. (formerly Manhattan Pharmaceuticals, Inc.), a Delaware
corporation. The merger was effected pursuant to an Agreement and Plan of Merger
dated December 17, 2002 (the “Merger Agreement”) by and among the Company,
Manhattan Research and Manhattan Pharmaceuticals Acquisition Corp, the Company’s
wholly owned subsidiary (“MPAC”). In accordance with the terms of the Merger
Agreement, MPAC merged with and into Manhattan Research, with Manhattan Research
remaining as the surviving corporation and a wholly owned subsidiary of the
Company. Pursuant to the Merger Agreement, upon the effective time of the
merger, the outstanding shares of common stock of Manhattan Research
automatically converted into an aggregate of 18,689,917 shares of the Company’s
common stock, which represented 80 percent of the Company’s outstanding voting
stock after giving effect to the merger. All share and per share amounts have
been adjusted for a 1-for-5 combination on September 25, 2003 (see Note 5). In
addition, immediately prior to the merger Manhattan Research had outstanding
options and warrants to purchase an aggregate of 172,856 shares of its common
stock, which, in accordance with the terms of the merger, automatically
converted into options and warrants to purchase an aggregate of 2,196,944 shares
of the Company’s common stock. Since the stockholders of Manhattan Research
received the majority of the voting shares of the Company, the merger was
accounted for as a reverse acquisition whereby Manhattan Research was the
accounting acquirer (legal acquiree) and the Company was the accounting acquiree
(legal acquirer). Based on the five-day average price of the Company’s common
stock of $0.50 per share, the purchase price approximated $2,336,000 ($3,167,178
including net liabilities assumed) which represents 20 percent of the market
value of the combined Company’s post-merger total outstanding shares of
23,362,396. In connection with the merger, the Company changed its name from
“Atlantic Technology Ventures, Inc.” to “Manhattan Pharmaceuticals, Inc.” At the
time of the merger, Manhattan Research recognized patents and licenses for
substantially all of the purchase price. A purchase price allocation was
completed in the third quarter of 2003 and did not result in changes to the
initial estimate. As a result of acquiring Manhattan Research, the Company
received new technologies.
A summary
of the purchase price allocation is as follows:
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
|
Common
stock issued |
|
$ |
2,336,241 |
|
|
Acquisition
costs paid |
|
|
32,808
|
|
|
Total
purchase price |
|
|
2,369,049
|
|
| |
|
|
|
|
|
Net
liabilities assumed in acquisition |
|
|
798,129
|
|
| Excess
purchase price (allocated to intangible assets) |
|
$ |
3,167,178 |
|
| |
|
|
|
|
|
Assets
purchased: |
|
|
|
|
|
Prepaid
expenses |
|
$ |
38,307 |
|
|
Property
and equipment |
|
|
7,683
|
|
|
Deposits |
|
|
19,938
|
|
| |
|
|
65,928
|
|
|
Liabilities
assumed: |
|
|
|
|
|
Accounts
payable |
|
|
323,735
|
|
|
Accrued
expenses |
|
|
540,322
|
|
| |
|
|
864,057
|
|
|
Net
liabilities assumed |
|
$ |
(798,129 |
) |
| |
|
|
|
|
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
The
following unaudited pro forma financial information presents the combined
results of operations of Manhattan Pharmaceuticals and Manhattan Research as if
the acquisition had occurred as of January 1, 2003, after giving effect to
certain adjustments, including the issuance of Manhattan Pharmaceuticals common
stock as part of the purchase price. For the purpose of this pro forma
presentation, both Manhattan Pharmaceuticals’ and Manhattan Research’s financial
information is presented for the year ended December 31, 2003. The unaudited pro
forma condensed consolidated financial information does not necessarily reflect
the results of operations that would have occurred had Manhattan Pharmaceuticals
and Manhattan Research been a single entity during such period.
| |
|
Year
ended
December 31, |
|
| |
|
2003 |
|
| |
|
|
|
|
Revenues |
|
$ |
— |
|
|
Net
loss |
|
|
(6,160,455 |
) |
| |
|
|
|
|
| Weighted-average
shares of common stock outstanding: Basic and diluted |
|
|
23,362,396
|
|
| |
|
|
|
|
| Basic
and diluted net loss per common share |
|
$ |
(0.26 |
) |
| |
|
|
|
|
On August
22, 2003, the Company sold all if its remaining rights to its CT-3 technology to
Indevus Pharmaceuticals, Inc. (“Indevus”), the Company’s licensee, for aggregate
consideration of approximately $559,000. The purchase price was paid through a
combination of cash and shares of Indevus’ common stock. On the same date, the
Company settled its arbitration with Dr. Sumner Burstein, the inventor of the
CT-3 technology, which includes a complete mutual release from all claims that
either party had against the other. As a result of the sale of the Company’s
rights to the CT-3 technology to Indevus, the Company recorded a one-time charge
of $1,213,878 in 2003.
In
addition, on August 8, 2003, Bausch & Lomb informed the Company that it had
elected not to pursue its development of the Avantix technology, effective
August 11, 2003. According to the terms of the Company’s agreement with Bausch
& Lomb, the Company may re-acquire the technology from Bausch & Lomb and
sell or re-license the technology to a third party. The price to re-acquire the
technology from Bausch & Lomb is 50% of the proceeds from a third party sale
to a maximum of $3,000,000. The Company has no further obligation under the
agreement. As a result of Bausch & Lomb’s decision not to develop the
Avantix technology, the Company recorded a one-time charge of $1,248,230 in 2003
for the impairment of the related intangible asset.
As a
result of the events discussed in the two preceding paragraphs, as of December
31, 2003, all intangible assets were eliminated from the Company’s consolidated
financial statements and amortization of such intangible assets
ceased.
As
described above, the Company resulted from the February 21, 2003 reverse merger
between Atlantic Technology Ventures, Inc., which was incorporated on May 18,
1993, and privately-held Manhattan Research Development, Inc., incorporated on
August 6, 2001. The Company was incorporated in the State of Delaware. In
connection with the merger, the former stockholders of Manhattan Research
received a number of shares of Atlantic's common stock so that following the
merger they collectively owned 80 percent of the outstanding shares. Upon
completion of the merger, Atlantic changed its name to Manhattan
Pharmaceuticals, Inc. and thereafter adopted the business of Manhattan Research
Development.
The
Company is a development stage biopharmaceutical company that holds an exclusive
world-wide, royalty-free license to certain intellectual property related to
oleoyl-estrone, which is owned by Oleoyl-Estrone Developments, SL (“OED”) of
Barcelona, Spain. Oleoyl-estrone is an orally administered small molecule that
has been shown to cause significant weight loss in pre-clinical animal studies
regardless of dietary modifications. The Company also holds the worldwide,
exclusive rights to proprietary lingual spray technology to deliver the drug
propofol for proprocedural sedation prior to diagnostic, therapeutic or
endoscopic procedures.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
| (2) |
Liquidity
and Basis of Presentation |
Liquidity
The
Company has reported a net loss of $5,960,907 and negative cash flows from
operating activities of $3,451,525 for the year ended December 31, 2003 and a
net loss of $5,896,031 and negative cash flows from operating activities of
$5,690,445 for the year ended December 31, 2004. The net loss from date of
inception, August 6, 2001 to December 31, 2004 amounts to
$12,951,054.
Management
believes that the Company will continue to incur net losses and negative cash
flows from operating activities through at least December 31, 2005. Based on the
resources of the Company available at December 31, 2004, management believes
that the Company will need additional equity or debt financing or will need to
generate revenues during 2005 through licensing of its products or entering into
strategic alliances to be able to sustain its operations through 2005 and that
it will need additional financing thereafter until it can achieve profitability,
if ever. These matters raise substantial doubt about the Company’s ability to
continue as a going concern.
The
Company’s continued operations will depend on its ability to raise additional
funds through various potential sources such as equity and debt financing,
collaborative agreements, strategic alliances and its ability to realize the
full potential of its technology in development. Additional funds may not become
available on acceptable terms, and there can be no assurance that any additional
funding that the Company does obtain will be sufficient to meet the Company’s
needs in the long term. Through December 31, 2004, a significant portion of the
Company’s financing has been through private placements of common and preferred
stock and debt financing. Until and unless the Company’s operations generate
significant revenues and cash flows from operating activities, the Company will
attempt to continue to fund operations from cash on hand and through the sources
of capital previously described.
Basis
of Presentation
The
consolidated financial statements have been prepared in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 7,
“Accounting and Reporting by Development Stage Enterprises.”
| (3) |
Summary
of Significant Accounting Policies |
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
Research
and Development
All
research and development costs are expensed as incurred and include costs of
consultants who conduct research and development on behalf of the Company and
its subsidiaries. Costs related to the acquisition of technology rights and
patents for which development work is still in process are expensed as incurred
and considered a component of research and development costs.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between financial statement carrying
amounts of existing assets and liabilities, and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Computation
of Net Loss per Common Share
Basic net
loss per common share is calculated by dividing net loss applicable to common
shares by the weighted-average number of common shares outstanding for the
period. Diluted net loss per common share is the same as basic net loss per
common share, since potentially dilutive securities from stock options, stock
warrants and convertible preferred stock would have an antidilutive effect
because the Company incurred a net loss during each period presented. The
amounts of potentially dilutive securities excluded from the calculation were
14,871,502 and 15,420,033 shares at December 31, 2004 and 2003,
respectively.
Stock-Based
Compensation
Statement
of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (“SFAS
123”), provides for the use of a fair value based method of accounting for
employee stock compensation. However, SFAS 123 also allows an entity to continue
to measure compensation cost for stock options granted to employees using the
intrinsic value method of accounting prescribed by Accounting Principles Board
Opinion No. 25, Accounting
for Stock Issued to Employees (“APB
25”), which only requires charges to compensation expense for the excess, if
any, of the fair value of the underlying stock at the date a stock option is
granted (or at an appropriate subsequent measurement date) over the amount the
employee must pay to acquire the stock, if such
amounts differ materially from historical amounts. The Company has elected to
continue to account for employee stock options using the intrinsic value method
under APB 25. By making that election, it is required by SFAS 123 and SFAS 148,
“Accounting for Stock-Based Compensation - Transition and Disclosure” to provide
pro forma disclosures of net income (loss) and earnings (loss) per share as if a
fair value based method of accounting had been applied.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
Had
compensation costs been determined in accordance with the fair value method
prescribed by SFAS No. 123 for all options issued to employees and
amortized over the vesting period, the Company’s net loss applicable to common
shares and net loss per common share (basic and diluted) for plan options would
have been increased to the pro forma amounts indicated below.
|
|
|
2004 |
|
2003 |
|
|
Net
loss applicable to common shares, as reported |
|
$ |
(6,481,830 |
) |
$ |
(6,379,089 |
) |
|
Deduct:
Total
stock-based employee compensation expense determined under
fair value method |
|
|
(1,211,384 |
) |
|
(302,974 |
) |
|
Net
loss applicable to common shares, pro forma |
|
$ |
(7,693,214 |
) |
$ |
(6,682,063 |
) |
|
Net
loss applicable to common shares – basic |
|
|
|
|
|
|
|
|
As
reported |
|
$ |
(0.24 |
) |
$ |
(0.28 |
) |
|
Pro
forma |
|
|
(0.29 |
) |
|
(0.30 |
) |
| |
|
|
|
|
|
|
|
The fair
value of each option granted is estimated on the date of the grant using the
Black-Scholes option pricing model with the following assumptions used for the
grants in 2004 and 2003: dividend yield of 0%; expected volatility of 73% and
78% for 2004 and 82% for 2003; risk-free interest rate of 2.0% for 2004 and 3.2%
for 2003; and expected lives of eight years for each year
presented.
As a
result of amendments to SFAS No. 123, the Company will be required to expense
the fair value of employee stock options over the vesting period, beginning
January 1, 2006.
Financial
Instruments
At
December 31, 2004 and 2003, the fair values of cash and cash equivalents,
short-term investments, accounts payable and accrued expenses approximate
carrying values due to the short-term nature of these instruments.
Short-term
Investments
Short-term
investments are carried at market value since they are considered
available-for-sale. The following is a summary of the Company’s short-term
investments:
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
| |
|
|
|
Unrealized |
|
|
|
| |
|
Cost |
|
loss |
|
Fair
value |
|
|
2003 |
|
|
|
|
|
|
|
Indevus
Pharmaceuticals, Inc. common stock |
|
$ |
359,907 |
|
$ |
(7,760 |
) |
$ |
352,147 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
Unrealized
gain |
|
|
Fair
value |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
Eaton
Vance Floating Rate Fund |
|
$ |
4,500,979 |
|
$ |
13,237 |
|
$ |
4,514,216 |
|
| |
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (and loss, if any) is excluded from operations and included in accumulated
other comprehensive income (loss). The Company’s comprehensive losses (net
losses adjusted for changes in unrealized gains/losses on short-term
investments) for 2004 and 2003 were $5,875,034 and $5,968,667,
respectively.
| (4) |
Property
and Equipment |
Property
and equipment consists of the following at December 31:
| |
|
2004 |
|
2003 |
|
|
Property
and equipment |
|
$ |
165,394 |
|
$ |
27,054 |
|
|
Less
accumulated depreciation |
|
|
(46,377 |
) |
|
(19,033 |
) |
|
Net
property and equipment |
|
$ |
119,017 |
|
$ |
8,021 |
|
| |
|
|
|
|
|
|
|
Common
Stock
On
January 13, 2004, the Company completed a private placement of 3,368,637 shares
of its common stock at a per share price of $1.10. After deducting commissions
and other expenses relating to the private placement, the Company received
aggregate net proceeds of approximately $3,362,000. In connection with the
common stock private placement and the Series A Convertible Preferred private
placement, the Company issued to the placement agents a 5-year warrant to
purchase 1,235,589 shares of common stock at a price of $1.10 per
share.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
On July
25, 2003, the Board of Directors adopted a resolution authorizing an amendment
to the certificate of incorporation providing for a 1-for-5 combination of the
Company’s common stock. A resolution approving the 1-for-5 combination was
thereafter consented to in writing by holders of a majority of the Company’s
outstanding common stock. The 1-for-5 combination became effective on September
25, 2003. Accordingly, all share and per share information in these consolidated
financial statements has been restated to retroactively reflect the 1-for-5
combination.
The
Company issued 10,167,740 shares of common stock to investors during December
2001 for subscriptions receivable of $4,000 or $0.0004 per share. During 2002,
the Company received the $4,000.
In August
2002, the Company entered into one-year agreements with four consultants and
issued options to these consultants to purchase 101,678 shares of the Company's
common stock at an exercise price of $.0039 per share expiring in August 2007.
The Company valued these options at $60,589, using the minimum value method, and
amortized the expense through August 2003. Therefore, the Company expensed
$22,721 in 2002 and $37,868 in 2003. During 2002 and 2003 no options were
exercised.
During
2002, the Company commenced a private placement and sold 239,450 shares of
common stock at $8 ($0.63 post merger) per share and received proceeds of
$1,704,318, net of expenses of $211,281. These shares converted into 3,043,332
shares of the Company’s common stock when the Company completed the reverse
acquisition of Manhattan Research as discussed in Note 1. In addition, each
investor received warrants equal to 10% of the number of shares of common stock
purchased and, accordingly, Manhattan Research issued warrants to purchase
23,945 shares of common stock in 2002 in connection with the private placement.
Upon the merger, these converted into warrants to purchase approximately 304,000
shares of the Company’s common stock. Each warrant had an exercise price of $8
per share, which post merger converted to approximately $0.63. These warrants
expire in 2007.
During
January and February 2003, the Company sold an additional 104,000 shares of
common stock at $8 ($0.63, post merger) per share and warrants to purchase
10,400 shares of common stock exercisable at $8 ($0.63 post merger) through the
private placement and received net proceeds of $743,691. These shares converted
into 1,321,806 shares of the Company’s common stock when the Company completed
its reverse acquisition of Manhattan Research. The warrants to purchase 10,400
shares of common stock converted into warrants to purchase 132,181 common shares
of the Company.
In
addition, in connection with the private placement, the Company issued to Joseph
Stevens & Co., Inc., a NASD-member broker-dealer, warrants to purchase
130,511 shares of its common stock that are exercisable at $8 ($0.63 post
merger) per share and expire in 2008. Upon the merger, these warrants converted
into warrants to purchase 1,658,753 shares of common stock of the
Company.
Series
A Preferred Stock
On
November 7, 2003, the Company completed a private placement of 1,000,000 shares
of its newly-designated Series A Convertible Preferred Stock at a price of $10
per share, resulting in gross proceeds to the Company of $10,000,000 (net
proceeds $9,046,176). Each share of Series A Convertible Preferred Stock is
convertible at the holder’s election into shares of the company’s common stock
at a conversion price of $1.10 per share. The conversion price of the Series A
Convertible Preferred Stock was less than the market value of the Company’s
common stock on November 7, 2003. Accordingly, the Company recorded a charge for
the beneficial conversion feature associated with the convertible preferred
stock of $418,182. The Series A Convertible Preferred Stock has a
payment-in-kind dividend of 5 percent.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
Maxim
Group, LLC of New York, together with Paramount Capital, Inc., a related party,
acted as the placement agents in connection with the private
placement.
On all
matters submitted for stockholder approval, each share of Series A stock is
entitled to such number of votes as is equal to the number of common shares into
which such preferred shares are then convertible. In addition, so long as at
least 50 percent of the number of Series A shares originally issued are
outstanding, the affirmative vote of at least two-thirds of all outstanding
Series A shares voting separately as a class shall be necessary to permit,
effect any one or more of the following:
| · |
the
amendment, alteration or repeal of any provision of our certificate of
incorporation or bylaws so as to adversely affect the relative rights and
preferences of the Series A stock; |
| · |
the
declaration or payment of any dividend or distribution on any securities
of the Company other than the Series A
stock; |
| · |
the
authorization, issuance or increase of any security ranking prior to or on
parity with the Series A stock in connection with a dissolution, sale of
all or substantially all of our assets or other “Liquidation Event,” or
with respect to the payment of any dividends or
distributions; |
| · |
the
approval of any Liquidation Event; and |
| · |
the
effect any amendment of our certificate of incorporation or bylaws that
would materially adversely affect the rights of the Series A
stock. |
2003
Stock Option Plan
In
December 2003 the Company established the 2003 Stock Option Plan (the 2003
Plan), which provides for the granting of up to 5,400,000 options to officers,
directors, employees and consultants for the purchase of stock. At
December 31, 2004 and 2003, 5,400,000 shares were authorized for issuance.
The options have a maximum term of 10 years and vest over a period determined by
the Company’s Board of Directors (generally 3 years) and are issued at fair
market value. The 2003 Plan expires on December 10, 2013 or when all options
have been granted, whichever is sooner.
1995
Stock Option Plan
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
In July
1995, the Company established the 1995 Stock Option Plan (the 1995 Plan), which
provided for the granting of up to 130,000 options to officers, directors,
employees and consultants for the purchase of stock. In July 1996, the 1995 Plan
was amended to increase the total number of shares authorized for issuance by
60,000 shares to a total of 190,000 shares and beginning with the 1997 calendar
year, by an amount equal to one percent (1%) of the shares of common stock
outstanding on December 31 of the immediately preceding calendar year. At
December 31, 2004 and 2003, 522,381 and 298,767 shares were authorized for
issuance. The options have a maximum term of 10 years and vest over a period
determined by the Company’s Board of Directors (generally 4 years) and are
issued at fair market value. The 1995 Plan expires June 30, 2005.
A summary
of the status of the Company’s stock options as of December 31, 2004 and 2003
and changes during the years then ended is presented below:
| |
|
2004 |
|
2003 |
|
| |
|
Shares
|
|
Weighted
average exercise price |
|
Shares
|
|
Weighted
average exercise price |
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year |
|
|
1,392,690
|
|
$ |
1.68 |
|
|
689,840
|
|
$ |
5.00 |
|
|
Granted |
|
|
1,672,000
|
|
|
1.44 |
|
|
876,490
|
|
|
0.40 |
|
|
Exercised |
|
|
(27,600 |
) |
|
1.09 |
|
|
|
|
|
|
|
|
Cancelled |
|
|
(214,950 |
) |
|
6.57 |
|
|
(173,640 |
) |
|
8.43 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at end of year |
|
|
2,822,140
|
|
$ |
1.17 |
|
|
1,392,690
|
|
$ |
1.68 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at year-end |
|
|
1,282,292
|
|
|
|
|
|
398,617
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
fair value of options granted during the
year |
|
$ |
0.91 |
|
|
|
|
$ |
0.06 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes the information about stock options outstanding at
December 31, 2004:
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
| |
|
|
|
Remaining |
|
Number
of |
|
|
Exercise |
|
Number |
|
contractual |
|
options |
|
|
price |
|
outstanding |
|
life
(years) |
|
exercisable |
|
| |
|
|
|
|
|
|
|
|
$0.400 |
|
|
876,090
|
|
|
8.16 |
|
|
730,075
|
|
|
0.425 |
|
|
400
|
|
|
8.15 |
|
|
400
|
|
|
0.970 |
|
|
503,500
|
|
|
8.75 |
|
|
113,334
|
|
|
1.000 |
|
|
97,400
|
|
|
7.24 |
|
|
97,400
|
|
|
1.250 |
|
|
175,750
|
|
|
7.14 |
|
|
160,083
|
|
|
1.650 |
|
|
1,149,000
|
|
|
9.08 |
|
|
161,000
|
|
|
4.375 |
|
|
10,000
|
|
|
6.14 |
|
|
10,000
|
|
|
20.938 |
|
|
10,000
|
|
|
5.28 |
|
|
10,000
|
|
| |
|
|
2,822,140
|
|
|
|
|
|
1,282,292
|
|
| |
|
|
|
|
|
|
|
|
|
|
| (7) |
Stock
Warrants Relating to Atlantic Technology Ventures,
Inc. |
As of
December 31, 2004, the Company had a total of 348,901 warrants outstanding
relating to Atlantic Technology Ventures, Inc. The prices of these warrants
range from $2.95 to approximately $27. These warrants expire between 2005 and
2007.
| (8) |
Related-Party
Transactions |
In 2004
and 2003 the Company entered into consulting agreements with certain members of
its Board of Directors. These agreements required aggregate payments of $10,417
per month. Consulting expense under these agreements was approximately $173,000
and $125,000 for the years ended December 31, 2004 and 2003, respectively.
These agreements were terminated during 2004.
Oleoylestrone
Developments, SL
Pursuant
to the terms of a license agreement dated February 15, 2002 by and between
Manhattan Research Development, Inc., the Company’s wholly owned subsidiary, and
Oleoylestrone Developments, SL (“OED”), the Company has an exclusive, worldwide
license to U.S. and foreign patents and patent applications relating to certain
technologies. Although the Company is not obligated to pay royalties to OED, the
license agreement requires the Company to make certain performance-based
milestone payments. See Note 10. OED currently owns approximately 16 percent of
the Company’s outstanding common stock. Additionally, Mr. Pons, a member of the
Company’s board of directors, is chief executive officer of OED.
NovaDel
Pharma Inc.
As
discussed in Note 10, pursuant to the terms of a license agreement dated April
4, 2003 by and between the Company and NovaDel Pharma Inc. (NovaDel), the
Company has the rights to develop NovaDel’s proprietary lingual spray technology
to deliver propofol for preprocedural sedation. The license agreement with
NovaDel requires the Company to make certain license and milestone payments, as
well as pay royalties. During 2003, the Company paid aggregate license fees of
$500,000 to NovaDel under the license agreement. In 2004, there were no similar
payments made to NovaDel. Lindsay A. Rosenwald, who beneficially owns more than
10 percent of the Company’s common stock, also beneficially owns in excess of 20
percent of the common stock of NovaDel and may therefore be deemed to be an
affiliate of that company.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
Paramount
BioCapital, Inc.
Two
members of the Company’s board of directors, Timothy McInerney and Michael
Weiser, are also employees of Paramount BioCapital, Inc. or one of its
affiliates. In addition, two members of the Company’s board of directors, Joshua
Kazam and David Tanen were employed by Paramount BioCapital through August 2004.
The sole shareholder of Paramount BioCapital, Inc. (Paramount BioCapital) is
Lindsay A. Rosenwald, M.D. Dr. Rosenwald beneficially owns more than 10 percent
of the Company’s common stock as of December 31, 2004. In November 2003, the
Company paid to Paramount BioCapital approximately $460,000 as commissions
earned in consideration for placement agent services rendered in connection with
the private placement of the Company’s Series A Convertible Preferred Stock,
which amount represented 7 percent of the shares sold by Paramount BioCapital in
the offering. In addition, in January 2004, the Company paid approximately
$260,000 as commissions earned in consideration for placement agent services
rendered by Paramount BioCapital in connection with a private placement of the
Company’s common stock, which amount represented 7 percent of the shares sold by
Paramount BioCapital in the private placement. In connection with both private
placements and as a result of their employment with Paramount BioCapital, Mr.
Kazam, Mr. McInerney and Dr. Weiser were allocated 5-year placement agent
warrants to purchase 60,174, 58,642 and 103,655 shares of the Company’s common
stock, respectively, at a price of $1.10 per share.
There was
no current or deferred tax expense for the years ended December 31, 2004
and 2003 because of the Company’s operating losses.
The
components of deferred tax assets as of December 31, 2004 and 2003 are as
follows:
| |
|
2004 |
|
2003 |
|
| Deferred
tax assets: |
|
|
|
|
|
|
|
|
Tax
loss carryforwards |
|
$ |
4,175,000 |
|
$ |
1,889,000 |
|
|
Research
and development credit |
|
|
226,000
|
|
|
51,000
|
|
|
License
and other costs |
|
|
115,000
|
|
|
84,000
|
|
|
Gross
deferred tax assets |
|
|
4,516,000
|
|
|
2,024,000
|
|
|
Less
valuation allowance |
|
|
(4,516,000 |
) |
|
(2,024,000 |
) |
|
Net
deferred tax assets |
|
$ |
— |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
The
reasons for the difference between actual income tax benefit for the years ended
December 31, 2004 and 2003 and the amount computed by applying the
statutory federal income tax rate to losses before income tax benefit are as
follows:
| |
|
2004 |
|
2003 |
|
| |
|
|
|
%
of |
|
|
|
%
of |
|
| |
|
|
|
pretax |
|
|
|
pretax |
|
| |
|
Amount |
|
loss |
|
Amount |
|
loss |
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit at statutory rate |
|
$ |
(2,005,000 |
) |
|
(34.0 |
%) |
$ |
(2,027,000 |
) |
|
(34.0 |
%) |
|
State
income taxes, net of Federal tax |
|
|
(342,000 |
) |
|
(5.8 |
%) |
|
(354,000 |
) |
|
(5.9 |
%) |
|
Change
in valuation allowance |
|
|
2,492,000
|
|
|
42.3 |
% |
|
1,568,000
|
|
|
26.3 |
% |
|
Credits
generated in current year |
|
|
(175,000 |
) |
|
(3.0 |
%) |
|
(30,000 |
) |
|
(0.5 |
%) |
|
Impairment
of intangible assets |
|
|
—
|
|
|
—
|
|
|
424,000
|
|
|
7.1 |
% |
|
Loss
on sale of intangible assets |
|
|
—
|
|
|
—
|
|
|
412,000
|
|
|
6.9 |
% |
|
Other,
net |
|
|
30,000
|
|
|
0.5 |
% |
|
7,000
|
|
|
0.1 |
% |
|
Income
tax benefit |
|
$ |
— |
|
|
—
|
% |
$ |
— |
|
|
—
|
% |
A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The net change
in the total valuation allowance for the years ended December 31, 2004 and
2003 was an increase of $2,492,000 and $1,568,000, respectively. The tax benefit
assumed using the federal statutory tax rate of 34% has been reduced to an
actual benefit of zero due principally to the aforementioned valuation
allowance.
At
December 31, 2004, the Company had potentially utilizable federal and state
net operating loss tax carryforwards of approximately $10,619,000. The net
operating loss carryforwards expire in various amounts through 2024 for federal
and state tax purposes. The Tax Reform Act of 1986 contains provisions, which
limit the ability to utilize net operating loss carryforwards in the case of
certain events including significant changes in ownership interests. As a result
of the merger with Manhattan Research Development, Inc. in February 2003, the
Company incurred a significant change in its ownership, limiting its ability to
utilize net operating loss carryforwards to approximately $100,000 annually. If
the Company has taxable income in the future which exceeds this permissible
annual net operating loss carryforward, the Company would incur a federal income
tax liability even though net operating loss carryforwards would be available in
future years. At December 31, 2004, the Company also had research and
development credit carryforwards of approximately $226,000 for federal tax
purposes which expire in various amounts through 2024.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
| (10) |
License
and Consulting Agreements |
On
February 15, 2002, the Company entered into a License Agreement (the "License
Agreement") with OED. Under the terms of the License Agreement, OED granted to
the Company a world-wide license to make, use, lease and sell the products
incorporating the licensed technology (see Note 1). OED also granted to the
Company the right to sublicense to third parties the licensed technology or
aspects of the licensed technology with the prior written consent of OED. OED
retains an irrevocable, nonexclusive, royalty-free right to use the licensed
technology solely for its internal, noncommercial use. The License Agreement
shall terminate automatically upon the date of the last to expire patent
contained in the licensed technology or upon the Company's bankruptcy. OED may
terminate the License Agreement in the event of a material breach by the Company
that is not cured within the notice period. The Company may terminate the
License Agreement for any reason upon 60 days notice.
Under the
License Agreement, the Company agreed to pay to OED certain licensing fees which
are being expensed as they are incurred. Through December 31, 2004, the Company
paid $175,000 in licensing fees which is included in 2002 research and
development expense. In addition, pursuant to the License Agreement, the Company
issued 1,000,000 shares of its common stock to OED. The Company valued these
shares at their then estimated fair value of $1,000.
In
connection with the License Agreement, the Company has agreed to future
milestone payments to OED as follows:
(i)
$250,000 upon the treatment of the first patient in a Phase I clinical trial
under a Company-sponsored investigational new drug application ("IND"); (ii)
$250,000 upon the treatment of the first patient in a Phase II clinical trial
under a Company-sponsored IND; (iii) $750,000 upon the first successful
completion of a Company-sponsored Phase II clinical trial under a
Company-sponsored IND; (iv) $2,000,000 upon the first successful completion of a
Company-sponsored Phase III clinical trial under a Company sponsored IND; and
(v) $6,000,000 upon the first final approval of the first new drug application
for the first licensed product by the United States Food and Drug Administration
(“FDA”).
In
addition to the License Agreement, the Company entered into a consulting
agreement with OED. The agreement became effective in February 2002, at a fee of
$6,250 per month, and will terminate when the License Agreement terminates. The
fees associated with the consulting agreement are expensed as incurred. OED
agreed to serve as a member of the Company's Scientific Advisory Board and to
render consultative and advisory services to the Company. Such services include
research, development and clinical testing of the Company's technology as well
as the reporting of the findings of such tests, assistance in the filing of
patent applications and oversight and direction of efforts in regards to
personnel for clinical development.
In April
2003, the Company entered into a license and development agreement with NovaDel
Pharma, Inc. (“NovaDel”), under which the Company received certain worldwide,
exclusive rights to develop and commercialize products related to NovaDel’s
proprietary lingual spray technology for delivering propofol for pre-procedural
sedation. Under the terms of this agreement, the Company agreed to use its
commercially reasonable efforts to develop and commercialize the licensed
products, to obtain necessary regulatory approvals and to thereafter exploit the
licensed products. The agreement also provides that NovaDel will undertake to
perform, at the Company’s expense, a substantial portion of the development
activities, including, without limitation, preparation and filing of various
applications with applicable regulatory authorities. Holders of a significant
portion of the Company’s common stock own a significant portion of the common
stock of NovaDel.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
In
consideration for our rights under the NovaDel license agreement, we paid
NovaDel an initial license fee of $500,000 upon the completion of our $10
million private placement of Series A Convertible Preferred Stock in November
2003. In addition, the license agreement requires us to make certain milestone
payments as follows: $1,000,000 payable following the date that the first IND
for lingual spray propofol is accepted for review by the FDA; $1,000,000
following the date that the first European Marketing Application is accepted for
review by any European Union country; $2,000,000 following the date when the
first filed NDA for lingual spray propofol is approved by the FDA; $2,000,000
following the date when the first filed European Marketing Application for
lingual spray propofol is accepted for review; $1,000,000 following the date on
which an application for commercial approval of lingual spray propofol is
approved by the appropriate regulatory authority in each of Australia, Canada,
Japan and South Africa; and $50,000 following the date on which an application
for commercial approval for lingual spray propofol is approved in any other
country (other than the U.S. or a member of the European Union).
In
addition, the Company is obligated to pay to NovaDel an annual royalty based on
a fixed rate of net sales of licensed products, or if greater, the annual
royalty is based on the Company’s net profits from the sale of licensed products
at a rate that is twice the net sales rate. In the event the Company sublicenses
the licensed product to a third party, the Company is obligated to pay royalties
based on a fixed rate of fees or royalties received from the sublicensee until
such time as the Company recovers its out-of-pocket costs, and thereafter the
royalty rate doubles. Because of the continuing development efforts required of
NovaDel under the agreement, the royalty rates are substantially higher than
customary for the industry. The Company is also required to pay an up-front fee
in installments contingent on whether the Company receives certain amounts
through financings, revenues or otherwise. Through December 31, 2003, the
Company has paid and expensed $500,000 of such up-front fee.
NovaDel
may terminate the agreement (i) upon 10 days’ notice if the Company fails to
make any required milestone or royalty payments, or (ii) if the Company becomes
bankrupt or if a petition in bankruptcy or insolvency is filed and not dismissed
within 60 days or if the Company becomes subject to a receiver or trustee for
the benefit of creditors. Each party may terminate the agreement upon 30 days’
written notice and an opportunity to cure in the event the other party committed
a material breach or default. The Company may also terminate the agreement for
any reason upon 90 days’ notice to NovaDel.
On August
22, 2003, the Company sold all of its remaining rights to its CT-3 technology to
Indevus Pharmaceuticals, Inc. (“Indevus”), the Company’s licensee, for aggregate
consideration of approximately $559,000. The purchase price was paid through a
combination of cash and shares of Indevus’ common stock. On the same date, the
Company settled its arbitration with Dr. Sumner Burstein, the inventor of the
CT-3 technology, which includes a complete mutual release from all claims that
either party had against the other. As a result of the sale of the Company’s
rights to the CT-3 technology to Indevus, the Company recorded a one-time charge
of $1,213,878 in 2003.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
On August
8, 2003, Bausch & Lomb informed the Company that it had elected not to
pursue its development of the Avantix technology effective August 11, 2003.
According to the terms of Company’s agreement with Bausch & Lomb, the
Company may re-acquire the technology from Bausch & Lomb and sell or
re-license the technology to a third party. The price to re-acquire the
technology from Bausch & Lomb is 50 percent of the proceeds from a third
party sale to a maximum of $3 million. The Company has no further obligation
under the agreement. As a result of Bausch & Lomb’s decision not to develop
the Avantix technology, the Company recorded a one-time charge of $1,248,230 in
2003 for the impairment of the related intangible asset.
| (11) |
Commitments
and Contingencies |
Legal
Proceedings
The
Company is currently not party to any claims or lawsuits.
Employment
Agreement
The
Company has an employment agreement with one employee for the payment of a base
salary of $175,000 as well as performance based bonuses. The agreement is for a
term of two years and has a remaining obligation of $350,000.
Consulting
Agreements
The
Company had month to month agreements with certain employees requiring aggregate
monthly payments of $20,834. These agreements were terminated during
2004.
Leases
Rent
expense for the years ended December 31, 2004 and 2003 was $112,176 and $93,346,
respectively.
Future
minimum rental payments subsequent to December 31, 2004 under an operating lease
for the Company's office facility are as follows:
|
Years
Ending December 31, |
|
|
Commitment |
|
|
2005 |
|
$ |
141,600 |
|
|
2006 |
|
$ |
141,600 |
|
|
2007 |
|
$ |
141,600 |
|
|
2008 |
|
$ |
100,000 |
|
| |
|
|
|
|
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes to
Consolidated Financial Statements
December
31, 2004 and 2003
On
January 5, 2005, the Company announced it had signed a letter of intent to merge
with Tarpan Therapeutics, Inc. (“Tarpan”), a privately-held, New York-based
pharmaceutical company developing dermatological therapeutics, in an all stock
transaction. Upon consummation of the transaction, Tarpan shareholders will own
approximately 20% of the shares of Manhattan on a fully-diluted
basis.
Pursuant
to the merger, Douglas Abel, President and CEO of Tarpan will be appointed Chief
Executive Officer of the Company, overseeing all operations and clinical
development.
| 2.1 |
Agreement
and Plan of Merger among the Company, Manhattan Pharmaceuticals
Acquisition Corp. and Manhattan Research Development, Inc. (formerly
Manhattan Pharmaceuticals, Inc.) dated December 17, 2002 (incorporated by
reference to Exhibit 2.1 from Form 8-K filed March 5,
2003). |
| 3.1 |
Certificate
of incorporation, as amended through September 25, 2003 (incorporated by
reference to Exhibit 3.1 to the Registrant’s Form 10-QSB for the quarter
ended September 30, 2003). |
| 3.2 |
Bylaws,
as amended to date (incorporated by reference from Registrant’s
registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 3.3 |
Certificate
of Designations of Series A Convertible Preferred Stock (incorporated by
reference to Exhibit 3.3 to the Registrant’s Registration Statement on
Form SB-2 filed January 13, 2004 (File No.
333-111897). |
| 4.1 |
Form
of unit certificate (incorporated by reference from Registrant’s
registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 4.2 |
Specimen
common stock certificate (incorporated by reference from Registrant’s
registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 4.3 |
Form
of redeemable warrant certificate (incorporated by reference from
Registrant’s registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 4.4 |
Form
of redeemable warrant agreement between the Registrant and Continental
Stock Transfer & Trust Company (incorporated by reference from
Registrant’s registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 4.5 |
Form
of underwriter’s warrant certificate (incorporated by reference from
Registrant’s registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 4.6 |
Form
of underwriter’s warrant agreement between the Registrant and Joseph
Stevens & Company, L.P. (incorporated by reference from Registrant’s
registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 4.7 |
Form
of bridge warrant (incorporated by reference from Registrant’s
registration statement on Form SB-2, as amended (File
No. 33-98478)). |
| 4.8 |
Warrant
issued to John Prendergast to purchase 37,500 shares of Registrant’s
common stock (incorporated by reference from Exhibit 10.24 to the
Registrant’s Form 10-QSB for the quarter ended March 31,
1997). |
| 4.9 |
Warrant
No. 2 issued to Joseph Stevens & Company, Inc. to purchase 150,000
shares of Registrant’s Common Stock exercisable January 4, 2001
(incorporated by reference to Exhibit 10.29 to the Registrant’s Form
10-KSB for the year ended December 31,
1999). |
| 4.10 |
Warrant
No. 3 issued to Joseph Stevens & Company, Inc. to purchase 150,000
shares of Registrant’s Common Stock exercisable January 4, 2002
(incorporated by reference to Exhibit 10.30 to the Registrant’s Form
10-KSB for the year ended December 31,
1999). |
| 4.11 |
Form
of stock purchase warrants issued on September 28, 2000 to BH Capital
Investments, L.P., exercisable for shares of common stock of the
Registrant (incorporated by reference to Exhibit 10.6 to the Registrant’s
Form 10-QSB for the quarter ended September 30,
2000). |
| 4.12 |
Form
of stock purchase warrants issued on September 28, 2000 to Excalibur
Limited Partnership, exercisable for shares of common stock of the
Registrant (incorporated by reference to Exhibit 10.7 to the Registrant’s
Form 10-QSB for the quarter ended September 30, 2000).
|
| 4.13 |
Warrant
certificate issued March 8, 2001 by the Registrant to Dian Griesel
(incorporated by reference to Exhibit 10.56 to the Registrant’s Form
10-QSB for the quarter ended March 31,
2001). |
| 4.14 |
Form
of warrant issued by Manhattan Research Development, Inc., which
automatically converted into warrants to purchase shares of the
Registrant’s common stock upon the merger transaction with such company
(incorporated by reference to Exhibit 4.1 to the Registrant’s Form 10-QSB
for the quarter ended March 31, 2003). |
| 4.15 |
Form
of warrant issued to placement agents in connection with the Registrant’s
November 2003 private placement of Series A Convertible Preferred Stock
and the Registrant’s January 2004 private placement (incorporated by
reference to Exhibit 4.18 to the Registrant’s Registration Statement on
Form SB-2 filed January 13, 2004 (File No.
333-111897)). |
| 4.16 |
Form
of subscription agreement between Registrant and the selling stockholders
(incorporated by reference from Registrant's registration statement on
Form SB-2, as amended (File No. 33-98478)). |
|
10.1 |
1995
Stock Option Plan, as amended (incorporated by reference to Exhibit 10.18
to the Registrant’s Form 10-QSB for the quarter ended September 30,
1996). |
| 10.2 |
Common
stock purchase agreement dated March 16, 2001, between Registrant and
Fusion Capital Fund II, LLC (incorporated by reference from Exhibit 10.55
of the Registrant’s Form 10-QSB for the quarter ended March 31,
2001). |
| 10.3 |
Third
Amendment to Employment Agreement dated February 21, 2003 between the
Registrant and Nicholas J. Rossettos (incorporated by reference to Exhibit
10.3 to the Registrant’s Form 10-QSB for the quarter ended March 31,
2003). |
| 10.4 |
Employment
Agreement dated January 2, 2003, between Manhattan Research Development,
Inc. and Leonard Firestone, as assigned to the Registrant effective as of
February 21, 2003 (incorporated by reference to Exhibit 10.4 to the
Registrant’s Form 10-QSB for the quarter ended March 31,
2003). |
| 10.5 |
Employment
Agreement dated February 28, 2003, between the Registrant and Nicholas J.
Rossettos (incorporated by reference to Exhibit 10.5 to the Registrant’s
Form 10-QSB for the quarter ended March 31,
2003). |
| 10.6 |
License
Agreement dated on or about February 28, 2002 between Manhattan Research
Development, Inc. (f/k/a Manhattan Pharmaceuticals, Inc.) and
Oleoyl-Estrone Developments SL (incorporated by reference to Exhibit 10.6
to the Registrant’s Amendment No. 2 to Form 10-QSB/A for the quarter ended
March 31, 2003 filed on March 12, 2004). |
| 10.7 |
License
Agreement dated April 4, 2003 between the Registrant and NovaDel Pharma,
Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s
Amendment No. 1 to Form 10-QSB/A for the quarter ended June 30, 2003 filed
on March 12, 2004).++ |
| 10.8 |
Employment
Agreement dated January 2, 2004 between the Registrant and Leonard
Firestone (incorporated by reference to Exhibit 10.10 to the Registrant’s
Registration Statement on Form SB-2 filed January 13, 2004 (No.
333-111897)). |
| 10.9 |
2003
Stock Option Plan (incorporated by reference to Exhibit 4.1 to
Registrant’s Registration Statement on Form S-8 filed February 17,
2004). |
| 23.1 |
Consent
of J.H. Cohn LLP. |
| 31.1 |
Certification
of Principal Executive and Financial
Officer. |
| 32.1 |
Certifications
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
++
Confidential
treatment has been granted as to certain portions of this exhibit pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.